Cisco posted revenue in its third fiscal quarter which was flat year on year, but warned it expects sales to decline in its fiscal Q4 due to worsening supply chain shortages.
Sales for fiscal Q3 (which ended April 30) totaled $12.8 billion, coming in at the same level as the year prior, while profit rose 6% to $3 billion. Revenue from its Secure, Agile Networks business rose 4% year on year to $5.9 billion. It’s Internet for the Future unit sales increased 6% to $1.3 billion, with End-to-End Security up 7% to $938 million and Optimized Application Experiences up 8% to $183 million. Collaboration revenue was down 7% to $1.1 billion. Services revenue fell 8% to just under $3.4 billion.
On an earnings call, CEO Chuck Robbins said the company’s fiscal Q3 performance was hampered by its decision to cease operations in Russia and Belarus in light of the war in Ukraine as well as Covid-related lockdowns which took effect in China in late March.
“These lockdowns resulted in an even more severe shortage of certain critical components. This in turn prevented us from shipping products to customers at the levels we originally anticipated heading into Q3,” Robbins explained. It’s inability to get power supplies out of China contributed to a $300 hit to revenue, he stated.
CFO Scott Herren added it absorbed a $200 million blow related to the withdrawals from Russia and Belarus, noting the countries and Ukraine historically accounted for 1% of its total revenue.
Looking ahead, Cisco forecast revenue will slide between 1% and 5.5% year on year in its fiscal Q4. However, it still expects to achieve revenue growth for the full year to the tune of 2% to 3%.
“We believe that our revenue performance in the upcoming quarters is less dependent on demand and more dependent on the supply availability in this increasingly complex environment,” Robbins said. He noted that the city of Shanghai, which is where the aforementioned lockdowns were most severe and lasting, expects to reopen around June 1. But even once that happens Robbins said he expects there to be significant congestion at ports and airports.
“We just believe that it's going to be impossible for us to catch up on this issue in Q4, which is what led to the guidance,” Robbins stated. He added Cisco’s teams have been working over the past six to nine months on “a lot of mitigating actions, redesigning 100 products, over 100 products to give us component diversity. We believe that a combination of those starting in our Q1 and in the first half of our year will start to see the benefit of that.”