Ethernet consolidation: Extreme snaps up Enterasys for $180 million

Looking to bulk up its often flat Ethernet fortunes, Extreme Networks today grabbed up Enterasys Networks for a cash price of $180 million.

Upon announcing the buy, Extreme said it expects that within about two years to meld Enterasys software technology into its ExtremeXOS, network operating system but that hardware from both companies will continue to be supported.

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"We believe customers will benefit by having a single network operating system that delivers functionality across both product lines and is designed to allow customers to  choose which hardware platform best meets their deployment needs," Extreme stated.

The move effectively doubles Extreme's tiny share of the Ethernet switching market to about 3%. The company has not had an easy time of it in the past couple years having at least three double-digit percentage workforce reductions in less than four years, and a number of CEO changes. According to the Wall Street Journal, Extreme reported in July that its fiscal fourth-quarter profit fell 59% on weaker revenue.

Zeus Kerravala, the founder and principal analyst with ZK Research and Network World blogger wrote: "Extreme is funding the purchase by pulling $105 million from its $205 million of cash on hand and then borrowing $75 million from a new credit line established. Extreme will buy Enterasys from the Gore Group, which acquired the company back in 2006 for $386 million. Around the same time, Gore had acquired Siemens Enterprise with the idea of creating an organization that could deliver an "end-to-end" UC-data solution," Kerravala wrote. "The concept was sound, but in practicality, the UC solutions from Siemens Enterprise are widely deployed on Cisco networks. Considering the challenges Siemens Enterprise has encountered while rebuilding its portfolio over the past five years or so, creating any kind of resistance in its customer base is the last thing the company needed. So, instead of pushing a combined Siemens Enterprise/Enterasys solution, the sales force gave customers what they wanted, which was Cisco most of the time."

Enterasys is a privately held company that was a spinoff from Cabletron Systems. It employs about 900 people and reportedly has revenues near $330 million. The company claims Toyota, Sprint, the US Department of Defense, and the University of Southern California as large customers.

The acquisition has been approved by the board of directors of each company. Extreme CEO Chuck Berger will lead the combined company as the president and CEO. Chris Crowell, current CEO of Enterasys, has agreed to assume a key executive role in the future combined organization.

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This story, "Ethernet consolidation: Extreme snaps up Enterasys for $180 million" was originally published by Network World.

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