Restructuring Will Help Avaya Compete

Article Excerpt

AVAYA INC. $13 (New York symbol AV; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) is shifting its focus away from traditional telephone systems to new equipment that uses the Internet to send calls and other data. However, intense competition is driving down prices and hurting Avaya’s profit margins. It now aims to cut costs with a new restructuring plan that will cost it $137 million over the next few months. If you disregard unusual items, Avaya earned $0.17 a share (total $80 million) in its fourth fiscal quarter ended September 30, 2006, down 15.0% from $0.20 a share ($95 million) a year earlier. Sales rose 4.6%, to $1.36 billion from $1.3 billion. The company is debt free and has $899 million (about $2.00 a share) in cash, so it can comfortably afford these charges. Lower operating costs should free up more cash for research; Avaya currently spends 8% of its sales of $10.98 a share on research. Avaya is a..