What Happened To Flip Cameras

It's piece of cake to understand why Internet infrastructure giant Cisco Systems needed to leave of the consumer electronics business, but did it have to send a popular product, like to the Flip camcorder, to an early grave?

Cisco on Tuesday announced that it will stop making the Flip camera, a popular pocket-sized video camera it bought only a couple of years ago from a company called Pure Digital. The reason? The company said it is strategically realigning its business to focus on selling its core products.

"We are making primal, targeted moves every bit we align operations in support of our network-axial platform strategy," Cisco CEO John Chambers said in a statement. "Equally 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 assist ensure the network's power to evangelize on those offerings."

Cisco bought Pure Digital, the maker of the Flip photographic camera, in 2009 for $590 million. While not a small acquisition, information technology was by no ways huge past Cisco standards. In fact, Cisco spent a total of well-nigh $six billion to acquire Tandberg and Starent Networks that same yr.

That said, $590 million is nothing to sneeze at. Many experts and fans of the Flip camcorder wonder why Cisco didn't try to sell the business unit, specially since the Flip products are considered market place leaders. According to NPD'south Stephen Baker, "there is no compelling show that Flip was declining. It remains far and away the leading consumer video camera company."

Related links
• Cisco gives Flip video biz the boot
• CEO admits Cisco has lost some credibility
• Cisco buys Flip Video maker for $590 million
• Why the flip had to dice

And yet Cisco all the same decided to terminate selling the Flip photographic camera.

"I'm very surprised that Cisco chose to simply shut downwards the product given what they paid for it," said Zeus Kerravala, an analyst for Yankee Group, who has followed Cisco for more a decade. "But I'grand not surprised that they got out of the consumer business organisation."

Restoring investor confidence
Indeed, Cisco needed to do something desperate to bear witness Wall Street that information technology was getting back on track. For more than 2 decades, Cisco has dominated its core markets of Internet Protocol routing and switching. It has provided networking equipment to almost every large company, regime entity, broadband and phone service provider, and thousands of minor and medium businesses around the world.

To many in the tech industry, CEO John Chambers is viewed as managerial guru and technology oracle. Investors, customers, and fifty-fifty governments listen advisedly to what he says and the tone of his comments for glimpses of advice and insight. Unlike many other tech companies, Cisco has managed to weather dips in the economic system and near always emerges from recessions stronger than it did going into them.

Simply every bit Cisco moved into new markets, sales in its cadre businesses slowed and Cisco lost market share. While Cisco nevertheless dominates in the IP routing market place, it has been more challenged in its Ethernet switching concern, where information technology faces strong competition from a slew of competitors, including Hewlett-Packard and Chinese manufacturers, such equally Huawei. Investors accept begun questioning whether the company tin can hit its long-term growth projections of betwixt 12 per centum and 17 percentage.

"Investors were losing confidence," Kerravala said. "I don't think a fourth dimension when what John Chambers said was non considered gospel by Wall Street. Now he must restore confidence. Then it may be that desperate times, call for desperate measures."

Losing focus
Cisco has a long history of growing its business through acquisition to enter new markets. In fact, its lucrative Ethernet switching business was the straight result of an conquering in the mid-1990s. Merely for much of its history, Cisco has kept it acquisitions close to its core business organisation: Internet and corporate network infrastructure.

In the past v or six years, Cisco has ventured beyond its cadre competencies as information technology tries to enter new markets. The visitor'south get-go major foray into the consumer marketplace was its 2003 acquisition of home routing company Linksys.

For several years, Cisco toyed with the thought of offering more than products in the consumer infinite. Then, at the Consumer Electronics Show in Las Vegas in 2009, Chambers revealed Cisco's ambitions for the consumer market. He said that he expected Cisco's consumer business to generate between $v billion and $ten billion over the adjacent few years.

"Nosotros are really committed to this marketplace and we're putting the whole company behind it," he said. "Nosotros will be very ambitious."

Simply Cisco's consumer strategy has largely been one failure later on another. Cisco'due south dwelling house-grown products, such as the Linksys Wireless Home Sound system and the Umi telepresence product, have all been priced too high for consumers. And even though Cisco acquired a successful consumer concern with the acquisition of Pure Digital, it has managed to stifle growth in that product area.

Co-ordinate to market research firm NPD, Flip has actually lost market share since Cisco acquired it in 2009, even though overall sales of products in this category take increased v percent between 2009 and 2010. Flip, which had led this production category in early on 2010 with 26 percent market share, had a disappointing 2010 holiday flavour, according to NPD. The business organisation unit of measurement'southward sales fell 19 percentage versus the prior year, and its market share dropped to 17 percent, NPD'due south data shows. But NPD annotator Stephen Baker attributes the decline in Flip photographic camera sales to "strategic marketing missteps, and more aggressive contest, as opposed to any evidence of an underlying autumn in demand."

But slowing sales momentum is not likely the main reason that Cisco decided to abandon the Flip product. The biggest problem for Cisco was likely rationalizing the sparse production margins in the consumer business organisation. Cisco is used to getting turn a profit margins in the 60 percent to seventy percentage range. Merely consumer electronic products are lucky to become turn a profit margins in the low 30 per centum range. Even though Flip was already an established brand, its cameras, which generally sell for between $100 and $200, were likely non profitable enough for Cisco.

Keeping intellectual holding for a rainy twenty-four hour period
Still, the Flip photographic camera could accept been an attractive and profitable business concern to another company, even if Cisco felt it was a drag on its earnings. While Cisco does non intermission out sales of individual products, Simon Leopold, an analyst with Morgan, Keegan & Visitor, estimates that Flip photographic camera sales full near $400 meg annually. This is small compared with Cisco's full yearly revenue of well-nigh $40 billion, but sales of this product could have been significant to a potential acquirer.

So why didn't Cisco but sell the Flip production line? Later all, NPD's Baker said that despite the rise in smartphones with similar functionality, in that location was still a growing market for small-scale, mini camcorders.

A Cisco representative was unable to provide insight into the decision-making process except to say, "In theory, at a loftier level (selling the division) may take been possible, merely Cisco'southward squad did a detailed analysis, and it was determined that the best thing to exercise was to shut down the business."

Yankee Group's Kerravala suspects the company may desire to concord onto the intellectual belongings.

"The fact that they aren't selling off the technology makes me think that the technology may air current up in other Cisco products downwards the road," he said. "For instance, Cisco has talked about adding recording capabilities to its telepresence products."

Cisco wouldn't comment on whether the visitor has plans to use the engineering science from Pure Digital in whatsoever specific products. But Cisco still sees video equally an important role of its strategy.

"We learned so much from this acquisition," said Karen Tillman, a spokeswoman for Cisco. "We gained a lot of understanding about video and how people consume video. And those things volition only assist every bit we work to advance and drive demand for our core products."

Source: https://www.cnet.com/tech/mobile/why-cisco-killed-the-flip-mini-camcorder/

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