Avaya Users: Time to Build Your Contingency Plans
With Avaya in Chapter 11, enterprise customers need to do their due diligence and, while hoping the company remains intact, plan for the worst.
The shoe has finally dropped. As most No Jitter readers will know by now, Avaya, a significant player in the UC industry, filed for bankruptcy protection on Jan. 19. That this is almost eight years to the day that Nortel announced its Chapter 11 (Jan. 14, 2009), makes this the second bankruptcy in less than a decade that Avaya "Blue" enterprise customers (those picked up when Avaya grabbed Nortel's assets out of bankruptcy) have had to contend with... and they feel the pain.
Every CIO, CTO, and UC director at any Avaya enterprise customer must help their executive management teams understand what's going on with the company and help manage the risk associated with its Chapter 11 filing. Each Avaya enterprise customer must understand potential outcomes, and put a contingency plan in place.
Good News, Bad News
At this early stage, questions about Avaya's outcome outnumber answers. The good news:
- The wait is over. By filing for Chapter 11 protection, Avaya has finally cleared the way for action and can now take steps to relieve some of its debt burden.
- Chapter 11 does NOT mean Chapter 7, liquidation.
- Avaya has publically expressed confidence that restructuring its balance sheet will strengthen the company and make it more nimble so that it can make necessary investments in innovation and operations. Let's hope this is the case.
- Avaya has not been lacking with acquisitions and innovations over the last three years. For example, it acquired Esna Technologies in May 2015, and has rolled out Oceana, Equinox, Zang, Breeze, Avaya Fabric Connect, and Avaya Shortest Path Bridging, among others products
- Avaya continues to participate at trade shows, including Avaya Engage (its user group event taking place Feb. 12-15) and Enterprise Connect 2017, which is March 27-30.
- Avaya's Net Promoter Score remains higher than competitors' scores, and its businesses are healthy and operations strong, the company said. "In fact, our operating profitability has improved sequentially in each of the past six years. Our fiscal Q4 results show y/y growth in contact center products and networking and sequential growth in unified communications, and were above our expectations, including adjusted EBITDA performance that was an Avaya record," Avaya said in a prepared statement. According to this statement, in my opinion, this Chapter 11 could be different than Nortel's eight years ago, and could be a positive move for Avaya. In fact, Avaya could come out of this stronger than continuing to carry the burden it has over the last several years.
The not-so-good news:
- Avaya's regular "move" from a VAR- to a direct-centric model and back, as well as highly leveraged financials, have forced larger Avaya VARs to consider alternative vendors, including Cisco, ShoreTel, Microsoft, Mitel, and NEC, among others.
- The debt issue has been a consistent thorn in Avaya's side since it went private, forcing continued discussions on the company's finances with customers and prospects.
- Details about the restructuring are still unknown. As Avaya said in a formal statement, "The actual details of the restructuring will be worked out through the chapter 11 process, in consultation with our key stakeholders and, ultimately, the approval of the Court."
- The bankruptcy process will likely be protracted, and costly. As Forbes contributor Robert Bovarnick explained in a "what you need to know" piece, "The Chapter 11 process is long and expensive. In my experience, attorney's fees run about 4% of annual revenue."
- We do not know how Avaya will land when (and if) it comes out of Chapter 11.
A Lot at Stake
Avaya is among the leading providers of contact center, UC, and telephony systems globally, and is highly ranked in related Gartner Magic Quadrants. So the company has a lot at stake, as do numerous stakeholders, including:
- VARs and technology partners
We are hoping for the best -- that Avaya will be able to ride out this financial storm and come out of it as a stronger, viable long-term player in the UC and contact center spaces.
The final outcome from Avaya's bankruptcy could be:
- A better, profitable, and whole Avaya with legacy financial burdens behind it, and one that continues to honor all previous engagements. (This, of course, is the best-case scenario, which I think most No Jitter readers would hope happens.)
- A smaller Avaya, with some divisions and products sold off (possibly its data and contact center businesses).
- Avaya, as another company's holding -- in other words, another entity purchases the company outright. If such were to happen, the acquiring company would most likely continue to support the Avaya products until such time that they get "folded" into the new company's own product lines.
- End-of-life Avaya -- the company is liquidated and disappears from the communications picture altogether.
Enterprise IT executives must take a variety of considerations into account when putting together their contingency plans. Some of the short-term effects under Chapter 11 status could involve:
- Employee Loyalty and Longevity - Some competitors may be offering attractive packages to Avaya engineers and other valued individuals.
- New Systems Sales Eroding - New system sales could diminish during this period, with the fear factor part of customers' decision-making processes, unless they receive specific guarantees from Avaya and VARs at the time of bid/proposal submittal. New Offers on Avaya Products - Looking to encourage loyalty, Avaya will likely offer some products at highly competitive rates.
If you are currently procuring a new unified communications or contact center system, or data network hardware, to replace an existing infrastructure, consider the following:
- Ensure the current state of Avaya is part of your consideration in the bid evaluations, and consider any longer-term risk associated with such a decision.
- On the other hand, your best offer for a system replacement could come right now; similar to deep discounting offered during MCI's Chapter 11 status in the early 2000s.
- Note that UC is a six- to nine-year investment, while data infrastructure is commonly a three- to four-year investment. Companies need to take these timeframes into account as part of their contingency plans.
Continue to next page for contingency plan basics