Cisco's Flip flop and consumer retreat: Did it go far enough?

Cisco's Flip flop and consumer retreat: Did it go far enough?

Summary: Cisco downsized its consumer business, ditched the Flip camcorder and refocused Linksys and its fledgling Umi home telepresence system. The moves will save money and focus Cisco, but there's a case to be made that the networking giant didn't go far enough.

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TOPICS: Cisco
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Cisco downsized its consumer business, ditched the Flip camcorder and refocused Linksys and its fledgling Umi home telepresence system. The moves will save money and focus Cisco, but there's a case to be made that the networking giant didn't go far enough.

The crux of the Cisco conundrum is this: Should the company play for the consumer market at all? Cisco has spent recent years trying to become a consumer play. It has gobbled up Linksys, Pure Digital and sits in a lot of living rooms via Scientific Atlanta, a cable set-top box maker that was also acquired.

Also: Cisco shutters Flip business, takes consumer mulliganDeath of the Flip: Will anyone miss it? * Cisco's Chambers: 'We have lost some of the credibility' * Cisco: Back to Business

Cisco CEO John Chambers telegraphed that some bold moves were ahead. After all, Chambers is trying to restore Cisco's Wall Street cred. Analysts, however, are asking if Cisco went far enough.

Oppenheimer analyst Ittai Kidron said in a research note:

Cisco announced it's downsizing its consumer business, effectively shutting down the disappointing Flip business, and refocusing its home networking (Linksys) and video (umi) businesses. We're positive on the moves and related cost savings, which could alleviate margin pressures while having a more modest revenue impact. That said, we still want Cisco to take additional aggressive action and we wish Cisco would have exited the consumer video and home networking markets altogether. We also feel Cisco will need to restructure or exit its video systems business (Scientific-Atlanta) at some point given the unfavorable longer-term secular trends. Overall, a positive step but more is needed, in our view, and we feel Cisco has more in store.

Does Cisco need a consumer business? The initial idea was that Cisco could be a bigger brand. It could make end point devices that take advantage of video and ultimately boost demand for its switches and routers. That strategy looks good on paper, but you can spread yourself thin. As Rachel King noted, Flip just never evolved under Cisco's wing.

Cisco's consumer failures (photos)

In many respects, it makes sense to retreat from the consumer market. The margins stink so financially there's little upside. Cisco has been and always will be an enterprise and telecom stalwart.

Along those lines, Cisco should double down on what it knows---video, collaboration, UCS and the enterprise in the U.S. and abroad. With that focus, it's fairly clear that Cisco doesn't have to play the consumer game.

Wedbush analyst Rohit Chopra said:

We think the change is a good first step in an area which generates OM far below the corporate average, but we think the company could have gone further, perhaps selling the entire consumer unit to a strategic buyer.

For now, the largest beneficiary of Cisco's Flip flop will be Netgear. The company has its focus on home networking and may even emerge as a buyer for the Linksys business at some point.

Topic: Cisco

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22 comments
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  • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

    Consumer is going mobile - no incentive for other companies to invest in more home networking gear. If Cisco had been successful in forging a partnership with Apple post buying the iPhone trademark, things could look quite different. - Exit -
    revill@...
  • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

    Great, they destroyed Linksys and now are ditching it. and Netgear has a habit of making products with issues.
    allan@...
    • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

      @allan@...
      I've been using a Netgear wireless router for the past three years and never had an issue.
      12stringer1975
      • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

        @DaveDean Concur. No issues with Netgear. Android has trouble setting or maintaining connection with it for some weird reason, but that's just another Android issue.
        XXP
    • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

      @allan@... I haven't liked Linksys ever as a router, the interface limits capabilities that really should just be there. I use D-Link for home networking and rarely have any problems. I've had several Netgear routers just up and fail, right after warrenty too.
      grayknight-22253692004129760887070084760051
      • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

        @grayknight
        DD-WRT works fine on many routers :) D-Link & Linksys im sure others as well...
        markj73
  • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

    And in age of the "consumerization of IT" should Cisco's suddenly dumping a product line (even a consumer product) worry enterprise customers? As goes Flip, might Linksys and the refocused umi be next? http://scheierassociates.com/2011/04/will-cisco-pay-for-murdering-flip
    bob@...
    • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

      @bob@... I couldn't agree more. Chambers should have sold off the things they didn't want, not murder them. Even an spin out to a management team in each is far better. Chambers should start thinking right or retire.
      padapa
  • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

    Netgear, linksys, d-link... they've all had issues. But seems d-link would be the one to gain more market share. Netgear never was at the "top o the heap" for choice. Great name choice for marketing but not that great for quality control.
    garyoa1
    • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

      @garyoa1
      Couldn't agree more. I've had issues with AP's & routers made by d-link, netgear & linksys. Compared to the reliability of the AirportExtreme, they suck.

      Low end switches are a different story though, as all brands seem to hold up at least 3-5 years.
      draymis
      • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

        @draymis

        I've used almost all of them, not just in the "consumer" space, and there are dozens. Favorite so far is DD-wrt as software with a pre-Cisco wrt54g, a couple different "Asus" routers, or Netgear's 3500L.
        tkejlboom
  • Chop The Dead Wood - and - Slay the Brown Nosers

    Cisco could be great again but has become a wasteland of Corporate politicians. It has lost its entrepreneurial way and needs to seriously take an ax unproductive and scheming human capital who focus on the next promotion and not growing the business. Time for Cisco to eat their own young in the product and personnel camps....and lead again!
    WhiskyPete
  • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

    What is all of this anti flip-flop sentiment?!<br>I would have you know that without the flip-flop our processors would be cache-less, processors themselves would be impossible(*), only combinational logic would rule the digital world. Such a bleak world indeed, without the flip-flop.<br>Acknowledge the error or your ways!<br>Repent!<br><img border="0" src="http://www.cnet.com/i/mb/emoticons/wink.gif" alt="wink">
    *okay, okay, yeah, we would still have latches...but come on! latches are not as cool as flip-flops!
    blmille1
  • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

    I suppose I'll continue to use Cisco products layered behind services that I directly pay for. They should be aware though that whenever the economy improves, should they be tempted to get back into the consumer market again, that they have made themselves the kiss of death for any product they try to acquire. Trust once lost is really hard to get back.

    I expect there will be a crackling hot market for Flip cameras on ebay though. People who manage to get large lots of the things will make good money reselling.
    rightwingnutter
  • Should have never gone there in the first place

    Telecoms are screwing Cisco. I literally had the sales rep for my ISP try to explain to me why I needed LESS bandwidth. We sit at the cusp of 100Gig infrastructure and why is it going to move anywhere when the idiots running the telecoms can get away with raising rates while convincing end users that they're not clever enough to think of something, ANYTHING to do with more bandwidth. They WON'T LET ME buy 50Mbps for any amount of money! Cisco's future depends on beating end users about the head with an obvious stick to cause the end users to in turn pressure there telecoms to make more bandwidth available to them. That, in turn, means telecoms need to spend their obscenely high margins on ACTUALLY providing decent infrastructure. Flip was not a bad effort to achieve that.

    Cisco still has some of the highest margins of any company ever and IDIOTS on WALL STREET whose failures in demonstrating knowledge of technology or how to run a company include Gateway, Bear Stearns, the global mortgage meltdown, MySpace, Facebook, Google, and NBC. Cisco may be sloppy, but A. overplanning the future is hubris, and tech historically crushes those who dictate one way. B. Cisco should stop catering to Wall Street. Wall Street is stupid and unpredictable. Trying to satisfy Wall Street is like trying to satisfy a hurricane.
    tkejlboom
  • Linksys was a good company before Cisco touched it

    I don't know but perhaps it was Cisco's plan to destroy Linksys so that it would compete with them, I have not had a decent experience with Linsys since Cisco bought them.
    balsover
  • RE: Cisco's Flip flop and consumer retreat: Did it go far enough?

    I have two daughters who each have Flip cameras and small children and are finding them ideal for recording their infant's early months. They love them and are ticked that Cisco is dropping the line. As for networking, I've always liked Linksys and Netgear products. There's an 11 mbps Linksys router and 54 mbps Netgear NICs in the PCs on this home wireless/wired network that are so old I can't remember when I bought them; my initial setup was all Linksys stuff. I guess ignorance is bliss.
    jfkcpa@...
  • They could have done more with the Flip brand

    If they combined umi and flip to make a facetime competitor or worked with skype, it might have sold more units. The flip cameras did not change after they were released, so I don't actually see any R&D going into them. What Flip did do was increase competition, Sony and Creative started making cheap pocket video cameras. I do think they can make more consumer products with the Flip and Linksys brand. Umi is a consfusing name, they should have called it FlipTV or something. They could have called it FlipChat as their facetime protocol, and introduced third party services like msn or skype. They made their products not consumer-friendly, while google was offering google tv with free video chat capabilites. They could have implemented wifi video calling with their new units. Like most people say if they spent more of their marketing money towards making a better product, they would have been more successful.
    kushkm
  • Cisco-the 800 pound gorilla of networking

    So Cisco trampled into these markets with no clear plan and no value to consumers (ahem, the customers). Now that they've trampled around the market, they're bored their new toys and tossing them aside. Gee, thanks. The consumer market has been "enhanced" by your desire to "play".

    Sadly, Cisco added ZERO value to all of these businesses. Everything bad about Linksys continues before and after they added the tiny "Cisco" logo on the box. Scientific Atlanta? who cares that Cisco owns them?

    Perhaps if they had a master plan... Perhaps if they stopped being so impressed with their much-ballyhooed, $100,000-a-location, TelePresence that their salespeople have been shlocking the past several years, they might have noticed that video, phone, Television, DVDs, music and more are all converging. All the components are there and in piecemeal. A hardware vendor needs to step up and put the pieces together to merge, through some brilliant software design, them into one unit or better, a chip/board that can be installed in every TV. Just look at Netflix & Pandora showing up in DVD players, Skype, Netflix is now going produce their own original shows (do we still call them TV shows when they distribute exclusively via Internet to any device?). I think Apple is the only ones with design/style forward-looking standards to pull together a great interface. But I don't see apple commoditizing the hardware to be a part of every TV, DVD player, or tuner. Someone is going to go there, and go there big. Too many players do little bits and limiting themselves to limited platforms.
    royalef
  • Linksys wasn't all that great to begin with...

    Having spent a few years in retail and now working as a tech, my feeling is the Linksys brand is overrated (and overpriced).

    The main reason customers chose it over other brands were the words "by Cisco" printed on the box. What novice buyers didn't realize is (in most cases) they were buying a product far below the quality of Cisco's Enterprise-grade offerings.

    The return/DOA rates on Linksys were roughly equal to other major brands (Netgear, D-Link) and actually higher than some of the budget brands (Trendnet). Unimpressive, especially when you consider Linksys usually sells for 25-75% more than competitors offering the same specs.

    My guess is Cisco will hold on to the Linksys name based on brand recognition, but outsource all the manufacturing and tech support (if they haven't done so already). This will create profit by essentially licensing the "Linksys" and "by Cisco" to third-party manufacturers without the costs of returns, warranty claims and tech support (just as most "Phillips" TVs are now actually built and warranteed by Funai, who licensed the use of the name).
    g-man_863