Mitel has 'modest' layoff in line with slowing economy

Exec says company is preparing for a downturn

Networking gear maker Mitel Networks Corp. laid off an unspecified number of employees today in what an executive called a "modest and prudent" reaction to the poor global economy.

Mitel is a private company in Kanata, Ontario, that makes communications equipment and sells managed network services. Its Web site lists 3,000 workers in 100 locations globally.

Mitel purchased Inter-Tel Inc. in August 2007, and CEO Don Smith, in an interview last month, described the past year as a success in integrating Inter-Tel's technology with Mitel's.

Today, Paul Butcher, Mitel's chief operating officer, said in a telephone interview that despite the restructuring, Mitel will continue its business in all the global markets where it has been operating.

"We've implemented a restructuring today," he said. "We're concerned about the economy going forward and preparing ourselves for a downturn. We're expecting [that] the IT industry is going to slow down."

Butcher added that the actions taken today were "not outstanding, and we're taking costs out across the board."

One rumor that the layoffs had been "massive" is false, he said. "It's definitely the wrong word," Butcher said. "Modest and prudent is correct."

While operations continue globally, Butcher said the company had "done all we can to preserve the customer-facing [product] road map." He provided no details, however.

One top official, the vice president of marketing, left as a result of today's actions, he said. Mitel's Web site identifies Simon Gwatkin as that official.

"Obviously, it's a brave man who can forecast the economic outlook over the next six to nine months," Butcher added. "You don't have to be in IT to take this action, and we're behaving prudently to remain strong, to continue to be competitive and to continue market share in every market we're in."

One analyst, Zeus Kerravala at Yankee Group Research Inc., said Mitel's restructuring comes even though the company "makes a good product and has good vertical market expertise." But Kerravala added that a "tough economy drives customers to larger vendors that they know, such as Cisco and Avaya."

Cisco's recent success in offering managed services to customers has apparently hurt Mitel, he added.

In an Oct. 20 interview, Mitel's CEO said the company was the No. 1 vendor of IP voice switching equipment and related gear for small and midsize business customers in the U.S. He said the company's most popular products include the Mitel 5000 Network Communications Solution, which includes an IP voice switch used mainly by small and midsize businesses, and the 3300 IP Communications Platform for large business customers, including large corporations with smaller branch locations.

Earlier this year, Sun Microsystems Inc. and Mitel announced a combined Sun Ray thin client with a Mitel IP phone.

Smith said then that a vendor could not be selling IT gear "and not be aware of the financial turmoil." He called the market "an aspirin and not a vitamin market where customers only have time for pain and not wellness." In other words, he said customers were seeking relief from networking problems but not necessarily building for the distant future.

In all, 70% of Mitel's revenues come from customers who buy managed services, Smith said at the time. "It may not be realistic to get it higher than 70," he said.

Copyright © 2008 IDG Communications, Inc.

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