A week ago, CEO John Chambers acknowledged criticism that the company has been spreading itself too thin. He sent employees a memo vowing to take “bold steps” to narrow the company’s focus.
The shakeup announced by the San Jose, Calif., company on April 12 will result in the loss of 550 jobs, or less than 1 percent of its work force of about 73,000.
Cisco expects to take restructuring charges of no more than $300 million spread out over the current quarter, which ends April 25, and the following one.
The company is also retrenching on another consumer video business—home video conferencing. In November, it started selling the umi, a $599 box that turns a high-definition TV into a big videophone. But signs soon emerged that the umi wasn’t doing well. Cisco cut the price of the unit in March, along with the monthly service fee, which went from $24.95 per month to $99 per year.
On April 12, Cisco said it will fold umi into its corporate video conferencing business and stop selling the box through retailers. Instead, it will sell the product through corporate channels and internet service providers.
Cisco’s Home Networking business, which makes Wi-Fi routers and has the 2003 acquisition of Linksys at its core, will be “refocused for greater profitability,” but Cisco will keep selling the routers in stores.
Cisco shares fell 3 cents to close at $17.44 on April 12. The shares are close to their 52-week low of $16.97, hit a month ago.
Analyst Simon Leopold at Morgan Keegan said the pullback on the consumer side is a good thing for investors, but not enough to set off a stock rally.
Consumer products have been a drag on Cisco’s results, because they carry profit margins that are far lower than the big-ticket capital equipment the company sells to corporations, governments, and schools, Leopold said. But the drag has been minor, because consumer products are still only a small part of Cisco’s overall business.
Last year, the Flip Video was still the top-selling video camera in the U.S., with 26 percent of the market, according to IDC analyst Chris Chute. But that only amounted to 2.5 million units sold. Dedicated video cameras are small potatoes compared to digital still cameras and smart phones, both of which now shoot video.
Top competitors in the pocket camcorder field, which could benefit from Flip Video’s demise, are Eastman Kodak Co. and Samsung Electronics Co. Rubin expects Kodak to pick up much of Cisco’s market share.