BOSTON/NEW YORK (Reuters) - Cisco Systems Inc will dump its Flip video camera division, retiring the popular brand in a first step toward reviving a company its CEO John Chambers admitted has lost its way.
The move to kill a gadget that won rave reviews for jump-starting low-cost handheld video and was the top-selling camcorder in the United States last year comes less than a week after Chambers said he had to make "tough decisions" about cutting spending on some product areas.
The surprise decision to shut down Flip rather than sell it underscores pressure on Chambers to whittle down a money-losing consumer division that also includes Scientific Atlanta set-top boxes and Linksys home routers.
Cisco bought Flip in 2009 for $590 million in an acquisition spree to build a stronger consumer business.
It will also fold its Umi home videoconference business into the more successful TelePresence arm for corporate customers.
Cisco's descent from Internet powerhouse to muddled underperformer came to a head earlier this year, after three quarters of results that disappointed investors.
"I'm really disappointed if this is it," said Kim Caughey Forrest, senior analyst at fund firm Fort Pitt Capital. "One would hope that there are more changes pending."
The company plans to cut 550 of its 73,000 jobs and take a pretax charge of about $300 million for the overhaul, possibly in the third and fourth quarters of fiscal 2011, it said.
Tuesday's news seems to be Chambers' first move to restructure Cisco following an unusually candid memo to employees last week that detailed its problems. In it, he admitted that Cisco had lost its way, and warned of "targeted moves" in the coming weeks.
Cisco spokeswoman Karen Tillman did not say why the company decided to kill the Flip business rather than sell it.
Atlantic Equities analyst Philip Alling said there were probably no buyers: "It's disappointing they wouldn't be able to generate any proceeds from a sale of the business."
But "we think there is still opportunity in the marketplace," NPD analyst Stephen Baker noted.
Last year Cisco sold 23 percent of all camcorders in the United States, ahead of Sony Corp's 22 percent and Eastman Kodak's 12 percent, according to market research firm NPD Group. Those figures exclude sales by Wal-Mart Stores Inc and some club stores. NPD does not release data on total units sold or market value.
Cisco said it would clean out its Flip phone inventory before ending the product line. It is almost unheard of for a manufacturer to kill a top selling product in its category.
Social networking site Twitter was abuzz with tweets about the news, and "RIP Flip" was one of the day's most discussed topics. "Too bad. I still love my Flip!" tweeted one user.
Among the steps Cisco announced is a change in the way it manufactures its Linksys line of networking equipment.
Cisco has been punished more than other companies over the past few months because, analysts said, it had lost its focus on selling networking equipment as it faces growing competition from Hewlett-Packard Co and China's Huawei Technologies Co Ltd.
Chambers blamed "execution" rather than problems with his strategy for the company's woes. Few agree.
Cisco has not fully embraced a slowing growing market, ISI Technology analyst Bill Whyman wrote in a recent report. "We're wary of companies that say 'Our strategy is sound, it is our operational execution that isn't.' It makes us question whether they really accept the deeper problems."
Cisco fell 3 cents to close at $17.44 on Nasdaq. The stock has lost a third of its value over the past year.
Flip has since lost some of its cachet, primarily because mobile phones makers now offer devices with similar functions incorporated into their handsets. It has also faced strong competition from other handheld camcorders, including Eastman Kodak Co's line of PlaySport devices.
Chambers has previously said the company would focus on five areas: routing, switching and services; collaboration; data center virtualization; architectures; and video.
Reporting by Paul Thomasch and Jim Finkle; Additional reporting by Jennifer Saba, Bill Rigby and Noel Randewich; Editing by Derek Caney and Richard Chang