Cisco Systems experienced its most significant stock decline in over two years following a lower-than-anticipated profitability forecast, indicating that rising memory-chip prices are impacting the company’s bottom line. The adjusted gross margin, representing the percentage of sales remaining after production costs, is projected to be approximately 66 per cent for the quarter ending in April, according to a company statement. This falls short of analysts’ average estimate of 68.2 per cent.
The disappointing outlook overshadowed an otherwise positive sales forecast driven by increasing revenue from artificial intelligence. This caused Cisco’s shares to plummet by more than 11 per cent in New York trading on Thursday, marking the steepest intraday drop since November 2023. Despite this recent downturn, Cisco’s stock had increased by 30 per cent in the previous year.
Cisco Systems, the largest networking equipment manufacturer, utilizes memory chips in a wide array of its products. Like the broader technology sector, Cisco is grappling with a shortage of these critical components. The company has also invested in adapting its equipment to meet the evolving demands of artificial intelligence applications.
Chief Executive Officer Chuck Robbins addressed the challenges posed by the memory chip shortage during a conference call. He stated that Cisco is actively managing the situation by increasing prices, revising customer contracts, and negotiating favourable terms with suppliers. Robbins expressed confidence in Cisco’s ability to navigate these industry-wide dynamics more effectively than its competitors.