Cabletron Systems Inc has set in place a new business model which includes the outsourcing of manufacturing to Celestica Inc and reorganization around four new business units in a bid to correct long-term structural problems. Cabletron, which has not been as quick as other network equipment vendors to adapt products and services for new markets such as ISPs, CLECs and cable network providers, will initially lay off 300 employees as a result of closing its Ironton, Ohio plant. Within 18 months the company will also close its Rochester, New Hampshire facility and most employees will be transferred to a plant that Celestica is creating in Portsmouth, New Hampshire. Cabletron will retain its two Irish plants and expects to save $50m in the first full year of outsourcing.
Cabletron’s new business model, which it calls project Ignition, is intended to reduce expenses, increase cash and lower costs. As part of the project the company will re-align around four new divisions: Spectrum software (currently just 4% of revenues); enterprise; service providers; and professional services (currently 20% of revenue). Non-core businesses will be de- emphasized. Cabletron says 63% of its business is in switches and claims 33% of the market, while routers account for 15% of revenues. As well as taking $10.7m charges in its fourth quarter for the write-off of assets lost under the new plan, a further $50m-$70m charge will be taken in the first quarter.
It also plans to re-adjust its quarterly sales plan to bring it in line with Compaq Computer Corp’s quarter. It is currently putting the finishing touches to an expanded $300m-a-year OEM deal originally struck with Compaq at the end of last year. Cabletron is the last resting place of DEC’s old networking business which it picked up together with an OEM agreement at the end of 1997 before Compaq acquired DEC. Cabletron says front- loading sales to its June quarter from May (the end of its March quarter) to accommodate Compaq’s quarter, which closes at the end of June, is going to mean around a $40m shortfall this quarter.
It is also migrating its sales model from direct operations to named accounts. Channel revenue now accounts for 60% of revenues, up from 30% in 1997. International sales are 40%, up from 22% now. The company will reveal new products, including new ATM and SmartSwitch devices, and a technology roadmap at the forthcoming Networld+Interop show.
Cabletron yesterday reported a fourth quarter net loss of $8.25m including a $10.7m write down of assets down from a loss of $263.37m on revenue up 11% at $345.07m over $311.52m. For the year the company lost $239.97m, up from a loss of $127.06m last time, on revenue up 2% at $1.41bn which included charges of $224.7m for writing off in process R&D for its NetVantage, FlowPoint, DSLAM and Yago Systems acquisitions, over $1.37bn last year.
