Apple investors chew over its plans as they digest cash return Apple investors are a tougher crowd to please than its band of faithful customers. Normally when Apple wheels out the superlatives at its product launches, eager fans start lining up outside its stores almost immediately. Storming sales of its latest hot product, the iPad mini, show that Apple retains its lustre among consumers. But when Apple investors were gifted with what the iPhone maker described as the "largest single share repurchase authorisation in history," part of a massive $100bn return of cash over three years, Wall Street's initial response was a shrug. Apple stock wavered in earlier trading on Wednesday before closing broadly unchanged at $405.46. After digesting Apple's quarterly numbers overnight, Wall Street analysts pinned the blame for the early share price dip on the company's narrowing profitability. Apple is not benefiting from the lift to margins over the year that is usually generated as its product manufacturing starts to hum at scale. It reported a fall in gross margin from 47.4 per cent a year ago to 37.5 per cent in the last quarter. Glen Yeung, analyst at Citigroup, said that the $50bn buyback's uplift to Apple's earnings per share "is more than nullified by Apple's below-consensus guidance" for the current quarter, ending June, in the absence of new hardware launches. The costs of those new products are already rising, with R&D expenses jumping by 33 per cent year-on-year to $1.1bn in the quarter, up from 2 to 3 per cent of net sales. In an unusually strong hint about launch timings, Tim Cook, chief executive, said Apple was working on "amazing new hardware, software, and services that we can't wait to introduce this fall and throughout 2014." The emphasis on software and services was marked. Nonetheless, most analysts focused on the comments as indicating that the iPhone 5S, and perhaps a cheaper smartphone aimed at emerging markets, are delayed from an expected June debut to September at the earliest. In the meantime, investors may have to endure two more quarters of slower growth and leaner earnings. Much of that margin drop-off is due to the growing portion of revenues generated by the iPad, in particular the iPad mini. Apple's 19.5m iPad sales for the quarter handsomely beat Wall Street forecasts, but the mini's lower price means it generates lower profits - a sacrifice Apple's finance chief Peter Oppenheimer said the company was comfortable making. "We're willing to make short-term trade-offs in profits where we see long-term potential," he said, noting past success in pursuing such a strategy with the iPod. With a question mark hanging over new product launches, however, Wall Street seems less comfortable. In a note to clients on Wednesday, Steven Milunovich at UBS described Apple's fiscal 2013 as a "lost year," as he forecast gross margin to fall to 37.5 per cent from 43.9 per cent in 2012. While most investors remain obsessed by hardware, some analysts believe services could make up some of that lost margin. Apple announced on Wednesday that it would hold its annual World Wide Developers Conference on June 10, usually a key venue for showcasing its new operating system and cloud services innovations. We're willing to make short-term trade-offs in profits where we see long-term potential Peter Oppenheimer, Apple finance chief The event is already being trailed as the moment when Apple's top designer, Sir Jonathan Ive, will show the fruits of his move into software. As Apple's chief tastemaker since the death of Steve Jobs, Sir Jonathan's reimagining of iOS will be vital in ensuring customers - and investors - get as excited by Apple's software and services as they do about its hardware. To that end, Apple on Tuesday touted impressive numbers for its decade-old iTunes empire: $2.4bn in quarterly revenue from music, movies and apps, up 28 per cent from a year ago, contributing to $4bn in total from iTunes, software and services. Some 300m people now use iCloud every day, up 20 per cent since January. "If the iTunes and services ecosystem continues to grow monetarily, it means Apple can give up some margins on hardware and recoup the costs elsewhere," said Ben Bajarin, principal analyst at Creative Strategies, a technology researcher. iTunes also helps to lock customers into Apple products, by making it easier to load their apps and content on to another iDevice than an Android, he added. Katy Huberty, analyst at Morgan Stanley, noted Mr Cook's hints about "new product categories" in digital services. "Most interesting to us is the potential for a killer service, like mobile payments, to better monetise the 500m [iTunes] account base and drive further differentiation and share gains in mobile devices," Ms Huberty wrote in a note. Yet from a technical standpoint, iCloud remains the subject of considerable grumbling from app developers. Apple's internet services continue to be plagued by downtime, with hours-long outages occurring as recently as Tuesday. Wall Street's response to June's WWDC event will determine if investors see software and services as more "magical and revolutionary" than a $100m return of cash.