(Reuters) – Apple Inc (AAPL.O) will likely see a surge in services revenue in the third quarter, charged by app store developer revenue and renewed growth in China, critical areas for the future as the iPhone maker faces a maturing smartphone market, Evercore ISI said on Tuesday.
Shares of Apple were flat at $199.70.
Apple has been focusing more on its Services unit, which includes sales from iCloud, the App Store and other businesses, as smartphone sales show signs of slowing down.
The services business accounted for 20% of Apple’s $58.02 billion revenue in the second quarter, up from 16% a year earlier. The App Store is a key driver of Apple’s services segment, which brought in $37.1 billion in revenue last year.
Evercore analyst Amit Daryanani expects total App Store developer revenue to grow 18% to about $9 billion in the third quarter. Apple is due to report quarterly results on July 30.
“We think there is likely upside ahead when it comes to services revenues in the June-quarter, driven by a sizable acceleration in China-centric markets,” said Daryanani, who has a 3-star rating for accuracy of estimates on Apple, according to Refinitiv data.
The iPhone maker earned nearly 18% of its revenue from Greater China in the quarter ended March.
But, Apple still gets more than 50% of its revenue from iPhone sales.
Wall Street analysts expect consumers to hold off upgrading their iPhones until Apple’s expected launch of a 5G-enabled smartphone in the second half of 2020.
Brokerage Rosenblatt Securities on Monday downgraded Apple shares to “sell” from “neutral”, saying “new iPhone sales will be disappointing” leading to “fundamental deterioration” in the next six to 12 months.
Rosenblatt Securities analyst, Jun Zhang, has a 4-star rating for accuracy of his estimates on the iPhone maker, according to Refinitiv data.
Of the 44 analysts covering the stock, 23 have a buy or higher rating, 18 have a hold and the rest have a sell rating.
Reporting by Ismail Shakil and Tanvi Mehta in Bengaluru; Editing by Bernard Orr