AVAYA PLEASES WALL STREET WITH QUARTERLY PERFORMANCE

July 26, 2005

Wall Street approved of the results released following the close of the market yesterday by Avaya Inc.

The company, which designs, builds and manages communications networks for businesses, posted income from continuing operations of $194 million during its third fiscal quarter, or 40 cents per diluted share. The total included what was described as the net favorable impact of $123 million "related to the settlement of certain tax matters and other deferred tax adjustments."

Earnings per diluted share would have been 14 cents without these items, which represents an improvement over the 12 cents per diluted share recorded during the same quarter a year ago based on income from continuing operations of $58 million.

In addition, quarterly revenue was up 21.7 percent to $1.236 billion, including the benefit of acquisitions, as opposed to $1.016 billion a year ago, Also, $126 million in operating cash flow was generated during the quarter as the company retired substantially all of its debt.

New relationships with Juniper Networks, Nokia and RIM were cited by chairman/CEO Don Peterson.

And how did Wall Street reward the company?

After its stock closed at $9.23 yesterday, it opened today at $10.25 and was at $10.75 in afternoon trading today.

One report today cited Morgan Stanley as maintaining an "equal-weight" rating on the company as the research firm was quoted as saying: "Avaya appears to have gotten itself back on track following two quarters of operational miscues. Our fundamental view is that business trends should improve through the calendar year and that Avaya should generate substantial free cash flow. Over time, we think the company's strategy should enable it to take share in the transition to VoIP from vendors less successful at navigating this transition."

Standard & Poor's Equity Research reiterated a "hold" rating and was a bit more subdued in comments that appeared in a different report.

"While sales growth continues to improve, we think pricing pressures will restrict overall profitability expansion. We view Avaya as well positioned to benefit from accelerating demand for IP telephony."

By Glenn J. Kalinoski, Executive Editor, Customer Inter@ction Solutions