More Bad Supply-Chain News for Apple Inc.

By Markets Fool.com

iDevice maker Apple just can't get a break these days. Ahead of the company's Jan. 26 earnings report, there is significant fear within the investment community that Apple will issue weak forward guidance, driven by a substantial drop in iPhone demand.

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Although some analysts and investors don't seem to be convinced that the (fairly numerous) data points from the supply chain necessarily mean that iPhone sales will do as badly as feared, yet another data point just came in that points to bad news for Apple's iPhone shipments.

Metal casing maker Catcher Technologies reduces 2016 outlook, capex
According to the Nikkei Asian Review, the chairman of Catcher Technology, a company that builds metal casings for Apple's iPhone, said that "based on the forecast provided by our key customers, we expect the first half of this year would be flat compared with last year."

This reduction in outlook, according to Catcher's chairman (via Nikkei Asian Review), is due to order reductions from its customers that the company learned about "in recent weeks."

Additionally, the metal casing maker also disclosed that it would take down its capital expenditures in 2016 to levels "significantly lower than in 2014 and 2015" in response to "weakening global demand," according to Nikkei Asian Review.

Why does this necessarily mean bad news for Apple?
One could conceivably argue that Catcher's weakness doesn't have to do with Apple but instead with its other clients. However, I don't think that explanation is all that plausible.

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First of all, I doubt that Catcher has any other customers as large as Apple, especially ones that could lead the company to take down its demand forecast for the first half of the year like this. Now, it could be argued that all of Catcher's non-Apple customers suddenly decided to take down their order estimates, but that, again, doesn't really make sense.

Indeed, a Jan. 6 report from DigiTimes claims that Catcher's revenue from non-Apple customers makes up around 40% of its total revenue and that that portion of its revenue base "will continue to grow thanks to these clients' new products for the first half of 2016."

It seems quite clear that Catcher's freshly downbeat outlook for the first half of 2016 is driven by weakness at Apple.

There's little that Apple can do at this point
With respect to iPhone, it's hard to see what Apple can do at this point. Lowering prices in a bid to stimulate demand/gain share would set a very bad precedent, so this option doesn't really seem to be viable.

Apple could potentially give the iPhone 6s/6s Plus "the hook" and introduce the iPhone 7/7 Plus earlier than the fall (which at least one technology news website -- Fudzilla -- claims is what Apple plans to do, though this Fool is skeptical), but this would come with its own set of problems and challenges.

For example, I'd imagine those that bought the iPhone 6s/6s Plus on launch day via Apple's recently announced iPhone Upgrade Program would be quite miffed if they weren't able to upgrade to either the 7 or the 7 Plus at launch.

Apple and its shareholders are just going to have to tough it out through this product cycle. The new 4-inch iPhone that's rumored to be launching in the spring could serve to offset some of the iPhone 6s/6s Plus bad news (though not all of it), and maybe Apple's other businesses (iPad, Apple Watch, and Mac) could grow enough to at least partially offset what's looking like an iPhone decline in the current fiscal year.

The article More Bad Supply-Chain News for Apple Inc. originally appeared on Fool.com.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.