A deeply flawed device.

I was hoping about now to be regaling readers with my experiences with the much improved 5 megapixel camera in the new iPhone, available today for those lucky enough to get a reservation:

Well, that is not going to happen.

Just about the time young Winston and I were getting ready to ride our bikes to the Apple Store, what comes across the wires but this story?

A moment later and I watch this shocking video.

So we do three things:

• Cancel the trip
• Cancel the order
• Sell all my AAPL stock

Subsequent stories are confirming the issue is not isolated yet not universal. Mossberg of the WSJ made a vague reference to the signal strength bars fading occasionally, but made light of it – he’s not especially objective about AAPL so cannot be trusted.

It seems to me that there are three possible causes:

• Sporadic manufacturing errors dictating a limited recall – an embarassment for Apple
• Egregious design error requiring a total recall – a big ‘no confidence’ vote in the stock
• Software glitch fixed with a new online upgrade – an irritation

None of these is good for a stock approaching nosebleed territory, no matter how attractive the fundamentals.

I have no idea which applies, but as my 3G iPhone is the only phone I use, and as I have no landline, it’s nonsensical to contemplate an upgrade at this juncture.

I’ll let others complete the discovery process and continue to enjoy my obsolete 3G iPhone in the meanwhile.

Talk of dodging a bullet! My advice to any prospective iPhone4 buyer is simple. Wait. Let someone else do the bleeding for you.

Note on older iPhones: You get the same effect, but less so, with older iPhones. My 3G shows 5 bars of signal lying on my desk, dropping to 2 or 3 once in the hand, after some 30 seconds. I can reliably replicate this behavior and it’s the same with iPhone OS 3.1.3 or iOS 4.0 – I tried both. After trying iOS 4.0 on my 3G iPhone I reverted to 3.1.3 – 4.0 adds little to a 3G iPhone (folders and a useless digital zoom for the camera) and unless you are really comfortable with use of Terminal and entering cryptic, high risk commands, think twice before upgrading to 4.0. My downgrade went well, but I know what I am doing – it’s anything but plug-and-play.

The loss in indicated signal strength seems absolutely related to hand contact with the rear and sides of the iPhone. When I place my 3G iPhone in its auxiliary clip-on battery pack, which doubles its battery life, thickness and weight, I lose no bars, so it very much sounds like an electrostatic design fault to me.

Be sure to check Comments for my analysis of the reason this poorly designed iPhone 4 is to be avoided until the hardware issue is fixed. Apple’s advisory today as to how to hold the iPhone is akin to the government telling you how to bend over before increasing your taxes. Unconscionable. Another Hall of Shame entry for the fruit company,

I figure the costs at $4.20/share – 3mm handsets recalled @ $300 + $600mm in legal fees + triple damages at $2.7bn = $4.2bn for 1bn shares. However, the reputational damage and lost sales make this sum insignificant by comparison. The Android crowd must be partying.

Disclosure: Sold all my AAPL position just before writing this.