Flawed Chip To Blame For iPhone Connection Woes?

Dianne See Morrison
Friday, August 15, 2008; 5:00 PM

When my colleague Matt Kapko said he was returning the iPhone after two weeks of use, he took a bit of a slating from fans of the phone. But now it looks like Matt's not the only one experiencing dropped calls or a weak signal that has resulted in stalled web surfing?the internet has been buzzing with the angry complaints of annoyed customers having the same exact problems.

But who or what was to blame? Was it AT&T's network, or some underlying fault with the phone? Businessweek, citing two inside sources, is reporting that the phone's Infineon chip is the problem, and that Apple ( NSDQ: AAPL) is planning to fix it through a software upgrade, rather than the more drastic and dreaded product recall. The magazine was following up an August 12 report from Nomura analyst Richard Windsor that said flawed software on the chip wasn't allowing the iPhone to switch seamlessly from higher speed networks to slower ones.

Infineon wouldn't comment on the story, but pointed out that their chips are working just fine in the Samsung phones that use them. AT&T ( NYSE: T), meanwhile, has said they're not to blame either: "Overall, the new iPhone is performing just great on our 3G network." (Technically, you could say that's true, as the glitch supposedly only affects 2-3 percent of iPhone users, and only those in dense urban areas.) Apple refused to comment on the problem, though apparently its customer service has been instructing iPhone owners to just switch 3G off already.

Will this end up hurting Apple's rep? If Apple can fix the problem with a software patch and avoid a recall, perhaps not. According to Windsor, handset makers including Nokia ( NYSE: NOK) and European carriers had similar problems when 3G networks were first being rolled out there, and have not suffered long-term damage.

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