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Cisco Systems exiting parts of consumer businesses, plans to stop making Flip camcorders

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FILE - In this Nov. 4, 2009 file photo, a Cisco Systems' Flip Video camera is displayed at Best Buy in Mountain View, Calif. Cisco Systems Inc. is exiting parts of its consumer businesses, with plans to shut its Flip video camera business Tuesday, April 12, 2011.(AP Photo/Paul Sakuma)

Peter Svensson, The Associated Press, On Tuesday April 12, 2011, 12:19 pm By Peter Svensson, The Associated Press

NEW YORK, N.Y. - Cisco Systems Inc., the world's largest maker of computer networking gear, on Tuesday said it is killing its Flip Video camcorder business as part of a reversal of years of efforts at diversifying into consumer products.

The about-face comes after several quarters of disappointing results and challenges in its core businesses. Analysts say the company has been trying to do too many different things.

A week ago, CEO John Chambers acknowledged the criticism, sending employees a memo vowing to take "bold steps" to narrow the company's focus.

The San Jose, California, company said Tuesday that it expects its consumer business shakeup will result in the loss of 550 jobs, or less than 1 per cent of its work force of about 73,000.

It also expects to take restructuring charges of no more than $300 million spread out over the current quarter, which ends April 25, and the following one.

Cisco bought Pure Digital Technologies Inc., the maker of the Flip Video camcorder, for $590 million in 2009, just two years after the San Francisco-based company made its first camera.

The Flip Video quickly became a top seller because it was easy to use. A signature feature, since copied by many other manufacturers, was a USB connector that flipped out of the case, letting the user connect the camera directly to a computer. The camera even contained video-editing software that fired up on the computer.

Last year, the Flip Video was still the top-selling video camera in the U.S., with 26 per cent of the market, according to IDC analyst Chris Chute. But that only amounted to 2.5 million units sold. Dedicated video cameras are small potatoes compared to digital still cameras and smart phones, both of which now shoot video.

That could be the reason Cisco appears to see no point in selling the business — the announcement Tuesday said Flip will be closed down. It will continue to support the sharing of Flip videos online. A Cisco spokesman did not respond to a question about why the unit would be shut down.

Top competitors in the pocket camcorder field, which could benefit from Flip Video's demise, are Eastman Kodak Co. and Samsung Electronics Co.

The company said it will realign its remaining consumer business to support four of its five key priorities — routers and switches; corporate communications and collaboration equipment; data-centre products and video.

That means it's retrenching on another consumer video business — home videoconferencing. In November, Cisco started selling the umi, a $599 box that turns a high-definition TV into a big videophone. But signs soon emerged that the umi wasn't doing well. It cut the price of the unit in March, along with the monthly service fee, which went from $24.95 per month to $99 per year.

On Tuesday, Cisco said it will fold umi into its corporate videoconferencing business and stop selling the box through retailers. Instead, it will sell it through corporate channels and Internet service providers.

Cisco's Home Networking business, which makes Wi-Fi routers and has the 2003 acquisition of Linksys at its core, will be "refocused for greater profitability," but Cisco will keep selling the routers in stores.

Cisco shares fell 6 cents to $17.41 in midday trading. The shares are close to their 52-week low of $16.97, hit a month ago.

Analyst Simon Leopold at Morgan Keegan said the pullback on the consumer side is a good thing for investors, but not enough to set off a stock rally.

Consumer products have been a drag on Cisco's results because they carry profit margins that are far lower than the big-ticket capital equipment the company sells to corporations and governments, Leopold said. But the drag has been minor, because consumer products are still only a small part of Cisco's overall business.

More importantly, Leopold said, investors have been selling Cisco stock because it's been losing market share in corporate products. He believes the selling is overdone because the losses are mainly in fringe products rather than bread-and-butter routers and switches.