(Reuters) – For years, the question at Cisco Systems Inc (NASDAQ:CSCO)
was what to buy next, expanding from routers and switches into consumer
electronics in an effort to keep its revenue rising by double digits.
Now, the question may be what to cut or sell off.
Since
Cisco reported a weak outlook and lower-than-expected margins this
month, investors and analysts wonder if it would be better off without
some of its less successful businesses, including consumer router unit
Linksys.
"What investors would like
is to see them more focused on their core market, like routers,
switches and data centers, and de-emphasize or even exit some of these
consumer businesses," said Morningstar analyst Grady Burkett.
"We
want to see Cisco accept the fact that it’s not going to grow in the
mid-teens, or the 12 to 17 percent that they’ve been targeting, and
instead focus on returning capital to shareholders and defending its
core markets."
Analysts also
mentioned cable set-top box unit Scientific Atlanta, as well as products
like Cius — a tablet computer for business users — as things it could
drop.
Cisco is trimming back
marketing expenses for consumer products, including its new home
videoconferencing system Umi, and is not preparing a sale of assets,
according to company sources who declined to be named. But some
investors and analysts said bolder steps may be needed.
A
sale of Linksys and Scientific Atlanta would have been unthinkable
until recently. A key part of Chambers’ strategy has been to sell
consumer products that help drive Internet traffic, and thus, boost
demand for its routers and switches.
But in the most recent quarter, orders for consumer products fell 15 percent last quarter from a year earlier.
"In
the longer term I wouldn’t be upset to see those businesses go," said
Channing Smith, managing director for Capital Advisors Growth Fund,
referring to both Linksys and Scientific Atlanta. His fund owns Cisco
shares.
"Consumer technology is changing rapidly and there are big players like Apple and Google entering that space."