What happened

Shares of Cisco Systems (CSCO 0.60%) were trading down 13.9% at 11:08 a.m. ET on Thursday after the company delivered earnings results for the fiscal third quarter, which ended April 30. 

The networking gear leader reported revenue that came in below estimates and revised its full-year outlook for revenue lower than previously forecast. The stock had been falling with the broader market in 2022, but the share price is now down 34% year to date, underperforming the Nasdaq Composite loss of 27%. 

So what

Revenue of $12.8 billion was flat year over year, while adjusted earnings per share increased 5%. The profit increase is encouraging in this environment, but investors were more focused on the outlook for revenue.

For the full year, guidance calls for revenue to increase just 2% to 3% year over year, which is below management's previous forecast of 5.5% to 6%. For the fiscal fourth quarter, management expects revenue to decline between 1% to 5.5% year over year.

The company blamed supply chain problems, pandemic-driven lockdowns in China, and the war in Ukraine for the weak guidance.

A computer technician inspecting a server.

Image source: Getty Images.

Now what

Some investors were quick to compare Cisco's revenue growth to faster-growing competitor Arista Networks. Arista reported revenue growth of 31% year over year, which apparently wasn't affected by any of the supply chain problems plaguing Cisco. Some viewed this as an execution issue on Cisco's part. 

However, investors should consider the relative size of these companies. With $51 billion in annual revenue, Cisco is a more complicated business than smaller rivals like Arista that generated $3.1 billion over the last year.

On the bright side, Cisco's product backlog ended the quarter at over $15 billion, with product remaining performance obligations up 13%. Plus, Cisco said it is progressing well in its effort to grow subscription revenue, with average recurring revenue up double digits. 

Still, the supply chain problems are clearly getting worse for Cisco, so investors shouldn't expect a quick rebound in the stock.