The Apple (AAPL) iPhone Is Broken

Reports have been increasing that the new Apple (AAPL) 3G iPhone is having trouble connecting to 3G networks and is plagued by dropped calls. Since a number of consumers waiting for the new version so they could use the new super-fast wireless internet, the disappointment with the iPhone is likely to grow.

Now it turns out the one of Apple’s big suppliers, Infineon Technologies, has probably shipped Jobs & Co. a faulty chipset. According to MarketWatch, investment bank Nomura says "We believe that these issues are typical of an immature chipset and radio protocol stack where we are almost certain Infineon is the 3G supplier."

The trouble could be a torpedo in Apple’s attempts to make the iPhone the de facto high-end smartphone in both the US and large cellular markets abroad. The new product was supposed to give consumers a substantially better product than the first generation of the handset. With iPod sales slowing, the iPhone was going to be Apple’s next revenue growth engine.

The smartphone market is a war zone for companies which have a much larger share of the handset world than Apple does. Nokia (NOK) plays in the field and it has 40% of the global market for handsets. LG, Samsung, Sony Ericsson, and RIM (RIMM) do not just want to defend their pieces of the lucrative end of the industry. They want to expand it.

The iPhone flaw could push back important sales opportunities by a quarter or two. No one knows how long it will take to correct the problem.

What is certain is that Apple has opened the door for companies that desperately don’t want it to succeed.

Douglas A. McIntyre