Extreme slashes 16 per cent of workforce

FRAMINGHAM, Mass. — Looking to cut US$20 million in expenses, Extreme Networks Inc. says it will cut 110 employees, or 16 per cent of its worldwide workforce.

Extreme [Nasdaq: EXTR] hopes the move will allow it to achieve consistent double digital operating income. The company will take a pretax restructuring charge of US$3.5 million in its fiscal fourth quarter, which ended July 3.

The Santa Clara, Calif.-based switching and wireless LAN manufacturer is reducing headcount in all functional areas outside of R&D. The company said it will be consolidating most of its software engineering into current facilities in lower-cost venues to bolster R&D investment in product development.

Extreme expects the consolidation to be complete by the end of the calendar year.

The company has been hobbling along for years, with its revenue share of the US$20 billion Ethernet switch market consistently below two per cent. Industry leader Cisco Systems Inc. [Nasdaq: CSCO], meanwhile has 65 to 70 per cent share, while Hewlett-Packard Co. [NYSE: HPQ] is second with just over 11 per cent.

Extreme and a handful of other companies, including Juniper Networks Inc. [NYSE: JNPR], Brocade Communications Systems [Nasdaq: BRCD] and Enterasys Networks Inc. make up the remainder, but each has about two per cent or less market share.

Earlier this year, Extreme realigned sales and marketing to focus on select vertical markets in an effort to boost revenue.

In recent weeks, Extreme named a new vice-president of engineering and replaced its marketing chief. In March, it replaced its CFO with an interim CFO while conducting a search for a new financial chief. That search is ongoing.

President and CEO Oscar Rodriguez, (pictured), has been at the helm for less than a year. Extreme laid off nine per cent of its workforce in late 2009 and replaced then CEO Mark Canepa with an interim CEO until Rodriguez was tapped to lead the company last August.

Extreme’s market capitalization is less than its annual revenue, and the company is growing less than the industry as a whole.

But Extreme also announced this week that it anticipates fourth quarter revenue will be above prior guidance, and in the range of US$88 million to US$90 million. Earnings, however, will fall short of prior guidance, the company said.

Extreme will announce its fourth quarter results on Aug. 1.

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