Cloud transition fears along with high on-premise market share were reasons the market was holding back, and Mitel Networks (MITL, Financial) was trading in the value territory. The stock is up 17% since I last wrote about the company.
Although unified communication market entails double-digit growth, Mitel’s on-premise solutions were seen as a threat to its success. The market was, in fact, ignoring Mitel’s longstanding position in the communication and collaboration market along with its ability to transition toward cloud. The stock has started to move up and things look better than before.
Mitel is receiving improved reviews from vendor analysts this year, which indicates higher competitive capability of the company in unified communication. It is hovering around Cisco (CSCO, Financial) and Microsoft (MSFT, Financial) in terms of critical unified communication capabilities.
Despite quality offerings, the company is competing on cost. Customers are reporting reduction in total cost of ownership. More importantly, transition from on-premise solutions to cloud isn’t an imminent threat as businesses are still looking to deploy on-premise solutions due to security concerns. Mitel is positioned uniquely as it can offer quality unified solutions in a cost-effective way.
Growth is expected in the UCC market
The unified communication and collaboration (UCC) industry is set to continue on a growth path fueled by cloud-based deployment of communication and collaboration services.
IDC, in its latest assessment of unified collaboration vendors, forecasts the UC market to grow to $33.8 billion in 2017. “The North American market will experience a steady compound annual growth rate (CAGR) of 26.9% between 2015 and 2022 in terms of installed users,” noted Frost & Sullivan in the North American-hosted IP telephony and UCaaS market report.
On-premise solutions aren’t going away just yet
IDC further notes that businesses are still investing in on-premise solutions, but cloud is becoming the go-to delivery model for unified collaboration services. Further, the hybrid model is also gaining traction, says the IDC.
Source: IDC's 2017 U.S. Enterprise Communications Survey
In a recent survey IDC noted that 37% of the organizations are currently deploying UC technologies, and 36% intend to deploy UC in the future; 27% of the respondents aren’t interested in deploying UC technologies, citing cost and security as the deal breaker.
What’s interesting is that 21.1% of the respondents are still interested in deploying an on-premise UCC solution. This indicates that on-premise deployment of unified communication isn’t dead yet. Fears related to decline of on-premise solutions are overplayed as evident from IDC’s vendor assessment report.
Double-digit growth is expected in the IP telephony and UCaaS. Mitel is exposed to the growth amid its strong IP telephony presence. The company’s UCaaS portfolio is also boosted amid ShoreTel acquisition. Moreover, on-premise solutions aren’t expected to vanish anytime soon. Therefore, Mitel can benefit from its leading position in on-premise UC services along with continuing improvements in its hybrid and cloud solutions.
Vendor assessments show improvement
Gartner and IDC assess unified communication vendors each year and publish their recommendations. Assessment of Mitel is improving year on year.
IDC puts Mitel in the Leaders category of unified communication and collaboration vendors, which is a jump from the Major Players category in the preceding year.
It seems that IDC classifies Mitel as a leader in unified collaboration in its recent vendor assessment, which is a positive assessment as Mitel was a borderline leader in the previous vendor assessment by IDC.
Gartner also named Mitel a leader in its magic quadrant for unified communications in 2016 and 2017. Mitel’s position is reinforced in 2017 as total number of leaders in the unified communication market fell down from four to three.
Image credits: Gartner
In the new magic quadrant for unified communications, as shown above, the number of leaders went down compared to the last year. Gartner now considers Cisco, Microsoft and Mitel leaders in the UC space. This is indicative of Mitel’s improving position in unified communication.
Mitel has all the critical capabilities of a major UC provider
In the critical capability analysis of UC vendors, Gartner places Mitel among the leaders in use-cases like full UC with strong telephony, UC with strong collaboration, full UC for midsized organizations and hybrid deployments.
Mitel is among the top three in all of the critical use-cases defined by Gartner. Nonetheless, Cisco is a clear leader across the board.
Source: Gartner, Critical Capabilities for Unified Communications
Source: Gartner
Mitel’s offerings are comparable to Cisco and Microsoft as evident from the tables above. The company beats other players by quite a margin.
Mitel differentiates on cost
Mitel is in a unique position as it can offer its products to small and medium enterprises cost effectively. It can’t compete on quality with the likes of Cisco and Microsoft. Nonetheless, Mitel has an attractive solution for small and medium enterprises.
Cost is one of the reasons businesses avoid unified communications, as noted by IDC. Mitel is in a position to cater to the needs of cost-conscious clients. Gartner has the following to say about Mitel’s competitive advantage:
“Mitel’s solutions are both competitive in features, but more importantly, Mitel offers solutions at competitive prices. Reference customers frequently identified cost savings and the total cost of ownership as factors that influenced their decision to acquire Mitel UC.”
Consider Mitel MiCollab UC and MiVoice call management solutions for price-sensitive implementations, Gartner recommends.
Valuation is favorable
You can refer to the previous piece on Mitel for valuation insights.
Mitel Networks: short-term headwinds
Due to the cloud, the number of players in voice is growing as is the pressure on traditional on-premise PBX suppliers, thinks Aragon Research. Small and midsize companies are finding that cloud-based UC services are increasingly competitive with current on-premises solutions.
Final thoughts
Unified collaboration market is set to grow going forward. Cloud is set to witness high growth. Nevertheless, on-premise deployments will stay relevant. Mitel is a decent unified communication play as the company already offers leading on-premise solution. It also offers hybrid and cloud solutions, exposing the company to the growth of UCaaS. Mitel’s products have been improving, at least according to IDC and Gartner. Moreover, Mitel offers cost effective solutions, which creates a cost-conscious niche of clients. Overall, the company is positioned to benefit from the growth of the unified communication market.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
