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Analysts Say Services Revenue And China Revival To Boost Apple In Third Quarter

Analysts Say Services Revenue And China Revival To Boost Apple In Third Quarter
According to an analysis from Evercore ISI, there would be an increase in the revenues generated by Apple from its services business in the third quarter – driven by revenues from app store developer and regaining of growth in China – which are both critical area for the future growth of the iPhone because of a perception of market maturity of the most popular product of the company.
Anticipated disappointing new iPhone sales saw the shares of Apple being downgraded from “neutral” to “sell by Rosenblatt Securities on Monday.
Evercore predicted an 18 per cent growth in total App Store developer revenue in the third quarter at about $9 billion because Apple has been focusing on its services business more compared to its hardware business. Apple would present its financial reports 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,” analyst Amit Daryanani said in a note.
China has immense importance for Apple because it is not only one of the major markets of the company outside of the US but also its hub for manufacturing of its devices. In the quarter ended March, Greater China accounted for almost 18 per cent of Apple’s total revenues.
“The reacceleration of growth in China is encouraging, while most other growth trends held stable,” Daryanani said.
The Company has shifted in its strategy to focus further monetizing its services business instead of its conventional hardware devices only. And revenue for this business segment is driven by its App Store which last year generated $37.1 billion in revenue. Earlier this year, Apple also attempted to position itself as an entertainment and financial services company and announced launch of new products such a TV streaming service.
While some broking firms have downgraded Apple’s shares, it outlook of the company in terms of volume for iPhone shipments in 2020 was changed to positive by JP Morgan in a note to its clients. The price target of the shares of Apple was also raised to $239 from $233 by the brokerage firm.
However there was a 2.1 per cent drop in the shares of Apple closing at $200.20 on Monday following a comment by Rosenblatt analyst Jun Zhang who said that “new iPhone sales will be disappointing”. Over a period of next six to 12 months, “fundamental deterioration” is expected to be faced by Apple according to Zhang.
A buy or higher rating on the Apple stock was given by Evercore and JP Morgan.

Christopher J. Mitchell

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