Cisco Systems is nothing if not reliable. Rare disappointments are painful.
The tech heavyweight best known for its networking and security tools and software said on Wednesday that revenue for the third quarter ended April 30 was flat year-on-year at $12.8 billion. According to FactSet, that was about 4% below Wall Street’s consensus forecast and only the second time in at least five years the company’s revenue has missed analysts’ estimates. And that wasn’t the only bad news: The midpoint of Cisco’s projection for the current quarter was revenue of about $12.7 billion, about 8% shy of Wall Street’s target.
The revelations drove Cisco’s share price down 12% on Wednesday, even after shares fell more than 4% during the brutal regular session before the report. If the stock maintains a similar trajectory on Thursday, it will be Cisco’s worst single-day drop since February 2010, when another disappointing report plunged shares as much as 14%.
The difference this time is that the shock has nothing to do with demand. Cisco’s product backlog actually increased by about $1 billion from the second quarter, while reported product revenue increased by only $95 million at the time. During the company’s earnings call on Wednesday, Chief Executive Officer Chuck Robbins attributed the disappointing revenue and outlook to two factors — Russia’s invasion of Ukraine and China’s closure of business in Russia following the Covid lockdown. The latter constrained the availability of key components that were already in short supply. Mr. Robbins noted that the company lost approximately $300 million in revenue for the quarter due to its inability to obtain power supplies alone.
There are signs that China’s harsh lockdowns in areas like Shanghai may be starting to ease, but Cisco isn’t banking on a quick recovery. The company says it faces constraints on about 350 components, and Mr Robbins predicted there will be “a lot of competition for port capacity and airport capacity” once China’s lock-down areas open up . “We just believe that it’s going to be impossible for us to catch this issue in Q4, which led to the guidance for Q4.”
Long considered a bellwether for corporate tech demand, Cisco’s results and forecast paint a more worrying picture for supply.
The lockdown in China didn’t begin in earnest until the end of March, sparing many tech companies whose fiscal quarters came to an end. And that influence could extend beyond hardware businesses that rely on China as a manufacturing base.
Bernstein software analyst Mark Mordler wrote Wednesday that a lack of information-technology gear could affect software-focused businesses as well, “since a cloud company cannot charge for cloud services until they deliver those services.” Can.”
Cisco may not be the only tech giant to come up short.
This story has been published without modification to the text from a wire agency feed