In other news:
Cabletron Launches Project Ignition; Will Outsource Manufacturing Operations
Aggressive Initiative Will Leverage Core Competency in Enterprise Networking to Grow Four Key Business Units
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petersn@ruder-finn.com
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ROCHESTER, NH - March 22, 1999 -- Cabletron Systems (NYSE: CS) today announced an aggressive growth and restructuring initiative that is expected to generate over $80 million in annualized savings and re-energize revenue momentum. Cornerstones of the initiative include the company's decision to outsource its manufacturing operations to Celestica, and a major push into the enterprise and service provider markets, through its core expertise in hardware, network management and services offerings.
Cabletron Chief Executive Officer Craig Benson today unveiled the initiative, named Project Ignition, in conjunction with the company's earnings announcement.
Financially, Project Ignition is intended to deliver the following benefits over the next 18 months:
Reduced expense structure;
Lower cost of goods sold;
Increased cash reserves;
Higher return on assets and revenue per employee;
An improved balance sheet, resulting from a series of aggressive asset reduction and consolidation initiatives; and,
Increased net income.
Operationally, the initiative will:
Position Cabletron to aggressively service both the enterprise and service provider markets;
Organize the company around four main lines of business, including software, enterprise connectivity, service provider infrastructures and professional services;
Renew Cabletron's focus on its core competencies in high-performance switching, routing, and integrated software applications;
Transition Cabletron from non-core businesses and activities. The first step in this process is the outsourcing of Cabletron's manufacturing operations to Celestica;
Re-deploy its worldwide, direct sales force to a model of targeted accounts that will provide better service and support to high-end enterprise customers;
Leverage and expand its relationship with the channel, providing partners with channel friendly products and new professional service offerings; and,
Expand further the company's partnership with Compaq.
"Project Ignition will re-energize a new corporate focus that is essential to winning in the highly competitive networking industry," said Benson. "This initiative will result in a leaner, more focused business model, that provides us with the agility, flexibility and resources to deliver technology value to our customers and sustainable and superior growth to our shareholders."
RESTRUCTURING AND STRATEGIC REALIGNMENT CHARGE
Restructuring and strategic business realignment initiatives from Project Ignition will generate annualized savings of more than $80 million as well as ongoing cost saving opportunities. Delivering these savings will require pre-tax restructuring and strategic business realignment charges in the company's first fiscal quarter of approximately $50-70 million for the consolidation of facilities and staff resulting from primarily the outsourcing agreement with Celestica other related initiatives.
STRENGTHENED MANAGEMENT TEAM
"This initiative creates the greatest transformation in the history of Cabletron, driven by a stronger, more experienced management team, spearheaded by John d'Auguste," said Benson.
A major part of Cabletron's transformation according to Benson has been the decentralization of decision making to senior managers. In just the past 18 months, Cabletron has transformed its management team, hiring and promoting key talent to top positions in the company, including:
1. President of Operations -- John d'Auguste
2. CIO -- Henry Fiallo
3. CTO -- Michael Skubisz
4. President of Asia Pacific Sales -- Gary Workman
5. President of Europe, Middle East and Africa -- Joe Solari
6. EVP of Global Services -- Earle Humphreys
7. EVP of North and South American Sales -- Carl Boisvert
8. SVP of Worldwide Marketing and Corporate Strategy -- Allen Finch
9. SVP of Worldwide Engineering -- Piyush Patel
10. General Manager of Software Business Unit -- Katrinka McCallum
11. General Manager of Service Provider Unit -- Romulus Pereira
MANUFACTURING OUTSOURCING
Another essential part of Cabletron's more focused growth strategy is its decision to outsource its worldwide manufacturing operations to Celestica. As part of the partnership, Cabletron and Celestica have entered into a strategic long-term supply agreement and other agreements, under which Celestica will acquire certain Cabletron manufacturing assets.
The partnership competitively positions Cabletron, which to date has been one of the only major networking company with in-house manufacturing. The Celestica relationship is intended to allow the company to continue to improve its time-to-market, quality, competitive pricing flexibility, and, ultimately, lower its cost of goods.
"The decision to outsource manufacturing reflects a fundamental shift in our historic management philosophy," said Benson. "Moving forward, the new management team will focus on business activities that are synergistic with our core competencies, looking to partnerships and further acquisitions to expand our breadth and scale of offerings."
PLATFORMS FOR GROWTH
Benson continued, "During the next 18 months, our strategy will be to focus on the growth potential of our four core businesses and markets where we have a superior technology advantage." Cabletron will leverage its history of leading hardware, software and service offerings as platforms for growth, and to aggressively pursue new customer opportunities. To bring focus to these new opportunities Cabletron will align its resources around the following four core business areas:
1. Network Management Software
2. Enterprise Network Connectivity
3. Service Provider Infrastructure
4. Services
LEADERSHIP IN NETWORK MANAGEMENT SOFTWARE
To address the increasing demand for comprehensive network management and business integration tools, Cabletron will expand the scope of its Software Unit. The company intends revenue growth from new software products to supplement its award-winning SPECTRUM network management family.
Cabletron will drive its network management technology to allow IT infrastructure to be mapped against business activities. By making this connection, Cabletron allows IT professionals to directly link their IT activities with their strategic business goals.
The Software Unit will leverage Cabletron's long-standing expertise in network management to deliver "value-added software packages," including directory services products, accounting and billing tools, asset management, virtual private network (VPN) service provisioning and policy-based administration tools. Cabletron will also work to deliver software solutions integrated with other leading management solutions.
LEADERSHIP IN THE ENTERPRISE
Benson said that Cabletron intends to leverage its longtime strengths in the enterprise market to increase its worldwide market share. Cabletron's cornerstone product lines, including the SmartSwitch, SmartSwitch Router and SPECTRUM will support next-generation networking applications that are at the core of emerging e-business activities. These applications require sophisticated quality of service, security and planning tools.
Cabletron will build upon its technical leadership positions in core markets such as layer 3 switching, 10/100 switching and broadband internet access, to provide sophisticated enterprise customers with robust network infrastructures.
SERVICE PROVIDER STRATEGY
In outlining growth plans for the company's new service provider business, Benson said, "Cabletron will capitalize on its enterprise networking and network management expertise to enable Service Provider customers to develop highly competitive and profitable Internet access and web hosting solutions, internetworking and packet telephony services."
The company already has made significant investments in a wide range of leading edge technologies such as Virtual Private Networking (VPN), Voice over IP (VoIP) and Voice over ATM (VTOA), SS7, remote access, ATM switching and Packet Over Sonnet (POS) access.
Cabletron will focus on providing Service Providers with multi-service capabilities to connect their customers to the backbone carrier networks at points of presence (POPs), specializing in high-performance managed service delivery over the last mile.
The new unit will target customers including:
- Internet Service Providers (ISP)
- Competitive Local Exchange Carriers (C-LEC)
- Data-Only Local Exchange Carriers (D-LEC)
- Cable Operators (MSO)
Cabletron expects to formally launch its new service provider business in mid-April, under the direction of Romulus Pereira.
SERVICES STRATEGY
As our customers' networks have grown more complex and their IT staffs have shrunk, the need for Cabletron to offer solutions has dramatically increased. The shortage of skilled networking professionals is the single biggest obstacle standing in the way of our customers' realizing the full benefits of new technology.
Cabletron has the skills required to help our customers take advantage of cutting-edge technology. Today over 15% of Cabletron's revenue comes from services, a level comparable to other solution providers (HP, IBM). Cabletron will leverage its service capabilities to provide the following services:
Network Design and Implementation - building networks which meet customers' business requirements
Network Optimization -- enabling customers to get the most out of their network (Capacity Planning, Network Configuration, Tuning, Security, etc)
Network Outsourcing -- providing ongoing assistance from network monitoring to turn-key outsourcing
Cabletron will make these services available directly and through our reseller channel. Our goal, through partnerships and investments, is to be a tier-one professional service provider within three years.
INTERNATIONAL OPERATIONS
During the last quarter, Cabletron experienced strong growth internationally, driven primarily through an aggressive and extremely successful channel program. As a result of its Channel program, the majority of Cabletron's business outside of the United States has transitioned to partners. Internationally, the company has launched a three-pronged channel initiative, which has resulted in:
1. A tripling of its presence with two-tier distribution partners. Prior to last year, international sales were through single tier distributors. Leading two-tier distributors, including Azlan, Anixter and Ilion, now account for over 20% of international channel revenues.
2. A new comprehensive accreditation and certification program for channel partners.
3. Aggressive channel marketing programs, including SmartWinners, a recent channel contest targeted at providing incentives for channel partners.
In addition, Cabletron will launch SmartPartners, the company's first international channel partners conference, at Disneyland Paris, May 18 - 20.
MARKETING INITIATIVES
Starting today, Cabletron has launched the most far-reaching marketing and communications campaign in the company's history. Created to globally position Cabletron as "Your Business Communications Specialist," the initiative builds on Cabletron's heritage of superior products and services as well as the company's unmatched level of customer loyalty and satisfaction.
The Cabletron message will appear in leading business publications like CIO, Business Week and Fortune, in leading enterprise publications like Computerworld, Network World, Information Week and PC Week, and in government, reseller and vertical publications. Cabletron's message will also be carried on drive-time news radio and on leading cable news programming like CNN and CNBC.
"We expect that our marketing initiative will produce strong results in our flagship product lines, including the SmartSwitch, SmartSwitch Router and SPECTRUM," said Benson. "We will build on this momentum with major initiatives that will culminate with the unveiling of our new service provider offerings at Networld + Interop in Las Vegas in the beginning of May.
About Cabletron
Cabletron Systems, a premier provider of enterprise-class networking solutions, delivers dependable network access and communications to millions of people worldwide. With scaleable products designed for Fortune 1000 enterprise networks, service providers and small businesses, Cabletron is the business communications specialist for the information age. Cabletron's web site can be reached on the Internet at: cabletron.com.
Certain statements in this press release constitute forward looking information and actual results could differ materially from those discussed above. Specifically, statements in this press release regarding the expected benefits, including projected annualized savings revenue momentum, reduced expense structure; lower cost of goods sold; increased cash reserves; higher return on assets and revenue per employee; an improved balance sheet, resulting from a asset reduction and consolidation initiatives; and, increased net income, are subject to numerous risks that could impair the Company's ability to realize the expected benefits as soon as expected or ever. These risks include the possibility that the Company may encounter delays in consolidating certain facilities and in implementing planned workforce reductions; there may be additional unforeseen costs associated with relocations and employee severance and the need to maintain certain essential but underutilized facilities; and there may be delays in consummating the transaction with Celestica, including the possibility that the transaction may not be consummated at all. These initiatives will require the dedication of management and other resources, which may result in a temporary disruption of the Company's businesss activities. Any such disruption could have could have a material adverse effect on the Company's results of operations. In addition, much of the expected benefits are associated with the outsourcing of the Company's manufacturing to Celistica. If the Company encounters delays or difficulties in managing the relationship with Celistica or Celistica does not produce the expected manufacturing cost savings, then the projections regarding the benefits e set forth in this press release may not occur.
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