Why Avaya filed for bankruptcy even with 'strong financial results'

Dive Brief:

  • Business communications company Avaya filed for chapter 11 restructuring earlier this month, even though it has "strong financial results," explained John Sullivan, CFA, VP and Corporate Treasurer for Avaya. 

  • Sullivan said, in a letter on Network World, the company looked at different ways to restructure its debt and settled on Chapter 11. The move will help its "transformation from a hardware company to a software and services company." Sullivan said it is also "the best path forward for our customers, partners and employees."

  • Today Avaya earns 75% of its revenue from software and services and has largely moved on from its "heritage" as a hardware company. But, Sullivan said, the company's capital structure was put in place "10 years ago to support a hardware-focused business model." Because of the company's debt obligations and its debt maturing, leadership decided to recapitalize the company. 

Dive Insight:

Sometimes, technology modernizes at a faster rate than the companies that support it. 

Avaya, which offer internet telephony, wireless data communications and customer relationship software, was born in more hardware-dependent days. But as businesses moved from hardware-based computing to cloud-based computing, Avaya ended up behind.

The company is now working to catch up, but can’t do so under its current operating model. Avaya hopes filing for chapter 11 will help get it back to a place where it can compete against startups and others that adapted to the change faster.

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Filed Under: IT Strategy
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