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Apple offers iPhone 4 owners free cases to fix antenna problem

Steve Jobs both apologizes and defends the device in response to user complaints.

July 16, 2010|By David Sarno and Jessica Guynn, Los Angeles Times

Reporting from Los Angeles and Cupertino, Calif. — Looking to quiet the chorus of complaints about his company's newly released phone, Apple Inc. Chief Executive Steve Jobs took the stage Friday to offer an explanation, an apology and a free case.

Armed with a flashy slideshow and statistics, Jobs sought to portray the handset's antenna problem as a minor issue that affects all mobile phones — and one that he said most new iPhone owners were not complaining about.

Even so, Apple will offer a free protective case to any iPhone 4 owner who asks for it. The move — expected to cost Apple tens of millions of dollars — ended speculation that the company might opt to recall the phones at an estimated cost of $1.5 billion.

In defending the phone, Jobs said only about 2% of early buyers returned their iPhone 4s, or one-third as many as with the previous model. And as far as dropped calls, he said the new model was losing connections only fractionally more, based on data he was given by AT&T, the phone's exclusive carrier.

Until Friday, Apple had said little about the nature of the phone's antenna problem, in which the signal reception fades or disappears altogether when users grip the device in a conventional way. Apple initially recommended users avoid holding it that way and later blamed a software bug for displaying a stronger signal than the phone was actually getting.

The uproar escalated this week when Consumer Reports magazine said it could not recommend the phone to potential buyers because of a "design flaw" with the antenna. On Friday, the magazine said in a statement that Apple's offer of a free case was a "good first step toward identifying and finding a solution."

Many analysts agreed that Jobs' straightforward presentation could help the company emerge from the public relations quagmire.

"He did exactly what he had to do," said Tim Bajarin, president of Creative Strategies Inc., a technology analysis firm. "He laid out the problem, he laid out the data."

Jobs admitted that the company's engineers were not infallible.

"We are human and we make mistakes sometimes," Jobs said. "We don't know everything. But we figure it out pretty fast, and we take care of our customers."

"There are some customers having problems with their iPhone 4s," he added. "I apologize to them."

In a concession he offered in a surly tone, Jobs said the company would give a free case to anyone who bought an iPhone 4 by Sept. 30. Users who have already bought a case through Apple can receive a refund. The company plans to continue looking for a more permanent solution.

"We've heard it from a lot of people, 'Why don't you just give everybody a case?'" Jobs said. "OK, great. Let's give everybody a case."

A substantial portion of his presentation was spent showing that many smart phones lose reception when held in a user's hand. Jobs played videos of a similar effect on phones from HTC Corp., Samsung and BlackBerry maker Research in Motion Inc.

Wall Street analysts said that even if Apple had to give free cases to everyone who had bought the handset, the added cost would not severely harm the company's bottom line.

In the three weeks since the phone's launch, Apple said it has sold about 3 million new iPhones, which start at $199 with a two-year service contract. The iPhone accounts for about 40% of the company's revenue.

"We believe the company adequately proved the antenna issue is an industrywide problem, and the case solution is of minimal cost to Apple," Gene Munster, an analyst with Piper Jaffray & Co., said in a note to investors.

If Apple offers free cases to every iPhone buyer for a year, Munster estimated, the cost would be close to $178 million, or about 1% of the company's annual operating income.

Apple's stock seesawed throughout the day and closed down $1.55, or 0.6%.

Jobs also announced that the white version of the new iPhone, which has been delayed, would begin shipping at the end of the month.

In a question and answer session after the presentation, Jobs — who has had pancreatic cancer and a liver transplant — got a question about his health.

"I'm doing fine," he said. "Though I was doing better earlier in the week when I was on vacation in Hawaii."

david.sarno@latimes.com

jessica.guynn@latimes.com

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