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Global networking solutions provider Cisco (Nasdaq: CSCO) reported quarterly results that outpaced market expectations. The company has been focused on diversifying to subscription-based services.

Cisco’s Financials

Cisco’s Q1 revenues grew 6% to $13.6 billion, ahead of the Street’s forecast of $13.3 billion. Adjusted EPS increased 5% to $0.86, and was also ahead of the market’s estimate of $0.84.

Cisco’s product revenues grew 8% to $10.25 billion and service revenues were flat at $3.34 billion. By region, revenues from the Americas increased 5%, EMEA grew 11%, and APJC was flat.

For the quarter, data-center networking switches remained its biggest earner with revenues growing 12% to $6.68 billion. Revenues from the Internet for the Future segment, which includes routed optical networking hardware, dropped 5% to $1.3 billion. Sales in the Collaboration segment, which features Webex, fell 2% to $1.1 billion.

The company is focusing on diversifying into software and subscription services to reduce its dependence on its networking segment, but it has been a slow progress. Software revenues grew 5% to $3.9 billion, with software subscription revenue growing 11%. About 43% of Cisco’s revenues now come from subscriptions that grew 6% to $5.9 billion.

For the current quarter, Cisco expects revenue growth of 4.5%-6.5% and a non GAAP EPS of $0.84-$0.86. The market was looking for 4% revenue growth. For the year, Cisco expects revenues to grow by 4.5%-6.5% and an EPS of $3.51-$3.58.

Cisco’s 5G Strategy

Cisco has been focused on its 5G strategy over the last few years. It continued to expand its offerings in the segment and recently announced a partnership with T-Mobile to launch the largest highly scalable and distributed nationwide cloud native converged core gateway. The new converged core gateway will simplify operations for T-Mobile, allowing it to shift resources with better agility and roll out services like 5G Home Internet. It will also expedite time-to-market for new 5G and IoT services like network slicing and Voice over 5G (VoNR) by allowing T-Mobile to easily test and deploy new capabilities at scale.

With a fully automated converged core gateway, T-Mobile will be able to simplify network functions across the cloud, edge, and data centers to significantly reduce operational life cycle management. The increased efficiency will provide its customers with access to faster speeds, lower latency, and advanced capabilities like edge computing.

Meanwhile, Cisco is trying to increase its innovation within the cloud space as well. Cisco AppDynamics recently announced major updates to AppDynamics Cloud, its cloud-native observability solution. The upgrades will allow business transaction insights to be combined with business transaction monitoring with AppDynamics Cloud’s continuous-context experience. This will allow organizations to expand observability over cloud-native applications correlated with business context across their Amazon Web Services (AWS) environment. The AIOps-derived insights will allow teams to observe applications and take action to optimize performance and fix issues in near real-time. Initially, the new capabilities will support digital services, cloud-native applications, and workloads on AWS. Together, Cisco and AWS will continue to build on these capabilities to build full-stack observability.

Cisco’s stock is currently trading at $48.32 with a market capitalization of $198.5 billion. It hit a 52-week high of $62.82 in January last year and a 52-week low of $38.60 in October.

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