Is Anyone Calling For Avaya?

Rumors that Avaya is for sale fly as Microsoft, Cisco and others yearn to serve unified communications.

By Clint Boulton | Posted May 29, 2007
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Avaya, which made billions selling equipment to help companies zip voice, video and data across networks, is in talks to sell some or all of its company, according to the Wall Street Journal, which cited people familiar with the matter.

The report comes as Microsoft and Nortel Networks , and Cisco Systems  and IBM  have forged alliances to provide a rich mix of voice, e-mail, Web conferencing, instant messaging and video in a one-stop-shop fashion dubbed "unified communications."

The Journal's sources said Avaya is in talks with equity firm Silver Lake Partners about a buyout plan. That came after discussions with Canadian equipment maker Nortel Networks fizzled, sources told the Journal.

Avaya has not returned a request for comment. Matt Benson, a spokesman for Silver Lake, said "no comment" in an e-mail to internetnews.com when asked to confirm the buyout talks.

But something is afoot.

Avaya, which was spun off from Lucent in 2000, postponed its analyst meeting scheduled for May 31 without giving a reason for the delay.

Avaya makes an attractive target. The Basking Ridge, N.J. company, which boasts a market capitalization of $6.18 billion, had a profit of $220 million on revenue of $5.2 billion for its fiscal year 2006.

In its most recent quarter, the company posted $57 million in net income on earnings per share of 13 cents, thanks to strong sales for its IP telephony, applications and professional services, said Avaya President and CEO Lou D'Ambrosio in a statement.

Avaya is playing in a market for networking gear that has enjoyed several cycles of consolidation in the years since the high-flying high-tech well began to dry up in 2001 and 2002.

Alltel, the nation's fifth-largest mobile carrier, agreed to a $27.5 billion cash buyout from investment firms TPG Capital and GS Capital Partners (GSCP) last week. Mitel agreed to buy Inter-Tel for $723 million last month. And French giant Alcatel bought Lucent for $13.4 billion last year.

Despite the acquisitions, the space is still far too crowded; though there may be fewer networking specialists, there are more powerful vendors lurking to greedily gobble market share.

This trend is due largely to the emergence of and hunger for unified communications, where vendors are grappling to sell customers bundles of voice, video, data and mobile technologies to help corporate employees collaborate, regardless of the distance between them.

Microsoft and Nortel have ratcheted up their partnership, in which Microsoft's collaboration software is being supported by Nortel's networking gear. IBM has its own set of collaboration tools supported by Cisco gear. Cisco, which today closed a $3.2 billion deal for Web conferencing giant WebEx, has its own plans.

Yankee Group analyst Zeus Kerravala said he is not surprised vendors or private companies would target Avaya. With Microsoft, Cisco and IBM all in unified communications now, the competitive landscape becomes much tougher, he added.

"Although Avaya's vision is good, you have to wonder if there's enough market available for those three heavyweights plus significant share for Avaya," Kerravala told internetnews.com via e-mail.

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