Avaya: Down, But Not Out

Avaya faces a long battle to preserve its status as an enterprise communications leader. Yet, it’s still in the fight

Avaya: Down, But Not Out
Contact CentreAvayaNews Analysis

Published: February 21, 2023

Charlie Mitchell

“Well, knock me down with a feather.” That was the first reaction of Liz Miller, VP & Principal Analyst at Constellation Research, to the news that Avaya had filed for chapter 11 bankruptcy.

Indeed, last week’s announcement surprised very few, with Avaya releasing a slow drip feed of statements regarding its finances soon after Alan Masarek became CEO.

That was in July 2022, and by August, Avaya had cast doubt over its future.

In a release on August 9, the vendor stated:

As of the date of this release, the company has determined that there is substantial doubt about the company’s ability to continue as a going concern.

After, there ensued a more significant drop off in revenue, reports that debts were due, and an onslaught of questions about the money Avaya raised just before the previous CEO left the business.

By the end of the year, it became clear that settling debts through voluntary renegotiations was a nigh-on impossible task, and murmurings that Avaya had started bankruptcy preparations began.

Throughout this period, Avaya engaged with analysts in the space, what Miller coins “purposeful transparency” into its restructure – not its debts – attempting to avoid a mass exodus of clients. As such, the news has not come as a huge shock.

Nevertheless, the announcement is the second time the vendor has filed for bankruptcy in six years, leaving many to pour scorn on its future.

While much of this comes from competitors, questions about its future dependability are inevitable. Yet, such speculation often overlooks one critical point…

Avaya Remains One of the Biggest Players In Enterprise Communications

In 2022, Avaya’s revenues reached $2.76BN (TTM), down from $2.94BN in 2021. The vendor forecasts that these revenues will continue to drop until the beginning of 2025.

Nonetheless, such figures showcase its stature within the space. Consider its market rival NICE – often pegged as a contact center market leader – its revenues rose to $2.13BN (TTM) in 2022.

Moreover, Avaya is in 190 countries, has a significant partner ecosystem, and works with approximately 90 Fortune 100 companies.

These statistics perhaps support the claims of Dave Michels, Lead Analyst at TalkingPointz.com – from an upcoming edition of CX Today’s BIG News interviews. He believes it remains one of the biggest vendors in enterprise communications.

“I don’t think people realize how big Avaya is,” says Michels. “Particularly from competitors, I’ve seen a lot of stuff on Twitter when they announced Chapter 11, like: “Why bother?”, “We don’t need them anymore!”, “They’re obsolete!”, all that stuff.”

To Michels’ point, here is just one of many examples.

Yet, such comments downplay the prominence of Avaya within the space. Indeed, while many vendors are converging on CCaaS, this is only half the market.

The other half has stuck by its legacy solutions, in which there are only a handful of players – with Avaya a leading figure.

In addition, it could be much more than half of the market, with NICE CEO Barak Eilam estimating in February last year that: “85 percent of the market is still on-prem,” during an earnings call.

“You can say they have been losing customers for a decade, but to this day, they are still one of the biggest vendors in enterprise communications,” adds Michels.

It is a shame that they got there again (Chapter 11), but they are there – and it makes sense to fix it.

To do so, Avaya has put forward a pre-packaged filing, which will cut its debts by 75 percent, free up $600MN in liquidity, and allow it to leave bankruptcy within 90 days. In comparison, its previous bankruptcy filing took a year.

If all goes to plan, its total debt will fall below its projected revenues for 2023 – which offers a much healthier outlook.

However, there will remain hurdles to overcome after the bankruptcy, which Masarek and the newly instated board of directors must overcome.

Big Issues Remain

If it leaves bankruptcy as planned, Avaya will prioritize engaging its deep legacy base with its cloud roadmap and plans for future innovation. That is mission-critical to its future.

Yet, there are three significant hurdles Avaya must overcome – alongside the bankruptcy transition – to ensure future stability. These include market cynicism, lawsuits, and stakeholder push back.

Market rivals have perpetuated much of this cynicism, with many using the news of a second bankruptcy to question its long-term reliability.

The moves made by the previous board push this further. As Miller stated:

Avaya will have to cope with a lot of skeptical people due to the decision made many years ago to not jump in the direction that the entire market was jumping: to the cloud. That is going to be a dark cloud over their head for some time.

Aside from this market skepticism, the vendor must also battle bondholder lawsuits against its former CEO.

Just two weeks ago, one such lawsuit came to light, accusing Avaya of “massive fraud.”

Finally, the vendor must overcome stakeholder push back against the planned bankruptcy, as it includes plans to delist its stock.

Many of these stakeholders are employees, who may have received stock options as rewards or been part of a purchase plan.

Worse, they could have purchased shares after Avaya republished an article in September with the headline: “Avaya CEO: Financial issues temporary, recovery coming soon.”

As such, while many employees might be happy to keep their jobs, many will likely feel  – at best – aggrieved, unless Avaya plans to compensate these through bonuses.

Down, But Not Out

With angry bondholders, upset employees, and many competitors eager to fuel a flaming narrative, Avaya’s new board of directors has many more battles to fight in 2023.

However, it lives on to fight another day, and this bankruptcy appears to be part of its recovery.

Whether it can preserve its reputation as an enterprise communications stalwart remains to be seen. Yet, its clientele of banks, hospitals, and governments – which has stayed incredibly loyal – gives them an almighty resource to leverage.

Other communications vendors can only wish for such an install base. Yet, these rivals will continue to skim the surface of it with every negative press story.

As a private business, it may control this narrative better. Nonetheless, with two bankruptcies under its belt, Avaya is in a sticky spot and has a long fight ahead of it to preserve its status as a leader in enterprise communications.

Liz and Dave’s quotes come from our upcoming BIG News video, which also dissects the Avaya-RingCentral relationship, activist investors at Salesforce, and Zoho’s move into UCaaS. Keep an eye out for that video that will drop before the end of the week.



Brands mentioned in this article.


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