SAN JOSE — Two years after launching a controversial foray into selling hand-held gadgets to consumers, Cisco Systems (CSCO) said Tuesday that it will close its Flip video camera business and cut 550 jobs, as it turns its focus back to selling networking gear and other tech products to businesses and public agencies.
Cisco also said it will “realign” other consumer product segments, including home videoconferencing systems and home routers, by folding some of them into divisions that sell similar equipment for business use.
San Jose-based Cisco announced the changes a week after CEO John Chambers told analysts and the company’s 72,000 employees that he would be making difficult but “targeted” decisions to get the tech giant back on track, after a series of disappointing financial reports left Cisco’s stock wallowing at two-year lows.
Cisco may announce additional changes in coming weeks, according to spokeswoman Karen Tillman. After evaluating the Flip operation, Cisco decided “it made the most business sense” to close it down rather than try to sell it, Tillman said. Cisco said it would support existing Flip customers with a “transition plan” but did not provide details Tuesday.
The news was generally applauded by Wall Street analysts, including several who had argued the company spread itself too thin by expanding beyond its core networking business in recent years. Gleacher & Co. investment analyst Brian Marshall called the announcement “a step in the right direction.”
Still, Marshall said the changes announced Tuesday are unlikely to have a major impact on Cisco’s finances as a whole. The company says consumer products represent only about 2 percent of its business.
Cisco said the job cuts will occur later this year and will cause the company to incur up to $300 million in restructuring costs. While some of the Flip business is based in San Jose, the company declined to say where the cuts will occur.
Cisco is one of Silicon Valley’s largest tech companies, with more than 72,000 employees and $40 billion in annual sales. The company is profitable overall, but it has disappointed Wall Street in recent months as its profit margins have shrunk and the company has scaled back some of its forecasts for growth.
Many analysts had been expecting Cisco to cut back its consumer operations, which reported a 15 percent decline in sales for the last quarter. Cisco announced the departure of consumer products chief Jonathan Kaplan a day after it reported those results in February.
“We are making key targeted moves as we align operations in support of our network-centric platform strategy,” Chambers said in a statement Tuesday, referring to his announcement last week that the company would tighten its focus on core business priorities.
Cisco acquired the Flip product line two years ago when it paid $590 million to acquire camera maker Pure Digital, where Kaplan had been CEO. At the time, Chambers said the business fit into Cisco’s strategy of emphasizing video technology because video communication is increasingly dominating network traffic.
But even though Flip sales were up 15 percent in the last quarter, Chambers acknowledged in February that Cisco had hoped the business would grow at twice that rate. He told analysts that selling consumer products during the last holiday season “turned out to be a tougher market than we anticipated.”
While the Flip cameras appealed to many users because of their simple design and features that make it easy to post videos online, they were increasingly competing with popular smartphones and tablets that have built-in video capabilities.
Still, analyst Stephen Baker of the NPD Group, a market research firm, said there may be a downside to dumping the business. Consumer gadgets such as smartphones and iPads have been at the forefront of innovation and business trends in recent years, Baker noted, adding that selling to consumers can give companies like Cisco insight into future trends.
