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Networking equipment and software provider Cisco Systems (CSCO Free Cisco Stock Report) reported strong January-quarter results that were in line with our forecasts. Total revenue of $12.4 billion grew 7% year over year, matching our estimate. Product sales increased 9%, while service revenue rose 1%. Product orders increased 8% and acquisitions benefited the top line by 140 basis points. Adjusted earnings per share were up 16% to $0.73, beating our call by a penny.

Core infrastructure sales jumped 6%. The switching category was particularly strong, growing at a double-digit pace thanks to strong demand from enterprises and the flagship Catalyst 9000 product line. The wireless business also had double-digit growth, on strength from Wave and Meraki products. There were some pockets of weakness, however, with routing down owing to less service provider activity and a decline in data center servers.

Taking a look at some of Cisco's smaller units, Application revenue grew an impressive 24%, thanks to solid demand for Unified Communications, TelePresence, and AppDynamics products. Finally, the Security division gained 18%, the fastest growth seen in multiple years.

The company continues to make progress transitioning to a more software-centric business model. Indeed, software subscriptions were 65% of total software revenue, up 10 percentage points, year over year. Software as a percentage of total revenue is expected to grow from the current 22% to 30% over the next three years. 

Sales to enterprises increased 11%, small and mid-sized business sales rose 7%, service provider was down 1%, and the public sector grew a solid 18%.

Management made clear that it saw no impact from the government shutdown or tariffs. Only about 25% of government agencies were impacted by the shutdown, and some of those that were pulled orders forward when they heard the stoppage was imminent. Notably, U.S. federal sales were expected to be weak, but ended up growing double digits. We think all this speaks to the resiliency of Cisco's technology and business model. 

The company increased the quarterly dividend to $0.35 per share, up 6% year over year. It also made $5 billion in share repurchases during the quarter and announced a $15 billion increase in the authorization, which now stands at $24 billion. 

Management is calling for third-quarter revenue to grow 4% to 6%. Adjusted earnings per share are expected to range from $0.76 to $0.78, in line with our $0.76 estimate.

It's quite clear that Cisco is firing on all cylinders. What's encouraging is that strength is being driven by best-in-class technology and pristine execution. That said, the shares are trading near their all-time high, which limits long-term price appreciation potential to a degree. Overall, we continue to find the stock suitable for conservative investors.

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. 

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