Avaya, bit by IP, maybe up for sale

Avaya, the stock (AV), has been range bound, trading between $10-and-$15 a share, for nearly two years, indicating a general apathy investors have for the enterprise telephony company, that as part of AT&T, was at the pinnacle of telecom mountain. It is hardly a surprise that Avaya reportedly is on the block – looking to sell itself to either rivals like Cisco Systems and Nortel, or a private equity buyer. Technology buyout firm, Silver Lake Partners is said to be interested, according to The New York Times.

It is the rapid shift to IP-based telephony that is causing the telecom equivalent of gastric trouble for Avaya and other older telecom equipment suppliers. While it is easy to get into the business of selling IP-based products (PBXes etc.,) old timers, including Avaya are finding it hard to realign their cost structures and the corporate mindset sync up with the new market realities. Open source software and commodity hardware are coming from below and nibbling on their heels today, and moving up quite fast.

Avaya recently acquired Ubiquity, indicating its intent to be more VoIP oriented and has been successful in selling more than a million lines per quarter to its corporate customers. According to UBS, IP lines now account for 65% of total Avaya shipments, up from 60% a year ago. Unfortunately, IP isn’t a competitive advantage, and in fact because of the trend towards IP-based telephony, rivals like Nortel and Siemens have caught up. Nortel executives have made enterprise telephony their focus areas, and are willing to compete aggressively with all comers, including Avaya.

What is Avaya left with? Its relationships with large companies and the Federal government. And a small, but growing business of software and network integration – aka services, where it is going to compete with current leader, Cisco, a fearsome rival. In order to compete in the services business, Avaya might be better off, exploding itself, focusing on becoming a services organization. But that means a severe realignment – the kind that can be done quietly behind doors closed by private equity.

From the archives: Our Avaya coverage.

loading

Comments have been disabled for this post