The Road Ahead For Mitel

by Gaurav Kheterpal on August 14, 2012

The first step to solving a problem is to admit that you have one. In that sense, Mitel CEO Richard McBee got it right last year when he adopted the “one day at a time” mantra – a slow and steady approach to the task of righting Mitel’s ever-listing ship, a task made all the more difficult because Mitel’s struggles are not caused by one or two problems, but by a thousand little ones.

Since then, Mitel’s performance graph has largely been a mixed bag. After an ordinary Q2, the company returned to profitability in the next quarter. Mitel claimed it would disrupt the personal collaboration segment with its new offering – the Mitel UC360 Collaboration Point, an innovative, first-of-its-kind device for the personal office meeting space.

All along, McBee made it clear that Mitel is “not for sale.” However, despite those assurances, one thing was clear – Mitel’s long-term future remains unclear. And those concerns were justified as Mitel yesterday announced that it would cut 200 full-time employees, and revise its quarterly earnings guidance more than $10 million lower.

Mitel says it expects revenue for the quarter ended July 31 to come in between $138 million and $139 million, well below the previously provided range of $150 million to $155 million. It blames losses on account of several book orders which did not ship during the last quarter. The company will release its financial results for the first quarter of fiscal 2013 after the market closes on August 30.

Ironically, Mitel has enjoyed a good year through channel sales – it launched a new Authorized Partner Service Program for its North American channel partners. The company is now doing majority of its sales through solution providers in North America, as well as in the rest of the world. Earlier this year, Mitel’s top management acknowledged that the reseller partner strategy is beginning to pay off as the average deal size has bumped up to US$250,000 this year, from $40,000 last year. The company said resellers offer a distinct advantage as they have their own sales networks and are able to sell services on top of the company’s unified communications solution, which brings video, messaging, phone calls and other services in one package.

Clearly, the company hasn’t done enough to ‘convert’ those channel sales into revenue. The job cuts would be global and will take place during the current quarter ending Oct. 31, 2012. Mitel also plans to close what officials called “excess facilities”.

“Our results reflect orders booked that did not ship in the quarter, implementation delays on several customer projects and a general deterioration in the macro environment,” said Richard McBee, chief executive officer, Mitel. “We remain confident in our strategy and product leadership, however we are taking immediate actions to size the business cost structure consistent with our broader macroeconomic concerns.”

There’s no doubt that Mitel has challenging times ahead. In the past, one of company’s biggest mistakes was that it failed to keep pace with the market.  The company is now trying to change that with new offerings such as the UC360. Priced at less than $2,000, Mitel claims the UC360 will fill the gap between an expensive telepresence conference  room and a desktop video device.

None the less, Mitel still remains a distant third in the UC market behind Cisco and Avaya and it could get worse. What do you think of Mitel’s future?

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Written by: Gaurav Kheterpal. Follow TheTelecomBlog.comby:RSS,TwitterFacebook, or YouTube.


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