Cisco Systems Inc. will shut down its Flip video camera business in an overhaul of its troubled consumer products business, following chief John Chambers' recent admission that the company had lost its way.
Cisco's consumer division, in particular, has been a target of criticism by analysts, who have said it strays too far from the company's main business of selling routers and switches to the technology and telecommunications industries.
Cisco shares were up 3 cents at $17.50 (U.S.) in Nasdaq trading on Tuesday. Shares have lost a third of their value over the past year. Including that slide, Cisco has lost slightly more than half its value since the start of 2001, when it was almost worth $40 a share.
Chambers promised last week to make tough decisions about the direction of the company. Tuesday's news appears to be his first move. Among the steps, Cisco plans to shut down the Flip business and combine its Umi home teleconferencing service with its TelePresence business product.
"This is one step in concentrating the focus of Cisco on the enterprise," said Tim Ghriskey, chief investment officer of the Solaris Group. "This came faster than we would have expected. But perhaps Cisco has been studying this for a while."
He added that Chambers may be restructuring the consumer business so that he can sell the division.
Cisco originally bought the Flip business from Pure Digital for $590-million in 2009, part of a buying spree that bolstered its consumer-oriented business and included the acquisition of cable set-top box maker Scientific-Atlanta and home router maker Linksys.
In February, Jonathan Kaplan, the former CEO of Pure Digital who had headed up Cisco's consumer division, left the company.
It was unclear why Cisco decided to shut down the Flip business - which comes with software called FlipShare that allows users to easily share videos on sites like YouTube - rather than sell it.
"They announced they are shutting it down, so that implies that they were unable to sell it," said Philip Alling, an analyst with Atlantic Equities. "It's disappointing they wouldn't be able to generate any proceeds from sale of the business."
Cisco spokeswoman Karen Tillman declined to say why the company decided to kill the business rather than sell it.
The company also said it would cut 550 jobs in the fiscal fourth quarter, accounting for less than 1 per cent of its workforce of about 73,000 employees.
The company plans to take a pre-tax charge of about $300-million for the overhaul. The charge is expected to be recognized in the third and fourth quarters of fiscal 2011.
Chambers has previously called on the company to focus on five areas: routing, switching and services; collaboration; data center virtualization; architectures; and video.
Cisco's last two quarterly results have disappointed the market. In November, the company announced sales growth would be lower than analysts expected. In February, it warned of dwindling public spending and weaker margins from tough competition .