By Jo Maitland
Cabletron Systems Inc CEO Craig Benson resigned yesterday, rekindling rumors that the struggling networking firm will be acquired any day now. Benson, 46 who founded the company in 1983 and rejoined as chief executive in 1998, has been widely criticized for failing to turn around the company’s flagging financial performance and inability to attract a buyer.
Benson was a classic case of the entrepreneurial type who held on to the reins too long, said Charles Rutstein, analyst with Forrester Research. Craig Benson at the helm was one of the last obstacles to Cabletron being acquired. He added that two years ago the company should have sold off its network management business, Spectrum, which was its strongest asset. However, the consensus now is that Spectrum is no longer the dominant network management platform it once used to be, he said. Last month Cabletron told Computerwire that it was again looking for a buyer for Spectrum, and was also considering selling a minority or majority interest in its three other divisions including enterprise networks, service-provider networks and professional services.
Robert Travis, director of analyst relations at Cabletron said: If you look at recent trends in the market, we are the last independent company of our size and when GEC acquired Fore Systems a month back it left us sitting there. He refused to confirm who the company was in talks with but noted that Ericsson, Siemens and Nokia had still not picked up a strong datacoms company and would need to get into this market by the end of the year.
The acquisition rumors lose some of their bite with the elevation of Piyush Patel, who has been handed the job of pulling the company back up to where it was two years ago. As head of Yago Systems (which Cabletron acquired last year), Patel helped develop Layer 3 switching technologies. That know-how has served him well at Cabletron, where he has helped roll out the company’s line of SmartSwitch products – advanced switching devices with routing capabilities. With the SmartSwitch now the company’s most popular product line, Patel will look to build on that achievement by focusing his efforts on the enterprise networking and service provider markets.
Benson’s resignation comes only hours after Cabletron announced it would be revising its financial results for the past three years following an investigation by the SEC. The commission has discovered that companies are writing off R&D charges through acquisition but never seeing any revenue generation from those charges. Unfortunately for Cabletron, it has fallen fairly and squarely into this trap. In connection with the acquisition of the network products group of Digital Equipment Corporation in 1998, Cabletron has agreed to reduce the amount allocated to in- process research and development from $325m to $199.3m and, correspondingly, to increase the amounts allocated to intangible assets by $125.7m.
The same rules apply for its 1999 acquisitions including the CSG division of Ariel, FlowPoint, and NetVantage from an aggregate of $74.7m to an aggregate of $67.4m and, correspondingly, to increase the amounts allocated to intangible assets by $7.3m. It means that this debt cannot be written off anymore as a one off charge and so affects the company’s cash flow for much longer.
