Cabletron Systems's announcement earlier this month to split itself into four independent, publicly traded operating companies was just one step on its journey to reinvent itself.
Once it spins off its businesses into four independent operating companies, Cabletron Systems, the holding company, will position itself as an investor in technology startups, according to Cabletron's Chairman and Chief Executive Officer Piyush Patel, during a telephone press briefing last week.
Cabletron, which has about $2 billion in cash and short term investments, will invest these funds to acquire companies that it will add to the Cabletron "ecosystem" that it is setting up.
"Cabletron will become like Massachusetts-based CMGI, and what they do is invest in a lot of startup companies, and have a family of startup companies that they invest in and help them grow," Patel said. Patel made his comments in a conference call held especially for India-based press -- one of several media briefings during the last week that the company set up to push out its new message and revamped role.
Cabletron already has investments in about 15 to 20 startup companies, with investments in another 15 startups in the pipeline. Cabletron's role would be to provide not only the money to these startups, but also connections to customers, channels, and sales and marketing expertise.
Meanwhile, the road to delivering an initial public offering (IPO) for the four major new units will occur in two stages, akin to the procedure used by 3Com with Palm Computing, according to Patel. Cabletron will start off with a sub-IPO in four months with 20 percent of the companies' equity. The balance of 80 percent of the shares in the company will be distributed to Cabletron shareholders about six months later, Patel said.
Of the four new major Cabletron units, Riverstone Networks will focus exclusively on the service provider market; Enterasys Networks will focus on the Global 2000 enterprise customers; Global Network Technology Services, a network consulting company, will offer professional services; and Aprisma Management Technologies will deliver infrastructure management software for service providers and large enterprise customers.
Patel agreed that the new, smaller companies could be prime targets for acquisition bids, but emphasized that it was not the objective of the business transformation. "If they are very successful, have a huge IPO, and somebody wants to acquire, at the end of the day Cabletron customers and share holders will win," Patel added.
Cabletron Ecosystem, a branded program, creates a framework for the individual companies within the Cabletron umbrella to be able to interact with each other from a business and market standpoint, integrate applications by combining the services and technology in each company, and leverage customer functions. The goal over time is to include in this ecosystem not only other startups but also partners and customers.
It will, however, not be an entirely cozy relationship among the companies in the ecosystem, as Cabletron companies will now have the option to pull in and offer to their customers competing applications from companies outside the Cabletron ecosystem. "The ecosystem allows them to deal better with each other and get to each other's products more quickly, but it also gives the individual companies the flexibility to be able to go out," said Romulus Pereira, president of one of the spin-offs, Riverstone Networks.
The companies that Cabletron will invest in include systems integrators, value added resellers, companies that build applications that create a higher pull for networking infrastructure, and even companies that could be customers, such as application service providers (ASPs). Cabletron plans to invest from a product standpoint in companies with capabilities in voice-over-IP, wireless, optical switching, layer 5 and 7 switching technologies, and who can enhance or extend the Spectrum network management platform.
"The investment strategy is to be able to look into the ecosystem, and see what it is that customers are demanding in terms of technologies and services that are missing in the ecosystem model, and be able to bring those into the fold, so that the complete solution can be channeled through companies in the ecosystem," said Pereira.
In India too, Cabletron has already drawn up a shopping list of about four startup companies. "My goal is to do at least 10 investments by the end of this year in Indian startup companies," said Patel. According to Uday Birje, Cabletron's country manager for India, besides investing in companies for their technology, Cabletron in India will also invest in companies, such as systems integration companies and service providers, that can help boost Cabletron sales.
The Cabletron brand will continue even after the four independent operating companies are set up, and the products and services of the companies will be sold under the Cabletron brand, with the new brands grown as subsidiary brands. "We will continue to sell Cabletron branded products, and just have a logo of each of these separate companies below the Cabletron brand," said Patel.
Over time as the subsidiary brands become stronger, Cabletron is leaving open the option of transitioning to the individual brands or continuing along the same pattern.
The Cabletron officials emphasized that Cabletron's objective was to ensure that the interface to the customer would be a single one, and customers will continue to have single-point accountability. Pereira said that Cabletron has not been restructured by products, some of which are common to both the enterprise and service provider market segments. Instead the new companies are aligned by the market space they address, and are geared to offer end-to-end solutions and support to the target customer. "Enterasys does become the one point of contact from which enterprise customers can not only purchase products, but it also gives them the right kind of support, and a dedicated focus into that market," added Pereira.
The customer interfacing company will in turn bring in, and support solutions from the other Cabletron companies. "As far as the customer is concerned, Cabletron is the overall holding company, and Enterasys, which will have most of the customer facing functions, will pull the solutions from each of the other companies," says Patel. "On top of that, each of these companies will develop their own new channels to sell their products."