Most of the news from the US this week has been on a rather different topic, but 19th January also saw Avaya announce that they have filed for Chapter 11 bankruptcy protection. This is troubling news but it is very premature to start writing obituaries yet. As an Avaya partner with many Avaya end-user customers, we thought it was important to give our views on the matter.
It’s important to make it very clear that this does not mean that Avaya is bankrupt; indeed, it is providing them with a mechanism to prevent bankruptcy. Furthermore, this applies to the US only and no international businesses are affected.
More relevantly, this is a well-worn path in any industry and tech is no exception. Ironically, it comes almost exactly 8 years to the day since Nortel Networks filed for Chapter 11, with Avaya acquiring their Enterprise Solutions business. This was a prized asset and Avaya won the auction to buy it.
Likewise, Global Crossing went into Chapter 11 in 2002, successfully exiting from it and listing on Nasdaq some two years later. They would go on to trade very successfully for many years before their acquisition by Level 3 Communications in 2011.
To our mind, there are only two outcomes here. Either Avaya restructures its balance sheet successfully (which we believe both its equity owners and debt providers want) or it finds an acquirer and carries on under new ownership. The company “disappearing” is not a feasible option, as we will explain below.
The Avaya Position
This has been widely covered, so we don’t intend to copy-and-paste the public domain information here. However, it is worth restating that the underlying health of the business is fantastic. Its FY16 results of $3.7bn revenue, gross margin of 61% and EBITDA of $940m (25.4% margin) would be envied by all but an elite few businesses. The problem is the capital structure; the company simply cannot service its debt. No products have been discontinued, service and support remains unchanged, they continue to trade in as normal a way as possible.
The Six Degrees Position
We are arguably able to be a bit more explicit with our worldview than Avaya is able, and our position remains bullish. The reality is that somebody is going to end up taking over a business whose origins and ancestry dates back to Alexander Graham Bell himself. The Bell Telephone Company became AT&T, out of which Lucent was spun, then ultimately Avaya was formed. When your great grandaddy invented the phone, you’ve got good genes (and Scottish ones at that!).
As a result of both their Bell Labs heritage and the Nortel acquisition, Avaya also has a patent portfolio to die for, and the inherent worth therein is considerable alone. Its technologies are, and always have been, market-leading and their track-record of innovation, all the way back to the 1880s, is stunning.
Likewise, on a global scale, they are typically either number 1 or number 2 in market share across IP telephony, contact centre and unified collaboration solutions, in all major territories. The size and value of their customer base is arguably unrivalled. And it’s prestigious too with 90 out of the Fortune 100 being Avaya customers.
In short, we are confident that even if ownership and names change, they will ultimately remain in business. The financial performance and growth is too strong, the technical capability too good, and the customers are too valuable for anything else to be plausible.
Our message to customers, prospective customers and interested parties is simple: it’s BAU. Our commitment to Avaya remains the same – steadfast and absolute. You will continue to get support from us and from Avaya, you will still be able to buy more Avaya from us, and your contract with us remains unchanged. As does our commitment to ensuring that whether you’re an UCaaS customer, an IP Office customer or an Aura customer, you enjoy a great customer experience from Six Degrees.