Cisco stock tumbles on weak earnings outlook

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Barclays analyst Tim Long said order growth at Cisco is expected to slow.

Josep Lago/AFP via Getty Images

Dealing another blow to the tech sector,

Cisco

The systems released disappointing results on Wednesday evening and provided weaker than expected forecasts.

The company blamed the Covid-19 lockdowns in China and the war in Ukraine for its disappointing advice.

For the fiscal third quarter ended April 30, Cisco (ticker: CSCO) reported revenue of $12.8 billion, flat from a year ago, below its own growth forecast of 3% to 5%. The Wall Street consensus was for revenue of $13.4 billion, which would have been up 4.4%. Non-GAAP earnings were 87 cents per share, which is actually at the top of the company’s guidance range of 85 to 87 cents, and a penny ahead of analysts’ forecasts.

But the company’s guidance for its July quarter was a huge miss. Cisco sees its revenue for the quarter fall between 1% and 5.5%, while Wall Street forecast an increase of almost 6%. Cisco sees non-GAAP earnings of between 76 and 84 cents per share, below the Wall Street consensus of 92 cents. Cisco expects non-GAAP gross margins in the quarter to be between 64% and 65%.

Cisco now expects full-year revenue growth of 2% to 3%, down from previous guidance of 5.5% to 6.5%; Non-GAAP earnings for the full year are now projected between $3.29 and $3.37 per share, down from the previous guidance of $3.31 to $3.56 per share.

“We continued to see solid demand for our technologies and our business transformation is progressing well,” Cisco CEO Chuck Robbins said in a statement. “While the Covid lockdowns in China and the war in Ukraine impacted our revenue during the quarter, the fundamental drivers of our business are strong and we remain confident over the long term.”

Cisco noted that product revenue increased 3% in the quarter, while service revenue declined 8%. While revenue increased 5% in the Americas, it decreased 6% in EMEA (Europe, Middle East and Africa) and 6% in Asia-Pacific.

The company said the recent decision to shut down its operations in Russia and Belarus in response to the war in Ukraine reduced its revenue by about $200 million in the quarter. Cisco said Russia, Belarus and Ukraine historically accounted for about 1% of its revenue.

Gross margin for 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%, against 66.0%. Operating expenses decreased 5% on a non-GAAP basis during the quarter.

Cisco said it repurchased about $252 million in common stock during the quarter. The company has $17.6 billion remaining on its current repurchase authorization.

At the end of the session, Cisco shares are down 15%.

Write to Eric J. Savitz at [email protected]

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