Cisco Shares Drop 12% Due to Company’s Bleak Guidance.
In recent market upheaval, Cisco experienced a significant 12% dip in its stock value, a direct aftermath of their latest quarterly report.
Although the company surpassed expectations on both revenue and earnings, the outlook provided by Cisco fell short of market projections, prompting concern among investors and analysts.
Despite posting adjusted earnings per share of $1.11, surpassing the anticipated $1.03 according to LSEG (formerly Refinitiv), and reporting $4.67 billion in revenue against the $14.61 billion projection, Cisco’s guidance for the fiscal second quarter wasn’t in line with market estimates.
The company’s forecast of 82 cents to 84 cents in adjusted earnings per share on $12.6 billion to $12.8 billion in revenue for the upcoming quarter implies a 6.6% revenue decline. This projection came as a surprise, significantly lower than the anticipated 99 cents in adjusted earnings per share on $14.19 billion forecasted by analysts polled by LSEG.
The CEO, Chuck Robbins, identified a shift in the bottleneck within the supply chain. He highlighted that the previous bottleneck, seen in the supply chain, had now moved downstream to the implementation phase by their customers and partners. This transition has resulted in a slowdown in orders as customers deploy Cisco products acquired in preceding quarters.
Analysts quickly honed in on this lowered revenue guidance despite the positive earnings and the upward revision of the full-year earnings. Goldman Sachs analysts highlighted that Cisco’s product orders decelerated due to customers digesting inventory, with Cisco estimating that customers might need 1-2 quarters to fully absorb this inventory.
Bank of America analysts added that a 20% decline in product orders resulted in a 6% downward swing in FY24 revenue guidance, amounting to a $3.2 billion cut.
They clarified that this decline was not attributed to competitive factors but rather a return to the true revenue environment, excluding backlog drawdown support, with additional weakness tied to orders reverting to the mean after the notable 17.4% and 20.3% product revenue growth in 3Q23 and 4Q23, respectively.
The market’s response to Cisco’s weaker-than-expected guidance seemed to reflect concerns about the underlying factors contributing to this shift. While the company outperformed in terms of earnings and even adjusted its full-year earnings upward, the apprehension stemmed from the projection of a decline in revenue for the coming quarter.
The intricacies of the supply chain bottleneck, coupled with customers’ slower implementation of acquired products, painted a less optimistic picture for Cisco’s near-term performance.
Investors and analysts are closely monitoring how Cisco navigates through these challenges and whether the current slowdown in orders is a transient phase or indicative of a more persistent issue.
The company’s ability to address the bottlenecks in the supply chain and expedite customer implementation could be crucial in restoring market confidence and sustaining growth momentum moving forward.
