When Apple (AAPL - Get Report) reports fiscal second-quarter earnings after Tuesday's market close, one of its smaller segments might get lost in the larger discussion about iPhone and Mac sales, but it's one that's shaping up to be equally important for the tech giant. 

Apple's Services segment generates about a sixth of the amount of revenue produced by iPhone sales. But the business may serve as a means for Apple to diversify its revenue away from being solely hardware-driven and toward subscription-based sales. That's become increasingly important for Apple as it experienced a slowdown in iPhone sales for the better part of 2016, before bouncing back in the most recent quarter. The iPhone decline has left some experts, including billionaire investor Carl Icahn, wondering if the trend could be the start of a "tsunami of trouble" for Apple.

iCloud and Apple Music are two units of the Services segment that operate off of a subscription-based revenue model, a quality that has grown to reassure investors, given the fact that it's recurring and thus more predictable than hardware sales. Services, which includes iCloud, Apple Music, App Store, iTunes and Apple Pay, saw sales jump 18% year-over-year to $7.2 billion in the most recent quarter and is poised to grow even further. It already generates higher sales than major U.S. companies like Starbucks (SBUX - Get Report) , Gap (GPS - Get Report) and Macy's (M - Get Report) .

"[Services is] their future wheelhouse," said Loup Ventures analyst Gene Munster. "It's twice as profitable as their hardware business and it's predictable unlike hardware." Munster estimates that Services will make up 11% of Apple's revenues in the fiscal second quarter, and in five years time, Services could grow to make up at least 30% of annual revenue for the tech giant.

But others remain more optimistic about sales of the company's legacy smartphone, which is approaching its 10th birthday. 

It's likely too early to say that Apple is shifting away entirely from hardware and toward Services, said Apple analyst Neil Cybart, contending that investors' fears about the iPhone business imploding are overblown, instead arguing that it's "fundamentally doing just fine," as iPhone profit margins and average selling prices remain stable.

Shares of Apple closed up about 0.6% Tuesday to $147.51. The company hit an all-time high of $148.09 midday. 

What's less clear (and likely to be asked about on Apple's earnings call tomorrow) is iPhone sales in Greater China, an area that faltered in the company's fiscal first quarter results, Cybart noted. 

Moreover, Apple's hardware and Services businesses are somewhat dependent on one another. While Services has a more consistent growth story, Apple has to keep manufacturing products in order for its services to continue reaching users, Cybart said.

"A lot of people are going a bit too far in saying Apple is moving away from hardware and focusing on Services," he said. "I think this is a natural progression of the iPhone business. Right now unit sales have slowed and the Services and subscriptions business is a growth engine."

"Product is still Apple's focus, but given where we are in the iPhone cycle, Services is the one line that has jumped out." 

Apple itself has pointed to the fact that investors should expect Services to see breakout growth soon. During the company's first quarter earnings call, CFO Luca Maestri said Services is "already a large business" but that it's going to grow rapidly in the next four years.

"We are excited about the future of the Services business," Maestri told investors. "It's going to be a Fortune 100 company this year, but we have a goal to double it over the next four years."

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Munster projects that Apple Music will be the company's fastest growing Services unit, growing about 48% year-over-year in 2018, followed by the App Store. Apple Music, which charges users about $9.99 a month, has garnered "well past" 20 million subscribers, Apple's senior vice president of internet software and services, Eddy Cue, said in February. Apple Music doubled its subscriptions in 2016, but it still has a lot of work to do to catch up with rival Spotify, which recently hit 50 million paid subscribers.

The Cupertino, Calif.-based company seems to be putting a lot of faith in Apple Music head and former CEO of Interscope Records Jimmy Iovine, who gave a brief glimpse into his plans for the streaming service in a recent Bloomberg interview. In it, Iovine talked about how he envisions Apple Music as being more than just a place for a "bunch of songs and a few playlists" but as a source for pop culture and, most importantly, original video content. 

That might immediately draw comparisons to Netflix (NFLX - Get Report) and Amazon (AMZN - Get Report) , but Munster said people shouldn't view it as such. For one, Netflix and Amazon have characteristically pushed out new content and services at rapid speed. Apple is unlikely to do that, instead moving at a slower, more calculated pace. 

Editor's pick: This article was originally published on April 29 and has been updated.

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"To build this, they need video content, which takes years," Munster said. "And they're still not going to be in a leadership position in five years. Services will play a much bigger part and they'll be viewed in music and original content as a player but not the leader."

Netflix and Amazon have built large, costly libraries of content that require them to grow their user base to find a sustainable business model, Cybart said. Apple, on the other hand, is likely to focus more on quality over quantity, he noted. 

"They're not going to jump in with 1,000 hours of original content," Cybart explained. "I think they're OK with doing it slowly as long as they assess where it's working and where it's not working, similar to their strategy with Apple Music." 

A combined video and music offering might attract some initial skepticism, but Munster said that it makes sense for several reasons: It would help boost Apple's subscriber numbers, promises more value for consumers and will most likely push competitors like Netflix, Amazon and Spotify to offer similar packages. 

If Apple does decide to commence a major push into original content, it may require them to dump one business that's been on its death bed for several years now: iTunes. Earlier this month, Apple changed the name of its "iTunes Podcasts" to "Apple Podcasts," which seems to signal that the tech giant may be killing off the legacy music platform. 

"I think it's time for the main iTunes to die," Munster noted, adding that he believes Apple may soon phase out the iTunes Store. 

Killing off iTunes and rolling out an Apple Music packed with original content might just be the catalyst to make it a contender in the ever-competitive streaming arms race.

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