Digital Equipment is tipped by US sources to set to sell off its networking business to Cabletron Systems for around $450 million but a licensing deal seems more likely.
As predicted for the past few months, Digital is set to follow its policy of selling off or licensing non-essential businesses, including networking, to concentrate on the hardware and Internet-based sales it sees as crucial to its future.
Cabletron representatives refused to comment on the rumours but admitted the company has said acquisition is part of its strategy. Former chief executive Bob Levine said in April he did not want to struggle thorough messy, large scale acquisitions but he was recently replaced by Don Reed, who may be in favour of buying. The deal would give the company crucial switching technology that it lacks in comparison to its rivals, including 3Com, Bay Networks and Cisco Systems.
Palmer did not mention the rumours at Digital?s annual shareholders? meeting in Boston on Thursday but repeated Digital?s intention to deliver platforms and services. He said: "Digital is one of only a few companies that can deliver the systems, software, storage, services and partnerships that make up an Internet-based enterprise."
He praised Digital?s 64-bit Alpha technology, saying customers can be assured it will be a major platform for Internet solutions. He also said Digital?s systems hardware and OS business is strong, its Internet unit is innovative, its sales and marketing organisation is healthier as one entity and its services arm is performing well. The only unit he did not mention was the networking business.
Palmer later admitted Digital has gaps in its networking product lines. "We need to find a partner to ensure we can provide a broad range of products. Whether we manufacture them is not important," he said.
Palmer decided not to spin off the Alta Vista Internet business unit in June but did sell off part of Digital?s storage business last year. He also licensed its Alpha technology to Intel to settle the companies? legal battle in October, showing he is ready to divest parts of the business. Digital representatives said the company "will explore possible relationships with other companies" but insisted networking is part of the solution Digital wants to offer.
Digital executives have maintained for years that networking is important to the company but a licensing based deal may allow Digital to sell the unit and remain involved in the business - as it did with Intel over Alpha.
Analysts said Cabletron would be particularly interested in Digital?s ATM switch, although they said some Digital products will overlap with Cabletron?s lines. Digital would not lose because it could license back its networking products and begin selling other networking companies? kit if it struck a deal with Cabletron.
Earlier this week, Reed announced Cabletron?s intention to sell kit to telephone companies and ISPs "via product launches, enhancements? and acquisitions".
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