Apple Inc. said all of its iPhones, including its new iPhone 4, mistakenly inflate readings of their cellular signal strength, an uncharacteristic stumble for the consumer electronics giant.

The Cupertino, Calif., company said Friday in an open letter to iPhone 4 owners posted on its website that it had been using an incorrect method to determine the number of bars of cellular signal strength it displays on its devices. In several instances, iPhones mistakenly show better cellular reception than exists, the company said....