There was a lot of apprehension in investor’s circles ahead of Cisco Systems Inc.’s third-quarter earnings report, but those worries were exaggerated. Once again, Cisco blew past Wall Street’s expectations, with its share price surging by six percent in after-hours trading following its earnings call.

For investors, Wednesday’s report can be seen as a green light to increase their stakes in the networking giant. Cisco surpassed expectations in almost every department, bringing home adjusted profits of $0.57 per share on revenues that grew by three percent year-on-year to $12 billion. That compares nicely with analysts’ estimates of earnings of $0.55 per share and sales of $11.97 billion.

Cisco issued some encouraging guidance too, with projected fourth quarter profits in the range of $0.59 to $0.61 per share, beating Wall Street’s forecast of $0.58 per share.

“We delivered a strong Q3, executing well despite the challenging environment,” said CEO Chuck Robbins in a prepared statement. “I’m pleased with our performance today as well as the progress we’re making in transitioning our business to a more software and subscription focus, which we’ll continue to apply across our entire portfolio.”

All this comes in spite of what Robbins termed a “challenging” IT environment, with slowing global growth and uncertainties such as the upcoming U.S. presidential election and a possible “Brexit” ensuring many businesses remain on tenterhooks. Of course, this raises questions about why Cisco has stayed so resilient while smaller companies fall by the wayside.

Staying ahead of the trend

One reason is that Cisco’s major transformation strategy is finally paying off. Having initially resisted the software defined networking (SDN) and network function virtualization (NFV) trends, Cisco is now rapidly embracing them. Cisco’s Robbins has gone on the record to say that all of the company’s networking products will be available as software in future, and its been moving in that direction rapidly in order to benefit from higher margins and growth rates, as well as subscription models that provide more stable and predictable revenue streams.

It wasn’t all good news though – Cisco’s main switching and NGN routing businesses both suffered another down quarter, with quarterly revenues declining by 3 percent and 5 percent respectively. But Cisco benefits immensely from having a diverse portfolio of offerings, one of the most critical being the Unified Computing System (UCS) line in its Data Center business unit, which was recently described as a “key indicator” of Cisco’s health by Wikibon’s principal research contributor Stu Miniman.

“UCS is core to Cisco’s data center strategy and has been the leader in converged infrastructure solutions,” Miniman said in a preview of Cisco’s earnings.

And UCS had another solid, if not quite stellar, quarter, with Cisco’s Data Center business reporting revenues of $811 million, one percent growth from the same quarter last year.

“Our next-generation data center portfolio is extremely well positioned to meet our customer needs regardless where they place their workloads enabling public, private or hybrid cloud deployments,” said Robbins in the call. “At our partners summit we received a very strong response to our innovations as customer adopt our next generation data center solutions. Our strong position is evident in our install base of 52,000 UCS customers and the continued success of our ACI portfolio.”

Cisco also showed extremely strong growth in two other areas that it claims will be key to its future. Cisco wants to be a top two security vendor, and revenues there rose by 17 percent year-on-year to $482 million. Another key growth area is collaboration, where offerings like its new Spark application contributed to quarterly revenue growth of 10 percent.

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