SMB strength, product portfolio and brand key aspects of Mitel’s IPO

Mitel Networks Inc. used its initial public offering (IPO) prospectus to point out that it has a good chance of succeeding as one of the prime contenders in the business IP communications marketplace. Filed on May 9, the IPO document highlights why Mitel’s management believes it will be a key player going forward. While the company played up the ability to leverage its strengths in the small and medium business space to gain more customers in the enterprise market, Mitel also used research data to illustrate the market opportunity in front of the Ottawa-based company. Quoting statistics from a number of research firms, Mitel indicated that there is tremendous upside in both the mid-sized business market, as well as in the enterprise arena. Much of the growth in enterprise IP telephony systems is expected to come from companies replacing legacy systems. "Synergy forecasts that purchases of IP communications platforms in 2006 will exceed those of legacy telephony systems for the first time in history and that IP platforms will comprise over 90% of all enterprise telephony purchases by 2009," reads Mitel’s IPO document. "As this replacement cycle progresses, purchases of legacy circuit-switched are expected to decline at a CAGR of 38.1% from 2005 until 2009." Not only do market projections bode well for Mitel’s financial future, so do the projected IP platform adoption of businesses in several parts of the world. While North America and Europe, the Middle East and Africa made up 80% of overall business IP telephony at the end of September 2005, the Asia-Pacific region and Latin America has doubled in size since 2003. The profile of businesses planning to adopt IP communications platforms also plays into the Mitel strategy – the company is one of the leaders in selling these types of enterprise communications systems to the small-medium business market. The SMB segment accounted for approximately one-third of total IP telephony shipments in 2005, but that is expected to grow significantly over the next four years, according to InfoTech. The research firm notes that this segment will represent 43% of IP telephony shipments by 2010. "Most businesses have yet to migrate to an IP-based environment to solve their voice communications needs," reads the prospectus. "According to InfoTech, only 36% of small and medium-sized businesses in the United States have adopted IP telephony but this is expected to rise to 62% by 2009. Similarly, 73% of large enterprise businesses in the United States are implementing IP telephony, a figure which is expected to grow to 89% by 2009." Mitel says its ability to succeed in the provision of IP telephony systems to the business segment lies in the legacy of its research and development activities and has invested significantly over the past five years in IP-based communications systems, producing a broad product portfolio. The company’s revenue makeup also bodes well for achieving success in the business IP communications market. Mitel notes in the prospectus that 86% of product revenue is derived from IP products. Highlighting the 38.1% decline in legacy systems sales from 2005 to 2009 as quoted by Synergy, the company believes to be in an advantageous situation. "Since only 5% of our product shipments and 14% of our product revenue in the quarter ended January 31, 2006 were derived from sales of legacy systems, we are better positioned than many of our competitors to withstand the expected further decline in the legacy circuit-switched telephony market," Mitel states in its prospectus.

SMB strength, product portfolio and brand key aspects of Mitel’s IPO

News | May 25, 2006

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