Cisco forecasts downbeat profit as supply chain issues drive costs higher

FILE PHOTO: A man passes under a Cisco logo at the Mobile World Congress in Barcelona, Spain February 25, 2019. REUTERS/Sergio Perez

(Reuters) – Cisco Systems Inc forecast current-quarter profit below expectations, as supply chain issues including high chip prices pushed up costs at its networking hardware business, sending its shares down 6.3%.

Businesses across the globe have been facing an unprecedented semiconductor shortage that has inflated costs, hurting companies such as Cisco which use chips in their routers.

The company faced a “very dynamic supply environment” in the quarter, Chief Executive Officer Chuck Robbins said in a statement.

Cisco expects second-quarter revenue to grow 4.5% to 6.5% year-over-year, compared with Wall Street expectations of about 7.4% increase.

The company said its orders grew 33%, signalling strong demand, though supply issues prevented them from translating into revenue during the reported quarter.

Cisco, known mainly for its networking hardware, expects to derive almost half of its revenue from software and other recurring sales within four years.

Industry experts say Cisco is set to benefit from a boom in cloud computing and 5G adoption in an increasingly digital world. But supply issues including chip shortages and shipping bottlenecks, which are expected to continue affecting the sector in the near term, have prevented the company and its peers from capitalizing on strong demand.

The San Jose, California-based company said it expects second-quarter profit per share between 80 cents and 82 cents, with the midpoint narrowly missing Refinitiv IBES estimates of 82 cents.

Revenue for the quarter ended Oct. 30 was $12.90 billion. Analysts on average had expected revenue of $12.98 billion, according to IBES data from Refinitiv.

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