Digital may sell unit to Cabletron

Reports that Digital Equipment (DEC) is close to an agreement to sell its computer-network equipment business to Cabletron Systems (CS) have elicited little response from either company and have analysts wondering what the two would attain from such a deal.

While an agreement has yet to be signed, the two sides are both comfortable with terms valuing the unit at between $400 million and $500 million, the Wall Street Journal reported today in its electronic edition.

An announcement on the sale could come within days, the paper said.

Digital spokesman Tom Madden declined to comment on the report but read from a statement similar to one the company issued last August.

In the statement, the company said its networking business includes areas that are integral to its strategy, as well as areas that are complementary to that strategy.

"In order to best meet customer and channel partner needs, we continue to explore a variety of possible relationships with other companies to optimize our network products and solutions," the statement said. "Any action we take will reflect our growth strategy which is to deliver, with our partners, networked business solutions based on high-performance platforms and services."

Darren Orzechowski, a spokesman for Cabletron, said he couldn't comment on any "rumors in the market place," but added his company has laid out an aggressive new strategy that "includes acquisitions and a stronger presence in the international market place."

Current Analysis senior analyst Craig Johnson said such a purchase could do just that for Connecticut-based Cabletron. "DEC has good channels in the Asian and Latin American markets. But this depends on what the agreement finally is. It's still unclear."

A deal with Cabletron would help the computer maker further tighten its focus by freeing it of a cash-hungry business. It would also give DEC more flexibility to sell networking gear made by a variety of outside equipment makers, the Journal said.

Johnson said on the technology side, Cabletron may be looking to fill holes in its ATM (asynchronous transfer mode) product line, addressing the low and high ends of the market for wide-bandwidth technology. "DEC's ATM switch is a good product. Cabletron doesn't have a good core ATM switch," he said.

Cabletron officials last month said adding an array of ATM products to its lineup supports the company's idea that enterprise networks can be switch-driven, rather than router-focused.

Johnson said it would be a positive move for Massachusetts-based DEC to sell off the computer-network business. "It hasn't been making money for them. And they've sort of put it on the back burner. Getting rid of it would allow them to focus on their core products."

Reuters contributed to this report.