Cisco Systems Inc., the world’s biggest maker of networking equipment, will close its Flip video-camera unit and cut about 550 jobs as it reorganizes its consumer businesses.
Pretax costs from the revamp won’t likely top $300 million during the third and fourth quarters of fiscal 2011, San Jose, California-based Cisco said today in a statement. Cisco will realign its remaining consumer business to support core routing, switching and services, collaboration, architectures and videos.
Chief Executive Officer John Chambers said in an April 4 memo to staff that he will make several “targeted moves” to restore lost credibility and sharpen the company’s focus. The moves today aren’t enough to compensate for the declining profitability of the consumer business, which Cisco should exit entirely, said Alex Henderson, with Miller Tabak & Co.
“You’re in a business that has extremely low margins and you don’t have a competitive edge,” Henderson, a New York-based analyst who rates the shares “buy” and doesn’t own them, said of Cisco’s consumer business in a phone interview. “They’ve got a lot of work to do, and this is just a drop in the bucket.”
Cisco’s shares declined 34 percent in the past year. The stock fell 3 cents to $17.44 at 4 p.m. New York time in Nasdaq Stock Market composite trading.
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.
Cisco has shed the “accountability that has been a hallmark of our ability to execute consistently” for customers and investors, Chambers said in the memo this month. The company is planning a series of changes aimed at revamping leadership and making it easier for customers and partners to work with Cisco, he said.
“You will see Cisco make a number of targeted moves in the coming weeks,” Chambers said in the 1,500-word memo to employees. He didn’t give details on what form the changes would take.
The job cuts, which represent less than 1 percent of total employees, will take place by the end of the fiscal year, the company said. Cisco’s consumer division also includes Linksys home networking and audio and media-storage products.