Channel Conflict, Controversy: Avaya Bankruptcy, Mass Layoffs, High-Profile Execs Depart
There's always something to buzz about in the channel.
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In February, Avaya, the cloud communications collaboration and channel stalwart, filed for chapter 11 bankruptcy. This is its second bankiruptcy filing in six years.
Last June, Avaya borrowed $600 million. Later that month, the company sold a $350 million leveraged loan and a $250 million exchangeable note. They were both secured on a first-lien bases to help refinance the older convertible notes maturing in June 2023, Bloomberg reported.
However, on July 28, Avaya made substantial changes. It hired a new CEO, appointing Alan Masarek to the job. The company then slashed its “adjusted earnings forecast for the third quarter by more then 60%,” or between $50 million and $55 million. Avaya also reduced its revenue expectation by more than 16%.
This month, Avaya completed its last major milestone of financial restructuring, officially reducing its total debt by more than 75%.
The U.S. Bankruptcy Court for the Southern District of Texas confirmed the company’s prepackaged plan of reorganization. Avaya’s plan calls for “slashing some $2.6 billion of debt,” according to Bloomberg. It also allows for Avaya to increase its liquidity position to over $650 million.
More than 20 companies doing business in the channel have slashed their workforces since the start of the year.
Among the latest layoffs, Accenture confirmed job cuts impacting 19,000 workers, or 2.5% of its global workforce, to reduce costs. Those layoffs will take place over the next year-and-a-half. More than one-half of the workers are in non-billable corporate functions.
In addition, Amazon confirmed more layoffs impacting 9,000 workers, including many in Amazon Web Services (AWS). The internet giant in January initiated layoffs impacting 18,000 employees.
During the first two months of 2023, 44,900 IT jobs were lost amid a flurry of major layoffs and as recruitment of IT professionals ground to a halt. That’s according to Janco and Associates. This is the first loss in the number of working IT professionals in more than 27 months.
The long-expected sale of TBI to AppDirect left many TBI employees blindsided by layoffs. Not only that, but former employees say they were promised a share of acquisition proceeds, and then left empty handed.
Most acquisitions involve layoffs, especially when merging entities carry duplicate positions as AppDirect and TBI did. And layoffs can occur before an acquisition is final.
Former employees speaking on background or off the record said they felt blindsided by the layoffs. In addition, many said TBI verbally promised a share of the acquisition proceeds. According to sources, TBI owner and president Geoff Shepstone (pictured) gave multiple spoken promises of a profit-sharing program in companywide conference calls. However, he ultimately didn’t follow through on them, due in part to a lower valuation he accepted from AppDirect.
AppDirect did not make Shepstone available for comment.
Last October, channel MVP Rob Rae officially left his position at Kaseya after nine years at Datto, where he was senior vice president of business development.
Rae arrived at Datto in 2013 to help build the backup provider’s channel in its pre-IPO days.
Speculation about Rae’s plans after Kaseya acquired Datto began to swirl last March, months before the before the $6.2 billion acquisition was completed in June. Kaseya CEO Fred Voccola had stated Rae would stay with the company following the acqusition.
Earlier this year, Rae joined cloud and services distributor Pax8 to head up community and partner ecosystems. It’s a move the company hopes will bring more MSPs into its fold given the strong following Rae created at Datto.
Dish Network still hasn’t completely recovered from a ransomware attack in February and now it faces at least two class-action lawsuits from investors.
Attorneys filed the lawsuits in response to a widespread outage the company attributes to a ransomware attack. Personal information was likely stolen by the malicious hacker(s).
According to the class-action lawsuits, Dish allegedly:
Overstated its operational efficiency and maintained a “deficient” cybersecurity and IT infrastructure.
As a result, Dish was unable to properly secure customer data, leaving it vulnerable to access by malicious third parties.
The foregoing cybersecurity deficiencies also both rendered Dish’s operations susceptible to widespread service outages and hindered the company’s ability to respond to such outages.
In the meantime, the Wall Street Journal reported Dish is still working to get all of its operations up and running. Customers said they are still struggling to access certain services such as HBO Max and other third-party streaming services, access their accounts and reach customer-service call centers. In addition, customers are waiting for updates on whether their personal information was compromised.
In January, ConnectWise veteran Craig Fulton, who led IT Nation, announced his departure from the company after 16 years. He’d been the company’s chief customer officer for the last four years.
As chief customer officer, he led IT Nation, a global community of peers, thought leaders and experts. He also oversaw cybersecurity consulting, business consulting, education and customer events teams.
Fulton’s tenure spanned from systems engineer at ConnectWise MSP, to chief product officer and then leader of the IT Nation community.
“My life’s chapter at ConnectWise is closing,” he said in a LinkedIn post. “After exactly 16 years this month, I’m moving on to my next adventure. Although I do know that it will involve advisory work for ConnectWise over the next few months, I don’t know exactly where the future will take me. I just know that I’ve run hard and happily for the last 16 years. And I need to take some time to recharge, focus on my family and myself so I can start my next chapter energized and with the same passion I gave ConnectWise, our partners and my friends.”
This month, European regulators expressed concerns over Broadcom’s planned acquisition of VMWare for $61 billion.
United Kingdom authorities said they fear Broadcom’s purchase of VMware would make servers more expensive. They further planned to put the proposed acquisition under greater scrutiny via an in-depth inquiry unless Broadcom could address its concerns. On March 22, the regulators gave Broadcom five working days to respond.
The company in a statement to Reuters said it still expects the transaction to close in its fiscal year 2023, which ends in October. Sources said European regulators will make a decision by June 7.
Last week, Broadcom CEO Hock Tan posted a blog touting Broadcom’s commitment “to a robust partner ecosystem.” The message addresses Broadcom’s partner philosophy, and the subsequent trickle-down impact on customers.
In December, Frank Rauch unexpectedly vacated his role as Check Point Software Technologies’ head of worldwide channel sales. He was the architect of channel programs at HPE, VMware and Check Point.
He did not confirm his destination at the time, but reports indicated that he would join an emerging pre-IPO player in the communications and technology industry.
A month later, Rauch joined secure access service edge (SASE) provider Cato Networks as its global channel leader. Rauch said he joined Cato Networks because he “loved” its messaging and was impressed by the quality of its management team.
In January, T-Mobile confirmed the personal information of about 37 million of its customers was stolen in a recent hack. This was the latest of numerous T-Mobile data breaches.
T-Mobile disclosed the hack in a U.S. Securities and Exchange Commission (SEC) filing. On Jan. 5, it discovered a “bad actor” was obtaining data from a single API without authorization.
The hacker didn’t breach or compromise T-Mobile’s systems or network, the carrier said.
It appears the bad actor first retrieved data through the impacted API starting on or around Nov. 25, T-Mobile said.
Nick Rago, field CTO at Salt Security, said uncovering an API attack after the fact, in this case 41 days and 37 million records later, is “just not good enough.”
Photo courtesy: Budrul Chukrut/Shutterstock
After doubling its headcount in five years, Google in January announced it is shedding 12,000 jobs, the largest number in its history.
However, that figure could jump if activist investor Chris Hohn gets his way. Hohn controls approximately $20 billion in various companies, and between $6 billion and $7 billion of Alphabet, Google’s parent.
Slashing 12,000 jobs isn’t enough, Hohn said.
“Ultimately management will need to go further,” he wrote.
Hohn defended his position, saying Alphabet hired 30,000 new people in the first nine months of 2022. He then told Google CEO Sundar Pichai that Alphabet needs to axe more workers, to bring the company to a total headcount of 150,000. That would put Alphabet’s employee rolls close to where they stood at the end of 2021.
Hohn also said Google’s compensation is too high. He said Alphabet’s median salary comes out to $300,000, with the average falling “much higher.”
In November, IBM filed a lawsuit against Micro Focus, alleging it illegally copied and reverse-engineered IBM software in violation of copyright law.
Big Blue filed its lawsuit in the U.S. District Court in the Southern District of New York. The lawsuit alleges copyright infringement and breach of contract. It’s seeking monetary relief, including damages and attorneys’ fees. It’s also seeking an injunction against Micro Focus to prohibit it from “illegally copying and distributing” its software.
“Micro Focus has brazenly stolen IBM software and we are going to protect IBM’s product development investment from Micro Focus’ illegal tactics,” IBM said. “We will aggressively defend IBM’s intellectual property against those who attempt to steal it.”
Micro Focus said the claims in the lawsuit are “entirely without merit.”
“For more than 40 years, Micro Focus has been delivering innovation to customers, and we will robustly defend our intellectual property,” it said. “We look forward to addressing what we consider to be baseless allegations through all available legal channels.”
In November, Dell Technologies agreed to a $1 billion settlement to settle an investor lawsuit. It stems from the 2018 stock deal that returned the company to public trading.
The lawsuit was scheduled to go to trial in December in the Delaware Court of Chancery.
The dispute arose from a $23.9 billion conversion of Dell stock in a 2018 deal. In that transaction, Dell’s controlling investors, including Michael Dell and private equity firm Silver Lake, authorized the payment of cash and issuance of shares of new Class C common stock in exchange for Class V tracking shares. Dell’s Class V stock then stopped trading. And Dell’s Class C common stock began trading on the New York Stock Exchange.
Dell had previously gone private, but created the tracking stock to finance its 2016 acquisition of EMC Technologies. The tracking shares were meant to mirror the value of VMware, a publicly traded entity in which Dell acquired a majority stake via the EMC purchase.
Dell shareholders alleged the 2018 swap deal shortchanged them by about $34 per share.
In November, Dell Technologies agreed to a $1 billion settlement to settle an investor lawsuit. It stems from the 2018 stock deal that returned the company to public trading.
The lawsuit was scheduled to go to trial in December in the Delaware Court of Chancery.
The dispute arose from a $23.9 billion conversion of Dell stock in a 2018 deal. In that transaction, Dell’s controlling investors, including Michael Dell and private equity firm Silver Lake, authorized the payment of cash and issuance of shares of new Class C common stock in exchange for Class V tracking shares. Dell’s Class V stock then stopped trading. And Dell’s Class C common stock began trading on the New York Stock Exchange.
Dell had previously gone private, but created the tracking stock to finance its 2016 acquisition of EMC Technologies. The tracking shares were meant to mirror the value of VMware, a publicly traded entity in which Dell acquired a majority stake via the EMC purchase.
Dell shareholders alleged the 2018 swap deal shortchanged them by about $34 per share.
Forget all the March Madness upsets. There’s plenty of channel conflict and controversy involving Avaya, massive layoffs, TBI, Dish Network, Google and more.
New hires, changing channel programs, security breaches and M&A are typical Channel Futures fare. But there also are plenty of eye-opening controversies that draw you to the watercooler. There have been quite a few since our last roundup of channel conflict and controversy last July.
Recent hubbub involves Avaya in chapter 11 bankruptcy for a second time, channel MVP Rob Rae leaving Datto/Kaseya, Dish Network’s crippling ransomware attack and subsequent lawsuits, and European regulators hitting pause on Broadcom’s planned VMware acquisition.
In addition, Frank Rauch left his channel leadership role at Check Point Software Technologies, and an activist investor wants deeper cuts at Google.
So turn off TMZ, call your friends and wade through the slides above. Revisit each controversy and conflict that has impacted the channel over the past several months.
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