Avaya Bankruptcy Takes a Bite Out Of ScanSource Sales

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ScanSource CEO Mike Baur said some of Avaya's large enterprise customers have delayed upgrade and expansion decisions due to the vendor's Chapter 11 bankruptcy filing.

The Greenville, S.C.-based distributor saw a decline in Avaya-related sales, particularly for large enterprise businesses, due to market uncertainty stemming from the bankruptcy filing. ScanSource will continue supporting Avaya channel partners, despite the challenging environment, Baur said.

"We believe it's a pause, not a change of course," Baur told CRN. "We certainly have been very close to Avaya's executives, and we're talking with them and making sure we understand their strategy."

[Related: ScanSource To Recruit More Communications VARs Sourcing Directly From Vendors Today]

Avaya is one of just three vendors – along with Cisco and Zebra – that contributed more than 10 percent of ScanSource's overall sales for the fiscal year ended June 30, 2016, according to a filing with the U.S. Securities and Exchange Commission (SEC). ScanSource is authorized to distribute Avaya products in the U.S., Latin America, the U.K. and parts of continental Europe, the SEC filing indicated.  

Avaya filed for Chapter 11 bankruptcy protection in January, and announced plans in March to sell its networking business to Extreme Networks for $100 million. Avaya disclosed in April that it had received eight written bids for its legacy contact center business, but ultimately declined to pursue them.

Baur said ScanSource knows Extreme very well, and if the acquisition goes through, he expects the distributor will be able to transition its Avaya networking business to Extreme and continue to provide the same products to its channel partners with very little disruption.

Avaya's principal business, though, is around the contact center, Baur said, with most of the vendor's channel partners playing with them in that space for many years. The networking partners came to Avaya later, Baur said, and constitute a smaller piece of the pie. ScanSource's Avaya-related sales reflect the vendor's overall business strategy, Baur said. 

ScanSource said sales for the company's fiscal third quarter, which ended March 31, climbed to $813.5 million, up 1.9 percent from $798.4 million the year prior. That missed Seeking Alpha's estimate of $833.1 million.

Earnings for the quarter fell to $12.4 million, or $0.49 per share, down 11.4 percent from $14 million, or $0.54 per share, last year. On a non-GAAP basis, earnings dipped to $16.4 million, or $0.65 per share, down 0.6 percent from $16.5 million, or $0.64 per share, last year. That fell short of Seeking Alpha's earnings estimate of $0.67 per share. 

ScanSource has seen 30 percent growth over the past year in business around master agent Intelisys, which the distributor acquired in August for $83.6 million plus earn-outs. The distributor is currently educating VARs around Intelisys's business model, Baur said, but understands that supporting telecom services requires a significant investment by IT channel partners. 

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