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

Cisco Systems experienced a dramatic decline in its stock price, plummeting as much as 12% on Thursday, marking its steepest drop since 2022. The sharp downturn is attributed to escalating memory prices that are squeezing the company's profit margins. The surge in demand for AI chips, particularly from Nvidia, has led to a widespread memory shortage, significantly increasing costs for this essential component. This situation has also affected production capabilities for other devices, including smartphones, as large orders for data center memory take precedence. The ramifications are being felt across the tech landscape, posing challenges for various companies, including major consumer electronics brands like Apple and Dell, as well as chip manufacturers like Qualcomm, which has already issued cautious forecasts due to the ongoing supply constraints. During a recent earnings call, Cisco's CEO Chuck Robbins acknowledged the pressure of rising memory prices, outlining the company's strategy to adapt by increasing prices, revising contracts, and negotiating terms to mitigate the impact of fluctuating component costs. Cisco's finance chief, Mark Patterson, emphasized the company's commitment to managing its controllable factors. Despite reporting better-than-expected quarterly results, Cisco's stock took a 7% hit following its uninspiring forecast. The company's gross margin for the quarter stood at 66.4%, a decrease of 130 basis points from the previous year, which Patterson attributed mainly to the adverse effects of product mix and elevated memory expenses.