Cisco Systems Inc ditch their division Flip video camera, and that revisions to its troubled consumer business, following the recent admission of chief John Chambers’ that the company had lost its way.
The decision comes less than a week after Chambers said he had to make some “difficult decisions” on spending cuts in some product areas.
The company plans to cut 550 jobs from its workforce of 73,000 and will take a pretax charge of approximately $ 300 million for the review. The charge is expected to be recognized in the third and fourth quarters of fiscal 2011.
Tuesday’s news seems to be the first movement of Chambers to the reorganization of the company. Among the measures, Cisco plans to combine your home Umi dull teleconference service with its popular business Telepresence. The company also will change the way it manufactures its line of Linksys network equipment.
“Cisco has been sliding for a long time now. Hopefully you can do the boat,” said Fred Hickey, editor of the newsletter high tech strategist.
He said Cisco has been more affected than other firms during the economic downturn, because it has lost its focus on its business of selling networking equipment at a time when it faces increasing competition from rivals such as Hewlett-Packard Co, Juniper Networks, Huawei and ZTE Corp. of China
Analysts were encouraged by changes on Tuesday, adding that Cisco expects to sell more products outside their business of selling routers and switches for the industries of technology and telecommunications.
“This is a step in the concentration of attention from Cisco in the enterprise,” said Tim Ghriskey, chief investment officer of Solaris Group. “This was faster than we expected. But perhaps Cisco has been studying this for some time.”
Cisco shares fell 9 cents to $ 17.38 on Nasdaq. The shares have lost a third of its value last year. It includes slides, Cisco has lost a little more than half its value since early 2001, when it was almost $ 40 per share.
Analysts have been particularly critical of the manner in which Cisco has made its consumer division, saying that strays too far from the main business of the company.
Evercore analyst Alkesh Shah he expects Cisco to make other changes to its portfolio of technology products far, which includes Scientific Atlanta cable boxes and a new line of computer servers.
“This is just the beginning of a series of possible changes and the series of changes can reduce costs and increase margins,” said Shah.
The networking giant bought the business of Pure Digital Flip for $ 590 million in 2009, part of a wave of acquisitions that strengthened its consumer-oriented business and includes the acquisition of cable set-top box maker Scientific-Atlanta and home router maker Linksys.
Since then it has lost its standing as a hot gadget, mainly because the mobile phone manufacturers now offer devices with similar functions built into their phones.
In February, Jonathan Kaplan, the former CEO of Pure Digital, who had headed the consumer division of Cisco, left the company.
It was unclear why Cisco decided to close Flip business – which comes with software called FlipShare that allows users to easily share videos on sites like YouTube – instead of selling.
“They announced they are closing, so that means they could not sell,” said Philip Alling, an analyst at Atlantic Equities. “It’s disappointing to not be able to generate any proceeds from the sale of the company.”
Karen Tillman Cisco spokesman declined to say why the company decided to kill the business rather than sell it.
Chambers has previously called the company to focus on five areas: routing, switches and services data center virtualization;, collaboration architectures, and video.