In financial downturn, Enterasys loses CEO, COO

After announcing late Thursday that its chief executive officer, chief operating officer (COO) and executive vice president of worldwide marketing had all left the company, networking gear maker Enterasys Networks Inc. also said that it expects to report losses for both the fourth quarter of 2001 and the first quarter of 2002 and that it will restructure.

The company's fourth-quarter results were delayed on Feb. 1 due to accounting questions regarding Enterasys' Asia-Pacific operations.

In a statement released Thursday, the company said that Enrique Fiallo, Enterasys' chairman, chief executive officer (CEO) and president, would leave the company Thursday to pursue other business opportunities. In addition, Jerry Shanahan, the company's chief operating officer, and J.E. Riddle, the vice chairman and executive vice president of worldwide marketing, also left the company.

Taking over as interim CEO and director is William O'Brien, former global managing partner at PricewaterhouseCoopers LLP. Coming onboard as president is Yuda Doron, who previously managed Computer Associates International Inc.'s sales channel. Doron will assume many of the responsibilities previously held by the COO, said Kristen Sheppard, senior director of investor relations at Enterasys.

The company's board has already begun the search for a permanent CEO and O'Brien is prepared to stay on as long as that search takes, she said.

The two newcomers inherit a company that now says it will lose money for each of the last two quarters. Portsmouth, New Hampshire, Enterasys said Thursday that its expects its fourth-quarter revenue to be between US$145 million and US$155 million, down sharply from the $221 million the company had previously reported it had brought in for the quarter, which ended Dec. 29, 2001. The shortfall is due to accounting issues in the Asia-Pacific region, the company said.

Enterasys now expects to post an operating loss for the quarter.

The company's first-quarter 2002 results will also include an operating loss based on revenues of between $110 million and $120 million, the company said. Enterasys also expects a cash decrease of $70 million for the quarter. The company blamed the drop for the quarter, which ended on March 30, 2002, on the economy, poor sales execution and an investigation by the U.S. Securities and Exchange Commission that has been ongoing since Jan. 31, 2002.

That investigation has had a tangible affect on the company and has caused some customers to delay their purchases, Sheppard said.

The affect of the investigation "has been somewhat reflected in the decline in (first quarter) numbers," she said.

Enterasys will restructure the company and improve its cash flow, said Robert Gagalis, chief financial officer, in a statement.

That restructuring will be detailed soon, Sheppard said, declining to provide details of the restructuring beyond saying that the company would look to reduce costs and improve sales. She also declined to comment on whether the restructuring would entail job cuts.

Enterasys has been contacting its customers since the financial and personnel news was announced, she said. By doing so, the company is attempting to build confidence among its customers, she said.

"The company recognizes all of these issues to be very serious," Sheppard said. "We are capable of dealing with and overcoming (them)."

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