5. Cisco Flips Out
Cisco (CSCO) finally faced up to the reality of its shortsighted $590 million bet on the Flip video camera this week.
The decision to shutter Flip was faintly praised by Wall Street, only because burning $590 million on Flip in the first place was such a headsmacker to anyone who has owned, or actually just set eyes on, a cell phone. They've been around for quite a while, and cameras were certainly not a new feature to them when Cisco thought buying Flip was a great idea less than two years ago. Call us crazy, but we'd like to think that someone employed at one of the world's leading tech companies could have connected the ones and zeros on this one.
Cisco CEO John Chambers admitted last week that the company had disappointed its investors, and vowed to execute better after two consecutive quarters of weak outlook.
What's even more surprising is that the Flip was generally well-liked by consumers and was selling. Sales of Flip cameras were up 15% year over year, but, as Chambers noted during the earnings conference call, that wasn't enough. "We were looking more in the 30s in terms of the growth for the Flip architecture," he said.Cisco, in spending more than half a billion dollars on Flip, massively underestimated the changing nature of the video market. The explosion in high-definition video on smartphones, tablets and in-video calling has clearly overtaken consumers' appetite for devices like the Flip. Strangely, Cisco has no plans to recoup the money spent on Flip by selling it. "We made an evaluation of the business and made a decision to shut it down," said a Cisco spokeswoman, declining to provide any additional details to TheStreet. Cisco likely wants to avoid the distractions involved in selling off the Flip unit, focusing instead on getting its house in order. As Chambers said in his memo to employees last week: "We have lost some of the credibility that is foundational to Cisco's success -- and we must earn it back." Being a bit more tech savvy might be a good place to start.
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