Mitel Isn't Dead -- Same Goes for Elvis (& Pauline)
Mitel is making a big deal about its impending acquisition by Searchlight Capital Partners, touting how good the new ownership will be for its cloud business. Let's hope so.
Mitel's been an important telecom player for a long time -- historically a formidable PBX vendor, with the gold standard in phone sets. Mitel now is a cloud player to boot. Total cloud seats at year-end 2017 exceeded four million. Recurring cloud seats were above one million. These are big numbers, and Mitel operates in rarefied air.
Eastern Management Group recently completed a multi-year study of the global hosted PBX market and published the research in a new report, "Worldwide Hosted PBX Market 2017-2022." With market data from more than 9,900 companies studied, we present some of our market research about Mitel in this post.
Let's dissect Mitel's 2017 business. For call control licenses, Mitel is strongest in the U.S., followed by Germany, France, and the U.K. The company excels in U.S. phone sales, and has a fair amount, though declining number, of UC clients. And it's a fairly solid player in contact center agent seats.
But here are some issues that undoubtedly factored in to the sale announced this week.
On a financial level, Mitel is much like it was at year-end three years ago. Revenue has remained pretty flat, at around $1.1 billion. R&D is down by about 1% since 2014, but hovers at 10%. Net income is weakish.
I recall, a few decades ago, seeing a Mitel banner hanging in the hallway of the company's Kanata, Ontario, headquarters. "Mitel Is Not Dead," it shouted, grabbing a quote from an Eastern Management Group article, playing on the then-popular "Elvis Is Not dead" mantra. Not dead and not wanting to be prematurely written off, Mitel needed the vote of confidence. Then, and even today, we saw something positive in the company.
Mitel has often shared a "Perils of Pauline" existence, to borrow from a 1914 serial. Yet the business always survived and grew -- all for good reason. The company's phones were top shelf. The line of IP PBXs worked well, were small, and stayed under the radar of competitors. Mitel operated in the U.K. when no one else was. Mitel had a network business when no one did. And Mitel had good leadership talent, like John Combs, who served as president in the '90s and later went on to build ShoreTel from scratch (well almost scratch).
So, Mitel this week announced its agreement to be bought out by a private equity firm. Is this the end for Mitel, just like Pauline? Maybe not, also just like Pauline.
But the next chapter of Mitel could benefit from some tuning. Here's why:
- Mitel sees its future as cloud. Good idea, but the hosted PBX field has hundreds of competitors. And most of them are after the same market as Mitel, whose average cloud customer is around 40 seats
- Every major PBX provider, including Avaya, Alcatel-Lucent, Cisco, Unify, and others, wants a piece of the UCaaS business that Mitel covets
- Mitel needs to get its gross margins up in the range of 60% to 65%, not the 50% range or lower
- R&D should be moving up to 14%, not falling below 10%
- Mitel has been harvesting its installed PBX base for cloud customers. Is it running low on low-hanging fruit for cloud prospects?
Now, what should Mitel do if it has a chance? Just like you would for "Perils of Pauline," stay tuned.