Cisco shares are falling due to weak earnings expectations

Systems reported disappointing results late Wednesday, giving weaker-than-expected guidance. The network hardware provider’s shares are trading significantly lower in after-hours trading.

The company blamed Covid-19 lockdowns in China and the war in Ukraine for the disappointing guidelines and soft results – and stressed that the problems were supply, not demand.

For the third fiscal quarter, which ended April 30, Cisco (stock code: CSCO) reported revenue of $ 12.8 billion, flat from a year ago, and below its own forecast of 3% to 5% growth. The Wall Street consensus was for $ 13.4 billion in revenue, which would be an increase of 4.4%. Non-GAAP earnings were 87 cents per share. share, actually above the company’s 85 to 87 cent range, and one cent higher than analysts’ expectations.

But the company’s guide for the July quarter was a big mistake. Cisco expects revenue for the quarter to fall between 1% and 5.5%, while Wall Street expects an increase of around 6%. Cisco sees non-GAAP earnings of 76 to 84 cents per share, below the Wall Street consensus of 92 cents. Cisco sees non-GAAP gross margins in the quarter between 64% and 65%.

CEO Chuck Robbins said during the company’s conference call with analysts that the company’s biggest problem this quarter was the inability to get enough power supplies from China to meet customer demand for hardware – and he said Cisco does not expect that. July quarter.

Robbins noted that the April power outage problem was particularly acute, partly explaining why Cisco appears to have had a larger shutdown in China than other hardware companies that emerged in the quarters ending in March.

Cisco now sees revenue growth of 2% to 3% for the full fiscal year, a decrease from previous forecasts of 5.5% to 6.5%; Full-year non-GAAP earnings are now estimated at $ 3.29 to $ 3.37 per share, down from previous expectations of $ 3.31 to $ 3.56 per share.

“We continue to see strong demand for our technology and our business transformation is progressing well,” Robbins said in a press release on the company’s results. “While the Covid lockdowns in China and the war in Ukraine affected our revenue in the quarter, the underlying drivers of our business are strong and we remain confident in the long run.”

Cisco said overall product order growth was 8% year-over-year, with commercial orders up 19% and “web-scale” cloud orders more than 50%, growing from 31% to 33% in each of the past few years. †

The company noted that online orders have increased more than 100% based on a 12-month delay. Corporate orders in the quarter were flat compared to last year. Cisco said their backlog was more than $ 15 billion at the end of the quarter, an increase of more than 130% over a year ago.

In an interview, Scott Herren, Cisco’s CFO, emphasized that the company’s forecast deficit for the full year is entirely on the supply side. “We do not see any weakness in demand,” he said. The Lord noted that stable orders from corporate customers followed a growth of 37% in the January quarter and 30% in the previous quarter. While business orders are often “lumpy”, the company sees no signs of declining demand.

Cisco noted that product revenue increased 3% during the quarter, while service revenue decreased 8%. While sales in the Americas grew by 5%, they decreased 6% in the EMEA (Europe, Middle East and Africa) and 6% in the Asia-Pacific region.

The company said its recent decision to close operations in Russia and Belarus in response to the war in Ukraine reduced revenue for the quarter by about $ 200 million. Cisco said that Russia, Belarus and Ukraine have historically accounted for about 1% of sales.

The gross margin for the quarter was 63.3%, a slight decrease from last year’s 63.9% below GAAP, while non-GAAP gross margin was 65.3%, a decrease of 66.0%. Gross margins were slightly above the company’s expectations. Operating expenses decreased 5% on a GAAP basis in the first quarter.

The Lord noted that the company had recognized the ongoing shortage of components in its initial outlook for the April quarter, but the power supply problem was an unexpected wave. He noted that the company uses more than 41,000 individual parts in its products – and that there are currently about 350 parts “that the company is currently looking for.”

Cisco said it repurchased about $ 252 million in common stock during the quarter. The company has $ 17.6 billion left on its current buyback license.

In late trading, the Cisco stock has fallen about 13%. Shares in competing network companies

orange

(CIEN),

Juniper Networks

(JNPR) and

Arista network

(ANET) also fell sharply in the trading session after closing.

Write to Eric J. Savitz at [email protected]

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