:max_bytes(150000):strip_icc()/GettyImages-2256545831-e747065289314ecea76822a5be2bca36.jpg "Cisco Plunges Despite Earnings That Topped Estimates. Here’s What’s Dragging the Stock")
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Key Takeaways
- Cisco shares tumbled Thursday after the networking giant’s latest quarterly results showed rising memory costs squeezed its margins.
- A memory shortage has driven up costs, forcing Cisco to raise its prices and renegotiate contracts.
Networking giant Cisco Systems is the latest tech firm to see its stock drop after revealing it’s grappling with the impacts of a global memory shortage.
Shares of Cisco (CSCO) were down over 10% in recent trading, a day after the company reported fiscal second-quarter revenue and earnings per share that topped analysts’ estimates, but its gross margin fell short as memory costs surged.
Cisco’s adjusted gross margin of 67.5% slipped from 68.7% a year ago, and the company warned it could slide to 65.5% to 66.5% in the current quarter.
Why This News Matters
Prices for advanced memory components have climbed in recent months amid a worsening shortage as demand for AI hardware booms. That’s helped shares of companies that make the parts, but weighed on stocks of companies squeezed by rising costs.
CEO Chuck Robbins said during Wednesday night’s earnings call that Cisco is taking a number of steps to address the impact of higher memory costs, including raising prices and renegotiating contracts with partners. Robbins also said he expects the company’s scale and influence could help it “manage this industry-wide dynamic better than our peers,” according to an AlphaSense transcript.
Thursday’s drop dragged Cisco shares into negative territory for the year. Still, the shares have added close to 20% over the last 12 months.
