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At Apple, a Spotlight on Services as iPhone Slows

Source: Apple filings

While Apple is discouraging investors from thinking about its stalled iPhones sales, there is another business it is eager for them to pay attention to: services.

When the company reports financial results later today, it will for the first time disclose the gross profit margins for Apple services—a broad category that includes AppleCare customer support, iTunes movie rentals and App Store sales. The services business is believed to be highly profitable, with some analysts estimating margins of up to 66%, compared to around 38% for Apple’s overall business. During Apple’s last fiscal year, which ended Sept. 29, revenue from services grew at 24%, faster than the 16% rate for Apple’s overall business.   

But there are some clouds looming over Apple’s services, including a drop in revenue growth during the holiday quarter. There are also concerns about app makers that sidestep the “Apple tax”—the toll, ranging from 15% to 30%, that the company charges on purchases and subscriptions that occur inside iOS apps. In the most high-profile example of this, Netflix in December stopped letting people subscribe to its streaming service from within Apple’s apps.   

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