Cisco Systems Inc. Shares hit their worst day in more than a decade on Thursday, as analysts expressed concern that China’s coveted shutdown has complicated supply-chain problems for technology giants that have been able to alleviate smaller rivals.
Top executives at Tech Belvedere blamed the company’s disappointing outlook on Wednesday afternoon on supply constraints due to a cove-related shutdown in China. Analysts were skeptical of those claims on Thursday, although the size of Cisco indicates it could work against the company.
Read: Opinion: Cisco blames China’s lockdown for cutting its forecast, but could have deeper problems
“Yes, supply-chain issues are affecting many companies, but Cisco seems to be more affected than others,” wrote City Research analyst Jim Subha. “We believe that this is due to the fact that Cisco has a lot more products than its counterparts, which is convenient for customers at the time of adequate supply, but at the moment such complexity is a negative.”
In its call with analysts, Cisco noted that it had about 350 “potential supply concerns” out of 41,000 unique components.
“The lack of basic logistics for capacitors and resistors isolated from the power supply from semiconductors, as well as moving products in and around China, has become even more challenging due to the COVID protocol,” said Subha. “We notice that other companies have diversified their supplier base better than Cisco and it is now revealing such differences.”
Full income coverage: ‘We had no plans to close a country’ – Cisco stock sinks as China locks down supply and outlook
For example, Subha cites Arista Networks Inc., a provider of cloud-software and data-centers. ANET,
Which reported the results of losing Wall Street estimates earlier this month and predicted that the current quarter could generate 1 billion in revenue for the first time, representing a 40% increase from a year earlier.
Shares of Arista fell 1.4% on Thursday, while the S&P 500 index SPX,
Ended 0.6% lower.
According to Factset, Subhai is the only analyst out of the company’s 29 tracking analysts to give Cisco a “sell” rating. He played that difference in his note on Thursday, when he lowered his price target from 45 to $ 40; At least 14 other analysts cut their targets on stocks in response to Wednesday’s earnings report.
Eric Sapiger of JMP Securities, which has a market performance rating, believes that “both the Cisco data center and the campus switching market are struggling to protect its market share against Arista,” based on his research.
“While Cisco seems to be entering the hyperscaler data-center market, we do not believe that Cisco is displacing Arista, where our checks suggest that Arista is displacing Cisco in enterprise accounts,” said Supiger.
Regarding how supply-chain issues are hurting Cisco’s outlook, UBS analyst David Vogt says “colleagues have become more constructive about response levels and potential durations.” Vogt has a neutral rating and has lowered its price target from $ 59 to $ 46.
“Given the level of deficit, we expect the material headwind to continue in the next 2-4 quarters,” Vogue said.
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Morgan Stanley analyst Meta Marshall, who has an equal-weight rating and lowered his price target from $ 59 to $ 46, questioned whether Cisco’s report was “calm before the storm or calm before the storm.”
“We’ve noticed that enterprises are starting to make smaller purchases given inflationary costs / rising financing costs (vs. capex spending,” he said. “It simply came to our notice then [to downgrade to underweight] Cisco had the backlog and flexibility to achieve meaningful earnings growth (and already an assessment as a 10-year average). “
Marshall mentioned to Cisco that it had a backlog of more than $ 15 billion because “100% supply” issues prevented it from meeting customer demand.
Samip Chatterjee, an analyst at JPMorgan, which has an overweight rating and lowered its price target from $ 67 to $ 62, Cisco reported late Wednesday that “growing concerns about supply challenges will leave investors with more questions than answers related to demand stability.”
Chatterjee said he was “more interested in telling investors to look beyond the challenging metrics in the 90-day period, which a year ago faced a combination of supply headwinds as well as revenue / order headwinds due to the exit from Russia and tough comparisons, with one extra week. Was a quarter. “
Analyst JP Morgan was quoted as saying that the trend of orders was still above double-digit percentage when adjusting for Russia and the extra week and small to medium business growth was 19%, which he said was a clear indicator of macro demand Increase in number.
Over the past 12 months, Cisco shares have fallen 20.5%, compared to a 7.8% drop in the Dow Jones Industrial Average DJIA.
Of which Cisco is a component, the S&P 500 fell 5.2%, and the tech-heavy Nasdaq Composite Index comp fell 14.4%,
Meanwhile, Arista shares are up 25% from 12 months ago.
Of the 29 analysts who have covered Cisco, 14 have a bi-grade rating, 14 have a rating, and Subha is the only analyst with a sales rating. The average target price was $ 53.09, down from the previous $ 62.85, according to Factset data, following Thursday’s price-target decline.