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Avaya Anew: Out of Bankruptcy & Raring to Go

Almost 11 months to the day, Avaya has exited the Chapter 11 bankruptcy protection it entered into on Jan. 19 -- far off the "summer 2017" mark the company suggested at one point, but not nearly as delayed as some industry watchers were wont to expect early on in the process.

The details of how Avaya landed in bankruptcy have been well reported here on No Jitter and elsewhere, with bad debt and market upheaval two primary culprits. Those looking for the blow-by-blow can follow the links in the sidebar on page two. Here, let's focus on the going forward.

Avaya emerges from bankruptcy today as a public company, with shares initially trading over-the-counter through a dealer network but eventually, the company expects, on the New York Stock Exchange, Jim Geary, GM for Avaya's Americas Sales and Services, told me in a No Jitter briefing. The company expects to have approximately 110 million shares outstanding upon emerging from bankruptcy, as stated in today's news release.

The new Avaya is carrying a much lighter (but not insignificant) debt load, reduced by about $3 billion, than its privately held predecessor; "greatly improved" cash flow and cash balance, with $300 million in cash on its balance sheet; a new board and revamped executive suite, including new CEO Jim Chirico; and, reportedly, an energized workforce. "We're excited to move forward and go full speed ahead into the future," Geary said.

Today's financial framework gives Avaya the flexibility it needs to invest in its contact center and UC businesses, as well as complete its transformation from hardware to a software and services model, Geary said. And, speaking to that software and services (read "cloud") business, he added, "that's not just aspirational." Exit numbers will show that 80% of what we produce on a quarterly basis is in software and services. ... It's part of our DNA," he said.

Getting Aggressive

Avaya circa 2018 will be "more aggressive than it's ever been," Geary said.

It's going to have to be, said UC watchers I've talked to about Avaya's potential next steps. After all, the market disruption that contributed to Avaya's spiral into bankruptcy continues unabated. Avaya must still cater to a massive customer base with legacy on-premises systems while at the same time competing for cloud business against much more nimble UCaaS pure-plays such as 8x8 and RingCentral, as Rob Arnold, a Frost & Sullivan industry principal, pointed out.

And the dying off of hardware sales continues to haunt Avaya as much as any other legacy telephony provider, noted Diane Myers, senior research director with IHS Markit. "The ability to truly pivot to the cloud is really what's ultimately going to enable Avaya to survive and have long-term success -- and what will be critical is that Avaya does that not just with its legacy base but captures new customers, whether from competitors or companies coming up."

As strong of a storyline Avaya weaves around its transition, its ability to compete for public cloud business in the midmarket and enterprise segments is still largely untested, Myers said. And it's not easy to do well, she added, pointing to ShoreTel as the perfect case study for understanding how difficult a challenge this is. ShoreTel revamped around the cloud, was able to shift away from hardware, and yet still faced a bumpy enough future that it ultimately decided to accept the Mitel buyout earlier this year. And ShoreTel had been a much smaller company, with a less complex portfolio, than Avaya, she said.

Wait-and-See, Some More

To its advantage, Avaya has strong customer and partner bases. They even grew during the bankruptcy, Geary said. During the past year Avaya signed 4,000 contracts, valued at $50,000 or higher, with new or existing customers, and brought on roughly 1,000 new partners, Geary said.

Given market consolidation -- with Mitel buying ShoreTel and Toshiba's telephony business plus more than a dozen UCaaS mergers in North America alone -- those numbers seem reasonable, Arnold said. But Avaya numbers have shown a slowdown, too, and many Avaya shops have clearly been in a wait-and-see mode -- too heavily invested in Avaya infrastructure to make a move away from the company, but too uncertain about continuing with it, either, he added.

Pent-up demand doesn't mean an onrush of business now that Avaya is out of bankruptcy, cautioned Steve Leaden, founder and president of Leaden Associates, an independent communications and IT consulting firm.

"From a customer point of view, it's a great time to go shopping. Avaya is trying to get in the game, and will discount heavily as its move forward," he said (read related article, "What Massive Bosch Deal Says About Avaya Cloud Goals"). But the continued debt, as comparatively small as it is, is going to give many companies pause, he added. Avaya's financial status has come into question for years, and that doesn't change now. With the debt, "that 'cloud' still remains to some degree," he said.

This isn't to say Leaden doesn't encourage clients to consider Avaya, because he does, as appropriate. "But would I buy tomorrow? 'No.' I'd wait six to 12 months to test the water. Would I include Avaya on a bidders list? 'Yes.' Would I do briefings with it? 'Yes.' But I'd have a small waiting period to make sure it resurfaces and stays afloat," he said.

And though it's been a relatively quiet year on the product announcement front, Avaya really hasn't lost much ground there, Leaden said. As much as Cisco talks up the transition to its cloud-based Spark platform and Microsoft its competitive Teams platform, from an adoption perspective this is all quite visionary yet, he said. And neither of those companies has proven unequivocally that it can take UC in its entirety, along with telephony and a robust contact center environment, and help transform the enterprise end to end, he added.

"So Avaya may have lost some market share, but ... it could have been worse," Leaden said.

Pushing forward on technology development and innovation has been and will continue to be an emphasis for Avaya, said Geary, noting that the company's R&D spend for 2017 tallied to about $225 million. That attests that "innovation is part of who we are," he said. And the new financial structure gives Avaya the flexibility to consider opportunities to expand the portfolio as needed, he added.

Give it Time

Arnold's advice to Avaya: "Double down on the cloud." And to that, Myers would add, "get the word out." Avaya Breeze, for example, is a "great real-time communications platform -- I've played around with it a lot," she said. "That's all good and well, but if people aren't aware of it, what's the good of it?"

Avaya will need to do a better job at marketing its cloud services, and telling a more cohesive story, Myers said. The company presumably knows that, as Geary noted the company's intent to create a new cloud enterprise organization headed by a yet-unnamed new executive lead. "Our commitment to cloud will be clear and evident," he said. "We're building a structure around the cloud itself, and empowering the organization to drive and accelerate our strategy."

All eyes will be on Avaya as it navigates its way as a public company, in a hotly competitive cloud-tilted world. But Myers encourages folks to give the company some time to deliver. "It won't have a complete pivot into growth areas by this time next year, but there should be signs that it's set itself up for continued success... or not," she said. "If it can't put everything in place and start making progress within a year, it'll be tough for it to move forward."

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