Apple is becoming more of a services company and less a product company

Apple is a giant company with lots going on, but for the top-line numbers it reports Thursday, the company divides itself into two main categories: Products and Services. Products includes the hardware Apple is most known for, including the iPhone, iPad, and Macs.

Its Services revenue is a bit squishier and encompasses everything from the money it makes off the App Store, iCloud storage, Apple TV, and the not insignificant ~$20 billion a year Google pays it to be the default search engine on Apple’s products.

Further in its earnings report, Apple provides iPhone revenue, which makes up the bulk of its Products revenue. We believe that’s both a good proxy for products and also for what’s going on at Apple: revenue from its main product, the iPhone, has been stagnating and even declining, while services have increasingly become a more important part of the company’s sales. For the company’s earnings today, the Bloomberg analyst consensus estimate has Apple’s Services revenue at $28.3 billion and iPhone revenue coming in at $49.3 billion.

That transition is probably fine with Apple, since its Services segment is much more profitable than its Products segment: Apple’s gross margin on Services is roughly double that of Products. Last quarter, for example, its Services gross margin was 75.6% compared with 34.5% for Products.

That’s why its fights with Epic Games over outside App Store fees as well as its involvement in Google’s monopoly case are so important to Apple and its stock price.

Regardless of what happens with the company’s latest iPhone today, which so far is seeing better demand than recent models, expect Apple to also emphasize how well its increasingly important Services segment is doing.