After Wednesday's close, Cisco's (NASDAQ:CSCO) shares plummeted as much as 12% in the aftermarket, following management's sharp reduction in its revenue forecasts.
The company projection for the current quarter is about $12.7 billion, which is 8% lower than analysts' forecasts.
The network and security equipment giant also missed revenue expectations of $13.34 billion for its fiscal third quarter. It reported flat quarterly revenue of $12.84 billion, which was 4% below consensus. This is only the second time in the last five years that the tech giant has missed earnings.
Chief executive, Chuck Robbins put forward two reasons for the disappointing performance: the first being the company's decision to cease operating in Russia following its invasion of Ukraine in February, and the second, the recent coronavirus lockdown in China, as it made a pre-existing supply crunch even worse.
Management added that even if restrictions in China are lifted soon—which is looking more likely—it will take time for supply to recover due to constraints at ports and airports.
As a result, management has cut revenue forecasts for Q4 by $200 million, added $5 million to the cost of sales, and $62 million to operating expenses.
Cisco is just one example of a big tech name that has announced disappointing earnings and reduced forecasts this earnings season, and there seems to be one common theme—increasing concerns over a potential recession due to interest rate hikes as central banks try to control rising inflation.
The price wiped out a recent rebound. It rallied from last Thursday's lows but then fell to its lowest level in 14 months. This was yet another attempt to return over the neckline of a year-long H&S top.
CSCO fell below its 200-week MA, having found resistance by the 100-week MA, guarding the neckline.
Trading Strategies
Conservative traders should wait for the price to make a new low, then short the distribution of the next rally.
Moderate traders could short the next rally.
Aggressive traders can enter a short position at will if they can absorb whipsaws.
Trading Strategy - Short
- Entry: $48
- Stop-Loss: $50
- Risk: $2
- Target: $42
- Reward: $6
- Risk-Reward Ratio: 1:3