Seeking Alpha

Enterprise telephony company Avaya (ticker: AV) held an analysts' day on Thursday. Here's an excerpt from Lehman Brothers' Jiong Shao's note to clients (Lehman has an 'equal weight' rating on Avaya, and a 'neutral' rating on the sector):

While management did not provide specific revenue and earnings guidance for FY06, it did provide a number of financial metrics as underlying drivers for revenue, margins and expenses for FY06. Management highlighted that it would strive to achieve double digit operating margins in FY06 or beyond... We continue to believe near-term demand trend is solid so far this quarter and we remain somewhat concerned about longer-term growth prospect for the industry...

Management... looks for revenue to expand across all geographies with product sales to grow and service revenues to stabilize at FY05 levels. Avaya also highlighted its expansion into international markets, with the company’s penetration into Europe, the largest telephony market, via its Tenovis acquisition being especially important given the growth opportunity ahead of it...

Avaya looks for gross margins to expand with product and rental/managed services margins leading the improvement while services margins remaining flattish in FY06, although overall gross margins may decline slightly in 1Q06 from 4Q levels due to expected lower sales volume...

AV 1-yr chart:

Source: Lehman Brothers: Avaya's Demand 'Solid', But Sector Growth Prospects 'Concerning' (AV)