Cisco Drops Flip Camcorders, Restructuring Consumer Business

Cisco is dropping Flip camcorders, partially dismantling a consumer business built over the past three years, the company said. The decision to shut down Flip, cut 550 jobs and put the company’s Umi videoconferencing set-top box into the TelePresence corporate division came amid challenges to Cisco’s core business and criticism from investors that the company was spreading itself thin.

Umi sales were sluggish. In March, the box price was cut and a $24.99 monthly charge for the videoconferencing service switched to $99 annually. Retail sales of Umi are being discontinued, the company said. Last week, Cisco CEO John Chambers acknowledged the consumer business’ shortcomings and promised to take “bold steps” to sharpen the company’s focus. Cisco will take a pretax charge of up to $300 million in Q3 and Q4 for the restructuring.

Cisco formed a consumer business group in 2008, building on its $500 million acquisition of Linksys. It paid $590 million a year later to buy Pure Digital Technologies and its Flip camcorders. Flip had sold 2 million units over two years, pioneering a category of small camcorders with built-in storage that connected to PCs through USB ports for uploading, editing or printing motion or still images. Priced in the $129 to $229 range, Flip surged to become a top-selling brand. But as competitors poured into the market, Flip’s market share dropped to 17 percent in the 12 months to February from 26 percent a year earlier, trailing Sony (18 percent), NPD analyst Stephen Baker said.

The shutdown of Flip is “an over-reaction to the Wall Street issues with Cisco’s growth and margins,” Baker said. “Cisco is an awfully big company, and I don’t think Flip alone is causing them problems, nor is it big enough to be the thing that diverts management’s attention away from more important things."

Gimme Credit analyst David Novosel countered that Cisco’s margins declined in the face of “increased mix of consumer products” and launches of some new devices. “Slower spending” by state and local governments also has had a “negative effect” on Cisco’s business, he said.

Cisco will keep a foot in the consumer market through its home-networking products, including routers acquired with Linksys in 2003, and cable STBs it gained buying Scientific-Atlanta three years later. The routers will continue to be sold at retail, the company said. But other consumer devices have been dropped, including wireless home audio products and media center extender/DVD players.

Cisco is realigning its remaining consumer business to support routers and switches, corporate communications and collaboration equipment, servers for data centers and video. Cisco has built a video streaming business around its Videoscape products, including the Spinnaker live streaming appliance.

"In the future it will be more important for all IT companies whether they are enterprise focus or more general, to have a foot in the consumer market, which drives the technology and innovation,” Baker said. “When you don’t have a strong presence there, in the long run you fall behind.”