Avaya Doubles Profit on 8.8% Growth
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Communication vendor took a direct hit on the US sharemarket following less than impressive growth results despite doublingits profit for the First Fiscal Quarter of 2006.

The Q1 result (concluding December 31st) saw the company’s revenues grow 8.8per cent year on year, but for the equivalent period net profit increased from US$31 million to US$71 million.

However, the income of US$71 million for the first fiscal quarter of 2006 included US$13 million after-tax fillip from changes to its vacation policy and US$3 million expense from accounting changes. It also included revenues from the company’s acquisition of European call centre provider, Tenovis.

The results prompted some US analysts to downgrade the company’s stock citing less than expected revenues and concerns at the relatively slow growth outlook.

The results are seen as lacklustre in light of the booming state of the IP Telephony market in the US.

Research company In-Stat recently reported that US businesses have moved beyond experimenting with IP solutions to incorporating them into the fabric of their voice and data network strategies. However, the detail of In-Stat’s report indicates why Avaya may be missing the beat in the US market. Much of the growth forecast is in the small business market where IP-enabled and IP-based purchase plans are nearly double that of traditional PBX or Key Systems.

“We believe modest growth rates will linger throughout 2006 given the relatively large contribution of service revenues (not expected to grow) and declining TDM sales,” according to Piper Jaffray’s analyst Troy D. Jensen, pointing to sequential sales declines in all its major geographic markets including North America which was flat on a year-over-year basis.

Other analysts pointed to the increasing competition and margin compression the company is experiencing as VoIP continues to gather momentum.