Benson sees easy turnaround

Despite Cabletron's recent fiscal woes and well-healed competitors, CEO Craig Benson says he and his firm are survivors.

6 min read
Cabletron Systems was founded in a garage in New Hampshire when two friends decided to build a business shipping Ethernet cable, then a nascent means to connect machines together, to businesses.

Now some wonder whether that entrepreneurial spirit has left the firm, given the recent fiscal woes that have beset the $1.4 billion networking equipment provider and the spectrum of well-heeled competitors such as Cisco Systems, 3Com, and now Nortel Networks.

But it is these roots that cofounder, chairman, and chief executive Craig Benson, when discussing his company these days, points to as an indicator that, if nothing else, he and his firm are survivors, despite stock that continues to hover near a 52-week low.

Benson exudes an independence that comes with building a business without any venture capital cash--a fact unique in the networking business--in New Hampshire, a location about as far away from the Silicon Valley hype as one could find.

CNET News.com sat down with Benson in advance of a speech he will give today at the ComNet networking trade show in San Francisco to get an update on his company's plans for a turnaround, a future renaissance Benson says will be a "piece of cake" compared to his previous challenges.

This despite a slew of changes in the networking industry, which has attracted the interest of even larger players, such as telecommunications equipment giant Lucent Technologies, and ushered in an era where voice, video, and data will meet within the same layout.

CNET News.com: What is your view of the ongoing talk and hype surrounding convergence--that is, carrying voice, video, and data traffic across the same network infrastructure?
Benson: I am critical of the Internet. It's slow and it does not do multimedia. It seems to me there are a lot more applications that would be running on the Internet but for the fact that it is holding us back. I think that if we really want to do a service to the Internet we ought to make it do what anyone wants and make it so we can really watch the innovation take off.

Cabletron's Craig Benson on convergence
Let me give you a simplistic example: Our Web site would have a lot more graphics, video, and voice content, but for the fact that we know when a customer downloads a page they are going to have problems with delays and will get frustrated. We don't want to upset them so we "dummy down" the thing so it runs more effectively on their end. To me, it's holding back innovation. Shame on the people who have built the Internet for allowing their equipment to hold back innovation, as far as I'm concerned.

That seems like a not-so-subtle dig at Cisco?
Well, I'm not being critical. What I'm saying is, we are looking at all of the wonderful things about the Internet and I see a lot more challenges. I commend people who say the glass is always half full, don't get me wrong, but what I don't think we're owning up to--especially in the case of Cisco--is all the challenges we need to face in order to make it a tool for innovation or a tool for making business learn, live, work, and play a lot more effectively.

Where does Cabletron's business stand in the aftermath of the company's recent Wall Street troubles?
The positive thing is, of the major networking vendors, nobody gets more from newer technology than we do. Switching as 50 percent of our business blows away anyone else in the business as far as contribution to our total sales. So we're more embedded in the switch market than anyone else is.

Cabletron's Craig Benson on the company's future
The negative is 70 percent of our business in shared networking technology going to 15 percent in a two-year frame is a big nut to make up for, and it happened much more rapidly than anyone would have predicted. It happened more rapidly to us, primarily for only one reason--we mostly deal with high-end customers. High-end customers are the first ones to make the move to switching, where low-end customers' needs can still be satisfied by shared networks. So it hit us more dramatically than it hit anyone else.

Having said that, we had profitability throughout the entire time, but for one small loss in a quarter, three quarters ago. We had a billion in assets when we started this transition; we now have a billion and half in assets. So we grew our balance sheet, and managed to stay pretty much highly profitable, throughout the entire transition.

What do you think you have to do to resurrect the company's stock, which hasn't recovered from a steep dip earlier this year?
My stock has been hit a little harder than I think it deserves to be hit. I think the story that sort of relates to this is that we went public at $15.50 a share in May of 1989. By the end January of 1990--so seven months later--the stock sat at $6.70 a share and we hadn't done anything wrong, it was just that nobody was paying attention to us.

A few years later the split-adjusted stock was worth $125 a share. Today the stock is at $10.00, a share-split adjusted $50.00 a share, but it got down to the same $6.70 not that long ago, split-adjusted in the $30 to $40 range. But the fact of the matter is, we almost hit the identical number, so I think we were back to where we were.

Back then, what the lesson was is you only get the stock to move when you put up earnings and don't go out and talk about it. Just go do it. That's exactly what we are focused on now.

How do you view the slowdown in the networking industry, as well as the various geographical economic hot spots in the world, and how those factors will affect your company and the industry as a whole?
Markets go up and down--I think you just have to be patient. I mentioned earlier Lucent and Nortel; they're all getting into this business because of the convergence that's going on. Lucent has been in business for 125 years; Nortel 103.

Cabletron's Craig Benson on staying tuned in
If you're going to be around that length of time, which is absolutely my goal, you're going to find changes. Economic conditions change, you just have to deal with them. I think one of the things we've been pretty good at is transition. We've gone from a cable company into many other markets, and we're continuing to grow and be successful.

What are the facts surrounding the abrupt departure of former CEO Don Reed after less than a year on the job?
Three months before he left, he called me and said, "I think you ought to take back over this thing because I just don't think I can handle it," so we talked about it. And three months later, he called me back and we had the same exact discussion and at that point I started to understand. Having been out of [day-to-day operations], I started to realize how much there was to comprehend with the business and the competitive landscape, because not being in the mainstream, as I used to be, I was having trouble keeping up with it, and I had a background. I did sort of have some empathy of what he was going through.

Was it hard to come back as the day-to-day manager of Cabletron?
I feel I am where I need to be as an executive. I've never had a job like this before, since I founded the company, so to some extent, every day I come in I'm a newcomer to a job I've not had and had no experience doing. Sometimes it's nerve wracking, sometimes it's rewarding. It's all of the above.