Posted by Eric Krapf, Editor | Jun 10, 2008

Avaya today announced that Lou D'Ambrosio (left) is stepping down as CEO for unspecified "medical reasons," and that Charlie Giancarlo (right), who left Cisco late last year, will step in as interim CEO and President while a search is conducted for D'Ambrosio's successor. Giancarlo left Cisco last December to move to Silver Lake Partners, the private equity firm that acquired Avaya in mid-2007.

Update: We'll be working on this story and getting reaction throughout the day. Obviously, thoughts and prayers go out to Lou D'Ambrosio and his family and we wish him well.

As far as what this means for Avaya, it's been an eventful and often difficult 12 months for the company. It was almost exactly a year ago that Avaya announced it was being acquired by the private equity companies Silver Lake Partners and TPG. By the end of 2007, Avaya's chief rival in the enterprise communications market, Cisco Systems, had completed its inexorable march to the top of the market share standings, passing Avaya. This had little to do with anything Avaya did or didn't do, and was mainly a testimony to the market power and marketing muscle of Cisco.

Late last month, Avaya announced it was laying off 400 workers, on top of 600 other positions eliminated earlier in the year.

All this is coming as the weak U.S. economy appears to be taking its toll on the North American enterprise voice communications market, and as all the legacy PBX vendors--Cisco included--work to counter the entry of Microsoft and IBM into the real-time communications market.

In an email to me, veteran industry analyst and longtime Avaya watcher Allan Sulkin wrote:

If Avaya does bring in an outsider as a replacement, it can have a strong effect on the organizational dynamics at the executive level of the company. Lou brought in many high level execs from outside the company (and outside Avaya's market space); how they will mesh with a new CEO remains to be seen.

Avaya has been undergoing a housekeeping of late, including sales and services, and a new CEO could continue to sweep out underperformers and replace them with his/her own picks. Like with sports teams, you can't replace all the players, but can change the coaching staff. Loyalty is an important element of corporate politics.

One industry insider who asked not to be named said in an email to me that the private equity transaction may be posing more problems for Avaya than were anticipated when it closed a year ago:

The Avaya deal closed at the tail end of the private equity bubble. Consequently, the price on the debt was higher than originally anticipated in the model, meaning that they are paying more interest than expected, requiring them to reduce costs beyond the original plan. Add to this a business that is struggling...and you have a challenging situation – beyond what I am guessing the private equity guys expected. Natural reaction: increase cost cutting, change out management, narrow product lines, etc. Very tough call to put that much leverage (debt) on a company that is at an inflection point in the market – IPT or mobility, Microsoft, Cisco, etc. – because it forces you to make short term decisions to react to the financial demands which will most likely hurt the business in the long term.

D'Ambrosio Brought a New Style
Formerly Avaya's top sales executive and an IBM veteran, D'Ambrosio brought a vibrant style to a company whose often-staid culture reflected its heritage as a part of the Bell System. Avaya was originally part of AT&T Network Systems, the equipment manufacturing arm of Bell. AT&T eventually spun the equipment maker off from the carrier business and dubbed the resulting vendor Lucent Technologies, and Lucent in turn spun the enterprise division off as Avaya and kept its carrier-equipment business--a move that backfired as Lucent declined and eventually was acquired by Alcatel, while Avaya thrived as enterprises began the transition to IP telephony.

Allan Sulkin noted this stylistic impact as one of D'Ambrosio's major contributions to Avaya: "Lou brought a new dynamic to Avaya when he joined the company, and especially when he stepped into the CEO position," Sulkin wrote in an email to me. "At the time his relative youth and vitality were sorely needed at Avaya to compete against a new wave of non-traditional competitors. Lou was a very strong spokesperson for both Avaya and the industry at large, and his presence will be missed."

You can watch D'Ambrosio's March 2008 VoiceCon keynote here, and read accounts of it here and here.