Cisco Systems pulls back from smart city push

The setback comes as the pandemic has weighed on Cisco’s core business of supplying networking equipment and has limited the ability of local governments to finance such projects.

City planners and local governments for years have been preparing for a future where technology remakes the urban landscape, with features such as self-driving cars, smart lighting and connected alarms to help safeguard residents. Communications using 5G technology blanketing the city would allow widespread adoption of smart devices.

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For Cisco, best known for providing routers and other networking gear to corporate customers, that vision promised a budding new market. And the effort, built largely around the company’s Cisco Kinetic for Cities software services, became a high-profile initiative for Chief Executive Chuck Robbins as he tried to transform Cisco from a hardware vendor into a company more closely associated with the lucrative business of selling software services.

Now Cisco is moving on. “We recently decided to stop sales and eventually support [for] the Cisco Kinetic for City product line to align our product investment to evolving market needs and customer requirements," a company spokesman told The Wall Street Journal.

Trying to pivot a legacy tech business to promising new areas can be difficult. International Business Machines Corp. for years tried to bring its Watson artificial intelligence system into industries like health care, but many clients dropped the product when they found it had limited impact on patients. Software giant Microsoft Corp. fumbled its effort to break into the hot smartphone market. And chip maker Intel Corp. said it recently closed its Intel Studios effort that aimed at playing a bigger role in augmented and virtual reality.

Cisco bought Jasper Technologies Inc. for $1.4 billion in 2016 to boost its expertise in the area of the so-called Internet of Things, the connected devices that also would underpin a smart city. It launched Cisco Kinetic for Cities the following year.

“There are lots of great opportunities" in smart cities, Mr. Robbins told the Journal in 2017, pointing to the potential benefits technologies like connected lighting offered. Soon after, the company said it was launching a $1 billion program aimed at helping cities adopt technologies to transform their neighborhoods.

For Cisco, the shutdown comes as the company is undertaking a broader restructuring after it disappointed Wall Street with its fiscal fourth-quarter results during the summer. Mr. Robbins said Cisco would cut $1 billion in expenses and cut staff to reflect changes in customer spending priorities during the coronavirus pandemic. The company, he said, would place more effort on security services now prized by customers adapting to a distributed workforce.

The pandemic has hit hard the budgets of local authorities that are needed for smart city investments. A June survey by the National League of Cities, an advocacy group for a large number of cities, showed that 65% of cities in the U.S. are delaying or canceling infrastructure projects.

Cisco isn’t the only company to struggle with making smart cities a business success. This year Alphabet Inc.-backed Sidewalk Labs Inc. pulled out of a billion-dollar smart city project on Toronto’s waterfront. The Google parent had poured hundreds of millions of dollars into Sidewalk, with most of that earmarked for the Toronto project, and had little to show for it.

Cisco’s approach to the smart city differed from Google’s, which focused largely on showcasing its technology at a single site to serve as a model others might embrace. Cisco cast a wider net of partnerships working with locations in various countries to help support their smart city projects.

“Smart cities are a hard sell," said Christopher Reberger, a former director at Cisco who has analyzed the economics of smart cities. The return on investment can be hard to quantify, he said, and stitching together disparate smart city technologies can appear daunting. “Even basic things like public Wi-Fi have been difficult."

Cisco said it wasn’t abandoning business with local authorities and that it was committed to working with cities in areas like network connectivity and security. It also would support companies offering smart city technologies, the company said.

But the decision to retrench marks a setback for Cisco, which has been trying to boost sales of software services over hardware.

“Cisco’s transition toward software and subscriptions has been mediocre at best," said Jim Fish, a senior research analyst at Piper Sandler & Co. Mr. Robbins has said the company was meeting goals it had laid out.

This story has been published from a wire agency feed without modifications to the text.