Avaya Avows a Profit

Shares of Avaya Inc. (NYSE: AV) rocketed 16 percent to $17.88 Wednesday, following its better-than-expected earnings announcement last night (see Avaya Reports Q1 Profit).

The New Jersey-based enterprise VOIP equipment maker reported a first-quarter profit of $10 million, or 2 cents a share, compared with a year-earlier net loss of $121 million, or 33 cents a share. Revenue durnig the quarter rose 2.6 percent to $971 million from $946 million in the year-ago quarter.

"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,” said Don Peterson, Avaya’s CEO and chairman in a prepared statement. “Customers are seeing the benefits of IP telephony."

During the call, Peterson said the size of a company matters when it comes to committing to VOIP. ”Large firms are still trialing rather than committing,” he said. “The exception being financial and media companies which are buying.” So it appears there's still much opportunity ahead, but only if Avaya and companies like it can get their customers off the fence. Yankee Group reports that approximately 3 million IP phones were shipped globally last year, which isn't that many. "Companies find it hard to switch from a technology that for all intents and purposes still works," says George Hamilton, analyst with the Group.

Will Verizon Communications Inc.'s (NYSE: VZ) announcement with Nortel Networks Corp. (NYSE/Toronto: NT) be enough to accelerate VOIP adoption in the enterprise? (See Verizon Picks Nortel for Class 5 VOIP.)

Could be. “Emotionally, the commitment by carriers into the access loop gives CIOs confidence that the technology choice is the right one,” said Peterson.

Avaya’s partnership with Extreme Networks Inc. (Nasdaq: EXTR) should be paying off soon as well, Peterson revealed. “We’ll see revenues appear from this in the current quarter." (See Avaya & Extreme Team on VOIP.)

Avaya’s latest results include a loss from discontinued operations of $20 million, or 5 cents a share. Excluding that, the company earned $30 million, or 7 cents, on a pro forma basis. This beat the 5 cents a share that analysts surveyed by Thomson First Call were expecting to see.

— Jo Maitland, Senior Editor, Light Reading

For an in-depth look at incumbent supplier strategies for convergence, check out the following Heavy Reading report: Setting a Course to Convergence: The Incumbents' Wireline Strategies.

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