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Cisco Admits Failure on Consumer Operations, National Employee Morale Day (CSCO, NTGR, MMI, PGI)

Cisco Systems, Inc. (NASDAQ: CSCO) is admitting failure in at least part of the consumer operations side of its business.  Cisco announced plans to “exit aspects of its consumer businesses and realign the remaining consumer business…”  In short, some prior efforts are getting dumped. Some 550 jobs will be eliminated in this effort so it is time for “National Employee Morale Day” at Cisco.

What is interesting is that Cisco is keeping a part of its video business for the consumer despite what has been a slow adoption so far.  The company said it will support four of its five key company priorities in core routing, switching and services; collaboration; architectures; and video.

The first effort is to kill the Flip… As part of the restructuring the company will close down its Flip business but says it will continue support for the current FlipShare customers and partners with a transition plan.

The company is also refocusing the Home Networking business “for greater profitability and connection to the company’s core networking infrastructure as the network expands into a video platform in the home.” The company claims that these products will continue to be sold at stores to retail customers.

Cisco’s personal video service called umi is being rolled into the Business TelePresence product line (where it belonged in the first place).  UMI will operate in the enterprise and service provider markets. 

The company will also assess video integration of its Eos media solutions business or other market opportunities.

If you look through the business restructuring today, there is no mention of the Linksys business for routers and hubs.  NETGEAR, Inc. (NASDAQ: NTGR) could have won if that closed, but still its shares are up about 1% this morning.  There is also no mention of the Scientific Atlanta business for cable routers, but technically that is an enterprise product that just ends up at the consumer level.  That could have helped out Motorola Mobility Holdings, Inc. (NYSE: MMI).

With UMI (really umi) going back into the Telepresence business where it belongs, this is a win for Skype in its upcoming IPO for its video conferencing.  Another semi-hidden winner might be Premiere Global Services, Inc. (NYSE: PGI) now that it recently launched its iMeet video conferencing for businesses and that can easily be used by consumers and small businesses for live zero-latency video conferencing and  comunications. Premiere shares are actually down today by under 1% so far.

Cisco sees its pre-tax restructuring charges to not exceed $300 million during the third and fourth quarters of fiscal 2011, but those charges will be disclosed in its upcoming earnings conference calls.

Our take may be different from others, but here goes.  When you have a perpetually dead stock and after so many acquisitions have failed to yield the massive growth, this causes internal strife.  John Chambers just admitted how bad that strife had become in his memo last week.  We noted that the consumer business was not a real success for the company.  What you are seeing is the first of several ke action plans that will be coming out in the weeks ahead.  We are almost certain of this. What you are also witnessing is a CEO fighting to remain relevant as John Chambers undoes parts of the empire he has put together.

It would be easy to ask if Chambers would call Hewlett-Packard Co. (NYSE: HPQ) and say “I’m sorry, we didn’t really mean to go against you.  Could we start over?”  We won’t expect that, but some feel Cisco has bitten off more than it can easily chew.

If this was being deemed a huge successful move today, we’d expect there to be more than a whole $0.01 gain at $17.48 right after the open.

JON C. OGG