Jon Arnold's Analyst 2.0 Blog: Mitel Business Partner Conference

Thursday, June 21, 2012

Mitel Business Partner Conference - Highlights

This year's Mitel Business Partner Conference is a bit on the short side for the invited analysts, as Wednesday is the only full day here, and we leave today around noon. So far, it's been very good, with a strong turnout on all fronts - about 1,500 partners and customers, and about 60 exhibitors. The morning was a series of executive updates for all attendees, and the afternoon had special sessions for analysts, including a customer panel and personal executive interviews.

Overall, lots of positive messages, and it's clear that Mitel is on the right track. There was some timely news as well, but the general sessions were not analyst-friendly - no Internet access or power bars - and I wasn't able to tweet then. Too bad, but I'll share my takeaways here.

CEO Rich McBee set the tone with a clear, realistic vision of where Mitel fits in the comms market. He established that a strong foundation is in place on all fronts - the products, the people, the culture and the channels. They know they'll never be as big as Cisco or Avaya, but that's not their target. They're happy to be #3, and more important, they want to be the best. Good plan. He surrounded that with lots of examples, and the main thing is that they're paying down debt ahead of schedule, the financials are strong and they're growing in all the right places. There's money in the bank, and he says Mitel will be ready for whatever changes/consolidation comes next. I don't see the need to follow ShoreTel's steps to acquire a hosted provider - they have plenty of virtualization capability via VMware - so it's not clear if that means Mitel will be a buyer at some point, or will just react to what others do. After all, they've pretty much digested the InterTel acquisition, and am sure they're happy with what they have now.

Two other notables from Rich's remarks. He touched on the fact that the market still doesn't really know all that Mitel has to offer. If the customer wants hosted, they can do that via virtualization, and of course they can do premise-based all day long. After hearing him talk about things they want to do to strengthen Mitel's mindshare, a lot of these messages sounded spot on to what ShoreTel was saying at their last industry event. These two companies really are in a dogfight for the #3 spot, and each will take any angle they can to get a leg up. I've noted in the past that Mitel has bet pretty heavily on virtualization, and it sounds like that's starting to pay off nicely now. Each company is chasing a similar type of customer with similar channel partners, so at minimum, Mitel has to be telling a story that's just as good as ShoreTel to keep the partners onside. I'd say it is, and technically, it sounds like they're a bit stronger, especially after talking to various partners who sell both.

The second notable comment speaks to the culture Rich is trying to build. He stated that for the first time, all Mitel employees will be in on profit sharing. Well, that's one way to gain an edge on ShoreTel, given that they're not making money these days. Regardless, it's a great way for Mitel to build loyalty and motivate all employees to go the extra mile to make the company strong. That's a big change considering how poorly their IPO came off, when many doubted whether InterTel was a good move.

CFO Steve Spooner gave more detail on their financial performance, and it's a good story. I thought they'd be a billion dollar company by now, but $670 million is just fine, especially when gross margins are at 50%, and they've paid down $100 million of debt in the past 3 years. The other metric I liked was about how diversified their revenue base is. Mitel's top 10 customers only account for 4.7% of sales, and their top 10 partners only tally 12.8% of sales. That's a nice mix. In short, Steve made it clear that Mitel's financials are just fine, and that matters when you consider how challenged some of the other vendors are. That's a pretty important message for channels to hear, especially when weighing Mitel against other vendors they're selling.

Lots of other strong messages throughout the day, but the biggest item was from Jim Davies and the launch of their new device, the UC360 Collaboration Point. Tech companies aren't known for coming up with sexy names for their products, and this is no exception - it's pretty clunky. He did the big reveal, like on a reality TV show - see photo below - so it was new for all of us. Reminded me a bit of how Cisco unveiled the Cius, which really was the first of its kind - but also the first exit of its kind too. Video is really just making its way into Mitel's story, and with this, it becomes a central driver for UC and collaboration.

Jim did a very smooth demo showing how the device has the convenience of a touchscreen with intuitive features that allow any tech-challenged SMB end user to launch and manage a collaboration session from one device. The demo worked across all screens - PC, tablet and room-based system - so, it's ideal for ad hoc needs that anyone can run with. The list price is around $2,000, which seems high, given that Cius could not compete with the iPad's price point. Of course, it does a lot more, but we just don't know if it's solving problems that are pressing enough among SMBs to warrant the investment. Mitel is basically taking the approach they can disrupt the market with a new category device, and hats off if they're right. Apple sure had success this way, but I'm not so sure that this really is the "new way to collaborate", as Jim was telling us.

On the whole, my impression is that Mitel is in a good spot. They certainly have come a long way from their IPO, and Rich McBee seems to be the right man for the job. Got to give them credit for trying to shake things up with the new product launch, as well as continue pushing the virtualization option. They're certainly getting good validation, as they showed that virtualization deals are coming in bigger than premise-based sales. They seem to know their sweet spot - we didn't hear much talk about chasing the enterprise market, and so far, not much about social media - it's just not on the radar of their customers. There was a little talk about contact center, but they know that's not their forte. For now, there's better upside for them with virtualization, and as they grow internationally, this could really pay off since this is a global trend. As the first photo below shows, "it was a busy year", but the results seem to be there for Mitel. Let's see if they can keep it that way in the second half of 2012.