Kenenter: Analyst: iPhone 4 recall would cost $1.5 billion

Analyst: iPhone 4 recall would cost $1.5 billion

7/14/2010 02:18:00 PM

In the wake of Consumer Reports announcing that it would not be recommending the iPhone 4 due to the much-discussed antenna problems, there have been calls for Apple to recall the device.

While a recall could be damaging to Apple's reputation, it would also be a costly endeavor, according to some calculations made by Bernstein Research analyst Toni Sacconaghi. In a research note on Tuesday, Sacconaghi estimated that while "a full product recall of the iPhone 4 (is) highly unlikely," it would cost Apple $1.5 billion, or 3.5 percent of its total cash on hand.

What would be more likely--and cheaper--is that Apple could issue a free rubber bumper case with each phone. That would prevent a person's hand from coming into contact with the phone's antenna, which is built into its exterior metal strip. Although Apple charges $29 at retail for the rubber cases, Bernstein estimates that giving them away to iPhone 4 customers would cost the company $1 per unit.

"It could be done immediately, would directly address the Consumer Report's concern, and would be financially immaterial," Sacconaghi wrote. "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."

Looking to the future, the Wall Street firm says a more troubling consequence of this event than the iPhone antenna problems is Apple's response to it.

"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 wrote. "Examples of its behavior have included its limited disclosure practices (Steve Jobs' health; plans for deploying its cash balance), its attack on Adobe's Flash, its investigation into its lost iPhone prototype (which culminated in a reporter's home being searched while he was away and computers being removed), its restrictions on app development, and its ostensibly dismissive characterizations of the iPhone's antenna issues (i.e., phone needs to be held a different way; a software issue that affects the number of bars displayed). The worry is that collectively, these issues may, over time, begin to impact consumers' perceptions of Apple, undermining its enormous prevailing commercial success."

Apple has not offered a fix for the hardware issue beyond the instruction to hold the iPhone in a different manner or buy a rubber bumper case. Instead, the company says it is working on a software update that will fix the number of signal bars displayed on the phone.

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Analyst: iPhone 4 recall would cost $1.5 billion

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