Avaya trades in its CEO

Avaya said on Monday after the stock market closed it is replacing its chief executive officer, amid disappointing profits.

Avaya, which makes corporate phone equipment, said Louis D'Ambrosio will replace Don Peterson as chief executive. Peterson has been Avaya's CEO since the company was spun off from Lucent Technologies in 2000. The company said he will remain chairman of the board of directors until 30 September. D'Ambrosio joined Avaya in 2002 after working at IBM for several years.

In addition to its traditional phone business, Avaya is a leader in internet protocol communications. The company ranks a close second to Cisco in terms of overall IP communications sales.

But despite its position as a leader in a growing market, Avaya has been struggling recently to control costs. On Monday, the company reported profits of $44m, or 10 cents per share, with revenue of $1.3bn for its third fiscal quarter, which ended on 30 June. During the same quarter a year ago, Avaya earned $194m, or 40 cents per share, on $1.24bn in revenue.

Even though the year-ago profits were boosted by a one-time tax gain of $123m, higher costs are having an impact on Avaya's business, chief financial officer Garry McGuire said in a statement.

He said: "While we are encouraged by these positive trends, higher costs and expenses during the quarter affected operating results. We remain focused on improving our cost and expense profile across geographies and businesses, particularly in Europe."

Avaya is trying to win business from large companies switching from traditional phone networks to new ones based on IP. But it is facing stiff competition as Microsoft enters the IP communications market with new products and a partnership with Avaya rival Nortel Networks.

Part of Avaya's new strategy in the changing voice market is to focus on providing software products more than hardware. Analysts said the change in leadership at the top is a good sign the company is ready for the market transition.

Zeus Kerravala, an analyst at Yankee Group Research, said: "This is a good move for Avaya. Lou [D'Ambrosio] is the right person to have in place as Avaya moves from selling hardware to becoming a software and services company. He came directly from IBM, which went through that shift years ago."

Marguerite Reardon writes for CNET News.com