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Cabletron expects third-quarter loss

The networking equipment provider gives investors some bad news following a challenging quarter, announcing an expected third quarter loss.

Networking equipment provider Cabletron Systems gave Wall Street some bad news today, revealing that results for its fiscal 1999 third quarter will come in far below consensus estimates, resulting in a loss.

The company announced that it expects a loss of 10 cents per share before charges related to acquisitions for its just-completed third quarter. The projected loss flies in the face of analysts' consensus estimates that pegged Cabletron's earnings at 11 cents per share, according to First Call.

Cabletron said revenue for the quarter would fall between $330 million and $340 million. The company posted sales of $331.8 million for the same period the previous year.

The company will incur one-time charges related to the acquisitions of FlowPoint and a division of Ariel. Final results for the quarter will be announced December 21.

Cabletron stock closed the day down 3.5, or 25 percent, to 10.75. Shares have traded as high as 25.5 and as low as 6.625 in the past 52 weeks.

Company executives said the most recent quarter was more challenging than expected. "We compete in one of the world's most competitive industries, which is characterized by significant pricing pressures, shifts in technology, and longer market acceptance time," said Craig Benson, the company's chairman and chief executive, in a prepared statement.

Company executives pointed to three primary reasons for the shortfall, according to analysts briefed by Cabletron:

  • A 50 percent drop in sales through telecommunications equipment providers, likely a direct result of Nortel Networks' purchase of data player Bay Networks. Cabletron had previously claimed a close partnership with Nortel that included joint sales and development. Sales through Lucent Technologies also took a steeper plunge than the company expected.

  • Slow sales through Compaq Computer, a relationship Compaq inherited when it purchased Digital Equipment. When Cabletron bought Digital's networking business a year ago, part of the agreement required Digital to resell $1.1 billion worth of Cabletron equipment over the next three years. Compaq has evidently not held up their part of the resale bargain. Cabletron said it now wants to revisit the agreement, so that it is better for the company in the short-term and more amenable to Compaq in the long-term.

  • Another drop in sales of shared media networking equipment, a segment that has leveled off. Cabletron, once a dominant player in shared media hardware, said sales of those types of devices--called "hubs"--accounted for only 10 percent of revenue for the quarter, down from 15 percent for the previous period.

    The company, trying to reclaim its status as a fast-growing networking form, has faltered of late. Though Cabletron beat estimates for its last quarter, the firm did not show an appreciation in revenue, a far cry from the company's hard-charging boom years.

    Nevertheless, the company's executives have remained hopeful in the face of the first series of fiscal pitfalls in the company's history, pointing to the technology gained via a series of acquisitions as evidence that Cabletron is ready for a comeback.

    Announcement of the quarterly loss ends a tumultuous year for Cabletron, highlighted by a bizarre shake-up in March that left Benson, a company founder, holding onto the top spot. Gone as chief executive after less than a year was Don Reed, a veteran telecommunications executive who was brought in to help the company refocus its strategy for high-growth markets.