With a run rate in excess of $5bn in its current fiscal year which ends September 30, the Basking Ridge, New Jersey-based developer of private telephony infrastructure is no minnow, but it goes up against the considerably bigger Cisco and Nortel, both of which have broader portfolios in addressing the public as well as private markets and by offering datacoms as well as voice infrastructure.
It does not address the telco space at all, having been split out from Lucent specifically to target the corporate market, and Avaya has shown no sign of expanding into carrier. However, data is an area it needs to address, as both of it largest competitors can preach voice and data convergence from a single supplier. To overcome any perceived shortcoming, Avaya partners with some of the other datacoms vendors that don’t have a PBX business, in particular Extreme on the switching side and Juniper in routing.
Now however, sources as credible as The Wall Street Journal suggest it could be taken out, either by private equity or one of its largest competitors.
Our View
Acquisition by Cisco is certainly not out of the question, now that Ned Hooper, Cisco’s VP of corporate business development, has expressed the company’s increased appetite for big acquisitions. It would beef up Cisco’s IP PBX market share considerably, particularly in North America, and would mean the networking heavyweight would add another $5bn to its annual $30bn revenue, though there would also be the potential for erosion of the Avaya revenues if its customers felt they were being shoehorned into the Cisco product roadmap. Furthermore, it would leave Cisco with two separate IP PBX businesses to maintain, or else it could try to convince Avaya customers to migrate to its CallManager product.
Acquisition by Nortel would be an ambitious move by the Canadian vendor, not least because it shied away from the billion-dollar deals in recent years while it sorted out its finances. It would certainly result in a larger competitor to face Cisco in IP PBX, and would resemble what Brocade did in storage switching when it acquired McData. Nortel + Avaya would be the market leader in both the US and European markets.
However, Nortel would also face the challenge of maintaining two code bases or trying to persuade Avaya customers to move to its platform. In addition, Nortel has a deep involvement with Microsoft in the area of unified communications, which would almost oblige it to kill the Avaya kit to send a clear message to the market about Microsoft’s OCS platform and its PBXs being the way forward for business comms.
While it wouldn’t address Avaya’s absence from the data switching market, acquisition by private equity might be a better option if its buyers were savvy enough to engineer a merger down the road with a dedicated data player. The other two options mean portfolio overlap, not to mention potential channel conflict.
