With its negligible cost, Internet video has been a boon to families and friends who can enjoy each other across long distances, but despite our increasing comfort with personal video calls, poor image quality has kept it off the business desktop.

That’s all about to change.

Corporate networks are increasingly robust and reliable, thanks to the shift to pure IP converged communications systems. In addition, the continued improvement in the H.264 video codec has enabled highly resilient, high-quality video with minimal delay – making it true business quality. Once businesses witness the level of image clarity and stability, they quickly recognize the many compelling reasons to use desktop video, including cost savings, greater collaboration and productivity, improved customer service and reduced impact on the environment.

Fortunately, deploying desktop video, which is particularly attractive given our soft economy and tighter travel budgets, is about to get a lot easier. ShoreTel will soon introduce the industry’s first product based on the H.264 enhancement, Scalable Video Coding, making it easy to provide high-quality video and network resiliency at an attractive cost to every desktop across the enterprise. We’re excited about this capability because it makes video calls as natural and simple as voice calls. One of the best parts of the new ShoreTel video service is better synchronization between video and voice. Even on the most recent and expensive telepresence systems, you can experience a video call with the lips constantly a half beat out of sync with the voice. Our engineering team has figured out how to produce a high-quality video experience with lips that match!

I believe the ease of use and increased quality of ShoreTel video will accelerate adoption and allow companies to immediately enhance business processes across the organization. Most industries can benefit by using video calls for travel reduction, training of distant employees, and enhanced collaboration by co-workers in separate offices across town, across the country, or across the world. An unlimited number of applications in specific verticals exist as well. Banks can use video kiosks to allow a single loan officer to serve customers at any branch. Desktop video also has the potential to dramatically expand the use of telemedicine, allowing, for example, specialists to have face-to-face consultations with patients at multiple facilities, reducing travel time for both patients and the specialists.

If you’d like more information on how desktop video calls can benefit your organization and industry, be sure to give us a call. In this case, seeing really is believing.

John W. Combs

ShoreTel is committed to being a socially responsible and environmentally friendly corporate citizen.

First, as a leading provider of unified communications solutions, we design our products to be environmentally friendly, and we are proud that ShoreTel solutions use significantly less power, require less cooling, have a longer useful life, and take up less space than competitive solutions. This results in substantially lower carbon emissions versus comparable solutions from major competitive manufacturers. Analysis of specific deployments at which a ShoreTel solution replaced a competitor shows empirically that ShoreTel uses up to 40 percent less power than other leading brands. We encourage all of our prospective customers to include power consumption as a key driver in their selection process. We are happy to provide a summary of the estimated power consumption for any ShoreTel system.

ShoreTel’s unique architecture also allows for easy single-system administration of geographically dispersed sites. This saves trips to do on-site maintenance and administration such as moves/adds/changes, thereby saving time and fuel.

In addition, telecommunications by its very nature allows people to communicate across distance. This is taking on a new meaning today – using ShoreTel unified communications solutions including voice, video, IM, and data sharing, our customers are able to conduct business effectively without meeting face to face, reducing the need to travel, which minimizes carbon emissions from fossil fuel-powered transportation.

Second, as a company we strive to be conscious of our environmental impact and diligent in our efforts to reduce any harmful effects. From our internal business practices to our manufacturing operations, we take responsibility for minimizing power consumption, reducing carbon emissions, and preventing hazardous waste contamination. In particular, our manufacturing process is certified as compliant with the ISO 14001 standard and conforms to the ROHS Directive, which restricts the use of certain hazardous substances in electrical and electronic equipment, including lead. Our manufacturing process is also certified as compliant with WEEE (the EU’s Waste Electrical and Electronic Equipment Directive) which sets targets for the collection, recycling and recovery of all types of electronic equipment.

Please join us as we work with other forward-thinking companies and organizations to do our part as good corporate citizens to achieve a healthier and more sustainable environment.

John W. Combs

Last month at ShoreTel’s first annual industry analyst event, I spent two days with several ShoreTel customers and partners and more than 20 industry analysts who cover the unified communications market in the U.S. and abroad. It was our chance to share the ShoreTel story with a broad set of experts and discuss areas where they think ShoreTel should focus its efforts as we continue to build our premier brand. I was very proud and honored to have so many influential people join in our discussion.

The general consensus among the group of analysts was that it’s not often customers and partners speak so highly of and with such excitement about their vendors—and even less often that they are willing to be so enthusiastic in public. For that I thank our valued customers and partners, and I believe their continued interest in ShoreTel solutions speaks volumes about the current market need for easy-to-use yet robust distributed UC offerings and ShoreTel’s unique ability to address that need.

Our customer participants included CNET Networks, mentoring organization Big Brothers Big Sisters, Ireland’s largest recruitment and HR solutions organization CPL, architect and design firm Gensler, Hitachi Consulting, the Osborne Maledon law firm, and Safeway Insurance. Our partner participants included BlackBox Networks, Packet Fusion, Premcom and Transcend. Some of our technology partners attending included DiVitas, Enterasys, LifeSize and Syntellect.

I can’t think of a better way to let you know what our customers and partners like about working with ShoreTel than to just let them tell you themselves. Click here to view a short video.

By the way, at VoiceCon Orlando 2008 we’ll be previewing some exciting enhancements to our unified communications solution, including new capabilities for facilitating mobility, fostering collaboration, managing presence, and enriching business communications through video. We’ll be in booth 817, so be sure to stop by.

John W Combs

Over the last week it’s become clear that despite the overall health of our company and our ongoing strategic and market successes, some of our competitors are continuing their efforts to close sales by offering FUD (fear, uncertainty and doubt) instead of the best unified communications solutions with the lowest total cost of ownership.

Fortunately, from what I hear, most of our prospects are much smarter than our competitors give them credit for. They are taking their time, asking the right questions, and replacing FUD with a clear picture of our company. In the end, they know a good product when they see one, respond to great service when they receive it, and recognize a solid, growing company when they look under the hood. They understand that when it comes to architecture, features and capabilities, customer support, professional services, and total cost of ownership, no company comes close to ShoreTel. In fact, in January, our ShoreTel release 7 product won an INTERNET TELEPHONY magazine Product of the Year award based on “a commitment to quality and the continued development of the IP telephony industry.”

As far as the recent shareholder lawsuits, it remains our policy not to comment on pending litigation. These types of suits are common and have been filed against many public companies, especially in Silicon Valley. Read more here.

This is why ShoreTel remains laser-focused on developing new products, delighting our customers, and working aggressively in the sales channel. I encourage all our customers and prospects to look at the new promotions we are offering on our color phones and new switches. Just click on ‘speak to a representative’ at www.shoretel.com to find out how to acquire some of our latest technologies at a great price.

I’ll continue to share the latest information with you, so stay tuned.

John W Combs

Today we announced our second quarter earnings, and I’m now able to talk more directly about how well our business is doing. I want our customers, partners and prospects to see the state of our business clearly and not be misled or confused by recent headlines or what competitors might be saying. We’re not surprised to see competitors that are increasingly feeling the sting of our success try to create FUD; however that kind of activity only makes us more determined to maintain our momentum in the market. The reality is that our business continues to be fundamentally sound and our customer base is growing.

Our numbers speak for themselves. Our second quarter revenue of $30.6 million reflects a solid 36 percent revenue growth from the same period last year, and calendar 2007 revenue is 50 percent above calendar 2006, significantly better than our addressable market, which grew at an annual rate of 14 to 19 percent from the first 9 months of calendar year 2006 to the first 9 months of calendar year 2007. We also experienced non-GAAP net income of $3.8 million, a new record for ShoreTel. These numbers reflect a healthy company. I am pleased to report that more than 700 new customers joined the ShoreTel family in the second quarter, and customer satisfaction was at a record high during the quarter, demonstrating that we’re continuing to deliver world-class products with the lowest total cost of ownership.

For example, yesterday we announced our new Microsoft Dynamics CRM Integration Application, which provides a single interface for CRM and call control for streamlined business processes, and today we announced our new ShorePhone™ IP 565g color phone, to the delight of many of our users.

Also, beginning this month, we rolled out a special incentive promotion to encourage new customers to join the growing family of satisfied ShoreTel customers. Those interested in taking advantage of these promotions can contact us through our Web site at www.shoretel.com and click ‘speak to a representative’.

Several additional new products and new customer wins are on the horizon. I look forward to sharing our progress with you.

John W. Combs

Dear ShoreTel Customers and Partners,

A lot has happened in the two weeks since I last addressed you directly in this blog. Similar to other situations where a company sees a significant drop in their stock, we were sued in class action litigation. While we take these things very seriously, we also look at them with perspective. We are not letting ourselves get distracted from the most important things in our business, namely keeping our current customers delighted and growing our customer base of raving fans. We are committed to executing our plans and regaining our momentum. If you’ve seen any of the conversations floating around the blogosphere these past two weeks you’ll see the opinions of some skeptics but you’ll see many if not more comments from our loyal customers and partners saying they continue to believe ShoreTel is bringing to market some of the best solutions for unified communications and enterprise class IP telephony. We’ve always known that we’ve had amazing loyal customers…it’s especially nice to see that kind of customer praise now. This week you’ll see another example of a recent customer win, Big Brothers and Big Sisters of North Texas and how they’re able to assist more children because they’ve installed a ShoreTel system. We’ll continue to share these customer stories so stay tuned.

John W. Combs

Dear ShoreTel Customers and Shareholders,

I felt it was important to address the market’s reaction to our guidance announcement yesterday.

We believe this week’s news regarding the revenue miss for the quarter ending December 2007 should by no means overshadow our significant achievements in 2007 and our many opportunities for 2008. Our preliminary CY 2007 revenue was a new ShoreTel record and approximately 50 percent higher than our CY 2006 results, a growth rate well ahead of the overall industry’s 20-30 percent pace. In addition, our preliminary December 2007 quarter revenue was approximately 35 percent higher than the December 2006 quarter. We continue to have a solid balance sheet, backed by approximately $100 million cash in the bank.

Our recent awards from Deloitte, Inc. Magazine and the San Jose Business Journal recognizing our revenue growth are a testament to our focus on growing our business. ShoreTel is the world’s fastest growing provider of distributed unified communications solutions and continues to deliver the industry’s highest level of customer satisfaction. For the fourth year in a row, Nemertes’ customer satisfaction survey ranked ShoreTel number one in every category.

ShoreTel also won the Customersat.com award and the Best-in-Class for Customer Service from ContactCenterWorld.com.

ShoreTel’s products also continue to gain recognition and win industry awards; Best in VoiceCon ‘07 was the latest in a series. Thanks to our continued focus on delivering best-in-class product, 2007 was no exception; new product introductions included a family of high-density/small footprint switches, color phones, Mobile Call Manager, expanded international native trunking support, and numerous professional services integrations.

Looking to the year ahead, we believe our opportunity is bright. We have an exciting pipeline of new products that will be introduced throughout the year.

Stay tuned for more updates from ShoreTel.

All the best,

John W. Combs
President & CEO
ShoreTel, Inc.