Extreme Networks Channel Team Spared In Restructuring

Extreme confirmed to Channelweb.com Tuesday that its channel team, headed up by Christopher Rajiah, North American Channels director, and its executive sales management have not been affected.

"Our target markets and channel focus are not changing as we are committed to the very same market segments, enterprise networks, data center and wired/wireless," said Gregory Cross, a public relations representative for Extreme, in an e-mail to Channelweb.com. "Coincidentally, we had our North America Channel Partner Summit in Sonoma (Calif.) just last week, and our new executive management, as soon as the announcement hit the wire, addressed each of the partners in person in the room."

Extreme Networks last week cut about 70 jobs. At the same time, CEO Mark Canepa resigned, according to the company, "to pursue other opportunities," although he will remain for a short period to help with the transition.

The company has begun a search for a new CEO. Bob Corey, most recently Extreme's senior vice president and chief financial officer after a long stint on Extreme's board of directors, has stepped in on an acting basis. Chief Counsel Robert Schlossman is among the high-level Extreme executives to be let go, according to an Extreme filing with the SEC.

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"Management and the Board decided to take this action to streamline our operations, reduce our break-even and create an operating model that will position Extreme Networks for sustained profitability as quickly as possible. These reductions have been taken across the entire organization. We remain committed to the products, markets, channels and customers and to continuing to introduce new and innovative products," said Gordon Stitt, chairman of Extreme's board, in a statement.

The news comes as Extreme's financial position continues to slip. Extreme on Monday reported substantial losses for its fiscal first quarter ended Sept. 27, including net revenue of $66.3 million (down from $89.5 million from the same quarter a year ago). According to Extreme, the restructuring will save it $2.5. million in quarterly operating expenses and will lower its quarterly break-even to less than $70 million in revenue.

"As previously announced, our supply chain was constrained during Q1, impacting our ability to deliver product," Corey said in a statement. "We are disappointed with our performance in Q1 and are actively improving availability from our supply chain to meet customer demand for our products in Q2. We remain committed to our products, markets, channels and customers."

For some Extreme partners, the restructuring was overdue. Several Extreme VARs contacted by ChannelWeb who had been at Extreme's partner conference last week in Sonoma said Extreme was honest with them about the changes and even inspired confidence.

"To be honest with you, I was encouraged," said Tom McDougall, owner and CEO of HighPoint Networks, a West Fargo, N.D.-based solution provider. "I've noticed maybe, some ... well, I hate to use the word 'fat,' but there's been some unneeded personnel and some unneeded organizational structure at Extreme for a while. I was encouraged -- sales and marketing were not affected at all. And having Gordon willing to step back in as the founder and the visionary and see how things should go is great. It's going to be exciting to see where things go."

"I don't think anyone would be particularly surprised that layoffs happened," said another solution provider who attended the conference, and who requested his name not be used. "You see what's happening with them the same as we do. But this is a good sign; they're not cutting back on channel and they're not cutting back on the gear that makes them Extreme."

Both solution providers noted that Extreme's market share in Ethernet switching has held steady -- about 1.5 percent for the past two years, according to the Dell'Oro Group -- and that Extreme used the conference to reassure its partners it would continue to nurture its channel.

Extreme completely revamped its channel partner program in 2008 and Rajiah and his team have spent much of this year making sure the changes take hold.

"The tone of the conference was very focused," McDougall said. "I don't know what people have told you, but, one of the first comments I would make is, in a down economy when the market's down and sales are down, the fact that they chose to have this conference at all was encouraging. The reorganization is right on par with what their focus is around the smart data center and their back-end ability to work with the virtualization pieces. Their direction is pretty clear."

Among other recent moves, Extreme recently announced a strategic relationship with Motorola , through which Extreme will OEM Motorola's WLAN controllers, network management tools and wireless access points, and Extreme and Motorola will jointly develop unified wired and wireless LAN product sets going forward.

Extreme's financial troubles and the ongoing market consolidation sweeping much of the networking industry have led to speculation of Extreme as an acquisition target for the likes of an HP ProCurve or Juniper Networks. Neither company has expressed public interest. Juniper CEO Kevin Johnson said last week that Juniper was actually more invested in research and development than M&A, though it wouldn't rule out acquisitions, either.

M&A was the path for one Extreme competitor, Enterasys, which in July 2008 merged with Siemens' Enterprise Communications Group and will eventually be rebranded as Siemens. Will the same happen to Extreme?

"I don't think they're necessarily offering themselves up, but it wouldn't surprise anybody," said the solution provider who requested anonymity. "I don't know why Juniper wouldn't jump on it -- that would be the best fit. HP less so, and you wouldn't see Cisco do it, I don't think. We'll see."