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'Antennagate' Could Cost Apple $900 Million

iPhone 4's signal woes may add up to big earnings hit for Steve Jobs' company, analyst says.

Paul McDougall

July 14, 2010

2 Min Read

The iPhone 4's wonky antenna could ultimately cost Apple as much as $900 million if the company is forced to declare a full recall of the product, according to one stock watcher.

Image Gallery: Apple iPhone 4, A True Teardown

RBC Capital Markets' Mike Abramsky said Apple, at minimum, may face "a broad repair scenario" with the iPhone 4, and possibly a total recall.

The analyst said the latter scenario could shave $900 million off Apple's bottom line. Providing rubber "bumpers" that mitigate iPhone 4's antenna glitch would cost $45 million, while repairing all iPhone 4s in the field would cost Apple $300 million, Abramsky estimated in a research note.

Investors shouldn't be too concerned, however. Abramsky said cash-rich Apple "can easily afford it." Apple shares were down 1.49%, to $248.05, in pre-market trading Wednesday.

On Tuesday, Kaufman Bros. analyst Shaw Wu also said the iPhone 4 antenna debacle could impact Apple's earnings. "Should this antenna issue become a bigger deal, there could be a risk to our as well as consensus estimates," Wu said in his own note. Apple is scheduled to report third quarter earnings on July 20. Analysts surveyed by Thomson Reuters, on average, expect the company to post earnings per share of $3.07, on revenue of $14.6 billion.

iPhone 4 went on sale June 29. Shortly thereafter, reports about the faulty antenna began to emerge. Many iPhone 4 buyers said the signal falters if the device's bottom left corner is covered by the palm of the user's hand—a situation common if it's wielded by lefties. Reports suggest the problem arises because grasping the phone in such a manner covers a particularly sensitive part of the antenna.

Apple has claimed the issue has nothing to do with the antenna, and is in fact a malfunction in the way the IPhone 4, as well as the iPhone 3GS and all other iPhones for that matter, displays signal strength.

Consumer Reports, for one, isn't buying it. The venerable product testing outfit said Monday its engineers tested three iPhone 4s, and all exhibited the so-called "grip of death" problem.

"Our findings call into question the recent claim by Apple that the iPhone 4's signal strength issues were largely an optical illusion caused by faulty software," Consumers Reports staffer Mike Gikas said in a blog post. As a result, Consumer Reports is not recommending the product for purchase.

About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

Paul McDougall is a former editor for InformationWeek.

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