Cisco said it would close part of its troubled consumer products business and overhaul the rest in the first part of a company-wide restructuring intended to repair Wall Street’s flagging confidence in the company.
The overhaul, begun on Tuesday, will include closing down Flip, a video camera business that came to be seen as a step too far in Cisco’s move away from its networking roots. Cisco paid $590m in 2009 to acquire Pure Digital, the company that made the device.
At the time, the lightweight video camera was hailed by Cisco as an important part of its plan to create “end-to-end” networks that involve it capturing as well as transmitting video. However, Wall Street was never convinced of the need to sell consumer gadgets and the once hot Flip device has since been overtaken by video recorders embedded in smartphones like the iPhone.
John Chambers, Cisco’s chief executive, signalled the likely restructuring of the consumer products business a week ago, when he wrote a mea culpa for Cisco’s overexpansion of recent years. The admission, in an internal e-mail, marked a sharp reversal from his usual confident and expansive style and was seen in Silicon Valley as a turning point for the company.
While declaring Cisco’s strategy “sound”, Mr Chambers added that there were “aspects of our operational execution that are not. We have been slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders. That is unacceptable.”
Cisco on Tuesday signalled that it would pull back from a second troubled part of its consumer business as it announced that its Umi devices, which provide high-end video conferencing, would no longer be sold direct to consumers.
Modelled on the company’s Telepresence system for businesses, Umi was meant to bring high-definition conferencing to the living room, but the service was criticised as being far too expensive for its target market when it was launched last year. Cisco said it would look at selling Umi only to business customers, or through telecommunications companies.
The third part of the consumer division, based on the wireless routers and other home networking equipment acquired with the purchase of Linksys in 2003, would continue to sell through retail stores, Cisco said. But the group added that it planned to raise the profitability of the business with a restructuring that combined its operations with other parts of Cisco.
The consumer overhaul was the first result of a “deep portfolio analysis” that was being undertaken into all parts of Cisco’s operations, the group said.