Apple faces growing list of problems with iPhone Customers complain of service, dropped calls; chipset could be the cause

Apple Inc.'s 3G iPhone has been a hot seller, a rash of service problems and technical glitches has left the company with a black eye that industry analysts say could buy time for its competitors.

The latest version of the iPhone has been a big hit, with Apple (AAPL:

Apple Inc

AAPL 179.32, +0.02, +0.0%) selling at least 1 million of the devices since it was released a month ago.

But in that time, a growing list of complaints has taken some shine off the wireless device. IPhone users have flooded Apple's online message boards with comments about poor support for the device and complaints about how calls placed over the 3G networks of partners such as AT&T Inc. (T:

AT&T Inc

T 31.12, -0.18, -0.6%) are being dropped or shifted over to slower networks.

The situation caused Apple to lock its discussion board on iPhone network coverage on Wednesday after the thread became too long for Web browsers to handle. A new thread was opened later.

The company did not return calls seeking comment on the matter. Shares of Apple closed trading Thursday up 2 cents at $179.32. The stock has risen about 14% so far this month.

The service issues follow on the heels of problems experienced during the first weekend of iPhone sales in July, when customers complained about excessively long iPhone activation times, or not being able to activate the devices at all.

Additionally, Apple has had severe problems with its new MobileMe service, which represents the company's move into "cloud computing," a service where information stored on a computer server can be updated via any device linked to the cloud. When one device updates information through the cloud, all devices connected directly or wirelessly to the cloud are updated. Apple sees MobileMe as one of its main initiatives to expand the reach of its 3G iPhone into the corporate market. See full story.

A problem with chips?

Richard Windsor, an analyst with Nomura Securities, says that the problems with the iPhone's 3G network coverage appear to be stemming from chipsets made for the device by Infineon Technologies (IFX:

infineon technologies ag sponsored adr

News, chart, profile, more

Last: 8.62-0.22-2.49%
4:02pm 08/14/2008

In a report earlier this week, Windsor said the Infineon chips haven't been tested much in the hands of consumers and are being used in one of their first, large-scale deployments in the iPhone. According to Windsor, part of the problem is the radio technology used in the chips to access the 3G networks.

A report Thursday on the Web site of BusinessWeek said Apple will likely try to fix the iPhone's problems through a software update that can be downloaded to the device. Citing unnamed sources, the BusinessWeek report said the service problems have affected 2% to 3% of iPhone traffic, compared with a dropped-call rate of about 1% for all of AT&T's wireless traffic.

Nomura's Windsor said in an interview Thursday that a software update is unlikely to fix the problem.

"The problem is likely with the low level software and the chipsets," Windsor said. "It's difficult to fix through [software] upgrades. Also, it's not enough of a problem to warrant a recall."

He added that while iPhone customers have a right to be upset, the device's problems need to be put into historical perspective. "This is exactly what happened a few years ago when the first 3G phones went on sale. It's something that will be worked out."

However, the problems with the new iPhone may be a help to rival device makers such as Nokia Corp. (NOK:

Nokia Corp

Sponsored by:

NOK 25.88, +0.01, +0.0%) and Research In Motion Ltd. (RIMM:

Research in Motion Limited

Last: 130.81+3.91+3.08%
4:00pm 08/14/2008
Delayed quote data

Sponsored by:

RIMM 130.81, +3.91, +3.1%) -- which makes the popular BlackBerry line of devices. RIM is launching new BlackBerry models later this year, possibly including a touch-screen version of the device.

It may also help other companies that make chipsets for wireless devices. Windsor said that if Apple is upset enough about the iPhone glitches, it may choose to dump Infineon for more proven 3G chipsets from the likes of Qualcomm Inc. (QCOM:

QUALCOMM Incorporated

Delayed quote data

Sponsored by:

QCOM 56.35, +0.96, +1.7%) or other companies.

Whatever problems the new iPhone is having, the issues don't seem to have put a damper on demand for the device. On Wednesday, Best Buy Co. Inc. (BBY:

Best Buy Co., Inc

BBY 45.82, +0.44, +1.0%) said it would start selling the iPhone next month.

On Thursday, Piper Jaffray analyst Gene Munster raised his estimates for iPhone sales during the current quarter to at least 4.47 million units from 4.1 million. Munster said he based some of his estimates on the Best Buy announcement, and information gleaned from spending 25 hours in Apple retail stores, where he estimates Apple sells an average of 95 iPhones a day.