Polycom’s Wild Ride

by Dave Michels

Polycom’s been on one hell of a roller coaster. The company that is synonymous with non-Cisco video conferencing has had its ups and downs – mostly downs – lately.

From Fierce:

The company has come back to Earth with a thud, posting net income of $15 million or 8 cents per share, down from $34 million, or 19 cents per share, last year, a 56 percent drop and its first decline since 2010. And, said CEO Andy Miller, the company isn’t too optimistic about the second quarter. Polycom said it expects to earn between 20 and 22 cents per share on revenue of $367 million to $377 million. Wall Street was looking for a forecast of 25 cents per share and $387.3 million in revenue.

It has CEO Andy Miller on the defensive, until last July, Miller had only seen the stock trend upward since his appointment to the corner office in May of 2010. Miller believes the industry is “in the midst of the company and industry transition from point products to solution selling. This mindset shift affects both our customers and our sales force.”  Polycom cut its first quarter revenue outlook April 5, prompting shares to decline to $13.46 April 11. The stock closed at $12.89 Friday.

He is right about the transition part, but then what aspect of voice and video is not in transition? Polycom appears to have rapidly lost its industry innovation leader badge. Here’s a couple of concerns from where I sit:

  • Polycom and Cisco dominate the video room system category. But that sector is under pressure from less expensive desktop based solutions. Nearly every UC vendor now supports video communications in their UC suite, and the likes of Skype, Google, and Apple are bringing uber low cost solutions into the consumer space.
  • In addition to Cisco, Polycom is also getting squeezed by smaller enterprise players. LifeSize is pushing its Connections service that simplifies video infrastructure to a monthly service. Avaya picked-up Radvision which will likely close-off a big portion of the market (the two big UC market leaders Avaya and Cisco have video covered), and Vidyo picked-up a Best of Show at Enterprise Connect for a virtual appliance that delivers scalable multipoint video conferencing in virtual environments to align with cloud and server virtualization initiatives.
  • Polycom appears to be missing the big spike in mobility and FMC. It acquired SpectraLink (wi-fi) and Kirk (DECT), both of which are now mere fractions of what was acquired. It has made some wins getting its RealPresence technology pre-installed on some mobile phones, but how pre-installed apps result with new system sales is not clear.
  • Polycom was the innovation leader in IP phones for nearly a decade – SIP, HD, POE and quality acoustics; but competitors have largely closed that gap. Polycom and Digium enjoyed a nice partnership over the years practically defining what is now the defacto standard for SIP telecommunications. Digium just released their own phones, and Polycom has only introduced one new phone in the past few years.
  • In fact, I’m having trouble recalling any recent major product announcements. Polycom announced a big push in SVC technology back in 2010, but we haven’t heard much since.
  • One area where I do see segment growth is in MCUs – but Vidtel and Blue Jeans are stealing mind share as a cloud MCU. Radvision recently announced some breakthrough port pricing. The aforementioned LifeSize Connections also seems well positioned. Where’s Polycom?
  • Polycom bet heavily on Microsoft Lync – but, by Microsoft’s design, Polycom’s IP phones offer no benefits over those from Aastra and HP. Snom actually managed to transition their SIP phones into Microsoft Lync phones. Snom is the only vendor of Lync Phones that can offer a migration between Lync and SIP technologies and the company skipped the need to create, stock, and distribute a new set of endpoints.
  • Polycom is still largely a hardware based company, while the rest of the industry is moving toward software based solutions.
  • One of the most frequent introduction clauses I heard at Enterprise Connect was “I used to be with Polycom.”
  • Also, at Enterprise Connect, I saw/heard  under NDA some next generation audio conferencing technology that has serious disruption potential in an area that Polycom enjoys perceived market differentiation.

Polycom is an amazing company, and they have done some amazing things. Its prior accomplishments were in a much tougher market where it had to define and educate the world on video and IP communications. It is a shame to see the company so challenged during a time when video, mobility, and VoIP are all poised for spectacular growth. However, this missed quarter may be indicative of some big problems at Polycom.


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