Apple Admits To IPhone 4 Issues, Will Give Away Covers

Apple Inc. (AAPL), answering mounting criticism over the reception issue and antenna design of its recently launched iPhone 4, admitted the phone drops more calls than the previous version, and said it would give away cases to as a remedy.

Apple "screwed up" with the signal algorithm of the phone, Chief Executive Steve Jobs said during a press conference on Friday. But he stuck to the company line regarding the antenna problems being common with all smartphones, and said the problem was blown "so out of proportion, it's incredible."

"We're not perfect," Jobs said.

Any customer who buys an iPhone 4 through Sept. 30 will get a free "bumper." Anyone who has already purchased a bumper will get a refund.

Apple has sold 3 million iPhone 4's since they were available on June 24, and the device quickly became the company's fastest selling product ever. But the phone, which has an unusual antenna design, was immediately dogged by complaints about its reception, particularly when owners held the device in a particular way.

The problems cascaded into a full-blown public relations disaster for Apple, which initially told owners to hold the phone differently and then blamed the reception difficulties on software. The company's problems worsened when influential product review publication Consumer Reports said it could not recommend the phone.

The publication determined that touching the iPhone's antenna, which wraps around the sides of the device, degrades the device's signal. It later recommended sheathing the iPhone in a case that covers the sensitive lower left section remedies the situation.

Apple's stock has taken a beating since the release of the new iPhone, dropping nearly 8% from record highs just a month ago.

The bumpers currently sell for $29 on its website. The product is sold out; the website says it will ship in five to seven business days.

Many industry observers have called the bumper giveaway as the most likely--and least costly--solution to Apple's problems. UBS analyst Maynard Um estimated that the bumpers cost $3 each, and freely distributing them would cut into its fiscal fourth-quarter earnings by 2 cents a share.

Despite the issues, Jobs called the antenna design the "most advanced" ever on a smartphone. He said that the rate of dropped calls for the iPhone 4 is only slightly more than on the previous version, the iPhone 3GS.

Jobs also said that the return rate for the iPhone 4 to AT&T Inc. (T) is 1.7%, or less than a third of the return rate for the iPhone 3GS.

Apple shares up 1.2% to $254.48.

-By Ian Sherr, Dow Jones Newswires; 415-765-8281; ian.sherr@dowjones.com

(Roger Cheng contributed to this report.)

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