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Cisco slides 14% as China's COVID lockdowns lead the networking equipment maker to warn of a quarterly sales decline

Carla Mozée   

Cisco slides 14% as China's COVID lockdowns lead the networking equipment maker to warn of a quarterly sales decline
  • Cisco stock slumped Thursday on the tech company's guidance for sales to fall in the current quarter.
  • The networking equipment maker said China's COVID lockdowns have hurt its supply chain.

Cisco stock tumbled Thursday after the tech heavyweight warned its current-quarter sales will fall as COVID lockdowns in China have disrupted supply chains.

The networking equipment maker and services provider late Wednesday said it expects fiscal fourth-quarter sales to decline between 1% and 5% from the same period a year earlier. Analysts polled by FactSet had been looking for a 5.9% expansion to $13.9 billion.

The stock dropped by as much as 14% to $41.36, the lowest price since November 2020, and the 24 million shares exchanged outstripped average daily volume of about 22 million shares within the first hour of trade.

Cisco said it saw "solid demand" during its fiscal third quarter but sales were hurt by coronavirus lockdowns in China and the war in Ukraine launched by Russia in late February. The situation in China remains a pressure point in its current fiscal fourth quarter.

"Shanghai now is saying they're going to open up June 1. We don't know exactly what that means," and what impact that will have on securing parts that it needs for production, Cisco CEO Chuck Robbins said on the company's conference call, according to a transcript.

"And correspondingly we believe when they open up and when they do allow transportation logistics to start up, we believe there is going to be a high degree of congestion," with sharp competition for access ports and airports, he said.

Robbins said Cisco had "experienced an entire quarter of the China lockdowns," with work seizing up primarily in Shanghai. Officials in the country's most populous city ordered millions of people in late March to stay at home from work to slow the spread of the respiratory disease.

Cisco's "inability to get power supplies out of China" led to a $300 million reduction in third-quarter revenue and sales were hurt by $200 million because of Russia's war in Ukraine, said Robbins who also serves as chairman.

The company said it sees constraints on about 350 critical components out of 41,000 in the fourth quarter.

"Our supply chain team is aggressively pursuing multiple options to close those shortages," Scott Herren, Cisco's chief financial officer, said in late Wednesday's conference call.

Third-quarter adjusted earnings were 87 cents a share on flat revenue of $12.8 billion. Analysts had expected 86 cents a share in adjusted earnings on $13.3 billion in revenue.

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