What happened

Shares of Cisco Systems (NASDAQ:CSCO) fell as much as 5.5% on Wednesday morning, following the networking equipment giant's second-quarter earnings report. The stock had recovered to a 4% decline as of 11:50 a.m. EST.

So what

Cisco's adjusted second-quarter earnings rose 3% year over year to $0.79 per diluted share. Revenues held steady at $12 billion. Your average analyst would have settled for earnings near $0.76 per share on sales in the vicinity of $11.9 billion, so Cisco exceeded Wall Street's expectations by a small margin.

Looking ahead, Cisco's guidance for the third quarter pointed to earnings of roughly $0.81 per share, right in line with current analyst projections. On the top line, sales should rise approximately 4.5% to $12.5 billion. Here, the Street view currently stops at $12.4 billion. Moreover, the company raised its quarterly dividend by 3% to $0.37 per share. The effective dividend yield is 3.2% at today's share prices.

An angry businessman is holding chaotic bundles of network cables.

Image source: Getty Images.

Now what

The report was solid, guidance pointed slightly above the Street's estimates, and Cisco boosted its dividends. The typical reaction to reports like that is rising share prices, not a multibillion-dollar dent in the company's market cap. What's going on here?

The answer can be found in management's market commentary. On the earnings call, Cisco CEO Chuck Robbins called the enterprise market "soft" and pointed out "weakness" in the service provider market. The data center market posted lower sales amid "continued market contraction," and Cisco's router revenues came in below management's expectations.

Investors focused on these mildly bearish statements today. Cisco's share prices are now back almost exactly where they were a year ago.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.