Avaya bankruptcy a 'cautionary tale' of mobility's influence

Jan 22, 2017, 00:39
Avaya bankruptcy a 'cautionary tale' of mobility's influence

They say that in combination with cash from operations, this is expected to provide sufficient liquidity during the chapter 11 cases to support the company's continuing business operations and minimize disruption.

Like many telcos, Avaya was hit hard by the advent of cloud technology and the industry's transition from hardware to software and services.

Avaya's capital structure is more than 10 years old and created to support a business model as a hardware company, Avaya CEO Kevin Kennedy said in a statement.

Faced with rising debt costs, increasing market competition and declining revenue, the Santa Clara, Calif. -based company had no choice but to protect itself legally from its creditors. Competition from Cisco Systems, Microsoft Also a Key Factor Avaya, which competes against formidable foes Cisco Systems and Microsoft in such areas as unified communications (UC) and networking, last year 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.

Avaya is choosing instead to focus on restructuring the company's debt, and has obtained a $725 million debtor-in-possession financing facility underwritten by Citibank.

Avaya said that it continues to hold negotiations with other unnamed parties to sell off other assets in an effort to maximize stakeholder value.

In its fourth quarter of 2016, the company raked in $958 million in revenue, or about $42 million less than the same quarter in fiscal 2015.

Chapter 11 (in the USA bankruptcy code) allows a court to grant a company relief from its creditors for a period so that it can restructure, raise extra funds or sell off bits of itself and thus be in a position to keep trading and eventually pay off its debts.

The company, which produces software and hardware for workplace telephony and video conferencing, said that its good health in Australia was due to "significant" deals with "major" government departments and tier-1 banks.

Channel exec Vlad Shmunis, founder and CEO of cloud communications and collaboration provider RingCentral, claims the news is a reminder to all of what the mobility movement can do to business models.

But while that Avaya digested Nortel the world started to shift towards software-as-a-service and cloud for voice services. "In the last three years we have seen around 13 -19% growth and we expect this growth to continue in future. Now, as a result of the terms of Avaya's debt obligations and the upcoming debt maturities, the company is in need of recapitalization", Kennedy said. Kennedy stressed the move is critical toward the company successfully navigating that pivot, pointing out that Avaya's current capital structure was put in place over 10 years ago to support a hardware-centric business model.

Kennedy also says that the company has decided that it will keep the contact centre business, as doing so will be best for Avaya in the long run.