7/13/2010 -- With its acquisition of Nortel Networks' telephony assets, many market watchers expected Avaya Inc. to catapult to the lead in the enterprise telephony segment.

A funny thing happened to Avaya on its way to telephony dominance, however: it ran smack into Cisco Systems Inc., which -- according to market forecaster Infonetics Research -- is making its own bid for telephony mastery.

"We expected the acquisition of Nortel's enterprise assets to put Avaya in the clear lead for overall PBX equipment market share leadership, and while Avaya did receive a nice bump this quarter, softness in the acquired Nortel business combined with strong results by Cisco meant that Cisco and Avaya essentially tied for revenue market share, although Avaya is ahead in terms of line shipments," said Infonetics directing analyst Matthias Machowinski, in a prepared release. "This unfolding battle will be interesting to watch over the coming quarter, as both companies bring certain strengths and weaknesses to the table."

For those who enjoy hair-splitting, Cisco came out a hair's breadth ahead of Avaya in the overall enterprise telephony segment, according to Infonetics.

That being said, Avaya realized a 25 percent quarterly jump in sales of its PBX systems, thanks chiefly to its acquisition of Nortel's enterprise solutions business.

Cisco turned in a fairly strong PBX performance, too. In fact, both vendors posted their best PBX revenue showings since late 2008. That's six full quarters, if you're counting. More to the point, both Cisco and Avaya managed to grow their PBX revenues during a period when most of their competitors were absorbing losses: manufacturer revenues for both PBX and KTS systems was down by 4 percent, sequentially, from Q4 of 2009 through the first quarter of this year.

In spite of the sequential dip, Infonetics says that the PBX space is in much better shape than it was at this time last year, when the market experienced a huge drop-off in demand. Overall, PBX sales are up by 7 percent, year-over-year. IP phones have also come roaring back: sales were up by almost one-third (32 percent) year over year. In Q1, vendors shipped nearly 4 million IP phones.

Over the last 24 months, Cisco, Avaya, and other competitors have started to slug it out in the unified communications (UC) segment. Ironically, however, UC sales were down in Q1, mostly as a result of "expired promotions," according to Infonetics. Infonetics projects that UC sales will pick up later on this year, led -- once again -- by promotional activity from Cisco and Avaya.
--By Stephen Swoyer