Apple’s AAPL non-iPhone segments — Services, Wearables, Mac and iPad — are expected to play significant roles in its third-quarter fiscal 2019 results, scheduled to be released on Jul 30.

The Services business, which includes revenues from Internet Services, App Store, Apple Music, Apple Care, Apple Pay, and licensing and other services, has become the new cash cow for the company. Services revenues accounted for 19.7% of sales in second-quarter 2019.

Moreover, the Wearables business, which includes Apple Watch, Beats and AirPods, is expected to stay in the limelight. In the last reported quarter, revenues from these products accounted for 8.8% of sales.     

However, non-iPhone segments’ strong performance was not enough to drive the top line in the last reported quarter. Net sales decreased 5.1% year over year to $58.02 billion, primarily due to weakness in iPhone sales, which fell 17.3% and accounted for 53.5% of total sales.

Notably, Apple had a tough third-quarter fiscal 2019 due to the U.S.-China trade war and increased legal woes. Hence, performance of these non-iPhone segments will be eagerly watched by investors to measure the success of Apple’s revenue diversification strategy.

Apple Inc. Revenue (TTM)

Apple Inc. revenue-ttm | Apple Inc. Quote

Click here to know how Apple’s overall second-quarter performance is likely to be.

Expanding Enterprise Footprint: A Key Catalyst

Apple is gaining traction among enterprises, based on collaborations with the likes of AT&T T, IBM and SAP SE SAP.

Notably, the company’s iOS SDKs are gaining traction among enterprise platforms like SAP and salesforce. During the to-be-reported quarter, Apple and SAP expanded their relationship that now enables customers using SAP HANA to develop intelligent solutions (apps) natively for iOS-based devices like iPads and iPhones.

In February, the Apple at Work initiative was launched with AT&T, an extension of the ongoing collaboration between the two companies. This initiative will help enterprise customers choose the best Apple products for their business needs.

Apple devices are gaining rapid adoption in end markets like aviation. The company stated that pilots across 450 airlines prefer iPad for their electronic flight bag. More than half of the top 50 airlines are using iOS to provide better customer service.

Moreover, updated Mac and iPad portfolios must have helped the company expand its enterprise footprint in the fiscal third quarter.

Further, rebound in the PC market is expected to boost Mac sales. Notably, worldwide PC shipments inched up 1.5% year over year in second-quarter fiscal 2019, per Gartner.

The Zacks Consensus Estimate for third-quarter Mac revenues stands at $5.49 billion, indicating almost 3% growth from the figure reported in the year-ago quarter.

Apple is also expected to benefit from the growing adoption of Apple Pay for food and beverage purchases, and in-flight access to Apple Music.

Legal Woes, Antitrust Investigation: Major Headwinds

Apple’s legal problems increased in the to-be-reported quarter.

Late May, Supreme Court upheld the decision of the Ninth Circuit Court of Appeals in the Pepper vs Apple case, stating that device users can sue the latter over App Store. The ruling resulted in some developers suing Apple for forcing them to sell via the app store.

Apple charges a hefty 30% of revenues generated from all apps sold through App Store. Notably, this revenue cut has also been the bone of contention between Apple and Spotify SPOT. The Swedish company has launched a complaint in the EU’s competition commission, citing anti-competitive behavior of the iPhone maker.

Notably, Spotify competes with Apple Music in the music streaming space.

Moreover, Apple along with Alphabet is facing investigation by the U.S. Department of Justice (DOJ). The Federal Trade Commission (FTC) is running investigations on Amazon and Facebook.

Although these issues are not expected to have any financial impact on the stock in the to-be-reported quarter, they surely increase investment risks.

Apple currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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