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TheStreet Open House

Apple iPhone 4 Fix Revealed

NEW YORK ( TheStreet) -- Apple (AAPL - Get Report) has a "fix" for the iPhone 4 antenna problem after all. Now the problem becomes how the company will handle the replacement or repairs of the 3 million phones already sold.

Instead of defending its "there's no problem" stance anticipated at a special press conference Friday, Apple is likely to announce that it has a solution.

iPhone

Apple has created "a design fix for the iPhone 4 that more adequately insulates the transceiver," said Rodman Renshaw analyst Ashok Kumar, who spoke to the company's manufacturing partners.

Apple has told its manufacturers to alter the iPhone production process to include an internal component that will insulate the defective antenna connection that has disrupted the phone's signal reception, said Kumar. This internal bumper will give Apple a non-cosmetic solution and will presumably avoid the need to change the appearance of the phone, said Kumar.

Apple was not available for immediate comment.

If true, the internal bumper "fix" raises questions of whether or not Apple is applying a Band-Aid to a serious hardware flaw. But perhaps an even larger issue for Apple: How the company gets the fix to more than 3 million iPhones already out the door.

Kumar's information would jibe with a report from RBC's Mike Abramsky Thursday, who said iPhone supplies have gotten scarce. "Apple's online store today shows iPhone 4 availability now 3 weeks out , up from 7-10 days a few days ago, possibly implying a transition in production," Abramsky wrote.

Some analysts and industry image consultants have suggested that Apple could try to minimize the problem by offering antenna-insulating external bumpers -- for free -- to customers who have purchased the new iPhone 4.

But Abramsky has modeled a total recall, worst-case scenario. According to Abramsky, the impact on Apple could cost as much as $1.8 billion in lost iPhone revenue for the quarter, an 11% shortfall. On the bottom line, the impact would translate to about 40 cents a share less than the $3.80 profit analysts are looking for in Apple's fourth quarter, said Abramsky.

While the repair and recall process would create an enormous headache for Apple, there's still very little evidence that the blooming PR disaster will have any long-term impact on the company.

Apple investors looking to get out ahead of a potential recall have been finding eager buyers looking to replace them during this cheaper entry into tech's hottest stock. And phone buyers, forget it. Apple stores continue to enjoy the kind of foot traffic that most stores only see around Christmas.

--Written by Scott Moritz in New York.

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