Cisco Urged To Dump ‘Crappy’ Consumer Business

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Investors in networking company Cisco, who has seen their share value slide 32 percent recently, are now urging the company to dump their consumer division, which includes their Flip camera, new home video systems, storage, audio and home networking products groups.One option for the company is to sell the consumer group as a going concern say some analysts, while others are questioning as to who will buy into low profit categories, such as storage, digital cameras, home video conferencing and Hi Fi, which are seen as struggling product groups.

The most profitable division according to Cisco Australia sources is the former Linksys division which primarily consists of networking gear and security cameras.

In Australia Cisco’s consumer division has struggled, despite a major shakeup late in 2009 which saw the dumping of long time Cisco executive Graeme Reardon who had been responsible for growing their consumer networking operation which back then was branded Linksys.

Yesterday, Cisco Chief Executive Officer John Chambers issued a memo claiming that the company was set to make several “targeted moves” in the coming weeks to restore lost credibility and sharpen the company’s focus. Investors urged him to either shut down or offload their struggling consumer operation.

Getting out of the consumer division, which includes the Flip video camera, Linksys home networking, audio and media-storage products, should top his to-do list, said Sean Conner, an analyst at Nuveen Asset Management told BusinessWeek yesterday.

 “Cisco has realised that’s a crappy business,” said Conner, who said his firm sold its Cisco stake in January after owning shares for more than five years. “There are no synergies with the rest of their business. A lot of these businesses they put together are hurting the overall puzzle.”

 

Cisco’s gross margin, a measure of profitability, narrowed to 64 percent last fiscal year from 70 percent in 2003, in part a reflection of the push into consumer products. A sale or spinoff would help Chambers achieve his goal of refocusing on areas where Cisco is a leader, including the high-margin networking gear that makes up about half of its revenue says Bloomberg.

Cisco’s stock has fallen 32 percent in the past year, erasing about $46.6 billion in market value.

The company has become “slow to make decisions,” Chambers wrote in his memo. “We have lost the accountability that has been a hallmark of our ability to execute consistently for our shareholders.”

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