For a while there, things were looking bleak for Cisco Systems (CSCO). By getting into the server market, the tech company had put off traditional customers for switches and routers, its core business for years. But the gamble of the Unified Computing Service platform has begun to bear fruit and is now putting the competition on the defensive. The company looks to be back on the right track.  

As a result, Cisco has beaten analyst earnings estimates for two quarters running. 

In the second quarter revenue rose 10.6% from the year-ago quarter to $11.5 billion, while net income jumped 43.5% to $2.18 billion. Analysts on average were expecting $11.23 billion. Excluding one-time items, earnings were $0.47 per share, beating the average Thompson Reuters estimate of $0.43. The company, a sector bellwether because of its global scale and diverse client base, surprised everyone by raising its quarterly dividend to $0.08 from $0.06. 

Cisco reported third-quarter sales of $11.6 billion, against $10.9 billion the previous year. Operating expenses amounted to $4.41 billion in Q3 FY12, compared to $4.47 billion in Q3 FY11.

Getting "back to basics" has enabled Cisco to pull off this remarkable turnaround. The company restructured, refreshed its switching and routing products, and competed to win deals and cut costs. Cisco set a goal to eliminate $1 billion in expenses on an annualized basis, which it achieved well ahead of schedule. To do so it scaled back on consumer businesses and laid off thousands in a sweeping four-month overhaul. But cost cutting is not a path to growth, only margin improvement in the short term -- just ask Hewlett-Packard (HPQ).

Cisco had a problem with the Nexus line of converged Ethernet switches, which carry both server and storage traffic. Their initial low margins were a direct result of greater functionality and higher port counts, which drove up production costs and lacked economies of scale. By achieving greater network integration Cisco has been able to improve gross margins on Nexus gear up to 8%. 

However it was not all around good news for Cisco. It lost some market share in the enterprise router market to HP, which more than doubled its share in 2011. Cisco still owns nearly 75% of that market. Their enterprise customers fell 1% year over year, but this was a common trend in the industry.

Currently trading at 12.4 times trailing earnings and now sporting a respectable 1.9% yield, Cisco's stock is looking slightly undervalued. The $17 billion in goodwill on the company's books is a red flag, but taking that out still leaves it trading at a price-to-book ratio of 1.2. Investors clearly want to see another quarter or two of solid performance and greater contributions from the data center business before bidding up the stock. But Cisco is a lot farther along the reorganization path than other tech giants.