Cabletron Spins Itself Into Four Companies .doc


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Cabletron Spins Itself Into Four Companies .doc

  1. 1. Cabletron Spins Itself Into Four Companies IPOs planned for new service units James Cope 02/21/2000 ComputerWorld Page 24 (Copyright 2000 by Computerworld, Inc. All rights reserved.) By James Cope Networking vendor Cabletron Systems Inc. is hoping to reinvent itself by creating four separate companies. Analysts had said that the Rochester, N.H., vendor had moved to second-tier status as a network equipment provider. On Feb. 10, Cabletron announced that the four companies, to be set up along product and service segments, would initially operate under a Cabletron umbrella. But Cabletron officials said the plan is to launch initial public stock offerings for the new companies, which will operate under the following names: n Riverstone Networks in Santa Clara, Calif., will cater to the Internet service provider market. nEnterasys Networks in Rochester, N.H., will serve enterprise networking users. n Global Network Technology Services, also in Rochester, will be a network and systems consulting company. nAprisma Management Systems in Durham, N.H., will be a developer of network management software. Jim Slaby, an analyst at Giga Information Group Inc. in Cambridge, Mass., characterized Cabletron's move as a bold step as far as the stock market is concerned. But overall, he said, he's skeptical the move will help Cabletron customers get better sales and service. Analyst Michael Speyer at The Yankee Group in Boston was more positive. "It's a good way to breathe life into a company that had the image of being very enterprise-oriented," said Speyer. "Most of their customers will fall into one of the new operating groups." w Breakup Raises Questions Christine Zimmerman 02/21/2000 InternetWeek Page 8 Copyright 2000 CMP Publications Inc. For the last couple of years, IT managers have seen little decisive action from Cabletron Systems. There's been a lot of executive turnover, diversification into the service provider market, and no real commitment to serve any single customer segment extremely well, critics have said. Still, those goals and dynamics may explain Cabletron's decision to split itself into four separate companies. "We've seen a lot of possibilities with Cabletron, and heard a lot of good ideas, but nothing has happened," said Tere Bracco, principal analyst with Current Analysis Inc. "The split into four companies is a strong move," even though questions remain about how the companies will perform. Cabletron Says Fast-Growing Aprisma Will Be the First of Its Units to Split Off By William M. Bulkeley Staff Reporter of The Wall Street Journal 02/22/2000 The Wall Street Journal Page B24 (Copyright (c) 2000, Dow Jones & Company, Inc.) Cabletron Systems Inc. expects annual revenue growth of 50% to 60% at its network- management software unit, Aprisma Management Technologies Inc., which it has selected to be the first of its units to be split off under a breakup plan. Aprisma also expects to announce today that it has reached an agreement with Compaq Computer Corp., Houston, under which Compaq's professional-services organization will resell at least $25 million of Aprisma's Spectrum software over two years. That would amount to about 15% of Aprisma's current volume. Compaq will take an equity stake of less than 2% in Aprisma for $14 million. Aprisma is likely to file a registration statement in April or May, said Michael Skubisz, who was designated president of the unit when it was formed in December and will be chief executive of the independent company. He said it is likely to sell less than 20% of the company for $100 million to $200 million. Analysts expect the IPO pricing will value the whole of Aprisma at about $1 billion. The rest of the company will be spun off, tax free, to Cabletron shareholders. Mr. Skubisz said Aprisma has recorded sales at a "run rate" of about $20 million a quarter, and said that he anticipates growing 50% to 60% annually for the next two years, because of exploding demand for its software that monitors computer networks and Web sites and warns system operators of service slowdowns and breakdowns. About Aprisma Aprisma is the leading provider of intuitive multi-vendor management solutions that meet the service level requirements of enterprise and service provider customers. Aprisma pioneered the field of intelligent network management in 1990, with the introduction of its flagship SPECTRUM software suite. With support for a rapidly
  2. 2. growing list of over 500 products from the industry's leading network and telecommunications vendors, Aprisma is at the forefront in integrated network and service level management. Market Opportunity According to IDC, the worldwide market for network management products will top $4.39 billion by 2003. The market drivers behind this growth and the opportunities for SPECTRUM Technologies are clear. Hypergrowth in E-commerce and the Internet has resulted in an unprecedented build-out of network facilities and infrastructures. The pervasiveness of the Internet has also fundamentally changed the way companies do business. The Internet is no longer an option for companies, it has quickly become a strategic imperative. Businesses are relying on today's networks for their very survival. Performance bottlenecks, and costly and aggravating interruptions in service are unacceptable. When the network goes down, so does the business. And with unprecedented growth comes unparalleled complexity. In every business network today, any new device or application that is added increases its complexity exponentially. Like never before, network managers and IT specialists are being called on to support new business processes that are completely reliant on their organizations' rapidly evolving network infrastructures. In today's world of constrained budgets and a global shortage of knowledgeable talent, network managers face monumental challengesÉand so do businesses. With its one-of-a-kind SPECTRUM product solutions, Aprisma is uniquely positioned to address the needs of today's network managers and tomorrow's voice and data business service needs. The secret behind SPECTRUM is its patented Inductive Modeling Technology®(IMT). Using IMT, SPECTRUM can intuitively discover, model and monitor the network of an entire enterprise—no matter the size or breadth of locations—immediately notifying network managers when a failure, bottleneck or deterioration of service takes place. But more importantly, SPECTRUM can proactively isolate potential issues before they become catastrophic problems that threaten to bring down the network and the business. With advanced fault isolation capabilities, SPECTRUM can also pinpoint the source of a problem, and proactively take action to resolve it. Leading customers and industry analysts agree—SPECTRUM does this better than any network management product on the market today. And by so doing, SPECTRUM saves more businesses both time and money through better services and increased productivity than any other management solution. New Economy Stocks -- These leading technology stocks have soared in the past year. Wall Street anticipates that they will have high profit growth over the next five years. Can these companies deliver? Price Mkt 5-Yr Price 52 Week Chg P/E Value Proft 2/17/00 High Low 12 mos 1999 2000 (mils) Growth* Comment Applied Materials $188.38 189 48 179.6% 75.7 40.5 $ 71,284 25% Semiconductor equipment maker no longer seen cyclical Cisco Systems 130.50 136 45 174.4 147.0 113.0 426,866 30 Great company. Huge market value. High P/E. Can it last? Emc 118.00 123 46 136.0 108.0 81.7 120,066 30 Database storage king had slower revenue growth in 4Q Exodus Comm 124.00 145 9 1142.0 NM NM 21,136 65 Leading Web-hosting outfit soars despite lack of profits
  3. 3. Jds Uniphase 212.81 249 19 982.7 386.0 235.0 73,939 45 Hot maker of optical components has 200-plus P/E Oracle 61.63 65 10 260.7 126.0 98.8 175,468 25 Database software company surges on Internet prospects Siebel Systems 116.81 120 15 496.2 220.0 160.0 22,517 40 Oracle rival scores big in past year Sun Microsystems 96.13 97 23 308.8 122.0 93.5 150,159 20 Server growth powered big 4Q profit gain Veritas Software 173.50 182 20 670.4 338.0 238.0 44,967 50 Storage software provider now worth more than Gillette Yahoo 163.19 251 55 151.8 666.0 418.0 85,915 50 High market value supported by profits of just $250 mil *Estimated Source: Baseline Tuesday February 22, 1:10 pm Eastern Time Personal Finance FAQs Spreading Your Money Around By Gary Schatsky, Columnist Financial advisor Gary Schatsky explains how to avoid mutual fund diversification traps. Editor's Note: Nationally recognized fee-only financial advisor Gary Schatsky answers readers' questions about personal finance every day. If you have a question for Schatsky about investing, mortgages, taxes, retirement or any other personal finance issue, drop him an e-mail at I am 31 and finally have some money to invest. I have an IRA with $2,000 that I've just moved from a Fidelity blue chip fund to a growth fund, which is a little more aggressive. I am about to open four different mutual funds with Janus. One being the Janus Fund (Nasdaq:JANSX - news), Janus Global Life Sciences (Nasdaq:JAGLX - news), Janus Enterprise (Nasdaq:JAENX - news), and either Janus Olympus (Nasdaq:JAOLX - news) or Mercury Fund (Nasdaq:JAMRX - news). Do you think these are good funds, and will they keep me diversified in both aggressive and safe funds? Any suggestions would be greatly appreciated. You picked some winning funds. But you need to look at what the funds are investing in to be sure you are getting the diversification you are rightly seeking. The portfolio of funds you propose is not diversified. Many of the Janus funds have high concentrations in a few issues that have done extremely well in the last few years. In fact, most of the funds you mentioned have many of the same positions. On one hand, who would have objected owning Nokia (NYSE:NOK - news), Amazon (Nasdaq:AMZN - news), Cisco (Nasdaq:CSCO - news) and
  4. 4. Sun Microsystems (Nasdaq:SUNW - news) during the last few years? However, you like many people, are purchasing mutual funds not only for professional management, but for diversification as well. Buying more mutual funds does not guarantee diversification. I had a client who came to own 23 different mutual funds and was very pleased with his level of diversification. All but five of them, however, were large-cap growth funds and almost all of them had heavy concentrations in the same stocks. Consider some international exposure. Jules Bard International is one good fund to look at. Or, if you wish to stick with Janus, look at Janus Worldwide (Nasdaq:JWWX - news). Be aware, though, that even this Janus fund holds many of the same stocks as other Janus funds, since there are global investing opportunities in US companies with international operations. Even though currently out of favor, value investing should be part of any portfolio. Consider Vanguard's newly re- opened Windsor Fund (Nasdaq:VWNDX - news). Finally, even though you are young and have a long- term time horizon, a small percentage of your assets should be in bonds. One fund to look at is Vanguard's Short Term Corporate Fund (Nasdaq:VFSIX - news). All in all, you are picking winners. Just spread you money across a broader mix of them. Gary Schatsky is Chairman of the National Association of Personal Financial Advisors. NAPFA is a national organization that represents fee-only financial advisors. He lectures nationally on topics such as personal finance, investment planning, tax planning and estate planning. Visit his Web site at Wednesday's Markets Tech Stocks Soar, Ignore Greenspan --- Nasdaq Hits New Peak On Record 168.21 Rise As Blue Chips Decline By Greg Ip 02/24/2000 The Wall Street Journal Page C1 (Copyright (c) 2000, Dow Jones & Company, Inc.) Alan Greenspan once again warned that the stock market and economy are too strong, and technology-stock investors once again ignored him. The Nasdaq Composite Index took off shortly after the Federal Reserve chief had finished repeating his warnings to Congress yesterday morning, ending the day up 168.21 points, or 3.8%, to a record 4550.33. It was the biggest point gain in history for Nasdaq, although only the 15th-steepest in percentage terms. But once again mainstream blue-chip stocks retreated in the face of economic uncertainty. The Dow Jones Industrial Average seesawed all day, finishing down 79.11 points, or nearly 0.8%, at 10225.73. The Standard & Poor's 500- stock index, led up by its big technology weighting, rose 8.52, or 0.6% to 1360.69. "The old adage is: Don't fight the Fed," said Marshall Acuff, strategist at Salomon Smith Barney. But "all I can say is a lot of folks are fighting the Fed." Added Byron Wien, strategist at Morgan Stanley Dean Witter, "The market is saying you rattle your sword all you want, you'll only affect the Old Economy stocks. The New Economy stocks have transcended Fed policy." Even within Nasdaq, the big winners aren't its traditional heavyweights, companies like Microsoft and Intel with relatively earthbound valuations, but new leaders whose Internet or wireless exposure has lifted their price/earnings ratios -- if they have earnings -- into triple digits. Internet-gear maker Cisco Systems soared $14.6875 to a high of $138.625. Its market value at $453 billion hasn't only easily passed former No. 2 General Electric's at $428 billion, but is closing in on first place Microsoft, at $486 billion. Cisco's gain yesterday, which amounted to a $48 billion increase in market value, accounted for more than half the rise in the S&P 500, which is market-value weighted. On the Big Board, America Online shook off some of the torpor that set in after it announced a planned merger with Time Warner. With the help of positive comments on the merger from Merrill Lynch, AOL shot up $7.4375 to
  5. 5. $57.50, although it remains 40% off its high of mid-December. The Dow Jones Internet Index climbed 29.06, or 7.1%, to 436.72, surpassing its previous high set Jan. 3. Mr. Greenspan told Congress yesterday that economic growth has been fueled by American consumers spending increasingly as their stock wealth rises, but said that can't continue indefinitely given constraints on the economy's supply potential. It was essentially a repeat of last Thursday's comments which, with a one-day delayed reaction, sent the market into a tailspin. Bonds took no comfort in the remarks; the 30-year Treasury fell 18/32 point, or more than $5 per $1,000 bond, yesterday to yield 6.12%. Financial stocks, which Tuesday had a respite from relentless selling, fell again yesterday. However, as in previous occasions, the Nasdaq has proven itself inured to the interest-rate threat, setting up a debate between those who think technology companies are simply not affected by interest rates as other stocks are, and those who think technology investors are deluding themselves. Jeffrey Applegate, chief investment strategist at Lehman Brothers, counts himself in the former camp. "If you look at the income statement and balance sheet sensitivity of the tech sector, it's the lowest of any, and for some companies there is none. The newest of the New Economy companies have no debt." And while higher interest rates have historically been hardest on stocks with the highest price-to-earnings ratios, Mr. Applegate said technology companies' earnings growth relative to other stocks have overcome that disadvantage. Ladenburg Thalmann & Co. strategist Steven M. Frenkel goes even further: "The Fed is irrelevant." The U.S. is in a deflationary boom, he said, that will hold down bond yields no matter what the Fed does or thinks, and drive the Nasdaq "well over 7000, probably within 12 months." But Mr. Acuff said, "In the 34 years I've been in the business, generally the Fed wins." He said the current market behavior is typical: "A lot more focus on fewer names where growth prospects seem exceptionally strong and visible. Everyone knows what they are and goes right there, like trying to get to an island before high tide catches up with them. As the Fed tightens further, I think we'll see more pervasive weakness in the Internet space." Ned Riley, chief investment strategist at State Street Global Advisors, said tech stocks will stop outperforming, "once people realize the old economy medicine of higher interest rates will slow the momentum in the related technology companies. Some of the demand these companies have experienced, whether in telecommunications, personal-computer manufacturing, semiconductors, or Internet companies themselves, has been derived from a high level of discretionary spending." Outside the U.S., stocks advanced. The Dow Jones World Stock Index, excluding U.S. stocks, rose 2.14 points to 185.36. In major market action: Stocks were mixed and bonds fell. On the Big Board, where 975 million shares traded, 1,237 stocks advanced and 1,751 fell. The dollar was mixed. Late in New York, it traded at $1.0032 to the euro compared with $1.0031 Tuesday, and 111.23 yen compared with 110.85 Tuesday. USA: Interent Capital reports loss, sees more ahead. 17:38 ET Reuters English News Service (C) Reuters Limited 2000. WAYNE, Pa., Feb 24 (Reuters) - Business-to-business Web venture firm Internet Capital Group Inc. Thursday reported a fourth-quarter loss after a profit a year earlier, and said it expects losses for "many quarters" and does not know when it will earn a profit again. Shares of Internet Capital were down more than 9 in after-hours activity, trading at 110 after closing at 119-1/8 on the Nasdaq stock market. The Wayne, Pa.-based company said it expects continued volatility in its quarterly results because many of the business-to-business electronic commerce companies it invests in generate losses. The company on Thursday reported a fourth-quarter net loss of $23.4 million, or 9 cents per share, versus a profit of $2.0 million, or 2 cents per share, in the year-ago period. The company said its share of partner-company losses increased to $103.4 million this year from $14.1 million in 1998, while operating expenses increased about 568 percent to $23.4 million in 1999 from $3.5 million in 1998. Revenues for the quarter were $1.8 million versus $1.3 million in the same period last year.
  6. 6. "Internet Capital Group does not know if it will report net income in any period, and expects that it will report net losses in many quarters for the foreseeable future," the company said in a statement. During the fourth quarter, the company said it spent an aggregate of $412 million on acquisitions, including interest in 10 new partner companies, in an effort to expand its foothold in the top 50 global business-to-business Internet markets. "While its partner companies have consistently reported losses, Internet Capital Group has recorded net income in certain periods due to one-time gains and other events incidental to its ownership interests in partner companies," the company said. Internet Capital had its initial public offering in August 1999. Internet Capital also said it agreed to take a stake in online credit and financing company Inc. in exchange for $450 million in Internet Capital Group stock. (( - New York Technology Desk 212/859.1860)). The company on Thursday reported a fourth-quarter net loss of $23.4 million, or 9 cents per share, versus a profit of $2.0 million, or 2 cents per share, in the year-ago period. The company said its share of partner-company losses increased to $103.4 million this year from $14.1 million in 1998, while operating expenses increased about 568 percent to $23.4 million in 1999 from $3.5 million in 1998. Revenues for the quarter were $1.8 million versus $1.3 million in the same period last year. The company also said it agreed to take a stake in online credit and financing company Inc. in exchange for $450 million in Internet Capital Group stock. During the fourth quarter, the company said it spent an aggregate of $412 million on acquisitions, including interest in 10 new partner companies, in an effort to expand its foothold in the top 50 global business-to-business Internet markets. Internet Capital had its initial public offering in August 1999. (( - New York Technology Desk 212/859.1860)). Investors Cheered By News Of Fund's $200 Million Investment In Cabletron 02/24/2000 Dow Jones Business News (Copyright (c) 2000, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Shares of Cabletron Systems Inc., which is dividing itself into four separate entities, soared to a 52-week high on news that Silicon Valley private- equity fund Silver Lake Partners LLC will invest $200 million in the telecommunications and networking equipment maker. The announcement confirms a report in Thursday's Wall Street Journal. The investment will give Silver Lake - which has ties to the high-profile venture-capital firm of Kleiner Perkins Caufield & Byers - a 1% stake in Rochester, N.H.-based Cabletron (CS) and an estimated 3% stake in each of the four soon-to-be-public subsidiaries. Silver Lake partner David Roux, a former executive of Oracle Corp., will join Cabletron's board. Andrew Feldman, Cabletron's vice president of marketing, told the Journal the deal was "not financially motivated," but an attempt by Cabletron to harness Silver Lake's connections on Wall Street and experience in high-tech businesses. Under the pact, Silver Lake has agreed to purchase preferred stock in Cabletron with a conversion price of $40 per share, as well as warrants for common stock with an exercise price of $45 per share. The transaction is subject to standard closing conditions, including negotiation and execution of definitive documentation. The investment is Silver Lake's second since the buyout fund was formed last year. According to the Journal, cofounder Roger McNamee said Silver Lake became interested in Cabletron after Chief Executive Piyush Patel announced plans earlier this month to split the company into four independent businesses. Riverstone Networks will sell equipment to the service-provider market, while Enterasys Networks will sell exclusively to large companies moving into electronic commerce. GlobalNetwork Technology Services will provide network-consulting services, and Aprisma Management Technologies will sell network software. Separately, Cabletron unveiled its comprehensive Internetworking platform to combine delivery of voice, data and video networks. The company said the application combines wide area network, or WAN, convergence, PBX augmentation and basic voice networking technologies to support converged data, voice and video networking requirements. Cabletron said it will provide its Internetworking WAN convergence solution to Cybertech Wireless Inc., a New York-based high-speed business-to-business Internet service provider. Financial terms weren't disclosed. Cabletron said Cybertech will use the platform to deliver integrated Internet-based voice and data services to subscribers in 11 East Coast cities.
  7. 7. Meanwhile, Cabletron said it formed a partnership with Siemens Information & Communication Networks Inc. to jointly create and market enterprise Internet-protocol communications solutions. Financial terms weren't disclosed. Siemens Information & Communications Networks, a unit of German electronics group Siemens AG, makes digital switches and voice-data integration products. Under the alliance, the companies will provide enterprise IP telephone and communications products and services geared toward electronic-commerce operations. (Compiled from Dow Jones Newswires and other sources) Copyright (c) 2000 Dow Jones & Company, Inc. All Rights Reserved