Apple makes hundreds of billions from selling iPhones. But how much he spends on an unrelated business might shock you.

200 billion dollars. That’s about as much income Apple (AAPL 1.03%) generated last year from iPhone sales.

Most people believe that this is why Apple is the most valuable company in the world. And I’m not completely wrong. But it’s more complicated than that.

Let’s see how Apple does money, and why the company is spending so much money on a business you — and many other investors — probably aren’t paying that much attention to.

Image source: Getty Images.

Products vs. services

When it comes to Apple, most people think of one thing – iPhones. And, that noted earlier, the company generates a ton of revenue from its smartphones. But here’s the thing: Apple’s iPhone sales haven’t indeed moved in almost a decade:

Image source: Getty Images.

In short, the iPhone is old news—at least to Apple. The same goes for its other hardware products—iPads, Macs, even wearable. Sure, they’ve increased the company’s revenue over the past decade, but nowhere even close to what did the iphone do from 2007 to 2015.

No, the real growth engine for Apple in recent years is its services segment. This unit receives sales from the app storeiTunes, AppleCare+, advertising and app subscriptions like iCloud+, Apple Fitness and AppleTV+.

Best of all, at least for Apple and its shareholders, the company’s services segment is far more profitable than its products segment. In general, Apple generates about 33% gross profit from its products (iPhone, iPad and Mac). Its service unit has a total gross profit margin of 75%.

What this means is that Apple is focused on growing revenue and profit from services — because that unit is the driver of value for the company right now.

So why did Apple spend $20 billion on content? almost no one sees?

Apple spent $20 billion on Apple TV+ productions

Because Apple doesn’t publicly break down its services unit’s revenue and costs at a granular level, investors have to rely on estimates. RReport from Bloomberg DIRECTIONS Apple spent over $20 billion on Apple TV+ in an attempt to compete with Netflix, Amazon, Disneyand others. Clear, the so-called “streaming wars” have been costly, even for Apple.

What’s worse, however, is that all those expenses seems to have been largely in vain. Sure, Apple won Best Picture in 2022 for The queue, but many other big budget projects failed to grow the Apple TV audience. According to a report, Apple TV has about the same number of viewers in a month as Netflix BECOMES one day.

Reports suggest that Apple management is tightening the belt and cutting budgets for its streaming projects. And maybe for good reasons. The company is now focusing on new artificial intelligence (AI) tools that could boost them services income even HIGH. Investments in AI are expensive, and as a result, the big-spending days of the Apple TV may be over.

Apple plunged into the streaming wars, costing billions that could have been spent on AI. However, the company now appears to have recognized this misallocation of resources and is working to rein in its heavy streaming spending. As a result, Apple’s management can focus its resources on developing its AI services and business — the former being the company’s current growth engine, and the latter being its future.