Cisco tumbles after slashing profit, sales outlook amid slowing orders, client backlog

Updated at 8:11 AM EST

Cisco Systems CSCO shares tumbled lower Thursday after slashing its full-year revenue and profit forecasts amid muted demand for its network equipment as customers focus on installing and implementing previous orders.

Cisco's pared-backed sales forecast, which sees revenue in the region of $53.8 billion and $55.0 billion, is a $3 billion reduction from its prior estimate. The group also said full-year profits would come in between $3.87 and $3.93 per share, well south of its earlier forecast of $4.01 to $4.08.

Oddly, the downgraded outlook followed a relatively solid first quarter earnings report, which produced a bottom line of $1.11 per share on revenues of $14.7 billion. Orders, however, were down 20% from last year, lead by a big pullback in the Asia Pacific region and slumping cloud demand.

The customer-led backlog, Cisco said, may take one or two quarters to work through before returning to normal levels. 

"After three quarters of exceptionally strong product delivery, our customers are now focused on installing and implementing these unprecedented levels of products," CEO Chuck Robbins told investors on a conference call late Wednesday. "The bottleneck that we previously saw in the supply chain has now shifted downstream to implementation by our customers and partners"

"Candidly, it might have been easier for me to say it was macro," he added. "But the traditional service provider has been tough, and it remains that way (and) that is really what led us to believe that this is a consumption issue with our customers."

Cisco Systems shares were marked 10.85% lower in pre-market trading to indicate an opening bell price of $47.50 each, a move that would erase most of the stock's gains from the past six months. 

"Management explicitly stated that it does not believe the slowdown in orders reflects macroeconomic issues because the company is in communications with many of the large enterprise and service provider customers that have slowed their ordering," said JMP Securities analyst Erik Suppiger, who carries a 'market perform' rating on Cisco stock. 

"In addition, channel partners have reaffirmed that excess customer inventory is the issue,." he added. "Furthermore, Cisco has visibility into when customers deploy some of its products because they connect to Cisco’s cloud and Cisco can see a backlog of products that have been delivered to customers but have not been connected to the Internet yet."

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