Cisco Systems (CSCO Free Cisco Stock Report), the world's leading networking equipment maker and a Dow-30 component, has reported fiscal third-quarter (ended April 27, 2013) results that met our expectations. Top-line growth came in at 5.4%, in line with our 5.7% forecast, while non-GAAP earnings per share of $0.51 were a penny higher than our call and $0.03 above Wall Street's average estimate. Cisco stock traded considerably higher on the news.

The 7% year-over-year rise in Service revenues fell short of the 10% increase in the year-earlier quarter and the 9%-11% long-term target rate. However, this was due to a challenging comparison with the prior-year term and slower product sales over the previous two quarters. This time around, product sales increased 5%, a 200-basis-point improvement over the rate logged in the January term. Encouragingly, the book-to-bill ratio was around 1.

The Switching unit saw revenues drop 2%, due largely to continued weakness in Europe and somewhat soft public-sector spending worldwide. A migration to faster data ports helped offset this to a degree. Sales of Routers were flat in the latest quarter, which was actually an improvement over recent periods. Weakness in sales of core routers to telecoms offset volume increases for edge routers.

At the same time, the Wireless business posted record results, with sales surging 27%, matching the unit's performance in the year-earlier quarter. Telecoms continue to shift funds away from wireline to wireless infrastructure, driving the improvement. Elsewhere, Cisco's data center revenues were up an impressive 77% year over year, thanks to market-share gains and strong sales of its Unified Computing System and Nexus lines of switches. Currently, the business is delivering a $5.5 billion run rate.

Collaboration revenues were up 2%, as conferencing offset soft demand for Cisco's Telepresence offerings. (The latter continues to suffer from a pullback in spending by the public sector.)

The gross margin remained fairly stable across geographies, owing to pricing discipline. Meanwhile, the company raised the quarterly dividend payout 21%, to $0.17 per share. It also made $860 million of share repurchases.

Cisco returned to positive orders, which were up 4%. The Americas region was particularly strong (up 7%), with a good balance across enterprise, commercial, service provider, and even the public sector, which grew 5% in the U.S. supported by state and local governments. Management believes this is a positive signal for the U.S. economy as a whole. However, Asia had relatively poor growth of 1%, due to difficult comparisons in Japan and ''Cisco specific'' challenges in China. We think the company continues to face difficult price competition from its main competitor in China, Huawei.

European orders improved from a 6% decline in the January quarter to flat results in the April interim. Pressure from Southern Europe is being mitigated by better results in other parts of the Continent. At the same time, orders in emerging regions grew a solid 13%. From a customer perspective, enterprise and commercial orders both grew 3%, while service provider and global public sector demand increased 8% and 1%, respectively.

Cisco's guidance assumes slow, but steady, growth in the coming quarters. In the July period, management expects revenues to increase between 4% and 7%, while setting an earnings-per-share forecast of $0.50-$0.52. We think management is being overly conservative and, thus, we are leaving our fiscal third-quarter estimate intact at $0.53 a share.

Overall, we think this was a solid report. Cisco is gaining market share in a difficult operating environment while demonstrating improvement across the board. All told, these high-quality (Safety: 1) shares offer decent risk-adjusted total return potential over the long haul.

About The Company:Cisco Systems Incorporated is a leading provider of Internet Protocol-based networking and other products for transporting data, voice, and video across geographically dispersed local-area networks, metropolitan-area networks, and wide-area networks. Devices are primarily integrated by Cisco IOS Software and include Routers, Switches, New Products, and Other. Provides services associated with these products. Foreign business accounted for 42.4% of fiscal 2012 revenues. R&D, 11.9% of revenues.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.