Apple: iPhone 4 Issues Blown out of Proportion

Apple is hosting a press event at its headquarters in Cupertino, Calif. I am here with about 50-odd media folks, waiting for Steve Jobs and other Apple executives to show up for the conference. Actually, the townhall isn’t as full as you would expect — in other words, let’s not expect much.

10:04: They are showing a video called the “iPhone Antenna Song.” Dismissing all the noise as a lot of hoopla.

10:06: Steve Jobs is out and is saying he is going to make a 15-minute presentation and then will take questions.

Steve says: We are not perfect. Phones are not perfect. We want to make all our users happy. We love to make our users happy and that is what drives us today.

We have sold 3 million phones in three weeks. This is the best smartphone we have built.

Gizmodo showed the video and we got what others are calling an “antenna-gate.”

We have been working our butts off for 22 days to figure out and fix what is wrong. I think we learned that antenna-gate is not unique to iPhone.

10:12: Jobs is showing videos of other phones that lose their signal. Blackberry Bold 9700 — 5 bars to 1. HTC Droid Eris goes down to zero. If you take your hand away from where there is an antenna weak spot, it goes down. Showing Samsung Mobile phone with Windows.

Jobs: Most smartphones have that problem and we have that as a challenge, which the entire industry faces. Takes a dig at Gizmodo — described as “a certain site.”

Jobs: We screwed up with our algorithms. We got a sophisticated antenna lab and we are looking at antenna reception from all angles. Says Apple has spent $100 million in antenna lab with 18 Ph.D. scientists and engineers. We didn’t think this would be a big problem. All smartphones have that problem.

Jobs: What we have learned is smartphones have weak spots, not unique to iPhone 4. All smartphones have weak spots and you will drop calls. AppleCare data shows that 0.55 percent of all iPhone 4 users have called about antenna or reception. If you read all these articles, half our customers have called and are angry. One half of one percent — 0.55 percent! Historically, this is not a large number. Doesn’t jive with what you read about this problem.

10:20: What are the return rates on AT&T for iPhone 4 and compared with iPhone 3GS. iPhone 3GS had a return rate of 6 percent, below the smartphone average. From the articles you would read, half the people might be returning the iPhone. The hard data says 1.7 percent.  That is a third of iPhone 3GS. That is returns at our largest iPhone 4 reseller.

10:22: AT&T call drop rates — when compared to additional calls dropped per 100 calls compared to iPhone 3GS, iPhone 4 drops less than one additional call per 100 when compared to the 3GS.

10.25: Jobs: We can’t make enough bumper cases.

10:28: Jobs: We think there is a problem and it is affecting a small percentage of users. We care about every user and we are not going to stop till every customer is happy.

10:29: Jobs: It is all blown out of proportion.

10:30: Release iOS 4.01 which fixes the bars and Exchange issues.

10:31: Jobs: Free case for every iPhone 4 and giving it away through September. We are giving them away, but can’t make enough. So we are going to send you another case from our website and, if you are still not happy, you can get a full refund within 30 days of purchase. No restocking fee. We want everyone to be happy.

10:32: Shipping white Wi-Fi phones by end of this month in limited quantities. Will introduce the iPhone 4 in 17 countries, slight delay in South Korea.

10:33: Jobs: How we operate and how we make decisions … We love our users and we work our asses off to delight them. We make some interesting products for them. There are 300 Apple stores across the world. 60 million people in the stores during the last quarter. When we fall short, we try harder.

Jobs: And when we succeed users reward us by staying our users. That is what drives us. When people are criticizing us, we take it very personally. When users have a problem, it is our problem. We have been working for 22 days to figure out the real problem and then solve it. Instead of putting a band-aid, we want to fix the real problems.

Jobs: There is no antenna-gate, there is a challenge for the entire industry. We are dedicated to fixing that and that is in the future.

10:37: Tim Cook and Bob Mansfield join Steve Jobs on stage for Q&A.

Q: How are you Steve? How is your health?

A: I am doing fine. I was having a vacation in Hawaii and it was important enough for me to come back.

Q: Will you change the antenna design in the future?

A: We are busy with this problem. The touch-me grip made it obvious for the iPhone. We are getting reports that it is a lot better than iPhone 3G. Maybe our wizards in the antenna may come up with something new. Right now it is not something we are considering.

Q: Is this a PR problem?

A: If we could do this again, we would have tried to mitigate the problem.

Q: Were you told about the design concerns by engineers and did they talk to you?

A: Bloomberg article is total crock. We have challenged them to prove beyond rumors. The best ideas win here. Healthy debates in this company. We debate how to tie shoe laces. We argue about what great is. Reuben said it is total bullshit.

Q: Apology to investors, considering what happened to the stock. Are you willing to make that apology?

A: There are some customers who are happy. There are some customers who are not happy. And I apologize to them and we are going to try and make them happy. We want investors who are in it for the long haul and are for the character of the company, not investors who saw us across the news on the wire.

Q: Do you make people choose between from and function?

A: No. We try and make our products a great size. iPod Touch is thin enough to fit in your pocket. Retina display is the best electronic display ever created. It cost a little more and ramp up productions. We like great design and great performance.

Q: AT&T plans canceled?

A: People can return the phones and get out of their AT&T contracts.

The problem is that we didn’t understand that there would be these problems. I don’t know what it was, what we could have said. We could have pointed it out. Right now, it is not possible to make a smartphone without weak spots. You can make a Hummer that you can’t get their hand around it. We are advanced smartphone. Antenna design that is smarter than most. Everyone thought we were perfect and saw that it was a chance to jump on us. We are not perfect. We are human. We make mistakes. We take care of our customers. We appreciate them and we don’t take them for granted.

Q: September 30 limit?

A:  Maybe we have a better idea. We will re-evaluate in September.

Q: Is the free bumper offer for devices that were bought from Apple?

A: We will not replace third-party cases. If I tell the world our products, what are our future products, they stop buying our current products. It has a whole bunch of negative consequences.

Q: What have you learned?

A: I don’t know yet, we need some distance. One thing we didn’t need to learn — how much we love our customers. We were embarrassed by the Consumer Reports stuff that came out. We didn’t need to hear that to take care of our customers. We have been in the labs to figure things out.

We are an engineering company and we think like engineers and scientists and solve hard problems. It is operating like more.

We can’t run any faster. Cars in parking lots. I don’t know how we could be working harder. One of the things I have learned is that it is human nature: when a group or an organization gets successful, people want to tear it down. People are doing that to Google. It is a great company. Some people are jumping on us. You want us to be Korean companies and not be an American company. You don’t want us innovating here. Of course we are human, we make mistakes.

In search of eyeballs, people don’t care what they leave in their wake. Antenna-gate … in 34 years haven’t we earned trust and get benefit of the doubt? I am not saying we are not at fault. We are not just innocents in this.

Q: Will there be a hardware redesign to solve this problem? Will you do it in this generation.

A: What I am saying is that, you can see videos of phones with stickers that show don’t search there. We are not saying all our customers experiencing this problem and for those customers who are experiencing it, we want to get them a case or a new phone. Working on a new antenna design and working hard on this.

Q: Is there a software fix for the attenuation problem? (Question is based on the New York Times article this morning about a possible software fix.)

A: Is there a software fix for smartphone attenuation problem which impacts all smartphones? Can we leapfrog them? I would love that.

Q: Any change in iPhone 4 messaging in 80-plus markets around the world?

A: The antenna-gate is predominantly a U.S. problem and most of the feedback is from the U.S. We will market as planned. We can’t make them fast enough. We are way behind demand. Sometimes it reminds of a joke in a Woody Allen movie — food is so awful and the portions are so small. We are selling every phone we can make.

Q: Financial impact?

A: It will be announced during our conference call after the earnings.

When someone owns the primary technology, they are going to beat you on it. In computer business, software was the most important thing. The big insight we had was that software was going to be very important. We are pretty good at making software for iPods, PCs and the cloud and making them work together. We brought back to the phone business. Other pioneered, Palm. Everyone is copying Apple now.

Q: Emails? Do you write them.

A: Some people are making them up. Don’t believe everything you read. I try and reply to some of them because they are our customers.

Q: Free bumper offer outside U.S.?

A: The answer is yes.

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