Cisco forecast takes a knock from supply chain snags

(Reuters) -Cisco Systems Inc forecast current-quarter revenue below expectations as the ongoing supply chain issues have hit production and are expected to drive up costs into the next couple of quarters.

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

Shares of the network gear maker fell 6.3% in extended trading after it said it expects second-quarter revenue to grow 4.5% to 6.5% year-over-year, compared with Wall Street expectations of about 7.4%.

Businesses across the globe are facing an unprecedented semiconductor shortage that has pushed up expenses, hurting companies such as Cisco that use chips in their products.

“There’s no question that, that second quarter guide is impacted by the supply chain,” Chief Financial Officer Richard Herren said in a post earnings call with analysts. “The component supply issues that are putting a headwind on what we can get pushed out the door.”

The company said it was taking steps to tackle supply chain constraints to increase its production and delivery, but those issues combined with cost increases from suppliers are putting pressure on its gross margins.

“While we thoughtfully raised prices to offset this impact, the benefits are not immediate and will be recognized over the coming quarters,” Chief Executive Officer Chuck Robbins said.

Cisco, known mainly for its networking hardware, said it expects to see the benefit from its price increases that came into effect on Sept. 1, in the third and the fourth quarters.

The company said its orders grew by 33% in the first quarter ended Oct. 30, suggesting strong demand, but supply issues prevented the orders from translating into revenue.

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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