A Cabletron Systems executive confirmed last week the company is considering spinning off parts of its business to strengthen its position in the highly competitive computer networking market.
Cabletron would create a separate company out of its Spectrum software unit and possibly others, offering stock for the new company publicly while maintaining a majority ownership, said Bob Travis, Cabletron's director of analyst relations.
"If separated [from Cabletron], Spectrum would have opportunities to go aggressively into new markets," Travis said. "Separation would put Spectrum in the spotlight."
Cabletron is in fierce competition with Cisco Systems, 3Com and Nortel Networks for a dominant share of the computer networking market.
Ian Fewtrell, Cabletron Australia's managing director, said spinning off any divisions is motivated by a desire to "increase shareholder value".
"It's not necessarily a case of flogging off the farm," Fewtrell commented. He suggested the most likely outcome of this move would be spinning off only part of some business streams, such as the Spectrum management product.
However, one of Cabletron's largest integrators, NetStar, warned that making business decisions based on shareholder interest could divert the company from tactical product decisions.
Mitch Radomir, NetStar's business development manager, said he sees "too much" vendor decision-making designed to appease shareholders.
For the fourth fiscal quarter ending February 28, Cabletron reported net income of $US2.5 million, or 1 cent a share, before a fixed-asset loss for idle, obsolete and discarded equipment. Factoring in the charges, the company lost $US8.3 million, down from a loss of $263.4 million for the year-ago quarter. Revenue for the fourth quarter of fiscal 1999 was $US345.1 million, up from $311.5 million from the same quarter a year ago.
Selling a piece of the company like Spectrum might help Cabletron raise money as well as boost sales, said one analyst.
"Perhaps a partnership would help Cabletron take advantage of their product strength," said Neil Anderson, chief operating officer of The Tolly Group, a New Jersey-based information techno-logy consulting firm. "They have strong products and perhaps they could find ways to leverage the partnership [for better marketing]."
Cabletron officials announced a cost-cutting and restructuring program in March called Project Ignition, which they said would save $US80 million. As part of the plan, they said they would outsource Cabletron's worldwide manufacturing operations to Celestica for a saving of $50 million.