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Participants walk past a Cisco logo during the Web Summit in Lisbon on November 2.

Carlos Costa / AFP via Getty Images


Cisco

Systems has become a case study of what can happen to a tech company’s business in an age of chip shortages and global shipping challenges.

On Wednesday evening, management at the networking hardware and software company provided disappointing forecasts for the fiscal second quarter, ending in January, triggering a drop in stocks. As of Thursday morning, the stock was down 9.4% to $ 51.40.

For the October quarter, Cisco (ticker: CSCO) reported revenue of $ 12.9 billion, up 8% from a year ago, but slightly lower than Street’s consensus forecast of $ 13 billion. Profits on a non-GAAP basis of 82 cents per share were a dime above the upper limit of its advice range of 79 to 81 cents per share.

But for the January quarter, Cisco predicts revenue growth in the range of 4.5% to 6.5%, which at the midpoint means $ 12.6 billion, or about $ 300 million less. than the old Street consensus. Profits are expected to be between 80 and 82 cents per share, a range with a midpoint a dime lower than the 82 cents Street had predicted. Cisco has maintained its growth forecast of 5-7% for the full year ending in July. .

Cisco continued to see huge demand for its products. Orders were up 33% from a year ago, after growing 31% in the July quarter, and the company said its backlog was the highest on record. This included 200% growth in cloud providers and 66% growth in orders from telecommunications service providers, with 30% growth in orders from enterprise customers.

In an interview with BarronCEO Chuck Robbins noted that revenues could have been significantly higher had the company been able to resolve its logistics issues, which weigh on both revenues and margins.

The problems are many and familiar. The company cannot source enough chips, power supplies and substrates to produce what its customers want to buy. Cisco pays for expedited parts delivery, while also paying to cover the higher costs of air, ocean, and trucking freight. Cisco has increased the prices of some products, but these increases will take time to show up in the company’s income statement.

The company sees a non-GAAP gross margin for the January quarter in the 63.5% to 64.5% range, at the midpoint of 64.5% in the October quarter. That’s the same forecast Cisco provided a quarter ago, and it hit the top of the range in its latest results.

For the most part, analysts who cover Cisco see Thursday’s sell-off as a buying opportunity. Still, there were a few grunts about both the relatively slow growth in the company’s security business – it hit 4% year-over-year in the quarter – and the 7% decline in its business. “hybrid work” segment, which includes collaboration and call center. products, at a time when others in these areas are experiencing double-digit growth.

Evercore ISI analyst Amit Daryanani repeated an outperformance rating and a target of $ 67 on the stock. He sees potential for even higher heights. “While the guide is frustrating and somewhat validates fears about inconsistency, we believe that for patient investors, Cisco still has the potential to hit $ 80 and up,” he said in a note. of research.

Strong increases in orders from Cisco should give investors confidence in its growth in the years to come, as supply chain problems fade “and IT deployments accelerate thanks to the change of digital transformation He wrote.

Barclays analyst Tim Long was also bullish on order growth, saying it suggests a recovery in revenue that is expected to outlast cost pressures. The stock looks appealing, he said, given “a recovery in the networking industry, vertical cloud share gains and increased software content, which should be a tailwind for margins at. long term”.

He maintained an overweight position in equities while reducing his price target to $ 61 from $ 62.

Piper Sandler analyst James Fish was more cautious, repeating his neutral rating and target of $ 57. “It is an abnormal failure for Cisco which is a source of concern after the [recent] analysts’ day because others were better able to handle headwinds and software growth segments are missing, ”he said. “We continue to believe that Cisco needs more transformative mergers and acquisitions to achieve its long-term goals. “

Write to Eric J. Savitz at [email protected]