Cisco CEO Chuck Robbins says he is about to pass the rising cost of components onto customers amid the most dramatic rebound in product demand for almost a decade.
The admission was made last night as Switchzilla outlined results for Q3 of its fiscal 2021 ended 1 May, in which revenue grew 7 per cent to $12.8bn and profit edged up by $89m on a year ago to $2.863bn.
"These results reflect a return to a strong spending environment and an economic recovery that has gained momentum driven by vaccine rollouts and the easing of restrictions," said Robbins on a conference call to discuss the numbers.
Orders grew 10 per cent in the quarter, which Robbins said was the highest rate since Q1 of Cisco's fiscal 2012. Growth was seen across security, infrastructure platforms, collaboration and Webscale. Each region was up.
"We are experiencing the strongest demand in nearly a decade. We are also seeing similar component shortage supply issues as our peers," said Robbins.
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With this in mind, Cisco moderated its forecast for its final quarter of this financial year, guiding for Q4 revenue growth of between 6 and 8 per cent.
"There is a revenue headwind that we're facing based on the supply chain, so notwithstanding what's going on in the supply chain, our revenue guide would have been higher… it's a complicated thing that we're navigating through," said the CEO.
Last week Gartner published research that predicted supplies of semiconductors will remain severe to moderate this year, with supply matching demand at some point next year. TSMC, for its part, has said things won't improve until 2023. This is because multiple industries want more chips than the tech sector can provide. One of the high profile sectors has been the car manufacturing.
"On the pricing front," said Robbins, "I think we have made some decisions on certain products that we will be making price increases on, and we're looking surgically at the rest of the portfolio based on where we have costs that we believe are going to be sustained.
"If we come to the conclusion that any of these cost increases… are going to be more sustained, then we will look at strategic price increases where we have to. And that work's already underway. There's already some decisions that we've made, so we will do that. It's a pretty dynamic situation as you know.
Arista cats also feeling the supply chain heat
But two weeks ago Jayshree Ullal, chief exec at Arista Networks, said on the firm's Q1 2021 earnings call that the company's supply chain has "never been so constrained."
"To put this in perspective, we now have to plan for many components with 52-week lead time. COVID has resulted in substrate and wafer shortages and reduced assembly capacity. Our contract manufacturers have experienced significant volatility due to country specific COVID orders. Naturally, we're working more closely with our strategic suppliers to improve planning and delivery.
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She added: "We are working with our customers to understand the timing of their deployment needs. We do not believe at this time that our customers are pre-ordering. However, we do think they're exercising prudent planning for second half of 2021 and even into 2022. But this is a backdrop: we believe supply chain will remain a pain point for the balance of this year as a result of all these shortages."
Chip shortages are being felt across multiple parts of the industry. Device makers have long complained they could not make enough notebooks to satisfy demand. Dell and Lenovo bemoaned this situation in recent quarters. Things aren't improving.
Ken Lamneck, the boss at global reseller Insight, said recently that he expects to see device vendors push up their prices and this would not be absorbed by the channel but "immediately passed through to our clients."
"There is no question we will see price increases on devices," he added, "because of the semiconductor shortages as obviously those prices are increasing for the OEMs."
"Now for us," he went on, "that's a positive situation because it's higher ASPs (average sales prices) for us and we do have systems to make sure that it's immediately passed through to our clients." ®