Amazing Cisco Blunder

| About: Cisco Systems, (CSCO)
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Sometimes companies do seem like they're managed by politically correct committees. This is one of those times. The "press" today reveals an amazing Cisco Systems, Inc. (NASDAQ:CSCO) blunder.

Imagine having bought a wireless router for your home network. Now, since Cisco-owned Linksys is a well-known and trusted brand, you decide to pick one of their E2700, E3500, or E4500 routers.

You set it up in your network, unaware that the setting for it to update its firmware automatically is on by default. Then, one beautiful day, your router seemingly doesn't recognize its credentials any more. It's asking you to authenticate with some kind of service you never had heard about before.

Yes, that's one of the things Cisco did. Upon pushing an automatic update to those routers, it decided to make it mandatory to have a "Cisco Connect Cloud" to access your own router, bypassing and indeed eliminating your former credentials.

But it didn't stop there. Not only did Cisco make it mandatory, but within the privacy policy of "Cisco Connect Cloud," it included the right to check on all your web traffic. So you either accept this, or your former router is not going to provide you any service any longer.

Still not happy enough, the committee decided to go further. What if you're one of those despicable porn consumers they don't want using their pristine cloud? Ah, no problem, they'd just include in the terms and conditions of the mandatory "Cisco Connect Cloud" that if they caught you looking at the wrong stuff, they were entitled to kick you out of their flawless cloud. Never mind that in the process, they'd be bricking your router and your home network with it, since you now needed the "Cisco Connect Cloud" credentials to control your router!

It's amazing how this kind of blunder could have hit the market. It would seem that this side of Cisco's consumer segment was, perhaps temporarily, taken over by politically correct lawyers. This kind of story—on which Cisco has already started backtracking, given the consumer backlash—is a nice way to destroy a brand.

Presently, Cisco trades at an undemanding valuation: 9.3 times forward 2012 P/E, 4.6 times EV/EBITDA, 1.8 times book for a 15% ROE and a 1.9% dividend yield. Still, it would be nice not to see it produce the kind of event that just took place and one that can easily ruin the consumer side of the business. Still, with this business being rather small in Cisco's context, what matters most here is the lack of common sense that the decisions illustrate and not so much their overall impact.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.