Dear Avaya Shareholder,
On July 25th we reported our 3rd fiscal quarter results. As these results demonstrate, we are working through the challenges that affected our performance in the first half of the year.
First, we've begun to improve our performance in the U.S., where we saw a 4% increase in sales compared to the 2nd quarter of 2005. Our new Go-to-Market strategy is starting to take hold, and both direct and indirect product sales in the U.S. rose sequentially this quarter. Importantly, IP line shipments rose by 30% sequentially in the U.S., and in the mid-teens worldwide.
Second, we took action to improve underperforming areas of our business, achieving, for example, cost savings targeted in our Services business. In addition, we continue to make progress with the integration of Tenovis, whose financial performance is on track for the year.
Operating income rose sequentially by $24 million to $76 million, and operating cash-flow for the quarter was $126 million. In addition, we retired substantially all of our debt.
As a market leader in IP telephony, we are focused on providing our enterprise customers with the tools that enable them to boost productivity, enhance collaboration, improve customer satisfaction and drive revenue growth while increasing efficiency. These are the key drivers behind the continuing transition to IP communication, a transition we believe will continue to accelerate in the U.S. and in Europe, where it has begun to take hold.
Moving forward, we will build and strengthen our position in the market by leveraging our strategic differentiators: our robust portfolio of leading-edge solutions, our customer base, our clear marketing focus and our compelling value proposition. We will also stay focused on integrating Tenovis and aligning our strengths to capture revenue opportunities in Europe.
We will maintain our financial discipline and capture the benefits of the operating leverage in our business model. And we will continue to invest internally and externally through partnerships and alliances to develop new offerings and further build our competitive advantages.
Donald K. Peterson
Chairman and Chief Executive Officer
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