Cisco Eases Supply Chain Worries, Stock Pops

Turns out, supply-chain worries were overblown. Despite a lot of chatter about continued supply-chain disruptions for Cisco gear, the networking giant on its earnings call Wednesday afternoon issued a more upbeat forecast and said supply-chain disruptions are easing.

"Overall supply constraints began to ease slightly at the back half of the fourth quarter and continuing into the start of Q1," said Cisco CEO Chuck Robbins on the corporate earnings conference call.

Cisco shares popped up early on Thursday, rising +$2.82 (+6.04%) to 49.48 in early-morning trading. Investors were breathing a sigh of relief as they had clearly expected worse. Cisco shares have fallen 24% this year, with the maximum pain coming in the last quarter when the company had to revise expectations down.

Cisco reported revenues of $13.1 billion for its fiscal fourth quarter, which was flat from a year ago and slightly above analyst estimates of $12.75 billion. Cisco reported net income of $2.8 billion, which declined from $3 billion a year ago. For the fiscal year 2022, Cisco reported $51.6 billion in revenue, up 3% over the previous year.

Inflation Pressures Expected to Ease

On the conference call, Robbins issued a more sanguine forecast and said that recent struggles with components inflation and the supply chain are expected to ease.

"We do expect to continue to experience higher costs in the short term, driven primarily by higher component, freight, and logistics costs, which is reflected in our Q1 guide. However, as you'll see in our annual guidance, we expect this margin pressure to begin to ease as the year progresses. Long term, there are many multiyear growth opportunities ahead of us that gives me confidence in our future."

For the 2023 fiscal year, Cisco expects adjusted earnings per share of $3.49 to $3.56 and 4% to 6% revenue growth. Analysts polled by Refinitiv had expected adjusted earnings of $3.53 per share.

Still Struggling for Growth

Despite a more stable quarter, the company is still struggling to grow. Its second-largest unit, Internet for the Future, reported $1.26 billion in revenue, which was down 10% from a year ago. Growth in this unit surged last year after the acquisition of Acacia Communications, Cisco's key optical component supplier, but it now appears to be flattening out, indicating most of the growth was simply acquired revenue from Acacia.

Cisco’s largest business segment, Secure, Agile Networks, reported revenue of $6.09 billion, which was down 1% from a year earlier but above the $5.86 billion consensus estimates. Cisco's core enterprise business has been flat for years as it continues to lose market share to fast-growing competitor Arista Networks.

In addition, the company reported that new product orders were down 6% year-after-year. That comes after a surge in orders in the past few quarters when customers feared lack of product supply. That over-ordering theme seems to be settling down.