Cisco CFO Doesn't 'Anticipate Any Massive Revenue Impact' From Faulty Clock Components, Company Sets Aside $125M For Product Replacements


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Cisco CFO Kelly Kramer said the networking giant doesn't anticipate any material revenue impact from a faulty clock component issue inside several of Cisco's popular product lines that causes the system to eventually fail.

"We've have had an issue from a supplier come out and we did book a reserve for $125 million to cover that," said Kramer, during Cisco's second fiscal quarter earnings call on Wednesday night. "We always and continue to stand by our customers through any situation like this … This is a failure rate that will happen overtime, but we're working with our customers to work through that. We're not anticipating any impact from that from a top line perspective."

When later asked to clarify if Cisco expects any type of negative revenue impact from the issue during its current third fiscal quarter, Kramer said, "Not as of right now."

"We're working very proactively with our customers, in terms of how quickly and where they want to do their replacement. So we're working very closely [with them] but as of right now, we have not seen and don't anticipate any massive revenue impact from this," she said.

[Related: Partners Expect Potential Customer Downtime, Months-Long Resource Drain From Cisco Product Replacement Effort]

The faulty clock signal component issue, which Cisco disclosed on Feb. 2, causes some of Cisco's most popular product lines – namely Nexus switches, ASA firewalls, ISR routers and Meraki cloud managed switches – to fail after 18 months in production. Cisco said it expects a noticeable increase in product failures after three years of runtime.

Cisco CEO Chuck Robbins did not comment on the matter during the company's earnings call.

Net income from Cisco's second quarter included a pre-tax charge to product cost of sales of $125 million related to the expected remediation costs for anticipated failures from the clock-signal component issue from a third party vendor, according to Cisco.

Other vendors such as Juniper Networks and Hewlett Packard Enterprise recently announced that some of their products are affected as well with the faulty clock signal component. HPE, Juniper and Cisco have all declined to identify the manufacturer. The issue some have speculated could be a result of a faulty Intel C2000 Atom processor. Intel in January notified OEMs of Atom processor C2000 issues in a 37 page specification update.

For its second fiscal quarter, which ended Jan. 28, Cisco reported revenue of $11.6 billion, down 2 percent from $11.8 billion a year ago.


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