Consumers Clobber Cisco

During its second quarter, which ended Jan. 29, Cisco Systems Inc. (Nasdaq: CSCO) found out how rough the consumer market can be: Consumer revenues fell 15 percent compared with the same quarter a year earlier.

That's partly because consumers were out to buy cheaper products last quarter -- and Cisco had just finished excising cheaper products from its offerings, said Ned Hooper, chief strategy officer, on Wednesday's earnings call.

Even Flip cameras disappointed: Their sales increased 15 percent compared with a year ago, but Cisco was aiming for more than 30 percent.

"You will see us adjust appropriately to bring efficiencies to the customer segment," CEO John Chambers said on the call.

Why this matters
Consumer products represent just 2 percent of Cisco's revenues, but the company considers the consumer market a big part of its future. The company wants to transcend home networking to sell high-end products and grand architectures -- but that means getting consumers to think of Cisco as a welcome living-room guest, the kind of company Ellen Page would hang out with. No one said it would work on the first try.

Some of the products might be a little too high-end. ūmi, the lower-cased home telepresence kit, sells for US$600 plus a $25-a-month service fee -- not exactly priced to move. Analyst Mark Sue of RBC Capital Markets recently claimed Cisco has tried to spark the market with a 2-for-1 deal.

Cisco grew up as a very non-consumer company, and Chambers has said the plunge into consumer sales will be a challenge. Last quarter's misstep isn't very surprising in that light. But it shows why some people question Cisco's consumer obsession.

For more
Recent steps in Cisco's consumer push, including Videoscape, ūmi, and more:

— Craig Matsumoto, West Coast Editor, Light Reading

Pete Baldwin 12/5/2012 | 5:13:06 PM
re: Consumers Clobber Cisco

Consumer is only 2% of the company,  but "adjacencies" are becoming a bigger percentage of Cisco's business -- a category called "new products" makes up 39% of revenues.

And that brings up a research note today by analyst Scott Dennehy of Technology Business Research: "As customers continue to transition from traditional router and switch products to Cisco's next-generation products and services, the company will need to take a hard look at restructuring itself in order to meet the revenue growth and margin expectations it has set in the market." (Emphasis added.)

Not sure I'm buying the argument. Note that he's not talking about whether the bundling of all these technologies would *work*. What he's saying is that a company the shape of what Cisco seems to be headed towards is just not going to consistently grow at 12-17% per year.

Maybe it's more apt to say: Cisco, if it wants to continue broadening this mass of interlinking technologies, should stop trying to be a growth stock.

Pete Baldwin 12/5/2012 | 5:13:02 PM
re: Consumers Clobber Cisco

Announced Thursday afternoon: Ned Hooper is no longer head of Consumer -- it's been handed to Marthin de Beer.

Pure Digital (Flip) CEO Jonathan Kaplan is leaving.


Bit of a black eye for Hooper, maybe?  (He and de Beer with chair cisco's Consumer Council, and I'm assuming he'll continue to be chief strategy officer.)

crazy4geek 12/5/2012 | 5:05:04 PM
re: Consumers Clobber Cisco

It's time to say bye consumer...... most consumers are not in the industry and just go with the cheapest box available.  Though there are plenty of savvy consumers, as a general rule quality, security, brand loyalty, service etc. tend to be of less concern to consumers then in traditional enterprises.  The power of the consumer is more powerful than any enterprise could ever.  As a result, the pressure to lower cost is ever-present, driving down profits.  Of course there is always pressure to do the same in enterprises, but the factors mentioned above do still factor into a CIO's decision.

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