Cabletron Systems Inc.

Big

is no more beautiful. The strategy from Cabletron Systems seems

to be moving in that direction. To create subsidiaries, leverage

on the emerging market opportunities, and take them to the

markets. The company has announced its strategy of growth to the

next level by creating four independent operating companies–Riverstone

Networks, Enterasys Networks, Global Network Technology

Services, and Aprisma Management Technologies. These four will

focus on the key high-growth areas of the communications

marketplace–service provider, enterprise e-business,

professional services, and infrastructure management,

respectively. Piyush Patel, CEO and president, Cabletron Systems

Inc., in his teleconference to select media people in Bangalore

explained the rational behind the transformation. "We

believe we will have accelerated growth in these key markets.

Our action has a single purpose to give us the focus and agility

to seize these market opportunities and better serve our

customers. Each of these companies will speak with

clarity of purpose to its shareholders, customers, partners, and

employees and have the start-up mentality," he said.

The rational is well

intended, if one considers today’s market scenario. With

market cap playing a significant role in today’s business, the

way to respond to that is to be in focused markets and dominate

the space, while increasing the shareholders’ value. Analysts

say that can be achieved by being nimble footed. It gives the

time-to-market advantage, increases operational efficiency,

customer support, and puts the costs down. Probably, that is the

reason why young start-ups like Foundry or Extreme are very high

on market capitalization. For that matter, the Yago experience,

which Cabletron acquired in April 1999, is in itself a

sufficient proof.

These developments could

be traced to Cabletron’s own tryst with experiments of

success. The company, traditionally strong in corporate

networking, had slipped behind others like Cisco Systems and

Extreme Networks in terms of market share. But after Patel

joined as the CEO of Cabletron, he brought in not only the

strength of Yago’s Layer 3 routing switch technology, but also

his experience in driving Yago to a leadership position to the

stables of Cabletron. The company has already been named as the

#1player in low-blocking, high performance Layer 3 switching

sector market for the third consecutive quarter by Gartner Group

Dataquest. The third quarter results put Cabletron’s share at

28.5 percent of the total world-wide revenues. This development

assumes significance as Layer 3 switching is seen as a sector

critical to next-generation ISPs content hosting companies, and

e-business reliant enterprises. And proves the point that the

aggressiveness shown by Piyush after he took charge and altering

the strategy to focus on ISPs, CLECs, and other related

companies worked out positively for Cabletron. Also the Aprisma

initiative in December 1999 before the current development–spinning

of its network management solution Spectrum as an separate

company–has seen it rising to the seat of the leading

independent software vendor for network fault management.

What Would the

Transition Mean?



Fundamentally, transformation increases ability to respond to
evolving market needs. That is understandable, but what does all

that mean? Says Patel, "The companies will initially be

subsidiaries of Cabletron. However, the eventual goal is to have

four separate, publicly traded companies. This will be achieved

by spinning out these companies to its shareholders, preceded

where appropriate by subsidiary IPOs." It is anticipated

that it will go for a two-stage sub-IPO. In about four months,

20 percent of the company will be spun off in the open market,

and after that in about six-nine months, the remaining 80

percent would be distributed among the shareholders.In the process of becoming

a specialist in the merging areas, will the Cabletron brand die

or the role of Cabletron would end as a networking vendor?

"We will protect the Cabletron brand and are committed to

continue for several years. We will sell Cabletron branded

products. But if it makes sense to transition it, it will be

done at the right time. Further, our customer function will

remain the same, i.e., the customer’s experience will be the

same, rather it will only be improved farther," reiterates

Patel. Substantiating the point further, Romulus Pereira, COO,

Cabletron and the person designated to head Riverstone Networks,

explains, "All customer-facing functions will remain

unchanged and each of the businesses will be using the existing

infrastructure and processes. The new operating model will have

Cabletron ecosystem under which the newly defined companies will

transfer business agreements amongst themselves. This ensures a

smooth transition in each business and also allows them to

leverage each others strengths in markets, technology, and

customer support and also the resources of parent company."

According to Patel, the

role of Cabletron after the transition will be to act as a

catalyst of providing the investment and infrastructure support.

"We will be like CMGI, investing in start-up companies and

helping them to grow. The company worth is about $2 billion and

we are investing in about 15-20 companies on top of these four

too." On the flip side one may feel it as its strategy to

have better valuation for getting acquired. Patel disapproves

the logic. Each of the companies would be a standalone company

and would have the freedom for its own destiny.India

Dimensions



Since the customer-facing functions will remain unchanged, India
will not be effected. It will be the single interface. There

will be separate sales teams if necessary and Profit & Loss

(P&L) accounts. But Cabletron is treating India as an

important destination for investment. The company has plans to

invest to a tune of $50-100 million in strategic partnerships

and acquisitions. "This is the right time to invest in

India, especially with the Internet and e-commerce ready to take

off. We are talking to four-five large companies not in the IT

field to invest in order to help them to diversify into new

areas. These could be the groups like Tatas and Birlas. Our role

will be to give the brand name, resources, money, equipment,

etc. Besides we are very close to acquiring two three companies

in systems integration."

The company is clearly

looking at strategic partnerships with companies focussing in IT

and telecom world, which are providing infrastructure or turnkey

solutions, Infosys-type of companies, which are providing

management and support services, and looking at ISP or ASPs, web

hosting service providers, and multi-dwelling providers.

The Cabletron team in

India is completely upbeat and believes that the transformation

will give it more teeth to go all out with its businesses. The

Aprisma, which has already come into existence, today has a

full-fledged office with about 60 employees. Besides, as a

result of the altering of its strategy to address the service

providers’ market, the company has already won some of the

major networking deals in the country. These include Histrack–a

subsidiary of ISRO–for WAN project, Reliance order for

5,000-node network, IOCL and MBT projects for WAN connectivity.

These major orders put together are close to Rs 10 crore. The

biggest of its achievements, feels Uday Birje, country manager,

Cabletron India, is the ARM Ltd’s order worth Rs 1 crore for

its ISP project in Andhra Pradesh. The excitement is not so much

due to the size of the order, but due to the fact that it has

opened its account with an ISP. With the current orders already

in hand and the active market, Cabletron expects to touch

revenues of Rs 120-130 crore in this fiscal. And the new

dimension will only add more strength to its hopes.

A Position of

Strength



With the Wall Street expectation exceeding in each of the last
four quarters, improved key financials and operating metrics,

and its success in enabling the leading positions in key markets

like Layer 2 and 3 switching and network management, the company

has moved into the next lane of accelerated growth with the new

strategy. And the road ahead for the company is to be a

specialist, enhance customer experience, increase

competitiveness, and unlock shareholder value. With Patel

leading the team by example, it is only a question of how early

can Cabletron, through the realignment according to vertical

segments and not by products, have a market cap close to $15

billion from the current $4.1 billion.