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With the wide-ranging changes going on within Cisco Systems-including executives’ decision to dump the popular Flip video camera business-attention has turned to what other moves the networking giant will make to get back on solid footing.
Most recently, the online news site The Register reported that “people familiar with the situation” said Cisco (NASDAQ: CSCO) officials are considering selling the company’s Linksys home networking and WebEx collaboration businesses, with the announcement of the moves coming as early as next week.
The speculation comes after Chairman and CEO John Chambers, during a May 11 conference call with analysts and journalists to announce quarterly earnings, said the company would continue to shed underperforming business units and that job cuts are on the way.
Cisco spokespeople have declined to comment on the speculation, but have pointed to recent comments company officials have made about both the company’s consumer business-of which Linksys is a part-and the collaboration business, which includes WebEx. The indications are that both businesses are important parts of Cisco’s overall strategy.
In early April, Chambers-after several quarters of disappointing financial numbers-told the company’s 73,400-plus employees in an internal memo that changes were on the way to address what he said was a problem caused less by strategy and more by execution and accountability. About a week later, on April 12, Cisco announced it was paring back its consumer business, including shuttering the Flip video business that the company had inherited from its $590 million acquisition of Pure Digital in 2009. In the announcement, Cisco officials also said they were planning to make the Linksys unit more profitable by binding more tightly with the company’s overall networking business. Linksys, which Cisco bought in 2003, was its first major acquisitions to expand its consumer offerings.
For its part, WebEx is part of Cisco’s larger collaboration efforts, which Chambers said during the May 11 conference call is growing into a $4 billion business, saw revenue rise 39 percent over the same time last year and grew 25 percent over the last five quarters. Chambers and other Cisco officials have been vocal in their belief that video will dominate Internet traffic in the years to come, and that network will be the basis for that traffic going forward.
In addition, WebEx, which Cisco bought in 2007 for $2.9 billion, continues to be used by an important segment of that market-SMBs-which Cisco has been courting for the past couple of years.
Other major tech players have been aggressively pursuing a video-collaboration strategy, a trend most recently illustrated by Microsoft’s $8.5 billion bid to buy voice over IP provider Skype.
Collaboration has been a key part of Cisco’s efforts to expand into more than 30 new businesses-or what officials call “adjacencies”-over the past few years to grow its footprint beyond the core networking space, though Chambers has said the adjacencies all have networking at their foundation.
However, in recent quarters, Cisco has been plagued by disappointing earnings and lowered forecasts, caused in part by weakness in its core switching business, as well as its public government business. Many analysts applauded Chambers’ announcement last month that Cisco was pulling back on its consumer initiative, saying that such efforts had taken the company’s attention away from its networking business and opened it up to incursions from rivals such as Hewlett-Packard, Huawei, Juniper Networks and Avaya.
The streamlining of the consumer business-including the ditching of the Flip-led to 550 job cuts. During the May 11 conference call, Chambers said that Cisco would pare $1 billion in operating expenses this year through such moves as closing down underperforming units and layoffs. Cisco executives did not elaborate on the number of layoffs, but some analysts have speculated that it could be as high as 4,000.