John Chamber’s epiphany – driven by a stock price swoon – that Cisco should stick to its knitting has another logical conclusion: dump the benighted Universal Computing System. But is the damage already so bad that Cisco is damned if it does and damned if it doesn’t?

Cutting the Flip camcorder loose is easy: fire the employees; dump the inventory; take the write-down. Is an angry Flip mob going to storm Tasman with torches and pitchforks?

But the case for dropping UCS is more compelling. First and foremost UCS margins are much lower than Cisco’s big switches.

Dress it up however you want and the result is the same: servers are lucky to get 30% margins, a trifle against 60-70% switch margins. The more successful UCS is the worse for Cisco’s margins and stock price.

For this we need a high-priced CEO? A 1st year MBA could figure this out.

Shane, come back
The bigger problem is the damage to Cisco’s reseller relationships. HP has invested billions to become a network vendor – would they stop now if Cisco canned UCS?

Of course they would. Not because of anything Apotheker says, but because if the HP sales force could sell Cisco instead of 3Com they would. HP could keep investing in 3Com and other network suppliers – as would IBM, Dell and Oracle – but they could slow down and focus on more profitable opportunities.

Things will never be as cozy between Cisco and its big resellers as it was before UCS. But it would be a lot better than it is now.

Strategic retreat
How does Cisco get out of the UCS business without alienating their very best customers? By selling it to HP, IBM or Oracle.

Get a bidding war going and they might even make a profit. Great way to cement a new reseller agreement.

The StorageMojo take
The bigger issue here is Chambers himself. Yes, he’s done a good job with Cisco, but that was years ago. In the last 3 years he’s made a number of bad decisions: buying Flip; not selling Flip; launching UCS; and NOT buying EMC or NetApp when Cisco’s stock price was high and theirs was much lower.

Routers have 60%+ margins and so does enterprise storage. Networks and storage are fungible in a way that networks and servers aren’t. Private label/reseller agreements are much more common, so Cisco could have moved into storage without enraging its big resellers.

But no. Like many a CEO before him – and he did well longer than most – Chambers no longer understands his industry.

It is time – past time – for him to hand the reins over to a new CEO. He’s made a pot of money, built a great company and, if he wants to preserve his legacy, should move on. Soon.

Courteous comments welcome, of course. David Pogue reports that Flip was about to launch a new camera that could stream direct to the Internet over Wifi. A boon to insurgents everywhere.