When news broke of a new round of layoffs at Avaya last month, worries stirred once more for what it might mean for the company’s future.
In July, Avaya announced its previous round of layoffs, cutting roughly 180 jobs. This reduction accounted for around three percent of the company’s total workforce and followed the significant number of jobs cut in the second half of 2022 in the run-up to Avaya filing for Chapter 11 Bankruptcy at the beginning of 2023.
“As we enter our FY25, we continue to align our people and investments to instil the disciplined and disproportionate focus on customers we are best positioned to serve and the innovations that are most crucial for their success,” Avaya said in a statement to UC Today.
Former CEO Alan Masarek spent two years attempting to steady the ship before Patrick Dennis stepped up as the new chief in September. While layoffs and restructuring will always prompt criticisms, a devil’s advocate position might suggest that Dennis’s aggressive refocusing of the company might be its best—or possibly even only—path forward towards long-term profitability.
“It’s an interesting sort of ongoing situation,” Zeus Kerravala, Founder and Principal Analyst at ZK Research, told UC Today during the latest Big UC News show. “First of all, one of the reasons you see so many rounds of layoffs is because, geographically, you do have to handle things differently. But more than that, I think with the new leadership coming in, Patrick Dennis is now running the company. He’s trying to accelerate what Alan Masarek put in place.”
Kerravala outlines that Avaya’s focus is now the Global 1500 pool of large businesses. “Actually, what (Dennis) explained was that’s actually more like 4,000 companies. So if you think of a brand like Unilever, right, there’s a whole bunch of sub-brands that sit underneath that,” he pinpointed.
“The company isn’t as concerned today about top-line growth but about profitability,” he continued. “So, managing that bottom-line growth, increasing revenue or increasing profitability to the point where it can actually make some money, because historically, even though it might’ve had a couple of quarters where it raised revenue, it didn’t do that.”
“The focus now is that top 1500 or 4,000, if you want to decouple it. If you’re not aligned with that, that function doesn’t need to exist. If you think of the roots of Avaya, spun out of AT&T. It served literally every type of company, from a one-man company all the way up to the biggest of the big. As it started to lose some share, it continued down the path of trying to be all things to all people, and frankly, it did a pretty poor job of that. That’s why they’re in the position they’re in now.”
Kerravala drew a parallel with Broadcom, which focuses on the largest customers when it buys a company. If Broadcom happens to lose companies underneath that, that’s acceptable because those weren’t profitable anyway. Avaya’s focus will likely be similar.
“I think along with that, you will see a lot of changes,” Kerravala said. “They won’t need to be as active at industry events because if you’re marketing to your top 1500, you have an intimate relationship with them, and they should know what you’re doing. You don’t have to bring them to an event. I would think they’re going to scale back their own events.”
“From an outbound PR perspective, I think you’ll see a lot less from them because who are they messaging? Right. They’re not trying to convince a broader audience to buy their products, so they are dialled in on the top 1500. It’s unfortunate that a lot of good people had to go.”
“I do think this is something that’s long overdue at Avaya,” Kerravala stressed. “They’ve talked about trying to be more focused. They just never really executed on it. Patrick’s a VC, a private equity guy, and he’s coming and doing private equity things. I don’t think this should have been that big a surprise.”
“So what do you think is going to happen to their smaller customer base? Are they going to be sold off?” asked Blair Pleasant, President & Principal Analyst of COMMfusion LLC.
“I think they’ll shed a lot of those,” Kerravala suggested. “I think for the ones that want to stay on-prem, I think Mitel right now is licking their chops because they’ve decided to continue down that path in being on-prem for the mid-market. In fact, they came out and said that recently, right? ‘The small market, mid-market, we’ll take that on.’ Avaya had a lot of resources tied up into that.”
“I do think a lot of them will flip to the Zoom partnership that they have. I think they’ll facilitate and try and make some money doing that, but I do expect them to lose a lot of that small to midsize business. I think that’s okay with them.”
“So is that strategy just cleaning up their cash flow then?” Craig Durr, Chief Analyst and Founder at The Collab Collective, enquired. “Because if they’re successful in that market, I don’t know where their growth is going to be beyond your 1500. At some point in time, how and when do they grow? So is it a PE play that we’re going to clean this up and make a very clean, profitable cash flow?”
“Yeah, I think it’s a PE play,” said Kerravala, “and they wind up and eventually flip that to ConvergeOne or one of the larger resellers or even maybe a merging with Mitel or something like that. I don’t think they’re gonna go public again. To get the equity back out of that for the investors, it’s going to be some kind of investor play down the road to either a services company or perhaps somebody like Mitel.”
What about the timing of this restructuring? Dennis had been in the CEO seat for two months when the layoffs occurred. Is this happening too quickly, or is it exactly the right time to execute on this realignment?
“Well, Alan talked a lot about that customer base, right?” Kerravala said. “But I don’t think he really pulled the trigger on it fast enough. So what Patrick said to me was he wanted to do what Alan was going to do. He just wants to do it faster. I think that’s why the CEO change was brought up.”
“The focus on the global 1500 started at the analyst event,” Pleasant highlighted. “We heard about it at the analyst event back in the spring.”
“When you think about it, there are people who paid into this company, and there is an expectation that investors are going to get their money back at some point,” added Melody Brue, Vice President & Principal & Principal Analyst, Moor Insights & Strategy. “It’s not just like a never-ending thing, right? This makes complete sense to me.”
“I actually had a call with Patrick and Alan, and that was the first question I asked,” Brue continued. “Of course, they were a little bit cagey about it. They’re not going to give that away, but look at Patrick’s history and you can see he’s a very different type of CEO than Alan is.
“I think there’s got to be some expectation that there has to be some sort of return for the investors, some liquidity at some point, and the employees who have now been through two bankruptcies and multiple rounds of restructuring and layoffs. At some point, people need to have some liquidity out of this company. I think this is the way that it’s going to happen.”
“And you’re not going to do that until you’re making money,” Kerravala concluded.
UC Today’s latest Big UC News show video will be published on the website soon.
