x
Carrier WiFi

Scrutiny Hits Cisco's Consumer Business

Not surprisingly, the consumer business is the clear favorite to be chopped as Cisco Systems Inc. (Nasdaq: CSCO) seeks ways to cut costs and refocus.

CEO John Chambers's now-famous company-wide memo, made public last Tuesday, predicted "bold steps" and "tough decisions" in trying to regain credibility with investors. He laid out five major technology areas that would remain the core of Cisco, and consumer products wasn't one of them.

There are plenty of ways to slice up Cisco, but the consumer business is on top of most hit lists.

They say
Bloomberg was quick to focus on the consumer angle on Thursday, quoting analyst Sean Conner of Nuveen Asset Management as saying consumer is a "crappy business."

Multiple analysts -- Nick Lippis of Lippis Enterprises , Jon Oltsik of Enterprise Systems and Zeus Kerravala of Yankee Group Research Inc. -- told Network World the same thing, in blunt but more formal terms, repeating the common argument that consumer and entertainment products are too far removed from Cisco's switch and router franchises.

The Flip camera line particularly seems to get people's goat -- and it's been questioned ever since Cisco acquired Pure Digital two years ago.

"Sell the Flip video business," Editor-in-Chief Scott Raynovich writes on the new Investor Uprising site. "If Cisco sold this adjacent, non-essential business, I think the stock price would instantly pop 10 percent." [Disclosure: Raynovich used to be our boss here a Light Reading, and Investor Uprising, like Light Reading, is owned by United Business Media Ltd. (UBM) (London: UBM.L).]

Why hasn't the consumer business clicked? Lippis posted one idea on Twitter: No one thinks "architecture" at Best Buy. His post points to a shopping guide published last week in The New York Times, where the tips focus on things like Wi-Fi speed, not network-wide video implications. Cisco might have a good role for consumer products in its Videoscape architecture, but that's not going to help consumer sales or margins.

As for how Cisco might separate the consumer business, analyst Ehud Gelblum of Morgan Stanley points to the EMC Corp. (NYSE: EMC) spinoff of VMware Inc. (NYSE: VMW). They're separate companies, but EMC still holds about 80 percent of VMware's stock.

Just cutting the consumer business -- which is about 10 percent of Cisco's sales -- won't be enough. Chambers appeared at a Wells Fargo conference Thursday, where ComputerWorld quoted him as saying Cisco needs to cut expenses by half.

We say
Cisco is a big target, so it's going to have to endure this kind of speculation for a while. Here's what we've contributed to the hubbub so far.

— Craig Matsumoto, West Coast Editor, Light Reading

Charles Tran 12/5/2012 | 5:07:59 PM
re: Scrutiny Hits Cisco's Consumer Business

Home and Small Business market are billion dollars business for Cisco require different strategy, team, products and solution with entrepreneurial  spirit and know-how.


Cisco CEO John Chamber has an excellent vision and stragety for home and SMB market since 2002. Unlike enteprise, succesful billion dollars Home and SMB market requires different set of mentality and execution from management team.


I hope Cisco reconsiders their options careful. Current Cisco Consumer Division have an excellent ROI and Revenue per Employees. All they have to do is re-focus with a right products, right people, right strategy along with Cisco, and moving fast without constraints from Cisco. Consumer Division will move faster by itself, but together they will move further.


If you do not climb the moutain, you will never see the views.

DavidMcCullochCiscoPR 12/5/2012 | 5:07:58 PM
re: Scrutiny Hits Cisco's Consumer Business

That's very harsh, Phil. I think you know that Cisco has been consistent and transparent with its financial reporting and generally recognized by Wall Street for its openness. It's a fact that we've never disclosed the revenues of our consumer business, nor of any of the other similar-sized elements of our business, and so it would be totally inappropriate to do so now.


I think I have a good working relationship with Craig, and I think he recognized my comment for what it was: a good faith attempt to inform your readers of the approximate contribution of the consumer products to our business.


All the best,


David.

DCITDave 12/5/2012 | 5:07:58 PM
re: Scrutiny Hits Cisco's Consumer Business

In other words, Cisco won't say what the number is but it will tell you when your number is not exactly right. Thanks. Big help. Enjoy your restructuring.


 


ph

DavidMcCullochCiscoPR 12/5/2012 | 5:07:58 PM
re: Scrutiny Hits Cisco's Consumer Business

Hi Craig,


You have overstated the contribution of consumer products to Cisco's business quite considerably. While we don't specifically disclose revenues from consumer products, as of the company's Q2FY11 financial results (in February 2011), Cisco's Consumer business accounted for approximately 2-3% of Cisco's total business bookings.


Best regards,


David McCulloch


Director, Public Relations


Cisco

Pete Baldwin 12/5/2012 | 5:07:58 PM
re: Scrutiny Hits Cisco's Consumer Business

Thanks, David.  2-3% sounds a lot more realistic - i did kind of wonder about that 10% figure.

DavidMcCullochCiscoPR 12/5/2012 | 5:07:57 PM
re: Scrutiny Hits Cisco's Consumer Business

No worries, Phil. Hope I wasn't being too sensitive either. And you make a fair point: corporations have been known to occasionally prefer emphasizing their strengths over their weaknesses! ;-)

DCITDave 12/5/2012 | 5:07:57 PM
re: Scrutiny Hits Cisco's Consumer Business

I am tweaking you a bit, but this is a very common frustration with Cisco (all big companies, really) and Wall Street analysts say this all the time. Public companies that want to call themselves successful in a market need to back up their talk with metrics that are easy to understand and consistent quarter to quarter. 


Cisco's optical business, consumer business and others groups over the years claim great market success but ultimately hide behind the skirt of a larger business unit or a cluster of other businesses.


That's all I'm pointing out. Nothing personal. I am glad you wanted to help. I just wish you didn't have to be so vague.


ph


 

DCITDave 12/5/2012 | 5:07:57 PM
re: Scrutiny Hits Cisco's Consumer Business

I think Cisco's EOS business seems like a reasonable candidate to be a standalone company. It seems to work on its own, the value proposition is easy to understand  and it seems to go after a specific need in a specific vertical.


Come to think of it, there really are a few businesses like that inside of Cisco and you have to wonder how much more quickly they'd be able to innovate on their own.

HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE