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Cisco's Profit Warning: Chip Costs Hit Hard
12 Feb
Summary
- Cisco forecasts lower profitability due to rising memory chip prices.
- AI revenue growth supports strong sales outlook, but margins concern investors.
- Company is negotiating with suppliers and raising prices to manage chip shortage.
Cisco Systems Inc. has issued a profit forecast that has raised concerns among investors, indicating that escalating memory chip prices are impacting its bottom line. The company projected an adjusted gross margin of 65.5% to 66.5% for the current quarter, falling below the 68.2% estimated by analysts.
This outlook overshadowed a strong sales forecast, which is being bolstered by increasing revenue from artificial intelligence. Cisco, a major networking equipment manufacturer, is contending with a widespread shortage of memory chips. The company is actively managing this challenge by increasing prices and renegotiating customer contracts.
CEO Chuck Robbins expressed confidence in Cisco's ability to navigate the industrywide dynamic better than its peers. While shares experienced a dip in late trading following the report, the company's sales outlook for the current period is projected to reach $15.4 billion to $15.6 billion. Cisco also anticipates substantial AI orders from hyperscalers, reaching $5 billion by fiscal year 2026.
