Cisco stock plunges 17% as company forecasts surprising drop in revenue

Shares of Cisco plunged as much as 17% in extended trading on Wednesday after the networking company said it generated quarterly revenue below analysts’ forecasts and called for an unexpected drop in sales during the current period.

Here’s how the company did it:

  • Earnings: 87 cents per share, adjusted, versus 86 cents per share as expected by analysts, according to Refinitiv.
  • Revenue: $12.84 billion, versus $13.34 billion as forecast by analysts, according to Refinitiv.

Cisco’s revenue was roughly flat year-over-year in the quarter, which ended April 30, according to a statement. Last year’s term included an extra week. Net income, at $3.04 billion, rose 6%. In the previous quarter, sales increased by 6%.

The Covid lockdown in China and the war between Russia and Ukraine weakened Cisco’s revenue in the quarter, CEO Chuck Robbins said in the statement. The war reduced revenue by about $200 million and added $5 million to Cisco’s cost of sales in the quarter and $62 million to operating expenses, according to the statement.

The lockdown, meanwhile, has made component shortages worse, Robbins said on a conference call with analysts.

For the fiscal fourth quarter, Cisco forecast adjusted earnings per share of 76 cents to 84 cents and a year-over-year revenue decline of 1% to 5.5%. Analysts polled by Refinitiv were looking for earnings of 92 cents per share on $13.87 billion in revenue, up about 6%. The guidance range is wider than usual due to the increasingly complex environment, Robbins said.

“We believe our revenue performance over the next few quarters will be less dependent on demand and more on the availability of supply in this increasingly complex environment,” he said.

Other network providers fell after Cisco’s results. Arista Networks fell 6%, Juniper fell 10%, Ciena fell around 9% and F5 slid more than 3% after the close of regular markets.

“To give an idea of ​​the extent of the shortages, we are currently seeing constraints in the fourth quarter on approximately 350 critical components out of a total of 41,000 unique component part numbers,” said Scott Herren, chief financial officer of Cisco, during of the call. “Our supply chain team is actively looking at several options to fill these shortages.”

In China, Cisco faces various points of uncertainty, Robbins said.

“Shanghai now says they will open on June 1,” he said. “We don’t know exactly what that means and what that means when it means we would start getting all supplies out, and as a result we think when they open up and when they allow transport logistics to start, we think there’s going to be a high degree of congestion.

“We think there’s going to be a lot of competition for port capacity, airport capacity, and we just think that, combined with inbound efforts to try to get raw materials back into the country, etc. We just think that it’s going to be impossible for us to catch up on this issue in the fourth quarter, which led to the fourth quarter guidance.”

The impact was not limited to hardware. Software revenue, at $3.7 billion, was down 3% year-over-year. Herren said growth would have been 5 points higher had it not been for the war in Ukraine and the impact of the extra week in the prior year quarter.

The forecast does not reflect any change in demand and strictly reflects supply limitations, Herren said.

Cisco said its Secure, Agile Networks segment, which includes data center network switches, generated $5.87 billion in revenue. This represents growth of 4%, and it is below the consensus of $6.09 billion among analysts polled by StreetAccount.

Cisco’s Internet for the Future unit, which contains routed optical networking hardware the company acquired in its acquisition of Acacia Communications in 2021, contributed $1.32 billion, up 6% and up below the StreetAccount consensus of $1.44 billion.

The Collaboration segment, which includes Webex collaboration software, generated revenue of $1.13 billion, down 7% and in line with StreetAccount consensus of $1.13 billion.

At the close, shares of Cisco were up 23% year-to-date, while the S&P 500 fell about 18% over the same period. If the stock fell more than 16.2% on Thursday, it would be the biggest single-day drop since a 17.7% plunge in July 1994 and the third biggest on record.

— CNBC’s Ari Levy contributed to this report.

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