Enterasys To Cut 30 Percent Of Staff

Enterasys Networks

The networking hardware vendor said last week that it expects revenue for the first quarter ended March 30 to come in between $110 million and $120 million, down dramatically from an estimated $145 million to $155 million in revenue estimated for the fourth quarter ended Dec. 29.

The company, which still has not reported its fourth-quarter results, said it is lowering its first-quarter estimate because of revenue recognition issues in the Asia-Pacific region and a comprehensive analysis of revenue recognition in the remaining regions of the company. The prolonged market slowdown and a Securities and Exchange Commission investigation of the company also contributed to the revenue decline, the company said.

A company spokesperson said the projected revenue shortfall prompted the resignations last week of Henry Fiallo, chairman, CEO and president; J.E. Riddle, vice chairman and executive vice president of worldwide marketing; and Jerry Shanahan, COO.

The company appointed William O'Brien as interim CEO and director, and Yuda Doron as president. O'Brien was a global managing partner at PricewaterhouseCoopers until 2000. Doron is a former manager of Computer Associates International's channel sales operation, Enterasys said.

Enterasys in late February terminated three senior employees in its Asia-Pacific operations in response to its internal investigation of accounting irregularities. The employees had been on administrative leave since Feb. 1, when Enterasys discovered irregularities in at least one contract, valued at $4 million, in its Asia-Pacific unit.

Enterasys said that while preparing its fourth-quarter earnings it discovered that its independent auditor, KPMG, was provided with a version of the $4 million contract with terms that supported revenue recognition, while the vendor's own version of the contract did not.

Scheduled to report its earnings Feb. 5, Enterasys delayed its earning report for the fiscal fourth quarter and 10-month year ended Dec. 29, 2001, when it learned of the Asia-Pacific situation.

Enterasys said it would provide more detailed financial results for the quarters ended Dec. 29, 2001, and March 30, 2002, and an update on the SEC investigation "as soon as practicable."

Also, Enterasys has expanded the investigation of its revenue recognition practices to include North America, Europe and Latin America as well as the Asia-Pacific region.

"We are committed to achieving a successful turnaround so that Enterasys can once again be a prosperous and growing company," O'Brien said in a statement. "The cost-cutting initiatives are an important first step designed to achieve cash break even as soon as possible. We are continuously evaluating additional business improvement opportunities to increase sales effectiveness and reduce costs."