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.