COPENHAGEN, Denmark -- Olicom A/S today (8/31) announced the sale of its token-ring LAN business, including chip, board and system-level products, to Madge Connect, an arm of Madge Networks N.V. (Wexham Springs, U.K.). The sale could augur even more serious shakeouts at Olicom, coming on the heels of yesterday's sudden resignation announcement by chief technology officer Niels Jorgensen and the company's postponement of its earnings report for the June-ended quarter in anticipation of the "sale of other activities."
Olicom was the world's leading token-ring vendor in the mid-1990s, eclipsing even IBM Corp., but its fortunes took a turn when token-ring sales fell. Olicom acquired router manufacturer CrossComm Corp. two years ago and had expanded its business in asynchronous transfer mode switches and enterprise Internet Protocol routers, but token ring remained its core expertise.
Madge will buy Olicom's token-ring unit for an initial cash payment of $15 million, followed by additional cash payments over three years based on the business unit's performance. The sale includes the transfer of token-ring inventory to Madge, leading to inventory write-downs of just under $22 million.
Olicom said significant job cuts will occur in the next few weeks. Its staff of approximately 640 people worldwide could be cut by as much as a third or a half.
The company's fiscal 1997 revenue was $238.2 million. In fiscal 1998, the company lost $22.9 million on revenue of $206.8 million.
Olicom launched a high-profile reorganization strategy in February, restating inventory and emphasizing Fast Ethernet switching. But several analysts think this week's announcement could be a prelude to the company's throwing in the towel.
"It sounds as though Olicom is pretty much getting broken up," said Greg Collins, LAN market analyst with the Dell'Oro Group (Portola Valley, Calif.). "Token ring was still their core business, so the remaining businesses are peripheral by definition."
By contrast, Madge could gain an unbeatable lead in switched token ring, the one portion of the token-ring market still showing growth. Collins said his company's statistics show that Madge, before the announcement, owned 32 percent of the market on a per-port basis, with Cisco Systems Inc. in second place, at 22 percent, and Olicom third, at 19 percent. IBM had slipped to single-digit market share in switched token-ring, Collins said, coming in at 9 percent.
While Dell'Oro Group expects the sale to benefit Madge primarily in the form of customer accounts and inventory, Collins said Madge's ability to pick technologies from both companies, combined with a consolidated market share above 50 percent, should allow the British company to define the switched token-ring market.