Avaya More Than Doubles Net Income in Second Fiscal Quarter

- Restructuring Initiatives Contribute to Increased Earnings

- Multi-Service Networking Revenues Increase 72 Percent Over the Year Ago

Quarter

- Acquisitions of VPNet and Quintus Completed



Apr 26, 2001, 01:00 ET from Avaya Inc.

    BASKING RIDGE, N.J., April 26 /PRNewswire Interactive News Release/ --
 Avaya Inc. (NYSE:   AV) today said net income from ongoing operations for the
 second fiscal quarter ended March 31, 2001 was $78 million or 25 cents per
 share on a diluted basis*, excluding restructuring and acquisition-related
 costs.  Net income for the year ago quarter was $37 million or 13 cents per
 diluted share.  (See note for definition of ongoing operations.)
     Revenues from Avaya's ongoing operations for the second fiscal quarter
 were $1.852 billion, an increase of 1.1 percent or $21 million over revenues
 of $1.831 billion in the year ago quarter.
     "Despite the slowing U.S. economy, Avaya continues to focus on the
 enterprise market and deliver on our plan to grow net income and revenues,"
 said Don Peterson, president and CEO, Avaya Inc.  "In this quarter's results,
 we're pleased that with steady overall revenues compared to the year ago
 quarter, we were able to show significant revenue growth in multi-service
 networking, connectivity solutions, messaging, services, and sales outside the
 United States.  We doubled IP port shipments from 18,000 in the first quarter
 to 36,000 in the second quarter, and we're also seeing a leveling from the
 first to the second quarter of 2001 in sales of traditional voice products.
 We're continuing to reinvest in the high-growth segments of our market,
 increasing our investment in R&D and completing our acquisitions of key
 technology assets from VPNet and Quintus."
 
     Reported Results For Second Fiscal Quarter, Including Restructuring and
     Acquisition-Related Costs
     For the second fiscal quarter ended March 31, 2001, Avaya reported a net
 loss of $64 million or a loss of 25 cents per diluted share*, including
 one-time and start-up expenses of $32 million, after tax ($54 million,
 pre-tax) associated with its spin-off from Lucent Technologies; $31 million
 after tax ($31 million, pre-tax) for purchased in-process research and
 development associated with its acquisition of VPNet Technologies, Inc.; and
 $79 million, after tax ($134 million, pre-tax) in charges related to the
 pending outsourcing of certain manufacturing operations to Celestica.  These
 results compare with reported net income of $66 million or 24 cents per
 diluted share for the same quarter ended March 31, 2000.
 Reported revenues for the second quarter in fiscal 2001 were $1.852 billion
 compared with $1.945 billion in the same period last year.
 
     Ongoing Fiscal 2001 Year-To-Date Results
     For the first six months in fiscal 2001, net income from ongoing
 operations was $129 million or 41 cents per share on a diluted basis*,
 excluding one-time and start-up expenses associated with the company's
 spin-off from Lucent, as well as costs associated with the acquisition of
 VPNet and the pending outsourcing of certain manufacturing operations to
 Celestica.  This is an increase of $25 million or 24 percent compared to
 $104 million or 37 cents per diluted share for the first six months in fiscal
 2000.
     Revenues from ongoing operations for the first six months of fiscal 2001
 were $3.637 billion compared to $3.558 billion for the first six months of
 fiscal 2000, an increase of $79 million or 2.2 percent.
 
     Reported Fiscal 2001 Year-To-Date Results
     Including the pending one-time and start-up expenses associated with the
 company's spin-off from Lucent, as well as costs associated with the
 acquisition of VPNet and the pending outsourcing of certain manufacturing
 operations to Celestica, Avaya reported a net loss of $48 million or a loss of
 21 cents per share on a diluted basis for the first six months of fiscal 2001,
 compared with reported net income of $135 million or 48 cents per share on a
 diluted basis* for the first six months of fiscal 2000.
     Reported revenues for the first six months of fiscal 2001 were
 $3.637 billion, a decrease of $158 million or 4.2 percent compared with
 reported revenues of $3.795 billion in the same period last year.
     "Results in this quarter clearly demonstrate the benefits of our
 restructuring work," said Garry McGuire, chief financial officer, Avaya Inc.
 "In our first fiscal quarter this year we reduced expenses by $100 million
 sequentially, and in our second quarter we've continued those savings, while
 increasing our gross margins.  Our overall revenues were up compared to the
 year ago quarter, with growth of 72.4 percent in multi-service networking,
 21.9 percent in connectivity solutions, 17.9 percent in messaging, 8.8  in
 services and 7.4 percent overall in sales outside the U.S.
     "We have said previously, that we expect to achieve mid-single digit
 revenue growth and more than double our net income from ongoing operations in
 2001," McGuire said.  "In light of the current U.S. economic slowdown, we are
 modifying our expectations of mid-single digit revenue growth to a range of
 two to five percent with no change in guidance for expected net income."
     The company noted it is also providing additional information about its
 traditional and growth businesses, including voice, data and IP convergence
 and applications, as well as connectivity solutions and services (see attached
 chart for the additional information).
 
     New Initiatives
     Avaya completed and announced a number of initiatives since the end of the
 last quarter as part of its strategy to restructure the company and grow
 revenues.  The company also announced several significant transactions:
 
      -- Avaya announced a two-year, $30 million agreement with News
         Corporation to provide comprehensive networking solutions that will
         be implemented throughout the company.  The network includes the
         Enterprise Class IP Solutions (ECLIPS) suite of products using Voice
         over Internet Protocol (VoIP), in addition to voice switching systems
         and messaging applications, which will allow News Corporation to be
         able to significantly enhance its ability to communicate efficiently
         and effectively across its businesses.  The Avaya solutions allow
         News Corporation to standardize its communications infrastructure on
         a single network, design a global dial plan at reduced costs and
         implement a voice messaging hub to enable exchange of messages among
         its various companies around the world.
 
      -- Avaya announced multi-service networking agreements in China and
         Mexico.  Nissan Mexicana, one of the largest manufacturers of
         automobiles in Latin America, will use Avaya's local area network
         (LAN) solution to connect 2,000 users in five separate sites through a
         Gigabit Ethernet backbone built on Avaya's P550 Gigabit Switch and
         Avaya's P880 Routing Switch.  The network will be managed and
         monitored using Avaya's CajunView(TM) administration software suite.
         The State Electric Power Control Center in China will implement the
         Cajun P880 routing switch, the Cajun P550 routing switch, the Cajun
         P330 switching system and the Avaya Wireless system to migrate from
         the Center's existing asynchronous transfer mode (ATM) backbone to the
         new, Gigabit Ethernet backbone.
 
      -- Avaya Labs introduced Libsafe(TM) 2.0, an enhanced version of its free
         security software for the popular Linux operating system.  Libsafe
         version 2.0 adds the ability to protect against security attacks that
         exploit "format string" vulnerabilities in software, including
         programs that are widely deployed as part of the Internet
         infrastructure.  Libsafe extends its protection to all application
         programs running on a system, and will even help to protect programs
         that have vulnerabilities yet to be discovered.
 
      -- The company completed its acquisition of VPNet Technologies, a
         privately held developer of virtual private network (VPN) solutions
         and devices.  VPNet's scalable VPNware(TM) Systems deliver high
         levels of security, performance and manageability across a wide range
         of VPN applications.  Its VPNsure(SM) Managed Services Program enables
         enterprises to outsource the implementation and management of their
         VPNs.  The VPNet products will complement Avaya's current
         communication solutions offerings.
 
      -- The acquisition of substantially all the assets of Quintus Corporation
         enhances Avaya's presence in the customer relationship management
         (CRM) market by enabling it to provide a broad, multi-vendor,
         multi-platform portfolio of software solutions.  Among the Quintus
         assets acquired by Avaya is a comprehensive software suite that unites
         traditional call center technology with Internet communications. These
         solutions enable businesses to build long-term customer relationships
         consistently and cost-effectively across all forms of electronic media
         including the Web, e-mail, fax and advanced telephony systems.
 
     SEGMENT DISCUSSION
 
     Communications Solutions
     Ongoing revenues for the second fiscal quarter of 2001 were $932 million,
 compared to $1.020 billion in the year ago quarter, a decrease of $88 million
 or 8.6 percent.  Segment operating income was $233 million, down $67 million
 or 22.3 percent over operating income of $300 million in the same period last
 year.  Outside the U.S., Communications Solutions revenues were $318 million
 in the second fiscal quarter of 2001 compared to $313 million in the year ago
 period, an increase of 1.7 percent.  Revenues outside the U.S. represented
 34.1 percent of total Communications Solutions revenues compared to
 30.7 percent in the same period last year, an increase of 3.4 percentage
 points.
     Compared to the year ago quarter, overall Communications Solutions
 revenues declined due to the effects of a slowing U.S. economy combined with a
 move to a more indirect sales channel and changes in product mix.  These
 effects were primarily confined to the company's U.S. converged voice
 systems and customer relationship management.  The double-digit growth in
 multi-service networking and messaging solutions partially offset the revenue
 decline.
     Avaya said there were differences in reported and ongoing revenues in the
 year ago quarter in the Communications Solutions segment.  Reported revenues
 in the year ago quarter were $1.134 billion and included revenue from the wire
 installation business, which the company exited, and from the small and
 mid-sized sales division, which the company sold to Expanets.
 
     Services
     Ongoing revenues were $529 million in the second quarter of fiscal 2001,
 an increase of $43 million or 8.8 percent over revenues of $486 million in the
 same period last year.  Segment operating income was $254 million, an increase
 of $59 million or 30.3 percent over operating income of $195 million in the
 year ago quarter.  Revenues outside the U.S. more than doubled compared to the
 same period last year and represented 9.1 percent of overall Services revenues
 compared with 4.6 percent of total Services revenues the same period last
 year.
     Data services and maintenance led the increase in Services revenues, and
 the company continued to see positive effects on operating income from
 improved efficiency and productivity.
 
     Connectivity Solutions
     For the second quarter of fiscal 2001, ongoing revenues were $391 million,
 compared to $326 million in the same period last year, an increase of
 $65 million or 19.9 percent.  Segment operating income was $156 million, an
 increase of $100 million or more than two and a half times operating income of
 $56 million in the year ago period.  Revenues outside the U.S. declined
 3.9 percent compared to the same period last year and represented
 22.1 percent of overall Connectivity Solutions revenues compared to
 27.5 percent in the year ago quarter.
     The revenue performance was due to strong demand in the United States
 across all product lines, while operating income was positively affected by
 cost efficiencies, product mix and an increase in volume.  Revenues also were
 positively affected by lower discounts and price increases.
 
     REVENUES OUTSIDE THE UNITED STATES
     Avaya said revenues from ongoing operations from outside the United States
 were $457 million in the second fiscal quarter of 2001, compared to
 $425 million in the year ago quarter, an increase of $32 million or
 7.5 percent.  Revenues outside the United States as a percent of total Avaya
 revenues grew to 24.7 percent in the second quarter of fiscal 2001 from
 23.2 percent in the same quarter last year.
 
     UPDATE ON TARGET METRICS
     Gross Margin
     Gross margin for the second quarter of fiscal 2001 for ongoing operations
 was $819 million or 44.2 percent of revenues, compared with $749 million or
 40.9 percent of revenues in the same period last year, an increase of
 $70 million.
     Sequentially from the first fiscal quarter, gross margin increased
 $62 million.  As a percent of revenues, gross margin was 42.4 percent in the
 first fiscal quarter of 2001.
     Gross margin for the first fiscal quarter in 2001, as well as all quarters
 in fiscal 2000, reflects a reclassification of logistics expenses such as
 transportation and warehousing from selling, general and administrative
 expense (SG&A) to cost of sales in conjunction with the company's pending
 outsourcing of certain manufacturing operations to Celestica.
     The increase in gross margin is primarily attributed to higher volume and
 favorable product mix in Connectivity Solutions and the ongoing savings from
 our business restructuring, including the improvement to the cost structure
 within the Services segment.  The increase is partially offset by the decrease
 in revenue within Communications Solutions as a result of our shift to a more
 indirect sales channel and changes in product mix.
 
     Selling, General and Administrative
     For the second quarter of fiscal 2001, ongoing SG&A expenses were
 $550 million or 29.6 percent of revenues, compared with $553 million or
 30.2 percent of revenues for the year ago quarter.
     SG&A expenses for the first fiscal quarter in 2001, as well as all
 quarters in fiscal 2000, reflect a reclassification of logistics expenses such
 as transportation and warehousing from SG&A to cost of sales in conjunction
 with the company's pending outsourcing of certain manufacturing operations to
 Celestica.
     SG&A in the second quarter of fiscal 2001 has declined as a percentage of
 revenues compared to the year ago quarter due to the benefits attributed to
 our restructuring initiatives.  However, those savings were largely offset by
 increases in ongoing marketing expenses associated with establishing our
 brand.
 
     Research and Development
     Research and development spending in the second quarter of fiscal 2001 was
 $153 million for ongoing operations or 8.3 percent of revenues.  This is an
 increase of $34 million or 28.6 percent over spending in the same period last
 year of $119 million or 6.5 percent of revenues.
     Sequentially from the first quarter, R&D spending increased $13 million.
 As a percent of revenues, R&D spending was 7.8 percent in the first quarter of
 fiscal 2001.
     The increased R&D investments support our plan to shift spending to high
 growth areas of our business, including Layer 7 switching, IP telephony,
 high-density gigabit Ethernet switching, customer relationship management and
 unified messaging.
 
     Operating Income
     Operating income for ongoing operations was $116 million or 6.3 percent of
 revenues for the second quarter of fiscal 2001.  This is an increase of
 $39 million or 50.6 percent over operating income of $77 million or
 4.2 percent of revenues in the year ago period.
     Sequentially from the first quarter, ongoing operating income increased
 $31 million.  As a percent of revenues, operating income was 4.8 percent in
 the first fiscal quarter of 2001.
 
     Tax Rate
     The ongoing effective tax rate for the second quarter of fiscal 2001 was
 37.3 percent compared to 39.3 percent in the same period last year.  The
 reduction in the tax rate is in part due to increased research and development
 spending that is expected to generate more research tax credits, as well as
 the tax effect of non-U.S. activities from ongoing operations.  The ongoing
 effective tax rate for the first six months of fiscal 2001 is 38 percent
 compared with 39.9 percent for the same period last year.  In the first fiscal
 quarter of 2001, Avaya's ongoing effective tax rate was 39.1 percent.
 
     About Avaya Inc.
     Avaya, headquartered in Basking Ridge, N.J., is a leading global provider
 of communications solutions and services that help businesses, government
 agencies and other institutions -- including more than 75 percent of the
 Fortune 500 -- excel in the customer economy.  Avaya offers Customer
 Relationship Management Solutions, Unified Communications Solutions, Hosted
 Solutions, Multiservice Infrastructure, and Converged Voice and Data Networks
 -- including the company's no-compromise Enterprise-Class IP Solutions
 (ECLIPS) -- all supported by Avaya Services and Avaya Labs.  Avaya is the
 worldwide leader in unified messaging, messaging systems, call centers and
 structured cabling systems.  It is the U.S. leader in voice communications
 systems.  For more information about Avaya, visit its Web site at
 http://www.avaya.com.
 
     This news release contains forward-looking statements based on current
 expectations, forecasts and assumptions that involve risks and uncertainties
 that could cause actual outcomes and results to differ materially.  These
 risks and uncertainties include, but are not limited to, price and product
 competition, rapid technological development, dependence on new product
 development, the successful introduction of new products, the mix of our
 products and services, customer demand for our products and services, the
 ability to successfully integrate acquired companies, control of costs and
 expenses, the ability to form and implement alliances, the economic,
 political, and other risks associated with international sales and operations,
 U.S. and foreign government regulation, general industry and market conditions
 and growth rates and general domestic and international economic conditions
 including interest rate and currency exchange rate fluctuations.  For a
 further list and description of such risks and uncertainties, see the reports
 filed by Avaya with the Securities and Exchange Commission.  Avaya disclaims
 any intention or obligation to update or revise any forward-looking
 statements, whether as a result of new information, future events or
 otherwise.
 
     Note:  Ongoing operations excludes results from operations, as well as a
 gain on the sale of the small and medium-sized sales organization, which was
 sold in the second quarter of fiscal 2000 and the results of the wire
 installation business which the company exited.
 
     * Earnings per share includes the effect of goodwill amortization expense.
 
                          Avaya Inc. and Subsidiaries
                          Consolidated Balance Sheets
                  As of March 31, 2001 and September 30, 2000
                             (dollars in millions)
                                  Preliminary
 
                                                    3/31/2001      9/30/2000
                                                  (Unaudited)      (Audited)
     ASSETS
     Cash and cash equivalents                           $312           $271
     Receivables less allowances of $75 at
      March 31, 2001 and $62 at September 30, 2000      1,452          1,758
     Inventory                                            747            639
     Deferred income taxes, net                           354            450
     Other current assets                                 324            244
     TOTAL CURRENT ASSETS                               3,189          3,362
 
     Property, plant and equipment, net                 1,042            966
     Prepaid benefit costs                                269            387
     Deferred income taxes, net                           103             44
     Goodwill, net                                        256            204
     Other assets                                         110             74
       TOTAL ASSETS                                    $4,969         $5,037
 
     LIABILITIES
     Accounts payable                                    $569           $763
     Current portion of long term debt                     23             80
     Business restructuring reserve                       251            499
     Payroll and benefit obligations                      557            491
     Advance billings and deposits                        180            253
     Other current liabilities                            512            503
     TOTAL CURRENT LIABILITIES                          2,092          2,589
 
     Long term debt                                       700            713
     Benefit obligations                                  458            421
     Deferred revenue                                      71             83
     Other liabilities                                    485            467
     TOTAL NONCURRENT LIABILITIES                       1,714          1,684
 
     Commitments and contingencies
 
     Series B convertible participating
      preferred stock, par value $1.00 per share,
      4 million shares authorized,
      issued and outstanding (a)                          381             --
 
     STOCKHOLDERS' EQUITY
     Series A junior participating preferred stock,
      par value $1.00 per share,
       7.5 million shares authorized;
        none issued and outstanding                        --             --
     Common stock, par value $0.01 per share,
      1.5 billion shares authorized,
       283,831,630 and 282,027,675 issued and
        outstanding as of March 31, 2001
         and September 30, 2000, respectively               3              3
     Additional paid-in capital (a)                       893            825
     Retained earnings (deficit)                         (61)             --
     Accumulated other comprehensive loss                (53)           (64)
 
     Less treasury stock at cost
      (5,063 shares as of March 31, 2001)                  --             --
     TOTAL STOCKHOLDERS' EQUITY                           782            764
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $4,969         $5,037
 
     (a) On October 2, 2000, Avaya sold to Warburg, Pincus Equity Partners,
         L.P. 4 million shares of our Series B convertible participating
         preferred stock and warrants to purchase our common stock for an
         aggregate of $400 million.  The proceeds from the Warburg investment
         were allocated between the preferred stock and warrants based upon the
         fair market value of each security with $368 million allocated to
         preferred stock and $32 million to warrants.  The warrants are
         included in Stockholders' Equity as part of "additional paid-in
         capital."  The preferred stock also includes accretion of $13 million
         for the first six months of fiscal 2001.
 
                          Avaya Inc. and Subsidiaries
              Comparative Statements of Operations -- As Reported
                   Three Months Ended March 31, 2001 and 2000
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
 
                                                         Three Months Ended
                                                    3/31/2001   3/31/2000(a)
     REVENUE
      Products                                        $ 1,323        $ 1,459
      Services                                            529            486
                                                        1,852          1,945
     COST
      Products                                            792            895
      Services                                            241            252
                                                        1,033          1,147
 
     GROSS MARGIN                                         819            798
 
     OPERATING EXPENSES
      Selling, general and administrative                 556            600
      Business restructuring and related charges          182             --
      Research and development                            153            119
      Purchased in-process research and development        31             --
     TOTAL OPERATING EXPENSES                             922            719
 
     OPERATING INCOME (LOSS)                            (103)             79
     Other income (expense) - net                          18             50
     Interest expense                                      10             21
 
     INCOME (LOSS) BEFORE INCOME TAXES                   (95)            108
     Provision (benefit) for income taxes                (31)             42
     NET INCOME (LOSS)                                  $(64)            $66
 
     EARNINGS PER SHARE - BASIC                       $(0.25)          $0.25
     EARNINGS PER SHARE - DILUTED                     $(0.25)          $0.24
     BASIC SHARES                                         283            265
     DILUTED SHARES                                       285            280
     Effective Tax Rate (%)                           (33.1)%          38.9%
 
     (a) Certain amounts have been reclassified to conform to fiscal 2001
         presentation.
 
                          Avaya Inc. and Subsidiaries
              Comparative Statements of Operations -- As Reported
                    Six Months Ended March 31, 2001 and 2000
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
 
                                                           Six Months Ended
                                                    3/31/2001   3/31/2000(a)
     REVENUE
      Products                                        $ 2,609        $ 2,839
      Services                                          1,028            956
                                                        3,637          3,795
     COST
      Products                                          1,593          1,667
      Services                                            468            497
                                                        2,061          2,164
     GROSS MARGIN                                       1,576          1,631
 
     OPERATING EXPENSES
      Selling, general and administrative               1,124          1,196
      Business restructuring and related charges          205             --
      Research and development                            293            224
      Purchased in-process research and development        31             --
      TOTAL OPERATING EXPENSES                          1,653          1,420
 
     OPERATING INCOME (LOSS)                             (77)            211
     Other income (expense) - net                          27             54
     Interest expense                                      20             42
 
     INCOME (LOSS) BEFORE INCOME TAXES                   (70)            223
     Provision (benefit) for income taxes                (22)             88
     NET INCOME (LOSS)                                  $(48)           $135
 
     EARNINGS PER SHARE - BASIC                       $(0.21)          $0.51
     EARNINGS PER SHARE - DILUTED                     $(0.21)          $0.48
     BASIC SHARES                                         283            264
     DILUTED SHARES                                       284            280
     Effective Tax Rate (%)                           (31.3)%          39.5%
 
     (a) Certain amounts have been reclassified to conform to fiscal 2001
         presentation.
 
                          Avaya Inc. and Subsidiaries
   Comparative Statements of Operations -- As Reported vs. Ongoing Operations
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
 
                                   For the three months ended March 31, 2001
                                    As Reported    Adjustments (a)  Ongoing
     REVENUE
      Products                        $1,323            $ --        $1,323
      Services                           529              --           529
                                       1,852              --         1,852
     COST
      Products                           792              --           792
      Services                           241              --           241
                                       1,033              --         1,033
     GROSS MARGIN                        819              --           819
 
     OPERATING EXPENSES
      Selling, general and
       administrative                    556             (6)           550
      Business restructuring
       and related charges               182           (182)            --
      Research and development           153              --           153
      Purchased in-process
       research and development           31            (31)            --
     TOTAL OPERATING EXPENSES            922           (219)           703
 
     OPERATING INCOME (LOSS)           (103)             219           116
     Other income (expense) - net         18              --            18
     Interest expense                     10              --            10
 
     INCOME (LOSS) BEFORE
      INCOME TAXES                      (95)             219           124
     Provision (benefit) for
      income taxes                      (31)              77            46
     NET INCOME (LOSS)                 $(64)            $142           $78
 
                                    For the three months ended March 31, 2001
                                    As Reported   Adjustments (a)   Ongoing
 
     EARNINGS PER SHARE - BASIC      $(0.25)                         $0.25
     EARNINGS PER SHARE - DILUTED    $(0.25)                         $0.25
     BASIC SHARES                        283                           283
     DILUTED SHARES                      285                           285
     EFFECTIVE TAX RATE (%)          (33.1)%                         37.3%
 
      (a) The adjustment column removes from results charges for the following:
          -- $6 million of start-up expenses associated with our spin-off from
             Lucent.
 
          -- $182 million which includes $134 million related to the Company's
             pending outsourcing of certain of its manufacturing operations,
             and $48 million  for business restructuring one-time expenses
             associated with our spin-off from Lucent.
 
          -- $31 million for purchased in-process research and development
             associated with the Company's acquisition of VPNet Technologies,
             Inc.
 
                          Avaya Inc. and Subsidiaries
  Comparative Statements of Operations -- As Reported vs. On Going Operations
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
                                  (continued)
 
                                      For the six months ended March 31, 2001
                                    As Reported    Adjustments (b)   Ongoing
     REVENUE
      Products                        $2,609            $ --        $2,609
      Services                         1,028              --         1,028
                                       3,637              --         3,637
     COST
      Products                         1,593              --         1,593
      Services                           468              --           468
                                       2,061              --         2,061
     GROSS MARGIN                      1,576              --         1,576
 
     OPERATING EXPENSES
      Selling, general and
       administrative                  1,124            (42)         1,082
      Business restructuring
       and related charges               205           (205)            --
      Research and development           293              --           293
      Purchased in-process research
       and development                    31            (31)            --
     TOTAL OPERATING EXPENSES          1,653           (278)         1,375
 
     OPERATING INCOME (LOSS)            (77)             278           201
     Other income (expense) - net         27              --            27
     Interest expense                     20              --            20
 
     INCOME (LOSS) BEFORE INCOME TAXES  (70)             278           208
     Provision (benefit) for
      income taxes                      (22)             101            79
     NET INCOME (LOSS)                 $(48)            $177          $129
 
                                      For the six months ended March 31,2001
                                    As Reported   Adjustments (b)   Ongoing
 
     EARNINGS PER SHARE - BASIC      $(0.21)                         $0.41
     EARNINGS PER SHARE - DILUTED    $(0.21)                         $0.41
     BASIC SHARES                        283                           283
     DILUTED SHARES                      284                           284
     EFFECTIVE TAX RATE (%)          (31.3)%                         38.0%
 
      (b) The adjustment column removes from results charges for the following:
          -- $42 million of start-up expenses associated with our spin-off
             from Lucent.
 
          -- $205 million which includes $134 million related to the Company's
             pending outsourcing certain of its manufacturing operations during
             the second quarter of fiscal 2001, and $71 million for business
             restructuring one-time expenses associated with our spin-off from
             Lucent.
 
          -- $31 million for purchased in-process research and development
             associated with the Company's acquisition of VPNet Technologies,
             Inc. in the second quarter of fiscal 2001.
 
                          Avaya Inc. and Subsidiaries
   Comparative Statements of Operations -- As Reported vs. Ongoing Operations
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
 
                                  For the three months ended March 31, 2000
                             As Reported (a)     Adjustments (b)  On Going
     REVENUE
      Products                       $ 1,459          $(114)        $1,345
      Services                           486              --           486
                                       1,945           (114)         1,831
     COST
      Products                           895            (65)           830
      Services                           252              --           252
                                       1,147            (65)         1,082
     GROSS MARGIN                        798            (49)           749
 
     OPERATING EXPENSES
      Selling, general and
       administrative                    600            (47)           553
      Research and development           119              --           119
     TOTAL OPERATING EXPENSES            719            (47)           672
 
     OPERATING INCOME (LOSS)              79             (2)            77
     Other income (expense) - net         50            (45)             5
     Interest expense                     21              --            21
 
     INCOME (LOSS) BEFORE INCOME TAXES   108            (47)            61
     Provision (benefit) for
      income taxes                        42            (18)            24
     NET INCOME (LOSS)                   $66           $(29)           $37
 
                                  For the three months ended March 31, 2000
                                As Reported (a)   Adjustments (b)  Ongoing
 
     EARNINGS PER SHARE - BASIC        $0.25                        $ 0.14
     EARNINGS PER SHARE - DILUTED      $0.24                         $0.13
     BASIC SHARES                        265                           265
     DILUTED SHARES                      280                           280
     EFFECTIVE TAX RATE (%)            38.9%                         39.3%
 
                          Avaya Inc. and Subsidiaries
   Comparative Statements of Operations -- As Reported vs. Ongoing Operations
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
                                  (continued)
 
                                     For the six months ended March 31, 2000
                                 As Reported (a)   Adjustments (b)   Ongoing
     REVENUE
      Products                       $ 2,839          $(237)        $2,602
      Services                           956              --           956
                                       3,795           (237)         3,558
     COST
      Products                         1,667           (138)         1,529
      Services                           497              --           497
                                       2,164           (138)         2,026
     GROSS MARGIN                      1,631            (99)         1,532
 
     OPERATING EXPENSES
      Selling, general
       and administrative              1,196            (94)         1,102
      Research and development           224              --           224
     TOTAL OPERATING EXPENSES          1,420            (94)         1,326
 
     OPERATING INCOME (LOSS)             211             (5)           206
     Other income (expense) - net         54            (45)             9
     Interest expense                     42              --            42
 
     INCOME (LOSS) BEFORE INCOME TAXES   223            (50)           173
     Provision (benefit) for
      income taxes                        88            (19)            69
     NET INCOME (LOSS)                  $135           $(31)          $104
 
                                    For the six months ended March 31, 2000
                                As Reported (a)   Adjustments (b)  Ongoing
 
     EARNINGS PER SHARE - BASIC        $0.51                         $0.39
     EARNINGS PER SHARE - DILUTED      $0.48                         $0.37
     BASIC SHARES                        264                           264
     DILUTED SHARES                      280                           280
     EFFECTIVE TAX RATE (%)            39.5%                         39.9%
 
      (a) Certain amounts have been reclassified to conform to fiscal 2001
          presentation.
 
      (b) The adjustments column removes from results the operations of the
          small and medium sized sales organization sold to Expanets in the
          second quarter of fiscal 2000, and the results of the wire
          installation business which the company exited.
 
                          Avaya Inc. and Subsidiaries
                          Target Improvement Measures
                               Ongoing Operations
                                  Fiscal 2001
 
                   FY 2001/Q1          FY 2001/Q2        Year-To-Date
               $ in millions   %   $ in millions   %   $ in millions   %
 
     Revenue       1,785      100       1,852     100       3,637     100
     Gross
      Margin*        757     42.4         819    44.2       1,576    43.3
     SG&A**          532     29.8         550    29.6       1,082    29.7
     Research &
      Development    140      7.8         153     8.3         293     8.1
     Operating
      Income          85      4.8         116     6.3         201     5.5
     Effective
      Tax Rate          39.1%                37.3%                38.0%
 
     Goodwill
      Amortization    14      0.8          18     1.0          32     0.9
 
                                          Improvement Targets From FY2000
 
     Gross
      Margin*                                  Increase 1.5 to 2.5 points
     SG&A**                                        Improve 7 to 10 points
     Research &
      Development                                  Increase 2 to 4 points
     Operating
      Income                                        Improve 6 to 8 points
     Effective
      Tax Rate                                      Improve 3 to 5 points
 
     Goodwill
      Amortization                                                   N/A
 
      *In conjunction with the announcement to outsource most of our
       manufacturing to Celestica, we have reclassified certain logistics costs
       such as transportation and warehousing from SG&A to Cost of Sales in the
       first quarter of fiscal 2001.
 
      **Goodwill amortization, which is included in SG&A, has been presented
        below for each of the respective quarterly periods.
 
                          Avaya Inc. and Subsidiaries
                          Target Improvement Measures
                               Ongoing Operations
                                  Fiscal 2000
 
                   FY 2000/Q1          FY 2000/Q2          FY 2000/Q3
               $ in millions    %   $ in millions   %   $ in millions   %
 
     Revenue        1,727     100.0     1,831     100.0     1,891     100.0
     Gross
      Margin*         783      45.3       749      40.9       801      42.4
     SG&A**           549      31.7       553      30.2       605      32.0
     Research &
      Development     105       6.1       119       6.5       126       6.7
     Operating
      Income          129       7.5        77       4.2        70       3.7
     Effective
      Tax Rate            40.2%               39.3%                39.6%
 
     Goodwill
      Amortization     14       0.8        14       0.8        14       0.7
 
                          Avaya Inc. and Subsidiaries
                          Target Improvement Measures
                               Ongoing Operations
                                  Fiscal 2000
                                  (continued)
 
                   FY 2000/Q4                  FY 2000
               $ in millions     %     $ in millions     %      Improvement
                                                                  Targets
                                                                From FY2000
 
     Revenue         2,038     100.0       7,487      100.0
     Gross
      Margin*          816      40.0       3,149       42.1     Increase 1.5 to
                                                                 2.5 points
     SG&A**            666      32.6       2,373       31.7     Improve 7 to 10
                                                                 points
     Research &
      Development      118       5.8         468        6.3     Increase 2 to 4
                                                                 points
     Operating
      Income            32       1.6         308        4.1     Improve 6 to 8
                                                                 points
     Effective
      Tax Rate            37.5%                   39.5%         Improve 3 to 5
                                                                 points
 
     Goodwill
      Amortization      13       0.6          55        0.7                N/A
 
 
      *In conjunction with the announcement to outsource most of our
       manufacturing to Celestica, we have reclassified certain logistics
       costs such as transportation and warehousing from SG&A to Cost of
       Sales.
 
      **Goodwill amortization, which is included in SG&A, has been presented
        below for each of the respective quarterly periods.
 
 
                                   AVAYA Inc.
                        Revenues from Ongoing Operations
 
                                        For the                  For the
                                      Fiscal Year          Three and Six Months
                               Ended September 30, 2000    Ended March 31, 2001
                            Q1     Q2     Q3     Q4   YTD     Q1      Q2   YTD
 
     Communication Solutions:
      Traditional Voice(1) 645    682    656    683  2,666    556    546  1,102
      Data(2) &
       IP Convergence(3)    45     71     67     67    250    125    135    260
      Applications(4)      300    267    304    331  1,202    247    251    498
 
     Communication
      Solutions            990  1,020  1,027  1,081  4,118    928    932  1,860
 
      Connectivity(5)      272    326    370    451  1,419    356    391    747
 
      Services(6)          470    486    496    506  1,958    499    529  1,028
 
      Other                 -5     -1     -2      0     -8      2      0      2
 
      TOTAL AVAYA        1,727  1,831  1,891  2,038  7,487  1,785  1,852  3,637
 
     Footnotes:
     1 Voice - includes traditional voice systems, IP enabled Definity
       releases, wireless, transtalk wireless, installation & wire.
     2 Data -  includes Local Area Networks, Wide Area Networks, and Virtual
       Private Networks
     3 IP Convergence - includes IP ports sold, IP Softphones, IP Hardphones,
       Directory Service Software, Enterprise Mgmt Software and Network
       Alchemy.
     4 Applications - includes Customer Relationship Management,  Messaging,
       E-Communications and Professional Services.
     5 Connectivity - includes Structured Cabling (Systimax & ExchangeMax) and
       Electronic Cabinets.
     6 Services - includes Maintenance (Contracts & Per Occurrence), DataCare,
       and Value Added Services.
 
                     MAKE YOUR OPINION COUNT -  Click Here
                http://tbutton.prnewswire.com/prn/11690X76711647
 
 

SOURCE Avaya Inc.
    BASKING RIDGE, N.J., April 26 /PRNewswire Interactive News Release/ --
 Avaya Inc. (NYSE:   AV) today said net income from ongoing operations for the
 second fiscal quarter ended March 31, 2001 was $78 million or 25 cents per
 share on a diluted basis*, excluding restructuring and acquisition-related
 costs.  Net income for the year ago quarter was $37 million or 13 cents per
 diluted share.  (See note for definition of ongoing operations.)
     Revenues from Avaya's ongoing operations for the second fiscal quarter
 were $1.852 billion, an increase of 1.1 percent or $21 million over revenues
 of $1.831 billion in the year ago quarter.
     "Despite the slowing U.S. economy, Avaya continues to focus on the
 enterprise market and deliver on our plan to grow net income and revenues,"
 said Don Peterson, president and CEO, Avaya Inc.  "In this quarter's results,
 we're pleased that with steady overall revenues compared to the year ago
 quarter, we were able to show significant revenue growth in multi-service
 networking, connectivity solutions, messaging, services, and sales outside the
 United States.  We doubled IP port shipments from 18,000 in the first quarter
 to 36,000 in the second quarter, and we're also seeing a leveling from the
 first to the second quarter of 2001 in sales of traditional voice products.
 We're continuing to reinvest in the high-growth segments of our market,
 increasing our investment in R&D and completing our acquisitions of key
 technology assets from VPNet and Quintus."
 
     Reported Results For Second Fiscal Quarter, Including Restructuring and
     Acquisition-Related Costs
     For the second fiscal quarter ended March 31, 2001, Avaya reported a net
 loss of $64 million or a loss of 25 cents per diluted share*, including
 one-time and start-up expenses of $32 million, after tax ($54 million,
 pre-tax) associated with its spin-off from Lucent Technologies; $31 million
 after tax ($31 million, pre-tax) for purchased in-process research and
 development associated with its acquisition of VPNet Technologies, Inc.; and
 $79 million, after tax ($134 million, pre-tax) in charges related to the
 pending outsourcing of certain manufacturing operations to Celestica.  These
 results compare with reported net income of $66 million or 24 cents per
 diluted share for the same quarter ended March 31, 2000.
 Reported revenues for the second quarter in fiscal 2001 were $1.852 billion
 compared with $1.945 billion in the same period last year.
 
     Ongoing Fiscal 2001 Year-To-Date Results
     For the first six months in fiscal 2001, net income from ongoing
 operations was $129 million or 41 cents per share on a diluted basis*,
 excluding one-time and start-up expenses associated with the company's
 spin-off from Lucent, as well as costs associated with the acquisition of
 VPNet and the pending outsourcing of certain manufacturing operations to
 Celestica.  This is an increase of $25 million or 24 percent compared to
 $104 million or 37 cents per diluted share for the first six months in fiscal
 2000.
     Revenues from ongoing operations for the first six months of fiscal 2001
 were $3.637 billion compared to $3.558 billion for the first six months of
 fiscal 2000, an increase of $79 million or 2.2 percent.
 
     Reported Fiscal 2001 Year-To-Date Results
     Including the pending one-time and start-up expenses associated with the
 company's spin-off from Lucent, as well as costs associated with the
 acquisition of VPNet and the pending outsourcing of certain manufacturing
 operations to Celestica, Avaya reported a net loss of $48 million or a loss of
 21 cents per share on a diluted basis for the first six months of fiscal 2001,
 compared with reported net income of $135 million or 48 cents per share on a
 diluted basis* for the first six months of fiscal 2000.
     Reported revenues for the first six months of fiscal 2001 were
 $3.637 billion, a decrease of $158 million or 4.2 percent compared with
 reported revenues of $3.795 billion in the same period last year.
     "Results in this quarter clearly demonstrate the benefits of our
 restructuring work," said Garry McGuire, chief financial officer, Avaya Inc.
 "In our first fiscal quarter this year we reduced expenses by $100 million
 sequentially, and in our second quarter we've continued those savings, while
 increasing our gross margins.  Our overall revenues were up compared to the
 year ago quarter, with growth of 72.4 percent in multi-service networking,
 21.9 percent in connectivity solutions, 17.9 percent in messaging, 8.8  in
 services and 7.4 percent overall in sales outside the U.S.
     "We have said previously, that we expect to achieve mid-single digit
 revenue growth and more than double our net income from ongoing operations in
 2001," McGuire said.  "In light of the current U.S. economic slowdown, we are
 modifying our expectations of mid-single digit revenue growth to a range of
 two to five percent with no change in guidance for expected net income."
     The company noted it is also providing additional information about its
 traditional and growth businesses, including voice, data and IP convergence
 and applications, as well as connectivity solutions and services (see attached
 chart for the additional information).
 
     New Initiatives
     Avaya completed and announced a number of initiatives since the end of the
 last quarter as part of its strategy to restructure the company and grow
 revenues.  The company also announced several significant transactions:
 
      -- Avaya announced a two-year, $30 million agreement with News
         Corporation to provide comprehensive networking solutions that will
         be implemented throughout the company.  The network includes the
         Enterprise Class IP Solutions (ECLIPS) suite of products using Voice
         over Internet Protocol (VoIP), in addition to voice switching systems
         and messaging applications, which will allow News Corporation to be
         able to significantly enhance its ability to communicate efficiently
         and effectively across its businesses.  The Avaya solutions allow
         News Corporation to standardize its communications infrastructure on
         a single network, design a global dial plan at reduced costs and
         implement a voice messaging hub to enable exchange of messages among
         its various companies around the world.
 
      -- Avaya announced multi-service networking agreements in China and
         Mexico.  Nissan Mexicana, one of the largest manufacturers of
         automobiles in Latin America, will use Avaya's local area network
         (LAN) solution to connect 2,000 users in five separate sites through a
         Gigabit Ethernet backbone built on Avaya's P550 Gigabit Switch and
         Avaya's P880 Routing Switch.  The network will be managed and
         monitored using Avaya's CajunView(TM) administration software suite.
         The State Electric Power Control Center in China will implement the
         Cajun P880 routing switch, the Cajun P550 routing switch, the Cajun
         P330 switching system and the Avaya Wireless system to migrate from
         the Center's existing asynchronous transfer mode (ATM) backbone to the
         new, Gigabit Ethernet backbone.
 
      -- Avaya Labs introduced Libsafe(TM) 2.0, an enhanced version of its free
         security software for the popular Linux operating system.  Libsafe
         version 2.0 adds the ability to protect against security attacks that
         exploit "format string" vulnerabilities in software, including
         programs that are widely deployed as part of the Internet
         infrastructure.  Libsafe extends its protection to all application
         programs running on a system, and will even help to protect programs
         that have vulnerabilities yet to be discovered.
 
      -- The company completed its acquisition of VPNet Technologies, a
         privately held developer of virtual private network (VPN) solutions
         and devices.  VPNet's scalable VPNware(TM) Systems deliver high
         levels of security, performance and manageability across a wide range
         of VPN applications.  Its VPNsure(SM) Managed Services Program enables
         enterprises to outsource the implementation and management of their
         VPNs.  The VPNet products will complement Avaya's current
         communication solutions offerings.
 
      -- The acquisition of substantially all the assets of Quintus Corporation
         enhances Avaya's presence in the customer relationship management
         (CRM) market by enabling it to provide a broad, multi-vendor,
         multi-platform portfolio of software solutions.  Among the Quintus
         assets acquired by Avaya is a comprehensive software suite that unites
         traditional call center technology with Internet communications. These
         solutions enable businesses to build long-term customer relationships
         consistently and cost-effectively across all forms of electronic media
         including the Web, e-mail, fax and advanced telephony systems.
 
     SEGMENT DISCUSSION
 
     Communications Solutions
     Ongoing revenues for the second fiscal quarter of 2001 were $932 million,
 compared to $1.020 billion in the year ago quarter, a decrease of $88 million
 or 8.6 percent.  Segment operating income was $233 million, down $67 million
 or 22.3 percent over operating income of $300 million in the same period last
 year.  Outside the U.S., Communications Solutions revenues were $318 million
 in the second fiscal quarter of 2001 compared to $313 million in the year ago
 period, an increase of 1.7 percent.  Revenues outside the U.S. represented
 34.1 percent of total Communications Solutions revenues compared to
 30.7 percent in the same period last year, an increase of 3.4 percentage
 points.
     Compared to the year ago quarter, overall Communications Solutions
 revenues declined due to the effects of a slowing U.S. economy combined with a
 move to a more indirect sales channel and changes in product mix.  These
 effects were primarily confined to the company's U.S. converged voice
 systems and customer relationship management.  The double-digit growth in
 multi-service networking and messaging solutions partially offset the revenue
 decline.
     Avaya said there were differences in reported and ongoing revenues in the
 year ago quarter in the Communications Solutions segment.  Reported revenues
 in the year ago quarter were $1.134 billion and included revenue from the wire
 installation business, which the company exited, and from the small and
 mid-sized sales division, which the company sold to Expanets.
 
     Services
     Ongoing revenues were $529 million in the second quarter of fiscal 2001,
 an increase of $43 million or 8.8 percent over revenues of $486 million in the
 same period last year.  Segment operating income was $254 million, an increase
 of $59 million or 30.3 percent over operating income of $195 million in the
 year ago quarter.  Revenues outside the U.S. more than doubled compared to the
 same period last year and represented 9.1 percent of overall Services revenues
 compared with 4.6 percent of total Services revenues the same period last
 year.
     Data services and maintenance led the increase in Services revenues, and
 the company continued to see positive effects on operating income from
 improved efficiency and productivity.
 
     Connectivity Solutions
     For the second quarter of fiscal 2001, ongoing revenues were $391 million,
 compared to $326 million in the same period last year, an increase of
 $65 million or 19.9 percent.  Segment operating income was $156 million, an
 increase of $100 million or more than two and a half times operating income of
 $56 million in the year ago period.  Revenues outside the U.S. declined
 3.9 percent compared to the same period last year and represented
 22.1 percent of overall Connectivity Solutions revenues compared to
 27.5 percent in the year ago quarter.
     The revenue performance was due to strong demand in the United States
 across all product lines, while operating income was positively affected by
 cost efficiencies, product mix and an increase in volume.  Revenues also were
 positively affected by lower discounts and price increases.
 
     REVENUES OUTSIDE THE UNITED STATES
     Avaya said revenues from ongoing operations from outside the United States
 were $457 million in the second fiscal quarter of 2001, compared to
 $425 million in the year ago quarter, an increase of $32 million or
 7.5 percent.  Revenues outside the United States as a percent of total Avaya
 revenues grew to 24.7 percent in the second quarter of fiscal 2001 from
 23.2 percent in the same quarter last year.
 
     UPDATE ON TARGET METRICS
     Gross Margin
     Gross margin for the second quarter of fiscal 2001 for ongoing operations
 was $819 million or 44.2 percent of revenues, compared with $749 million or
 40.9 percent of revenues in the same period last year, an increase of
 $70 million.
     Sequentially from the first fiscal quarter, gross margin increased
 $62 million.  As a percent of revenues, gross margin was 42.4 percent in the
 first fiscal quarter of 2001.
     Gross margin for the first fiscal quarter in 2001, as well as all quarters
 in fiscal 2000, reflects a reclassification of logistics expenses such as
 transportation and warehousing from selling, general and administrative
 expense (SG&A) to cost of sales in conjunction with the company's pending
 outsourcing of certain manufacturing operations to Celestica.
     The increase in gross margin is primarily attributed to higher volume and
 favorable product mix in Connectivity Solutions and the ongoing savings from
 our business restructuring, including the improvement to the cost structure
 within the Services segment.  The increase is partially offset by the decrease
 in revenue within Communications Solutions as a result of our shift to a more
 indirect sales channel and changes in product mix.
 
     Selling, General and Administrative
     For the second quarter of fiscal 2001, ongoing SG&A expenses were
 $550 million or 29.6 percent of revenues, compared with $553 million or
 30.2 percent of revenues for the year ago quarter.
     SG&A expenses for the first fiscal quarter in 2001, as well as all
 quarters in fiscal 2000, reflect a reclassification of logistics expenses such
 as transportation and warehousing from SG&A to cost of sales in conjunction
 with the company's pending outsourcing of certain manufacturing operations to
 Celestica.
     SG&A in the second quarter of fiscal 2001 has declined as a percentage of
 revenues compared to the year ago quarter due to the benefits attributed to
 our restructuring initiatives.  However, those savings were largely offset by
 increases in ongoing marketing expenses associated with establishing our
 brand.
 
     Research and Development
     Research and development spending in the second quarter of fiscal 2001 was
 $153 million for ongoing operations or 8.3 percent of revenues.  This is an
 increase of $34 million or 28.6 percent over spending in the same period last
 year of $119 million or 6.5 percent of revenues.
     Sequentially from the first quarter, R&D spending increased $13 million.
 As a percent of revenues, R&D spending was 7.8 percent in the first quarter of
 fiscal 2001.
     The increased R&D investments support our plan to shift spending to high
 growth areas of our business, including Layer 7 switching, IP telephony,
 high-density gigabit Ethernet switching, customer relationship management and
 unified messaging.
 
     Operating Income
     Operating income for ongoing operations was $116 million or 6.3 percent of
 revenues for the second quarter of fiscal 2001.  This is an increase of
 $39 million or 50.6 percent over operating income of $77 million or
 4.2 percent of revenues in the year ago period.
     Sequentially from the first quarter, ongoing operating income increased
 $31 million.  As a percent of revenues, operating income was 4.8 percent in
 the first fiscal quarter of 2001.
 
     Tax Rate
     The ongoing effective tax rate for the second quarter of fiscal 2001 was
 37.3 percent compared to 39.3 percent in the same period last year.  The
 reduction in the tax rate is in part due to increased research and development
 spending that is expected to generate more research tax credits, as well as
 the tax effect of non-U.S. activities from ongoing operations.  The ongoing
 effective tax rate for the first six months of fiscal 2001 is 38 percent
 compared with 39.9 percent for the same period last year.  In the first fiscal
 quarter of 2001, Avaya's ongoing effective tax rate was 39.1 percent.
 
     About Avaya Inc.
     Avaya, headquartered in Basking Ridge, N.J., is a leading global provider
 of communications solutions and services that help businesses, government
 agencies and other institutions -- including more than 75 percent of the
 Fortune 500 -- excel in the customer economy.  Avaya offers Customer
 Relationship Management Solutions, Unified Communications Solutions, Hosted
 Solutions, Multiservice Infrastructure, and Converged Voice and Data Networks
 -- including the company's no-compromise Enterprise-Class IP Solutions
 (ECLIPS) -- all supported by Avaya Services and Avaya Labs.  Avaya is the
 worldwide leader in unified messaging, messaging systems, call centers and
 structured cabling systems.  It is the U.S. leader in voice communications
 systems.  For more information about Avaya, visit its Web site at
 http://www.avaya.com.
 
     This news release contains forward-looking statements based on current
 expectations, forecasts and assumptions that involve risks and uncertainties
 that could cause actual outcomes and results to differ materially.  These
 risks and uncertainties include, but are not limited to, price and product
 competition, rapid technological development, dependence on new product
 development, the successful introduction of new products, the mix of our
 products and services, customer demand for our products and services, the
 ability to successfully integrate acquired companies, control of costs and
 expenses, the ability to form and implement alliances, the economic,
 political, and other risks associated with international sales and operations,
 U.S. and foreign government regulation, general industry and market conditions
 and growth rates and general domestic and international economic conditions
 including interest rate and currency exchange rate fluctuations.  For a
 further list and description of such risks and uncertainties, see the reports
 filed by Avaya with the Securities and Exchange Commission.  Avaya disclaims
 any intention or obligation to update or revise any forward-looking
 statements, whether as a result of new information, future events or
 otherwise.
 
     Note:  Ongoing operations excludes results from operations, as well as a
 gain on the sale of the small and medium-sized sales organization, which was
 sold in the second quarter of fiscal 2000 and the results of the wire
 installation business which the company exited.
 
     * Earnings per share includes the effect of goodwill amortization expense.
 
                          Avaya Inc. and Subsidiaries
                          Consolidated Balance Sheets
                  As of March 31, 2001 and September 30, 2000
                             (dollars in millions)
                                  Preliminary
 
                                                    3/31/2001      9/30/2000
                                                  (Unaudited)      (Audited)
     ASSETS
     Cash and cash equivalents                           $312           $271
     Receivables less allowances of $75 at
      March 31, 2001 and $62 at September 30, 2000      1,452          1,758
     Inventory                                            747            639
     Deferred income taxes, net                           354            450
     Other current assets                                 324            244
     TOTAL CURRENT ASSETS                               3,189          3,362
 
     Property, plant and equipment, net                 1,042            966
     Prepaid benefit costs                                269            387
     Deferred income taxes, net                           103             44
     Goodwill, net                                        256            204
     Other assets                                         110             74
       TOTAL ASSETS                                    $4,969         $5,037
 
     LIABILITIES
     Accounts payable                                    $569           $763
     Current portion of long term debt                     23             80
     Business restructuring reserve                       251            499
     Payroll and benefit obligations                      557            491
     Advance billings and deposits                        180            253
     Other current liabilities                            512            503
     TOTAL CURRENT LIABILITIES                          2,092          2,589
 
     Long term debt                                       700            713
     Benefit obligations                                  458            421
     Deferred revenue                                      71             83
     Other liabilities                                    485            467
     TOTAL NONCURRENT LIABILITIES                       1,714          1,684
 
     Commitments and contingencies
 
     Series B convertible participating
      preferred stock, par value $1.00 per share,
      4 million shares authorized,
      issued and outstanding (a)                          381             --
 
     STOCKHOLDERS' EQUITY
     Series A junior participating preferred stock,
      par value $1.00 per share,
       7.5 million shares authorized;
        none issued and outstanding                        --             --
     Common stock, par value $0.01 per share,
      1.5 billion shares authorized,
       283,831,630 and 282,027,675 issued and
        outstanding as of March 31, 2001
         and September 30, 2000, respectively               3              3
     Additional paid-in capital (a)                       893            825
     Retained earnings (deficit)                         (61)             --
     Accumulated other comprehensive loss                (53)           (64)
 
     Less treasury stock at cost
      (5,063 shares as of March 31, 2001)                  --             --
     TOTAL STOCKHOLDERS' EQUITY                           782            764
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $4,969         $5,037
 
     (a) On October 2, 2000, Avaya sold to Warburg, Pincus Equity Partners,
         L.P. 4 million shares of our Series B convertible participating
         preferred stock and warrants to purchase our common stock for an
         aggregate of $400 million.  The proceeds from the Warburg investment
         were allocated between the preferred stock and warrants based upon the
         fair market value of each security with $368 million allocated to
         preferred stock and $32 million to warrants.  The warrants are
         included in Stockholders' Equity as part of "additional paid-in
         capital."  The preferred stock also includes accretion of $13 million
         for the first six months of fiscal 2001.
 
                          Avaya Inc. and Subsidiaries
              Comparative Statements of Operations -- As Reported
                   Three Months Ended March 31, 2001 and 2000
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
 
                                                         Three Months Ended
                                                    3/31/2001   3/31/2000(a)
     REVENUE
      Products                                        $ 1,323        $ 1,459
      Services                                            529            486
                                                        1,852          1,945
     COST
      Products                                            792            895
      Services                                            241            252
                                                        1,033          1,147
 
     GROSS MARGIN                                         819            798
 
     OPERATING EXPENSES
      Selling, general and administrative                 556            600
      Business restructuring and related charges          182             --
      Research and development                            153            119
      Purchased in-process research and development        31             --
     TOTAL OPERATING EXPENSES                             922            719
 
     OPERATING INCOME (LOSS)                            (103)             79
     Other income (expense) - net                          18             50
     Interest expense                                      10             21
 
     INCOME (LOSS) BEFORE INCOME TAXES                   (95)            108
     Provision (benefit) for income taxes                (31)             42
     NET INCOME (LOSS)                                  $(64)            $66
 
     EARNINGS PER SHARE - BASIC                       $(0.25)          $0.25
     EARNINGS PER SHARE - DILUTED                     $(0.25)          $0.24
     BASIC SHARES                                         283            265
     DILUTED SHARES                                       285            280
     Effective Tax Rate (%)                           (33.1)%          38.9%
 
     (a) Certain amounts have been reclassified to conform to fiscal 2001
         presentation.
 
                          Avaya Inc. and Subsidiaries
              Comparative Statements of Operations -- As Reported
                    Six Months Ended March 31, 2001 and 2000
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
 
                                                           Six Months Ended
                                                    3/31/2001   3/31/2000(a)
     REVENUE
      Products                                        $ 2,609        $ 2,839
      Services                                          1,028            956
                                                        3,637          3,795
     COST
      Products                                          1,593          1,667
      Services                                            468            497
                                                        2,061          2,164
     GROSS MARGIN                                       1,576          1,631
 
     OPERATING EXPENSES
      Selling, general and administrative               1,124          1,196
      Business restructuring and related charges          205             --
      Research and development                            293            224
      Purchased in-process research and development        31             --
      TOTAL OPERATING EXPENSES                          1,653          1,420
 
     OPERATING INCOME (LOSS)                             (77)            211
     Other income (expense) - net                          27             54
     Interest expense                                      20             42
 
     INCOME (LOSS) BEFORE INCOME TAXES                   (70)            223
     Provision (benefit) for income taxes                (22)             88
     NET INCOME (LOSS)                                  $(48)           $135
 
     EARNINGS PER SHARE - BASIC                       $(0.21)          $0.51
     EARNINGS PER SHARE - DILUTED                     $(0.21)          $0.48
     BASIC SHARES                                         283            264
     DILUTED SHARES                                       284            280
     Effective Tax Rate (%)                           (31.3)%          39.5%
 
     (a) Certain amounts have been reclassified to conform to fiscal 2001
         presentation.
 
                          Avaya Inc. and Subsidiaries
   Comparative Statements of Operations -- As Reported vs. Ongoing Operations
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
 
                                   For the three months ended March 31, 2001
                                    As Reported    Adjustments (a)  Ongoing
     REVENUE
      Products                        $1,323            $ --        $1,323
      Services                           529              --           529
                                       1,852              --         1,852
     COST
      Products                           792              --           792
      Services                           241              --           241
                                       1,033              --         1,033
     GROSS MARGIN                        819              --           819
 
     OPERATING EXPENSES
      Selling, general and
       administrative                    556             (6)           550
      Business restructuring
       and related charges               182           (182)            --
      Research and development           153              --           153
      Purchased in-process
       research and development           31            (31)            --
     TOTAL OPERATING EXPENSES            922           (219)           703
 
     OPERATING INCOME (LOSS)           (103)             219           116
     Other income (expense) - net         18              --            18
     Interest expense                     10              --            10
 
     INCOME (LOSS) BEFORE
      INCOME TAXES                      (95)             219           124
     Provision (benefit) for
      income taxes                      (31)              77            46
     NET INCOME (LOSS)                 $(64)            $142           $78
 
                                    For the three months ended March 31, 2001
                                    As Reported   Adjustments (a)   Ongoing
 
     EARNINGS PER SHARE - BASIC      $(0.25)                         $0.25
     EARNINGS PER SHARE - DILUTED    $(0.25)                         $0.25
     BASIC SHARES                        283                           283
     DILUTED SHARES                      285                           285
     EFFECTIVE TAX RATE (%)          (33.1)%                         37.3%
 
      (a) The adjustment column removes from results charges for the following:
          -- $6 million of start-up expenses associated with our spin-off from
             Lucent.
 
          -- $182 million which includes $134 million related to the Company's
             pending outsourcing of certain of its manufacturing operations,
             and $48 million  for business restructuring one-time expenses
             associated with our spin-off from Lucent.
 
          -- $31 million for purchased in-process research and development
             associated with the Company's acquisition of VPNet Technologies,
             Inc.
 
                          Avaya Inc. and Subsidiaries
  Comparative Statements of Operations -- As Reported vs. On Going Operations
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
                                  (continued)
 
                                      For the six months ended March 31, 2001
                                    As Reported    Adjustments (b)   Ongoing
     REVENUE
      Products                        $2,609            $ --        $2,609
      Services                         1,028              --         1,028
                                       3,637              --         3,637
     COST
      Products                         1,593              --         1,593
      Services                           468              --           468
                                       2,061              --         2,061
     GROSS MARGIN                      1,576              --         1,576
 
     OPERATING EXPENSES
      Selling, general and
       administrative                  1,124            (42)         1,082
      Business restructuring
       and related charges               205           (205)            --
      Research and development           293              --           293
      Purchased in-process research
       and development                    31            (31)            --
     TOTAL OPERATING EXPENSES          1,653           (278)         1,375
 
     OPERATING INCOME (LOSS)            (77)             278           201
     Other income (expense) - net         27              --            27
     Interest expense                     20              --            20
 
     INCOME (LOSS) BEFORE INCOME TAXES  (70)             278           208
     Provision (benefit) for
      income taxes                      (22)             101            79
     NET INCOME (LOSS)                 $(48)            $177          $129
 
                                      For the six months ended March 31,2001
                                    As Reported   Adjustments (b)   Ongoing
 
     EARNINGS PER SHARE - BASIC      $(0.21)                         $0.41
     EARNINGS PER SHARE - DILUTED    $(0.21)                         $0.41
     BASIC SHARES                        283                           283
     DILUTED SHARES                      284                           284
     EFFECTIVE TAX RATE (%)          (31.3)%                         38.0%
 
      (b) The adjustment column removes from results charges for the following:
          -- $42 million of start-up expenses associated with our spin-off
             from Lucent.
 
          -- $205 million which includes $134 million related to the Company's
             pending outsourcing certain of its manufacturing operations during
             the second quarter of fiscal 2001, and $71 million for business
             restructuring one-time expenses associated with our spin-off from
             Lucent.
 
          -- $31 million for purchased in-process research and development
             associated with the Company's acquisition of VPNet Technologies,
             Inc. in the second quarter of fiscal 2001.
 
                          Avaya Inc. and Subsidiaries
   Comparative Statements of Operations -- As Reported vs. Ongoing Operations
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
 
                                  For the three months ended March 31, 2000
                             As Reported (a)     Adjustments (b)  On Going
     REVENUE
      Products                       $ 1,459          $(114)        $1,345
      Services                           486              --           486
                                       1,945           (114)         1,831
     COST
      Products                           895            (65)           830
      Services                           252              --           252
                                       1,147            (65)         1,082
     GROSS MARGIN                        798            (49)           749
 
     OPERATING EXPENSES
      Selling, general and
       administrative                    600            (47)           553
      Research and development           119              --           119
     TOTAL OPERATING EXPENSES            719            (47)           672
 
     OPERATING INCOME (LOSS)              79             (2)            77
     Other income (expense) - net         50            (45)             5
     Interest expense                     21              --            21
 
     INCOME (LOSS) BEFORE INCOME TAXES   108            (47)            61
     Provision (benefit) for
      income taxes                        42            (18)            24
     NET INCOME (LOSS)                   $66           $(29)           $37
 
                                  For the three months ended March 31, 2000
                                As Reported (a)   Adjustments (b)  Ongoing
 
     EARNINGS PER SHARE - BASIC        $0.25                        $ 0.14
     EARNINGS PER SHARE - DILUTED      $0.24                         $0.13
     BASIC SHARES                        265                           265
     DILUTED SHARES                      280                           280
     EFFECTIVE TAX RATE (%)            38.9%                         39.3%
 
                          Avaya Inc. and Subsidiaries
   Comparative Statements of Operations -- As Reported vs. Ongoing Operations
     (Unaudited; Dollars and Shares in Millions, except per share amounts)
                                  (continued)
 
                                     For the six months ended March 31, 2000
                                 As Reported (a)   Adjustments (b)   Ongoing
     REVENUE
      Products                       $ 2,839          $(237)        $2,602
      Services                           956              --           956
                                       3,795           (237)         3,558
     COST
      Products                         1,667           (138)         1,529
      Services                           497              --           497
                                       2,164           (138)         2,026
     GROSS MARGIN                      1,631            (99)         1,532
 
     OPERATING EXPENSES
      Selling, general
       and administrative              1,196            (94)         1,102
      Research and development           224              --           224
     TOTAL OPERATING EXPENSES          1,420            (94)         1,326
 
     OPERATING INCOME (LOSS)             211             (5)           206
     Other income (expense) - net         54            (45)             9
     Interest expense                     42              --            42
 
     INCOME (LOSS) BEFORE INCOME TAXES   223            (50)           173
     Provision (benefit) for
      income taxes                        88            (19)            69
     NET INCOME (LOSS)                  $135           $(31)          $104
 
                                    For the six months ended March 31, 2000
                                As Reported (a)   Adjustments (b)  Ongoing
 
     EARNINGS PER SHARE - BASIC        $0.51                         $0.39
     EARNINGS PER SHARE - DILUTED      $0.48                         $0.37
     BASIC SHARES                        264                           264
     DILUTED SHARES                      280                           280
     EFFECTIVE TAX RATE (%)            39.5%                         39.9%
 
      (a) Certain amounts have been reclassified to conform to fiscal 2001
          presentation.
 
      (b) The adjustments column removes from results the operations of the
          small and medium sized sales organization sold to Expanets in the
          second quarter of fiscal 2000, and the results of the wire
          installation business which the company exited.
 
                          Avaya Inc. and Subsidiaries
                          Target Improvement Measures
                               Ongoing Operations
                                  Fiscal 2001
 
                   FY 2001/Q1          FY 2001/Q2        Year-To-Date
               $ in millions   %   $ in millions   %   $ in millions   %
 
     Revenue       1,785      100       1,852     100       3,637     100
     Gross
      Margin*        757     42.4         819    44.2       1,576    43.3
     SG&A**          532     29.8         550    29.6       1,082    29.7
     Research &
      Development    140      7.8         153     8.3         293     8.1
     Operating
      Income          85      4.8         116     6.3         201     5.5
     Effective
      Tax Rate          39.1%                37.3%                38.0%
 
     Goodwill
      Amortization    14      0.8          18     1.0          32     0.9
 
                                          Improvement Targets From FY2000
 
     Gross
      Margin*                                  Increase 1.5 to 2.5 points
     SG&A**                                        Improve 7 to 10 points
     Research &
      Development                                  Increase 2 to 4 points
     Operating
      Income                                        Improve 6 to 8 points
     Effective
      Tax Rate                                      Improve 3 to 5 points
 
     Goodwill
      Amortization                                                   N/A
 
      *In conjunction with the announcement to outsource most of our
       manufacturing to Celestica, we have reclassified certain logistics costs
       such as transportation and warehousing from SG&A to Cost of Sales in the
       first quarter of fiscal 2001.
 
      **Goodwill amortization, which is included in SG&A, has been presented
        below for each of the respective quarterly periods.
 
                          Avaya Inc. and Subsidiaries
                          Target Improvement Measures
                               Ongoing Operations
                                  Fiscal 2000
 
                   FY 2000/Q1          FY 2000/Q2          FY 2000/Q3
               $ in millions    %   $ in millions   %   $ in millions   %
 
     Revenue        1,727     100.0     1,831     100.0     1,891     100.0
     Gross
      Margin*         783      45.3       749      40.9       801      42.4
     SG&A**           549      31.7       553      30.2       605      32.0
     Research &
      Development     105       6.1       119       6.5       126       6.7
     Operating
      Income          129       7.5        77       4.2        70       3.7
     Effective
      Tax Rate            40.2%               39.3%                39.6%
 
     Goodwill
      Amortization     14       0.8        14       0.8        14       0.7
 
                          Avaya Inc. and Subsidiaries
                          Target Improvement Measures
                               Ongoing Operations
                                  Fiscal 2000
                                  (continued)
 
                   FY 2000/Q4                  FY 2000
               $ in millions     %     $ in millions     %      Improvement
                                                                  Targets
                                                                From FY2000
 
     Revenue         2,038     100.0       7,487      100.0
     Gross
      Margin*          816      40.0       3,149       42.1     Increase 1.5 to
                                                                 2.5 points
     SG&A**            666      32.6       2,373       31.7     Improve 7 to 10
                                                                 points
     Research &
      Development      118       5.8         468        6.3     Increase 2 to 4
                                                                 points
     Operating
      Income            32       1.6         308        4.1     Improve 6 to 8
                                                                 points
     Effective
      Tax Rate            37.5%                   39.5%         Improve 3 to 5
                                                                 points
 
     Goodwill
      Amortization      13       0.6          55        0.7                N/A
 
 
      *In conjunction with the announcement to outsource most of our
       manufacturing to Celestica, we have reclassified certain logistics
       costs such as transportation and warehousing from SG&A to Cost of
       Sales.
 
      **Goodwill amortization, which is included in SG&A, has been presented
        below for each of the respective quarterly periods.
 
 
                                   AVAYA Inc.
                        Revenues from Ongoing Operations
 
                                        For the                  For the
                                      Fiscal Year          Three and Six Months
                               Ended September 30, 2000    Ended March 31, 2001
                            Q1     Q2     Q3     Q4   YTD     Q1      Q2   YTD
 
     Communication Solutions:
      Traditional Voice(1) 645    682    656    683  2,666    556    546  1,102
      Data(2) &
       IP Convergence(3)    45     71     67     67    250    125    135    260
      Applications(4)      300    267    304    331  1,202    247    251    498
 
     Communication
      Solutions            990  1,020  1,027  1,081  4,118    928    932  1,860
 
      Connectivity(5)      272    326    370    451  1,419    356    391    747
 
      Services(6)          470    486    496    506  1,958    499    529  1,028
 
      Other                 -5     -1     -2      0     -8      2      0      2
 
      TOTAL AVAYA        1,727  1,831  1,891  2,038  7,487  1,785  1,852  3,637
 
     Footnotes:
     1 Voice - includes traditional voice systems, IP enabled Definity
       releases, wireless, transtalk wireless, installation & wire.
     2 Data -  includes Local Area Networks, Wide Area Networks, and Virtual
       Private Networks
     3 IP Convergence - includes IP ports sold, IP Softphones, IP Hardphones,
       Directory Service Software, Enterprise Mgmt Software and Network
       Alchemy.
     4 Applications - includes Customer Relationship Management,  Messaging,
       E-Communications and Professional Services.
     5 Connectivity - includes Structured Cabling (Systimax & ExchangeMax) and
       Electronic Cabinets.
     6 Services - includes Maintenance (Contracts & Per Occurrence), DataCare,
       and Value Added Services.
 
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 SOURCE  Avaya Inc.