What happened

Shares of Cisco Systems (NASDAQ:CSCO) fell 5.5% on Thursday after the company warned investors that supply chain challenges were weighing on its sales and profits.

So what

Cisco's revenue rose 8% year over year to $12.9 billion in its fiscal 2022 first quarter, driven in part by 10% growth in its networks business and 46% growth in its internet for the future operations, which center on network innovations. That drove an 8% increase in the tech titan's adjusted earnings per share (EPS), to $0.82.

"In Q1, we had robust growth and continued strong demand despite the very dynamic supply environment," CEO Chuck Robbins said in a press release. "Cisco's technology sits at the heart of the accelerated digital transformation happening today."

A stock chart that falls sharply and then stabilizes.

Cisco's stock price declined following its first-quarter earnings release. Image source: Getty Images.

Notably, Cisco furthered its transition from perpetual software licenses to cloud-based services. Its annualized recurring revenue, in turn, increased 10% to $21.6 billion. The shift to more recurring revenue is expected to provide management and investors with increased visibility into Cisco's future earnings and improve its profit margins over time.

Now what

In the near term, however, supply chain bottlenecks are denting Cisco's expansion. Management expects revenue growth of only 4.5% to 6.5% and adjusted per-share profits of roughly $0.81 in the second quarter. Wall Street had forecast sales growth of 7.4% and adjusted earnings of $0.82. 

Moreover, analysts questioned whether Cisco's 33% product order growth in the first quarter was due to surging demand, or a result of customers rushing to place orders ahead of Cisco's planned price increases. 

This uncertainty -- as well as questions regarding the duration of Cisco's supply chain struggles -- drove some investors to sell their shares on Thursday.

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