Analysts have been clamoring for Apple Inc. (NASDAQ:AAPL) to look for growth wherever it can, and Macquarie analysts believe they know where the company will find it. Ben Schachter has begun coverage on Apple with a $630 a share price target to go with his Outperform rating. That suggests a 19% upside to Friday’s share price.

Apple AAPL

iTunes, software to become Apple’s go-to business

While debate continues about whether Apple Inc. (NASDAQ:AAPL)’s hardware story is done, Schachter provides an alternative. He thinks the company will be able to make up for the challenges in its hardware division through iTunes and software. He calls that segment of Apple “underappreciated” and sees it as one of the company’s key profit growth drivers growing forward.

He notes that in 2012, the division made up just 8% of Apple Inc. (NASDAQ:AAPL)’s sales and only about 12% of its earnings before interest and taxes. However, he estimates that by 2020, it could make up nearly 40% of the company’s profits. This year, he estimates that Apple could see approximately $30 billion in sales from its iTunes, Software and Services business on a gross revenue basis.

More tough times ahead for Apple hardware

He believes Apple Inc. (NASDAQ:AAPL) will continue to have increasing problems in the hardware business. He believes both the iPad and Mac will see more and more challenges ahead and that in the long term, all three of the company’s hardware categories will face pricing pressure and increased pressure from competition.

He notes that there just hasn’t been much insight in terms of new features which would set Apple’s hardware apart from others. As a result, he thinks growth beyond the iPhone 6 upgrade cycle will be limited.

What about the iPhone 6 launch?

The analyst notes that most of Wall Street is focused on the launch of the iPhone 6, which is generally expected either over the summer or in the fall. Many analysts have suggested that the iPhone 6 will be a game changer for Apple Inc. (NASDAQ:AAPL) and boast features which are so much greater than previous models that demand this time around will be higher than other recent upgrade cycles.

But until we actually see the handset, there’s no telling whether Apple Inc. (NASDAQ:AAPL) will be able to deliver on expectations.

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