Cisco's Flip Decision 'Shrewd,' Says Researcher IHS iSuppli


In a note issued earlier this week, electronics researcher IHS iSuppli credits Cisco for its prescience on the decline of single-purpose consumer electronics devices, even as it tsk-tsks the networking titan for missing "an opportunity to cash in on the division's value."

Following a candid memo from Cisco CEO John Chambers in which Chambers described Cisco as having disappointed investors, confused employees and lost credibility in the market, Cisco restructured its consumer products division. In that announcement was confirmation that Cisco would shut down the Flip business it acquired with Pure Digital in 2009, and re-examine other elements of its consumer strategy.

It was a wise move, IHS iSuppli concurs.

"Consumers very much want to shoot and share video, evidenced by the billions of YouTube videos viewed," said Jordan Selburn, lead analyst, consumer electronics, for IHS, in the report. "However, consumers are becoming less interested in buying devices focused uniquely on taking such videos when this capacity is increasingly available in other electronics systems already in the consumer's pocket, purse, backpack or briefcase -- such as a smart phone or personal media player."

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IHS iSuppli sees a slowdown in global camcorder shipment growth this year, down to 4.1 percent in 2011 from a rise of 6.1 percent in 2010. That'll continue, the researcher says, predicting 1.7 percent growth in 2012. IHS iSuppli expects a shipment growth rebound in later years, but the market's compound annual growth rate will be a sluggish 4.4 percent and will be primarily driven by 3-D camcorders.

Flip was the "odd man out" in Cisco's consumer-facing product portfolio, IHS iSuppli notes, because it's sold only to consumers, whereas the set-top box business Cisco acquired through Scientific Atlanta sells to cable and Internet service providers. Linksys networking products, too, are more a fit for Cisco, IHS iSuppli argues, because Linksys "is quite closely aligned with Cisco's networking focus."

The researcher raises the same, head-scratching question many Cisco observers brought up following the announcement: why didn't Cisco sell Flip, especially after it paid $590 million for Flip maker Pure Digital in 2009?

"The most surprising aspect of Cisco's decision was the move to simply close Flip, rather than sell it or spin it off as an independent company to at least get some return from their investment," Selburn wrote. “It would not be surprising at all to see Flip resurrected in some fashion, however, with the assets perhaps reacquired by the founders or bought by another company at a steep discount. Despite Cisco’s actions and the overall market trend away from dedicated single-function devices like the Flip, the market has not gone away entirely and the value of a good product still remains strong.”

The consumer market restructuring is one of a number of clues portending big changes internally at Cisco. Cisco is also facing stepped-up competition in many of its core, enterprise-focused networking businesses -- a result that's seen Cisco going on the offensive to defend its network architecture vision.