Extreme’s new CEO describes turnaround plans

Mark Canepa, who was named the new chief executive officer of Extreme Networks in August, highlighted his goals for reviving the Ethernet equipment vendor during its quarterly earnings call late Friday.

Calling Extreme’s problems a matter of execution rather than positioning, Canepa described four pillars of his turnaround strategy: clearly identifying market segments in which Extreme has a “strong, sustainable” competitive advantage, driving down costs and increasing efficiencies in market segments whose customer requirements change at the slowest pace, exploring new, emerging market segments and taking a more “solutions-oriented” approach to selling.

“It is no longer adequate to simply sell speeds and feeds,” Canepa said. “We have to move beyond moving packets and begin to offer better ways to address the challenges of convergence and security. We’re training our sales force to increasingly have those kinds of conversations with customers rather than just what’s the price of a gigabit port.”

Bulking up Extreme’s sales force has been a particular problem for the company. In the most recent quarter, Extreme boosted its total headcount by nine to 856. During Friday’s call, however, the company admitted that recent additions to the U.S. sales force had not yet risen to “full productivity.”

For the quarter that ended Oct. 1, 2006, Extreme reported a 14% year-over-year decline in net revenue. U.S. revenue in particular was down 24% from a year earlier to $34.2 million, while overseas revenue was down only 6% to $49.6 million.

A 10-year veteran of Sun Microsystems, Canepa also vowed to overhaul the company’s supply chain structure. In the most recent quarter, Avaya, as a reseller, contributed more than 10% of Extreme’s revenue.

“Today Extreme is organized functionally with a single product development and supply chain methodology geared towards internal [research and development] and a customized supply chain to produce products,” Canepa said. “It is also focused primarily on product development, with a significantly lesser focus on the development of the services required to express more of the value proposition to the customer.”

Canepa vowed to make a series of structural changes to the company throughout this quarter and beyond. Some changes have already been underway, he said, including efforts to bulk up the U.S. sales force in particular since July, when the company’s U.S. division was placed under the authority of Eileen Booker, a two-year veteran of Extreme.

“Portions of [Extreme’s] markets have matured during the past few years,” Canepa said. “The level of differentiation required and the price companies are willing to pay for this differentiation has changed. The market requires a blend of highly differentiated products as well as a set of more cost-effective products. The company has to continue to deliver differentiation but also has to deliver products to a more mature and therefore more cost-sensitive customer set.”

Canepa has no plans to pull the company out of tough geographic markets, and he said he will let the company’s success determine what portion of its customer base will be enterprises as opposed to service providers. (In the most recent quarter, which was typical, 78% of Extreme’s revenue came from enterprise customers, while 22% came from service providers.)

“I’m not going to make a guess as to any of that,” Canepa said. “We’re going to let [the sales people] run and see what happens.”

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