Cisco Systems Inc. (CSCO - Get Report) shares traded sharply lower Thursday after the network equipment maker cautioned that restrictions on U.S. companies doing business in China would hit sales and profits in the coming months.
Cisco said non-GAAP earnings for the three months ending on July 27, the company's fiscal fourth quarter, came in at 83 cents per share, down 19% from the same period last year but just ahead of the Street consensus forecast. Group revenues, Cisco said, rose 6% from last year to $13.4 billion, again beating analysts' estimates of a $13.38 billion tally.
Looking into its 2020 fiscal year, Cisco said it sees first quarter revenue growth of between 0% and 2%, implying a range of between $13 billion and $13.3 billion, and a non-GAAP earnings range of between 80 and 82 cents per share.
"The overall Chinese market is certainly not a major play for us, but it has just dropped precipitously in light of the trade discussions," CEO Chuck Robbins told investors on a conference call late Wednesday. "So it has, a short-term impact. And if you, where we were selling for years. We've sold infrastructure to the large carriers in China, which has just -- it's been slowly declining and we saw it even decline more rapidly last quarter. And then what we've seen is in the state-owned enterprises anymore."
"We're we're being uninvited to bid. We're not being allowed to even participate anymore. So those are the enterprises," he added. "That's where the the large impact was this past quarter. So it was, it was just a much faster decline of what we candidly expected."
Cisco shares were marked 6.15% lower Thursday to change hands at $47.48 each, a move that would trim the stock's year-to-date gain to around 8%.
Strength was evident across most geographies (ex-APJC) and product lines. However, SP and enterprise customer order trends notably weakened, with Cisco pointing to a precipitous drop in demand in China and tougher comps," said Oppenheimer analyst Ittai Kidron.
"While the worsening macro backdrop and slower pace of buyback activity could keep shares range-bound in the near term, we believe Cisco's product refresh cycle and
subscription revenue transition can drive long-term upside," he added.