Avaya looking to catch unified communications wave in 2009

Going private, streamlining and sticking to a tight plan could give it an edge through tough times.

For Avaya, 2009 could solidify the company's top spot on the unified communications sales charts, putting it in the best position to reap even more as the world economy improves in the years following, industry experts say.

In its favor are that the company is privately held, has been at work streamlining and has installed key executives to carry out well-formed plans. The downside is that it faces formidable competitors -- Alcatel-Lucent, Cisco, Nortel, Siemens, IBM, Microsoft -- that are equally hungry and have different pedigrees that may give them an edge.

"'09 will be about being able to build innovation through a systems-like approach," says Zeus Kerravala, an analyst with Yankee Group. "There are two things that companies can thrive at, one is operational excellence and one is innovation. If you're going to be a market leader, you have to do both well. Quite frankly, [Avaya] did neither well for a long time."

Unified communications is still catching on, so vendors' positions are in flux. Plus, with a global recession taking hold, vendors will be challenged financially, and that could alter their relative success, experts say. The entire UC market for Q3 2008 was $3.1 billion as calculated by Dell'Oro Group. Avaya led the pack with 22% of that market, followed by Cisco with 18%, then Nortel with 11%. Two big names in unified communications -- Microsoft and IBM -- weighed in with 2.5% and .6%, respectively.

Avaya has led the field since 2007 when Dell'Oro started tracking UC, and it has made dramatic changes since then.

The company started down a new path under CEO Lou D'Ambrosio, who oversaw Avaya's purchase by Silver Lake Partners in 2007 and who charted a course to overhaul it. The plan called for doing better by being more efficient internally, shifting toward indirect sales, and focusing more on software and less on hardware.

Execution of that plan has continued under interim CEO Charles Giancarlo, who replaced D'Ambrosio when he resigned for health reasons in June 2008. A permanent replacement, Kevin Kennedy, takes over in January.

Avaya's apparent lead in UC, however, is not as distinct as it might be, says Alan Weckel, a Dell'Oro analyst. It's difficult to define UC, therefore difficult to say who sells the most and therefore leads. It's not like counting the number of firewall appliances bought or the number of seats of software.

"There are no UC metrics for units sold," Weckel says. "A lot of UC sales today are still a PBX and IP phones," so that hurts Microsoft and IBM in the rankings. "They play in the application space, but not phones or PBXs."

Nevertheless, Avaya is in a solid position for several reasons. It is privately held and does not have to answer to the quarterly demands of Wall Street. It had large cash reserves and is cash-flow positive, Weckel says.

The company had old-school business processes in place, but now that it's being taken over by a private firm, Avaya can reorganize around profitability and even accept smaller margins to boost business long-term, Weckel says. "It's a transition they needed to go through."

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