æ YOU WANT JOBS? SMALL CAPS THE MAN WHO CAN 4 REVOLUTIONARY IDEAS HOW TO FIND WINNERS FIX THE DEFICIT SEPTEMBER 13, 2010 | WWW.FORBES.COM SEPTEMBER 13, 2010 | WWW.FORBES.COM SPORTSMONEY SAVE DA BEARS! HOW THE FRANCHISE FUMBLES AWAY A FORTUNE ALSO NFL TEAM VALUES A Sexier Office Phone Avaya is battling Cisco over the future of business communications. Its Nortel acquisition might give it an edge. By Elizabeth Woyke B RETT SHOCKLEY WANTS TO show how smart a conference call can be. As he dials a colleague, software on his laptop tees up documents and e-mails he might want for the conversation. When he adds another co-worker to the call, the software reorders the files according to how relevant they are to everyone on the line. “Usually you’re frantically digging up things on your computer,” explains Shockley, vice president of emerging products and technology at telecommunications company Avaya. The new software is part of Avaya’s plan to leap past Cisco in phone software and phone equipment and fend off interlopers. Those are Google, which has a call-forwarding service that could be a threat in a few years’ time, and Microsoft, which wants to jump from the computer to business phones. Avaya is also working on call center technology that lets agents chat with customers on video. And it supports a virtual world for business users (a sort of Second Life that hosts meetings in digital conference rooms, complete with avatars). The company’s boldest move may be a tablet device that hosts phone calls and SALEM KRIEGER FOR FORBES Making meetings fun: Avaya Chief Executive Kevin Kennedy plugs into his virtual world for businesses. messaging services, $8.2 billion in the firm, Avaya has taken enabling a busy executive took it private and began office phones to take a conversation paring down business from analog from the office to the units from 27 to 3 and to digital. The road. The Basking Ridge, boosting research and launch of a tablet development funding. To N.J. company, which was spun out from Lucent device will make date it has spent $1.2 bilTechnologies in 2000, will lion on R&D, and 90% of them mobile. only say it will soon introsenior management has duce a gadget that supbeen replaced. Last year ports “multiple modes of communication.” Kevin Kennedy, then head of fiber-optic A tablet could strike at Cisco, which equipment maker JDS Uniphase and a in June introduced a 7-inch, 1.15-pound Cisco executive in the late 1990s, was tablet that will sell for under $1,000. The brought on board as chief executive. His networking giant has poached Avaya first big move was to acquire a large chunk customers by operating as a one-stop of competitor Nortel for $900 million. shop for communications technology. The acquisition gave Avaya a huge Avaya’s phones have been ubiquitous network of resellers and routers and data in offices for a decade, but for the past five switches—two longtime Cisco strengths. years Cisco’s have been gaining on it. In Avaya says 95% of Nortel resellers will offer the first quarter Avaya accounted for 25% its products and 75% of its global business of the money spent on business phone now flows through outside distributors (up equipment and Cisco for 22%, researcher from 58% pre-Nortel), similar to Cisco’s sales Dell’Oro Group estimates. model. Verizon, Deutsche Bank and JPMorAvaya, whose revenue has been stuck gan Chase have signed new contracts with in a range from $4 billion to $5 billion a Avaya in recent months. year, needed a growth plan. In 2007 Silver Avaya also got Nortel’s best technoloLake Partners and TPG Capital invested gies. Nortel wasn’t able to capitalize on them and filed for bankruptcy in 2009, but Avaya says it has sharper focus and longer-term goals, in part because it is smaller and privately held. For the nine months ended June 30 Avaya reported a loss of $657 million (largely attributable to Nortel integration costs). Still, it seems to be on the right path. “Avaya’s products were good, but their reach was limited,” says Yankee Group analyst Zeus Kerravala. “Adding Nortel should create a much stronger competitor to Cisco.” Though its investors are eager to earn back the money they spent, Silver Lake managing director Charles Giancarlo, a former Cisco executive, says Avaya won’t go public until it has digested most of the Nortel purchase and delivered three to four quarters of solid growth. By then, he predicts, Avaya will be associated with far more than desk phones. “We’re taking a new approach to how people communicate,” says Giancarlo. Let’s hope he succeeds: Maybe someday we’ll get software that eliminates such annoyances as phone tag, wrong numbers and long-winded call menus. a Reprinted by Permission of æ Media LLC © 2010 - Reprints contact 212.620.2399