Cisco stock has worst day since 2022 as memory prices pressure margins

Cisco Systems shares closed 12% lower Thursday as rising memory prices put pressure on the networking company’s margins. It’s the stock’s worst day since 2022.

Strong demand for artificial intelligence chips from Nvidia has caused a global shortage of memory, which has caused costs to skyrocket for the component. Large orders for data center memory have limited production capacity for other devices, including smartphones.

This has created uncertainty for a number of tech companies, including consumer electronics makers like Apple and Dell as well as chipmakers like Qualcomm, which cited the shortage when it issued weak guidance on Feb. 4. Now, Cisco is feeling the pinch.

Cisco CEO Chuck Robbins addressed memory price increases across the market on the company’s earnings call on Wednesday. Robbins said Cisco will raise prices, revise contracts and negotiate terms to account for the evolving component prices.

“In terms of memory, we’re going to control what we can control,” Cisco finance chief Mark Patterson said on the call.

The company reported better-than-expected quarterly results on Wednesday, but shares dropped about 7% as Cisco issued a mediocre forecast.

Product gross margin for the quarter was 66.4%, down 130 bps from the year prior, which Patterson said was “primarily driven by negative impacts from mix and higher memory costs.”