UPDATE 1-Apple shares fall; rivals respond on "Antennagate"
* Apple shares fall on an up day for tech stocks
* Smartphone rivals dismiss iPhone reception explanation
* Analyst suggests "Antennagate" impact on outlook
* Analyst sees gross margin headwinds
* Apple to report fiscal third-qtr earnings on Tuesday
SAN FRANCISCO, July 19 (Reuters) - Apple Inc's (AAPL.O) attempt to smooth over a controversy surrounding its iPhone 4 failed to impress investors, as the computer maker's shares stumbled on a day when technology stocks rose.
On the first full trading day after a defiant Steve Jobs defended the new gadget's design, Apple shares temporarily broke through a key support level that technical analysts said could lead to an even steeper decline. [ID:nN14171038]
Shares of Apple, which is scheduled to report quarterly earnings on Tuesday, closed down 1.7 percent on the Nasdaq after falling as much as 4.1 percent earlier. The Nasdaq Composite Index, meanwhile, ended up nearly 1 percent.
Apple's chief executive held a rare 90-minute news conference on Friday in an attempt to staunch the so-called Antennagate controversy surrounding perceptions that the iPhone 4's wraparound antenna is flawed. The device was launched on June 24.
The company said the media had blown the issue out of proportion, but offered free cases to consumers to help mitigate any signal strength problems. [ID:nN16240091]
Apple maintained that the reception issue, which occurs when its smartphone is held in a certain way, was also present in its competitors' devices, naming Research in Motion RIM.TO, Samsung Electronics (005930.KS) and HTC Corp (2498.TW) as examples.
"Most every smartphone we tested behaved like this," Jobs said on Friday.
Apple's rivals responded over the weekend. RIM co-CEOs Mike Lazaridis and Jim Balsillie called the claims "unacceptable," and Apple's explanation was similarly dismissed by the co-CEO of Motorola MOT.N, Sanjay Jha.
While many analysts said Apple's press conference and offer of free cases helped fix the public relations damage the antenna issue has caused, others said the matter is not yet resolved.
Bernstein Research analyst Toni Sacconaghi said it remains to be seen whether the Antennagate flap is finished. He also said the news conference reinforced a larger concern about Apple in the "emerging pattern of hubris" that the company has displayed.
In a research note, Sacconaghi suggested the controversy could have an impact on the company's outlook for the September quarter, which it will provide on Tuesday.
"The immediate-term question for Apple and investors is whether the company may be incrementally more cautious in its revenue and EPS guidance given potential lingering issues from 'Antennagate,'" Sacconaghi said.
Others said Apple has succeeded in addressing concerns about the iPhone 4.
"While we expect the debate to continue, we believe the company's response should begin to lower the rampant criticism emanating from the media-driven frenzy," J.P. Morgan analyst Mark Moskowitz said in a note to clients.
However, Moskowitz called the free cases a "band-aid" for the problem and said a permanent fix was needed, either with this version of the iPhone or a later one.
In a Reuters online poll, 240 out of 430 respondents -- 56 percent -- said the controversy made them less likely to buy an iPhone. Fifty percent said the case offer was the right response. To see the full poll results, click here: here 16/poll-did-apple-get-it-right/
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Even as the antenna issue continued to percolate, Wall Street shifted its focus to Apple's fiscal third-quarter earnings report.
The antenna dustup has already hurt Apple's shares, knocking billions off its market capitalization. The company's shares are down more than 10 percent since the iPhone 4 launch.
Stifel Nicolaus analyst Doug Reid said the company's June quarter earnings per share is unlikely to top Wall Street's estimate, which stands at $3.11, due to gross margin headwinds.
"Although we expect a 'good news' quarter for revenue trends our analysis suggests a key area of near-term risk is gross margin," Reid wrote in a research note, noting evidence of component shortages and price erosion.
Wall Street's gross margin estimate is 39 percent, but Reid expects Apple to miss that target. (Reporting Gabriel Madway in San Francisco and S. John Tilak in Bangalore; Editing by Anne Pallivathuckal and Matthew Lewis)
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