Apple Sets Up Cots for Engineers Working `Butts Off' on IPhone Antenna Fix

At Apple Inc., “working our butts off” means cots in the engineering department and cars in the parking lot at all hours of the night.

Seeking a solution to the antenna flaw that is dropping calls for some iPhone 4 users, Chief Executive Officer Steve Jobs said yesterday that employees started a round-the-clock effort to improve the reception amid complaints since the device’s debut on June 24.

“We’ve been working our butts off in the last 22 days to understand what the real issues are here so we can come up with real solutions,” Jobs said at a press conference.

Jobs offered customers free rubber cases that prevent the dropped calls by covering the external antenna on the left-hand corner of the iPhone. That will stop users from gripping it in a way that interferes with reception. He is giving full refunds to buyers who are still dissatisfied.

While just 0.55 percent of users complained, Jobs said the reception glitch is industrywide and Apple wants to be the first to find a solution. Apple, the world’s biggest technology company by market value, will offer free cases until Sept. 30 and then decide whether it has a better solution for the iPhone 4. The iPhone accounts for about 40 percent of revenue and is a bigger moneymaker than the Macintosh or iPod.

“Apple did leave some unanswered questions, such as providing a definitive answer on whether a full software/hardware fix is likely in the next several months, which we believe is a possibility,” said Katy Huberty, an analyst at Morgan Stanley in New York.

‘Every Smartphone’

Apple, based in Cupertino, California, 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 yesterday. The company has sold more than 3 million of the devices, he said.

“We tested it -- we knew that if you gripped it a certain way, bars would go down a little bit,” Jobs said yesterday. “We didn’t think it would be a big problem because every smartphone has this problem.”

Media and blog reports have sensationalized those concerns, with some dubbing the situation “Antennagate,” Jobs said.

“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, said. “This is blown so out of proportion that this is incredible.”

‘Everything We Can Do’

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. 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,” said Jobs, who cut short his vacation in Hawaii earlier this week so that he could meet with the media yesterday.

Bloomberg reported 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. A carrier partner also told Apple the external antenna might interfere with reception, according to another person familiar with the situation.

Jobs said yesterday he didn’t know about the antenna concerns early on. He called Bloomberg’s report a “total crock.”

Motorola CEO

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.

Motorola Inc. Co-Chief Executive Officer Sanjay Jha said his devices don’t have the same antenna issues as the iPhone 4, countering Jobs’s remarks.

Phones with the antenna on the outside of the chassis --the design used by Apple’s latest model -- are more likely to have reception issues, Jha said yesterday in an e-mailed statement. Schaumburg, Illinois-based Motorola’s Droid phones compete with the iPhone 4.

“It is disingenuous to suggest that all phones perform equally,” he said. “In our own testing we have found that Droid X performs much better than iPhone 4 when held by consumers.”

BlackBerry

Users of the BlackBerry smartphone don’t need a case to maintain connectivity, Research in Motion said.

“Apple’s attempt to draw RIM into Apple’s self-made debacle is unacceptable,” said an e-mailed statement from the Ontario-based company that cited Co-Chief Executive Officers Mike Lazaridis and Jim Balsillie. “RIM has avoided designs like the one Apple used in the iPhone 4 and instead has used innovative designs which reduce the risk for dropped calls.”

Consumer Reports said yesterday 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 at 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.

Some users say the offer of a free Bumper or case isn’t good enough. “I don’t want a Bumper, I want this really nice, sleek design,” said Dave Forer, a statistician who lives in San Francisco. “I want a phone that actually works.”

Apple fell $1.55 to $249.90 yesterday in Nasdaq Stock Market trading. The shares have declined 7.8 percent since June 23 -- the day before the iPhone 4 went on sale. While Jobs apologized to customers experiencing reception issues, he said he wouldn’t apologize to investors.

‘Law of Physics’

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

The glitch hasn’t prevented iPhone 4 inventory from selling out. Apple tells 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.

The company will continue work to improve its smartphone antenna technology, Jobs said.

“Can we make the situation better that it is right now? Maybe, we’ll see,” Jobs said. “We haven’t figured out a way around the law of physics. Yet.”

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.