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Ethernet equipment

Extreme: Movin' Out

Extreme Networks Inc. (Nasdaq: EXTR) could be on the hunt for a new headquarters soon, as it's putting its Silicon Valley home up for sale.

Unlike a lot of businesses, Extreme owns the land it's on. But the company's 10-Q form filed with the Securities and Exchange Commission (SEC) last week says Extreme has put the property up for sale, noting it "may ultimately be suitable for residential development."

The 10-Q makes it clear the company wouldn't have the option to sell the land and still occupy the facility, as Bookham Inc. (Nasdaq: BKHM; London: BHM) is doing with a U.K. fab. (See Bookham Sells Facility.) "In the event that we were to conclude a sale of the property, we would be required to relocate to alternative facilities in the Santa Clara area," the filing reads.

(Note the careful wording implying Extreme won't be leaving the Valley.)

One theory says the deal is already in escrow, awaiting entitlements from the city of Santa Clara, Calif.

"Rumor has it that the buyer is going to pay $70 million for the project, which is $100 per square foot on the land, and that they had very strong interest from a number of players," says Greg Davies Sr., chairman of Commercial Property Services (CPS). "I would guess all of the major public [real estate] companies bid."

An Extreme spokesman confirms the property is for sale but wouldn't comment further.

The property consists of 16 acres just off Lawrence Expressway north of El Camino Real, quite close to clusters of Silicon Valley businesses. It's also near a train station, handy for commuters to Palo Alto or San Francisco.

It's presumed that Extreme's buildings will be bulldozed to make way for residences. According to the Santa Clara city planner's office, the Extreme site was rezoned in 2002 to become "transit-oriented mixed use" -- meaning multitenant residences, possibly in conjunction with some offices or commercial development. "What the city's looking for are 26 to 45 dwelling units per acre," says a member of the city's support staff.

"We're seeing a lot of residential conversions in the Valley," says Joe Elliott, a broker and vice president with commercial real estate firm Colliers International in San Jose. Municipalities are hoping "to lighten traffic and try to address the issue of affordable housing," he says. The latter has become a difficult issue for Silicon Valley as housing prices have forced folks like teachers and police officers to live hours away.

It's not clear whether Extreme is being forced out. It's possible the company had chosen to relocate and lacked a better option for the space. Despite the rising economy, office and industrial space in Silicon Valley is still available in abundance, so leasing out the facilities could be a losing proposition.

"There's surplus R&D product all over the valley," Davies says. "How do they sell the property for the highest possible valuation? Convert it to residential."

Davies notes that the city of Sunnyvale, just west of Extreme's location, is pursuing similar kinds of projects, slapping "overlay" residential zones on top of otherwise industrial property to allow the building of homes.

— Craig Matsumoto, Senior Editor, Light Reading

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OddOggHalfTurtleHalfFrog 12/5/2012 | 4:01:11 AM
re: Extreme: Movin' Out Why has Extreme fallen in the last few years while Foundry has risen? The first thing that needs to be examined is management decisions. So, what has Extreme management done wrong that Foundry management has done right?

The major difference that I have observed from talking with employees of both companies is that Extreme is trying to outsource as much as possible while Foundry outsources nothing. Foundry even does manufacturing in CA.

By outsourcing engineering, QA, and support, Extreme has demonstrated gross management incompetence. While trying to save a few dollars Extreme has lost control of their IP, developed an inefficient organization incapable of quickly responding to rapidly changing market conditions, and are unable to refocus resources on immediate problems. Coupled with the low employee morale associated with poor management decisions this has cost Extreme the dominant position over Foundry.

On the other hand, Foundry, by keeping all engineering, QA, and support within walking distance, has developed an efficient machine for developing new products, responding to customer issues, and being a cost effective market innovator.

For all you wanna-be MBAs let the lesson be clear. Outsourcing is the fastest route to last place in the high-tech market.
sr_ns 12/5/2012 | 4:01:10 AM
re: Extreme: Movin' Out ===========
For all you wanna-be MBAs let the lesson be clear. Outsourcing is the fastest route to last place in the high-tech market.
===========

May be you are right in this case.. But I have heard that EXTR software is better than FDRY, while FDRY hardware is better than EXTR hardware. I have no experience with either of them. Care to comment?
ans 12/5/2012 | 4:01:08 AM
re: Extreme: Movin' Out No doubt there needs tobe a management change in Extreme.. but apart from that they also need to rethink about their position in market.
Startups like Force10 are going to eat their market..
I dont think outsourcing is bad. It depends on what kind of controls you have in place to make the outsourcing activity successful.
GE does lot of mfg etc in different parts of the world. Since they have checks and balances the quality does not suffer ..
It is all about managing the engagements and providing the right training to outsourcers. dont blame outsourcing. everyones wants cheap products..
Cisco has invested a lot in china and India and continues to do so..

I dont agree with your comments on outsourcing is last route to be last in high tech market.. take a look at Intel,IBM, Texas Instruments do your home work.
ans 12/5/2012 | 4:01:08 AM
re: Extreme: Movin' Out FDRY HW & SW terrible.. have used both the boxes. EXTR was good but has lost touch with reality.
Alpine 12/5/2012 | 4:01:07 AM
re: Extreme: Movin' Out I think the commentary on outsourcing misses the point altogether. Taken in context outsourcing is a tactical decision to reduce costs and gain exposure to remote labor markets. Strategically the company has been stuck in neutral since it's early days. Extreme derives nearly all it's revenues from the same product lines it always had. Why hasn't the company significantly diversified it's product lines and customer segments???? Customers are no longer interested in best of breed solutions - not that they are best of breed anymore. In the more significant markets they want vendors with broad product and support capabilities across multiple technologies.

Outsourcing does not explain Extreme's consistent inability to significant penetrate new markets such as wireless, security, metro ethernet, 10gig, load balancing, routing, and on and on.
st0 12/5/2012 | 4:01:07 AM
re: Extreme: Movin' Out " dont think outsourcing is bad. It depends on what kind of controls you have in place to make the outsourcing activity successful.
GE does lot of mfg etc in different parts of the world. Since they have checks and balances the quality does not suffer .."
====
Outsourcing required sufficient overhead control, qa, project manager, don't forget all the travels, extra translations (more than you produce in house). The only benefit are (a) large production base that share the overhead cost (b) sufficient production cost saving that overweight the overhead..include the hidden cost, like the travel, translation that normally do not count in BOM. (c) tax benefit to sell the final product in the country of assembly (import un-finished goods, such as parts has huge tax benefit... that is why Toyata and Honda set up assembly plant in US). GE is take huge advantage on (c)... how much a start up can be benefit on their product by assembly/sale in the international market is largely questionable.
The GE argument is totally flawed... as usual, a typical freshout MBA's copy cat try to universally apply their "skill" without understand the reality...
-st
BlueFox 12/5/2012 | 4:01:06 AM
re: Extreme: Movin' Out Outsourcing does not explain Extreme's consistent inability to significant penetrate new markets such as wireless, security, metro ethernet, 10gig, load balancing, routing, and on and on.

The same poor management thinking that feels outsourcing of engineering (IP creativity), QA, and support is a good thing is responsible for ExtremeGÇÖs inability to rapidly respond to changing market conditions. The world is not flat, and management that acts as if it is will invariably run their company into the ground. Some just do it faster than others.

Of course, since the Silicon Valley business world is now an incestuous, inbred shell of its former self, these incompetent managers will just be given more money by VCs so that they can create more failures.
DwightKen 12/5/2012 | 4:01:05 AM
re: Extreme: Movin' Out ..I dont agree with your comments on outsourcing is last route to be last in high tech market.. take a look at Intel,IBM, Texas Instruments do your home work.

Let's see -
a) IBM has dumped the PC business, one in which it outsourced microprocessor and OS and never made much money.

b) Intel has never outsourced its core microprocessor technology. The one company it second-sourced to, AMD, is giving it a massive headache and taking market share away from Intel.

c) TI - never outsourced its core technologies, e.g. DSP, MEMS, etc.

Yep, someone needs to do your homework.
raid 12/5/2012 | 4:01:04 AM
re: Extreme: Movin' Out Extreme has NOT outsourced any of their core technologies. They still do their own Asics, Systems and software.

Infact, Foundry seems to have done well by doing some of their core Asics with other chip vendors like Marvell.

Yes, Extreme does out-source support functions and manufacturing. I don't think this explains the problem.

They seem to lag behind on the hardware side(density, capacity, price). They do seem to have good software as well as good partnerships. I don't really understand how much of a drag the hardware has on their sales, though.

On the plus side, they called it correctly by focusing on the growing metro market and delivering a box built for that market. They are finally getting some stock upgrades too :-)


-raid

OpticOm 12/5/2012 | 4:01:03 AM
re: Extreme: Movin' Out The difference between Extreme and Foundry is the management.
Foundry has Bobby and he set-up a culture of very hard work, even paranoid...
The Extreme management was and probably still is deficient.
The outsourcing fiasco is "the cherry on top".
As a matter of fact, outsourcing exacerbates all the internal "sins". if not done correctly, and in most cases it is not done correctly.
There are so many "me too" managers, who outsource only because it is en vogue, not realizing the serious drawbacks.


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