Cisco Gets a Haircut

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Cisco's John Chambers finally got a big revelation the other day... "maybe the company should not be in low margin businesses without a sustainable advantage"...

..."Duh?!!" as we say when we 'could have had a V8.' Don't forget to give yourself a big heel-of-the-palm-to-the-forehead maneuver, John.

I first flamed this deal in 2009 when it came out that Cisco was buying Flip, giving it our lowest Deal Score ever - only 5%. Surely, it would have been better to leave the cash in the bank (I would have saved Cisco shareholders a billion dollars - $600 million on the purchase price and then another $400 million or so on the writeoffs and severance checks to the 550 employees, that will be necessary as a result of the decision to shut the operation down). Of course selling the unit is out of the question. The unit's products are behind the times and losing share to smartphones that do video and to consumer products companies like Sony, Panasonic, Kodak and JVC that have extensive product lines and customer value experience. Frankly, nobody is stupid enough to pay anything close to what Cisco might hope to get for it.

I've read that as part of the consumer restructuring, the other major Cisco flop - the Umi - will be handed to the Telepresence unit, composed mostly of the TANDBERG folks that were acquired last year. I suspect their job will be to kill it quietly in due course since it's such a margin dog and not particularly spectacular in terms of the technologies used.

Sigh.

I hope that's not all, since Cisco's problems are way bigger than a few product categories, unless those product categories are enterprise switches and routers. Cisco needs major technology upgrades in enterprise, but I don't think the company has the engineering talent or marketing skill anymore to actually pull that off. And, to make matters worse, there is no market for VC-backed technology companies focusing on areas that would make sense for Cisco to acquire...

The Cisco Solution may indeed require a lot more severe adjustment than the minor 'haircut' (apologies if you're one of the 550 who just lost your job) described by Cisco's recent actions. My only question is will Chambers have the stomach to do what is necessary to get the juggernaut back on the earnings track, or will that be the job of his successor?