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Avaya bankruptcy filing targets restructuring for cloud, software

Avaya has filed for Chapter 11 bankruptcy protection as it focuses on restructuring its $6 billion debt. Analysts anticipate a revamped emphasis on cloud-based Avaya services.

After months of financial uncertainty, Avaya has filed for Chapter 11 bankruptcy protection to restructure its debt and business. For customers, the Avaya bankruptcy filing brings a greater sense of certainty, according to industry analysts.

Avaya customers don't need to start looking for alternative services right away, said Irwin Lazar, an analyst at Nemertes Research based in Mokena, Ill. While pieces of the business could be broken up and sold, Avaya's services should operate as normal as it focuses on restructuring debt.

"If you made an investment in Avaya in the last year, it had to be in the back of your mind that whatever you're buying may not be part of Avaya a year from now," said Zeus Kerravala, analyst at ZK Research based in Westminster, Mass.

Avaya was $6 billion in debt and has seen its revenue drop for the past several years as the demand for UC hardware wanes in favor of software and cloud-based services. The company's 2016 revenue dipped 9% from the previous year.

"I think it's the best possible scenario for Avaya and its customers," Kerravala said of the Avaya bankruptcy filing.

Portfolio incomplete, needs restructuring

Avaya considered short-term solutions to settle its debt, such as selling its contact center division. Plans to sell its contact center business are on hold as Avaya focuses on restructuring debt, the company said in a statement. While the vendor may sell some assets, the prospect is less likely after the bankruptcy filing.

They have a good portfolio, but it's incomplete. It addresses the world that was, not the world we're moving into.
Zeus Kerravalaanalyst, ZK Research

"If they sell off contact center, I'm not sure how the rest of the business survives," Lazar said.

Avaya's capital structure is more than 10 years old and designed to support a business model as a hardware company, Avaya CEO Kevin Kennedy said in a statement. Then Avaya bankruptcy filing will allow the company to restructure the business to focus on software, cloud and managed services, where it has seen growth as overall revenue declined.

Filing for Chapter 11 bankruptcy protection gives Avaya the opportunity to improve in areas it's been lacking and move in the direction its customers are heading.

"Overall, they have a good portfolio, but it's incomplete," Kerravala said. "It addresses the world that was, not the world we're moving into."

Revamping its image, Avaya looks to the cloud

Avaya has struggled to keep up with unified communications competitors, such as Cisco and Microsoft, especially as services become more cloud-oriented. The Avaya bankruptcy filing and restructuring gives the vendor a chance to create true cloud services.

Currently, if an organization wants to buy a cloud service from Avaya, that organization has to build its own cloud or buy one from an Avaya partner, Kerravala said. Avaya could only offer the supportive infrastructure.

Avaya has to navigate the same difficulties as other legacy vendors. Partners don't make money selling cloud services like they do selling hardware. Partners and legacy vendors alike are losing business to cloud providers, Lazar said.

"They have to figure out how to accelerate growth to make up for the loss of the core PBX, telephony business," he said.

Avaya's communications platform as a service, Zang, is the vendor's only pure cloud offering. While Zang's roadmap is aggressive and positions it against cloud UC vendors, such as RingCentral and 8x8, it has yet to prove itself in the market, Lazar said.

Networking division strong, security weak

Avaya's bankruptcy filing and restructuring could help the vendor expand its networking division and boost the security of its network offerings.

"It has a tremendous asset in the networking division, but has very little in the way of security," said Zeus Kerravala, analyst at ZK Research.

Network security is a top priority for IT leaders. But Avaya has not provided the level of security that organizations need, which drives customers to Avaya competitors, he said.

Avaya could also expand its enterprise wireless services. Currently, Avaya has an OEM partnership with Xirrus for its Wi-Fi services. But Avaya could use a restructuring to expand its wireless business by building its own or buying a Wi-Fi network.

"When you look at networking from a user perspective, Wi-Fi is more strategic and important than a wired network," Kerravala said. "If you're looking to collect data on what users are doing, look at the wireless network."

Still, Avaya has had some success reinventing itself as a CPaaS provider with Zang and Breeze, an API development platform. Lazar said all Avaya customers he's talked with use the Breeze platform to build custom apps or integrations into their business processes.

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