This marks the sharpest decline in market activity since the March 2020 pandemic sell-off.
While it’s been all-hands-on-deck in the greater Wall Street, investors and traders rush to shed off lightweight stocks and dump equities as fears loom over another Fed rate hike, rampant inflation, and economic slowdown.
The downturn in Cisco’s earnings is a broad combination of China’s Zero Covid lockdown regulations, geopolitical tension between Russia and Ukraine, and slowing sales in the consumer market, as many are cutting back on frequent spending as prices have soared to their highest in more than four decades.
These events outside of Cisco’s control have spooked off investors, and for 2022, CSCO prices have come down as much as 33.95%.
In its earnings report, the company said that sales would decline by 1% to 5.5% for this quarter, with analysts’ predictions standing at 6% for the period.
According to its share earnings, prices per share adjusted were $0.87 per share against the $0.86 per share predicted. Revenue was down to $12.84 billion versus the $13.34 billion some analysts penned.
Even with these numbers, investors are still not convinced that the upcoming quarter will see Cisco outperform Wall Street’s estimates.
Is Cisco feeling the cold for conditions outside of its control?
For starters, the company managed to cut ties with Russia after the country invaded Ukraine earlier in the year. More so, Cisco also stopped its business in Belarus, an ally of Russia. These three countries make up roughly 1% of total sales but saw the company take a $200 million decline in revenue.
Then the Zero Covid lockdowns in China added even more strain to an already tight supply chain, which cost the company an additional $300 million in revenue. China is set to reopen on June 1, but executives of the company are not quite sure how fast supply chain constraints will be resolved once the country finally reopens.
Many are also concerned over the fact that consumers have also drawn back on spending, as inflation has hit record high numbers in recent months.
Although this is a key factor that holds some investors off, the company mentioned that the top line figures are set to grow in the coming quarter, as smaller consumer sales have been increasing even in tight economic conditions.
Where is Cisco heading?
The upcoming quarter could reveal a different scenario, and that could Cisco on track to see share prices increase on the back of consumer orders and ongoing global sales increase.
Cisco also recently changed some of its policies, limiting customers, by not allowing them to cancel orders within 45 days of the committed shipping date.
This coupled with tightening its spending budget, and the recent no-cancellation policy helped sales jump by 19%. Perhaps this could be a win for Cisco in the coming quarter.
Then, in the hopes that supply chain constraints at ports in China are fully operational again by mid-summer, investors might shake off their negative sentiment over the broader market.
But supply chain constraints won’t be resolved during the summer, as the battle for cargo at ports and airports will be a tight one.
There’s still too much uncertainty surrounding the situation in Ukraine and Europe, for that matter.
It’s possible that Cisco could see several increases in its sales, but it might still take a lot before overall revenue could see positive growth. In terms of expansion, the changing lockdowns across the world have met the company with slower growth in this period, and perhaps over the summer months, a larger number of deals could give the company a boost.
Cisco is perhaps right in the midst of a firestorm, as the broad market sentiment has hit its lowest since the early months of the pandemic.
Recent quarter earnings might’ve been lower than Wall Street predictions, but that’s mainly caused by occurrences outside of the company’s control.
There’s a slight chance that Cisco could be poised for positive growth in the next few months, and CSCO could perhaps move slightly north again as the company tightens its spending and looks to resolve issues that have been drawing them back.