Apple has announced that it will hold a press conference on Friday regarding the iPhone 4. Almost everyone believes Apple will say something about a proposed hardware fix to deal with the antenna reception issue that was verified by Consumer Reports. Here are my predictions.
I have written previously that Apple needed to buy time. Mr. Jobs’s open letter on July 2 served to buy that time. Apple had nothing to lose by identifying that calibration issue, and never constrained themselves from offering a future hardware solution.
That time was needed for SVP Bob Mansfield and/or Mark Papermaster and their teams to acquire a definitive technical understanding of the iPhone antenna reception issues. That includes reviewing the Consumer Reports report, technical videos that have been posted, how people hold the phone, the conductivity of people’s skin, pressure issues, laboratory testing … everything. Only after the hardware VPs could present those findings could the Apple executive team decide on a course of action. That’s what’s been happening for the past two weeks.
Any proposed hardware fix has to meet certain criteria. It would have to substantially solve the technical problem. Otherwise, class action lawsuits would continue. It has to have the perception that Apple has done The Right Thing. It has to be such that current iPhone customers would not be insanely jealous of new iPhones, in a modified production process, that seamlessly solves the problem. Finally, and this is lowest priority, it should minimize Apple’s cost.
Here are my estimates:
1. In a worldwide recall, completely replace the iPhone with a new one when it’s available. Estimated cost: US$1.5B. Few think that Apple will go this far. Probability: 5 percent.
But it would have the advantage of being an insanely aggressive and popular act that could gain Apple enormous benefits, good will. It would be a Mr. Jobs call of the decade to make it happen. But it would send AAPL stock tumbling based on the hit on Apple’s revenue.
2. A free case. A free case would achieve the same technical solution as a bumper, but only if the iPhone is in the case. It might be a challenge for Apple to round up a vendor who could supply two million cases in a timely fashion. Apple would also be hard pressed to manufacture that many cases quickly, and an Apple one-case-for-all solution wouldn’t satisfy a lot of people — let alone the 3rd party vendors. Estimated cost $10 x 2M = US$20M. Probability: 5 percent.
3. A free bumper. Apple could send an e-mail certificate to every iPhone 4 owner granting them a free bumper. Consumer Reports claims that a bumper completely solves the iPhone 4 reception issue. If a customer has already bought a bumper, they get their money back. If we assume that a half million people bought bumpers, then the estimated cost is: US$3 x 1.5M iPhones + $30 x 0.5M refunds = ~US$20M.
There are problems with this solution. First, the bumper is incompatible with the iPhone 4 dock. Customers who bought a dock would be upset. Second, iPhones with a bumper may not fit in some of the cases already purchased by customers. Finally, the bumper is out of sync with the rumored fix, at the factory, in which a special non-conductive coating is applied to the stainless steel ring. Current customers would be jealous of the new phones that don’t require a bumper. Probability: 20 percent.
4. A field upgrade or mail in. There is a belief that a special non-conductive coating applied to the stainless steel ring would solve the problem, just like the bumper does. That solution has the advantage of 1) Solving the technical problem definitively 2) not increasing the size of the iPhone 4, 3) the customer’s phone, after the fix, would be identical to all the new Phone 4s coming off the assembly line, and 4) the fix would be relatively cheap and done by Apple service people.
If a customer isn’t within, say, 50 miles of an Apple retail store, then the customer could mail the iPhone 4 in, with an Apple supplied post-paid box, for overnight service. This fix would be completely free of charge to the customer.
This last solution might cost Apple US$5 x 2M = US$10M. It’s one of the least expensive solutions, and it’s the one that meets all the desired criteria. It solves the technical problem. Apple takes the responsibility for taking back the smartphone and applying the fix, thus doing The Right Thing. Customers can still use their docks, and the fixed iPhone would still fit inside every shipping iPhone 4 case. And best of all, the fixed iPhone is identical to new iPhones (allegedly) coming off the assembly lines. Probability: 70 percent.
So that’s my prediction for tomorrow’s Apple press conference. It’ll be very interesting to see what Apple ends up doing. What do you think?