Cabletron cedes DSL

ROCHESTER, N.H. -- Cabletron's sale of its digital subscriber line router subsidiary not only means the vendor is no longer a primary supplier of DSL gear, but it also may signal the divestiture of noncore assets in preparation for a possible sale of the company.

Cabletron last week announced that it has reached an agreement to sell its FlowPoint DSL subsidiary to Efficient Networks of Dallas for $860 million in stock. Cabletron will now sell Efficient's existing and newly acquired customer premise DSL mo-dems and routers under an OEM arrangement.

"Interesting," says Cabletron customer Brandon Ross, director of network engineering for MindSpring Enterprises in Atlanta. "We receive excellent service and support from Cabletron. I hope that the new owner of FlowPoint continues to provide such a high level of service."

The FlowPoint sale follows by a few months the quiet closing of Cabletron's DSL Access Multiplexer (DSLAM) operations. Cabletron obtained DSLAM capabilities through its acquisition last summer of Ariel's Communication Systems Group for $33.5 million. Last summer, Cabletron also paid $25 million for the remainder of FlowPoint it didn't already own.

In shuttering its internal xDSL operations, Cabletron is attempting to focus on core offerings for the enterprise and service provider markets, such as its high-end,

high-margin SmartSwitch Routers, company executives say. Cabletron is also looking to maximize shareholder value in an industry that has seen the market capitalization of start-ups rocket past Cabletron even though they have a fraction of the company's revenue.

"Our goal going forward is to focus more on our core products that deliver higher margins," says Romulus Pereira, Cabletron's chief operating officer. "For Cabletron, the focus is moving out of just the DSL segment of the market into more of a

higher-end play that involves our core routers."

Cabletron will try to hone this focus further by divesting itself of other assets that are not core to the company's strategy or product offerings.

"Our goal is to figure out what the product sets are that don't maximize our potential," Pereira says. "We'll exit out of all the products that don't make sense."

But DSL was supposed to have made sense only about a year ago when Cabletron stated that the technology was vital for its push into the service provider market, which was designed to broaden its revenue base. Pereira, however, stresses that Cabletron is not exiting the DSL business but rather focusing internal R&D on

more-strategic offerings.

Observers suggest that selling FlowPoint and other noncore assets may indicate that Cabletron is dressing itself up to be sold. The firm's CEO, Piyush Patel, did not deny that, but offered a different perspective.

"We're really bringing the focus back to our core business," he says. "We are unlocking the shareholder value, but the whole strategic rationale behind this is that we are not exiting the DSL business, we are committed to the DSL business. But going alone is not our strategy."

But if Cabletron's core offering is the SmartSwitch Router, analysts say the company has its work cut out, given the dominance of Cisco in the market and the cutting-edge technology from start-ups like Juniper.

"So what is their telco/ISP/ carrier strategy?" asks Craig Johnson, principal of The Pita Group in Portland, Ore. "If it is just routers then they are fighting a losing battle in the longer run."

This story, "Cabletron cedes DSL" was originally published by Network World.

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