Avaya Looks to Sort Out Its Future

As the company continues to transform into a software and service vendor, Avaya also has brought on financial advisers to assess its options.

tech business

The future for telecommunications technology vendor Avaya is looking uncertain.

According to reports, the company—which is migrating away from its hardware-based roots and toward becoming more of a communications software and services supplier—may be up for sale, or at least willing to sell some of its product assets in hopes of reducing some of its burdensome $6 billion debt.

At the same time, President and CEO Kevin Kennedy earlier this month said the company has taken on Goldman Sachs and Centerview Partners as financial advisers tasked with helping to assess Avaya's current structure and alternatives for the future.

The announcement came as Avaya, which competes against the likes of Cisco Systems and Microsoft in such areas as unified communications (UC) and networking, 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.

That transformation also fueled the hiring of the financial advisers, Kennedy said in a statement.

"Our purpose in assessing and taking capital structure actions is to improve the balance sheet as we progress through our ongoing transition as a software and services company," he said. "We will focus on maintaining Avaya's strong and broad customer relationships, continuing to advance our industry leading technology and multi-year operational improvement trend, and ensuring customers continue to receive our outstanding service and support that drives exceptional customer satisfaction."

In addition, Reuters reported earlier this month that the company's owners, Silver Lake Partners and TPG Capital, are considering selling Avaya, which they believe could be worth $6 billion to $10 billion. Citing unnamed sources, the news organization said the company could be sold in its entirety, or parts of it could be sold. In addition, there is the possibility that neither could happen, and the company stays intact.

Among the assets that could be put up for sale, according to the sources, are Avaya's cloud, contact center, wireless LAN and fabric switches units.

Avaya, which has more than 13,000 employees, competes in a crowded and fast-changing space, where vendors are rapidly ramping up their cloud- and software-based portfolios to meet growing demand from customers, and where competitors are making themselves bigger and adding to their capabilities through acquisitions, such as Mitel's proposed $1.96 billion deal for Polycom.

Avaya has been working for several years on its strategy to move away from its hardware legacy and become a software and services vendor. In March, the company announced Zang, a newly formed subsidiary that sells a communications platform-as-a-service. Zang's cloud-based communications push reflects the growing trend in the industry as businesses demand more flexibility, scalability and cost efficiency in their environments. Analysts with Synergy Research Group reported that in the fourth quarter of 2015, revenues from hosted and cloud solutions grew 10 percent over the same period the previous year, while revenues from on-premises-based systems fell 3 percent.

Synergy analysts in March also showed Avaya as a distant No. 3 in the global collaboration space, trailing Cisco and Microsoft.

"It's possible that the company's recent performance is already impacting employees, partners, prospects, and customers," Dave Michels, principal analyst with TalkingPointz, wrote in a post on the NoJitter blog site. "Revenue declines have ramifications on headcount, marketing, and research efforts. While Avaya is making significant progress toward becoming a software and services company, its multiple competitors are also making aggressive investments in cloud-delivered services and acquisitions."