Shares of Cisco Systems Inc. tanked in extended trading after executives said COVID-19-related lockdowns in China and the war in Ukraine dragged on sales in its fiscal third quarter.

The same two factors were blamed for a lower-than-expected forecast for Cisco’s fourth-quarter earnings and revenue, and led to the company lowering its full-year guidance.

The networking giant reported third-quarter net income of $3.04 billion, with earnings before certain costs such as stock compensation coming to 87 cents per share. Revenue for the period was almost flat at $12.83 billion, compared with $12.8 billion in the same quarter a year ago. Wall Street had been looking for earnings of 86 cents per share on higher sales of $13.28 billion.

Cisco Chief Financial Officer Scott Herren told analysts on a conference call that the company expects the challenges it experienced in the third quarter to persist over the remainder of the fiscal year. Herren stressed that the lower forecast is “100% supply”-related, with the company sitting on a record backlog and record inventory.

For the fourth quarter, the company expects earnings of between 76 and 84 cents per share on revenue of between $12.1 billion and $12.67 billion, which would represent a year-over-year decline of 1% to 5.5%. Wall Street had earlier offered a forecast of 92 cents per share in earnings on revenue of $13.87 billion.

The lower guidance was substantial enough that Cisco also slashed its annual forecast with just three months before its fiscal year ends. Executives said the company’s sales growth will slow to about 2% to 3%, having earlier forecast growth of 4.5% or better.

“We did not have a plan for a country to shut down,” Cisco Chief Executive Chuck Robbins (pictured) said on the call. Cisco’s stock fell more than 12% on the news, adding to a decline of more than 4% in the regular trading session, on a day when the tech-heavy Nasdaq plunged nearly 5%.

Robbins told analysts on the call that the company has suffered from an entire quarter of COVID-related lockdowns in China. He said that when Chinese authorities put Shanghai into a lockdown on March 27, it seriously hindered the company’s ability to secure the components it needs for its products.

“We’re talking really about the Shanghai situation, so we had $200 million from Russia and then we had $300 million that was completely attributed to our inability to get power supplies out of China,” Robbins told analysts. “When we look at quarter four, and you think about the Shanghai lockdown and what we’ve heard, because in Shanghai there are lots of components that go into our power supply, so we’re not able to get those components. Shanghai is now saying they are going to open up June 1.”

Herren said that although Robbins used power supply as an example, the problems extend to dozens of other components Cisco needs to build its products.

“We’ve got issues in a number of different areas,” he said. “I tried to give you a sense of scale because I know it’s 41,000 unique components, what we said is about 350 have potential supply concerns right now.”

Cisco’s software business is also being troubled by supply chain disruptions, Robbins said. He told analysts on the call that the company had a backlog of more than $2 billion in software orders that were all connected to a piece of hardware that it’s currently unable to obtain.

Holger Mueller of Constellation Research Inc. told SiliconANGLE that Cisco appears to have been caught up in a “perfect storm” brewed up by its supply chain issues in China and its decision to stop doing business in Russia and Belarus. However, even though the company could only produce flat revenue for the quarter, Mueller said it did well to actually increase its profitability slightly from the year-ago period. That was the result of good cost management, he said.

“Unfortunately for Cisco, that doesn’t seem to have impressed investors, who appear to have unrealistic expectations of the company right now,” Mueller added. “With more than 41,000 components that cannot be sourced, Cisco has one heck of a complicated and challenging supply chain. The good news is that its security business keeps on growing, but on the other hand its collaboration business is not. It’s going to be interesting to see what Cisco does in the coming quarters, when delivering on the new expectations will be key.”

Breaking down the numbers from Cisco’s third-quarter sales, the company explained that revenue from its “secure, agile networks” business rose 4%, to $5.87 billion. Hybrid work sales fell 7%, to $1.13 billion, while “Internet-for-the-Future” revenues rose 6%, to $1.32 billion. Security sales increased 7%, to $938 million.

Cisco also reported total product sales of $9.45 billion, up 3% but below the Street’s forecast of $9.81 billion. Services revenue fell 8%, to $3.39 billion, below the expected $3.54 billion.

Photo: Cisco Pics/Flickr