streetadvisor.com
Cabletron Misses the Point
Fayad Abbasi
Apr 24 2000
Sometimes companies do dumb things. Yes, I know that?s a harsh statement, but the press releases can really leave you shaking your head. Such is the case with Cabletron [CS]. We?re initiating coverage of the networking company with a sell recommendation, based on its incoherent business model.
Last week, the company announced plans to enter the network incubator business. After deciding to spin off its existing businesses into four separate companies, Cabletron planned to utilize the available $1.5bn to $2bn in cash to invest in up to 20 startup companies in the networking arena.
Sounds innocent enough. In fact, the plan could be just what the company needs to rejuvenate its reputation. Today, however, the company announced that its board has authorized Cabletron to buy back up to $400m of its stock. It seems the best investment Cabletron could come up with was? itself.
In all fairness to the company, share buybacks usually take place over several years and, in many cases, the total repurchased falls short of the amount authorized. Nonetheless, the purpose of an incubator company is to invest in new companies with exciting prospects for future growth in explosive markets. Buying back one?s own shares does not exactly fit the bill.
Cabletron was once a venerable networking company, but after encountering the wrath of the mighty Cisco [CSCO], it never really recovered. This latest announcement seems to indicate that nothing has changed. |
