The uncertainties that the return of containment zones in China and the Russian military operations are weighing on the world economy have adverse consequences for players in the network market and in particular Cisco. The results of the equipment manufacturer for its third fiscal quarter 2022 show it. Unable to satisfy all of its customers’ requests due to the general lack of components, the equipment manufacturer has seen its order book grow again strongly. At the end of April, it amounted to $15 billion, to which must be added $2 billion in software. These unrealized potential revenues caused Cisco’s quarterly revenue to stagnate at $12.8 billion (+3% in product sales, -8% in services). In addition, the cessation of activity that the company has voluntarily implemented in Russia and Belarus against the background of aggression from Ukraine has amputated $200 million in profits. Cisco thus closed its third quarter of 2022 with $3.6 billion in net income (+3%).
“Traditionally, Russia, Belarus and Ukraine collectively account for around 1% of our billings. In the third quarter, our execution rate in these countries was a bit higher, due to additional revenue charges we experienced. It’s bad debts and other things,” Cisco CFO Scott Herren told an analyst conference. As for the situation in China, it now seems that Shanghai should be deconfined on June 1, said Chuck Robbins, the company’s CEO. The latter, however, cannot say when the supplies will begin to circulate again. And when it does, it’s a safe bet that the shipping lanes will be congested.
Up to -5.5% in anticipated revenue in Q4
For its fourth fiscal quarter, Cisco expects supply difficulties on approximately 250 critical components, out of a total of 41,000 unique components. “Our logistics team is actively exploring options to fill these shortages,” said Scott Herren. “We work on these shortages every day, and every day some of them are resolved, and then every day more are added to the list,” he continued. Essential work since Chuck Robbins believes that Cisco’s performance over the next few quarters will be less dependent on demand and more linked to the availability of offers in an increasingly complex environment.
Things do not really seem to be improving, the supplier anticipates a drop in turnover of between -1 and -5.5% for its fourth quarter of 2022. The operating margin should be between 31 .5% and 33.5%. Over the full year, Cisco expects revenue to increase by 2 to 3%. These rather bleak forecasts caused Cisco’s share price to fall by 19% after the company’s quarterly results were released. A decline which reflected on the quotation of the supplier’s competitors after the close of regular trading: Arista (-6%), Juniper (-10%), Ciena (around -9%) and F5 (-3%). Both Arista and Juniper have reported significant order backlogs over the past few weeks.