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Cisco's new CEO just fixed John Chambers' most expensive mistake

Cisco's new CEO just fixed John Chambers' most expensive mistake

Cisco John Chambers


Cisco executive chairman John Chambers

Two days before officially assuming the corner office, Chuck Robbins sold Cisco's TV set-top business to Paris-based Technicolor for $600 million.

In doing so, he unwound outgoing CEO John Chambers' biggest and most-expensive mistakes.

Cisco had bought this business in 2005 when it acquired Scientific-Atlanta for $6.5 billion, its largest ever acquisition.

The plan was to put Cisco in the epicenter of what Chambers saw as the next big thing, the merging of internet and television, an interactive world where you would chat on the TV screen with your friends while watching the game, and advertisers could send you personalized ads.

Scientific-Atlanta was a leader in TV set-top boxes, the device that connects your cable or satellite to your TV. The grand plan back then was to marry that with Cisco's other main consumer product, Linksys WiFi routers. The new "connected device" combined voice/video/data.

As part of its years-long reboot, Cisco bailed from the consumer WiFi router business in 2013, selling Linksys to Belkin. Coupled with killing the Flip video camera business in 2011, that ended Chambers aspirations to become a consumer tech company once and for all.

Cisco CEO Chuck Robbins


Cisco CEO Chuck Robbins

Meanwhile, Cisco's service provider video business unit, of which these set-top boxes were a major part, has been an Achilles for the company for a long time.

For example, last quarter revenues declined 5% and overall orders declined 20%, Chambers told Wall Street analysts. The quarter before, service provider video declined 19%, Chambers said. And the quarter before that, service provider video declined 12%, with the set-top box business, specifically, down about 20%, he said.

Despite those numbers, Cisco's new M&G guy under Robbins, Hilton Romanski, tried to put a happy face on the situation.

In a blog post announcing the sale, he said that these "connected devices have delivered $27 billion of aggregate revenue" to the company in the 10 years Cisco has been slogging it out in this business.

He also said that the Connected Devices business will end Cisco's fiscal 2015 with revenue of approximately $1.8 billion. Cisco's fiscal year ends in July.

That connected world that Chambers imagined is coming, but it looks like it will be owned by Microsoft Xbox or Apple TV. And on the service provider side, Cisco was losing sales to companies like the Arris Group and Casa Systems.

So Robbins ripped the band-aid off and sold the $1.8 billion unit for $600 million.

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