Daily Archives: July 26, 2010

Avaya’s Kennedy Sends Cautious Signals on Post-Nortel Business

Reading between the lines of Avaya CEO Kevin Kennedy’s recent interview with Network World, I have the strong suspicion that revenues from Nortel’s installed base of VoIP and unified communications (UC) customers are not ramping as robustly as Avaya had hoped they would.

I get that impression as much from what Kennedy doesn’t say as from what he says. He’s bold and brash when talking about combined R&D efforts and product roadmaps, but he’s reserved when discussing revenue targets and near-term sales. He doesn’t say the Avaya-Nortel combination has been a commercial disappointment, but he’s not boasting of its conquests, either.

A few market analysts are noticing that Avaya’s acquisition of the Nortel enterprise business hasn’t resulted in market-share hegemony for the merged company. These market watchers seem surprised that Avaya didn’t take the Nortel customer base by storm and leave Cisco in its rearview mirror, choking on dust and fumes.

But that failure to reconcile with reality is at least as much the analysts’ fault as it is Avaya’s. Earlier in this saga, I noted that a Nortel-fortified Avaya would be fortunate to maintain any market-share edge over Cisco. It seemed an obvious conclusion to reach.

Unfortunately, though, when unwary market analysts examine a post-acquisition scenario, they will add the market share of the two companies involved, then assume the merged entity will maintain or extend its combined market share. For many reasons, however, that rarely — if ever — happens.

In the case of Avaya’s acquisition of Norte’s enterprise business, several complicating factors suggested that the merger, from a market-share perspective, would result in less than the sum of its parts.

First, there was the product overlap, which was not insignificant. Second,  there were channel-management issues, which also were considerable. (Some Nortel partners were concerned about having to deal with Avaya.) Third, Nortel’s enterprise business had been in distress for some time, and it was suffering market-share erosion before and after Avaya took control. Fourth, even among Nortel customers still in the fold, some eventually will choose options other than those presented by Avaya.

I think Avaya anticipated most (if not all) of these challenges. Just after the acquisition closed, for example, Kennedy sought to temper post-merger expectations. He cited external factors, such as the weak economy, as well as the usual post-merger integration challenges. His tone was one of cautious optimism rather than of unchecked exuberance. He knew it wouldn’t be easy, with or without Nortel’s enterprise business.

He’s staying on message, probably for good reason.

Before Foxconn, Huawei Had Its Own Suicides

Long before the rash of deaths at the Foxconn Technology Group’s manufacturing facilities in China, another company fought to stem a wave of suicides at its Chinese operations.

That company was Huawei Technologies, and its problem with suicidal employees was covered in the media, though not as extensively as were the unfortunate events at Foxconn, part of the Hon Hai Precision Industry Co., Ltd.

What partly accounts for the difference in degree of coverage, I think, is Foxconn’s connection to Apple. As we all know, Foxconn manufactures Apple’s iPhones and iPads as well as computing devices for a number of other vendors, including Dell. Everything Apple touches is high profile, so it’s no wonder that the Western media gravitated to the Foxonn suicides once  Apple was discovered among Foxconn’s brand-name customers.

Another factor, though, might be the intense secrecy that surrounds Huawei. It’s a privately held company, shrouded in mystery, run by CEO Ren Zhengfei, who emerged from the People Liberation Army (PLA), is a member in good standing of the Communist Party of China, and is said to retain close ties to China’s defense and intelligence elite.

Still, the suicides at Huawei are a matter of public record. They began ramping in the year 2000 and continued well into the decade, seemingly coming to an end — or something like one — by 2008. At their peak, they were bad enough that Ren Zengfei wrote the following to another member of the Communist Party:

“At Huawei, employees are continuously committing suicide or self-mutilation. There is also a worrying increase in the number of employees who are suffering from depression and anxiety. What can we do to help our employees have a more positive and open attitude towards life? I have thought about it over and over again, but I have been unable to come up with a solution.”

This is not exactly the sort of pitch a human-resources executive wants to feature in employee-recruitment campaigns. Nonetheless, it demonstrates that Ren recognized the problem and was thinking hard about whether his company’s “wolf culture” and “mattress culture” were sustainable models on which to build a business that could scale and compete successfully against the world’s leading telecommunications-equipment and data-networking companies.

A few reports. which are disputed, suggest as many as 38 Huawei employees died from their own hand or from exhaustion during the past decade. Like Foxconn, Huawei experienced horrific on-site suicides, in which an employee typically would throw himself to his death from the balcony of a campus building.

Some commentators have noted that the suicide rate at Foxconn is not inordinately higher than China’s overall suicide rate. Some have even argued that the rate of self-destruction at Foxconn is lower than China’s rate, even going so far as to make the claim that working at Foxconn reduces the risk of suicide for Chinese employees.

Numbers can be sliced and diced, and they can be interpreted in a number of ways. As always, one should verify the accuracy of the source data and carefully check for an inherent statistical bias. I don’t have time to chase that thread now.

So, putting aside that debate, I want to consider another aspect of these stories: the incidence of at-work suicides at both Foxconn and Huawei. The instances of on-site suicide are well documented at both companies.

Perhaps I’m missing something — let me know whether I am — but I don’t believe there ever was a similar outbreak of suicides at technology firms in North America. Cisco, to the best of my knowledge, hasn’t seen its employees leaping to their deaths from the outdoor patios on Tasman Drive in San Jose. I don’t think we’ve seen anything of that sort at Juniper Networks or Brocade — or even Nortel Networks, where people have had considerable reason for despondence in recent years.

Workplace suicide is a dramatic act. It sends a powerful message. The victim makes a statement in not only how he chooses to kill himself but where he chooses to do it.

Ren Zhengfei was right to rack his brain in search of a solution to the morale problem at Huawei. However, as recent events at Foxconn and at other Chinese companies demonstrate, it isn’t a company-specific problem.

As China attempts to move up the technology value chain, from low-cost manufacturing to R&D-led innovation, it will have to find ways of motivating its employees with carrots instead of sticks.