The maker of network equipment said it will reduce its staff to around 1,700 employees this week, and plans to trim its costs through other budget restrictions in an attempt to align its costs with its newly lowered revenue expectations.
The news inspired some confidence from investors, who drove the stock up 19 percent, or 25 cents, to $1.59. By late in the session on the New York Stock Exchange, the stock was up 6 cents to $1.40.
"We are committed to achieving a successful turnaround so that Enterasys can once again be a prosperous and growing company," William K. O'Brien, the company's interim chief executive, said in a statement.
Enterasys has seen rocky times since early February when it announced that the Securities and Exchange Commission was investigating its revenue-recognition practices in Asia and warned of disappointing quarterly revenue, causing its stock to plunge more than 60 percent in one day.
Last week, the Rochester, N.H.-based company announced the resignation of three executives and said its revenue-recognition practices are being internally reviewed in Europe, North America and Latin America. Chief Executive Enrique Fiallo, Vice Chairman J.E. Riddle and Chief Operating Officer Jerry Shanahan all resigned.
Gartner analysts Lawrence Orans, Mark Fabbi and Neil Rickard say a management shake-up, likely disappointing financial results and restructuring decisions make the stability of Enterasys Networks uncertain.
The announcement drove shares down to an all-time low of $1.32 on Friday and prompted analysts to downgrade the stock. Goldman Sachs analyst Seth Spalding said Friday that risks related to the SEC investigation and accounting practices were "unquantifiable" and advised investors to "avoid the stock."
The company is just one of several Cabletron Systems spinoffs having. Riverstone Networks, a maker of networking equipment for telecommunications service providers, also said in February that it would cut its work force and miss fourth-quarter estimates.