Cisco Escapes From Exile on Main St.


Cisco finally found a way out of its exile on Main Street.

Ten years ago, the networking giant rolled the dice on consumer networking. The Linksys brand joined the Cisco portfolio in 2003 for the princely sum of $500 million. But Cisco never felt at home with its new toy and often tried to cram enterprise-grade technology into the decidedly consumer-oriented brand.

Rather than dominating a new market, Cisco found itself dog paddling to stay afloat, never really staking a fresh claim in your local electronics story.

So it was no surprise when Cisco said it would unload Linksys to the highest bidder. Other home-style technologies have already been deep-sixed, including the Flip digital camera division and the Umi videoconferencing system. The Scientific Atlanta brand of set-top cable boxes remains, and looks like a good fit with Cisco's larger strategy.

The company gets to sell in bulk to cable and satellite companies, tailoring the boxes to its customers' exact specifications. Leave finicky and penny-pinching consumers out of the equation, please. So Linksys is an obvious goner.

This week, Cisco made it official.

Home networking expert Belkin is taking Linksys off Cisco's hands. Terms of the deal were not disclosed. We can try to figure out the size of this agreement by proxy, though.

Being a private company, Belkin doesn't file financial statements with the SEC, but many of its competitors do.

Publicly traded rival Netgear sports a $1.5 billion market cap and annual sales of $1.2 billion. D-Link is a public company on the Taiwanese stock exchange, where its $1.1 billion of yearly revenue fetches a $416 million market cap. Cisco lumps Linksys into its "Other" business segment, which also includes "certain emerging technologies" and other odds and ends. Total sales in that division were $1.0 billion last year, down from $1.3 billion in 2011 and $1.6 billion in 2010.

Together, the Belkin and Linksys brands will account for about 30% of the home and small business networking market, according to Belkin's press materials. That's a market-leading slice, but still a minority stake. And a shrinking one, at that. Throw in the fact that profit margins are slim in this cut-throat and highly fragmented market with dozens of major brands, and it all adds up to a small price tag.

So Cisco will probably lose money on this long-term gamble. The deal should close in March, ten years to the month after the original Linksys purchase. And that's when Cisco finally says bye-bye to Main Street.

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