Cabletron Moves Rattle Investors

Cabletron Systems Inc. (ticker symbol: CS) was just what a jittery market didn’t need Thursday.

The shares tumbled 40% on concern that the network equipment maker’s split-up will hurt sales and earnings for several quarters.

Cabletron fell $19.88 to close at $30 on the New York Stock Exchange. The decline wiped out about $3.6 billion in market value.

In February, Rochester, N.H.-based Cabletron unveiled plans to form four units and spin them off as publicly traded companies in a move designed to boost its shares and compete with networking leader Cisco Systems Inc. (CSCO). On Wednesday, it said it will exit several product lines, resulting in a loss for the quarter ending in May.

“Disruption to business was the biggest risk in Cabletron’s restructuring--and this risk appears to have materialized,” said Goldman Sachs & Co. analyst Ajay Diwan in a report. He downgraded the stock to “market perform” from “outperform,” cutting his earnings estimate for the May quarter to 1 cent a share from 15 cents.

Even with Thursday’s drop, Cabletron is up 264% in the last year.

Silver Lake Partners, an investor in Cabletron, said it’s not worried about the decline.

“We were not naive to think that there would be some work in turning around a $1.5-billion company into four fast-growing subsidiaries,” co-founder Jim Davidson said.