Polycom recently announced an 11% reduction in staff. The Video Conferencing market revenues continue to decline year over year as the Average Sales Price (ASP) drops precipitously while all the growth is happening in the low cost Cloud.
This is not a happy market
Recently Elliott Management attempted to pat Mitel and Polycom together, and I wrote about that here. Nothing new on that possible merger has emerged other than a strong denial from both parties that they are remotely interested. Run for the hills Mitel.
Peter Leav has been at Polycom for 2 years now, and serious questions need to be asked about his strategy, or if he even has one. I’m sure Mr Leav is a fine fellow but a background at NCR and Motorola doesn’t necessarily make you likely to be the most dynamic of leaders, and boy does Polycom need a dynamic leader now. And I mean RIGHT NOW !!!
Of course Mr Leav is, I’m sure, doing a better job than his predecessor, but let’s be honest that would not be very hard.
Presently Polycom’s revenues are $1.30Bn, with a market cap of $1.72Bn, but with $610m in the bank. So in real terms the value of the business is about 1x the revenue. I’m no financial analyst but even I can tell you that’s terrible.
Events like the recent Acano / Cisco tie up will only put more pressure on them. Cisco’s new generation of endpoints and infrastructure are a big step forward, and for those clients still looking for integrated hardware solutions they are a mightily impressive competitor. Products like the Polycom RealPresense Centro are not the answer to any business problem I’ve ever encountered.
Even worse for Polycom is the rapid development of Spark by Cisco. That could (will be) be a real game changer.
The new generation of players are much agile and aggressive. Zoom.us andStarleaf (mainly in EMEA) are eating their lunch, particularly in places like education where ubiquitiy is valued above a boardroom build, and BlueJeans are killing them on the inter connecting of businesses.
Temporary and Marginal
The relationship with Microsoft should be considered temporary and marginal. I say temporary because I personally can't think of a single player who has in the long run done well partnering with Microsoft (Intel excepted), and marginal because it is hard to see a significant chunk of that $1.3Bn being tied to Microsoft deals.
Polycom has always been strong in telephony handsets and conference phones, they are good products. But the problem is they are commodities, and of course the days of handsets on desks in going away. Polycom does not have a Unified Communications (UC) play so is reliant on the likes of ShoreTel, Mitel, Avaya and others to sell the phones for them. This is at best a risky strategy, and certainly one that will keep the share price low and the cost saving drives coming.
So what next?
So if it really is as bad as I’ve painted it what can Polycom do? Here’s a few things:
- Stop mucking about and buy a Video Cloud player and get into the game. There are 3-4 obvious choices, pick one.
- Limit the exposure and risk of the Microsoft relationship. Microsoft has a habit of accidentally rolling on its business partners in its sleep. At a minimum do not outsource your strategy to them.
- Build more relationships with competitors to Spark. Slack, Babi, Circuit would be three examples. Be part of a client solution not just a stand alone product.
- Give $500m back to the shareholders. Businesses have a duty to invest their investors money in profitable ways. If Polycom can’t work out how to do that they should give it back to the shareholders.
A fine history
Polycom was a fine company with a rich history in both the Video Conferencing and Audio Conferencing worlds. But in the last few years they seem to have lost their way. They concentrated on edge devices just at the point when the world wants low cost room solutions coupled with infrastructure, and cloud SaaS based infrastructure at that.
After the wild ride of the last administration perhaps Polycom decided it needed some quiet time with someone slow and steady at the wheel. That was understandable, but they need to be careful that the driver’s not asleep at the wheel.
On the surface this feels like an Excession Event in the making. The definition of success in this market has changed, there is no doubt about that. What remains to be seen is whether Polycom can reinvent itself to be successful in the new world. History would suggest otherwise. Just ask companies like Nokia, Blackberry, Circuit City and PictureTel.
Perhaps I'm wrong on all of this. Perhaps there is an incredible strategy I've not seen. It's entirely possible. What do you think?
About the Author: Simon Dudley
Simon is a contrarian. He makes a habit of being the guy who questions the orthodoxy, the guy who doesn’t believe it just because the good and the great said it’s true.
The Book The End of Certainty "How to thrive when playing by the rules is a losing strategy" explains why groupthink and the doing what you’ve always done is no longer the right move.
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