Apple `Working Our Butts Off' to Fix IPhone, Jobs Says

Apple Inc.’s Steve Jobs said the company knew the iPhone 4 can lose reception when held a certain way and didn’t think it would be a major issue for users. He offered customers a free case to fix the flaw.

“We tested it -- we knew that if you gripped it a certain way, bars would go down a little bit,” Apple’s chief executive officer said today at a press conference in Cupertino, California. “We didn’t think it would be a big problem because every smartphone has this problem.”

Apple, which scheduled the event after customers complained about losing signal strength, is “working our butts off” to address the glitch and will let dissatisfied buyers return phones for a full refund, Jobs said. He apologized to users affected by the issue, which some bloggers have called “Antennagate.”

Apple, the world’s biggest technology company by market value, aims to burnish the iPhone’s image after Consumer Reports opted not to recommend the device, citing difficulty sending and receiving calls. Apple was stunned, upset and embarrassed by the magazine’s review, Jobs said today. The iPhone accounts for about 40 percent of revenue, making it a bigger moneymaker than the Macintosh or iPod.

The glitch can occur when users hold the lower-left corner of the iPhone 4 a certain way. Less than 1 percent of users have complained about a reception flaw, based on calls to Apple’s customer service center, Jobs said.

‘Won’t Stop’

“We care about all of our users, and we won’t stop until every one of them is happy,” Jobs, dressed in his trademark jeans and black turtleneck, told reporters at the event. “This is blown so out of proportion that this is incredible.”

Every iPhone 4 buyer will either get a free rubberized case called a Bumper or the option to choose another case if Apple Bumpers aren’t available, Jobs said. People who already bought a $29 Bumper will get a refund.

Customers can also return their undamaged iPhone 4 within 30 days of purchase for a full refund if they’re still unsatisfied. AT&T Inc., the iPhone’s exclusive U.S. carrier, will provide refunds and cancel service contracts, Jobs said.

“That’s everything we can do to make every customer happy,” he said.

‘We Are Human’

Bloomberg reported this week that an Apple engineer warned Jobs last year that the new external antenna design chosen for the iPhone 4 might interfere with calls, citing a person with knowledge of the matter.

Jobs said today he didn’t know about the antenna concerns early on. He called the article a “total crock.”

“We are human,” he said. “And we make mistakes sometimes. But we find out pretty fast and we work to make our customers happy.”

Apple has tested other smartphones to see if gripping them a certain way hurts reception. It found the same shortcoming on Research In Motion Ltd.’s BlackBerry Bold, HTC Corp.’s Droid Eris and Samsung Electronics Co.’s Omnia II, Jobs said.

The Bumper giveaway will last until Sept. 30, when Apple will revisit the policy. The company may have a better idea of what to do about the phone then, Jobs said.

Consumer Reports said today that the free-case offer was “a good first step.” The magazine didn’t change its rating, saying it would wait for a long-term fix.

Gene Munster, an analyst with Piper Jaffray & Co. in Minneapolis, estimates that the Bumper and case giveaway will cost Apple $40 million between now and Sept. 30. If Apple decides to extend the free offer through the next 12 months, it may cost $178.5 million, he said.

Shares Drop

Apple fell $1.55 to $249.90 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have declined 7.8 percent since June 23 -- a day before the iPhone 4 went on sale. While Jobs apologized to those customers experiencing reception issues with the iPhone 4, he said he wouldn’t apologize to investors. Apple reports third-quarter earnings on July 20.

“People don’t see this as a long-term problem,” said Kenneth Schapiro, president of Condor Capital Management in Martinsville, New Jersey, whose biggest holding is Apple. “They’re seeing it as something the company is going to solve.”

Antenna Spending

Apple has invested $100 million in antenna technology over the past five years, including building 17 special antenna testing chambers, he said.

The company has sold more than 3 million iPhone 4s, and it’s still the “best product we’ve made,” Jobs said. Apple has found that just 0.55 percent of customers have called to complain about the reception issue, he said.

The new phone also drops less than 1 additional call per 100 calls than the iPhone 3GS, which was released last year.

The iPhone 4 has a new design, with the antenna built into a metal band that surrounds the phone. To lessen the chance of losing reception, Apple suggested last month that users either buy a case or avoid holding the lower-left corner of the phone a certain way.

Last year, Ruben Caballero, a senior engineer and antenna expert, informed Apple’s management that the device’s design may hurt reception, Bloomberg reported this week. A carrier partner also said the external antenna might interfere with reception, according to another person familiar with the situation.

Bezel Choice

Apple’s industrial design team, led by Jonathan Ive, submitted several iPhone designs before Jobs and other executives settled on the bezel antenna, said the person familiar with the discussion. Caballero, the antenna expert, voiced concern in early planning meetings that it might lead to dropped calls and presented a serious engineering challenge, the person said. Apple chose the design because it yielded a thinner, lighter phone.

“We have healthy debates about everything, and I’m sure in some corners of the antenna world, that was debated hotly,” Jobs said today. “But if anyone had said, ‘Look this antenna has questions. We’re concerned about it,’ we clearly would have dispatched that to the right people to go get the data.”

Jobs said today that return rates for the iPhone 4 are lower than for the 3GS. The early return rate through AT&T was 1.7 percent, less than a third of the previous model’s number.

‘Support Their Decision’

“We support their decision to offer a free Bumper and a waiver of the usual restocking fee,” Mark Siegel, an AT&T spokesman, said in an interview. Details of the return process at Dallas-based AT&T would be available soon, Siegel said.

The glitch hasn’t prevented iPhone 4 inventory from selling out. Salespeople at Apple retail stores in New York, San Francisco, Los Angeles, Houston and Seattle said yesterday that the iPhone 4 was out of stock and that customers should expect a two- to three-week wait for the device.

Apple has been telling visitors to its website that iPhone 4 models will ship within three weeks. The company sells a 16- gigabyte model for $199 and a 32-gigabyte version for $299. Those prices require U.S. customers to sign up for a two-year service contract with AT&T.

Apple can’t make iPhone 4s fast enough, Jobs said today. “We are way behind demand,” he said.

Jobs’s remarks, along with the free Bumpers, helped restore the company’s image, said Mike Aponte, an Apple customer who visited the San Francisco store after hearing about the offer.

“It’s probably the cheapest way to get out of this PR mess they got themselves into,” said Aponte, an information technology administrator. “They redeemed themselves a bit today.”

The company also said it released an update to the iPhone operating system software yesterday to more accurately display signal strength. Earlier this month, Apple said it was “stunned” to discover it was using a flawed mathematical formula to calculate and display the number of signal bars. That meant the iPhone 4’s reception might look better than it was.

“We’re not perfect,” Jobs said. “We know that, you know that. And phones aren’t perfect. But we want to make all of our users happy and if you don’t know that about Apple, you don’t know Apple.”

To contact the reporters on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net; Rochelle Garner in San Francisco at rgarner4@bloomberg.net

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