Cisco Closes Flip Division Amid Consumer Changes

The turnaround of Cisco Systems has begun with the news that it is closing its Flip video camera business, with the loss of 550 staff.

The moves, announced 12 April, come after several quarters of disappointing financial numbers, and a week after Chairman and CEO John Chambers sent a lengthy memo to employees saying that changes will be made to bolster the company’s performance.

Overall, Cisco is looking for its remaining consumer offerings to support the company’s larger commercial effort in four of five of its priorities: core routing, switching and services, collaboration, architectures, and video.

Operational Alignment

“We are making key, targeted moves as we align operations in support of our network-centric platform strategy,” Chambers said in a statement. “As we move forward, our consumer efforts will focus on how we help our enterprise and service provider customers optimise and expand their offerings for consumers, and help ensure the network’s ability to deliver on those offerings.”

Along with the dropped businesses and restructuring charges of about $300 million (£185 million) that will occur because of the moves, Cisco said about 550 employees will lose their jobs in the company’s fourth fiscal quarter. Cisco has about 73,000 employees.

Over the past several years, Cisco has made a number of consumer-focused moves as it looked to expand its reach beyond its core networking business and into such areas as video communications. Those moves included the acquisition of Flip-maker Pure Digital and set-top box maker Scientific-Atlanta.

Umi, the telepresence technology designed to bring immersive video communication into the home, was released in October 2010. Many analysts said the technology seemed sound, but questioned whether consumers would pay the high price, especially considering the availability of cheaper alternatives like Skype. In March, Cisco cut the prices on the Umi.

Along with the moves around the Flip and Umi products, Cisco officials said they are realigning the Home Networking business.

Investor Pressure

Cisco has been pounded by investors and analysts alike over the past few quarters, as Cisco executives had to explain the relatively poor performance and weakened forecasts by the networking giant, particularly at a time when other top-tier tech vendors – including Intel, IBM and Google – were reporting big profits.

Chambers has said during conference calls with analysts and journalists that some businesses – including the video and data centre units – are showing strong growth. However, Cisco saw weakening in its core routing and switching businesses, particularly with the growing competition from the likes of Hewlett-Packard and Juniper Networks.

Analysts have argued that Cisco’s focus on the consumer business was a reason for Cisco straying from its core networking businesses, which has helped make it vulnerable to competitors. In the second fiscal quarter of 2011, Cisco reported that revenues from the consumer business had dropped 15 percent over the same period the year before. However, one analyst in a quick note 12 April said that while the move is a good start, more work is needed.

“While this is a step in the right direction, it is not material in our view to [Cisco’s] issues,” Brian Marshall, an analyst with Gleacher and Co., said in the note, pointing out that the consumer business accounts for only 4 percent of Cisco revenues.