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Avaya revenue growth depends on success of cloud products

New cloud products are expected to drive Avaya revenue growth in 2019. Meanwhile, revenues in fiscal 2018 are forecast to be almost the same as last year.

Avaya predicts stability in its business for the remainder of the fiscal year as the company builds out its cloud-based contact center software in preparation for growth in 2019.

Avaya, which emerged from Chapter 11 bankruptcy late last year, released this week its first earnings report as a public company in more than 10 years. For the quarter ended Dec. 31, Avaya revenue was reported at $752 million. Excluding the effect of bankruptcy and other items, the company recorded a net loss of $68 million for the first quarter in the 2018 fiscal year.

Avaya revenue was forecasted between $3 billion and $3.1 billion for the entire fiscal year, which is roughly flat from the previous year. Nevertheless, the company is "hitting on all cylinders" and expects to return to revenue growth in the fiscal year 2019, Avaya CEO Jim Chirico told analysts during a conference call.

A priority for the current fiscal year is to build a cloud business around Spoken Communications, a contact center-as-a-service provider Avaya acquired last month. Avaya plans to use Spoken as an option for customers who want to move to the cloud slowly. To set the pace, companies using Avaya on-premises software can replace call center features one at a time with the Spoken cloud version.

Avaya revenue growth strategy hangs on cloud product success

Avaya's revenue growth strategy in 2019 is to provide cloud-based unified communications and contact center software for companies of all sizes. Avaya is building its next-generation UC products with Zang, a UC-as-a-service provider owned by Avaya.

A lot of what Avaya has planned has already been done by some of its competitors, Gartner analyst Steve Blood said. Examples include Voss Solutions and EGain Communications, which built similar technology several years ago for Cisco's Hosted Collaboration Solution. Cisco partners use HCS to host UC and collaboration products for their customers.

Avaya in the cloud space is about five years late -- I wouldn't say too late, but Avaya has lots of catching up to do.
Steve Bloodanalyst, Gartner

"Avaya in the cloud space is about five years late -- I wouldn't say too late, but Avaya has lots of catching up to do," Blood said.

Today, Avaya's revenue is 82% software and services and 57% recurring, which means customers are under contract to make periodic payments over several years. Companies typically pay for cloud services and software that way.

A positive sign for Avaya last quarter was a 16% increase in call center revenue from the previous quarter. Chirico attributed the growth to Avaya customers waiting for the company to exit bankruptcy before upgrading or buying new software.

"Our customers have been very loyal," Chirico said. "We're still seeing that same momentum as we go into this quarter."

A survey conducted last year by Nemertes Research, based in Mokena, Ill., found companies sticking with Avaya were "generally satisfied" with its products. A significant attraction was Avaya's tools for customizing its UC and contact center software.

Avaya's contact center products are strong enough to compete with its most significant rivals Cisco and Genesys, Nemertes analyst Irwin Lazar said. The company's UC technology, however, could struggle against Cisco and Microsoft, which dominate the midsize and large enterprise market.

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