Telecommunications provider Avaya, spun out of AT&T in 2000 and which filed for Chapter 11 bankruptcy protection on Jan. 19, stands as yet another example of what can happen if a company doesn't move quickly enough when a technology sea change engulfs it.
Kodak didn't make the move to digital fast enough. DEC and Sun Microsystems saw Linux impacting their enterprise server and PC businesses, but were slow in adjusting. Avaya didn't make the move to cloud, messaging and mobility in a timely manner.
Faced with rising debt costs, increasing market competition and declining revenue, the Santa Clara, Calif.-based company had no choice but to protect itself legally from its creditors. It was a determination that analysts, competitors, creditors and investors had been expecting for more than a year.
Why This is Major Telecom News
Avaya's bankruptcy is major news in the enterprise communications industry, because we're talking about the world's largest and most widely installed legacy on-premises communications systems provider. The key word here is "legacy"; most of what Avaya makes is considered obsolete by 2017 standards.
Avaya said it would find ways to reduce its debt load of about $6.3 billion, but also revealed that it would not sell its call center business, which it had attempted to sell to Genesys for $4 billion last August. The company is trying to work out terms of a restructuring deal with creditors, but an agreement was not reached on Jan. 19.
"We have conducted an extensive review of alternatives to address Avaya's capital structure, and we believe pursuing a restructuring through Chapter 11 is the best path forward at this time," Kevin Kennedy, Chief Executive Officer of Avaya, said in a press statement.
"Reducing the company's current debt through the Chapter 11 process will best position all of Avaya's businesses for future success."
Competition from Cisco Systems, Microsoft Also a Key Factor
Avaya, which competes against formidable foes Cisco Systems and Microsoft in such areas as unified communications (UC) and networking, last year reported second-quarter revenue of $904 million, a $91 million drop over the same period last year, which officials said was reflective of the company's ongoing transformation. Subsequent financials weren't any better.
Its failure may mark the end of the old-school enterprise telecom era, but it doesn't signal the beginning of the mobile/cloud-powered regime. That started about a decade ago, when Avaya was still a healthy business.
But the news does indicate how much the communications business has advanced in recent years as it keeps in step with changes—powered by cloud and mobility software and services—in the way employees communicate and collaborate in the new work-wherever-you-want world.
The enterprise desktop phone simply isn't used as much anymore. Employees are often traveling, moving from one workplace to another and using mobile devices for all communications. Younger employees don't even prefer to use voice communications anymore; messaging is the No. 1 choice and has been for several years.
A New-Gen Competitor Offers Perspective
"The move to the cloud is transforming every industry, and the enterprise communication solutions are no exception," Praful Shah, Senior Vice-President of Strategy at RingCentral, said in a media advisory.
"Today's workforce is mobile and works from anywhere, while requiring multiple ways to communicate. Avaya's bankruptcy is a reflection of the industry shift from on-premises solutions to the cloud, and the need to empower businesses with innovative solutions that provide a mobile-first, unified communication experience."