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What iPhone? Apple's betting the future on services

Tim Cook says Apple's launch of streaming, gaming and other services is "unlike anything that's been done before."

Angela Lang/CNET

Last month, Apple CEO Tim Cook announced a new direction for his company. Yes, it will still sell iPhones, Macs and AirPods, but now it'll also focus on the stuff you watch, listen to and play on those devices.

Apple TV Plus, a video streaming service; Apple Arcade, a paid package of games; and Apple News Plus, a subscription service to articles from about 300 magazines and newspapers -- they're the future of Apple's growth. The company's even creating Apple Card, a credit card, with cash back for people who buy products directly from the company.

"For decades, Apple's been creating world-class hardware and world-class software," Cook said. Now it's going to tackle streaming and gaming services too. "It's unlike anything that's been done before."

He even brought TV legend Oprah on stage for the company's big launch event to talk up her planned documentaries and programs for Apple.

Whether Apple can pull off this remaking of its business is an open question. Investors so far are cautiously optimistic, pushing Apple's shares up more than 8% since the March announcement.

"Video streaming is not going to save shares of [Apple] if the iPhone market declines," Chatham Road Partners analyst Colin Gillis said in March. "Apple remains the iPhone company."

Which is why, when Apple announces its second-quarter earnings Tuesday, we'll be looking for more signs of what the future will bring than how many iPhones it sold between January and March. Sure, it'll be nice to get a look into Apple's business, as analysts expect the company to announce $11.1 billion in profits on $57.4 billion in sales. But Apple no longer reports how many iPhones, Macs or iPads it's sold, putting more pressure on the company to show impressive sales and profits. By the holidays, those results will include its new services.

So far, though, Apple hasn't said much about how its existing services have fared. Apple News Plus, which launched in March for $9.99 a month, is the only service that's been made publicly available so far, and it's estimated to have netted 200,000 subscribers in its first two days. That's still far below publications like The New York Times, which counted more than 3 million digital subscribers at the end of last year, though of course Apple's just at its start. Apple TV Plus, Apple Arcade and Apple Card aren't launching until later this year.

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One other thing that could impact Apple's results is a settlement with chip giant Qualcomm, which came earlier this month after a series of dramatic courtroom battles. Qualcomm's technology powers cellular connections for many of the world's phones. The settlement included a payment from Apple to Qualcomm, though we don't know how the dollar value, and an agreement for Apple to buy Qualcomm chips.

That's good news for consumers, who can look forward again to fast Qualcomm modems in their iPhones -- likely including its 5G modems as soon as next year. And it's good news for Qualcomm, which might have had to change its whole business model had it lost to Apple and which no longer has to worry about Intel butting in with 5G modems of its own.

As for Apple, some analysts believe the deal could put a drag on profits, though how much of one is unclear.

"Investors still don't fully appreciate the strength of Apple's platform," Morgan Stanley analyst Katy Huberty wrote in a recent message to investors.

Originally published April 28.
Updated April 30: Added background information.

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