Technology

Cisco shares rally the most in nearly two years after earnings beat

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Chuck Robbins, Cisco CEO & Chairman, at the WEF in Davos, Switzerland on May 25th, 2022.
Adam Galica | CNBC

Cisco shares closed up about 6% on Thursday in their best day in almost two years after the computer networking company reported better-than-expected quarterly results and offered rosy guidance for the coming year.

Revenue declined slightly in the fiscal fourth quarter from a year earlier to $13.1 billion, but still exceeded the $12.79 billion average analyst estimate, according to Refinitiv. Earnings per share came in at 83 cents, beating by a penny.

Cisco has been grappling with supply chain constraints as a result of Covid-related lockdowns. Those issues finally started to recede in the latest quarter.

“We’ve been saying all along that we have a record backlog, and when the supply chain begins to ease that we would begin to see the revenues flow through,” Cisco CEO Chuck Robbins told CNBC’s “Squawk on the Street” on Thursday. “We saw some early easing in the supply chain which is positive, and we look ahead to the next year and we feel like it’s going to continue.”

For the 2023 fiscal year, Cisco called for 4% to 6% revenue growth, while analysts were projecting growth of just 2.3%. In the 2022 fiscal year, revenue increased by 3.4%. Analysts at Needham were optimistic after the results.

“Cisco guidance primarily reflects the existing backlog and expectations of improving parts availability as well as improved price increase realization,” wrote the Needham analysts, who have a hold rating on the stock. “The improving supply is helping revenue come in above street estimates.”

Cisco designs and sells a range of technologies that power the internet, and the company has struggled to grow as the technology world shifts away from physical boxes and toward cloud subscription software. Prior to Thursday’s rally, Cisco’s stock price was down 24% this year, while the Nasdaq had fallen 17%.

CFO Scott Herren said in a release that the company’s revenue for the quarter reflects strong execution of Cisco’s initiatives to combat the “global supply situation.”

Analysts at Loop Capital said in a Thursday note that Cisco is not seeing any sign of slowing demand, which reflects the value of networking technology.

“Simply said, networking is becoming too critical, and we are in the midst of an unprecedented investment cycle in networking,” they wrote.

However, analysts at JMP said supply chains will continue to pose problems for Cisco’s business.

“We believe supply chain constraints will limit growth for several quarters,” they wrote in a Thursday note.

WATCH: CNBC’s full interview with Cisco CEO Chuck Robbins

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