Cisco Systems Inc. is using pricing adjustments and working closely with component suppliers to avoid negative effects from a trade conflict between China and the U.S., and the results are strong so far.
In a quarterly earnings report Wednesday, Cisco issued in-line results and a strong revenue forecast for the current quarter, while growing product orders in the Asia region by 6%. After Chief Executive Chuck Robbins openly espoused concern last quarter about tariffs on many goods from China increasing to 25%, which has recently happened, he was asked in a conference call if that affected Cisco’s CSCO, +0.81% guidance.
“When we saw the indication that the tariffs were going to move to 25% on Friday morning, the teams kicked in and we actually have executed completely on everything that we need to do to deal with the tariffs,” Robbins said. “We are operationally … all that we needed to do is now behind us, and we see very minimal impact at this point based on all the great work the teams have done, and it is absolutely baked into our guide going forward.”
After the conference call ended, Chief Financial Officer Kelly Kramer hopped on the phone with MarketWatch to break down exactly how Cisco is mitigating the effects of the tariffs. In short, Cisco is working with suppliers in Asia to avoid as many increased costs as possible, and increasing prices where needed to maintain margins.
“Component suppliers …. have made moves on where they’re shipping from,” Kramer said, later specifically mentioning Foxconn Technology Co. Ltd. 2354, -0.95% and Samsung Electronics Co. Ltd. 005930, -0.23% . She added that the moves have largely helped Cisco avoid changing suppliers or looking elsewhere for components.
When Cisco can’t avoid the tariff, it will increase prices on its networking products to avoid swallowing the increase, Kramer added.
“Where we can’t mitigate, we’ll adjust our prices to offset the cost,” she said.
Full earnings coverage: Cisco stock rises as earnings, revenue forecast top Street estimates amid tariffs
Kramer noted that Cisco can manage these changes because it is a large, multinational company that services and partners with other large companies, and doesn’t have outsize China exposure — Kramer said China is about 3% of Cisco’s business. It still isn’t completely immune, though, as the service-provider business was damaged by tariffs in the quarter.
Robbins and Kramer both noted that the company’s policy team has also been in regular contact with the White House to pass along their thoughts about the potential negative effects of tariffs on their business and the tech sector. As executives hope for changes, though, they seem to have — at least for a time — found a route to avoid the negative effects for Cisco.
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