The great Enterasys boardroom exodus

Enterasys yesterday announced the departure of three key staff, including its chief executive, as it warned that revenues for quarter would be lower than expected.

Enrique Fiallo resigned as chairman, chief executive officer, and president of the enterprise networking supplier yesterday in order to "pursue other business opportunities". J.E. Riddle, vice chairman and executive vice president of worldwide marketing, and Jerry Shanahan, chief operating officer also resigned their positions.

The company appointed of William O'Brien, who's previously worked as a senior executive with management consultants PricewaterhouseCoopers, as interim chief executive officer and director, and Yuda Doron as president to fill the gaps left by the departing executives.

In a statement, Enerasys board member Jim Davidson admitted the two were joining the company at a "challenging" time during which it is "operating in a very difficult environment".

As well as contending with the general downturn in the networking market, which has been sharper than that experienced in other sectors of the IT industry, Enerasys is facing a probe on its accounting practices by the Securities and Exchanges Commission (SEC).

At the time, Enterasys said it was delaying its fourth quarter results because of an "apparently unrelated matter" arising from the terms of a $4 million sales contract recorded by its Asia Pacific operations. Days later it announced a delay in the planned spin off of its Aprisma network management business.

Law firm Ropes & Gray and audit firm Deloitte Touche Tomatsu are assisting Enterasys in completing a comprehensive review of its revenue recognition practices.

Enterasys has revised its fourth quarter revenue estimates down from the previously announced $221.1 million to between $145-155 million. The company now expects to report a loss from operations in its fourth quarter.

For the first quarter ended March 30, 2002 Enterasys Networks estimates revenue of approximately $110-120 million. These estimate reflect the "continued lengthening of the sales cycle due to difficult market conditions, poor sales execution, and the previously announced Securities and Exchange Commission investigation", Enterasys said.

The company expects to post an operating loss for Q1 2002, and a cash decrease of approximately $70 million.

To stem losses, Enterasys plans to restructure its business to achieve break even - a move almost certain to be accompanied by further job loses.

The Company will provide more detailed financial results for its last two quarters and an update concerning the SEC investigation "as soon as practicable". The firm expects to miss the April 15 deadline for submitting its annual report. ®

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