NEW YORK (CNN/Money) - Last week, analyst Ariane Mahler of Dresdner Kleinwort Wasserstein upgraded her rating on Cisco -- to a "Hold."

That's right: "Hold" was a step up. Mahler startled some Cisco watchers earlier this year when she attached an actual "Sell" rating to the stock.

But don't make too much of Mahler's upgrade, which she says was made mostly because the stock had already fallen so much.

"We're not telling people to rush out and buy," Mahler says. "We still see a gradual erosion of the multiple, a certain amount of disillusionment with management, a lag in earnings relative to the economic recovery and corporate spending. If people think we're turning positive on the stock, we're not."

Okay, okay, I get it.

So what's got Mahler feeling less than cheerful about Cisco? For one thing, she's troubled by what she sees as aggressive accounting -- particularly Cisco's giant inventory writedowns, which she thinks the company has used to make its numbers smell sweeter.

In early 2001, Cisco took a massive $2.2 billion writedown for inventory, saying that a sudden and dramatic drop in demand had rendered the stuff virtually worthless.

If Cisco spread out its inventory obsolescence charges as a normal business expense each quarter -- as Mahler thinks it should have -- that would take regular chunks out of earnings. "Cisco front-loaded several quarters of costs into one quarter in order to make its gross margins look better," says Mahler.

Cisco, of course, takes strong exception to Mahler's views. In determining the size of the writedown, company spokewoman Abby Smith says, Cisco used the same methodology it has always used. It's just that Cisco's 12 month sales forecast made it abundantly clear in early 2001 that too much excess inventory was in the system and a big writedown was necessary. "We tend to be very conservative in such matters," Smith says.

Mahler is also worried that Cisco's growth rate is stalling out. Cisco CEO John Chambers used to talk expansively of 30 to 50 percent annual growth as far as the eye could see; analysts now peg long term growth at perhaps 25 percent.

Mahler thinks the company will be lucky to hit 15 percent.

With many of the telecom customers that Cisco relied on in the go-go 1990s either bankrupt or slashing capital expenditures, Cisco is looking to a motley assortment of new markets for growth -- from storage networking to Voice-over-IP (a cheap if not yet wholly reliable way to send phone calls over the Internet).

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Mahler doesn't think these new markets can give the company the billions of dollars in annual revenues it will need to deliver the growth analysts and investors expect.

While Cisco's earnings will no doubt rebound when corporate spending eventually kicks in, Mahler's not sure the stock will be able to command the premium multiple it fetches even now.

Indeed, Mahler thinks investors are "becoming a little more disillusioned with Cisco's management, a little more cynical -- or realistic, perhaps. Over the last few months, I think the market has come to see things a little bit more our way."

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