Extreme slashes 16% of workforce

Cuts aimed at achieving double-digit income, boosting R&D, company says

Looking to cut $20 million in expenses, Extreme Networks this week said it will cut 110 employees, or 16% of its worldwide workforce.

Extreme hopes the move will allow it to achieve consistent double digital operating income. The company will take a pretax restructuring charge of $3.5 million in its fiscal fourth quarter, which ended July 3.

Extreme is reducing headcount in all functional areas outside of R&D. The company said it will be consolidating most of its software engineering into current facilities in lower-cost venues to bolster R&D investment in product development.

Extreme expects the consolidation to be complete by the end of the calendar year.

The company has been hobbling along for years, with its revenue share of the $20 billion Ethernet switch market consistently below 2%. Industry leader Cisco, meanwhile has 65% to 70% share, while HP is second with just over 11%.

Extreme and a handful of other companies, including Juniper, Brocade, Avaya, Alcatel-Lucent and Enterasys, make up the remainder, but each has about 2% or less market share.

Earlier this year, Extreme realigned sales and marketing to focus on select vertical markets in an effort to boost revenue.

In recent weeks, Extreme named a new vice president of engineering and replaced its marketing chief. In March, it replaced its CFO with an interim CFO while conducting a search for a new financial chief. That search is ongoing.

President and CEO Oscar Rodriguez has been at the helm for less than a year. Extreme laid off 9% of its workforce in late 2009 and replaced then CEO Mark Canepa with an interim CEO until Rodriguez was tapped to lead the company last August.

Extreme's market cap is less than its annual revenue, and the company is growing less than the industry as a whole.

But Extreme also announced this week that it anticipates fourth quarter revenue will be above prior guidance, and in the range of $88 million to $90 million. Earnings, however, will fall short of prior guidance, the company said.

Extreme announces its fourth quarter results Aug. 1.

Copyright © 2011 IDG Communications, Inc.

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