Bon Voyage Linksys

Bloomberg reports that Cisco hired Barclays to find a buyer for Linksys. Cisco has been in the process of exiting its consumer businesses over the past year. Cisco acquired Linksys in 2003. Charlie Giancarlo, then SVP of Product Development said, "55 million homes had broadband connections in 2002, and we expect that to grow to 179 million by 2006. Today there are 13 million home networks and we expect that to grow to 68 million homes by 2006."

Well, the home market did explode, and Linksys has had a good run. But the combination of enterprise and consumer is tough. At the time of the acquisition, Zeus Kerravala, then an analyst and vice president at Yankee Group, said he found it a "little bit odd." Kerravala said "It leaves me scratching my head a little bit. I agree that SOHO is growing, but rarely does a company succeed trying to sell to the enterprise and consumers."

It's hard to tell how good Linksys has performed for Cisco as the firm does not break out the figures. Linksys sales are reported quarterly under "OTHER" sales, which has been dropping over the past four quarters (when compared to prior year figures). Cisco has consistently reported its consumer efforts were not meeting expectations. It has already pulled back on many of its consumer initiatives including shutting down Flip in 2011, and killing its Umi living room video conference unit.

Cisco certainly did not appear to be in a rush to sell Linksys, but recently it reported a decrease in its routing and switching business. Last July, Cisco attempted to cloudify Linksys with an ill-fated software update on several Linksys Wi-Fi routers. The goal was to simplify setting-up wireless networking in the home. The update sent residential users to Cisco Connect Cloud which at that time had the terms of service that stated:

"When you use the Service, we may keep track of certain information related to your use of the Service, including but not limited to the status and health of your network and networked products; which apps relating to the Service you are using; which features you are using within the Service infrastructure; network traffic (e.g. megabytes per hour); internet history; how frequently you encounter errors on the Service system and other related information ..."

Cisco got a taste of consumer backlash as privacy concerns spread over social networks. The firm apologized and retreated from its approach. Last month, Cisco acquired Meraki which uses a cloud approach to managed networking that doesn't involve consumers. According to Cisco representatives, Meraki will be positioned as the primary networking platform for mid-market customers.

It is very likely Cisco hired Barclays to perform the transaction of the Linksys sale rather than find a buyer as the firm's intent to exit consumer was well known. In other words, a transaction may be imminent. A likely buyer is Belkin, which already targets Linksys and shares many distribution partners.