Last month, telecoms giant Avaya, Inc. filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code, which allows organisations to re-organise their affairs in part by temporarily relieving them of obligations to creditors.
Although this news shook the industry, it landed as an expected one for some of the most experienced industry leaders and experts. Indeed, Avaya’s financial struggle has been well known across the industry for some times now. Since embarking on its journey to shift away from a legacy hardware business to a software and services company, Avaya has been under increasing pressure to reduce its $6.3bn debt load1. A debt largely due to the bad timing of its 2007 buyout worth $8.2bn to turn the company private.
Over the last five years Avaya has had an average revenue decline of about 6%2. This decline is not due to its capital structure, it is due to the market conditions and Avaya’s competitive position within the market.
Despite its financial struggle, Avaya has been innovating and delivering new capabilities that have value in the market and helped to create new revenue streams. In 2016, 75% of Avaya’s revenue came from its software and services divisions3, including its two core elements (Unified Communications and Contact Centers) in which Avaya holds strong market leading positions. However, Avaya is now paying the price for its lateness in entering the cloud-based services market where its biggest competitors have enjoyed bigger successes without the weight of a $6bn debt on their shoulders.
What does the future hold?
Avaya is at a crossroads. Although the Chapter 11 Bankruptcy process is the right call for the company to move forward, it also brings a lot of questions and uncertainty around how the company will come out of this process. Which company asset will be sold? How its overall business will be affected? And when will this process be completed?
Many questions remain unanswered to this day as the company filed for Chapter 11 Bankruptcy on January 19th, 2017.
What does it mean for Avaya customers?
Industry experts believe that regardless of the bankruptcy outcome, Avaya customers can be assured in the value of their Avaya investment and that their Avaya solution will continue to be supported and useable. However, time is critical in the bankruptcy process of Avaya and considering how significant its debt is, the sale of company assets will unlikely cover the $6.3bn debt valuation. In addition, Avaya still has to find a solution that will satisfy all of its many creditors whom have their say in the bankruptcy plan Avaya will propose.
Overall, Avaya may find itself in a situation where creditors’ demands cannot be met, resulting in a longer bankruptcy process which will be more challenging for Avaya customers and partners.
Larger customers are already doing their due diligence to develop backup plans in case Avaya struggles to emerge from this bankruptcy process.
With Avaya in Chapter 11, all owners of Avaya equipment have some level of risk. Enterprise customers need to do their due diligence and, while hoping Avaya remains intact, plan for the worst in order to minimize business disruption.
At Shape Networks, out team of telecoms experts have more than 15 years of industry experience in dealing with legacy hardware including Avaya on-premise telephone systems. If your company currently uses an Avaya solution and would like to review their options following Avaya’s financial difficulties, you can contact us on 0207 015 2100 or email us at firstname.lastname@example.org.
1 http://thevarguy.com/var-guy/struggling-under-6b-debt-load-avaya-looks-be-heading-toward-chapter-11 2 http://www.ucstrategies.com/unified-communications-strategies-views/avaya-what-is-the-path-forward-through-bankruptcy.aspx 3 http://www.channelpartnersonline.com/articles/2017/02/tbi-the-avaya-bankruptcy-channel-implications.aspx