Is Sum Greater Than Whole?

Spinning off subsidiaries is a tricky process. Just ask Cabletron.

Breaking up a company is like streaking: You have to show the world everything youve got in order to increase shareholder value. But if you dont have much to strut, you could wind up embarrassing your business.

Just ask Cabletron Systems, which is working overtime to gradually divide itself into four independent companies: Aprisma Management Technologies (for systems management); Enterasys Networks (enterprise switches); Riverstone Networks (service provider switches); and Global Network Technology Services (GNTS, Cabletrons services arm). Rather than compete with Cisco Systems on every front, Cabletron believes its four business units can grow faster on their own.

Cabletron hatched its breakup strategy last August. So far, the plan appears to be moving along smoothly. However, its unclear whether all four Cabletron subsidiaries will proceed with individual IPOs, according to Cabletrons 10-Q filing with the SEC on Jan. 16.

The filing says Cabletron "currently intends to consummate an IPO of Riverstone." While the filing doesnt reveal any firm IPO plans for Cabletrons remaining subsidiaries, it does say Cabletron is considering IPOs and "various other strategic alternatives" for "one or more" of its other three subsidiaries.

The biggest question mark surrounds GNTS, Cabletrons consulting and services arm. Rather than take GNTS public, sources say Cabletron hopes to sell the subsidiary, because it isnt expected to be profitable any time soon. GNTSs loss from operations increased 69.5 percent, to $5.6 million, in Q3. By contrast, Q3 operational losses shrank at Aprisma and Riverstone, and Enterasys posted an operational profit during the period.

Hidden Gem? Enterasys and Riverstone tend to get most of the ink, but Aprisma appears to be Cabletrons diamond in the rough. Aprismas sales are rising more than 70 percent annually, at a time when many systems-management companies are grappling with slowing growth (see story in Newsline).

Aprismas flagship product is Spectrum, a systems-management platform for hubs, switches, routers, servers and other network devices. Over the next few months, Aprisma will ship new Spectrum tools for security management and systems analysis.

The companys latest tool, Spectrum Security Manager (SSM), can oversee firewalls, intrusion-detection systems, networked applications, antivirus software and public-key infrastructure. SSM is slated to ship in Q2. "Look for SSM to target service providers, government agencies and the financial-services sector," says Darren Orzechowski, VP of marketing at Aprisma. "But dont expect us to install SSM or any of our other products. Well leave those steps to our partners."

Allies Step Up Aprisma is working closely with service providers like Digex, Qwest and WorldCom. The service providers use Spectrum to maintain their own networks and, in turn, often generate sales leads for Aprismas traditional resellers. One recent deal involves Sapient, which is using Spectrum to cut its own internal network-management costs.

Like many Aprisma employees, Orzechowski is a longtime Cabletron veteran. He nearly left Cabletron to join an optical-networking startup in mid-1999. But an eleventh-hour chat with former Cabletron president and CEO Craig Benson convinced Orzechowski to stay the course at Cabletron—and to focus on Spectrum. Another Benson protégé, Cabletron R&D guru Mike Skubisz, also remained loyal. Skubisz now is president of Aprisma and runs the companys day-to-day operations.

Aprisma hopes to launch its IPO by years end. In the meantime, Aprisma is strutting its stuff with partners.