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Cabletron looks to let Spectrum loose

Cabletron Systems is hoping its new software business will become the new darling of Wall Street, and help reverse its fortunes.

Cabletron Systems is hoping its new software business will become the new darling of Wall Street--and in turn, help reverse the fortunes of the once high-flying networking hardware maker.

Cabletron's Spectrum network management software division has spent the past month devising a plan to become independent. Its strategy includes a new name, new Internet-focused products, a huge marketing and advertising blitz--and possibly an initial public offering sometime next year.

"Most start-ups come up with a cool idea, get a buzz going, get a billion-dollar market cap, and start shipping a product," said Michael Skubicz, Spectrum's executive vice president of software. "We're doing the reverse. We've got a cool product and now we build the business."

While Spectrum's software is popular, Cable nation chart Cabletron executives and some analysts believe the product has languished under Cabletron's brand name as the company struggles to compete with networking giants Cisco Systems and Nortel Networks.

Spinning off Spectrum can also be seen as a move to distance it from Cabletron--a company with a reputation for being hard to partner with, according to industry observers.

Like its parent company, Skubicz wants Spectrum to start targeting the lucrative telecommunications and Internet service provider market. Spectrum network management software has traditionally been sold to large businesses.

"Ebay and E*Trade have had outages. It's not a knock on those companies, but the Internet is still relatively immature and that's where our opportunity lies," said Skubicz, who was previously Cabletron's former chief technology officer. "We see the opportunity to be the command and control system that enables greater reliability."

A good move?
Analysts have mixed feelings about the strategy: Some believe Spectrum as a stand-alone unit will flourish, and will help pad Cabletron's coffers as it plans to keep a majority stake. Others fear the rest of Cabletron could continue to wilt if it loses Spectrum--as many consider it the company's crown jewel.

Dataquest analyst Stephen Elliot said Spectrum could succeed as an independent company. Right now, it has captured 7 percent of the network management market, behind four other vendors including Hewlett-Packard, IBM subsidiary Tivoli Systems, and Network Associates.

"It's 'Business 101' at this point. They've got to reinvent themselves," Elliot said. "They have to make the right partnerships and move forward with product execution and marketing execution."

However, Pita Group analyst Craig Johnson said spinning off Spectrum is a risky venture, and could potentially hurt Cabletron's revenue.

"I can understand the ploy because Wall Street is clamoring for it and it will bump up the stock," Johnson said. "If you're a Cabletron executive, you use Spectrum as your trump card. But if you don't own it, then it's not as strategic. It's yet another nail they could put in the Cabletron coffin."

Johnson said Cabletron is still an attractive acquisition target for telecommunications firms that haven't invested in a data company. Telco and networking firms are racing to combine voice and data-based services on a common network infrastructure--an arrangement that has inspired several mergers, including Nortel's purchase of Bay Networks last year.

Lofty goals
While Spectrum's strategy is still being developed, Skubicz and his staff have already laid out some ambitious goals: Within a year, Spectrum aims to become the top selling network management software firm, and increase yearly revenue by more than 50 percent.

Initially, Spectrum will become a wholly owned subsidiary of Cabletron. And within a year, Cabletron will either issue a tracking stock to monitor the performance of the unit, or spin the unit off entirely.

"Right now, Cabletron is my venture capitalist," Skubicz said.

Skubicz aims to strike deals with competitors Cisco and Nortel, to integrate its network management software with vendors' switches, routers, and other networking hardware and to increase its market reach.

In August, the company expects to unveil voice modules that connect its software to phone switching equipment from Ericsson, Lucent Technologies, and Nortel, according to the company.

By year's end, Spectrum will start releasing policy-based networking software that gives priority to certain applications--human resources software over email messages, for example--over a network.

Skubicz said the company also plans to build more billing tools for communications companies so they can effectively charge their customers and provision services, starting with software for Virtual Private Networks, or VPNs.

Spectrum hopes to make a major splash at the Network+Interop conference in Atlanta in late September--and plans to announce its new name there, he said.

"Today, image is so important. You will see an aggressive branding program. We will make our presence known and distance ourselves from Cabletron and have an aura of independence," Skubicz said.