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

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 mulligan *  Death 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.