Is Shoretel the Next Nortel?
Nobody Knows, The Telecom Trouble I've Seen....
I’ve been in the telecommunications business since 1987. During that time I’ve seen many PBX manufacturers rise and fall. Miraculously, I can think of only one manufacturer who has survived - Mitel. But even Mitel can't honestly lay claim to that distinction as they’ve been through bankruptcy and have been bought and sold several times. So, no PBX manufacturer has shown long term financial success.
The Case of the Mysteriously Disappearing PBX Companies
In every generation of PBX technology, there has always been a company who has risen quickly to become the darling of the industry. Curiously, they have always been the most expensive PBX on the market in their time. Even more interesting, they have a nasty habit of disappearing into the PBX sunset.
- Executone – sold, re-sold, disappeared
- Rolm – sold to IBM, quietly retired
- Isoetech – sold to Executone, disappeared
- Nortel – declared bankruptcy, assets sold to Avaya
Is Shoretel Next?
Today, the declared esteemed supreme PBX manufacturer is Shoretel. It shares many of the same characteristics of yesterday’s fallen PBX manufacturers:
- Proprietary technology
- Fanatic cult-like following
- Arrogant management
- Premium price compared to competitors
In a triumph of hope over common sense, the Shoretel marketeers have been able to convince otherwise smart IT folks that they have re-invented the PBX to a point where there is no competition. Part of the allure is the high price that such a “market leading” product demands.
If it costs more than everyone else, it’s got to be better. Right? Wrong.
Let’s take a closer look at their pricing and financials:
Gross Product Margin
Shoretel spends excessively on marketing. To make up for this high overhead, they have no choice but to sell their product at a premium price. In their last financial statement, Shoretel reported a whopping gross product margin of 66%.
For those of you without a financial background, that translates into a 300% markup! Does your company mark up your products by 300%? The luster dims substantially when a Shoretel PBX buyer realizes that for every dollar they spend on Shoretel equipment, only 33 cents goes into the design and manufacture of the product.
Flagging Stock Price
Shoretel delivered their first PBX in 1998. The company went public in an IPO in 2007, with a closing price of $12.15. Shoretel has yet to show a profit in 14 years of existence.
In fact, in their last quarter, their losses were over triple from the previous quarter. Now, five years later, with the stock currently trading at $4.00, investors have lost their patience. Shoretel either needs to become profitable or they will join the list alongside Nortel, Rolm and company.
No wonder they need to sell their product at a ridiculously high prices.
Shoretel is No Apple
The list of technology companies that were truly able to make it big on a closed, proprietary system are short. Apple. That's pretty much it.
The Shoretel solution is based upon a closed, hardware-intensive technology while the industry is rapidly moving to hosted PBX and open source telecom solutions. This is not going to end pretty.
Open-source PBX competitors such as Digium with their huge cost advantages are already eroding Shoretel’s precarious position.
Looming Architecture Redesign
Shoretel is facing a major re-design of their architecture to fit into this new low-cost world. Where will they find the money to move to this new model? They’ll need to cut costs but that’s going to be a tough road as they must pay top dollar for talent being located in the very heart of Silicon Valley.
So, don’t look for any Shoretel “deals” any time soon – the company must squeeze every profit dollar they can out of every sale to have a hope of survival.
Unless they make some dramatic moves in a very short period of time, Shoretel will become the next footnote in PBX history as the last greatest proprietary PBX manufacturer.
If you're in the San Francisco Bay Area and are looking for a more affordable and open sourced business VOIP system for your company, give Teledynamic a call. We'll set you up. Call (800)729-2310