Apple Shares Fall Amid Pressure For iPhone Recall

The antenna problem affecting the iPhone 4 continues to plague Apple after nearly £6.5 billion was wiped off the value of the company over fears it will have to issue a recall.

The concerns that Apple will have to issue a recall or conduct a hardware fix for the iPhone 4 caused shares in the company to fall overnight from $257.33 (£168) to $246.89 (£161), which saw $9.9bn (£6.5bn) wiped off Apple’s $230 billion (£151 billion) value.

However shares in the company recovered and are currently trading at $250.54 (£164), as of 2.45pm BST Wednesday, giving the company a total market value of $227.7 billion (£149 billion).

The news comes after the influential US magazine, Consumer Reports, said it can’t recommend the smartphone due to its reception issues

Free Bumpers?

If Apple does decide to bow to public pressure and issue a recall for the iPhone 4, the move would cost the company an estimated $1.5 billion (£983 million), according to Toni Sacconaghi, a senior analyst with Bernstein Research.

According to the Daily Telegraph, Sacconaghi said that a full product recall was “highly unlikely”, but a more likely option would be for Apple to issue every iPhone 4 owner with a rubber “bumper” which fits over the stainless steel antenna band that runs around the device, and helps to reduce these signal problems. The bumpers, which come in a variety of colours, cost £25, but Bernstein estimates that giving them away to customers would cost Apple $1 (65 pence) per unit.

“It could be done immediately, would directly address the Consumer Reports’ concern, and would be financially immaterial,” Sacconaghi said. “While it would force Apple to ‘acknowledge’ a design issue with the iPhone, we believe that consumers are increasingly aware of the antenna issue, and remedying it rather than dismissing or ignoring it appears most appropriate.”

Sacconaghi said this latest episode showed Apple was engaging in a worrying pattern of “hubris” and had, on occasion, seemingly purposely mislead customers and investors.

“Perhaps the bigger, longer-term concern for Apple investors is the emerging pattern of hubris that the company has displayed, which has increasingly pitted competitors (and regulators) against the company, and risks alienating customers over time,” Sacconaghi added.

He cited the limited disclosure over the health of Steve Jobs, its stance on Flash, and the way in which Apple responded to the lost iPhone prototype, and its dismissive characterisations of the iPhone’s antenna issues by telling users to hold the phone in a different way.

Meanwhile the betting company Paddy Power has jumped on the bandwagon and has slashed the odds on Apple recalling its iPhone 4 from 2/1 to 4/6, making it odds on that the best selling device will now be recalled.

Apple’s “Toyota” Moment?

Certainly, the “iPhone Death Grip” issue does not seem to be going away for Apple.

A number of PR experts contacted by Cult of Mac blog on Tuesday said a recall of the iPhone 4 was “inevitable,”

“Apple will be forced to do a recall of this product,” said Professor Matthew Seeger, an expert in crisis communication, told the Cult of Mac blog. “It’s critically important. The brand image is the most important thing Apple has. This is potentially devastating.”

Chris Lehane, former Clinton White House “Master of Disaster,” agreed saying that the iPhone 4 reception issue presents a Toyota-style PR crisis for Apple, and the company must respond with a more meaningful fix than a software patch.

“Apple needs to put this fire out now,” said Dr. Larry Barton, a leading expert in crisis management and author of Crisis Leadership Now. “There has to be a military-like response to this issue. And we have not seen this kind of urgency.”

Dr. Barton said Apple should quickly issue a statement that either strongly refutes Consumer Reports‘ tests; or admit the issue and detail some kind of hardware fix. Saying the iPhone 4 has a problem calculating signal strength doesn’t cut it, Dr. Barton said.

“Their response has been lackluster,” he said. “It’s been borderline irresponsible. They are in danger of betraying customers’ trust and hurting the brand, which is infinitely more valuable than any one product.”

Dr. Barton noted that Consumer Reports is a well-respected publication with a long history of being impartial and fair. “Their advisory is a serious one.” he said.