) is shutting down its Flip video camera unit after buying it in
2009 for $590 million. While this caught many Cisco watchers by
surprise, we believe it was probably the right move and have
discussed this in recent
. Cisco competes with Juniper (
), HP (
) and Alcatel-Lucent (
) in the networking equipment business but has done several
acquisitions over the years that have led the company away from its
core businesses. Below we discuss our take on this move.
price estimate for Cisco stands at $24.20
, which is a premium of roughly 40% to the market price.
Looking at the Flip
The Flip camera was a great product before everyone had a
The Flip offers easy video recording that is mobile and
convenient. Now that smartphones have essentially the same
capabilities in a compact offering, who wants to carry a Flip
Camera when their smartphone can do the job? We wrote articles
previously connecting these opinions to the potential value of the
businesses in notes titled
Does Cisco Need to Lose Weight?
and New Flip Cam Feature Great for Users, an Afterthought for
If we look at the value of the Flip, $590 million seems like a
pretty frothy price to pay for this device. We estimate that the
Flip Camera and Linksys constitute around 1.34% of Cisco's value,
which implies a combined value of around $1.75 billion based on our
estimated value and $1.2 billion based on the current market
capitalization. Within this segment, we forecast that Linksys'
contributes more than Flip and that Flip's value is below the $590
million paid initially.
The company says that it is shutting the unit down to focus on
its core networking business, and despite positive revenue growth,
we believe this is probably the right move.
You can see the complete
$24.04 Trefis price estimate for Cisco's stock