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Cisco Systems Inc. showed a little more traction today in its attempt to become more of a subscription- and software-driven business as revenue grew year-over-year for the third straight quarter.  

The computer networking giant said fiscal fourth-quarter revenue rose 6 percent, to $12.8 billion. Analysts polled by FactSet had reckoned $12.77 billion, in the middle of Cisco’s own range.

Fourth-quarter profit jumped 57 percent from a year ago, to $3.8 billion or 81 cents a share. Adjusted for items such as stock compensation and a boost from the Jobs Act, profit per share was $3.3 billion or 70 cents a share, up 15 percent. Analysts had forecast 69 cents a share, in the middle of Cisco’s own forecast of 68 to 70 cents.

A key focus for Chief Executive Chuck Robbins (pictured) has been subscription revenue, because it’s steadier and more predictable than hardware sales and traditional software licenses. In the fourth quarter, the portion of recurring revenue from software and subscriptions rose only 1 percentage point from a year ago, but it’s now 32 percent of overall revenue, and software is 56 percent of subscription revenue, said Chief Financial Officer Kelly Kramer.

Growth in recurring revenues is important because it indicates the world’s largest maker of network switches and routers for moving data over the internet and large corporate networks is making the transition.

In particular, Kelly said on the conference call deferred revenue plus another metric not usually disclosed called “unbilled deferred” revenue rose 28 percent. The latter, which grew strongly, seemed to be a kicker for analysts and the stock price.

“Cisco is moving ahead from perpetual to subscription licenses, and this quarter was another indication that Cisco is well underway,” said Holger Mueller, principal analyst with Constellation Research Inc. “But next quarter’s comparisons get harder, so we will have to see.”

Targeted growth businesses such as security saw some success in the quarter. Security revenue, for instance, rose 12 percent, to $627 million, above analysts’ forecast of $615.8 million.

“Growth accelerated for another consecutive quarter,” Robbins said on a conference call with analysts. “Our strategy is working.”

Cisco also raised its forecasts, saying it expects 5 to 7 percent revenue growth in the current quarter along with adjusted earnings of 70 to 72 cents. That’s above analysts’ forecast of 69 cents.

Investors liked the results and forecast, as the company’s shares rose more than 6 percent in after-hours trading. The stock had lost about 3 percent from after the last earnings report in May through today, when it closed down a fraction of a point, to $43.86 a share, part of a broad market decline. Update: On Thursday morning, investors were a little less enthusiastic, as shares were up 3 percent in midday trading.

Cisco is in the midst of a multiyear transition from a dependence on declining hardware to more of a software and subscription-based services company. The third straight quarter of year-over-year revenue growth signals at least the stirrings of a turn, but investors have been hoping for a faster transition.

The majority of Cisco’s revenue remains hardware such as its latest Catalyst 9000 router. However, that machine is the first one on top of which Cisco is selling subscription software. Robbins said sales of that software is going “reasonably well. Our job now is to ensure the operational infrastructure is prepared… to ensure the renewals.”

Cisco also has been cozying up to cloud providers, including Google LLC, with which it announced more details in June about a planned hybrid cloud offering designed to help customers build apps for both on-premises data centers and the public cloud.

“Cisco is looking to positioning itself as a critical component of the multicloud world,” Stu Miniman, an analyst with SiliconANGLE sister market research company Wikibon, said recently. “Networking and security are needed more than ever, so Cisco has a good reason to push into this space.”

Early in the fourth quarter, Cisco remained active on the acquisition front but also shed some assets. On May 1, it bought relationship intelligence platform Accompany Inc. for $270 million in cash and assumed equity awards, and said in June it would acquire July Systems Inc., a subscription-based location platform.

Also on May 1, it announced plans to sell its video software business to private equity firm Permira Advisers Ltd. for as much as $1 billion. Still, it’s likely Cisco will continue its longstanding habit of steadily acquiring companies.

Indeed, on Aug. 2, the company bought Duo Security Inc. for $2.35 billion. Security is one of Cisco’s core focuses for future growth, and Duo also sells subscriptions, another key goal for Robbins.

Barclays analyst Mark Moskowitz told clients early this year 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.”

A few months ago, Piper Jaffray analysts suggested that Cisco might take on VMware Inc. by buying “hyperconverged” system and software provider Nutanix Inc., though at a market valuation of $9.3 billion, that would be a big one even for the likes of Cisco.

Cisco’s position as a trusted networking partner works well for the vendor, as CxOs in times of disruption try to stick to what and whom they know,” Mueller said “As long as Cisco keeps its products attractive and relevant, it will do well.”

Photo: Robert Hof/SiliconANGLE