"Apple is ramping R&D and marketing in the June quarter, which may mean Sep announcement of the 5S and low-end phone," Milunovich wrote in his note. "We assume the Sep quarter will look much like the June quarter with Dec showing strong improvement." Milunovich rates shares "buy," but cut his price target to $500 from $560. June guidance was exceptionally weak, much weaker than anyone on Wall Street thought. For the fiscal third-quarter, Apple expects revenue will be between $33.5 billion and $35.5 billion, with gross margins between 36% and 37%. Prior to the announcement, analysts polled by Thomson Reuters were expecting $38.2 billion in sales.
Competition is clearly affecting Apple, judging by the guidance. Cook acknowledged as much on the call, saying Samsung, married with Google (GOOG - Get Report), was Apple's toughest competitor on the hardware side. This demonstrates that Apple is seeing weaker year-over-year growth, and 2013 is essentially a lost year for Apple. Topeka Capital Markets analyst Brian White believes Apple "represents an attractive stock heading into a new product cycle in FY14." While this may be true, shareholders are getting antsy with the drastic sell-off in the stock, down more than 40% since the launch of the iPhone 5. The company assuaged some of those fears with a huge capital return program, giving back $100 billion to shareholders in the form of buybacks and dividends over the next three years. That's extraordinarily generous, but it does show that Apple's cash hoard is outweighing its innovation and product pipeline right now, which is not something shareholders ever want to see, no matter how short-term in nature Apple might want to spin it. At the very least, it should buy Cook and his team time as Apple tries to restart the growth engine.