Turning the iPhone Glitch into Gold

Accessory makers see benefits after Apple CEO Steve Jobs recommends cases to compensate for a flaw in the iPhone 4's antenna

When complaints surfaced that the antenna wasn't working properly on the iPhone 4, Apple (AAPL) told users to hold the device differently or put it in a protective case.

Some owners called the response insensitive. Makers of iPhone accessories, on the other hand, welcomed it. "It is good news," says Tim Hickman, founder and chief executive officer of Hard Candy Cases in San Francisco. Apple's suggestion may add allure to an already popular accessory, he says in an interview with Bloomberg News. "The demand is there and Apple has built it."

The proposed solution may also benefit Belkin International and other accessory sellers—including Apple itself. The cases, typically made of rubber, plastic, or recycled materials, are part of a growing market. Mobile accessories generated $135 million in U.S. revenue in the first quarter, according to NPD Group. That indicates annual sales of more than $500 million. "Consumers are putting more information on these products and they are relying on them more, so they are more willing to invest in protecting them," says Ross Rubin, an analyst at Port Washington (N.Y.)-based NPD.

Apple is selling its own iPhone 4 cases in six colors for $29 apiece. They're made of a piece of rubber known as a "bumper," which surrounds the outer rim of the phone. The accessory doesn't cover the back or front of the device, prompting the iPhonesavior.com blog to call it "the thong underwear of protective iPhone fashion." Shaw Wu, a San Francisco-based analyst with Kaufman Brothers, says Apple may have to start giving away the bumpers with the purchase of a phone as a way to alleviate customer concerns. Natalie Harrison, a spokeswoman for Cupertino (Calif.)-based Apple, declined to comment beyond the company's remarks on the antenna.

Diverse Accessories Market

The release of a new iPhone every year since 2007, along with devices like the iPad and iPod, has spawned a diverse accessories market. The products include speakers, chargers, headsets, scratch-retardant screen covers, and exercise kits. IPod accessory makers have even produced an aluminum bulletproof case, a leather holder that resembles underwear, and a docking station that doubles as a toilet-paper holder.

Manufacturers of more traditional fare range from large corporations like Royal Philips Electronics (PHG) to startups such as Hard Candy. Belkin, iFrogz, and Cozip also make phone cases, which generated $23.5 million in U.S. sales in the first quarter, up 43 percent from a year earlier, according to NPD. Apple has been "pretty aggressive" in releasing new gadgets, Mack McCoy, who does marketing for the iPhone accessories division of Playa Vista (Calif.)-based Belkin, tells Bloomberg. "All of this opens up new avenues for us to play with."

For the iPhone 4, Belkin makes an armband holder for runners that costs $24.99. Skinomi, based in Whittier, Calif., makes a see-through case that's designed to protect the iPhone from nicks and scratches.

With the iPhone 4, Apple changed the design of its antenna, embedding it in the steel-frame chassis. It used to be stored internally. Some customers found that their reception drops out if they hold the bottom-left corner of the device. They took to blogs, Google's (GOOG) YouTube, and online forums to air their complaints.

With reporting by Matt Robinson in New York.