Ordinarily, Wall Street would be overjoyed with the performance of a company which had increased its revenues from $418.2m to $1.4bn in the space of five years. However, Cabletron is no ordinary company and, in the fast-growing networking sector, it is considered to be something of an under-achiever. Despite starting the decade on a par with Cisco, the networking market leader, Cabletron is now very much the underdog. Cisco’s revenues today are more than four times the size of Cabletron at $6.44bn. At the root of Cabletron’s perceived problems, and its comparatively sluggish revenue growth, is the fact that it was caught out by a sudden technology shift from hubs to switches, says Tam Dell’Ora, founder of networking analysts the Dell’Ora Group. Hubs became popular in the 1980s as a means of reliably connecting PCs and workstations to a network but, with the mass adoption of client/server computing, they were rapidly eclipsed by switches which provided a more manageable way of breaking up large and unwieldy networks into more efficient units. If that was the least of the company’s problems then the company’s no- nonsense, militaristic co-founder and former chief executive Bob Levine could easily have been forgiven. But Levine’s uniquely combative style of management is largely blamed for leading the company in the wrong direction. When it did seek partnerships, they frequently ended in acrimony. In 1994, for example, Cabletron and Cisco responded to the merger of hub company SynOptics with router specialist WellFleet by forging a marketing deal to sell each others products. During the summer of 1996, however, Levine suddenly tore-up the agreement and tore into Cisco – publicly blaming America Online’s 19-hour outage on Cisco router technology, an allegation disputed by both AOL president Steve Case and Cisco. Not only were customers who had bet their business on the Cisco-Cabletron combination left fuming by the sudden ending of the relationship, but the debacle served as a warning to anyone else contemplating a partnership with Cabletron and the company has struggled to build a strong indirect channel ever since. An inability to build a credible indirect channel is a serious impediment.
Lose touch with customers
Part of the reason Cisco moved so far ahead of Cabletron so quickly was because of its policy of developing business through resellers. Until recently Cabletron chief operating officer and co-founder Craig Benson was still claiming that competitors who used resellers quickly lose touch with their customers and are unable to be as responsive to their demands. He has since changed his mind. We’ve traditionally been a direct company and people have been slow to believe we’re willing to work with the channels, admits Benson. But, he says, the company now believes that building relationships is very important. To help restore channel confidence, 39-year old Levine was persuaded to retire at the beginning of August to make way for Don Reed, a veteran of 29 years standing at telecoms company Nynex. Reed represents a departure from the past in more ways than one. Speaking to analysts following the presentation of second quarter revenue figures, up 9% to $371m, COO Benson revealed that Cabletron will shortly unveil new products aimed at integrating voice and data, and expressed the hope that Reed would be instrumental in building up this business. Don Reed’s first task though, must be to sort out component shortages which have capped production of the series 2200 and 6000 switching units. With networking giant 3Com posting quarterly revenues up 28% to $1.6bn just days after Cabletron’s more modest 9% increase to $317m, the company clearly has a lot of catching-up to do. Nevertheless, Cabletron is financially and technologically sound, according to analyst Tam Dell’Ora, so Reed will not be starting from too disadvantaged a position.
