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During Apple's financial conference call earlier this month, Apple CEO touched on the topic of 'Services' by stating that "Services revenue hit an all-time quarterly record of $7.3 billion representing 22% growth over last year. We continue to see great performance all around the world with double digit growth in each of our geographic segments. Over the last 12 months, our services business has become the size of a Fortune 100 company, a milestone we've reached even sooner than we had expected."


It's being reported today on CNBC that Google is paying Apple billions of dollars to remain the default search engine on iPhones and iPads. The figure was revealed today in an investors note posted by Bernstein analyst A.M. Sacconaghi Jr.. The firm believes Google will pay Apple about $3 billion this year, up from $1 billion just three years ago, and that Google's licensing fees make up a large bulk of Apple's services business.


"Court documents indicate that Google paid Apple $1B in 2014, and we estimate that total Google payments to Apple in FY 17 may approach $3B," Bernstein analyst A.M. Sacconaghi Jr. said. "Given that Google payments are nearly all profit for Apple, Google alone may account for 5% of Apple's total operating profits this year, and may account for 25% of total company OP growth over the last two years."


Sacconaghi said that Apple's iOS devices contribute about 50 percent to Google's mobile search revenues, which means Google might be too afraid to walk away from its licensing deal with Apple.


Bernstein has an outperform rating on Apple with a price target of $175.


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