Apple Shares Slide Ahead of iPhone 4 Conference

Posted Jul 16th 2010 10:45AM by Melly Alazraki
Filed under: Apple Inc (AAPL), iPhone

Since hitting a high of $279.01 on June 21, Apple shares have dropped over 7.7% to close Thursday at $251.45. This morning, ahead of its iPhone 4 press conference, Apple shares fell 0.7% by noon trading. The iPhone 4, which was to be yet another smashing success has become a somewhat sore issue. While at first sales of the new phone once again blew past expectations, reports of bad reception and dropped calls immediately tarnished the new must-have gadget.

But "antennagate," as it's been dubbed, just began, especially with Apple's response to consumers: avoid gripping the phone in the lower-left corner. Consumer Reports then said it can't recommend the iPhone 4 after tests by its engineers confirmed that the device does indeed have reception problems. And Bloomberg reported that a a senior antenna engineer named Ruben Caballero personally raised concerns about the design to Jobs.

So Apple then announced it will hold a press conference at 10 AM Pacific time on Friday. That's in two hours. What to expect?

Different analysts and industry observers gave not only detailed accounts of what might transpire, but even assigned odds. Piper Jaffray's Gene Munster assigned a 50% chance on Apple physically modifying existing iPhones. He estimates this could cost Apple a month of sales and shave 12% off its fourth quarter EPS. He assigned a 40% chance on Apple giving customers free cases or bumpers. This would cost the company less than $180 million, or 1% of its 2011 operating income.

There's a 10% chance the company will explain, but do nothing. The unlikely scenario is that Apple could replace all existing iPhones. A recall would cost $1 billion and reduce Apple's EPS for calendar 2010 by 7%. Bernstein analyst Toni Sacconaghi, puts the cost to Apple of a recall at $1.5 billion. But, indeed, according to Wall Street Journal sources, there will be no recall.

As AAPL shares keep sliding as the overall market declines, it will be interesting to see what will happen after the conference. If Apple can fix this mess to the satisfaction of the market, the current weakness in the stock might be a good entry point.

Tags: aapl, antenna, antennagate, inthenews, iphone, iphone 4