Cisco shares plunge as supply chain shortages drive revenue

Cisco Systems Inc forecast current-quarter revenue below expectations, as supply chain shortages and delays drive up costs.

The network gear maker's shares fell by 6.3% in extended trading after it said it expects second-quarter revenue to grow 4.5% to 6.5% year-over-year, compared to Wall Street expectations of about 7.4%.

Companies such as Cisco that use chips in their products are facing an unprecedented semiconductor shortage that has pushed up costs.

According to Scott Herren, Cisco Chief Financial Officer, said the company is facing higher transport and logistics costs in its supply chain. He said that Cisco is making progress on pinpointing and resolving component shortages, but getting everything to the right place is a challenge.

A lot of the subcomponents are coming via air than would have come traditionally, according to Herren. We have been hit by the port snarls in a couple of places. Cisco is trying to derive more of its sales from software, but it still gets most of its revenue from hardware. It expects to see the benefit from hardware price increases that came into effect on Sept. 1 later in the fiscal year, because it is still working through hardware backlogs.

Demand grew by 33% in the first quarter, but supply issues prevented this from being translated into revenue immediately, according to the company.

The company stood by its growth target of 5% and 7% in fiscal 2022, which was in line with analyst expectations of 6%, according to Refinitiv data. Herren said that there was a $15.9 billion backlog of remaining contracts, 60% of which are for services and 40% for software, which provides some stability despite hardware supply chain issues.

The stream looks like through the end of the year, according to Herren.

Revenue for the quarter ended October 30 was $12.90 billion. According to IBES, analysts on average had expected revenue of $12.98 billion.