In a blog post,, the publication said its lab tests showed phone problems could occur if the gap in the metal casing was blocked by a hand.

“The Verizon iPhone 4 closely resembles the original AT&T iPhone 4 in many positive respects, including offering great multimedia functionality, a sharp screen, and the best MP3 player we’ve seen on a phone,” it said in the blog. “Unfortunately, it also shares with its sibling the possibility of compromised performance in low-signal conditions when used without a bumper or case.”

The publication said its testing showed that the issue is specific to the iPhone and doesn’t appear to happen with other phones.

“The only phones in which the finger contact caused any meaningful decline in performance was the iPhone 4, the sides of which comprise a metal band broken by several thin gaps,” it wrote. “As with our tests of the AT&T iPhone 4, putting a finger across one particular gap–the one on the lower left side–caused performance to decline. Bridging this gap is easy to do inadvertently, especially when the phone is in your palm, which might readily and continuously cover the gap during a call.

As with the AT&T version, a case can help alleviate potential problems.

Consumer Reports declined to recommend the AT&T iPhone over the antenna issues, even though it still gave the device the highest smartphone ranking.

The Verizon iPhone is getting similar mixed signals, with Consumer Reports giving it high rankings but leaving it off the recommended list due to the antenna issues.

Update: Verizon said in a statement that its customers are experiencing “stellar network performance” with less than one half of one percent of iPhone 4 calls being dropped in major cities such as New York and San Francisco.

Looks like Apple (AAPL) has decided it needs to see some iPhone headlines that don’t include the word “antenna.”

On the eve of the iPhone 4 press conference it is holding tomorrow, the company officially released iOS version 4.0.1, a software update it says “improves the formula to determine how many bars of signal strength to display” on the device and its predecessors (click images to enlarge). The update also resolves an issue that could cause slow syncing of data with Exchange ActiveSync.

Released in tandem with iOS 4.0.1 was iOS 3.2.1 for iPad, an update that adds Bing to Safari’s search options and promises to improve Wi-Fi connectivity as well.

Though the clamor over a design issue that can diminish the iPhone 4’s signal strength might drag on the company’s shares, as it is today, Apple (AAPL) probably isn’t going to issue a product recall.

Said Piper Jaffray analyst Gene Munster, “We see [a recall] as a highly unlikely scenario given the issue is completely resolved with a case, which is a significantly less expensive solution for the company.”

Citigroup analyst Richard Gardner agreed.

“We consider the probability of a recall to be very low given our view that the issue in question is not serious enough to warrant a recall,” he said in a note to clients today. “While bridging two portions of the antenna with one’s hand on the lower-left corner of the phone does cause signal degradation, it does not typically result in dropped calls unless the signal from the cell tower is already weak. Excluding this issue, overall signal reception on iPhone 4 seems at least as good, if not slightly better, than reception on the iPhone 3GS.”

Over at Barclays Capital, Ben Reitzes offered a similar take. “As users, we have experienced some issues w/call drops; however, we have found drops go away after attaching a bumper accessory, which is quite useful anyway,” he wrote. “To date, we have not seen any overwhelming evidence of iPhone 4 units being returned.” And if the current spate of negative headlines should change that, well, it’s probably not going to have much of an effect on the company’s bottom line anyway.

Said Reitzes, “Worst case is some near-term sales are impacted and/or Apple revises its policy on ‘not giving away’ free bumpers, but usually demand just gets pushed to a slightly later date. Therefore, we do not believe these issues will impact Apple’s product momentum or the story materially at this time.”

To Reitzes, the iPhone 4 antenna issue is “overblown,” a sentiment shared by Munster as well.

“Ultimately we believe this PR black eye takes away some near-term upside potential to our iPhone estimates, but it does not change the long-term trajectory of the iPhone. While the issue has gained significant traction in the press, the reality is that we estimate this problem periodically affects 25 percent of iPhone 4 users given the fix is easy (a case for the iPhone), and 75 percent of customers choose to use a case anyway. While it has reached a boiling point, we believe the magnitude of this issue is being overblown.”

And seriously, an iPhone 4 recall? Steve Jobs would rather recall hiring John Sculley.

[Image credit: Rick Smolan]

After testing three iPhone 4 handsets purchased from three New York-area retailers, the magazine concluded signal strength is degraded when the device is held in a manner in which its external antennas are bridged.

“There is a problem with its reception,” the publication explains. “When your finger or hand touches a spot on the phone’s lower left side–an easy thing, especially for lefties–the signal can significantly degrade enough to cause you to lose your connection altogether if you’re in an area with a weak signal. Due to this problem, we can’t recommend the iPhone 4.”

That’s quite a change from the publication’s stance earlier this month, when it said that “there’s no reason, at least yet, to forgo buying an iPhone 4 over its reception concerns.”

Evidently, there is now, though Consumer Reports gave the iPhone 4 high marks in other areas, like display quality and battery life.

There is an easy solution for iPhone 4 owners suffering reception problems, the publication notes. Cover the device’s antenna gaps with a piece of duct tape. “It may not be pretty, but it works,” CR says, adding, “But Apple needs to come up with a permanent–and free–fix for the antenna problem before we can recommend the iPhone 4.”

But in the end, does that recommendation even matter? And will its absence hurt sales? At this point, the antenna issue does not appear to be impacting demand for iPhone 4.

Apple (AAPL) did not immediately respond to a request for comment.

[Image credit: Peter Morgan / Flickr]

It’s not an antenna problem, really.

It’s a display problem.

So says Apple (AAPL) in the official statement it issued moments ago. The gist: The device’s wireless performance is the best the company has ever shipped, but there’s a software issue with the signal bar display and it will be fixed in a forthcoming update. Evidently, the formula iOS 4 uses to calculate the iPhone 4’s signal strength is inaccurate and sometimes reports more bars than it should. Apple is correcting this with a free software fix that will be issued in a few weeks.

“We are adopting AT&T’s recently recommended formula for calculating how many bars to display for a given signal strength,” the company explains. “The real signal strength remains the same, but the iPhone’s bars will report it far more accurately, providing users a much better indication of the reception they will get in a given area. We are also making bars 1, 2 and 3 a bit taller so they will be easier to see.”

Coming soon: Fewer bars in more places!

Interestingly, Apple makes no mention of the iPhone 4′s new antenna design and what role it plays in this issue. If it’s a software problem that causes the iPhone 4 to display more signal bars than it should, then why does holding the device differently resolve it?

Other points worth noting: Apple claims the problem has been present since the original iPhone. If that’s the case, then why did we really only begin to hear about it after the debut of iPhone 4? And why didn’t Apple use AT&T’s bar formula in the first place? Because its own formula made the iPhone appear to perform better? Is there no industry standard for computing bars across carriers and handset makers? Astonishing. Finally, why is a company as monomaniacally obsessed with detail dealing with an issue like this after a major product launch at all?

Letter from Apple Regarding iPhone 4

Dear iPhone 4 Users,

The iPhone 4 has been the most successful product launch in Apple’s history. It has been judged by reviewers around the world to be the best smartphone ever, and users have told us that they love it. So we were surprised when we read reports of reception problems, and we immediately began investigating them. Here is what we have learned.

To start with, gripping almost any mobile phone in certain ways will reduce its reception by 1 or more bars. This is true of iPhone 4, iPhone 3GS, as well as many Droid, Nokia and RIM phones. But some users have reported that iPhone 4 can drop 4 or 5 bars when tightly held in a way which covers the black strip in the lower left corner of the metal band. This is a far bigger drop than normal, and as a result some have accused the iPhone 4 of having a faulty antenna design.

At the same time, we continue to read articles and receive hundreds of emails from users saying that iPhone 4 reception is better than the iPhone 3GS. They are delighted. This matches our own experience and testing. What can explain all of this?

We have discovered the cause of this dramatic drop in bars, and it is both simple and surprising.

Upon investigation, we were stunned to find that the formula we use to calculate how many bars of signal strength to display is totally wrong. Our formula, in many instances, mistakenly displays 2 more bars than it should for a given signal strength. For example, we sometimes display 4 bars when we should be displaying as few as 2 bars. Users observing a drop of several bars when they grip their iPhone in a certain way are most likely in an area with very weak signal strength, but they don’t know it because we are erroneously displaying 4 or 5 bars. Their big drop in bars is because their high bars were never real in the first place.

To fix this, we are adopting AT&T’s recently recommended formula for calculating how many bars to display for a given signal strength. The real signal strength remains the same, but the iPhone’s bars will report it far more accurately, providing users a much better indication of the reception they will get in a given area. We are also making bars 1, 2 and 3 a bit taller so they will be easier to see.

We will issue a free software update within a few weeks that incorporates the corrected formula. Since this mistake has been present since the original iPhone, this software update will also be available for the iPhone 3GS and iPhone 3G.

We have gone back to our labs and retested everything, and the results are the same— the iPhone 4’s wireless performance is the best we have ever shipped. For the vast majority of users who have not been troubled by this issue, this software update will only make your bars more accurate. For those who have had concerns, we apologize for any anxiety we may have caused.

As a reminder, if you are not fully satisfied, you can return your undamaged iPhone to any Apple Retail Store or the online Apple Store within 30 days of purchase for a full refund.

We hope you love the iPhone 4 as much as we do.

Thank you for your patience and support.

Apple

“I just noticed a flaw on my display,” one wrote in a message to Apple’s support forums. “It wasn’t very obvious, i was messing with the phone for a good 45 minutes till i even spotted it. On the bottom 10% of the screen there are 3 blotches about the size of shirt buttons that discolor the screen a brown/yellow color. Again hardly noticeable at first but now that i know it’s there my eyes get drawn too it. Shows up well when its a white background. I was hoping it was just some grime but wiping down the front didn’t help. Oh well, guess i’ll hang onto it until Apple gets a few more in stock and trade it in a few weeks from now.”

Similar reports are showing up on Gizmodo and MacRumors, where the blotch is described as more of a bar. “Just synced up my iPhone 4 and noticed that, on screens with a white background (i.e., Settings.), there is a decidedly yellow spot on the lower left corner of my screen,” another report reads. “It appears circular (about the size of a pencil eraser) but when you rotate the phone sideways, it’s more visible as running across the bottom edge of the screen a ways.”

It’s not yet clear how widespread the issue is, but there are enough complaints on Apple’s (AAPL) support forums to be concerning. I’ve asked the company for comment and will update here if offered one.

Meanwhile, reports of problems with the iPhone 4′s signal-strength bars are beginning to circulate as well. But as Walt Mossberg noted in his review, this is a known issue that Apple intends to fix:

In some places where the signal was relatively weak, the iPhone 4 showed no bars, or fewer bars than its predecessor. Apple says that this is a bug it plans to fix, and that it has to do with the way the bars are presented, not the actual ability to make a call. And, in fact, in nearly all of these cases, the iPhone 4 was able to place calls despite the lack of bars.

However, on at least six occasions during my tests, the new iPhone was either reporting “no service” or searching for a network while the old one, held in my other hand, was showing at least a couple of bars. Neither Apple nor AT&T could explain this. The iPhone 4 quickly recovered in these situations, showing service after a few seconds, but it was still troubling.

[Image credit: elitemrp, Apple Support Discussions]

iPhone version 2.1 contains many bug fixes and improvements, including the following:

• decrease in call set-up failures and call drops
• significantly improved battery life for most users
• dramatically reduced time to back up to iTunes
• improved email reliability, notably fetching email from POP and Exchange accounts
• faster installation of third-party applications
• fixed bugs causing hangs and crashes if you have lots of third-party applications
• improved performance in text messaging
• faster loading and searching of contacts
• improved accuracy of the 3G signal strength display
• repeat alert up to two additional times for incoming text messages
• option to wipe data after 10 passcode attempts
• Genius playlist creation