Cisco Systems reported fiscal third-quarter earnings that edged by estimates while revenue missed Wall Street targets. CSCO stock plunged on weak guidance as management blamed China's Covid lockdown for worsening supply chain issues.
The tech giant reported results after the market close on Wednesday. CSCO stock plunged 13.7% to close at 41.72 on the stock market today.
For the current quarter ending in July, the company forecasts earnings of 80 cents a share vs. estimates of 92 cent profit for Cisco stock.
Meanwhile, Cisco said it expects revenue to decline 1% to 5% versus projections for 5.9% growth.
China has closed factories amid the spread of new Covid variants. In late March, Shanghai launched a phased city-wide lockdown to curb rising Covid cases.
As a result, Cisco said it was not able to get supplies for critical components, mainly power supplies. The problem lowered revenue by $300 million, the company said.
"Although the lockdown is expected to be lifted on June 1, it remains uncertain if improvements can be seen in the short term considering ports and airports are expected to be congested as nearly all manufacturers will compete for the capacity to get their products shipped," said Credit Suisse analyst Sami Badri in a report. "As such, another negative revenue impact with similar magnitude is expected in fiscal Q4 (and beyond) unless the supply environment improves."
Cisco Stock: Product Orders Slow
For the period ended April 30, Cisco earnings rose 5% to 87 cents a share from a year earlier, the company said. Revenue came in flat at $12.8 billion, including acquisitions.
A year earlier, Cisco earnings were 83 cents a share on sales of $12.8 billion. Analysts expected Cisco earnings of 86 cents a share on sales of $13.34 billion.
Cisco's product order growth had been a bright spot in the three previous quarters. Product order growth slowed to 8% in the April quarter versus 33% in its fiscal second quarter.
"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," Chief Executive Chuck Robbins said in the earnings release.
Cisco Stock: Arista Networks Did Better?
But Jefferies analyst George Notter said rivals may have out-performed Cisco.
"Frankly, it's a bit hard to accept that Cisco is the 'canary in the coal mine' on the China/Covid lockdown supply chain issues, which cropped up in April," he said in a report.
He added: "We're wondering if Cisco's isn't executing crisply with its supply chain team. Based on our analysis, Cisco was slow to ramp inventories and purchase commitments while other equipment vendors – such as Arista Networks– reacted several quarters before Cisco."
At Needham, analyst Alex Henderson said in a report: "Cisco is blaming its outlook primarily on supply chain, particularly power supplies. Its guidance is substantially weaker than any other company in the category."
Russia's invasion of Ukraine lowered revenue by $200 million, Cisco said.
Heading into the Cisco earnings report, the tech stock had retreated 23% in 2022. CSCO stock owned a Relative Strength Rating of 61 out of a best-possible 99, according to IBD Stock Checkup.
Cisco has shifted away from its core business of selling network switches and routers. With acquisitions, Cisco aims to increase revenue from software and services.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
