Sales of products grew 11.5% sequentially

Avaya has reported income from continuing operations of $660 million or $1.36 per diluted share in the fourth fiscal quarter of 2005.

These results reflect a net favourable impact on earnings of $565 million, which includes a net income tax benefit of $590 million related to the reversal of a portion of a valuation allowance for deferred tax assets, a $22 million restructuring charge for headcount reductions and lease terminations, and $3 million of in-process research and development costs related to the company`s acquisition of Nimcat Networks.

Excluding these items, the company would have had income from continuing operations of $95 million and earnings per diluted share of 20c in the fourth fiscal quarter.

In the same quarter last year the company reported income from continuing operations of $100 million or 21c per diluted share. Those results reflected a reversal of reserves for sales returns and allowances which had a $12 million favourable impact on operating income. Excluding that item, earnings per diluted share in the year ago quarter would have been 19c.

Avaya`s fourth fiscal quarter 2005 revenues increased to $1.296 billion, due to acquisitions, compared to revenue of $1.076 billion in the fourth fiscal quarter of 2004. The company noted that fourth fiscal quarter 2004 revenues also included $14 million related to the reversal of reserves discussed above.

"We ended our fifth year as an independent company with a solid performance in the fourth quarter," said Don Peterson, chairman and CEO, Avaya. "Revenue grew sequentially in all regions, particularly in the US. We maintained our cost and expense discipline, and as a result, we improved profitability and increased operating cash flow sequentially. We`ve broadened our portfolio of offers and strengthened our market position."

Avaya said total revenues increased sequentially by 4.9% and US revenues rose 7.1% sequentially. Sales of products rose 11.5% sequentially. Increases in both direct and indirect channel sales contributed to the US performance. The company`s operating income was $82 million on an as-reported basis and was $107 million, excluding certain items. Avaya also generated $148 million in operating cash flow in the quarter.

Revenues for fiscal year 2005 were $4.902 billion compared to $4.069 billion for fiscal year 2004. Operating income for fiscal year 2005 was $298 million compared to $323 million in the previous fiscal year. Operating income for fiscal 2005, excluding certain items, was $333 million compared to $311 million in the previous fiscal year, excluding certain items.

Avaya earned income from continuing operations of $923 million or $1.89 per diluted share in fiscal 2005, compared to income from continuing operations of $291 million or 63c per diluted share in fiscal 2004. Excluding certain items, as detailed in the attached chart, income from continuing operations in 2005 was $286 million or 58 cents per diluted share, compared to $237 million, or 51c per diluted share in fiscal 2004.

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Avaya acquired Nimcat Networks, a leading developer of embedded, peer-to-peer IP communications applications software. Nimcat Networks` IP communications software, called nimX, is designed to be embedded within enterprise IP phones.

The company announced the shipment of its seven millionth IP telephony line, and is positioned in the Leaders Quadrant of the Gartner Enterprise Telephony Magic Quadrant for both North America and EMEA.

During the last quarter, the first of the Avaya fixed mobile convergence applications became globally available: a downloadable solution jointly developed with Nokia that puts Avaya Communications Manager features and functions on Series 60 platform mobile devices. Customers for the product include CNIPA and BAR Honda.

Avaya introduced new IP-based self-service solutions, including the Avaya Voice Portal, a software platform for faster, easier speech-enabling of Web services across highly distributed enterprises; and a new speech application development tool for designers, Avaya Dialog Designer.

Avaya gained momentum in its Hosted Solutions, including the introduction of a new efficient and cost-effective platform that securely partitions IBM eServer BladeCenter systems to provide multiple instances of business communications applications to multiple customers on a single blade. In addition, we announced hosted relationships with:

Sprint - in a joint agreement for development and delivery of hosted VOIP telephony wireline and wireless services for the North American marketplace, including IP telephony, wireless integration and messaging.

Equant - in a global strategic alliance to jointly deliver solutions that provide customers with advanced IP communications for telephony and contact centres.

Telecom Italia - Avaya IP telephony services will be offered by Telecom Italia both in a fully hosted mode, on Telecom Italia`s network platforms, as well as in a service managed mode on the customer`s premises, with management and maintenance carried out by the Italian operator.

Significant customer wins included:

Allstate Insurance Company, which deployed Avaya IP telephony solutions to new locations in North America.

A five-year global contract with ABN AMRO to support the international bank`s migration to IP telephony across 14 countries. The technology update delivers Avaya mobility, messaging and contact centre applications, supported by Avaya managed services.

Nextel Mexico, a leader in work group communications solutions and wireless business-oriented products and services, has implemented contact centre solutions from Avaya that have enabled the company to improve the quality of service to more than 900 000 customers throughout Mexico.

A $4 million call centre solution to Advanced Info Service PC, Thailand`s leading provider of mobile network systems.

PricewaterhouseCoopers, one of the world`s largest professional services organisations, deployed Avaya voice and data converged communications systems in its new office in Beijing.

A full release and report can be accessed at www.avaya.com.