Compaq is to stop rebadging Cabletron’s switches and routers but has agreed to make a “strategic” investment in the networking company’s Spectrum network management business.
The move is part of a bid to modify a complex relationship that was struck between the two firms after Compaq purchased Digital Equipment. The deal was designed to give Compaq access to Digital's networking division which had been acquired by Cabletron.
Under a new agreement thrashed out over the past few days, Cabletron will sell its Smartswitch Router and Smartswitch 6000 - formerly Digital products - directly to Compaq’s distributors. But Compaq will continue to sell Cabletron equipment as part of a total service by its Professional Services group.
Previously Compaq had been committed to buying $300 million worth of switches and routers from Cabletron by 2000 to rebadge as Compaq kit and selling these to distributors and end users.
Cabletron officials said the move is part of Compaq’s decision to exit the redistribution business which particularly benefits Cabletron because it had been frustrated at Compaq’s lack of knowledge in the networking world.
Said Romulus Pereira, Cabletron's chief operating officer, "Compaq used to get in the way because it doesn't know networking."
Instead Compaq will invest an undisclosed amount in Cabletron's Spectrum business and will commit to making a "multi year" purchase of Spectrum equipment, explained Cabletron.
Separately Cabletron's new president and chief executive, Piyush Patel, said the company is on track to increase revenues by 30 per cent year on year despite reporting a revenues slide in its fiscal second quarter results.
For the quarter ended 31 August, revenues slid to $356.6 million from $370.6 million a year ago. Net income for the period which includes an $7.5 million charge and $10 million gain, increased to $13 million, or $0.07 a share, compared with $6.4 million, or $0.04 a share 12 months ago. Analysts polled by First Call had expected earnings per share of $0.06.
Piyush said the "predictability and visibility" of the company's financial performance have improved. He claimed the revenues drop was down to the company's recent transition but "we've consistently hit revnues and earnings per share expectations over the last three quarters," continued Piyush.
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