Network Equipment Vendor Regroups for Turnaround Bid

Cabletron Systems Inc.-under pressure from losses, a falling stock price, and competition-is fighting back.

The networking equipment company has broadened its product range and plans to target specific industries, including financial services.

An advertising campaign is to kick off next month. And Rochester, N.H.- based Cabletron recently entered the fast-growing router market by acquiring privately held Yago Systems Inc. of Sunnyvale, Calif.

Cabletron is scrambling to stem the flow of business going to Cisco Systems Inc., 3Com Corp., and Bay Networks Inc.

"People used to talk about the Big Four companies in the network hardware manufacturing space," said Michelle Rae McLean, a senior research analyst at Meta Group.

With Cabletron losing ground, she said, "now they talk about the Big Three."

The company lost $127.1 million in its 1998 fiscal year, which ended in February. It had earned $222.1 million in fiscal 1997.

And problems continue. In fiscal 1999's first quarter, which ended in May, Cabletron lost $152.3 million.

Its stock, which went as high as $46.50 last year, is trading around $9.

The move into the router market is the latest of many shifts in direction since the company was formed, in 1983.

Cabletron was once the leader in an older technology called shared media hubs. But in moving to become a provider of networking equipment for local and wide area networks "it has made some product missteps and has lost some momentum," Ms. McLean said.

One misstep occurred when the industry moved to install intelligent routers at the core of networks, while Cabletron still was pursuing a switch approach.

Though faster than a router, a switch is a dumb terminal. A router can add functionality and provide access rights.

"Cabletron did not pursue a router strategy until this year," when it acquired Yago, said Ms. McLean. It now has only 1% of the router market.

The financial services business is one target of the planned print, on- line, and television ad compaign. This business brought Cabletron about 10% of its $1.38 billion revenue in fiscal 1998.

Cabletron's presence in financial services includes network installations on the trading floors of Merrill Lynch, Bank of New York, Lehman Bros., Royal Bank of Canada, and ABN Amro.

The company also won an important contract with Chase Manhattan Bank in 1995, when it merged with Chemical Bank. Cabletron won the $4.5 million contract because its switching equipment could handle the increased data traffic expected.

The installation halved Chase's response times and improved its uptime to 99.9%.

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