Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Cisco Kills the Flip Video Camera Business

Cisco Systems today announced what it called a realignment of its consumer electronics business. The highlight, however, is that the Flip video camera business is being shuttered, and 550 people will lose their jobs. Cisco acquired Pure Digital, the company that makes the Flip line, in 2009 for $590 million.

At the time that Cisco acquired Pure Digital the Flip was flying high as the top-selling camcorder in the U.S., according to the research firm NPD Group, and by mid-2009 had clocked sales of about 2 million units. Stephen Baker, an analyst with NPD says on his blog that unit sales were essentially flat in 2010 and that the average selling price on a Flip camera rose by five dollars to $158. And though its hard to know what the gross margins are, Baker says Cisco’s Flip video unit was “far and away the leading consumer video camera company.” What probably did it in was holiday sales last year: Unit sales dropped by 19 percent versus 2009, though for that Baker blames “strategic marketing missteps,” rather than a drop in any underlying demand.

NPD numbers show the Flip maintaining its market share lead as recently as February of this year, with 21.6 percent of the market ahead of Sony which had 20.9 percent. Both saw their shares fall as Kodak saw sales of its Playsport and Playtouch video cameras pick up steam. Kodak boosted its share to 12.8 percent versus less that 5 percent a year ago.

The problem wasn’t the camcorder business. The problem was the iPhone. Months after Cisco’s purchase, Apple added video recording to the iPhone 3GS which went on to sell a million units during its first weekend on the market and 7.4 million units within a single quarter. Video recording is now so common on smartphones that it’s strange if a phone doesn’t do video, and at a quality that matches if not exceeds what a Flip can do. Given time, smartphones will be substantially better than Flip cameras, though again it’s hard to know what feature improvements were on the Flip camera roadmap.

Other changes announced by the networking giant: a plan to “refocus” its home networking business, the backbone of which was Linksys, the privately held home networking company it acquired in 2003 for $500 million in stock. Cisco says it wants more profits from that unit and wants it to be more closely tied to its core networking and infrastructure business.

Another change: The EOS business–essentially a software platform Cisco launched in 2009 that offered media companies a digital gateway into the home–is being gutted and its core video technology redeployed elsewhere within Cisco. Dan Scheinman, the unit’s general manager, Tweeted this morning that he had resigned from Cisco, saying the business had succeeded technically, but was about two years ahead of the market.

Cisco also said its ?mi consumer video conferencing product line–the one that had been the subject of the latest round of ads starring Ellen Page–will be integrated into its business telepresence products.

The reaction from investors has been tentatively positive. Cisco shares are up three cents to $17.50 this morning, though the price is still pretty close to a 52-week low. Cisco said it will take a $300 million restructuring charge.

Standard and Poor’s analyst Ari Bensinger quickly issued a short note reiterating his “Buy” rating on Cisco. “We see these moves as part of a new strategy to de-emphasize consumer-related products that have been dragging down profitability, and believe more announcements are on the way,” he wrote. “We are positive that CSCO is sharpening its focus on its core competency of routing and switching, which should see good growth opportunities as the industry migrates to the cloud.”

Here’s a two-year-old interview Kara Swisher conducted with former Pure Digital CEO Jonathan Kaplan, shortly after he had sold his company to Cisco. He didn’t stay long. Cisco announced his departure to “seek other opportunities” in February.


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