Cisco Systems (CSCO) shares plunged lower Thursday after the world's biggest computer network equipment maker posted weaker-than-expected third quarter sales, and forecast softer near-term profits, thanks in part to supply chain disruptions that are holding back deliveries of key components.
Cisco said adjusted non-GAAP earnings for the three months ending in April, the group's fiscal third quarter, came in at 87 cents per share, up 5% from the same period last year and a penny ahead of the Street consensus forecast. Group revenues, Cisco said, were essentially flat from last year at $12.84 billion, but missed analysts' estimates of a $13.34 billion tally.
The group said adjusted fourth quarter profits would come in between 6 cents to 84 cents per share, well shy of the Street consensus forecast, and a year-on-year revenue decline of between 1% and 5.5%.
CEO Chuck Robbins said the group needed to be "practical about the current environment" while "erring on the side of caution in terms of our outlook" as both the war in Ukraine and China's ongoing Covid lockdown continue to snarl business paths and investments around the world.
"These lockdowns resulted in an even more severe shortage of certain critical components. This in turn prevented us from shipping products to customers at the levels we originally anticipated heading into Q3,"Robbins told investors on a conference call late Wednesday. "Our Q4 guidance incorporates a wider than usual range, taking into account the revenue impact of the war in Ukraine and the continuing uncertainty related to the China COVID lockdowns."
"When we look at Q4 and you think about the Shanghai lockdown and what we've heard because in Shanghai, there are lots of components that go into our power supplies," he added. "So we're not able to get those components. Shanghai now is saying they're going to open up June 1. We don't know exactly what that means and what that means to win that implies that we would start getting any supply out."
Cisco shares were marked 13.5% lower in early Thursday trading to change hands at $41.80 each, a move that would extend the stock's year-to-date decline to around 34.5%.
"In addition to the factors impacting orders, Cisco’s revenues were impacted by supply constraints that got incrementally worse in March," JMP Securities analyst Erik Suppiger. "As a result, Cisco’s backlog increased 130% Y/Y to $15 billion as management explicitly stated that the company’s below consensus guidance does not reflect any demand issue but rather just supply chain constraints."
"Management downplayed the risk that Cisco is losing market share due to supply constraints, noting that most other vendors did not include April in their most recently reported results," he added. "However, we believe Cisco’s lead times, which can be a year or more, are longer than some competitors and have caused Cisco to lose business."
