Avaya Makes a Top 20 List

by Dave Michels

Along with the Fortune 500, comes the list of the biggest losers. Avaya came in 15th place! Meanwhile, its distant sister or mother or something AT&T; came in 2nd place on the most profitable list.
Money/CNN on Avaya:

Private-equity firms Silver Lake Partners and TPG took Avaya private in 2007 for $8.3 billion. That buyout, along with the acquisition of the Nortel assets, led to more than $500 million in charges and saddled the company with almost $6 billion in debt as of the end of its fiscal year. As a result, the company was required to pay several million dollars in interest during the year.

If they just sold 10 more desktop video devices, they would have been profitable too. So close.

It really boils down to how you define a customer. The Avaya/Nortel deal resulted with a 22% increase in revenue, but the majority of Nortel customers aren’t opening their wallets. They count as only installed base today but will they tomorrow? The plan is to convert that installed base into revenue, knowing sooner or later they will open their wallets. When they do, the question is will Avaya offer the smoothest, easiest, cheapest, etc. upgrade path? Will Nortel customers (or Avaya customers for that matter) feel any loyalty?

I’m not convinced Avaya has any better chance of winning those upgrades than others do. For example, Microsoft just released their white paper exactly how to connect Lync to an Avaya S8300. In fact, UC without a forklift strategy is an option from many vendors including Mitel, Aastra, and Siemen Enterprise. In a word, the competition can be described as fierce. Not a bad time to be a buyer – or a vendor with cash that can afford to buy market share. And that’s what many are doing – buying market share. Huge incentives and discounts, especially to Nortelers, seems the norm these days. It could just be a question of who has the most cash to give away. Cisco and Avaya are a bit short.

Nortel may be gone, but overall there are more competitors than there were. Microsoft is one example, but don’t forget the hosted offerings. IBM is still bring your own voice, but IBM’s SameTime integrates nicely with several brands. Also, Cisco just launched a new system at the mid market Nortel base.
Then there is the channel part of the equation. A colleague pointed out to me that many of the Nortel dealers are defecting to other brands. On one hand this is reasonable, most mergers result with some redundancies and both Avaya and Nortel had a lot of dealers that the combined company would not need.
On the other hand, those dealers have customer relationships – deeper than Avaya in many cases. They know the customers, their pains, their history, their decision making processes and their calendars. If they are hawking alternative solutions, that certainly decreases the odds of retention.

Whatever happens, don’t expect it to happen quickly. Nortel declared bankruptcy in Jan 2009. VoIP has been up and coming since about 2002. Whatever is keeping the TDM Nortels in place isn’t going to stop tomorrow. Most companies are smaller than they were a few years ago, and growth is the number one reason to buy a new system.
So the good news for now is they made a top 20 list. “Avaya, a global leader in enterprise communication systems was recognized by Fortune for their financial performance….”