Enterasys has announced it is to lay off 30% of its work force, or approximately 730 employees, as it struggles to contain costs. Three key staff, including its chief executive, will also leave as the company warned that revenues for the quarter would be lower than expected.
Enterasys also said it will initiate other cost-savings programs, which could mean the discontinuation of product lines and asset sales. The company has been struggling against the general downturn in the networking market, and is facing a probe on its accounting practices by the Securities and Exchanges Commission (SEC).
Key staff leaving Enterasys include Enrique Fiallo (chairman, chief executive officer, and president), J.E. Riddle (vice chairman and executive vice president), and Jerry Shanahan (chief operating officer). They will be replaced by the appointments of William K. O’Brien as interim chief executive officer and director, and Yuda Doron as president.
In a statement announcing the appointments, Enterasys director Jim Davidson admitted the company was operating in a very difficult environment.
Enterasys also announced preliminary unaudited revenue estimates for the quarters ended December 29, 2001 and March 30, 2002. The company estimates revenue for the fourth quarter ended December 29, 2001 of approximately $145-155 million. Enterasys put the lower estimate down to revenue recognition issues in the Asia Pacific region and a comprehensive analysis of revenue recognition in the remaining regions of the company. It expects to report a loss from operations in the fourth quarter.
For the first quarter ended March 30, 2002 Enterasys estimates revenue of approximately $110-120 million. The company said the first quarter revenue estimate reflects continued lengthening of the sales cycle due to difficult market conditions, poor sales execution, and the previously announced Securities and Exchange Commission investigation. Enterasys also announced it expects an operating loss for the first quarter, and a cash decrease of approximately $70 million.
Commenting on the revenue estimates announcement, Enterasys’ Chief Financial Officer, Robert J. Gagalis said: In light of our estimated results and the current business environment, we are implementing a comprehensive plan to restructure the company and achieve break even cash flow as soon as possible, while maintaining our investment in new product initiatives.