With the announcement today that it has sold its networking division to Cabletron Systems Inc., Digital Equipment Corp. now has unloaded the last of its non-core units and will begin to contemplate "modest acquisitions" in the future, Chairman Robert Palmer said.
Cabletron, on the other hand, views the Digital division acquisition as the first step in a plan to "rapidly expand" the company, said CEO Don Reed at a press conference attended by executives from both companies. Cabletron has wanted to expand into the international channel market and the Digital acquisition allows it to "get out of the blocks quickly" with a recognizable name brand, he said.
Cabletron will obtain the assets and technology of the Digital division for about $430 million in cash, stock and product credits, though company officials said it was too early to say what the mix will be. Digital will keep its Internet and Web server product development groups, as well as its network research facility in Palo Alto, California. The sale is subject to regulatory approval.
The networking division, which has been up for sale for a year, will be called the Digital Network Products Group: A Cabletron Systems Company, and will continue to sell and service Digital products worldwide. Reed described this as a "win-win" situation for employees, channel partners and customers. About 1,100 Digital employees are affected by the deal, he said. Most of those will move over to Cabletron with about 200 staying on at Digital.
Palmer downplayed what the move means for Digital's networking strategy, saying, "We're certainly not divesting ourselves of the network business. ... It's our assessment that you need to reach a critical mass larger than we can reach on our own."
About half of Digital's networking business is done outside of the U.S., with sales mostly handled through third-party distributors and reseller channels. Cabletron officials said they expect the company's international revenues to grow by as much as 40 percent with channel revenues to jump 100 percent and that they also believe the purchase will help them make a bigger jump into both telecommunications and Internet service markets.
The key to Cabletron's success, said one analyst, will depend on the network channel partners it gets from Digital.
While Digital might bring with it an impressive and long list of channel partners, some have been more active and loyal than others and the success of the Cabletron-Digital deal depends on which partners stick around, said Mark Leary of market researchers International Data Corp. in Framingham, Massachusetts.
Digital's brand name was a theme in both the Cabletron announcement and the press conference, but Leary said he's "more lukewarm about the branding" issue. While Digital may have a big name in some industry segments "in networking that's not necessarily the case," particularly when compared to the recognition factor regarding its Alpha chip, for instance.
"Generally speaking, it's a Cabletron business now," he said of the deal. "If Cabletron wants to be a major player it has to make its own name."
Reed said that executives already are looking at areas of product overlap and likely will drop those that duplicate, although "our paths do not cross that much in the marketplace."
Digital products include switches, routers, hubs and network management products. Cabletron focuses on scalable products for Fortune 1000 enterprise networks, service providers and small businesses.
The deal is the latest, and apparently last, in a line of Digital announcements this year, including the October sell off its semiconductor manufacturing operations to Intel Corp.
