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AVAYA REPORTS EPS OF $0.13 FOR SECOND FISCAL QUARTER OF 2007

3. 5. 2007

[Tisková zpráva] Non-GAAP EPS Excluding Restructuring Charges was 14 Cents Compared to 11 Cents in 2006. GAAP Operating Income was $81 Million; Non-GAAP Operating Income Excluding Restructuring Charges was $91 Million. Company Generated $205 Million in Operating Cash Flow. Worldwide Product Sales Grew 8 Percent Year Over Year, Including 15 Percent Growth in Converged Voice Applications.

BASKING RIDGE, N. J., May 2nd – Avaya Inc., (NYSE:AV) a leading global provider of business communications applications, software and services, today announced net income of $57 million and earnings per share of 13 cents for the second fiscal quarter of 2007 on a U.S. generally accepted accounting principles (GAAP) basis. In the second fiscal quarter of 2006, the company reported net income of $38 million and earnings per share of 8 cents on a GAAP basis. Excluding restructuring charges, non-GAAP net income for the second fiscal quarter of 2007 was $64 million or 14 cents per share, compared with $50 million or 11 cents per share for the same quarter in fiscal 2006. (See chart accompanying release.)

Avaya’s second fiscal quarter 2007 revenues increased 4.5 percent to $1.294 billion compared to $1.238 billion in the same period last year. Sales of products grew 8 percent year over year, led by a 15 percent increase in sales of converged voice applications.

"In the second quarter we generated strong growth across our strategic initiatives – IP telephony, applications and professional services – while maintaining our cost and expense management and delivering solid bottom line results,” said Lou D’Ambrosio, president and CEO, Avaya. “As we move through the second fiscal half of 2007, we remain focused on delivering value through transforming our company around Intelligent Communications and creating customer impact through market-leading communications solutions.”

The company reported operating income for the second fiscal quarter of 2007 of $81 million and non-GAAP operating income of $91 million. In the second fiscal quarter of 2006, the company reported operating income of $53 million and non-GAAP operating income of $73 million. (See chart accompanying release.)

Avaya generated $205 million in operating cash flow during the second fiscal quarter of 2007 compared to $169 million in the second fiscal quarter of 2006. During the quarter, the company used $146 million in cash to acquire Ubiquity Software Corporation and used $94 million in cash to repurchase shares.

Fiscal 2007 Year-To-Date Results
For the first six months of fiscal 2007, Avaya earned GAAP net income of $128 million and earnings per share of 28 cents compared to net income of $109 million and earnings per share of 23 cents for the first six months of fiscal 2006. Revenues for the first six months of fiscal 2007 were $2.574 billion compared to $2.487 billion last year.

Second Fiscal Quarter Highlights
Since the end of the last quarter, Avaya has made important strides in extending its technology leadership including the following:

Avaya completed the acquisition of Ubiquity Software Corporation, whose product is one of the leading software platforms for the development and delivery of SIP solutions, a critical industry standard. Ubiquity develops and markets SIP-based communications software for fixed and mobile communications service providers, systems integrators, independent software vendors and channel partners. Ubiquity's range of products has been developed to take advantage of the telecommunications industry's mi­gration toward all-IP networks.

Avaya introduced a new solution that addresses the challenges businesses face in responding faster, smarter and more effectively in today's „always-on“ world. It embeds Avaya Intelligent Communications capabilities into all types of business processes, resulting in new Communications Enabled Business Processes (CEBP) that help automate and manage the human collaboration required to conduct business. Comprised of new software and services, the CEBP solution enables enterprises to enhance operational efficiency, worker productivity and customer satisfaction.

Avaya announced broad enhancements to its IP telephony portfolio, with the next generation of its industry-leading IP telephony platform, Communications Manager 4.0, and availability of its complete line of next-generation Avaya one-X™ Deskphones. Avaya Communication Manager 4.0 allows enterprise customers to build larger, more flexible communication networks and delivers industry-leading business continuity capabilities addressing the need for secure, highly available communications. The phones will have new standards-based SIP firmware, providing an open, standards-based platform for greater interoperability and investment protection.

The new Avaya one-X™ Portal, is a Web-based interface that enables employees to easily and securely access Avaya telephony, messaging, mobility and conferencing applications. The Avaya one-X™ Portal improves productivity, user control and business continuity by consolidating communications applications and directories into a single user interface that can be accessed and managed from any PC or MAC. The Portal simplifies access to advanced communications that can improve responsiveness and collaboration while reducing costs to the business. It increases the control users have over their communications by enabling them to define with whom they will interact in real time.

Avaya will collaborate with Lenovo Group Ltd. on IP and unified communications solutions that combine both companies' technologies. The joint solution will enable Lenovo's integrated fingerprint reader and Password Manager technologies, for the first time, to support Avaya's IP Softphone solution to boost user authentication with a swipe of a finger. The combination will help prevent unauthorized calls from the PC, and prevent unauthorized access to the user's contact list and call history. The companies will work together to enhance the IP communications experience on ThinkPad notebooks, giving business users the highest levels of security, usability and quality of service as they place and receive phone calls from their notebook PCs.

The new Avaya Customer Interaction Suite capabilities will enable businesses to deliver superior customer service in a cost-effective manner by putting the enterprise at the service of the customer. The new capabilities allow customers to be served by the most capable resources throughout the enterprise using new capabilities such as streaming video while providing a complete view of the customer experience. Avaya's new capabilities include the integration of live or streaming video, delivering a richer experience for those customers interacting through PCs or smart mobile devices. New analytics capabilities allow enterprises to manage and tailor the customer experience through the use of real-time monitoring and historical data analysis tools.

Avaya added to its Unified Communications portfolio to make it easier for users of Microsoft Corp. products to communicate and collaborate from the application, location and device that works best for them. Avaya Unified Communications Solutions for Microsoft users integrate Avaya's sophis­ticated telephony, conferencing and messaging applications with Microsoft Office Communicator, Office Outlook, Office Sharepoint, Internet Explorer and Microsoft Live Meeting applications and Windows Mobile 5.0 to provide new value for users at the desktop or on a mobile device.

Avaya joined the Google Enterprise Professional™ program to develop new capabilities for small businesses around Google's enterprise products. As part on this program, Avaya will develop, market and support offers that integrate Avaya's advanced communications solutions for small businesses with the Google Apps™ Premier Edition, a subscription services solution for email, instant messaging, calendar and Web publishing services.

The company made significant additions to its suite of Unified Communications solutions for the IBM Lotus® platform. The solutions represent integration with the most current versions of Lotus solutions in addition to extending Avaya's voice communications deeper into the Lotus collaborative environment.

Avaya announced significant enhancements to its suite of converged IP telephony solutions specially designed for small and mid-size businesses (SMBs). Two versions of software for Avaya IP Office, the company's flagship solution for SMBs, and a new IP Office 500 communications server deliver a solution that enables SMBs to buy only what they need today, while easily adding users or functionality via software licenses that are also compatible with existing IP Office solutions.

Forward-Looking Statements
Certain statements made in this press release and in the earnings conference call are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements regarding Avaya’s expected performance and outlook for operating results are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to:

  • price and product competition, including from competitors who may offer products and applications similar to those we offer as part of another offering, and from current leaders in information technology which benefit from the convergence of enterprise voice and data networks;
  • rapid or disruptive technological development, including the effects of the technology shift from traditional TDM to IP telephony;
  • dependence on new product development;
  • customer demand for our products and services, including risks specifically associated with the services business and, in particular, the maintenance and rental and managed services lines of business, primarily due to renegotiations of customer contracts and changes in scope, pricing erosion and cancellations;
  • supply issues related to our outsourced manufacturing operations, logistics, distribution or components;
  • risks related to inventory, including warranty costs, obsolescence charges, excess capacity, material and labor costs, and our distributors’ decisions regarding their own inventory levels;
  • general industry and market conditions and growth rates and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations;
  • the economic, political and other risks associated with international sales and operations, including increased exposure to currency fluctuations and to European economies as a result of a large percentage of our business being conducted in Europe;
  • the ability to successfully integrate acquired companies, which may require significant management time and attention;
  • the ability to attract and retain qualified employees;
  • control of costs and expenses, including difficulties in completing restructuring actions in a timely and efficient manner due to labor laws and required approvals;
  • U.S. and non-U.S. government regulation; and
  • the ability to form and implement alliances.

For a further list and description of such risks and uncertainties, please refer to the “Management’s Dis­cussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Avaya’s filings with the SEC, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, which are available at www.sec.gov. Avaya disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures
In an effort to provide investors with additional information regarding the company’s results as determined by accounting principles generally accepted in the United States (GAAP), the company has also disclosed non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP earnings per share and net cash in this press release, in the conference call and in the supplementary materials accompanying the conference call discussing second quarter earnings results.

These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States and they have limitations in that they do not reflect all amounts associated with Avaya’s results of operations as determined in accordance with GAAP. These measures should only be used in evaluating Avaya’s results of operations together with the corresponding GAAP measures.

Avaya believes that the presentation of non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per share, which exclude the impact of restructuring charges, acquisition-related charges and certain income tax items, provides meaningful supplemental information regarding Avaya’s perfor­mance. These non-GAAP financial measures also help investors compare Avaya’s financial results for the current quarter to its financial results for prior quarters and the prior fiscal year. In addition, Avaya’s management uses these measures when reviewing the Company’s financial results and to further understand the Company’s operating performance. Management believes that the presentation of net cash in the supplementary materials accompanying the conference call provides useful information to investors about the Company’s ability to satisfy its debt obligations with currently available funds.

The reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures is included at the end of this press release and as part of the supplementary materials accompanying the conference call in a table entitled "Reconciliation of Non-GAAP Financial Measures.” The supplementary materials are available on the Avaya investor relations website at www.avaya.com/in­vestors and will be included in a subsequent filing of a Form 8-K with the SEC.

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