Cabletron plans its comeback
The company hopes that a change at the top will reverse a brief downturn in its fortunes.
Though far from taking a nosedive, a long string of record financial growth came to a screeching halt last quarter when Cabletron first had to preannounce a sales shortfall and then divulge final earnings that remained flat, year over year.
Stagnant sales are never good sign for a networking company. The sector remains one of the fastest growing in the technology industry.
Now the company has turned to a telecommunications veteran to catapult the $1.4 billion player into a future where corporations and service providers will increasingly use networks to gain a competitive advantage over rivals. Early this month, Cabletron announced that founder, president and CEO Robert Levine was voluntarily stepping down and would be replaced by Don Reed, a president within Nynex.
The move reflects a desire on the company's part to expand from simply delivering equipment that connects multiple department sites together to dive into the market for gear that tackles worldwide internetworking chores, according to officials.
"We wanted to signal to Wall Street, to our customers, that we were bringing in someone to take us to the next level," said 42-year-old cofounder Craig Benson, who will step into the chairman slot from his COO post upon Levine's departure this fall. "This is a maturing of an industry that's taking place. I think we've got to show customers more value-added functionality on top of the basic products."
Cabletron, however, will continue to play to its strengths next week, according to sources, with a rollout of new switching gear based on its SmartSwitch 2200 and 6000 products that extend networks that currently share bandwidth to the switching world of dedicated access.
The company will also continue to compliment a management software product called Spectrum that is often viewed as one of the jewels in the Cabletron crown. A new version of the Spectrum Element Manager will add remote monitoring (RMON) of Token Ring networks and include support for Microsoft OLE (object linking and embedding) and relational databases.
Cabletron is an anomaly in the networking industry. While the other three heavyweights--Cisco Systems, Bay Networks, and 3Com--operate from the hub of the technology universe, Silicon Valley, the fourth major player is tucked away in Rochester, New Hampshire, quietly attracting enough technology talent from college-rich New England and beyond to remain a viable option to their West Coast counterparts.
A unique culture has developed as a result, exemplified by Levine's sometimes in-your-face management style and love of weight-lifting. The executive plans to retire to spend more time with his family, noting in a farewell news conference that he'd "never run a multibillion dollar company before."
"Bob's unique. He's extremely colorful, he's energetic, he's a great motivator of people around him," Benson noted. "He doesn't dilly dally."
That confrontational essence within Cabletron has gotten it into trouble in some of its dealings with competitors and employees. After a series of advertisements that pointedly differentiated Cabletron products from Cisco gear last fall, Cisco pulled the company's licensing agreement for Cisco's IOS routing software out from under them. Some former employees have reportedly criticized the company's management style and workplace culture as well.
In recent months, however, Cabletron, has made a concerted effort to tone down its sometimes high-pitched rhetoric. The hiring of Reed is expected to continue this trend. It will also make easier Cabletron's entry into the telecommunications and service provider equipment space, a lucrative niche the company has been slow to embrace. A developing partnership with Northern Telecom also could be fruitful for the company in this area.
Cabletron has been a mainstay in connecting multiple sites together in campus environments by using switches and hubs that support a variety of LAN (local area network)-based technologies. But fast-growing Internet service provider and telecommunications companies want to offer value-added services to customers and are increasingly looking to networking vendors for help.
"That's really what they need to do to get to the next level," said Skip MacAskill, an analyst with the Gartner Group. "If they want to continue to be a tier-one player, they have to talk about enterprise issues, global issues."
"I do believe this problem got accelerated because of the fact that other players are doing reasonably well," added Craig Johnson, principal analyst for market watcher Current Analysis.
To ensure a bright future, Cabletron should also continue to expand its sales channels by offering resellers a genuine opportunity to implement the company's gear, analysts say. In the past, forays into this sales opportunity have not gone well for Cabletron, according to some. The company also needs to focus more resources on international sales, according to analysts and company officials. Otherwise, those New Hampshire winters may get even colder.