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For $590 million in stock, Cisco becomes a video camera company

Cisco's Latest Buy: Flippin' Sweet

Craig Matsumoto
News Analysis
Craig Matsumoto
3/19/2009
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Cisco Systems Inc. (Nasdaq: CSCO) dived deeply into consumer electronics today, announcing a deal to buy Pure Digital Technologies Inc., maker of the Flip line of handheld video cameras, for roughly $590 million in stock. (See Cisco to Acquire Pure Digital.)

Cisco has sold consumer products before, such as the home router brand now called Linksys by Cisco. But the Flip is a less geeky kind of consumer product and could lead to Cisco's first direct clash with a mammoth consumer player like Sony Corp. (NYSE: SNE).

Rumors of the deal circulated earlier this month. Cisco had already talked about seriously expanding its consumer business, and a debt offering pumped speculation that an acquisition was in the works. (See Cisco Goes Consumer, Cisco Keeps the Service Provider Faith, and Cisco's Got Cash.)

So, why did Cisco do it? It certainly wasn't for the video quality. As Consumer Reports noted when reviewing the Flip Mino in August, the little cameras lack features like good image stabilization. You can see the results at about the 2:15 mark of this video.

Consumer Reports points out that poor video quality is a "deal breaker... unless you're planning to use it only to create videos to post online – where compression will all but eliminate differences in quality between the best and worst home videos."

That's the part Cisco is counting on. Pure's mission as part of the digital fold would be to help consumers shovel more video -- especially high-definition video -- onto the net, regardless of whether it's any good. That, in turn, could increase service providers' demand for more routers with video-minded features.

The Flip satisfies that account, because it comes with software tailor-made for posting to Internet sites.

The deal is expected to close by the end of July. Pure would be included in Cisco's consumer group, the home of the Linksys by Cisco brand. Pure CEO Jonathan Kaplan would become general manager of the group, reporting to senior vice president Ned Hooper.

— Craig Matsumoto, West Coast Editor, Light Reading

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Stevery
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Stevery,
User Rank: Light Beer
12/5/2012 | 4:08:45 PM
re: Cisco's Latest Buy: Flippin' Sweet



Did chambers make a statement about not personally profiting from PureDigitals stock in the acquisition?




How about anybody on the csco M&A team?




Shareholders should be livid about the stupid price and the self-dealing.-á It is time for the limiteds in these deals to be exposed.


abashford
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abashford,
User Rank: Light Beer
12/5/2012 | 4:08:45 PM
re: Cisco's Latest Buy: Flippin' Sweet



It appears this video camera is the 'iPod' of the video camera world... very simple to use and integrate with the web, and a similar minimalist aesthetic.




So it sounds interesting as a potentially successful stand-alone business, but I really don't see the connection with Cisco as a business.-á You bring out the point of 'shoveling more video', but this would happen without Cisco's name behind the unit.




From a networking standpoint, if the device had WiFi or even an Ethernet jack I could see more of a symbiosis with Cisco's 'network as the platform' messaging, but it has a USB port, that is it.-á This one just doesn't go clunk for me.




Is there any key video processing IP that they may want to get their hands on?


googol_byte
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googol_byte,
User Rank: Light Beer
12/5/2012 | 4:08:43 PM
re: Cisco's Latest Buy: Flippin' Sweet


OK, they have over $30B in cash, so why use stock for a $500M acquisition.



I actually read an anlalyst comment that said they were "conserving cash for other deals". -áWhat deal is Cisco going to do that requires $30B in cash?-á

sigint
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sigint,
User Rank: Light Beer
12/5/2012 | 4:08:41 PM
re: Cisco's Latest Buy: Flippin' Sweet



"From a networking standpoint, if the device had
WiFi or even an Ethernet jack I could see more of a symbiosis with
Cisco's 'network as the platform' messaging, but it has a USB port,
that is it.-á This one just doesn't go clunk for me."





_________________________________________________________________________________




 




Pure speculation, but I'm guessing that since Cisco saw some success with Telepresence, they are pursuing video seriously. Application typically uses fixed cameras, so no image stabilisation necessary. Maybe a 'telepresence lite' for homes and value markets.-á




Again, to emphasise, pure speculation on my part.




PS: Adding an ethernet port/wifi should be a trivial fix.-á


Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 4:08:40 PM
re: Cisco's Latest Buy: Flippin' Sweet



Theory #2: Cisco sees a future of networked consumer electronics and wants to beat Sony to that place, essentially becoming the new Sony (or Apple) of the 2010s.




This one probably has several sleep-deprived holes in it, but I'll toss it up there for discussion anyway.-á


Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 4:08:40 PM
re: Cisco's Latest Buy: Flippin' Sweet
I like sigint's theory about telepresence.-á And I agree Cisco pretty much has to add Ethernet or Wifi to the cameras -- here's a blog that thinks the wifi part would be a good idea: http://bit.ly/swj8



Even so, as abashford points out, uploading video to the web is going to be popular pretty much no matter what, and it's going to go in an HD direction all by itself.-á This isn't like Intel & Wimax, where Intel had to back a standard and force feed it to the industry.




Cisco must have some grand vision for these cameras' evolution, one that Sony can't or won't follow.-á (Because if it was obvious enough for Sony to do it, Cisco wouldn't go through this trouble, right?)


vlui13280
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vlui13280,
User Rank: Light Beer
12/5/2012 | 4:08:39 PM
re: Cisco's Latest Buy: Flippin' Sweet



If you put the networking stuff aside, does the Scientific Atlanta STB not have a USB port??




ANd for Cisco to keep growing this rate for the next 5 yrs, where do they stand on wireless backhaul and LTE?


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