Things are looking bleak for Cabletron Systems. The company's chiefDonoghue reports. executive left this week after only seven months; it reported massive losses last quarter; two members of the board have jumped ship, with rumours that more will follow; and hundreds of staff have been made redundant over the past few months.
What is Cabletron doing to stop the rot? It's bringing back the man who built up the company in the first place, Craig Benson.
Cabletron CEO Don Reed resigned only months after taking the helm in September 1997 (PC Dealer, 8 April). Reed replaced CEO Bob Levine who, along with Benson, built up the company from nothing to be a $1.4 billion market leader. Now Benson is back on board and rumours abound that Levine may join him.
Benson has officially taken over from Reed - although he remains as chairman - and analysts speculate Levine may be eased into the background in an advisory role.
The return of the old school directors indicates that Reed was simply a stopgap - or the figurehead of a new strategy the company subsequently thought better of.
But according to Benson, Reed asked him to take over, 'citing my vast knowledge of the industry - Don convinced me to manage the particulars of implementation,' he claimed in a written statement.
Analysts have expressed doubt over this since it must have been evident from the outset that Reed, formerly a senior player in telco Nynex, lacked in-depth knowledge of the networking business.
Reed was the first outsider in the history of the company to be promoted to a senior position. The power base within the organisation had resided in the hands of its founders for over 10 years before that - and has reverted swiftly.
Camiel Camps, senior research analyst at IDC, believes Benson was reluctant to give up control all along. 'He still probably regards the company as his own baby. My guess is that as soon as difficulties began to show, his reaction was to take back control,' he said.
Despite Benson's industry experience, Camps was uncertain what his appointment will mean for the company. 'It was a different market then, compared to now. And because of that it is hard to have complete confidence in Benson,' he added.
Reed was brought in to turn around the company's selling and product strategy, and was bound to put noses out of joint. One of Reed's first moves was to acquire Digital's network products division, along with its substantial channel operation. The buyout cost was about $430 million and was designed to give Cabletron the product base and channel connections to compete with Cisco, 3Com and Bay.
Analysts have hinted there may have been integration problems, when the insular management of Cabletron was forced to take Digital into the fold following the December buyout.
'I don't think they're integrated yet,' said Camps. 'The deal was finalised about two months ago, and that is not much time to sort out the resulting product and staff overlaps, ' he added.
Under Levine, Cabletron avoided big acquisitions and the channel, opting for aggressive direct sales and organic growth. In a May 1997 interview, Levine described buying startups as futile. 'We have grown with core technology.
We made four acquisitions of about $150 million, but we would rather develop the technology ourselves,' he said.
Despite these earlier statements by his partner, Benson maintained the company will continue in the direction mapped out by Reed. 'We will continue to drive against the strategies Reed and his senior management team put in place,' he said.
A Cabletron representative backed up Benson's statement and rejected claims that the company may move back to traditional direct sales methods.
'Cabletron is going to be a major participant in Evolution 98 - a spring road show for resellers - so if we weren't interested in the indirect channel then it would be a pretty stupid move,' he said.
But the promise that Reed will continue 'as a member of the board and a consultant to the entire process' does not appear to have been enough for some executives.
Stephan Gray, Cabletron senior VP of corporate marketing, and Mark Truhlar, chief information officer and senior director of network management software, have both resigned. It was rumoured that Michael Skubisz, executive director of technology, plans to follow suit. Observers believe they did not agree with strategies imposed by Benson.
Executives are not the only staff to have left, but at least they had a choice. Cabletron axed 600 jobs, almost 10 per cent of its worldwide workforce in December 1997. It was part of a strategy to save at least $55 million a year. More lay-offs followed last week, with 180 staff made redundant from the manufacturing division. Despite these cuts, the company reported disappointing earnings in three of its past four quarters, sending shares spiralling.
It is difficult to predict the path Benson will take to get his business back, but Camps believes he should build on its strengths. 'I don't think it can compete with 3Com and Cisco in the low end of the market. It has done well in the high-end Lan market, and should think about the high-end Wan arena.'
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