Will Avaya end up going the way of Nortel? Analyst says it could happen

A veteran communications and telecom analyst has likened what is currently happening to Avaya Holdings Corp. to that of the final downfall of Ottawa-based Nortel Networks in 2009.

Jon Arnold, the principal of J. Arnold & Associates, a Toronto-based independent research firm, said in a recent interview that the trajectory the Durham, N.C. organization is heading in is “very similar to how Nortel ended up – it’s really uncanny. It is not quite as negligent financially, but they certainly have big problems that are going to put them behind the eight ball.”

Avaya, he said, has a short runway – likely a maximum of two quarters – to turn their fortunes around, keep investors on board and maintain their trust and “obviously the trust of customers and channel partners.”

Should that not happen, he said, Avaya, a company that was formed in 2000 when Lucent Technologies sold off its division that manufactured business telephone systems, will, like Nortel, probably be “broken up into parts and sold off.”

News of the organization’s severe financial problems ratcheted up last month when the Wall Street Journal reported  that the “company is nearing a Chapter 11 bankruptcy filing to restructure its balance sheet, in a bid to turn around its business and move past accounting problems.”

Company shares as of early this afternoon were trading at US$0.18, compared to a high share price earlier last year of US$21.65.

Arnold, who participated in an analyst briefing with Avaya CEO Alan Maserek last month, said the message that came out of it was that the company intends to narrow its product focus and “double down” on its Contact-Centre-as-a-Service (CCaaS) offering – Avaya Experience Platform.

A company blog describes CCaaS as a cloud-based customer service application that manages and tracks customer journeys, employee interactions with clients, and many other inbound or outbound customer communications.

“CCaaS allows companies to purchase only the technology they need, and is usually operated by a vendor, helping to reduce IT and administrative costs.”

If Masarek and Avaya board members submit a Chapter 11 filing, it will be the second time it has happened in five years. “That’s pretty unusual,” said Arnold. “It is all going to ride on how much time the creditors give them. If they smell enough blood and feel that this is a sinking ship, they are going to call in their loans and that will force the company into default, which you really do not want to see.

“I can tell you any analyst you talk to would say the market is better off having Avaya in the game than not, because of their pedigree. They are one of the founding companies of the entire telecom industry if you go back to their roots, but you know, Nortel thought they were too big to fail, but their arrogance drove them into the ground.

“Avaya is a lot more humble. I think at this point they do not have a lot of chips to play with, so they have to do the right thing and keep their head up straight.”

Meanwhile, in a statement about Avaya issued on Dec. 23, research firm GlobalData said its new product strategy delivered by the recently installed Masarek offers little differentiation, compared to his predecessor and other key competitors.

Gregg Willsky, the firm’s principal analyst, said “certain initiatives currently underway will yield greater clarity of purpose for customers and employees, and the company has an impressive set of assets. However, Avaya’s overall approach to the market is highly reminiscent of former CEO Jim Chirico’s, as well as other legacy technology players such as Cisco and Mitel.

“Avaya is trimming its product portfolio to better support its key mission of meeting customers wherever they are in their cloud journey (on-premises, in the cloud, or hybrid) and to migrate them at their own pace.”

Willsky added that “fewer products means less expense, less operational gymnastics, and faster time to market. Avaya’s Experience Platform is a key driver of this product strategy. It is the engine Avaya will use to deliver offers it has decided to retain (mainly unified communications and collaboration), as well as offers the company has decided to newly invest in (contact center as-a-service and customer experience).”

However, working in Avaya’s favour, he said, is “a broad customer base of 90,000 organizations spread across 190 countries, a large partner ecosystem, one of the highest revenue bases in the industry, a sizable patent portfolio, and deep brand recognition.

“If the new CEO can harness these assets, implement greater transparency, reliability and clarity, and carve out routes to market that are independent from his predecessor’s, Avaya will be on a promising path.”

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