Barclays analyst Tim Long says order growth at Cisco is likely to slow down.
Josep Lago/AFP via Getty Images
Dealing another serious blow to the technology sector, Cisco Systems posted disappointing results late Wednesday, and provided weaker-than-expected forward guidance. The networking hardware provider’s stock is trading sharply lower in after-hours trading.
The company blamed Covid-19 lockdowns in China and the war in Ukraine for its disappointing guidance and soft results.
For the fiscal third quarter ended April 30, Cisco (ticker: CSCO) posted revenue of $12.8 billion, flat with a year ago, falling short of its own forecast for growth of 3% to 5%. The Wall Street consensus had been for revenue of $13.4 billion, which would have been up 4.4%. Non-GAAP profits were 87 cents a share, which are actually at the top of the company’s guidance range of 85 to 87 cents, and a penny ahead of analysts’ forecast.
But the company’s guidance for its July quarter was a huge miss. Cisco sees revenue for the quarter down between 1% and 5.5%, while Wall Street had been projecting an increase of nearly 6%. Cisco sees non-GAAP profits of between 76 cents and 84 cents a share, below the Wall Street consensus of 92 cents. Cisco sees non-GAAP gross margins in the quarter of between 64% and 65%.
CEO Chuck Robbins said on the company’s conference call with analysts that the biggest issue the company faced in the quarter was an inability to get enough power supplies from China to meet customer hardware demand—and he said that Cisco does not expect to be able to catch up in the July quarter.
Robbins noted that the power supply availability issue was particularly acute in April, which would partially explain why Cisco seems to be taking a bigger hit from the China shutdowns than other hardware companies demonstrated in quarters ending in March.
Cisco now sees full fiscal year revenue growth of 2% to 3%, down from a previous forecast of 5.5% to 6.5%; full year non-GAAP earnings are now projected at $3.29 to $3.37 a share, down from previous guidance of $3.31 to $3.56 a share.
“We continued to see solid demand for our technologies and our business transformation is progressing well,” Robbins said in the company’s earnings press release. “While Covid lockdowns in China and the war in Ukraine impacted our revenue in the quarter, the fundamental drivers across our business are strong and we remain confident in the long term.”
Cisco said total product order growth was up 8% year over year, with commercial orders up 19% and “webscale” cloud orders up more than 50%, down from growth in the 31% to 33% in each of the last three quarters. Enterprise orders in the quarter were flat compared with a year ago. Cisco said backlog at quarter end was more than $15 billion, up above 130% from a year ago.
Cisco noted that product revenue was up 3% in the quarter, while service revenue was off 8%. While revenue was up 5% in the Americas, it was down 6% in EMEA (Europe, Middle East and Africa) and 6% lower in the Asia-Pacific region.
The company said that the recent decision to stop operations in Russia and Belarus in response to the war in Ukraine reduced revenue by about $200 million in the quarter. Cisco said that Russia, Belarus, and Ukraine have together historically accounted for about 1% of its revenue.
Gross margin in the quarter was 63.3%, down slightly from 63.9% a year ago under generally accepted accounting principles, while non-GAAP gross margin was 65.3%, down from 66.0%. Gross margins were slightly above the company’s projections. Operating expenses were down 5% on a non-GAAP basis in the quarter.
Cisco said it repurchased about $252 million of common stock in the quarter. The company has $17.6 billon remaining on its current buyback authorization.
In late trading, Cisco shares are down about 13%. Shares of rival networking firms Ciena (CIEN), Juniper Networks (JNPR), and Arista Networks (ANET) are also down sharply in after hours trading.
Write to Eric J. Savitz at [email protected]
