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The latest glowing numbers from Cisco (CSCO) - Get Cisco Systems, Inc. Report weren't enough to brighten a gloomy market.

While several analysts were dazzled by a 10% increase in orders and expanding margins, a great many investors couldn't help but worry about still-sluggish tech demand. Meanwhile, other heads were turned by a sudden surge in inventory levels.

If this sounds familiar, there's a reason. Cisco shares have

hobbled the day after the company's last three earnings reports, as Wall Street struggles to stand behind a richly valued company showing low-single-digit sequential growth.

On Wednesday, shares of the Internet hardware maker fell 82 cents, or 4%, to $21.43 in midday trading. The stock is now 27% below its 2004 high of $29.13, set Jan. 19.

Cisco chief John Chambers told analysts on a conference call following third-quarter numbers Tuesday that he believed corporate tech customers were gaining more confidence in the economic recovery. He predicted that optimism would manifest itself in bigger orders for information technology gear.

But somehow that bullish outlook wasn't apparent to everyone looking at the company's modest 3% to 5% sequential sales-growth forecast. More troubling, say industry observers, is that if there was any big buying activity in the quarter, it was Cisco doing the spending.

The company's inventory level rose 20% in the quarter. The large and puzzling increase didn't jibe with sales results. To pessimists, the stockpiling of parts brought back bad memories of three years ago, when Cisco sat atop a

$2.5 billion mountain of surplus inventory after woefully misjudging product demand.

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And Cisco didn't contain its spending to parts. After a two-year hiring freeze, the San Jose tech shop said it added more than 200 employees to the payroll in the recent quarter ended May 1. Cisco's Chambers says he expects to add 1,000 more staffers this year, primarily in engineering and sales.

But not everyone sees Cisco's beef-up program as a bad omen.

Rising inventory levels aren't always a sign that a company is recklessly overstocking, even if recent reports don't show that products are flying out the door, say some analysts.

"While this may sound like a strange positive, given that revenue only grew 4%, we note that the last time inventories grew much faster than revenue was in July," J.P. Morgan Chase analyst Ehud Gelblum wrote in a note to clients Wednesday.

Gelblum points out that in the subsequent quarter, Cisco posted a big upside surprise with 8% sequential growth. Gelblum rates Cisco a buy. (J.P. Morgan has investment banking ties to Cisco.)

But even if one quarter's supply can predict the next quarter's demand, there's little by way of evidence, including Cisco's tepid outlook, to support the immediate likelihood of a roaring tech recovery.

"Cisco is a good company with good products, but it's hard to get a good return on a $150 billion market cap," says money manager Chris Bonavico with TransAmerica Investment Management, which holds no Cisco.

Bonavico says Cisco's size and dominance of the industry give it little room to grow in an era of economic constraint.

"One thing the past few years has taught us is that networking and telecom have big up and down cycles that are tied to the economy," says Bonavico.