Nothing can unlock the IPO market these days -- not even stronger-than-expected earnings from a networking company. Just ask Cabletron Systems (NYSE: CS).

Although Cabletron beat analysts' earnings estimates for its fiscal fourth quarter (which ended March 3), the company decided that now still wasn't the time to try and pry open the IPO window. Cabletron, which announced last year that it would create stand-alone entities for each of the units in its organization, is holding off on public offerings for Enterasys Networks and Aprisma Management Technologies -- its enterprise networking and networking management software units, respectively.

Cabletron's decision to forgo an IPO and pursue a spin-off strategy comes on the heels of Conexant Systems's (Nasdaq: CNXT) announcement on Tuesday that it was abandoning IPO plans for its Internet infrastructure business, Mindspeed Technologies, and will spin off the unit instead.

Cabletron managed to bring its Riverstone Networks (Nasdaq: RSTN) metropolitan area networking unit public in February, but the stock's 28 percent slide from its $13 offering price no doubt convinced the company to stay away from the IPO market for the time being. But it still plans on creating new stocks for these units by spinning off portions of Enterasys and Aprisma to Cabletron shareholders.

"There's no need to go after an IPO in this market -- you're just climbing up a greasy pole," says Clifton Gray, an analyst with Kaufman Brothers. And thanks to the $500 million Cabletron received from the recent sale of its stake in Efficient Networks (Nasdaq: EFNT) to Siemens (NYSE: SI), the company is not desperate to raise cash.

Cabletron has nearly $1.1 billion in cash and short-term investments on its balance sheet and no debt. As such, it is well positioned to fund Enterasys and Aprisma without any help from the public markets.

NEW FOCUS It is strategically important for Enterasys and Aprisma to get out from under the Cabletron umbrella -- as well as away from each other's shadows. Not only will the break allow the true value of each to be realized in the market, but the independence created by the restructuring will also allow each unit to pursue new customers more freely.

In the past, customers were often hesitant to work with one division of Cabletron if they were competing with another. But by breaking out Riverstone, Enterasys, and Aprisma on their own, these concerns will no longer be an issue for customers. Though Cabletron's networking consulting services unit, GlobalNetwork Technology Services (GNTS), is not included in the spin-off plans, the company is currently shopping the division around to prospective buyers.

From a shareholder's point of view, the breakup is clearly a positive move. But looking at the performance of Cabletron's shares since the announcement in the first quarter of 2000, it's hard to tell if the strategy is working. Since the end of last March, Cabletron shares have fallen 59 percent, and they were relatively flat this week despite the positive earnings news.

But solid earnings in this market are hard for investors to ignore. Cabletron reported earnings of 6 cents per share, a penny per share ahead of the consensus estimate. And three of the four operating companies reported strong sequential revenue growth: Riverstone's revenue increased 31 percent, Aprisma's rose 11 percent, and Enterasys climbed 7.4 percent. GNTS, however, remained flat for the period.

"All the units have exceeded everyone's expectations, " says William Becklean, an analyst with SunTrust Equitable Securities. "A year ago they restructured the company and got rid of everything that was not producing and focused all their resources [on these four units]. They weren't stuck with any crap."

BETTER THAN THE REST This type of focus is why Cabletron was able to report solid earnings while other networking heavyweights like Cisco Systems (Nasdaq: CSCO) and Nortel Networks (NYSE: NT) continue to guide Wall Street lower. Although analysts point out that Cabletron's margins were negatively impacted by higher-than-anticipated sales and marketing expenses, Mr. Gray says that this is to be expected in this market as customer wins are exceedingly more difficult to achieve.

Nevertheless, most of Cabletron's operating units seem to be performing well. Enterasys achieved profitability last November, Aprisma hit the mark this period (two quarters ahead of schedule), and Riverstone is still on target for its goal of profitability in the fourth quarter of this year. "The bottom line is that Cabletron was the dog of the networking world for the last five or six years," says Mr. Gray. "But they cut away all the legacy fat and concentrated on a distinct set of silos and are doing very well."

Although he says the networking segment is still one that investors need to approach with caution, Mr. Gray believes Cabletron is one of the few companies in the sector that actually can boast any degree of earnings visibility. The company reiterated on Wednesday that it was comfortable with the consensus earnings estimate of 8 cents per share for its fiscal first quarter of 2002 (ending in May).

While some investors are concerned the spin-offs will leave Cabletron nothing more than an empty holding company, management is expected to aggressively comb through the depressed technology market for new incubation projects. As such, the real issue for investors is: can Cabletron and its various business units continue to post solid results in this tough environment? We think so.