Enterasys to cut workforce by 30 percent

Enterasys Networks will reduce its workforce by 30 percent in a restructuring, the network equipment company said in a statement Monday.

The reduction will leave Enterasys with about 1,700 employees, according to the statement. The job cuts will be substantially completed this week, it said. The restructuring will also include other cost savings, as well as lower capital expenditures and cuts in working capital.

Enterasys, in Portsmouth, New Hampshire, has been hit by questions about accounting both in its Asia-Pacific operation and across the company. It announced the plan to restructure on Friday, after disclosing on Thursday that its chief executive officer (CEO), chief operating officer and executive vice president of worldwide marketing had resigned.

The company has said it expects to report net losses for the first quarter ended March 30 as well as for the fourth quarter of 2001, ended Dec. 29. It has delayed announcing final results for the fourth quarter and full year 2001 to investigate the accounting questions. The irregularities discovered in the Asia-Pacific region have led to a review of accounting throughout the company, Enterasys announced Friday. The U.S. Securities and Exchange Commission also is investigating Enterasys.

On Friday, Enterasys announced William O'Brien had been appointed as interim CEO and Yuda Doron as president.

The restructuring is likely to be broad and swift, despite the fact that the company is still searching for a permanent CEO, said T. Peter Andrew, an analyst at brokerage A.G. Edwards & Sons Inc., in St. Louis.

"I wouldn't be surprised if this also involved some product rationalization, so you might see some of their (noncore) product categories cut to save costs," he added.

An obvious target in this "rationalization" would be Enterasys' Aprisma Management Technologies Inc. subsidiary. The company had planned to spin off the network management software unit in February and delayed that move. However, other businesses, such as the company's VPN (virtual private network) unit, might also be eliminated, Andrew said.

Accounting concerns have hit Enterasys' business, but the networking industry also is mired in a broad slowdown, Andrew said. It's still unclear how much of the company's woes can be attributed to either factor, because Enterasys isn't giving enough information, he added. This is part of what's hurting its stock, in Andrew's view.

"Investors don't have any details behind these issues," Andrew said.

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