Cisco gives dreary forecast for Q4 but claims 'demand is not the issue'

The networking giants were affected by two major events during the quarter

Cisco is continuing to see "solid demand" for its technologies despite two major events which it says led to its third fiscal quarter "not playing out as expected".

The networking giant's revenue were flat year on year in Q3 2022 at $12.8bn, with product revenue up three per cent and service revenue down eight per cent.

The quarter saw Cisco cease business operations in Russia and Belarus, which impacted its revenue by $200m, whilst Covid-19 related lockdowns in China resulted in a shortage of critical components.

But Cisco CEO Chuck Robbins said that "the fundamental drivers across our business are strong and we remain confident in the long term".

During a conference call over the results, he was quoted by Seeking Alpha as saying: "While the quarter clearly did not play out as expected, demand remains solid and the fundamentals of our business are strong. We remain focused on executing against the strategy we laid out at our Investor Day."

The financial results showed Cisco's total software revenue was $3.7bn, a decrease of three per cent, with its software backlog growing to more than $2bn.

Robbins said this is shortfall is due to its reliance on a piece of hardware, with the revenue not being recognised until the hardware ships.

Meanwhile, product order growth was up by eight per cent year-over-year leading to a record backlog of well over $15bn, whilst its annualised recurring revenue (ARR) was up 11 per cent.

"This momentum reaffirms the critical role we play in our customers' futures," Robbins said.

He added: "The technology (customers) are adopting from Cisco is driving their business agility, allowing them to move with greater speed and empowering them to deliver differentiated experiences for their customers."

For the fourth fiscal quarter, Cisco expects a year-over-year decline in revenue of one per cent to 5.5 per cent and 76 cents to 84 cents in adjusted earnings per share.

Although Robbins said that the "top line numbers don't look good", he added: "We believe that our revenue performance in the upcoming quarters is less dependent on demand and more dependent on the supply availability in this increasingly complex environment.

"While certain aspects of the current situation are largely out of our control, our teams have been working on several mitigation actions to help alleviate many of the component issues that we've been facing. We believe that we will begin to see the benefits of these actions in the first half of next fiscal year."