Enterasys VARs Unruffled

Within an hour of discovering the irregularity, Enterasys, based here, also received notice that it and some of its affiliates are under investigation by the Securities and Exchange Commission, said Henry Fiallo, chairman and CEO of Enterasys, during a conference call. The investigation is apparently unrelated to the accounting discrepancy, he said.

"I haven't heard a customer freak out over [the situation," said Marie Graziano, president of Computer Consulting Services, an Enterasys solution provider in Carrollton, Texas.

With other networking vendors experiencing their share of financial struggles in recent months, customers see such problems as status quo in the current economic environment, Graziano said.

"They've heard about [financial problems with Lucent Technologies, Ericsson, Nortel Networks, Cisco Systems,who else are they going to buy from?" she said.

Enterasys found the accounting discrepancy when it discovered its independent auditor, KPMG, was provided with a version of the contract with terms that supported revenue recognition while the vendor's own version of the contract did not, Fiallo said.

As a result of the discovery, Enterasys delayed the release of its fourth-quarter and full-year financial results, launched an investigation of contracts and revenue recognition throughout the Asia-Pacific region, and put three employees on administrative leave pending the results of the review, Fiallo said.

The company also delayed the spin-off of Aprisma Management Technologies, Durham, N.H., which was scheduled to begin trading on the Nasdaq Feb. 13.

Solution provider GuideComm expects Aprisma to market its products more effectively once the spin-off is complete, but the delay should have little impact on sales of the vendor's network management software, said Alan Gilbert, vice president of strategic alliances at GuideComm, Chantilly, Va. "With these spin-offs, there are a lot of hoops they have to jump through, so it's better for them to get it right."

While customers and partners may be taking the news calmly, investors and financial analysts did not. Shares of Enterasys lost more than 60 percent of their value last week after several analysts downgraded the stock.