Cabletron splits up

Company becomes four smaller firms in attempt to increase value, seize opportunities.

By Jim Duffy
Network World, 02/11/00

Cabletron yesterday said it would split itself into four independent operating companies, ending a reorganization that began with the resignation of founder and CEO Craig Benson last spring.

The companies - Riverstone Networks, Enterasys Networks, Global Network Technology Services (GNTS) and Aprisma Management Technologies - will focus on service provider, enterprise, professional services and network management markets, respectively. Cabletron will operate as a holding company for the four units, which will be taken public within the next year.

Company President and CEO Piyush Patel says this course of action will give Cabletron the "focus and agility" to seize opportunities in the four markets targeted by the new companies, and to better serve customers. He also says the move will increase shareholder value, something Cabletron has been striving to do since late 1998 when it surprised Wall Street with a money losing quarter.

Since then, Cabletron has sold off its general digital subscriber line business, outsourced its manufacturing and realigned itself to focus on four key market segments - service provider, enterprise, professional services and network management. Cabletron also spun out its network management operations as Aprisma, a standalone business.

The turning point, though, was when Benson resigned in June after more than 15 years at the company he cofounded in a New England garage. Patel, who joined Cabletron with the company's acquisition of start-up YAGO Systems two years ago, succeeded Benson.

"We have accomplished much over the last year," Patel says. "We are now at the point where we believe that the business is capable of accelerating its growth. Achieving this growth requires a fundamental transformation of the company. It has become clear to us that to take advantage of the growth opportunities, we must separate into more targeted businesses with a start-up company drive and culture."

Cabletron customers will "enjoy an enhanced experience" in dealing with the four new companies because each will be a specialist in its market, not a generalist, Patel says. Patel says the breakup will enable each company to compete more effectively in its target market to the point of attaining the No. 1 or No. 2 market share position.

Patel will be chairman of the holding company.

Romulus Pereira, who had been Cabletron's chief operating officer, will lead Riverstone. Riverstone will focus on the service provider market, including content hosting, application service providers, points of presence, competitive local exchange carriers, ISPs, MSOs and alternate carriers.

Henry Fiallo, who had been Cabletron's chief information officer, will lead Enterasys. Enterasys will focus on Global 2000 enterprise customers.

Earle Humphreys, who was Cabletron's executive vice president of global services and support, will lead GNTS. GNTS is a network consulting company that will focus on providing professional services, including the design, performance, management and security of networks for large enterprise and service provider customers.

President Michael Skubisz will continue to lead Aprisma Management Technologies. Aprisma, formed last June, will continue to focus on developing infrastructure management software for the service provider and enterprise markets.

Cabletron's SmartSwitch and SmartSwitch Router products and technology will be shared among the companies under reseller, OEM, joint intellectual property ownership and other business arrangements, Pereira says. Initially, Cabletron's products will maintain their current price, form factor and functionality, but will diverge over time to best suit the needs of each company, he says.

The Cabletron brand, meanwhile, will remain with the holding company and company officials say they intend to leverage it going forward. But at some point they may elect to retire it, they added.

Some analysts applauded the move.

"The strategy is fabulous," says Bill Becklean, an analyst at SunTrust Equitable Securities in Nashville. "I love it."