Cisco Reports Lower-than-expected Earnings Results For Fiscal Third Quarter, Issues Weak Guidance

Shares of technology company Cisco plummeted about 17 percent in Wednesday’s extended trading after it reported its fiscal third-quarter earnings. The company reported lower-than-expected revenue for the quarter. It also says it expects a sales decline in the current quarter.

For the fiscal third quarter, the company reported earnings of 87 cents per share, adjusted, slightly surpassing the 86 cents per share that analysts had expected, according to Refinitiv. Revenue came in at $12.84 billion, falling below analysts’ expectations of $13.34 billion, according to Refinitiv.

While on a conference call with analysts, the company’s CEO Chuck Robbins said that the Russia-Ukraine war cut revenue by about $200 million and increased its cost of sales in the quarter by $5 million and $62 million in operating expenses. He also added that the covid-induced lockdowns worsened the shortages in components.

For the fiscal fourth quarter, the company expects adjusted earnings per share to come in between 76 and 84 cents. Analysts on the other hand have expectations of 92 cents for the current quarter’s adjusted earnings per share. Cisco also expects a year-over-year decline in revenue of 1 percent to 5.5 percent. Analysts expect revenue of $13.87 billion, or a growth of 6 percent. The company’s CEO explained that its weak guidance was a result of the increasingly complex environment adding that the “top-line numbers don’t look good.”

According to him, employees have been redesigning products to enable a wider range of components and this could help to better its results in the first half of the next fiscal year.

While on the call with analysts, Cisco’s chief financial officer Scott Herren said that “To give a sense of the 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. Our supply chain team is aggressively pursuing multiple options to close those shortages.”

CEO Chuck Robbins added that the company currently faces uncertainty in China adding that the company guidance for the fiscal fourth-quarter mirrors challenges like limited capacity at ports and airports which prevents it from bringing raw materials into the country. “Shanghai now is saying they are going to open up June 1. 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,” he said.

The company reported a 3 percent decline in software revenue to $3.7 billion as a result of the Russia-Ukraine war. Its Secure, Agile Networks segment, which includes data-center networking switches, had revenue of $5.87 billion in the quarter, representing a 4 percent growth. It fell short of $6.09 billion that analysts had expected, according to StreetAccount. The company’s Internet for the Future unit, which houses routed optical networking hardware the company picked up through its 2021 Acacia Communications acquisition, saw a revenue of $1.32 billion, up 6 percent. It fell below the $1.44 billion expectation of analysts, according to StreetAccount. The Collaboration segment that includes Webex brought in revenue of $1.13 billion, down 7% and in line with the StreetAccount consensus of $1.13 billion.

The company’s shares were down about 23 percent since the start of the year, as of Wednesday’s close.