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Component shortages and supply chain constraints, along with lowered Q2 guidance, cast shadow over US tech giant.
Cisco saw its share price tumble by nearly 9% (when Light Reading last looked) after announcing its fiscal Q1 2022 results.
Despite a fuller order book than expected, component shortages have hindered the US tech giant from translating increased demand into higher turnover. Cisco CFO Scott Herren told Reuters that the company is also facing higher transport and logistics costs in its supply chain.
Figure 1: Cloud forecast: Component shortages and supply chain constraints, along with lowered Q2 guidance, cast shadow over US tech giant.
(Source: Cisco)
"A lot more of the subcomponents are coming via air than would have come traditionally," he said. "The port snarls have hit us in a couple of places." So much so in fact that Cisco’s mid-point Q2 revenue guidance – 5.5% growth year-on-year – is well short of analyst consensus of 7.3% (according to a research note by WestPark Capital).
As for Q1, although revenues were up 8% year-on-year to $12.9 billion (which includes acquisitions), it was slightly lower than WestPark Capital’s $12.94 billion forecast. While WestPark’s Michael Genovese acknowledged Cisco’s supply-chain headwinds, he added that the broker house was "disappointed" by the company’s software revenues, which were flat year-on-year (and well off the pace compared to the 8% jump in total revenue).
Genovese further noted that although subscription revenues were up 4% year-on-year, they too "underperformed" the growth rate of the overall business. On the upside, Genovese judged Q1 EPS of $0.82, and a Q2 EPS guidance of $0.80-$0.82, as "solid compared to consensus" owing to lower-than expected opex.
Cisco stuck to its overall fiscal 2022 growth target of between 5% and 7%, which, according to Refinitiv data, is in line with analyst expectations of 6%.
Order, order
Encouragingly for Cisco, Q1 showed stronger than expected product orders (up 33% year-on-year, versus 31% the previous quarter) WestPark, helpfully, gives a breakdown, Service provider orders accelerated to 66% year-on-year (compared to 40% in 4Q FY21), while commercial market orders improved 46% year-on-year. Enterprise orders were up 30% year-on-year.
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"The only disappointment," said Genovese, "was public sector orders." These were up by a comparatively modest 10% year-on-year.
"Our sense is that the order book is getting pumped up by customers getting orders ahead of Cisco's price increases," reckoned Jefferies analyst George Notter.
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— Ken Wieland, contributing editor, special to Light Reading
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