One year after Cabletron Systems Inc. reinvented itself as four “start-up” companies, users and analysts are giving the move good grades.
Last February, the network vendor announced a major restructuring plan, which involved splitting the firm, with Cabletron acting as a holding company. Another part of the restructuring included the sell-off of nonprofitable business units, such as network technology it had acquired from Digital and its low-end NetVantage switch and hub business.
From the breakup came Riverstone Networks Inc., which sells metropolitan-area network service provider equipment; Enterasys Networks Inc., which makes enterprise LAN gear; Global Network Technology Services (GNTS), which sells professional IT services; and Aprisma Management Technologies, which develops and sells the Spectrum network management platform (Aprisma’s formation was announced in June 1999).
“Looking back after a year, the transformation was absolutely the right thing to do,” says Piyush Patel, CEO of Cabletron. As a result of the restructuring, he says, “we’ve built up good momentum in all four start-up companies. . . . We’ve made our existing employees more passionate about what they do by bringing a sense of ownership into [the] existing employee base. It has also given us a good platform for recruiting outside talent.”
The bottom line has proven the point, Patel says. Each company has experienced individual revenue growth ranging from five per cent and 30 per cent over the past four quarters. Cabletron as a whole (counting all four companies and its own operations) has grown by 10 per cent in revenue during the past year. This kind of growth would not have been possible under Cabletron’s old business model, he says.
The year 2000 was also tumultuous for many large enterprise network companies, including Cabletron, 3Com and Lucent. Lucent spun off its enterprise arm as Avaya in October, and quickly distanced itself from the new company, with Avaya going public shortly after the spinoff announcement. Unlike the restructuring Cabletron went through, 3Com announced it was exiting the large enterprise market altogether. Unlike 3Com, Cabletron has managed to avoid huge losses and layoffs, Patel says.
But everything has not gone according Cabletron’s master plan, however. When the restructuring was announced, four IPOs were mentioned as the ultimate goal of the split. So far, only Riverstone has filed for an IPO, but the company and its underwriters are holding back the completion of the IPO while the market remains unfriendly to most technology stocks.
“Our plan continues to be to bring these four companies an IPO and to do a 100 per cent spinoff in [the] marketplace,” Patel says. “That’s still the plan.”
He says the outlined 18-month timeframe for spinning off each company is still reachable, depending on market conditions.
“We’re still on track to be able to do it. I just wish the market had cooperated a bit more than it did,” he says. “All four companies are absolutely ready to do an IPO. There is nothing internally stopping any one of the companies.”
So far, some ex-Cabletron users have enjoyed dealing with the new companies.
Carlo Lalomia, CTO of Intellispace, a New York ISP, says his dealings with Aprisma and GNTS have improved since the breakup, although he was skeptical at first.
“Initially, we said this would be a mess,” Lalomia says. “But that didn’t happen. [Cabletron] did everything very clean … I’d say we get better service now. I hear more from Aprisma when new products and updates come out.” Lalomia attributes this to each company being more accountable for its business than before.
“I haven’t noticed any problems” since the breakup, says Henry Perry, head of technology at Boston College. Perry has been a longtime user of Cabletron LAN switches and has recently installed wireless LAN equipment from Enterasys. He says when the transformation happened, he and Enterasys representatives met extensively to answer his questions and outline the company’s plans.
The breakup was also beneficial for retaining key employees, while allowing technologies and resources to be shared by the new subsidiaries, says Joel Conover, an analyst with Current Analysis. Specifically, switching technology and personnel from Cabletron’s acquisition of start-up YAGO Systems in 1998 has been beneficial for Enterasys and Riverstone. This is because YAGO’s hardware technology is used in both companies’ products, and Patel was the former CEO of YAGO.
“The YAGO group was the best thing Cabletron ever bought into. It’s been a big asset for Cabletron. I know they held on to a lot of that technology” at Enterasys and Riverstone, Conover says. “Part of the reason they reinvented themselves was to hold on to those people and that technology.”