Apple shares plunge after bad review of iPhone 4 sparks recall rumours

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By Niall Firth

The bad review of the iPhone 4 has hit Apple's shares


Apple shares plunged by more than four percent yesterday after an influential guide gave the new iPhone 4 a poor review, wiping £6.5 billion off the firm's value.

The fall came after Consumer Reports, a US group similar to Which? in the UK, said it could not recommend the iPhone 4 after its tests confirmed concerns about signal loss when the device is held in a certain way.

The report was the latest blow to the iPhone 4, which has been plagued by complaints about poor reception. Many of the complaints involve a wraparound antenna whose signal strength is said to be affected if the device is touched in a certain way.

The review immediately led to speculation on the internet from bloggers and consumer websites that Apple was about to recall the iPhone 4.

Consumer Reports, which publishes guides on everything from cars to TVs, said that it had also tested other phones - including the iPhone 3GS - and found none had the signal-loss problems of the iPhone 4.

It added that AT&T , the exclusive mobile phone carrier for the iPhone 4 and whose network is often blamed for reception problems, was not necessarily the main culprit.

The review said: 'When your finger or hand touches a spot on the phone's lower left side—an easy thing, especially for lefties—the signal can significantly degrade enough to cause you to lose your connection altogether if you're in an area with a weak signal. Due to this problem, we can't recommend the iPhone 4.'

The iPhone 4 still achieved a respectably high score due to its impressive display, front-facing video camera and improved battery life but it did not make it onto Consumer Reports' influential list of recommended phones.

And the site' adds: 'Apple needs to come up with a permanent – and free – fix for the antenna problems before we can recommend the iPhone 4.'

It even suggested that the only way to get around the problem was to cover the bottom of the phone in duct tape. And the site suggests the older model, the iPhone 3G, is still the better buy.

Apple came in for more criticism for deleting comments on its user-support forums which discussed the negative review.

Apple, which has called the iPhone 4's June debut its most successful product launch ever, has not responded to the report or to the recall rumours.

The company has said all mobile phones suffer some signal loss when held in different ways, and suggested that a software glitch might have misled users by overstating signal strength.

Hudson Square Research analyst Daniel Ernst pointed to speculation that Consumer Reports' article might induce a recall.

Apple shares dipped below their 50-day moving average price of $256.26, sliding as much as 4.2 percent to $246.43.

Shares of Research in Motion, which makes the rival Blackberry, climbed 2.7 percent to $57.42.


Apple CEO Steve Jobs introduces the new iPhone in June


Google , whose Android operating system for smartphones is gaining traction on multiple devices, also rose, by more than 3 percent to $491.82.

Analysts said Apple needs to take quick action to avert any lasting damage to its reputation for quality products -an image honed by iconic gadgets such as the iPod and iPad - though they did not see sales being hurt for now.

'They need to provide an actual fix -- not a bumper fix -- so that the product performs as it should,' said Ashok Kumar at Rodman & Renshaw.

'Apple should have taken a higher road when addressing the design flaw, instead of taking the hard-line stance that they did.'

'This is not a Toyota problem, but it is a problem that Apple needs to address head-on," he said, referring to the Japanese automaker's global recalls of more than 10 million vehicles since late last year.

JP Morgan warned that reports of wireless reception problems on the smartphone may eventually affect demand.

'Consumer Reports is a well-respected product reviewer, and the report should turn up the heat on Apple," analyst Mark Moskowitz said in a client note.

'Concerns around iPhone 4 reception do not appear to be impacting demand, but we think there are risks when a well-respected product rating agency such as Consumer Reports issues an unfavourable report.

'We continue to expect a fix from Apple, whether the solution is software- or hardware-related.'

Apple has already been sued by iPhone customers in at least three complaints related to antenna problems.

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