- Integrate its controversial (-ly priced) umi home videoconferencing product into its existing "Business TelePresence" line.
- "Assess" its core video technology for integration into other businesses "or other market opportunities" (read "sell the business").
- Kill the Flip video recorder.
As I argued last month, this is the right move for Cisco -- sort of. Recall: The whole idea behind buying Flip (and developing umi, and building a wireless stereo, rushing heedlessly into competition with Apple
Logically, this would inspire Internet providers to buy more switches, routers, and other doo-dads from Cisco to support all the extra traffic. Where Cisco went wrong was in forgetting that Apple, RIM, and HP already make products that support this need. That Amazon.com
What Cisco should be doing, of course, is selling Flip to someone who might make a profit off the product -- Sony
Instead, Cisco's killing Flip and recording a loss that it claims won't exceed $300 million -- which isn't even close to the truth. In fact, Cisco paid $590 million to acquire Flip two years ago, and unless the company decided to kill Flip because it's embarrassingly profitable, I doubt it earned the $290 million needed to make up the difference between what Cisco paid, and what it's now writing off as a mistake.
So Cisco's really only half-right -- but there's good news here for investors, too: At an enterprise value less than eight times the amount of cash it churns out in a year, and a forward growth rate of 10.4%, Cisco can afford to be half-wrong. Yes, Cisco tripped over Flip. But the stock is a good value regardless.
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