Extreme Networks replaces CEO, lays off 70

Ethernet switch vendor Extreme Networks is replacing its CEO and laying off 70 employees in an effort to quickly improve the company's bottom line and set it up to run profitably with lower revenues.

CEO Mark Canepa, who took the position in 2006, has resigned, but will remain for a short period to help recently hired CFO Bob Corey transition to Acting CEO. The company is seeking a permanent replacement. Canepa receives $639,354 severance.

As part of the restructuring, the company also eliminated the job of chief counsel, getting rid of Robert Schlossman, and replacing him with Vice Presideint Diane Honda, according to a filing this week with the Securities and Exchange Commission. Judging from the company Web site, the head of human resources and head software developer are also gone.

The company didn't say where the 70 layoffs would come, but it represents about 9% of Extreme's workforce.

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The moves will lower the company's expenses by $2.5 million per quarter, with the larger goal being to have the company break even if it makes $70 million per quarter. The measures will cost the company a one-time $4.2 million hit.

The company hasn't reported its financial statement for the quarter ended Sept. 27, but it said earlier this month that it expected to come up $14.4 million shy of what Wall Street analysts forecasted. The analysts projected Extreme would take in $66 million but the actual revenues will be more like $80.4 million, the company said.

At the time Canepa blamed the company's North American business as being particularly soft because some deals it had hoped for fell through and others were delayed beyond the end of the quarter. The company's stock prices hit a low of close to a dollar in March, struggled back to just over $3 last month then dipped to about $2.25 over the past weeks.

"They're in a tough spot," says Zeus Kerravala, an analyst with Yankee group. "This is a company that's truly having a hard time finding its way." He says the company is smaller than its main competitors, HP, IBM, Cisco, Juniper and Brocade (which has reportedly put itself up for sale). 

Extreme makes a range of switches from edge, to aggregation to core, as well as wireless switches and security gear. Extreme's share of the $19 billion global Ethernet switching market has held steady at about 1.5% over the past few quarters, according to market watcher Dell'Oro. 

"When you look at all the network vendors out there, what problem is it that Extreme is trying to solve that isn't being solved by somebody else?" Kerravala says. "If you look at data centers, all the emphasis is on converged fabric, and they just don't have a roadmap to get there. I think they'll go the route of Enterasys. They'll get smaller and smaller and continue to exist off their installed base until their assets get acquired by somebody else."

The company burst onto the networking scene in the mid-1990s as one in a pack of Gigabit Ethernet and Layer 3 switching pioneers and differentiated itself, among other ways, by uniquely packaging its technology in purple boxes. 

Insiders and channel partners said the firm of late seemed to be too focused on long range strategic planning instead of trying to figure out how to survive the dire economy.

Extreme's Chairman of the Board Gordon Stitt said in a written statement: "Management and the Board decided to take this action to streamline our operations, reduce our breakeven and create an operating model that will position Extreme Networks for sustained profitability as quickly as possible. These reductions have been taken across the entire organization. We remain committed to the products, markets, channels and customers and to continuing to introduce new and innovative products."