* 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
By Gabriel Madway
SAN FRANCISCO, July 19 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
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
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
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:
EARNINGS ON TAP
Even as the antenna issue continued to percolate, Wall
Street shifted its focus to Apple's fiscal third-quarter
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
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
"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