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Cisco Facing Headwinds, TheStreet.com's AAP Team Says

Shares of computer-networking-products giant Cisco stumbled after signs of weakness appeared in its latest earnings report.
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Cisco Systems  (CSCO) - Get Cisco Systems Inc. Report has stood as a technology stalwart over the past 30 years, but its outlook now isn’t so hot, according to TheStreet.com’s Action Alerts PLUS team.

Shares of the San Jose, Calif., computer-networking-products company stumbled after signs of weakness appeared in its latest earnings report. 

“It issued disappointing forward guidance after reporting a mixed bag for its April quarter,” said the AAP team.

Cisco's revenue was essentially flat year over year, below the consensus forecast.

“While [the company] sees solid demand for its technologies, … supply disruptions that are expected to continue through its current July quarter are leading to a severe shortage of critical components,” the AAP team said.

The economic slowdown in China was “much worse than expected,” the team said. “We continue to see the risks and challenges associated with that reopening as well as with larger China issues -- the ramp-up of manufacturing capacity and port congestion that will rattle supply chains.”

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Cisco cut its revenue and earnings-per-share forecasts for the current quarter. And “we could see the supply chain and margin pressures continue well into Cisco's October quarter,” the AAP team said. “We see a tough slog ahead for CSCO shares.”

They recently traded at $43.76, down 10%, and dropped 24% year to date through May 18 .

Meanwhile, “the ripple effects of Cisco's guidance will hit a smattering of companies, including networking ones such as Ciena  (CIEN) - Get Ciena Corporation Report, Juniper Networks  (JNPR) - Get Juniper Networks Inc. Report, Extreme Networks  (EXTR) - Get Extreme Networks Inc. Report and Nokia  (NOK) - Get Nokia Corporation Sponsored American Depositary Shares Report,” the team said.

“In other words, there likely is more downside for tech stocks ahead as expectations once again are recalibrated lower.” 

And more aggressive interest-rate increases from the Federal Reserve could mean further trouble for technology and other growth stocks, the AAP team said.

The author of this story owns shares of Cisco.