Cisco’s Positive Sales Forecast Hints at Easing Supply Chain Shortages

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Cisco gave a positive forecast for first-quarter sales as a COVID-19 recovery in China eases supply chain shortages and helps it meet demand for networking hardware, sending the company’s shares 5 percent higher in extended trading. The results announced on Wednesday suggest networking equipment makers have started overcoming the component crunch that had kept them from tapping a post-pandemic revival in digital infrastructure spending.

“After a challenging April due to the COVID-related shutdowns in Shanghai … overall supply constraints began to ease slightly at the back half of the fourth quarter and continuing into the start of Q1,” Cisco Chief Executive Chuck Robbins said on a post-earnings call.

The networking major expects current-quarter revenue to rise between 2 percent and 4 percent, while analysts predicted it would remain flat, according to Refinitiv IBES data. Annual revenue is forecast to jump 4 percent to 6 percent.

“The guide was good enough because they start lapping stronger year-ago numbers. So the guide for the year and quarter are seen as a sign of confidence by the company,” Elazar Advisors analyst Chaim Siegel said.

Still, rising costs are a cause of concern for the maker of routers, switches and communication tools as it spends more on freight and logistics to ensure a steady supply of components.

After a drop in gross margins in the April-June quarter to 61.3 percent from 63.6 percent, CEO Robbins said higher costs would continue in the short term.

That was reflected in its first-quarter adjusted profit forecast of 82 (Rs. 65.40) to 84 cents (Rs. 66.99), whose midpoint was below estimates of 84 cents.

Fourth-quarter adjusted profit was 83 cents (Rs. 66.20) per share, one cent above estimates. Revenue came in at $13.1 billion (roughly Rs. 1,04,500 crore), beating expectations of $12.73 billion (roughly Rs. 1,01,500 crore).

© Thomson Reuters 2022