Analyst: “Highly Unlikely” iPhone 4 Recall Could Cost Apple $1.5 Billion
Product recalls are even more expensive than they are inconvenient. So if Apple were forced to implement one for the iPhone 4, what would it cost?
About $1.5 billion, says Bernstein & Co. analyst Toni Sacconaghi. That’s about five weeks’ worth of Apple’s free cash flow or about 3.5 percent of its total cash balance. Ugly. But as I noted here Tuesday, the probability of a recall is pretty low, as Sacconaghi himself says.
“A full recall of the device and issuance of a new iPhone…is highly unlikely,” he said in a note to clients, adding that a more appropriate response would be for Apple to simply hand out nonconductive cases or bumpers to all iPhone 4 owners and with all new iPhone 4 sales. “[This] could be done immediately, would directly address the Consumer Reports concern, and would be financially immaterial,” Sacconaghi argues. “While it would force Apple to ‘acknowledge’ a design issue with the iPhone, we believe that consumers are increasingly aware of the antenna issue, and remedying it rather than dismissing or ignoring it appears most appropriate.”
Of course there is another option: Apple (AAPL) could ignore the current hurly-burly entirely, stand by its official statement on the issue, and release the promised software update that will correct it. Certainly, that seems to be the strategy so far.