We've seen one tech giant after another deliver a market-pleasing earnings report since mid-October, and Cisco Systems Inc.  (CSCO - Get Report) certainly did nothing to spoil the fun with its latest release.

But it would be a mistake to look at Cisco's post-earnings gains and assume the company knocked the cover off the ball the way that, say, Apple (AAPL - Get Report) , Facebook (FB - Get Report) and Amazon (AMZN - Get Report) did. Rather, much like IBM Corp. (IBM - Get Report) , Cisco is getting rewarded for beating low investor expectations with the help of growth initiatives, a product refresh and moderate improvement in certain pressured businesses, and in spite of ongoing weakness in some key areas.

Cisco reported October quarter (fiscal first quarter) revenue of $12.14 billion (down 2% annually) and adjusted EPS of $0.61. Revenue, which benefited from acquisitions but also saw a roughly 2-percentage-point hit from the shift in Cisco's revenue mix towards software and services subscriptions, slightly beat a $12.11 billion consensus. EPS, which benefited from $1.6 billion in stock buybacks, slightly topped a $0.60 consensus.

Cisco also guided for January quarter revenue to be up 1% to 3% annually and for adjusted EPS of $0.58 to $0.60. That's favorable at the midpoints to a consensus for 1% growth and EPS of $0.58. Just as IBM's expects to see positive revenue growth for the first time in several years in its fourth quarter, Cisco's guidance suggests it's about to see positive growth for the first time since its Oct. 2015 quarter.

In response, shares rose 5.8% after hours to $36.10, making new 52-week highs along the way. They're now up 20% on the year, which compares with a 25% gain for the Nasdaq.

The report still had its share of blemishes, though. Among the big ones: Cisco's Infrastructure Platforms (IP) segment, which covers switching, routing, server and Wi-Fi product sales (the company no longer breaks out their sales individually), saw revenue drop 4% to $6.97 billion.

On the earnings call, CFO Kelly Kramer said that routing -- hurt by still-weak carrier spending and "a slowdown" in enterprise router sales -- accounted for "the vast majority" of the segment's decline. That meshes with the 6% routing revenue decline Juniper Networks Inc.  (JNPR - Get Report) saw in Q3, as well as the Q3 sales declines telecom equipment giants Nokia Inc.  (NOK - Get Report) and LM Ericsson (ERIC - Get Report) posted.

Cisco CEO Chuck Robbins.
Cisco CEO Chuck Robbins.

Also: Cisco's closely-watched product orders rose a modest 1%, just slightly better than the July quarter's flat growth. Though Commercial (SMB) orders rose a strong 12% and Public Sector orders grew 3%, Enterprise orders fell 5% and Service Provider orders (they cover orders from both carriers and cloud providers) fell 6%.

Though it's possible that enterprise orders will pick up some as more businesses finish evaluating new switching products (more on that shortly), the shift in IT hardware spend towards cloud infrastructures that use a relatively limited amount of Cisco gear clearly remains a big headwind, as does the fact that software spending has generally been a larger corporate IT priority than hardware spending.

On the call, CEO Chuck Robbins stated Cisco remains in talks with all of the major owners of hyperscale cloud infrastructures. He also highlighted recent switch-related deals with Alibaba (BABA - Get Report) and Microsoft (MSFT - Get Report) , and Cisco's new alliance with Google to offer hybrid cloud solutions that let workloads be easily moved between the Google Cloud Platform (GCP) and on-premise data centers. But judging by Cisco's IP revenue and Service Provider order declines, more progress is needed.

Somewhat more encouraging: Cisco says its total switching revenue was -- in spite of cloud-related pressures and stiff competition from Arista Networks Inc. (ANET - Get Report) , HP Enterprise Inc. (HPE - Get Report)  and Huawei -- down just "modestly," after having dropped 9% in the July quarter. The campus (office) switch refresh kicked off in June -- it featured the launch of Cisco's Catalyst 9000 switch line, along with a software platform (DNA) that lets companies set policies for how networks work without having to manually configure switches or apps -- is starting to pay dividends.

Robbins says Cisco has racked up over 1,100 Catalyst 9000 clients, with most of them buying the "most advanced" subscription software solution for it. There are some parallels here with how IBM's Q3 beat was fueled in part by a strong start to a mainframe upgrade cycle.

Cisco's subscription momentum in other fields also remains fairly healthy. Though reported revenue fell 2%, subscriptions led the deferred revenue balance to grow 10% to $18.6 billion, with 16% growth for product revenue (down a bit from the July quarter's 23%) and 5% growth for service revenue. Thanks to both home-grown product launches and M&A, 12% of product revenue now comes from recurring streams, up from 6% when Robbins became CEO in mid-2015.

Likewise, though Cisco's Security segment revenue rose a moderate 8% to $585 million, its subscription sales led the security deferred revenue balance to rise 42%. The company's Applications segment, which covers collaboration hardware/software, recently-acquired app performance monitoring (APM) software firm AppDynamics and IoT and analytics offerings, saw revenue rise 6% to $1.2 billion (thanks largely to AppDynamics), with total billed and unbilled deferred revenue growing 32%.

Cisco's bottom line, meanwhile, continued benefiting from job cuts: Adjusted operating expenses fell 3% to $4 billion. On the other hand, as is the case for many other hardware firms, high DRAM prices continue weighing on Cisco's gross margin: Total GM fell by 150 basis points to 63.7%, and product GM by 180 basis points to 63%. In addition, GM is expected to drop to a range of 62.5% to 63.5% in the January quarter.

Overall, Cisco's report might justify some cautious optimism. Weak carrier spending remains a problem that isn't showing any signs of letting up, and more deal momentum is clearly needed with cloud giants. But the company is very much making good on its efforts to grow its high-margin software and services revenue streams, and in both the enterprise and cloud realms, Robbins & Co. can't be accused of not understanding how Cisco needs to evolve.

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