Cabletron Systems has agreed to outsource its worldwide manufacturing operations to Celestica as part of a broader cost-cutting and restructuring plan.
Cabletron, a maker of networking equipment, expects to save $US80 million over the next year from the new "growth and restructuring plan" called Project Ignition. The aim of the project is to focus Cabletron's attention and resources on the enterprise, service-provider, software and professional-services markets, company officials said.
Outsourcing its manufacturing is critical but "just one part of the overall initiative", said Cabletron spokeswoman Karen Gordon.
Other adjustments to be made as part of Project Ignition include an expansion of the scope of Cabletron's software unit. The company plans to introduce new software products -- including tools for directory services, accounting and billing, asset management, virtual private network service provisioning and policy-based administration -- to supplement its Spectrum network-management tools.
Separately, Cabletron announced that it beat Wall Street expectations with a fourth-quarter loss of $US8.3 million, down from $263.4 million lost in the fourth quarter of 1998. The company reported a net income of 1 cent per share, compared to an anticipated loss of 1 cent per share according to First Call. (The net income -- which totalled $2.5 million -- was outweighed by a fixed-asset loss for idle, obsolete and discarded equipment, resulting in the $8.3 million loss.) Net sales for the fourth quarter, ended February 28, 1999, reached $345.1 million, up from $311.5 million in the fourth quarter of fiscal 1998.
Hoping to streamline its operations and further improve its financial standing, Cabletron signed with Celestica "a strategic long-term supply agreement and other agreements, under which Celestica will acquire certain Cabletron manufacturing assets", according to Cabletron officials.
The outsourcing agreement alone is expected to save Cabletron more than $50 million in the first year, and also to allow better time-to-market and lower costs of goods, the company said.
As part of the project, Cabletron officials said, the company plans to consolidate its North American operations at its home base in Rochester, New Hampshire, which means the closing of its manufacturing facility in Ironton, Ohio, within the next five months. The company said it will provide compensation packages and career placement and training services to the approximately 300 employees in Ironton, who will also receive "preferential consideration" for employment at Celestica.
Cabletron will retain ownership of its manufacturing operations in Limerick and Shannon, Ireland, the company said.
Celestica, for its part, plans to move its New Hampshire facilities from Exeter to Portsmouth within the next 18 months, at which point Cabletron manufacturing will be transferred there from Rochester.
"Ultimately, it just makes sense [to outsource]," Gordon said. "Celestica is a great company that offers a global reach but it also committed to New Hampshire, so they make a great partner for us. And most of our competitors have long since outsourced their manufacturing -- we were the last major player in our industry to do our own manufacturing."