Apple iPhone 4 Supply Issues Could Hurt Sales

Apple's supply problems in trying to meet record demand for the iPhone 4, coupled with the new smartphone's technical glitches, could send frustrated customers to the waiting arms of competitors, a research firm says.

Since the June 24 launch of the latest iPhone, Apple has sold more than 1.7 million units, making the iPhone 4 the company's most successful product launch, according to chief executive Steve Jobs. However, the launch was not smooth.

Overwhelming demand forced Apple and the exclusive U.S. carrier AT&T to stop taking pre-orders one day after pre-ordering was made available. In addition, Apple repeatedly pushed back its online pre-order shipment date, first from June 24 to July 2 and to July 14.

"While the channel supply issue might not impact total iPhone sales for the entire year, what is happening now certainly has done some damage to the Apple brand," iSuppli analyst Tina Teng said in a statement. "Consumers, questioning Apple's supply chain management capability, have started looking for alternative devices."

Also hurting the brand has been the iPhone 4's problems associated with its innovative antenna that's embedded in the steel band around the outside of the device. The smartphone drops its signal if the palm of the user's hand covers the bottom left corner of the device. The glitch has prompted at least one law firm to consider a possible class-action suit.

"Consumers are not satisfied with Apple's response to the antenna issue," Teng said.

In the meantime, rivals are not standing still. Nokia is betting on the N8, which offers video conferencing over a 3G network (the iPhone 4 requires a Wi-Fi network), an HDMI connection for high-definition video output, a side-loaded MicroSD memory card with up to 32 GB of storage, and support for Adobe Flash. Apple refuses to support the latter, saying it's too clunky for the iPhone. Adobe says Apple's concerns are unfounded.

Besides Nokia, HTC has the 4G EVO, available through AT&T rival Sprint Nextel. The EVO is equipped with a Wi-Fi router capable of supporting eight devices when there is not voice traffic. The iPhone lacks this feature.

Thirdly, Samsung Electronics plans to double its smartphone market share this year with its new Galaxy S phones, which are powered by the increasingly popular Android operating system from Google.

Nevertheless, at least for the rest of the year, iSuppli expects Apple to sell lots of iPhones. The researcher expects Apple to ship 42.6 million iPhones this year, including 21.7 million iPhone 4s.