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Cisco stock plunges as company forecasts surprising revenue decline

Cisco shares plunged by as much as 17% in extended trading on Wednesday after the networking company said it generated lower quarterly revenue than analysts predicted and called for an unexpected sales decline in the current period.

Here’s how the company did:

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

Cisco’s revenue was roughly flat year over year in the quarter, which ended on April 30, according to a statement. In the previous quarter, revenue grew by 6%. The quarter spanned 13 weeks, one fewer than the year-ago quarter. Net income rose 6% to $3.04 billion.

The war between Russia and Ukraine reduced revenue by about $200 million, and it added $5 million to Cisco’s cost of sales in the quarter and $62 million in operating expenses. Covid-19 lockdowns in China also exacerbated component shortages, CEO Chuck Robbins said on a conference call with analysts.

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

The “top-line numbers don’t look good,” Robbins said. But employees have been redesigning products to allow for a wider diversity of components, and that could strengthen Cisco’s results in the first half of the next fiscal year, he said.

Other networking vendors tumbled following Cisco’s results. Arista Networks dropped 6%, Juniper plummeted 10%, Ciena fell about 9% and F5 slid more than 3% after the close of regular trading.

“To give a sense of scale of the shortages we currently see constraints in Q4 on roughly 350 critical components out of a total of 41,000 unique component part numbers,” Scott Herren, Cisco’s finance chief, said on the call. “Our supply chain team is aggressively pursuing multiple options to close those shortages.”

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

“Shanghai now is saying they are going to open up June 1,” he said. “We don’t know exactly what that means and what that means to when that implies that we would start getting any supply out, and correspondingly, we believe when they open up and when they do allow transportation logistics to start up, we believe there’s go being to be a high degree of congestion.”

Robbins added that the fourth-quarter guidance reflects issues like limited capacity at ports and airports and “inbound efforts trying to get raw materials back into the country.”

The impact wasn’t limited to hardware. Software revenue fell 3% to $3.7 billion. Herren said the growth would have been five points higher if it hadn’t been for the war in Ukraine and the impact of the extra week in the year-ago quarter.

The guidance does not suggest any change to demand and strictly mirrors supply limitations, Herren said.

Cisco said its Secure, Agile Networks segment, which includes data-center networking switches, contributed $5.87 billion in revenue. That represents 4% growth, and it’s lower than the $6.09 billion consensus among analysts polled by StreetAccount.

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

The Collaboration segment that includes Webex kicked in revenue of $1.13 billion, down 7% and in line with the StreetAccount consensus of $1.13 billion.

During the quarter Cisco changed its policy so that customers can’t cancel orders within 45 days of the committed ship date, Herren said.

As of the close of trading, Cisco shares were down 23% since the start of the year, while the S&P 500 has dropped about 18% over the same period.

— CNBC’s Ari Levy contributed to this report.

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