Apple payments service may boost sales of larger iPhones

By Reuters

Sep 11, 2014 12:42 AM EDT

The addition of a mobile payments service to Apple Inc's next iPhone could help to boost sales of the larger-screen phones and claw back market share lost to mobiles running on Google Inc's Android platform.

Apple shares rose as much as 1.3 percent on Wednesday, a day after the launch of the iPhone 6 and the Apple Watch - the first new product introduced by Chief Executive Tim Cook.

At least six brokerages raised their price target on Apple's stock by as much as $16 to a high of $116, but there was also a rare downgrade to the stock.

Many on Wall Street hailed Apple Pay - the company's new wireless payment system - with Piper Jaffray's Gene Munster calling it the "star of the show" at Tuesday's gala launch.

It will allow iPhone 6 and 6 Plus users to pay for a burger at McDonald's Corp or groceries at Whole Foods Market Inc at the tap of a button, using their American Express Co, Visa Inc or Mastercard Inc bank cards.

Samsung Electronics Co Ltd, Motorola Mobility and others include similar wireless technology in many Android smartphones. But with payment systems such as Google's Wallet failing to catch on, the technology is not standard in handsets.

"On the mobile payments front, we believe the company made a major breakthrough and cracked an important and vexing issue that has plagued the industry for several years regarding customer ownership," William Blair analysts wrote in a note.

Cook, who took over as CEO from Steve Jobs in 2011, has been under pressure to launch new services and come up with larger-screen phones to counter Samsung's popular Galaxy Note phablets.

Worldwide market share of iPhones, which contribute more than half of Apple's revenue, slipped to 11.7 percent for the quarter ended June from 13 percent a year earlier, according to research firm IDC. (

"Apple Pay is a feature that should help sell Apple products and provide some small help to the bottom line," BMO Capital Markets analysts said.

But Andy Hargreaves, analyst at Pacific Crest, said growth potential from the iPhone 6 was largely priced into Apple's shares. He cut his rating to "sector perform" from "outperform", becoming the first analyst since May to downgrade the stock.

Apple Watch, the company's first new product since the iPad, is tethered to the iPhone 6 models. Starting at $349, it will receive phone calls and messages, play music and serve as a digital wallet to pay for goods.

The watch, which will go on sale in the United States next year, has received mixed reactions. Fashion commentators like its clean aesthetic, while some tech writers pointed out Apple's silence over battery life.

Sony Corp, Samsung, LG Electronics Inc and Qualcomm Inc have launched smartwatches based on Google's Android Wear, without great success.

"Apple Watch is attractive, but the need for phone tethering, short battery life, and lack of compelling features for people who do not want a watch will limit the market," Hargreaves said.

Apple shares were up slightly at $98.18 in morning trading. They closed down 0.38 percent on the Nasdaq on Tuesday.

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