News | November 22, 1999

Cabletron Sells DSL Subsidiary to Efficient Networks

Source: Efficient Networks Inc.
By: John Spofford, Managing Editor, Premises Networks Online

In a deal that will create what it calls the industry's most complete digital subscriber line (DSL) customer premises equipment (CPE) product line, Efficient Networks Inc., a Dallas-based developer of DSL equipment, today announced that will acquire FlowPoint Corp., a wholly-owned subsidiary of Cabletron Systems (Rochester, NH).

The all-stock deal, which is expected to be completed late in Efficient's second fiscal quarter ending December 31, 1999 or early January 2000, is valued at approximately $861 million. That's not too bad a figure. Barely a year ago, Cabletron paid $25 million to purchase the approximately 65% of Flowpoint it did not already own through prior investments.


Products like the top selling FlowPoint 2200 SDSL Router—designed for small businesses, remote and branch offices, and telecommuters—will give Efficient Networks one of the industry's most complete DSL lines.

According to the networking industry research firm Dell'Oro Group (Portola Valley, CA), FlowPoint currently is the market share leader in the symmetric DSL (SDSL) and ISDN DSL (IDSL) router market. With the addition of the Flowpoint lines, Efficient now boasts five distinct DSL CPE product categories: internal and USB DSL modems for personal computers, DSL LAN modems, SOHO/telecommuter DSL routers, and small business or branch office DSL routers.

Additionally, FlowPoint technology will accelerate Efficient's entry into the voice over DSL (VoDSL) market. FlowPoint currently has a VoDSL product in trials with major service providers, which is interoperable with a new line of voice gateway products from CopperCom (Santa Clara, CA) and Jetstream Communications (Los Gatos, CA).

Following the completion of the transaction, FlowPoint's management, employees, and product lines will be operated by Efficient. Efficient expects to establish significant development and sales operations in Silicon Valley, where the majority of FlowPoint's employees will continue to be based. FlowPoint's president, Chuck Waggoner, will remain with the company as a key member of Efficient's senior management team.

Turnabout for Cabletron
When Cabletron announced its acquisition of Flowpoint at Supercom in June 1998, the company was seen as using acquisitions to expand its product line in a bid to survive in the buy-or-be-bought networking market. At that time Cabletron announced its entrance into the fast-growing DSL market through a pair of acquisitions: FlowPoint Corp. and the Communications Systems Group of Ariel Corp. (Cranbury, NJ) The acquisitions gave Cabletron an "instant" DSL product line.

Barely a year later, the strategy seems to have reversed: spin-off of business segments to unlock "increased shareholder value." Many see this as a ploy to make Cabletron a more attractive acquisition target.

Perhaps another more fundamental change for the often-struggling equipment maker is that this year its core products are selling. Last week the Dell'Oro Group reported that Cabletron is the worldwide market share leader in the rapidly growing modular Layer 3 switching market. The company's SmartSwitch Router was ranked number one for the period July through September 1999 with 31.6% of the market.