Cisco expects revenue growth as supply chain pressures ease

(Reuters) – Cisco Systems Inc gave a positive forecast for first-quarter sales as a COVID-19 recovery in China eases supply chain shortages and helps meet demand for networking hardware , boosting the company’s shares by 5% in extended trading.

The results announced Wednesday suggest that network equipment manufacturers have begun to overcome the component crisis that had prevented them from exploiting a post-pandemic recovery in digital infrastructure spending.

“After a difficult April due to the COVID-related shutdowns in Shanghai…overall supply constraints began to ease slightly in the second half of the fourth quarter and continued into the start of the first quarter,” said general manager Chuck Robbins in a post-earnings call.

The networking giant expects current-quarter revenue to grow between 2% and 4%, while analysts expected it to remain flat, according to Refinitiv IBES data. Annual revenue is expected to jump 4% to 6%.

“The guide was quite good because they are starting to overtake the previous year’s numbers. So the guide for the year and the quarter is seen as a sign of confidence by the company,” said Chaim Siegel, analyst at Elazar Advisors.

Still, rising costs are a concern for the maker of routers, switches and communication tools, as it spends more on freight and logistics to ensure a steady supply of components.

After gross margins fell in the April-June quarter to 61.3% from 63.6%, CEO Robbins said rising costs would continue in the near term.

That was reflected in its adjusted first-quarter earnings forecast of 82 to 84 cents, the midpoint of which was below estimates of 84 cents.

Fourth-quarter adjusted earnings were 83 cents per share, one cent above estimates. Revenue reached $13.1 billion, beating expectations of $12.73 billion.

(Reporting by Yuvraj Malik and Tiyashi Datta in Bengaluru; Editing by Aditya Soni)

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