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Cisco to Sell Linksys to Shift Focus

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Reportedly, Cisco Systems Inc. (CSCO) will be selling its Linksys wireless router unit. According to media reports, the company has hired Barclays (BCS) to help it sell the home wireless-router company.

This is yet another step by Cisco to exit its consumer-focused business, while strengthening its presence in corporate software and technology services.

In 2003, Cisco acquired Linksys for approximately $500 million in order to make an entry into the consumer networking market. However, strong competition has negatively affected the margins in this business, with a corresponding negative impact on the company’s profits. Now, nearly 10 years later, it looks like Cisco is trying to get out of this market.

The current deal clearly reflects Cisco’s strategy of downsizing its consumer business in order to save cost and expand in certain strategic areas, including cloud computing, which is viewed by many technology firms as a key area for future growth.

Over the past year, the company has closed several of its consumer businesses, such as the Flip video-camera unit, and reduced about 14% of its global workforce, or around 11,500 employees.

As a part of its cloud and networking expansion strategy, Cisco has made three acquisitions in November. The company has acquired Cariden, Meraki and Cloupia for $141 million, $1.2 billion and $125 million, respectively, in line with its growth strategy.

Cisco Systems is a leading provider of IP-based networking and other products. Though Cisco still dominates in the IP routing market, it has been facing challenges in the Ethernet switching business from rivals such as Hewlett-Packard Company (HPQ) and Chinese manufacturers like Huawei.

Currently, Cisco has a Zacks #3 Rank (Hold).

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