CEO says Digital's done dealing

Summary:Digital Equipment Corp.'s chief executive on Tuesday said the $430 million sale of the company's networking products division to Cabletron Systems Inc.

Digital Equipment Corp.'s chief executive on Tuesday said the $430 million sale of the company's networking products division to Cabletron Systems Inc. marks the last asset sale by the computer manufacturer.

Digital's networking business -- which will be known as Digital Network Products Group: A Cabletron Systems Company -- will sell the hardware back to Digital itself along with Cabletron products, according to officials from both companies.

The deal, which has been rumored for weeks, follows upon the heels of other divestitures by the Maynard, Mass.-based company, which has shed its semiconductor manufacturing and printer businesses this year.

Speaking to reporters and analysts Tuesday, company CEO Robert Palmer said, "I know one question you have is whether there will be any more divestitures. The answer is no."

( The Digital and Cabletron top brass justify the deal to stockholders.)

"This agreement completes strategic plans we started a few years ago," he continued. "We're now in the process of examining [possible acquisitions] to enhance our ability to achieve competitive levels of profitability and growth."

Palmer added that Digital has no immediate plans to acquire any new companies. Without being specific about future acquisitions, he mentioned additional international service capabilities, and Internet software technologies.

Analysts agreed the deal should help Digital slim itself down.

"The challenge they faced was that they were engaged in capital-intensive businesses," said Richard Chu, analyst at Cowmen & Co. in Boston. "Measured as an ongoing entity, they were a small-market-share player. As they exit the vertical part of those businesses, the need to be stacked up against larger, critical-mass players dissipates."

Indeed, Palmer, said Digital was motivated to sell the networking group to Cabletron because the company couldn't achieve "critical mass" in that business by itself.

"The networks product business doesn't have the scale. There's been a consolidation among three or four leading companies," Palmer said. "We needed critical mass larger than we could achieve on our own."

Cabletron, which will keep the Digital brand name, stands to gain 35 to 40 percent on its annual revenue and more than 100 percent in channel revenue, according to company officials in Rochester, N.H.

Digital will continue to support its networking customers through Digital Worldwide Services. Additionally, DWS will provide warranty and post-warranty service for Cabletron networking hardware, officials said.

"The key for Cabletron here is Digital's channel, and the key for Digital is to get rid of this division they haven't been able to devote enough resources to," said Aberdeen Group analyst Virginia Brooks in Boston. "Plus, the cultural fit and geographical fit are important."

Scott Berinato contributed to this story

Topics: Networking, Hardware

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