Apple's second biggest business is now its services, including Apple Pay

Apple's services, including Apple Pay, the App Store, Apple Music and iCloud, have become the company's second-largest business, generating over $6bn in revenue in the past year. Promising a recurring revenue stream, Apple is set to increase investment in its services as iPad, Mac and iPhone sales fall by up to 26%. The company will target its services towards China, Apple's second largest market, in an effort to combat the decline in sales and increase growth. However, there it is expected to face stiff competition in the mobile banking market by strong incumbants.

Apple first-ever drop in quarterly iPhone sales has spurred boss Tim Cook to turn the spotlight on its apps, music and other software services.

Second-quarter earnings saw such services emerge as Apple's second-largest business after the iPhone for the first time, topping iPad and Mac sales, which both fell.

The App Store, Apple Music, iCloud, Apple Pay and other services generated nearly $6 billionin revenue, up 20 per cent from the previous year.

Second-quarter earnings saw such services emerge as Apple's second-largest business after the iPhone for the first time, topping iPad and Mac sales, which both fell. The App Store, Apple Music, iCloud, Apple Pay (pictured) and other services generated nearly $6 billion in revenue, up 20 per cent from the previous year

And executivescheered the progress they are making in subscriptions,touting Apple Music's 13 million paying subscribers.

The size of Apple's installed base with 1 billion devices inconsumer hands suggests it has plenty of room to grow inservices.

Services also promise a recurring revenue stream,unlike hardware sales.

But analysts said Apple faces an uphill battle in carving outthe same sort of position in services that it has achieved withits hardware.

The $6 billion in services revenue also pales incomparison to iPhone sales which accounted for about two-thirdsof the company's $50.6 billion quarterly sales.

APPLE'S RESULTS AT A GLANCE Apple sold more than 51.2 million iPhones in the first three months of 2016 - while racking up $10.5 billion in quarterly profit. That was more than many analysts expected, but still fewer than the 61 million iPhones sold a year earlier. Revenue of $50.56 billion missed expectations of $51.97 billion. Apple Music now has 13 million subscribers.

Firms such as music service Spotify, cloud storage rivalsGoogle and Microsoft and map makers have claimedmajor audiences among iPhone users, even when Apple has offeredits own products as a default.

Also raising the stakes for its services business has beenApple's decision to release the smaller, much cheaperiPhone SE - a move that is seen as trading revenue per devicefor broader adoption of its phones.

'For the strategy to really make a lot of sense, you want tobe more aggressive in building that services revenue,' Colin Gillis, an analyst with BGC Partners told Reuters.

Apple may also have to speed up its game.

'Apple has settled into this annual upgrade cycle forhardware and software,' said analyst Jan Dawson at JackdawResearch. 'That's quite different than the way that say Facebookpushes out updates to its app or Google makes changes to itssearch engine - they do that almost in real time.'

The size of Apple's installed base with 1 billion devices in consumer hands suggests it has plenty of room to grow in services (iCloud pictured) Services also promise a recurring revenue stream, unlike hardware sales

Gillis at BGC Partners calculates that margins for Apple'sservices businesses are not as strong as the iPhone.

'I don't think any one is ever going to find that kind ofsweet spot,' he said.

Apple Chief Financial Officer Luca Maestri said on Tuesdayservices achieve a similar level of profitability for thecompany as the average of its other businesses.

The firm's quarterly results were below Wall Street targets, and it forecast another disappointing quarter - which saw Apple's shares down more than 5 percent in early after-hours trading.

Apple says the slump is sales was caused by 'macroeconomic headwinds' and the iPhone 6 being 'an anomaly' as it offered an entirely new size handset.

Apple said it sold 51.2 million iPhones in its second fiscal quarter, down from 61.2 million in the same quarter a year ago but above analysts' estimates of about 50 million devices.

Sales fell faster in China than in any other region but pushing ahead in services in China - Apple's second largest market - may also be challenging due to regulatory concerns. Chinese regulators have demanded that Apple halt its sales of books and movies in the country. iTunes pictured

Sales fell faster in China than in any other region, down 26 per cent compared to the previous year, and sales in the Americas were down 10 per cent.

Over all, Apple sold 16 percent fewer iPhones in the quarter compared to the same quarter last year - although Tim Cook pointed out the results no not include sales of the smaller iPhone SE.

Pushing ahead in services in China - Apple's second largestmarket - may also be challenging due to regulatory concerns.

Chinese regulators have demanded that Apple halt its sales ofbooks and movies in the country.