Mitel Networks CEO to leave post

Smith will sit on company board as the company goes public

After just over nine years at the helm of Mitel Networks Inc., Don Smith is leaving as chief executive officer of the unified communications applications developer to sit on the board directors.

Smith's decision, announced Thursday with the release of quarterly financial results, comes only four months after the Ottawa-based company went public.

However, in an interview he said that in the months leading up to the initial public offering he wasn't considering an exit.

"Now seemed as good a time as any," he said. "We'd achieved as many of the things I had as personal objectives since I came back to Mitel almost a decade ago." In addition, the 62-year-old Smith noted he's been working 40 years.

His departure comes after leading Mitel through what could be considered a complete overhaul: Shifting to a software-based company from a PBX manufacturer, buying U.S. competitor Inter-Tel Inc. in 2007 and going public in April.

As a result, he says research companies rate Mitel the third biggest IP communications supplier in the U.S. either by ports shipped or revenue to small and mid-sized businesses (SMBs).

"We're recognized for our leadership in the move to a software-business model. I take a lot of pride in that."

Today, Mitel pulls in about US$648 million a year with a staff of 2,358.

Its latest quarterly results, though, were lower than expected. Revenue for the three months ending July 31 was US$160 million, about two per cent less than the strong fourth quarter. The company had hoped momentum from that quarter would continue. Net income was $6.8 million.

In a conference call with financial analysts, Smith blamed "caution" in the SMB market, where limited access to credit is causing purchasing delays or reductions in capital spending. Revenue for telecommunications products was down in Europe, and flat in the U.S, but up in Canada and Asia Pacific regions.

Mitel is adding new customers, system integrators and resellers, Smith emphasized.

In April, 2001, when Smith returned to Mitel as CEO after a stint at Nortel Networks Inc. at the request of chairman Terry Matthews, digital PBX-related gear accounted over 95 per cent of what the company sold. But, Smith said, it was clear the communications world was evolving to Internet Protocol. In less than four years the bulk of its platforms were IP-based and it had moved out of hardware manufacturing.

Today, company phones that run applications account for 45 per cent of the IP phones the company sells. Its Mitel Applications Suite, which includes unified messaging and audio and Web conferencing capabilities, now runs in VMware virtual environments.

Zeus Kerravala, distinguished research fellow at Yankee Group who covers unified communications, credits Smith with making a lot of good moves such as buying Inter-Tel and virtualizing its applications.

However the company hitched its wagon to Microsoft Corp. and its Office Communications Server platform, "and it never paid off.

"Microsoft never really pushed the voice side of unified communications," Kerravala said. Now, with the upcoming release of OCS 14, the software giant will have its own voice platform.

For all that it's done, Mitel is still a relatively small company, Kerravala said.

Smith will remain as CEO until his successor is named. Without wanting to tie that person's hands, looking ahead a few years he said there's still "turbulence" in the industry, pointing to Nortel's collapse. "That's creating opportunity for us," he said.

"The other thing that's going to happen is unified communications and collaboration and the coupling of mobility is going to become more and more important, both at the technology level and what comes in front of a customer either because of directions either we or [channel] partners take to enable different solutions."

For example, increasingly company staff will replace desk phones with smart phones with enterprise features.

As for what Smith will do with his new-found time, speaking to MBA students is one -- though not as a faculty member, he insists.

Sitting on more boards is one option, he admits including those of the company's chairman. Matthews, who founded Mitel in 1973 along with Michael Cowpland, is chair of Wesley Clover International Corp., which invests in high-tech companies.

"My wife as some pretty good ideas," Smith adds. "during the board discussions the other day she sent my BlackBerry an FYI. It was forwarding special offers at a local gym."

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