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Cabletron earnings slip past analyst predictions

Extending its profit streak to five straight quarters, the networking firm beats Wall Street fourth-quarter estimates by a penny.

Cabletron Systems extended its profit streak to five straight quarters today as the networking firm added more details to its ambitious plans to spin-off into four separate companies.

Excluding one-time costs, Cabletron today earned a fourth-quarter profit of $28.1 million, or 15 cents a share, compared to income of $3.8 million, or 2 cents a share, during the same period last year. A consensus of analysts predicted earnings of 14 cents a share, according to First Call.

For the quarter ended Feb. 29, revenue increased 11 percent from $345.1 million to $381.8 million.

But Cabletron executives today said the company expects to take a loss of $25 million to $45 million next quarter as it gears up for its four spin-offs. The loss will include a restructuring charge of up to $35 million.

The company, which has 4,500 employees, plans to cut 600 to 800 jobs and sell off or discontinue the slow-growing portions of the corporate networking business that don't fit Cabletron's new strategy.

The networking firm in December announced plans to split into four companies that sell networking equipment, software and consulting services to telecommunications firms and corporations. At that time, the company announced plans to float public offerings for each firm within the next 18 months.

Cabletron is reorganizing to better compete against Cisco Systems, Nortel Networks and others. Once a heavy-hitter in the network equipment market, the company has struggled in recent years as it has lost market share to its rivals. Cabletron, which historically has sold corporate networking products, has made a strong comeback this past year, as it began targeting its networking gear to the more lucrative service provider market.

Cabletron executives today said they expect two public offerings by year's end, with the first being Aprisma Management Technologies, which sells software that monitors and manages the health of networks.

The remaining companies are Riverstone Networks, which will sell high-speed equipment to service providers; Enterasys Networks, targeting corporate networks; and Global Network Technology Services, which will offer consulting services. Cabletron executives today said they have made no decisions on which firm will go public after Aprisma.

As part of the reorganization strategy, Cabletron executives today said the firm will sell off or discontinue its slow-growing products, such as hubs low-end switches, and some networking products the company acquired from Digital Equipment. Those businesses make up about $100 million to $130 million in quarterly sales, or about one-third of the company's overall revenue.

"They are old, slow-growth products, and as part of our transformation strategy, the four new companies will only inherit the high-growth businesses," said Cabletron chief executive Piyush Patel, in an interview.

Patel said Riverstone, targeted at service providers, made between $11 million to $13 million in fourth-quarter revenue and predicts sales will grow 100 percent in the new fiscal year. Patel said he expects Enterasys, aimed at corporate networks, will reach $160 million to $180 million in sales next quarter with 20 percent revenue growth in the next year.

Aprisma earned between $13 to $15 million in fourth-quarter sales and yearly revenue will jump 40 percent, while the consulting business made $8 million to $9.5 million in the fourth quarter with annual sales growing 80 percent, he said.

The restructuring has re-energized the company's workforce, Patel said.

"Employees are energized and focused. Morale is at an all-time high and start-up fever has set in," Patel said.

For the fiscal year, the company earned a profit of $464.3 million, or $2.46 a share, compared to a loss of $245.4 million, or $1.47 a share, last year. Yearly revenue bumped up slightly, to $1.46 billion from $1.41 billion.