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Home / Companies / News /  Cisco rings a worrisome bell

Cisco rings a worrisome bell

REUTERS

  • Tech heavyweight battered by China shutdowns and war in Ukraine

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Cisco Systems is nothing if not reliable. Rare disappointments tend to be painful.

Cisco Systems is nothing if not reliable. Rare disappointments tend to be painful.

The tech heavyweight known best for its networking and security equipment and software said Wednesday that revenue for its fiscal third quarter ended April 30 was flat year over year at $12.8 billion. That was about 4% below Wall Street’s consensus forecast and is only the second time in at least five years that the company’s revenue has missed analysts’ projections, according to FactSet. And that wasn’t the only bad news: The midpoint of Cisco’s projection for the current quarter implied revenue of about $12.7 billion, some 8% shy of Wall Street’s target.

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The tech heavyweight known best for its networking and security equipment and software said Wednesday that revenue for its fiscal third quarter ended April 30 was flat year over year at $12.8 billion. That was about 4% below Wall Street’s consensus forecast and is only the second time in at least five years that the company’s revenue has missed analysts’ projections, according to FactSet. And that wasn’t the only bad news: The midpoint of Cisco’s projection for the current quarter implied revenue of about $12.7 billion, some 8% shy of Wall Street’s target.

The revelations took Cisco’s stock price down 12% in after-hours trading Wednesday, even after the shares had given up more than 4% during the brutal regular session before the report. If the stock maintains a similar trajectory Thursday, it will be the worst single-day decline Cisco has seen since February of 2010, when another disappointing report sank the shares by 14%.

The difference this time is that the shock appears to have nothing to do with demand. Cisco’s product backlog actually grew by about $1 billion from the second quarter, while reported product revenue grew only about $95 million in that time. During the company’s earnings call Wednesday, Chief Executive Officer Chuck Robbins blamed the disappointing revenue and outlook squarely on two factors—ceasing business in Russia following that country’s invasion of Ukraine and the Covid lockdowns in China. The latter constrained the availability of key components that were already in short supply. Mr. Robbins noted that the inability to get power supplies alone cost the company about $300 million in revenue for the quarter.

There are signs that China’s harsh lockdowns may start to ease in regions such as Shanghai, but Cisco isn’t banking on a quick recovery. The company says it is experiencing constraints on about 350 components, and Mr. Robbins predicted “lots of competition for port capacity and airport capacity" once China’s locked-down regions open up. “We just believe that it’s going to be impossible for us to catch up on this issue in Q4, which is what led to the guidance for Q4."

Long considered a bellwether for corporate tech demand, Cisco’s results and forecast paint a more worrisome picture for supply.

The lockdowns in China didn’t begin in earnest until late March, sparing many tech companies whose fiscal quarters ended then. And the effect could spread beyond hardware businesses that depend on China as a manufacturing base.

Bernstein software analyst Mark Moerdler wrote Wednesday that shortages of information-technology gear could affect even software-centric businesses, “since a cloud company cannot charge for cloud services until they can deliver those services."

Cisco may not be the only tech giant coming up short.

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This story has been published from a wire agency feed without modifications to the text