Cisco announced this morning that it would discontinue its Flip camera division and layoff 550 employees by the end of 2011. This is obviously bad news for Flip employees, but those in better performing sectors of Cisco may benefit, analysts said.
The decision to cast off Flip, which Cisco acquired two years ago for $590 million, was not unexpected. Last week, CEO John Chambers said that the company would have to make substantial changes to get its business on track.
"It was anticipated," said Jim Kelleher, director of research and senior analyst at Argus Research. "Aspects of the other consumer products are all at risk in short order if they can't make it into a more profitable business."
Flip's light digital video cameras were once hot items, but weren't able to compete with cheaper rivals.
"Flip was a flat-out flop," Kelleher said. "It's kind of like the poster child for failed due diligence."
Cisco's consumer products revenue was down 15%, the company announced in February. The resignation of Jonathan Kaplan, head of the consumer products division, that same month also signaled that Flip would be at risk.
Other recent consumer acquisitions include Linksys home routers, which have fared relatively well, cable set-top box maker Scientific Atlanta, and Webex Web-conferencing software.
"Cisco's going to take a microscope to its entire organization and make some changes and that's a good thing, that's what they need to do," Brent Bracelin, senior analyst at Pacific Crest Securities said last week. "That will focus pressure on the employee base, but could make it more rewarding for employees [in well-performing divisions] from a stock and compensation perspective."
The company has 72,935 employees and says it will cost $300 million to complete the restructuring.
Write to Joseph Walker