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Cisco Restructures Consumer Unit: Flip Shut Down, Layoffs Coming

Cisco confirmed a radical restructuring of its struggling consumer business unit, including big changes for Cisco's Flip and Umi product lines, and hundreds of layoffs.

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It's a move that was widely anticipated for Cisco following continued disappointment in its consumer unit and promises by CEO John Chambers of "targeted moves" to cure what ails the company

Details of how Cisco planned to restructure the consumer business were minimal Tuesday, but according to a statement, Cisco plans to shut down its Flip video camera business; "refocus" its Home Networking business for "greater profitability" and a "connection to the company's core networking infrastructure;" integrate Cisco Umi, the company's consumer-focused TelePresence system, into its Business TelePresence line; and look at how to integrate Cisco Eos media solutions into other pieces of the Cisco portfolio.

In addition, Cisco confirmed it will let go of 550 employees in its fiscal fourth quarter in line with the restructuring.

"We are making key, targeted moves as we align operations in support of our network-centric platform strategy," said Chambers in a statement. "As we move forward, our consumer efforts will focus on how we help our enterprise and service provider customers optimize and expand their offerings for consumers, and help ensure the network's ability to deliver on those offerings."

Cisco's consumer business was down 15 percent year-over-year in Cisco's second fiscal quarter, and soon after the earnings report in mid-February, Jonathan Kaplan, former Cisco senior vice president and general manager, consumer products, left the company.

Following Chambers' widely-circulated "mea culpa" letter last week, a number of analysts speculated that Cisco would end up selling or spinning off all or part of the consumer business. The consensus among some Cisco observers is that Cisco has lacked a strong consumer play for some time, with products, like Umi, that misread current consumer demand.

The most dramatic move announced by Cisco Tuesday is the shuttering of the Flip line, though Cisco said it will "support current FlipShare customers and partners with a transition plan." Cisco acquired the Flip video cameras when it bought Pure Digital for $590 million in March 2009. It's made several consumer-oriented acquisitions since then, including of consulting firm Moto Development Group in May 2010.

Cisco's home networking products, which include its Linksys brand, will continue to be available through retail channels, the vendor confirmed, even as it looks to tie those products more closely to Cisco's core networking infrastructure.

Since its Oct. 2010 debut, Umi TelePresence has been something of a nonstarter for Cisco. Cisco said Umi will "operate through an enterprise and service provider go-to-market model," a move that follows Cisco's making Umi interoperable with its broader TelePresence portfolio a few weeks ago, and lowering the price of Umi in early March.

Cisco noted in its statement that it expects to take on restructuring charges, with an aggregate pre-tax impact of about $300 million during its fiscal third and fourth quarters.

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