Cisco earnings are expected to rise with easing supply shortage

Cisco Systems Inc. gave an upbeat sales forecast for the first quarter. The company is basing its predictions on the fact that the COVID restrictions ease in China spells the end for supply chain issues and helps the company meet demand for its networking hardware.  As a result, shares of Cisco jumped 5 percent in extended trading. 

According to the results Cisco reported on Wednesday, networking hardware companies  have begun to succeed in dealing with a component crisis. It was the reason why manufacturers didn't benefit from a post-pandemic revival in digital infrastructure spending.

"After the COVID-19 outbreak in Shanghai in April, overall supply constraints began to ease slightly at the back half of the fourth quarter and early in the first quarter," said CEO Chuck Robbins. 

According to Refinitiv IBES, the large company that specializes in delivering networking forecasts revenue growth between 2 and 4 percent. Analysts say there will be no revenue growth. It is predicted that the annual revenue will increase by 4-6 percent. 

"The company has given a pretty good outlook as the current performance starts to overtake the stronger performance recorded last year. So, the annual and quarterly forecasts are seen as a sign of confidence by the company," said Elazar Advisors analyst Haim Siegel.

Nevertheless, the router, switch and communication tools manufacturers are concerned about the rising costs as it has to spend more on transportation and warehousing to ensure efficient delivery of components.

Chuck Robbins claimed that costs would continue to rise in the short term as a consequence of a decline in the gross margin percentage from 63.6 to 61.3 percent in April-June.

Based on this fact, Cisco projected profit of 82-84 cents per share, whose midpoint was below estimates of 84 cents.

Earnings, adjusted for stock option expense and non-recurring costs, were 83 cents per share, above analysts' expectations of 82 cents. Revenue of the company came in at $13.1 billion versus the $12.73 billion expected by analysts.