Cisco cuts forecast as China’s COVID lockdowns hit third-quarter sales

Cisco cuts forecast as China's COVID lockdowns hit third-quarter sales
REUTERS/Eric Gaillard

(Reuters) – Cisco Systems said on Wednesday it has cut its full-year earnings forecast after COVID lockdowns in China and the war in Ukraine dragged sales below estimates in the third quarter, sending shares down 13% in extended trading.

It also said fourth-quarter revenue would decline by 1% to 5.5%, becoming the latest US company to outline a hit from Beijing’s “Zero COVID” policy that has worsened supply-chain snags and hurt demand amid rising inflation.

Executives from the company flagged severe component shortages over the coming quarters and said third-quarter revenue growth took a $200 million hit from ceasing operations in Russia and Belarus.

Cisco, which sells networking equipment and software to connect devices to the internet, now expects revenue growth of 2% to 3% in fiscal 2022, compared with an earlier forecast of 5.5% to 6.5%.

Adjusted profit is estimated between $3.29 and $3.37 per share from $3.41 to $3.46 per share earlier.

“We believe that there’s going to be lots of competition for ports capacity, airport capacity,” finance chief Scott Herren told analysts.

“That, combined with the inbound efforts, trying to get raw materials back into the country, et cetera, we believe it’s going to be impossible for us to catch up on this issue in Q4.”

The dismal results pulled down shares of other networking firms in extended trading. Juniper Networks, F5, Arista Networks and Ciena dropped between 2.7% and 7%.

“This quarter strikes me as nothing more than a stubbed toe,” CFRA analyst Keith Snyder told Reuters.

“While guidance is disappointing, it is understandable given these headwinds. The revenue performance in the upcoming quarters is less dependent on demand and more dependent on supply availability.”

Cisco reported third-quarter adjusted profit of 87 cents on revenue of $12.8 billion, compared with expectations of 86 cents on revenue of $13.87 billion, according to IBES data from Refinitiv.

(Reporting by Eva Mathews and Yuvraj Malik in Bengaluru; Editing by Devika Syamnath)

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