Consumer Reports iPhone 4 Review Causes Apple Shares to Fall

Apple stock fell $5.49, or 2.1 percent, to close at $251.80 a day after Consumer Reports said it wouldn't recommend the iPhone 4. The consumer products magazine carried out what it considered to be professional tests to conclude that Apple’s iPhone 4 does have a reception problem, when held in a certain way. Many disagree with their findings, although some also see the possibility of Apple having to recall iPhone 4 units.

A report by The Seattle Times reveals that Apple’s stock, up 19 percent this year, has dropped 7.1 percent since June 23, the day before the iPhone 4 was released. AAPL’s last major decline occurred a day after Consumer Reports issued its negative review, which spurred an outcry in what was already PR hell for Apple. As noted above, the review also spawned speculation of a recall, a scenario Vijay Rakesh believes may come true.

"This is not like a BP or Toyota situation where the measures are much more drastic," said Rakesh, an analyst at Sterne Agee & Leach in Chicago. He admitted that actual incidents of iPhone 4 antenna problems weren't widespread, and that checks with retail outlets still indicated strong demand for the phone.

Unlike Toni Sacconaghi, an analyst at Sanford Bernstein & Co., who put the price of a potential recall at $1.5 billion, Rakesh said an Apple callback would cost less than $100 million. Sacconaghi, however, said such an outcome was "highly unlikely," explaining that  offering up free Bumpers would cost Apple $1 per unit. He rates Apple "outperform."

"Apple's image — and potentially iPhone sales — could be compromised if Apple does not explicitly — and constructively — address the issue of what it believes is wrong with the phone and how it will address it," said Sacconaghi.

Piper Jaffray analyst, Gene Munster, issued his own prognosis saying the reception problem may be affecting just 25 percent of all existing iPhone 4 owners, calling the issue "overblown." His forecast also includes a scenario where Apple could give away free Bumpers in an attempt to allay customer concerns, and concluded that a recall was "highly unlikely." Apple was not available for comments on the matter.