Cisco Systems headquarters in San Jose, Calif.
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Cisco Systems shares are trading lower late Wednesday after the networking company posted better-than-expected results for the fiscal third quarter ended May 1, but provided financial guidance that raised questions about the company’s margin performance.
Cisco (ticker: CSCO) said in materials prepared for its earnings call that it is seeing gross pressure driven by “supply chain challenges.” Investors also might be disappointed with the lack of growth in enterprise orders.
On a conference call with investors to discuss results, CEO Chuck Robbins said Cisco expects the supply-chain issues to last at least through the end of the calendar year. He also said that while Cisco has raised prices on some products in response, the focus has been more on protecting shipments to customers in the interest of improving long-term relationships.
Robbins said that revenue guidance for the quarter would have been higher without the ongoing supply-chain issues. Cisco is seeing both higher component costs as well as increased freight costs.
Cisco stock in after-hours trading was down 5.8%, at $49.41, after closing down 0.9% on Wednesday.
For the quarter, Cisco posted revenue of $12.8 billion, up 7% from a year ago and ahead of the company’s guidance range for growth in the 3.5% to 5.5% range. Product revenue was up 6%, while service revenue was up 8%.
Non-GAAP profits were 83 cents a share, a penny ahead of the high end of the guidance range of 80 to 82 cents a share. Under generally accepted accounting principles, the company earned 68 cents a share; guidance had been for GAAP earnings of 64 to 69 cents a share.
The company noted that about 3% of growth in the quarter was due to it being a 14-week quarter, versus the usual 13 weeks.
Revenue was up 2% in the Americas, 11% in Europe, the Middle East, and Africa (EMEA), and 19% in Asia-Pacific, Japan, and China (APJC). Product revenue included growth of 13% for Security, 6% for Infrastructure Platforms, and 5% for Applications.
Cisco said orders were up 10% year over year in the quarter, the highest level since 2012, including gains of 6% in the Americas, 10% in EMEA, and 31% in APJC. Orders were flat from enterprise customers but up 11% from the public sector, 16% from commercial customers (basically small and-medium-size businesses), and 17% from service providers.
Cisco said it repurchased about $510 million of its stock in the quarter.
For the fiscal fourth quarter, Cisco projects revenue growth of 6% to 8%, ahead of the current Street consensus of 5.5%, with non-GAAP profits of 81 to 83 cents a share, shy of the Street consensus at 85 cents. The company projects non-GAAP gross margin of 64% to 65%, down from 66% in the third quarter.
“Cisco had a great quarter with strong demand across the business,” Robbins said in a statement. “We are confident in our strategy and our ability to lead the next phase of the recovery as our customers accelerate their adoption of hybrid work, digital transformation, cloud, and continued strong uptake of our subscription-based offerings.”
Chief Financial Officer Scott Herren added that the company “executed well with strong product orders, and solid growth in revenue, net income, and EPS.”
Write to Eric J. Savitz at [email protected]
