Microsoft Teams gains traction faster than expected, catches Plantronics flat footed

Plantronics outlook for the third quarter and fiscal year is well below expectations. Why? Enterprises are moving from Skype for Business to Microsoft Teams at a rapid clip and the unified communications vendor's product lineup is just catching up.

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The transition from Microsoft Skype for Business to Teams is going so quickly that Plantronics is stuck with old gear it'll have to write down due to excess inventory.

Plantronics, which acquired Polycom and now refers to itself as Poly, reported a second quarter loss of 65 cents a share on revenue of $462 million, down from $483 million a year ago. Non-GAAP earnings for the second quarter were $1.24 a share. Wall Street was looking for non-GAAP second quarter earnings of $1.33 a share on revenue of $483 million.

And it got worse from there. For the third quarter, Plantronics projected revenue of $383 million to $423 million with a non-GAAP profit of a penny a share to 31 cents a share. Wall Street was looking for non-GAAP third quarter earnings of $1.59 a share on revenue of $512 million. For the year, Plantronics projected revenue between $1.72 billion to $1.81 billion, well below Wall Street estimates of $1.95 billion. Earnings guidance for the year also fell well short of expectations.

Given the miss, it's no wonder that Plantronics shares are down about 37% in early trading Wednesday, but the dynamics behind the quarter are worth a look in the collaboration and smart office battles.

Consider the following:

Plantronics had an aging product line that fell behind the need for native support for the likes of Zoom and other cloud centric unified communication tools. At Microsoft Ignite, Plantronics launched the Poly Studio X Series, a set of all-in-one video bars for native Microsoft Teams meetings. The company also launched the Poly CCX Series phones for Teams, Calisto 3200 speaker phone and a set of headsets and other tools.

Now that launch is late since the gear won't be available to December. As a result Plantronics has a set of Skype for Business end points that won't be worth much. Plantronics is moving to shed inventory now.

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Joseph Burton, CEO of Plantronics, said:

We continue to be impacted by our aging video products, the Microsoft Teams transition and macro issues. As we navigate these dynamics and prepare for the upcoming product transitions, we're taking a number of actions to proactively manage our business. These will include a leadership change in our sales organization and a reduction of channel inventory in the December quarter. The completion of our comprehensive portfolio refresh and prioritizing cost and cash management with a focus on debt reduction. We expect the inventory reduction will have a material short-term impact on our results. However, we are confident the recent product and partnership announcements, combined with the other actions we're taking this quarter will benefit our long-term performance.

Microsoft Teams is eclipsing Skype for Business among enterprises. As a victim of a few Skype for Business calls, I can't say I'm surprised Teams is doing well. Skype for Business was terrible. But the transition to Teams amid the traction for Zoom and a bevy of rivals ranging from Cisco to BlueJeans is notable.

Burton said:

Frankly, the Teams transition going even faster and more powerful than we thought. Interestingly, that goes from being a detriment when we have old products, and it really becomes a positive as soon as the new products are in market. Unfortunately, we're on the wrong side of that chasm for another quarter or so here.

On the Microsoft Teams' side, we participate across all 4 of our major enterprise product lines, enterprise headsets that are compatible with Teams, desk phones that are compatible with Teams, conferencing phones that are compatible with Teams and video that's compatible with Teams. To be clear, our headset business has done very well during the Skype to Teams transition. Those products stayed compatible the whole way. We were out in front on our development road map and our testing, all good. So we do wonderful with Microsoft Teams with our headset business. It's the phones and the video products that we fell just a little bit behind on our time frame.

Plantronics has self-inflicted wounds. The reality is that Plantronics has refreshed its entire product line, but it was late to various market shifts. Logitech hasn't made the same mistakes and appears to be ahead of the curve when it comes to being an agnostic player in unified communications as it builds gear for the various unified communications vendors. Burton sees the landscape well, but the execution has been lagging.

Burton said:

People are going to use different systems. We say the reason Poly's going to win is because at one point in the day, you'll be on Teams. Later, you'll be collaborating with somebody on Zoom. And yet later in the day, you're likely to be on Cisco or Gotomeeting or who knows what.

If you go look at everything Microsoft has to say, everything Zoom has to say, and  everything Cisco has to say, going forward, it's all about native experiences. 

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