Open letter to Avaya management: Don't sell the networking business – Network World

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The fate of Avaya has finally been determined. It’s not being broken up, shut down or having parts stripped off it in a fire sale. Instead, Avaya filed for Chapter 11 bankruptcy to help shed the $6 billion debt load that is weighing the company down.

The question for the company now is what happens next? Obviously the business will be restructured. I believe the management team will keep the call center and UC businesses intact, as they go together like “rama lama lama ka dinga da dinga dong.” But what happens to the networking business? Post restructuring the networking division might be a more attractive asset to buy because many of the things weighing it down, such as pensions and debt, won’t be an issue. Avaya could sell it, then use the money to make an acquisition that could bolster its UC and CC business.

Right now, I believe the odds are 75/25 that it sells the networking division, but I urge Avaya management to look at networking as its best catalyst for growth. Avaya plays in three major categories: contact center, unified communications and networking. A quick look at numbers from Synergy Research shows Avaya as the current market leader with about 20 percent share. Gaining share in contact center will be a challenge, so it’s likely to grow at market rate.

synergy research uc market tracker

 Enterprise voice, one of the largest segments of UC and Avaya’s entry point, shows Cisco as the dominant share leader with Avaya as a strong number 2. Cisco is unlikely to cede share, and Microsoft is coming on strong, so again in this market, Avaya’s share is likely to remain flat or possibly decline as Microsoft ramps up its voice business.

synergy research enterprise voice

Avaya’s position in the broader UC market includes many applications, but it isn’t nearly as strong as it is in voice. Gaining share there will require significant investment in new products. This will be a knife fight for years to come, and the challenge for Avaya is that there is not just one, but two dominant vendors. 

However, the Ethernet Switch market shows a bit of a different story. 

synergy research ethernet switching

 The market is massive, about $24 billion at the end of 2016. Cisco is the big dog with about $15 billion in revenue, and HP is a distant number two with $2.5 billion. If you combine the two, and assume taking share from the respective vendors is difficult, that still leaves $6.5 billion in share to go after with no other billion-dollar vendor. As I pointed out earlier, Avaya has a differentiated solution that can win deals now. 

I believe the product is strong enough that it could take share from HP and possibly Cisco. But the buying dynamics around Cisco are unique, so for the sake of argument, I’ll assume Avaya’s TAM is 10 percent of Cisco + 25 percent of HP + the rest of the field, leaving a market opportunity of $8.6 billion. Its run rate right now is generously $300 million, so if Avaya captured only 10 percent of its total, TAM would almost triple the business. Execute well, and maybe it can push a billion dollars. 


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