Enterasys Canada to see job cuts

Having already announced that it is reducing its workforce by 30 per cent, network equipment maker Enterasys Networks Inc. said Tuesday that its Canadian operations will not be spared.

“Yes, there will be an impact on the Canadian operations, as this is an across-the-board workforce reduction that pretty much does touch upon every worldwide office of Enterasys Networks. We don’t separate Canada out,” said Kristen Sheppard, senior director of investor relations with Portsmouth, N.H.-based Enterasys.

“What I can tell you is that 88 per cent of the workforce reductions will occur here in North America.”

Sheppard said the job cuts will affect “all departments (and) all divisions.”

As well, Sheppard said the company is not planning to change its enterprise product strategy. She also dismissed rumours that the company may be preparing for an acquisition. “I have not heard any discussion relative to that. I am not aware of any discussions, or of any plans,” Sheppard said.

The reduction will leave Enterasys with about 1,700 employees, according to the statement. The job cuts will be substantially completed this week, it said. The restructuring will also include other cost savings, as well as lower capital expenditures and cuts in working capital.

Enterasys, in Portsmouth, N.H., has been hit by questions about accounting in its Asia-Pacific operation. It announced the plan to restructure on Friday, after disclosing on Thursday that its chief executive officer, chief operating officer and executive vice-president of worldwide marketing had resigned.

The company has said it expects to report net losses for the first quarter ended March 30 as well as for the fourth quarter of 2001, ended Dec. 29. It has delayed announcing final results for the fourth quarter and full year 2001 to investigate the accounting questions. The U.S. Securities and Exchange Commission also is investigating the issue.

All of the recent news was a shock to at least one Canadian analyst who has been following the company for years.

“Enterasys is a company that has kind of been ticking along for a number of years, a company that really seemed to have its act together,” explained Dan McLean, a research analyst with International Data Corp. (IDC) Canada in Toronto.

“They seemed to be very clearly focused on who their customers were, they understood where they needed to go in terms of products, they seemed to have a good strategy around things like wireless and security. They seemed to be emerging as a company that was very sharp, very focused, and really knew what it was out to do in the marketplace.”

So what went wrong? It is hard to tell so soon in the game, McLean said. He offered that the downturn could be due to a number of things, but that the slashing of jobs is worrisome.

“I always thought it operated as a pretty lean company, that it didn’t have a whole lot of excess fat to trim,” McLean noted. “So if they’re talking [30 per cent of] jobs that they are looking to chop, that’s a significant chunk of people in a company that is purported to run pretty lean to begin with.”

Enterasys Canada, which was unavailable for comment, could potentially be a part of those reductions. As it is, that 30 per cent may not be the only staff to go.

“I think that the 30 per cent staff reduction that we’re seeing is probably the first of more to come,” said Mark Fabbi, vice-president and research director at Gartner Inc. “The key thing will be how they maintain investment in new product development. They had announced an initiative to get into the router market – that would be in question now. They had announced a number of continued efforts into network security and their ability to keep up with that is now certainly in doubt. So this raises a number of questions in terms of how do you cut literally 30 per cent of your staff overnight?”

Enterasys Canada has a fairly large development group in Mississaugua, Ont., Fabbi pointed out, but it is still too early to tell if it might be one of the targets for the cuts. He said he does expect that type of information will be made available over the next few days, but “this is definitely a serious situation for Enterasys.”

— With files from Stephen Lawson, IDG News Service