BOSTON/NEW YORK: Cisco Systems Inc will dump its Flip video camera division, retiring the popular brand rather than selling it in a first step toward reviving a company CEO John Chambers admits has lost its way.
The move to kill a gadget that won rave reviews for jump-starting handheld video -- but was rapidly matched by smartphones and other video-equipped devices -- comes less than a week after Chambers said he had to make "tough decisions" about cutting spending on some product areas.
The decision to nix Flip, along with a planned folding of its Umi home videoconference business into the more successful TelePresence arm, underscores Chambers' need to whittle down a money-losing consumer division that also includes Scientific Atlanta set-top boxes and Linksys home routers.
Cisco's descent from Internet powerhouse to muddled underperformer came to a head earlier this year, after three quarters of results that disappointed investors.
"Cisco has been sliding for a long time now. Hopefully they can right the ship," said Fred Hickey, editor of the High-Tech Strategist newsletter.
The company plans to cut 550 of its 73,000 jobs and take a pretax charge of about $300 million for the overhaul, possibly in the third and fourth quarters of fiscal 2011, it said.
Tuesday's news seems to be Chambers' first move to restructure Cisco following an unusually candid memo to employees last week that detailed its problems. In it, he admitted that Cisco had lost its way, and warned of "targeted moves" in the coming weeks.
Cisco spokeswoman Karen Tillman declined to say why the company decided to kill the Flip business rather than sell it.
Atlantic Equities analyst Philip Alling said there were probably no buyers: "It's disappointing they wouldn't be able to generate any proceeds from a sale of the business."
Kim Caughey Forrest, senior analyst at fund firm Fort Pitt Capital, hoped Chambers was serious about an overhaul. "I'm really disappointed if this is it. One would hope that there are more changes pending," she said.
STRATEGY VS EXECUTION
Among the steps announced on Tuesday, Cisco plans to combine its lackluster Umi service with its TelePresence system for corporate clients. The company will also change the way it manufactures its Linksys line of networking equipment.
Hickey said Cisco has been hit harder than other companies during the economic downturn because it has lost its focus on selling networking equipment as it faces growing competition from Hewlett-Packard Co, Juniper Networks, China's Huawei and ZTE Corp
Chambers blamed "execution" rather than problems with his strategy for the company's woes. But few agree.
Cisco has not fully embraced a slowing growing market, ISI Technology analyst Bill Whyman wrote in a recent report. "We're wary of companies that say 'Our strategy is sound, it is our operational execution that isn't.' It makes us question whether they really accept the deeper problems."
Cisco fell 2 cents to $17.45 at mid-afternoon on Nasdaq. The stock has lost a third of its value over the past year.
The networking giant bought Flip for $590 million in 2009, in an acquisition spree that bolstered its consumer business and included the purchase of Scientific-Atlanta and Linksys.
Flip has since lost some of its cachet, primarily because mobile phones makers now offer devices with similar functions incorporated into their handsets. It has also faced strong competition from other handheld camcorders, including Eastman Kodak Co's line of PlaySport devices.
Chambers has previously said the company would focus on five areas: routing, switching and services; collaboration; data center virtualization; architectures; and video.
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