Nemertes has been tracking a change that is driven by the pending arrival of Microsoft, and the transition of VoIP platforms from hardware to software. The research company notes two beliefs: integration of business processes with communications systems would reshape their Enterprise VoIP plans, and Microsoft is an emerging competitor in the communications market.
Even though most weren't ready to make the leap toward Microsoft telephony services, Enterprises will consider Microsoft down the road as it addresses security and reliability concerns, and they possess a desire to integrate Microsoft applications with telephony systems.
Microsoft Office Communications Server 2007 is expected to move from public beta to general release later this year, meaning vendors in the enterprise-telephony market will be faced with considerable pressure to grow (or even maintain) market share.
Microsoft's recent statements that it would drastically reduce the cost of telephony systems by moving control functions to software rather than dedicated hardware lends further credence to the belief that Avaya's shareholders may see this moment as the high-water mark for the company.
This agreement contains a 50-day window for others to make a bid to purchase Avaya. Media reports indicated an interest by Nortel, which could acquire Avaya to boost market share and obtain Avaya's highly regarded professional and managed services.
At this point it's too early to tell whether or not there will be a serious counter-offer from Nortel, or other vendors.
Nemertes sees the following impacts:
For enterprises: Often capital buyouts are designed to break up underperforming companies and sell off the parts. Given that Avaya is profitable and growing, we don't see this happening. Continue with your Avaya plans, but closely follow developments over the next 50 days.
For vendors and service providers: This is now the second major merger in the VOIP space (previously privately held Mitel announced an intent to acquire Inter-Tel (NASDAQ:INTL). Consider your market position and the need to look at potential merger and/or partnership opportunities.
For investors: Further consolidation is likely Look for opportunities from additional consolidation in this space in the next 12-18 months, as well as other companies going private to avoid quarterly pressures and regulatory challenges.