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IHS: Flip Closure A Shrewd Move

El Segundo, Calif. – A new report from


called Cisco’s recent decision to close its Flip camcorder group, a
“shrewdly” timed exit from the “slow-growing market for single-purpose consumer
electronics devices.”

 However, the market
research analysts added, “the company may have missed out on an opportunity to
cash in on the division’s value.”

“Consumers very much want to shoot and share video, evidenced by
the billions of YouTube videos viewed,” said Jordan Selburn, IHS consumer
electronics lead analyst. “However, consumers are becoming less interested in
buying devices focused uniquely on taking such videos when this capability is
increasingly available in other electronics systems already in the consumer’s
pocket, purse, backpack or briefcase – such as a smarphone or personal media
player (PMP).

“Because of this, over the next few years, there will be
relatively little growth in the dedicated camcorder market, such as the Flip,”
he concluded.

According to the study, after rising by 6.1 percent in 2010,
global camcorder shipment growth will decelerate to 4.1 percent in 2011 and
then to 1.7 percent in 2012 and 2.2 percent in 2013, the firm predicts.

While shipment growth will rebound somewhat in 2014 and 2015, the
market will expand at a relatively anemic compound annual growth rate of 4.4
percent from 2010 to 2015. And even this growth primarily will be driven by
sales of 3D camcorders, rather than 2D models like the Flip, IHS said.

The report added that the slowdown of the camcorder segment
points to wider challenges for all consumer electronics products that are
focused on a single task.

“The single-task device is becoming an endangered species in the
consumer electronics market,” Selburn said. “For example, the PMP is under
increasing pressure from smart phones-and the e-Book reader market will
encounter more competition from media tablets. The trend toward multi-tasking
consumer electronics devices is one of the dominant forces shaping the
industry, and Flip Video appears to be an early casualty.”

Another factor driving the decision to close Flip concerns
Cisco’s overall strategic direction.

“Cisco has been, and remains, a networking company at heart-and
in the wallet. And this move appears to be a way to strengthen that focus,”
Selburn said. “Flip never really fit into any of Cisco’s other product lines,
including consumer products such as the Linksys home networking and the
former-Scientific Atlanta’s set-top box products.”

Cisco’s set-top box group is not completely consumer facing, as
the products are sold to cable and Internet protocol television (IPTV)
operators rather than directly to the customer. Linksys, although a retail
product, is quite closely aligned with Cisco’s networking focus. These factors
made Flip the odd man out in the company’s product offerings.

While the Flip closure made sense from these business and market
perspectives, Cisco may have left some money on the table.

“The most surprising aspect of Cisco’s decision was the move to
simply close Flip, rather than sell it or spin it off as an independent company
to get at least some return from their investment,” Selburn said. “It would not
be surprising at all to see Flip resurrected in some fashion, however, with the
assets perhaps reacquired by the founders or bought by another company at a
steep discount. Despite Cisco’s actions and the overall market trend away from
dedicated single-function devices like the Flip, the market has not gone away
entirely and the value of a good product still remains strong.”

Cisco purchased Pure Digital, maker of the Flip camcorder, in
March 2009 for $590 million. It decided to fold the operation, which it renamed
its Flip group, just two years later, saying the moves was part of an overall
restructuring of the company’s consumer products business.