Cisco Systems Inc. may finally be turning the corner, but not fast enough for its investors.

The networking giant today reported its fiscal third-quarter revenue rose 4 percent from a year ago, to $12.5 billion, the second consecutive quarter of growth for a company that has been trying to transform its business for the cloud computing era.

Cisco also reported a profit of 56 cents a share, or 66 cents before certain items such as stock compensation and tax benefits, up 10 percent from last year. Analysts had on average forecast a 65-cent adjusted profit on $12.4 billion in revenue, about in the middle of what Cisco itself forecast last quarter.

Most important, recurring revenue from software and subscriptions jumped 38 percent, to comprise 32 percent of overall revenues, up two points from a year ago. That’s important because it indicates the company, the world’s largest maker of network switches and routers for moving data over the internet and large corporate networks, is making the transition to a more consistent subscription-based business model like that of cloud computing giants such as Amazon Web Services Inc. and Microsoft Corp.’s Azure.

Investors are especially interested in deferred revenue, which includes subscription-based and software revenue, since it indicates the stability of business in the future. That rose 9 percent from a year ago, with deferred product revenue up 18 percent and deferred services revenue up 4 percent. The part of that revenue from recurring software and subscriptions rose 29 percent, to $5.6 billion.

“We delivered another quarter of accelerating revenue growth,” Chief Executive Chuck Robbins (pictured) said during the earnings conference call. “We also made steady progress in shifting more of our business to subscriptions and software.”

The quarterly revenue uptick is the second one in a row after a string of six straight quarters of declining revenue as Cisco struggled to transition its business from declining hardware to more of a software and subscription-based services company.

Cisco also issued a new forecast, calling for revenue growth of 4 to 6 percent for the current quarter from a year ago and an adjusted profit of 68 to 70 cents. Analysts were predicting 69 cents on revenue of $12.72 billion.

But the results and especially the muted forecast didn’t thrill investors, who might have been hoping for more of a beat. In after-hours trading, Cisco shares were falling about 4 percent. They had declined 0.7 percent, to $45.16, in regular trading. The company’s shares had risen about 18 percent so far this year.

“Cisco remains in transformation mode,” said Holger Mueller, vice president and principal analyst at Constellation Research Inc. “Now Cisco needs to show that it can keep growing all the new growth initiatives, and deliver predictable numbers.”

The key to the third quarter and quarters ahead remains the company’s flagship Catalyst 9000 network switch, not just because of the hardware but the software subscriptions customers must sign up for to use the product. Robbins said the switch is its fastest-growing product, with “high uptake” in particular of the analytics software on top of it. He said the product now has 5,800 customers, up from 3,100 last quarter, an addition of more than 40 a day for the quarter.

The company’s road ahead could still be bumpy. It has made some minor inroads with large cloud computing providers such as Microsoft, Google Inc. and China’s Alibaba Group Holding Ltd., most of which have built their own networking gear. But Cisco may need to find a way to persuade more of these so-called “hyperscale” companies to buy its gear along with the software subscriptions. During the quarter, revenue from Cisco’s infrastructure platforms business inched up only 2 percent, to $7.2 billion.

Some other business units fared better. Application revenue rose 19 percent, to $1.3 billion, and security revenue rose 11 percent, to $583 million.

Services revenue was up only 3 percent, to $3.2 billion, falling a bit short of analysts’ forecasts. “Bumps in the road like in this quarter for services revenues were to be expected and we’ll certainly see them in the future,” Mueller said “The more Cisco management can avoid those surprises, the better it will do going forward.”

Cisco has continued its steady pace of acquisitions, most recently picking up Accompany Inc. for $270 million in cash and assumed equity awards on May 1. The privately held company, based in Los Altos, California, sells a relationship intelligence platform for finding new prospects and navigating the selling process using artificial intelligence.

At the same time, it’s looking at trimming back a bit on some assets. Also on May 1, it announced plans to sell its video software business to private equity firm Permira Advisers Ltd. for up to a reported $1 billion.

Partly because of that cash influx, there could be bigger moves to come. Barclays analyst Mark Moskowitz told clients in a note a few months ago that Cisco could use cash it brought to the U.S. from overseas thanks to the U.S. tax act this year to “make a transformative acquisition related to security, data analytics or as-a-service, which we think investors would applaud.”

Piper Jaffray analysts recently suggested that Cisco might benefit in competition especially against VMware Inc. by buying so-called hyperconverged system and software provider Nutanix Inc. But with a market valuation of $9.4 billion, that would be a big swallow even for Cisco.

Photo: Robert Hof/SiliconANGLE