-Updated- 03-07-17 As predicted Avaya spun off its networking business. The lucky winner is Extreme. The presser from Extreme is here.
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In one of the worst-kept secrets in tech, Avaya has finally declared bankruptcy. The Santa Clara, CA-based communications company filed for chapter 11 protection on January 19th, 2017 in the U.S. Bankruptcy Court for the Southern District of New York. Reports are that Avaya faced an end of January deadline to reach agreements with creditors to address its $6.3 billion debt or potentially default.
The company’s presser announcing the bankruptcy characterizes the decision to seek Chapter 11 as a necessary re-do on deals made a decade ago. The company was spun off from Lucent, a former AT&T unit, in 2000. Avaya went private in 2007 when private equity firms Silver Lake Partners and the Texas Pacific Group took over the firm for $8.2 billion. Avaya was set up as a leveraged buyout – loaded with debt. At the time the new owners said going private would help Avaya to accelerate product development. In 2009 Avaya scooped up the remnants of Nortel for $900m.
The Nortel acquisition added Ethernet switching and VoIP to Avaya’s portfolio. While the move added needed hardware to the Avaya portfolio the rest of the tech world started the shift towards software-as-a-service and the cloud. Avaya was not able to digest Nortel while taking on Cisco, Microsoft, and the cloud at the same time.
Avaya was both late with VoIP and Unified Communications. Neither Microsoft nor Cisco were competitors in the TDM/PBX era. Cisco joined the race with VoIP and Microsoft then came along with Unified Communications. Both have tremendous enterprise penetration and brand recognition.
The pressure forced Avaya to consider selling its crown jewel, its contact center products to Genesys in 2016, in the hope it would raise some cash. When the deal with Genesys fell through, Avaya decided to file for bankruptcy. Avaya CEO Kevin Kennedy said in a statement, “…chapter 11 is the best path forward at this time.”
In order to keep the lights on during the reorganization, the company has secured a $725 million loan underwritten by Citibank.
As part of its debt load, Avaya owes its pensioners $1.7 billion in unfunded pension liabilities. According to NoJitter Avaya will honor it obligations to maintain and continue the pension (as did GM in its reorganization).
Chapter 11 only impacts Avaya’s United States operations. In the rest of the world, the company is moving to assure customers and stakeholders that it’s business as usual.
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My experience is that the Avaya IP Office product is way over-priced, even in a bid environment. Why would anyone buy an Avaya Ethernet switch or access point when you can get a Cisco or an HP?
So what is to become of Avaya? One likely outcome is that all of the business units will be sold off to satisfy the creditors. The only thing left of Avaya will be a service organization to care for the huge installed base of orphaned Nortel and Avaya systems.
I know people are already getting calls from Cisco about replacing Avaya.
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Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.