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Cisco warns that a shortage of chips will affect gross margins and will consider price increases if necessary.

Published :5/20/2021 7:08:29 AM

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News on May 20 According to reports, Cisco said on Wednesday local time that tight chip supply will affect its profit margins this quarter.

Although Cisco's financial performance last quarter was stronger than expected, the warning caused Cisco's stock price to fall nearly 6% in after-hours trading.

Other companies have also warned of the impact of supply shortages, especially the automotive industry, but the news from Cisco will more directly reflect the pressure on the industry.

Cisco warned that due to higher costs, the gross profit margin for this quarter may be about 1.5 percentage points lower than the previous quarter. Revenue for the quarter increased by 6%-8%. Although higher than Wall Street’s expectations, it was still lower than expected under normal supply conditions.

Scott Herren, Cisco’s chief financial officer, said that Cisco has to bear higher cost prices to ensure the delivery of chips and other key components in the next few months. The soaring cost of air transportation in order to maintain the operation of the production line.

Herren said that he expects the chip shortage will continue until the end of 2020. Without these restrictions, Cisco's revenue forecast will be even higher.

The company said in a statement on Wednesday that its fourth-quarter sales will increase by 6% to 8% over the same period last year. This shows that revenue is between US$12.9 billion and US$13.1 billion, while analysts’ average expectation is US$12.8 billion. According to data compiled by Bloomberg, excluding certain items, the company’s quarterly earnings per share were 81 to 83 cents, which was lower than the 85 cents expected by analysts.

Total sales in the third fiscal quarter were $12.8 billion, an increase of 7% from the same period last year. The profit after deducting certain items was 83 cents per share, which exceeded the average expectation of 1 cent.

Under the leadership of Cisco CEO Chuck Robbins, Cisco is trying to reinvent itself as a provider of network services and software. Despite the revenue growth from these newer products, Cisco still gets most of its sales from hardware. Software revenue increased by 5%, security increased by 13%, and infrastructure platforms (such as switches and routers) increased by 6%.

Robbins said that Cisco chose to absorb the rising costs to a large extent, rather than choosing to deal with price increases. However, if the trend of rising costs begins to appear, Cisco will consider price increases when necessary.

Cisco executives claim that Cisco has begun to get out of the epidemic and is beginning to see the benefits of shifting its business model to more profitable software and services.

The extreme pressure caused by the chip shortage has caused various companies to stock up on key components and products. Some analysts therefore question whether Cisco's own sales have been artificially exaggerated. Robbins said that the company did not find any signs that customers are hoarding inventory, but he added: "We agree that there are early warning signs."