As iPhone sales stagnate, services promise growth for Apple

Wed Jul 27, 2016 4:02pm EDT
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By Tenzin Pema and Anya George Tharakan

(Reuters) - Though Apple Inc (AAPL.O: Quote) is selling enough iPhones to keep investors happy for now, the world's most valuable publicly traded company is set increasingly to rely on its apps and services to drive growth.

Apple's services business alone - which includes the App Store, Apple Pay and iCloud - will be "the size of a Fortune 100 company next year," Chief Executive Tim Cook said on a post-earnings call on Tuesday.

Revenue from the business rose 19 percent to about $6 billion for the third quarter, eclipsing sales of iPads and Mac computers for the second consecutive quarter to rank as Apple's second-largest unit after iPhones.

Apple's shares rose as much as 8 percent to $104.35 on Wednesday - its biggest percentage gain since April 2014 - adding roughly $42 billion to its market cap. The stock was the biggest boost to all three major indexes .SPX .DJI .IXIC.

Apple's shares closed up 6.6 percent at $103.03 on Wednesday.

The company on Tuesday reported higher-than-expected iPhone sales, though they declined for the second straight quarter.

As iPhone sales level off, Apple can utilize its existing base of users to wring more money out of its higher-margin services business, several analysts said.

With 1 billion devices in the hands of consumers, the size of Apple's installed base suggests it has plenty of room to grow in services. Services also promise a recurring revenue stream, unlike hardware sales.   Continued...

Workers prepare for the opening of an Apple store in Hangzhou, Zhejiang province, January 23, 2015.  REUTERS/Chance Chan/File Photo