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Cabletron May Sell or Spin Off Parts of Some Units, CEO Says
Cabletron May Sell or Spin Off Parts of Some Units, CEO Says
Rochester, New Hampshire, May 6 (Bloomberg) -- Cabletron Systems Inc., the No. 4 computer-networking company, may sell or spin off parts of some businesses in a bid to increase the value of the company, President and Chief Executive Craig Benson said.
The maker of gear used to link computers to the Internet has ''considered the possibility of taking some pieces and offering them to the public,'' Benson said in an interview. It also might sell part of its network-management software business or its computer-services unit, he said.
Cabletron's shares have plunged 37 percent in the past 12 months after its fiscal 1998 sales fell 2 percent because the company was late to market with key products. Selling a minority stake in its Spectrum software unit, among its fastest-growing businesses, ''could help unlock shareholder value,'' Benson said. Some analysts agreed. ''They should do it (sell or spin off Spectrum) sooner rather than later,'' said Brendan Hannigan at market researcher Forrester Research.
Still, Cabletron has to prove it can win business from No. 1 network-equipment maker Cisco Systems Inc. and other larger rivals if it's to jump start revenue growth, said Craig Johnson, an analyst with market researcher Pita Group in Portland, Oregon. ''Selling part of the business doesn't address their fundamental problems,'' Johnson said.
Cabletron's revenue for the 1999 fiscal year that ended in February rose 2.5 percent to $1.41 billion from $1.38 billion a year earlier.
Spectrum Business
Any sale of Cabletron's Spectrum software business, which contributes about 5 percent of revenue, or its services business, which contributes about 12 percent, wouldn't happen until later this year, Benson said.
Benson said Cabletron would maintain a controlling ownership stake in either business. He declined to say what he thought they might be worth. ''This is something we've just started to evaluate,'' he said.
The fact that Cabletron started a separate software unit likely will make it easier to sell or spin off, said Esmeralda Silva, an analyst with market researcher International Data Corp. in Framingham, Massachusetts.
Spectrum is ''one of the better network-management (software) platforms,'' Silva said. Cisco, Hewlett-Packard Co. and other makers of PCs and networking gear have rival offerings.
Benson also declined to say whether he'd been approached by any suitors for a possible takeover. Four of the eight biggest networking companies have been purchased in the past 12 months. ''A lot of people don't appreciate the value built into this company,'' Benson said.
Market Value
Last month's initial public offering of Extreme Networks Inc., whose market value is $2 billion, may suggest Cabletron is undervalued, analysts said. The market value of Cabletron, which was founded in 1983 and whose sales are 10 times Extreme's, is $1.56 billion.
Extreme's products are similar to a line Cabletron acquired when it bought Yago Systems Inc. in February 1998. The Yago products, now called the SmartSwitch line, contributed almost $100 million in sales in the last nine months, according to William Becklean, an analyst at Tucker Anthony Inc. Becklean rates Cabletron shares ''accumulate.''
Extreme had net income of $433,000 on revenue of $29.1 million in the quarter ended March 31, while Cabletron's profit before a charge in the quarter ended Feb. 28 was $2.5 million on revenue of $345.1 million. Both companies earned 1 cent a share. ''Cabletron's SmartSwitch Router business is worth at least as much as Extreme's switch business,'' Becklean wrote in a report.
Cabletron shares fell 3/16 to 9 1/16 yesterday.
NYSE/AMEX delayed 20 min. NASDAQ delayed 15 min.
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