Cisco Diversification into B2C

Project By: Sumit Verma

Confidential Property of Schneider Electric

Cisco
History Cisco foray in to B2C segment
• Cisco founded in 1984 by Leonard Bosack and Sandy Cisco decided to diversify in to B2C business segment b/w 2001
Lerner – Stanford university Students – 2003
• Cisco Systems Inc, designs, manufactures and sells Internet • In beginning of 2001 industry saw a transition in the social
Protocol (IP) based networking and other products related networking and an opportunity
to communications and IT industry worldwide • Service Provider were building more bandwidth,
• High End Core Router which in terms of a quadruple play – Internet access,
• Switches internet based phone calling, wireless calling and
• Services video services
• Collaboration • Content companies were looking for new distribution
• IT architectures channels
• data centre products • Consumers had new devices and application in there
• homes such as smartphones, TiVo, Skype etc.
Cisco went Public in 1990
• In 2002 due to .com bubble burst the revenue dropped to
• Cisco rated as the most valuable company by 2000, with
$18.9 Billion from $22.3 Billion
more than $500 Billion market capitalization
• Aggressive 15 % YoY growth Targets/Projections
• Integrating Household technology with their advantage in
similar line of business - product portfolio.
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 Acquisitions: Cisco Diversification into B2C

Scientific Atlanta
Linksys Kiss Tech
Sipura Tech For $6.9 Billion -
For $500 Million - for $61 Million - Pure Digital for
For $68 Million - Set top boxes, $590 million
Home Routers Entertainment Flip video camera
Enabled VOIP Cable model for video
Equipment

$22.3 B
in
2001
March 2003 April 2005 July 2005 Nov 2005 March 2009

Reference : www.casecenter.org
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The Question still remains

Why did Cisco revert back from B2C to B2B ?

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How did we go about…
Net sales (in Millions) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$ $ $ $ $ $ $ $ $ $
Routers $ 5,487 $ 4,859 $ 5,406 $ 5,498 6,005 6,920 7,909 6,271 7,868 8,264 8,425 8,230 7,609 7,704 $ 7,408
Switches $ 7,651 $ 7,721 $ 8,881 $ 9,950 $ 10,833 $ 12,473 $ 13,319 $ 12,025 $ 14,074 $ 14,130 $ 14,531 $ 14,741 $ 14,001 $ 14,741 14746
$ $ $ $
Adv Technologies $ 1,556 $ 2,004 $ 3,435 $ 4,021 5,609 8,075 9,736 9,218 NA NA NA NA NA NA  
$ $ $ $ $ $
Collaboration NA NA NA NA NA NA NA NA 2,981 4,013 4,139 3,956 3,815 4,000 $ 4,352
$ $ $ $ $ $
Service Provider Video NA NA NA NA NA NA NA NA 3,294 3,483 3,858 4,852 3,969 3,555 $ 2,424
$ $ $ $ $ $
Wireless NA NA NA NA NA NA NA NA 1,134 1,427 1,699 2,166 2,293 2,542 $ 2,625
$ $ $ $ $ $
Security NA NA NA NA NA NA NA NA 1,302 1,200 1,349 1,347 1,566 1,747 $ 1,969
$ $ $ $
Data Center NA NA NA NA NA NA NA NA $ 196 $ 694 1,298 2,073 2,640 3,220 $ 3,365
$ $ $ $ $ $ $
Other $ 975 $ 981 $ 828 $ 1,384 1,470 1,994 2,135 1,617 1,571 1,315 1,027 $ 664 $ 279 $ 241 $ 365
Product Total $ 15,669 $ 15,565 $ 18,550 $ 20,853 $ 23,917 $ 29,462 $ 33,099 $ 29,131 $ 32,420 $ 34,526 $ 36,326 $ 38,029 $ 36,172 $ 37,750 $ 37,254
Service $ 3,246 3313 3495 3948 4567 5460 6441 6986 7620 8692 9735 10578 10970 11411 11993
Total net Sales $ 18,915 $ 18,878 $ 22,045 $ 24,801 $ 28,484 $ 34,922 $ 39,540 $ 36,117 $ 40,040 $ 43,218 $ 46,061 $ 48,607 $ 47,142 $ 49,161 $ 49,247
Gross Margin 12013 13233 15126 16671 18747 22336 25484 23094 25643 26536 28209 29440 27769 29681 30960
Operating Expenses 9094 8351 8834 9255 11751 13715 16042 15772 16479 18862 18144 18244 18424 18911 18300
$ $ $ $ $ $ $
Operating income $ 2,919 $ 4,882 $ 6,292 $ 7,416 6,996 8,621 9,442 7,322 9,164 7,674 $ 10,065 $ 11,196 9,345 $ 10,770 $ 12,660
Other Income -209 131 700 620 637 840 813 371 251 151 94 31 370 431 260
$ $ $ $ $ $
Income before Taxes $ 2,710 $ 5,013 $ 6,992 $ 8,036 7,633 9,461 $ 10,255 7,693 9,415 7,825 $ 10,159 $ 11,227 9,715 $ 11,201 $ 12,920
Taxes 817 1435 2024 2295 2053 2128 2203 1559 1648 1335 2118 1244 1862 2220 2181
$ $ $ $ $ $ $ $ $ $
Net Income $ 1,893 $ 3,578 $ 4,401 $ 5,741 5,580 7,333 8,052 6,134 7,767 6,490 8,041 9,983 7,853 8,981 $ 10,739
1. 2004 - Advanced Technologies Segment reorganized and adjusted other numbers
2. 2009 - The decrease in other product revenue in fiscal 2009 compared with fiscal 2008 was primarily due to the decline in sales of our cable, optical, and service
provider voice products
3. 2011 - Lower sales of Flip Video camera - Exit from consumer product line - Regrouping of product lines in 2011
4. 2013 - Lower Sales of Linksys Products - Sold off in Q3 2013
5. 2015 - The decrease in revenue from our Service Provider Video product category of 10%, or $414 million, was driven by a 16%, or $332 million, decrease in sales 5 of
our Service Provider Video infrastructure products, due primarily to lower sales of set-top boxes.
 Cisco divestment from B2C

Cisco sold its Cisco sale of its

Linksys home- Connected Devices
router unit brand to
Cisco's shutdown Belkin International Business Unit
of its Flip video Inc. for $400, (CDBU) to
camera business $100m lost Technicolor SA.

2011 2013 2015

• According to legendary General Electric CEO Jack Welch, “Expanding into adjacent markets is the easiest way to grow.”
But the “easiest way to grow,” it turns out, is not easy at all
• Since the 2009, Cisco decided to spin off their consumer business
• The company made that move as it kicked off a major reorganization in response to disappointing business results
• Started focusing on Core business and reduced it to 5 Arch

Reference : www.casecenter.org
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Why – Cisco Exits B2C Segment
Sales : Cisco Others* Share Price*
$2,500

$2,000

$1,500

$1,000

$500

$0
Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

As per Bain Study:

GAAP Results The catch is that 75 percent of companies saw their moves into
  Q2 2010 Q2 2011 adjacent markets fail
Net Sales $9.8B $10.4B Only 13 percent achieved what Bain called “even a modest level
Net Income $1.9B $1.5B of sustained and profitable growth.”
ESP - Earnings Per Share 0.32 0.27
• Cisco financials got affected and it reflected in the markets
Non GAAP Results • In Cisco's quarterly report, 
  Q2 2010 Q2 2011
revenues for the "other" unit were $220 million, down 11%
Net Income $2.3B $2.1B
ESP - Earnings Per Share 0.4 0.37  over the comparable quarter in 2011
• Go to market strategy was too cumbersome to manage for a
small part of their business 7
* - Cisco never broke out revenues on consumer products. Instead, they are lumped into a business unit it calls "other."
Key Strategic decision Point : Flip video camera
2011 : Cisco's shutdown of its Flip video camera business

Competition
• Cisco bought Flip from Pure Digital in 2009 for a $590 million.

• Cisco to close Flip camera unit as smartphones swallow its market

• Cisco probably had to act fast, because its earnings fell 18 percent in Q2 2011, and CEO John Chambers had to
show he was doing something decisive to stanch the flow

• Entry of Smartphones in the HD video cameras business offering features like clocks, music players, GPS devices

• Apple, Steve Jobs – Introduced camera-equipped iPod Nano in 2009, and made it clear his competition was FLIP
budget camcorder

• Consumer hardware was not part of Cisco's core businesses of services and software, margins were low in
consumer electronics
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Key Strategic decision Point : Linksys

2013 : Cisco sold its Linksys home-router unit brand to Belkin International Inc. $100m loss

• The Home Router market is a competitive, low-margin business that had total revenues of about $350 million to
$400 million annually, according to the analysts at Wedbush.
• The business did not represent enough revenue (for Cisco to keep it, it would have needed to be at least $1 Billion
per year.)
• In Cisco's most recent quarterly report, revenues for the "other" unit were $220 million, down 11% over the
comparable quarter in 2011.
• The operating margins were not high enough, especially compared to the other company business units.
• Margins are low and demand fluctuates, secondly little incentive to sell hardware to consumers
• The business and marketing models were different from the rest of the company. It was hard to successfully run
consumer marketing and go-to-market operations for this small division when all other company products and
services were B2B.

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Key Strategic decision Point : Set Top Box

2015 : Cisco sale of its Connected Devices Business Unit (CDBU) to Technicolor SA

• Cisco inherited the set-top box business from Scientific-Atlanta for $6.9 billion

• Cisco has been having a hard time getting a decent return out of the business as sales have been steadily declining.
• Investors have been urging Cisco to rid itself of the business, with some saying that it wasn’t essential to the 
company’s core business
• Cisco’s fiscal 2015 end, the set-top box business was revenue was $1.8 billion dropping from $2.6B billion in 2013
• Cisco’s service provider video revenue declined by a year-over-year rate of 19% in fiscal Qtr2 ’15.
• According to a report from Infonetics, set-top box revenues increased sequentially by 4% from calendar Q1 ‘14 to Q2
‘14, reaching $4.8 billion but Cisco set-top box was in a decline.

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Conclusion: BCG Framework

 Based on its consumer business performance

and its affects on the core business Cisco
decided to move out of the Consumer business
market

 As Per Zeus Kerravala: "It's a very rare company

that can actually have a strong consumer brand and
corporate brand, For Cisco to have done that, I
think, would have required a much bigger shift in
company strategy than they were willing to do.“

 Though they decided to move on, Cisco will

develop strategic relationship on various
initiatives like retail distribution, strategic
marketing & products for service provider, while
the partner (Belkin) will bring its wide product
line to the table

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THANK YOU

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