IBM and SIP Phones

By

IBM sold off its low end server business to Lenovo. Lenovo was born when IBM sold off its PC and laptop business.

Why would a computing company want out of computers? Well, they kept the good stuff (mainframes), but it was time to put these entry-level work horses out to pasture because they are commodities. It was a profitable business at one time, but the brand doesn’t lend itself well to commodity products. $2.3 billion today for a business that will be worth less next year seems reasonable.

A Nebulous Decision. This is all about the cloud. Thanks to virtualization and public cloud services, the server market is crumbling. The incredible shrinking server (and PC) industry – IBM, HP, Dell, Acer, and so on. Ironically, all that cloud computing takes computers too, just not ones with expensive brand badges on them.

New York Times reports “Now outfits like Google and Amazon, which increasingly build systems for rent by the general public via the Internet, buy their x86 machines (based on a chip design commonly made by Intel and AMD) in shrink-wrapped racks from cheap Asian suppliers.” IBM did the right thing. It is a declining commodity business, and they were able to cash out.

This is what Polycom needs to do with its SIP phones!

Polycom makes great SIP phones. I have several. Polycom played a huge role in defining the market and product for the modern SIP endpoint. In fact, its role was similar to that of IBM in how it created/standardized the modern PC. Polycom phones are well regarded for their construction and audio quality. The firm has impressive world distribution. The newest models are very nice. I particularly like the snap on camera accessory.

Polycom has had a good run (though blew the wireless opportunity – see related).

It is time to let go for the same reasons that IBM needed to set free its PCs, laptops, and now servers. Generic SIP phones are commodities. The brands can still charge a bit of a premium now, but that’s going south. The big three are Polycom, Aastra (Mitel), and Snom (Cisco too is very popular as a SIP endpoint on non Cisco solutions, but it seems to be a less strategic priority for them). Then there’s a whole slew of challengers – Grandstream, Yealink, Panasonic, and many many more. Not to mention that firms like Avaya, Cisco, NEC, Mitel, ShoreTel, Unify, and ALU all make SIP phones too.

Let’s fast forward a few years. SIP phones will be even less expensive, and probably won’t be much different functionally. That’s what standards do – they slow innovation (to committees) and drive down costs. The only way to maintain margins will be to decrease costs, but that could be hard if the market is getting smaller – and it could thanks to increasing demand for softphones and mobile phone clients.

My understanding is phone sales at Polycom is very lucrative right now – that’s why it is time to sell. It is much harder to sell a distressed business. Polycom can command a premium today, but like IBM and its servers, it will decline as commoditization increases. The best choice is for Polycom to exit the business now. Apply the cash to video conferencing software solutions.

I don’t it will be easier to spin it off than find a buyer.

Same true for Aastra and Mitel? Actually, no.

Mitel could see its phone sales grow for several reasons. For one, it still makes proprietary phones for its platforms. With its impending merger with Aastra, it picks up a broader phone market (more platforms and more regions). That will give it some leeway as it consolidates its models (it did this with InterTel phones before). The new Aastra phones expected soon are expected to be quite a bit less to manufacture too. Then, there’s Clearspan –  I would love to see Mitel and BroadSoft get closer together. An improved phone for BroadSoft could stimulate demand world wide among its providers. BroadSoft needs a hybrid partner too. Lastly, the last two endpoints Mitel released were SIP only – but still sold through closed Mitel distribution. The Aastra phones are sold through open distribution. It will be interesting to see what happens here, but selling SIP phones through open distribution could open Mitel to a larger market.

As for Snom, they should stick with them too. That’s what they do. Snom has a big benefit over Aastra/Mitel and Cisco in that they do not compete with any of the platforms. My guess is some major UC firms will get out of the phone business – Unify? ALU? Why bother making a proprietary standards-based phone? Snom is the logical partner as they don’t compete on the platform side. For example, they already make the HP Lync phone.

Bottom line is UC is rapidly becoming a software based industry. Hardware will never go away, but it is increasingly becoming a commodity. It could be a lucrative business for an off shore manufacturer, but not for a high-end brand.

Dave Michels