BASKING RIDGE, N.J. -- Avaya Inc., (NYSE: AV - News) a leading global provider of communications networks and services for businesses, today reported first fiscal quarter income from continuing operations of $30 million or earnings of seven cents per diluted share for the first quarter of fiscal 2004.

These results compare to a loss of $125 million or a loss of 34 cents per diluted share from continuing operations in the first quarter of fiscal 2003.

First fiscal quarter 2004 revenues of $971 million increased three percent over revenues of $946 million in the year ago period.

The company said including results from discontinued operations, net income for the first quarter of fiscal 2004 was $10 million or earnings of two cents per diluted share, compared to a net loss of $121 million or a loss of 33 cents in the same period last year.

Avaya said continuing operations includes all its operations except its Connectivity Solutions segment and the parts of the Expanets, Inc. businesses it is in the process of divesting, which are included as discontinued operations.

In Oct. 2003, Avaya announced it was selling its Connectivity Solutions segment to CommScope,Inc. Avaya expects the sale to conclude in the second quarter of fiscal 2004. Avaya acquired substantially all the assets and assumed certain liabilities of Expanets, Inc., a telecommunications reseller, in Nov. 2003. The company is in the process of divesting the portions of the Expanets businesses that distribute non-Avaya offerings. Avaya expects to conclude the divestiture by the end of the second fiscal quarter and integrate approximately 800 former Expanets employees into its operations.

Avaya said first fiscal quarter 2004 revenues were essentially unchanged from revenues in the fourth fiscal quarter of 2003 which reflected a seasonal revenue ramp-up associated with the end of the company's fiscal year. Avaya noted IP line shipments and IP revenues increased globally from the fourth quarter across large and small customers.

Gross margin in the quarter increased substantially. Improvements from the company's contract manufacturers provided roughly half of the benefit. Cost savings, Expanets, product and channel mix and stable discount levels also positively affected margins. Selling, general and administrative expenses increased from the fourth quarter primarily due to incremental Expanets expenses. Expanets, overall, however, was only marginally dilutive to the company's earnings from continuing operations.

CEO Comments

"Avaya delivered its third profitable quarter in a row through our rigorous financial discipline and focus on operational excellence," said Don Peterson, chairman and CEO, Avaya. "The increase in revenues we saw this quarter compared to last year reflects what we believe is the beginning of a rebound in capital spending. Our customers are increasingly turning to IP telephony to deliver real improvements in business value. They are responding to Avaya's ability to retain their investment and add the benefits of IP telephony, while enjoying the same confidence they've always had in their voice communications."

Outlook For Second Fiscal Quarter 2004

As it completes the integration of Expanets in the second fiscal quarter, the company expects operating income for the second fiscal quarter to be roughly the same as operating income for the first fiscal quarter.

Avaya Inc.