Cisco Shares Plunge 12% as Memory Costs Squeeze Profits

Cisco Systems investors faced a sharp sell-off Thursday, with shares dropping 12% in their worst single-day performance in four years. The decline came as the networking giant grapples with soaring memory prices that are cutting into its profitability.

The squeeze stems from a global memory shortage, fueled largely by massive demand for high-performance components used in artificial intelligence systems. This has driven up costs for essential parts, creating a ripple effect across the technology sector. Companies from Apple to Qualcomm have already signaled concerns, and Cisco is now clearly feeling the impact.

Despite posting quarterly earnings that surpassed analyst expectations on Wednesday, Cisco’s stock began falling after the company provided a cautious outlook. The slide accelerated throughout Thursday. Product gross margin for the quarter fell to 66.4%, a drop company executives linked directly to higher memory expenses.

On an earnings call, CEO Chuck Robbins outlined the company’s strategy to manage the challenge, which includes adjusting prices, renegotiating contracts, and revising terms with customers. "In terms of memory, we're going to control what we can control," added Chief Financial Officer Mark Patterson.

The situation highlights a broader tension in the tech industry: the booming investment in AI infrastructure is creating supply chain winners and losers, with traditional hardware companies now navigating a costly new reality.

Source: CNBC