Cisco Systems as decide to shut down its Flip video camera division, retiring the popular brand in a first step toward overhauling its consumer product unit.
Cisco bought Flip in 2009 for $590 million in an acquisition spree to build a stronger consumer business.
The move to kill a gadget that won rave reviews for jump-starting low-cost handheld video and was the top-selling camcorder in the United States last year comes less than a week after CEO John Chambers said he had to make "tough decisions" about cutting spending on some product areas.
The surprise decision to shut down Flip rather than sell it underscores pressure on Mr Chambers to whittle down a money-losing consumer division that also includes Scientific Atlanta set-top boxes and Linksys home routers.
It will also fold its Umi home videoconference business into the more successful TelePresence arm for corporate customers.
Last year Cisco sold 23 per cent of all camcorders in the United States, ahead of Sony Corp's 22 per cent and Eastman Kodak's 12 per cent, according to market research firm NPD Group. Those figures exclude sales by Wal-Mart Stores Inc and some club stores. NPD does not release data on total units sold or market value.
Flip has since lost some of its cachet, primarily because mobile phones makers now offer devices with similar functions incorporated into their handsets. It has also faced strong competition from other handheld camcorders, including Eastman Kodak's PlaySport devices.
Cisco's descent from internet powerhouse to muddled underperformer came to a head earlier this year, after three quarters of results that disappointed investors.
"I'm really disappointed if this is it," said Kim Caughey Forrest, senior analyst at fund firm Fort Pitt Capital. "One would hope that there are more changes pending."
The company plans to cut 550 of its 73,000 jobs and take a pretax charge of about $300 million for the overhaul, possibly in the third and fourth quarters of fiscal 2011, it said.
The news seems to be Mr Chambers' first move to restructure Cisco following an unusually candid memo to employees last week that detailed its problems. In it, he admitted that Cisco had lost its way, and warned of "targeted moves" in the coming weeks.
Cisco spokeswoman Karen Tillman did not say why the company decided to kill the Flip business rather than sell it.
Atlantic Equities analyst Philip Alling said there were probably no buyers: "It's disappointing they wouldn't be able to generate any proceeds from a sale of the business."
But "we think there is still opportunity in the marketplace," NPD analyst Stephen Baker noted.
Mr Chambers has previously said the company would focus on five areas: routing, switching and services; collaboration; data center virtualisation; architectures; and video.
Reuters