Cabletron in chaos

Rochester, N.H. - In the eyes of many observers, it took Cabletron Systems, Inc. co-founder Craig Benson only 30 minutes to destroy what CEO Don Reed spent seven painstaking months trying to build: a credible and stable management team.

A half-hour is how long it took Cabletron during a teleconference last Monday to explain Reed's departure and Benson's power grab. The news that Reed was out and that Benson, who owns nearly 13% of Cabletron's shares, was in as CEO, surprised everyone. Many observers, including key customers, were left wondering about the very future of this network products mainstay.

It was a tumultuous week indeed for Cabletron, as other company executives either resigned or were fired. Word also surfaced that Cabletron co-founder and Reed predecessor Robert Levine was seen at the company's headquarters here, sending shock waves throughout Cabletron and the network community.

One critic who asked not to be identified called it "the return of the Mutt and Jeff show."

A Cabletron spokesperson would say only that Levine was here last week to give advice to new Operations President John d'Auguste. The flamboyant and controversial Levine, who owns nearly 8% of Cabletron's stock, left the company in August.

Since that time, Cabletron's stock price has dropped by 50%, and the company has posted its first-ever quarterly loss. Still, many Cabletron customers found the news of Reed's departure disturbing.

"Reed brought credibility to the marketplace, where Benson doesn't," said Roland Voyages, director of technical services at NationsBanc Montgomery Securities, Inc., in New York. "Benson's the second half of Levine."

Levine was widely viewed as an aggressive, quirky person who created a corporate culture difficult for some to swallow.

Voyages, who estimated he has about a $1 million investment in Cabletron equipment, said last week's events moved Cabletron from "a low-maintenance vendor to a high-maintenance vendor," meaning a vendor he has to watch all the time. He said that in his mind, Cisco Systems, Inc. and Hewlett-Packard Co. are low-maintenance vendors, and that Cabletron used to be one.

To change his view, Voyages said he'd have to see management stability, revenue growth, profitability and continued de-livery of innovative products in a timely fashion.

Cabletron's ability to retain a talented work force and deliver products in the future worries other customers as well. Mike Eldridge, network manager at Morehead State University, in Morehead, Ky., said he's always been a satisfied customer but delays in product announcements would indicate a lack of research and development. "If revenues stay flat and their viability as a business becomes questionable, at that point the red flags would go up," Eldridge said.

Not all customers were unhappy with the change. Bob Courier, director of data communications at Duke University, in Durham, N.C., said, "Something was going to have to happen." With Reed at the helm, "I had concerns about the company's long-term survival."

At least one financial analyst also saw a positive side to the executive shuffle. "The industry became much more competitive in the last six months, which forced Craig's hand," said Paul Johnson, managing director at BancAmerica Robertson Stephens, in New York.

Benson doesn't hedge

In last week's telephone conference with the media and financial analysts, Benson said it was Reed's idea for Cabletron to make a change so that the company could better implement the strategy Reed has outlined in recent months.

"[He] realized that my vast industry experience and my execution abilities allowed me to actually implement that strategy much more effectively than Don could," said Benson in a prepared statement.

"And what [Reed] proposed is that we look at a new way to realign Cabletron, such that he serve as an advisor to me as I implement that strategy," Benson continued.

"So we settled on a strategy by which Don would stay on the board of directors and work as a consultant to the company. In essence, reversing the roles that we had earlier taken with Don's arrival at Cabletron," he said.

However, Reed was not at the conference, and could not be reached last week. A Cabletron spokesman said he didn't know where Reed was.

Reed's wasn't the only departure. By Tuesday, Mark Truhlar, chief information officer and senior director of network management software, and Stephan Gray, director of worldwide marketing and communications, were out. There were conflicting reports about the circumstances, but several observers said it was likely that the executives were fired and didn't resign, as has been reported.

Benson, who has been described as brilliant but arrogant, was asked during the conference call why the change had taken place. His response dumbfounded many listeners: "I think it's safe to assume that Don got into this business, found out how fast-moving it was and realized what an asset . . . I have in my brain - the now almost 20 years of industry experience, plus 15, 16 at Cabletron. Meaning that I can make smart decisions a lot quicker and begin implementing [them] a lot faster than he possibly could," Benson said.