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(Reuters) – Cisco
Systems Inc (NASDAQ:CSCO) will shut down its Flip video camera business in an
overhaul of its troubled consumer products business, following chief
John Chambers’ recent admission that the company had lost its way.

Cisco’s consumer division, in
particular, has been a target of criticism by analysts, who have said it
strays too far from the company’s main business of selling routers and
switches to the technology and telecommunications industries.

Cisco
shares were up 3 cents at $17.50 in Nasdaq trading on Tuesday. Shares
have lost a third of their value over the past year. Including that
slide, Cisco has lost slightly more than half its value since the start
of 2001, when it was almost worth $40 a share.

Chambers
promised last week to make tough decisions about the direction of the
company. Tuesday’s news appears to be his first move. Among the steps,
Cisco plans to shut down the Flip business and combine its Umi home
teleconferencing service with its TelePresence business product.

"This
is one step in concentrating the focus of Cisco on the enterprise,"
said Tim Ghriskey, chief investment officer of the Solaris Group. "This
came faster than we would have expected. But perhaps Cisco has been
studying this for a while."

He added that Chambers may be restructuring the consumer business so that he can sell the division.

Cisco
originally bought the Flip business from Pure Digital for $590 million
in 2009, part of a buying spree that bolstered its consumer-oriented
business and included the acquisition of cable set-top box maker
Scientific-Atlanta and home router maker Linksys.

In February, Jonathan Kaplan, the former CEO of Pure Digital who had headed up Cisco’s consumer division, left the company.

It
was unclear why Cisco decided to shut down the Flip business — which
comes with software called FlipShare that allows users to easily share
videos on sites like YouTube — rather than sell it.

"They
announced they are shutting it down, so that implies that they were
unable to sell it," said Philip Alling, an analyst with Atlantic
Equities. "It’s disappointing they wouldn’t be able to generate any
proceeds from sale of the business."

Cisco spokeswoman Karen Tillman declined to say why the company decided to kill the business rather than sell it.

The
company also said it would cut 550 jobs in the fiscal fourth quarter,
accounting for less than 1 percent of its workforce of about 73,000
employees.

The company plans to
take a pre-tax charge of about $300 million for the overhaul. The charge
is expected to be recognized in the third and fourth quarters of fiscal
2011.

Chambers has previously
called on the company to focus on five areas: routing, switching and
services; collaboration; data center virtualization; architectures; and
video.

Cisco’s last two quarterly
results have disappointed the market. In November, the company announced
sales growth would be lower than analysts expected. In February, it
warned of dwindling public spending and weaker margins from tough
competition.

(Reporting by Paul Thomasch and Jim Finkle; Additional reporting by Jennifer Saba; Editing by Derek Caney)