Is the Mitel / Polycom merger a good idea?

At first blush a combined UC Telephony company and a UC Video Conferencing company makes sense. It looks great right up until you look under the covers then the shine comes off rather quickly.
 

Where are the Mitel Video clients today?

Mitel clients aren’t buying much video today. If they were then the relationship with Vidyo would be flourishing. If it is then I for one have seen scant evidence.

Simple as ABC

Polycom’s customers are often the ABC’s (Anything But Cisco) crowd. I see little evidence that Mitel lives in that world.

Different Clients

Polycom and Mitel sell to different types of buyers, solve very different business problems and have different competitors. Combining them would double their competitors, so for example the already very one sided relationship with Microsoft would quickly evaporate for Polycom. Long term no third party Hardware manufacturer has prospered in a relationship with Microsoft. This deal would simply speed up the process.

Boxes

Polycom are a product company, they love new Hardware. You can see the evidence of this with the new $70,000 product they launched this week. The problem is the market is moving directly away from high cost hardware, to lower cost more flexible solutions. Polycom is in desperate need of a Cloud strategy. Mitel has over the last few years built a great Cloud strategy and are right in the middle of executing this vital innovation. If they were to merge Polycom would have to rely heavily on the expertise of Mitel to get into the Cloud space. This would then slow down where the majority of the revenue would be which is of course in the Motel business. As a result of all this it would slow Mitel down. I can’t see how that would be a winning strategy right in the middle of the Excession Event that is the UC space at present.

How good is your M&A?

Both Mitel and Polycom need to bulk up to counter their huge competitors Avaya, Cisco and Microsoft. Mitel obviously understand that they have holes in their business and have built a great M&A machine to fix it. Just look at the number of companies Mitel as bought and integrated in the last few years. Polycom have always done a horrible job integrating new businesses. Think how the Viewstation and the SoundStation didn’t even work together after TEN YEARS !!!

Polycom were Switzerland

Increasingly Polycom are becoming an audio player. Their products are world class in that arena and the ability to sell their products to a range of UC suppliers would be heavily impacted if they were part of Mitel. They were Switzerland in the UC space. Not if they merge with Mitel.

The world’s best buggy whips

Polycom are the ultimate buggy whip manufacturers, but the world is moving to automobiles. Users are now looking for highly flexible, low cost, room solutions empowering their users to deploy any SW codec they like.

It’s easier to sell a $100,000 product than a $10 product

There remains a market for $20k rooms, but as the market data shows that market is shrinking at 10% a year and has been for over 5 years. Huddle rooms with high end, low cost, PTZ webcams are the growing trend. Polycom doesn’t have a business model able to cope against the major player in that space, Logitech. The business model making money selling few products expensively is much easier than selling lots of low cost devices.

What could you do with 18 months?

18 months of disruption during the “merger” would be a huge headache. Management time would be wholly focused on internal issues not external ones. The Video Conferencing market in particular is in a time of huge change. An Excession Event no less. All the growth in the VC market is in Cloud offerings. A sector Polycom appears completely absent from. For Polycom who are already very late to the Cloud party to take 18 months off from making these changes would be catastrophic for them and their partners.

Oh you could save some money, for a while

There would be cost savings by combining the businesses but the culture, clients, workflow, sales and marketing models are all highly diverged.

Right dance, wrong partner

I agree strongly with Elliott Management that the market needs to consolidate, but I think this is the wrong pairing.