Apple's Ambitious iPhone 3G Plans

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Addressing Usability Glitches

Another challenge for Apple is a growing chorus of complaints over the phone's performance. Reports of problems began to fill the blogosphere in the second week of August, as owners reported an inability to obtain the fast "3G" wireless access even in places where these advanced networks were in place. Users have also lamented dropped phone calls and frequent switching from 3G to slower 2G networks.

While Apple has never publicly confirmed the problems, BusinessWeek first reported on Aug. 14 that the glitches relate to a communications chip in the device from Germany-based Infineon (BusinessWeek.com, 8/14/08), and that Apple plans to resolve issues with a software upgrade, rather than a product recall. An update came on Aug. 19, but many users and analysts quickly complained that the patch didn't solve the problems. According to reports, some customers say the update created new problems, in some cases rendering their iPhone useless. To now, the glitches haven't dragged down demand, Wolf says. "If the problems linger and the percentage of people being impacted grows, they'll have a problem," he adds.

An Apple spokeswoman won't confirm that there were any problems with the phone, or whether there would be follow-on updates. "We're always working to improve our products for our customers," Apple spokeswoman Jennifer Bowcock says. Apple hasn't made immediate changes to its production timetable in light of the glitches either, says the person familiar with Apple's production plans.

Adapting to Change

Even if Apple's existing production plans prove overly ambitious, Apple is still likely to meet the average estimates for actual iPhone sales. Also, Apple is known for having a supply chain that's efficient enough to adapt quickly to changes in demand. That would help the company avoid a major buildup of unsold products that would need to be sold at a discount or, worse, written off.

Munster says he's optimistic even in the face of the reported glitches. While he says he has not had access to Apple's actual production plans, he based his bullish forecasts for iPhone 3G sales in part on the success of Motorola's (MOT) hit Razr phone, which sold more than 100 million units even though it lacked some of the breakthrough features and brand popularity of the iPhone. Munster also expects Apple to release cheaper models at its annual Macworld show in January. Taken together, the moves could help Apple meet his aggressive targets even sooner than Munster expects it to.

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Burrows is a senior writer for BusinessWeek, based in Silicon Valley .