What happened
Cisco Systems Inc. reported sharpest stock decline in two years after issuing weak profitability forecast. While sales projections rose due to AI infrastructure demand, increasing memory chip costs compressed margins. Cisco expects third-quarter adjusted earnings between $0.89 and $0.91 per share on revenue of $12.4 billion to $12.6 billion. Full-year revenue guidance increased to $55.3 billion to $56.3 billion. Gross margins dropped to 67.5% from 68.3% in previous quarter.
Why it matters
Procurement teams and hardware architects face rising infrastructure costs as memory chip prices escalate. Because Samsung and Kioxia reported record profits from AI-driven memory demand in January, supply remains tight and expensive. Therefore, Cisco's margin compression signals shift where component costs offset AI revenue gains. This follows Intel's January manufacturing setbacks, confirming pattern where supply chain constraints limit profitability for networking providers despite high demand. Resulting price hikes will likely pass to enterprise buyers.
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