Cisco Systems Inc. investors say Chief Executive John Chambers ought to shed low-margin consumer products after his expansion into 30 new businesses slowed sales growth and distracted management.
Chambers wrote in a memo to employees Monday that he will make several "targeted moves" in the coming weeks to restore lost credibility and sharpen the company's focus. Getting out of the consumer division, which includes the Flip video camera, Linksys home networking, audio and media-storage products, should top his to-do list, said Sean Conner, an analyst at Nuveen Asset Management in Minneapolis.
"Cisco has realized that's a crappy business," said Conner, who said his firm sold its Cisco stake in January after owning shares for more than five years. "There are no synergies with the rest of their business. A lot of these businesses they put together are hurting the overall puzzle."
Conner said he'll consider repurchasing Cisco stock, depending on the outcome of Chambers' moves.
Cisco's gross margin, a measure of profitability, narrowed to 64 percent last fiscal year from 70 percent in 2003, in part a reflection of the push into consumer products. A sale or spinoff would help Chambers achieve his goal of refocusing on areas where Cisco is a leader, including the high-margin networking gear that makes up about half of its revenue.
"I look at Cisco as more an enterprise player," said Dan Morgan, a fund manager at Synovus Securities Inc., which owned about $18 million in Cisco shares at year-end, according to Bloomberg data. "The consumer is not a natural extension."
Chambers should also consider retrenching from some of the other 30 new businesses Cisco has entered in recent years, said Joanna Makris, an analyst at Mizuho Securities USA Inc. in New York. These include niche products that help companies manage data centers -- areas led by Riverbed Technology Inc., F5 Networks Inc. and Aruba Networks Inc.
"Cisco has to give up the ghost at this point," Makris said. "They've lost so much share and thought leadership. It's too late to out-innovate other companies in these areas."
