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Downgrade socks Cabletron
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March 30, 2000: 2:09 p.m. ET
Analyst's note claims disruptions from restructuring could affect operations
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - An analyst's downgrade knocked some of the wind out of network equipment supplier Cabletron Systems' stock on Thursday, sending shares 19-1/16 lower to 30-13/16 in early afternoon trade, a 38.1 percent decline from the open.
Goldman Sachs analyst Ajay Diwan on Thursday cut his rating on the company's shares to "market performer" from "market outperformer," citing lower-than-expected revenue from a key product line and problems with the company's restructuring plan.
On Wednesday, the Rochester, N.H.-based company posted fourth-quarter operating earnings that were slightly ahead of analysts' expectations, reporting a profit of $28.1 million, or 15 cents per diluted share, beating analysts expectations by a penny.
In a research note to clients Thursday, Diwan said that, at $95 million, Cabletron's revenue from its "Smartswitch" routers fell short of his expectation of $105 million.
"This is Cabletron's most important product, and the slower-than-expected growth is a serious concern," he said.
 Cabletron shares were boosted last month after the company announced a major restructuring plan, under which it will divide its business into four separate entities focused on building out the Internet infrastructure. The company plans to spin the individual units off to shareholders, leaving top executives to manage a holding company that they say will be better able to focus on new growth opportunities.
But in his research note, Diwan said the company's restructuring efforts have disrupted its business.
"Our revenue estimates for the first quarter have declined from $397 million to $305 million, and only $60 million of the decline is attributable to discontinued operations," Diwan said. "The remaining $30 million decline in revenue is attributed to disruption in the remaining core businesses. This will obviously have a negative impact on continuing operations."
Diwan also said the restructuring may be take longer than executives had originally anticipated, perhaps extending past the end of the year.
"If the company is not able to spin off all four divisions before the end of the calendar year as previously expected, the resulting extended period of disruption will increase the negative impact of the restructuring process on continuing operations," he said. 
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Cabletron
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