Avanex (AVNX) 8-K Avanex Announces Fourth Quarter and Fiscal Year 2006 Financial Results

Exhibit 99.1

www.avanex.com

Avanex Announces Fourth Quarter and Fiscal Year 2006 Financial Results

Q4 Revenue up 13 Percent Over Q3

Yearly Net Loss Improves by $54 Million

FREMONT, Calif. – Sept. 5, 2006 – Avanex Corporation (NASDAQ: AVNX), a pioneer of intelligent photonic solutions that enable next-generation optical networks, today reported financial results for its fourth quarter and fiscal year ended June 30, 2006.

Net revenue in the fourth quarter of fiscal 2006 was $45.5 million, a 13 percent increase over the prior quarter revenue of $40.1 million and a 6 percent increase over revenue of $42.7 million in the fourth quarter of the previous year. Fiscal year 2006 net revenue was $162.9 million, compared with $160.7 million in the prior fiscal year.

The company reported a net loss of $8.4 million or a net loss of $0.04 per share in the fourth quarter of fiscal 2006, compared with a net loss of $10.2 million or a net loss of $0.06 per share in the prior quarter and a net loss of $42.8 million or a net loss of $0.30 per share in the fourth quarter of the prior year.

Fiscal year 2006 net loss was $54.0 million, or a net loss of $0.33 per share, a $54.4 million or $0.42 per share improvement from the previous year’s net loss of $108.4 million or a net loss of $0.75 per share. Gross margin in fiscal year 2006 was 5.3 percent, an increase of 8.1 percentage points over the prior year’s gross margin of negative 2.8 percent.

Non-GAAP net loss in the fourth fiscal quarter of 2006 was $8.4 million or a non-GAAP net loss of $0.04 per share, compared with a non-GAAP net loss of $8.9 million or a non-GAAP net loss of $0.06 per share in the prior quarter and a 44 percent improvement over the non-GAAP net loss of $15.1 million or a non-GAAP net loss of $0.10 per share in the fourth fiscal quarter of the prior year.

$ Millions	Q4FY06	Q3FY06	Q4FY05
Non-GAAP Net Loss	8.4	8.9	15.1
Net Non-GAAP Exclusions	0.0	1.2	27.7

For the fourth quarter of fiscal 2006, GAAP and non-GAAP net loss were the same because net non-GAAP exclusions totaled zero. Non-GAAP net loss excludes share-based payments, amortization of intangibles, restructuring charges, and gains (loss) on the disposal of property and equipment. The third quarter of 2006 non-GAAP net loss also excludes an inventory provision related to non-RoHS (Restriction of Hazardous Substances) compliant product, and fourth quarter of 2005 non-GAAP net loss also excludes the write-off of a long-term investment.*

# # #

Combined cash balances, composed of cash, restricted cash, and short-term investments, totaled $74.3 million as of June 30, 2006. The company used $7.7 million in the fourth quarter of fiscal 2006, compared with $10.6 million in the third quarter of fiscal 2006 after consideration of $44.6 million net proceeds raised in the March 2006 equity stock offering.

Financial data for the fourth quarter and fiscal year 2006 are subject to finalization of pension accounting for foreign subsidiaries.

“We made considerable progress during fiscal 2006,” said Jo Major, president and CEO of Avanex. “We completed a challenging restructuring plan, which contributed significantly to the improvements in our cost structure. We reduced our net loss by 50 percent and increased our gross margin by 8 percentage points over the previous year. On a quarterly basis, we evaluate the usability of our inventory, and determined this quarter that it was appropriate to increase our inventory reserves based upon our recent experiences in the contract manufacturing environment. We also noted a decrease in warranty costs following our manufacturing transitions and therefore adjusted the warranty provisions. In addition, our collections experience has been strong and we adjusted our bad debt allowance by $2.0 million, which favorably impacted general and administrative expenses in the quarter. Overall, we are very pleased with the manufacturing model and its impact on our financials.”

“Additionally, as our team completed our manufacturing transitions in fiscal 2006, we launched a series of new products that have been very well received by our customers, and we are excited by the interest the industry is showing toward adopting and implementing new technologies,” said Major. “In the fourth quarter, we launched three new products including an optical protection switch, an ultra-thin amplifier and an amplifier with built-in optical performance monitoring.”

Q1 FY 2007 Outlook

Revenue is expected to be between $48 million and $50 million in the first fiscal quarter of 2007, ending Sept. 30, 2006.

Conference Call

Avanex will host a conference call today, Sept. 5, 2006, at 5:30 a.m. Pacific time; 8:30 a.m. Eastern time. The number for the conference call is 210-835-2510, and the password is “Avanex.” A live webcast of the conference call will be available in the Investors section on the company’s website at www.avanex.com. An audio replay of the conference call will be available until Sept. 12, 2006 at 11:59 p.m. Pacific time. To access the audio replay, please dial 203-369-3218.

About Avanex

Avanex Corporation is a leading global provider of Intelligent Photonic Solutions(TM) to meet the needs of fiber optic communications networks for greater capacity, longer distance transmissions, improved connectivity, higher speeds and lower costs. These solutions enable or enhance optical wavelength multiplexing, dispersion compensation, switching and routing,

transmission, amplification, and include network-managed subsystems. Avanex was incorporated in 1997 and is headquartered in Fremont, Calif. Avanex also maintains facilities in Horseheads, N.Y.; Shanghai; Nozay, France; San Donato, Italy; and Bangkok. To learn more about Avanex, visit our Web site at: www.avanex.com.

Forward-looking Statements

This press release contains forward-looking statements including forward-looking statements regarding expected first fiscal quarter 2007 operating results and market reception for new products. Actual results could differ materially from those projected in or contemplated by the forward-looking statements. Factors that could cause actual results to differ include general economic conditions, the pace of spending and timing of economic recovery in the telecommunications industry and in particular the optical networks industry, the company’s inability to sufficiently anticipate market needs and develop products and product enhancements that achieve market acceptance, problems or delays in integrating the businesses acquired from Alcatel, Corning and Vitesse Semiconductor, or in reducing the cost structure of the combined company, the company’s inability to achieve the anticipated benefits of the acquired businesses, to effect its restructuring goals or to successfully transfer manufacturing operations to lower cost regions, any slowdown or deferral of new orders for products, higher than anticipated expenses the company may incur in future quarters or the inability to identify expenses which can be eliminated.

Finally, please refer to the risk factors contained in the company’s SEC filings including the company’s Annual Report on Form 10-K filed with the SEC on Sept. 28, 2005 and Quarterly Report on Form 10-Q filed with the SEC on May 10, 2006.

Avanex assumes no obligation and does not intend to update any forward-looking statements, whether as a result of new information, future events or otherwise.

* Details on the items excluded from non-GAAP net loss and non-GAAP net loss per share are available in the table entitled, “Reconciliation of GAAP Net Loss to Non-GAAP Net Loss,” following the accompanying financial statements.

Contact Information

Investor Relations:

Maria Riley

650-470-0200

maria@stapleton.com

Avanex Corporation

Consolidated Balance Sheets

In thousands

(Unaudited)

	As of June 30, 2006			As of March 31, 2006			As of June 30, 2005
ASSETS
Current assets:
Cash, restricted cash and short-term investments	$	74,335		$	82,064		$	73,905
Accounts receivable, net		26,768			22,979			22,788
Inventories, net		18,251			30,059			36,014
Due from related party		10,404			10,285			15,357
Other current assets		15,862			15,100			20,645
Total current assets		145,620			160,487			168,709
Property and equipment, net		5,668			6,143			8,612
Intangibles, net		3,246			4,147			8,686
Goodwill		9,408			9,408			9,408
Other assets		1,839			1,826			4,241
Total assets	$	165,781		$	182,011		$	199,656
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	38,276		$	34,944		$	28,251
Accrued compensation		6,872			7,557			10,741
Accrued warranty		2,248			4,413			5,268
Due to related party		4,475			4,589			1,549
Other accrued expenses and deferred revenue		4,168			8,311			12,230
Current portion of long-term obligations		823			1,074			2,910
Current portion of accrued restructuring		6,321			11,335			32,040
Total current liabilities		63,183			72,223			92,989
Accrued restructuring, less current portion		13,252			12,549			14,137
Long term convertible notes		4,569			6,124			29,408
Other long-term obligations, less current portion		10,470			11,610			9,374
Total liabilities		91,474			102,506			145,908
Stockholders’ equity:
Common stock		204			201			145
Additional paid-in capital		742,951			738,584			667,923
Deferred compensation		—			—			(353	)
Accumulated other comprehensive income		4,602			5,798			5,478
Accumulated deficit		(673,450	)		(665,078	)		(619,445	)
Total stockholders’ equity		74,307			79,505			53,748
Total liabilities and stockholders’ equity	$	165,781		$	182,011		$	199,656
Shares of common stock issued and outstanding		204,362			201,044			144,940

Avanex Corporation

Consolidated Statements of Operations

In thousands (except per share data)

(Unaudited)

	Three Months Ended June 30, 2006			Three Months Ended March 31, 2006			Three Months Ended June 30, 2005			Fiscal Year Ended June 30, 2006			Fiscal Year Ended June 30, 2005
	GAAP			GAAP			GAAP			GAAP			GAAP
Revenue	$	45,458		$	40,128		$	42,712		$	162,944		$	160,695
Cost of revenue		43,471			38,485			42,826			154,270			165,258
Gross profit		1,987			1,643			(114	)		8,674			(4,563	)
Gross margin		4.4	%		4.1	%		(0.3	)%		5.3	%		(2.8	)%
Operating expenses:
Research and development		5,411			5,189			8,179			23,179			33,124
Sales and marketing		3,688			2,988			3,747			13,247			16,803
General and administrative		3,154			4,191			4,327			16,460			17,458
Amortization of intangibles		912			1,386			2,000			5,448			5,723
Restructuring		(1,225	)		155			21,229			1,912			29,272
(Gain) loss on disposal of property and equipment		(1,810	)		(2,486	)		36			(5,064	)		(1,850	)
Merger costs		—			—			—			—			300
Total operating expenses		10,130			11,423			39,518			55,182			100,830
Loss from operations		(8,143	)		(9,780	)		(39,632	)		(46,508	)		(105,393	)
Interest and other income		644			1,213			1,938			2,787			3,607
Interest and other expense		(873	)		(1,600	)		(5,118	)		(10,284	)		(6,585	)
Net loss	$	(8,372	)	$	(10,167	)	$	(42,812	)	$	(54,005	)	$	(108,371	)
Net loss per share - basic and diluted	$	(0.04	)	$	(0.06	)	$	(0.30	)	$	(0.33	)	$	(0.75	)
Weighted average common shares outstanding - basic and diluted		204,040			158,246			144,822			163,242			144,253

Avanex Corporation

Reconciliation of GAAP Net Loss to Non-GAAP Net Loss

In thousands

(Unaudited)

	Three Months Ended June 30, 2006			Three Months Ended March 31, 2006			Three Months Ended June 30, 2005			Fiscal Year Ended June 30, 2006			Fiscal Year Ended June 30, 2005
Net loss, GAAP	$	(8,372	)	$	(10,167	)	$	(42,812	)	$	(54,005	)	$	(108,371	)
Items reconciling GAAP net loss to non-GAAP net loss:
Related to cost of revenue:
Share-based payments		283			110			—			422			—
Obsolete inventory provision related to RoHS product compliance		—			951			—			951			—
Total related to cost of sales		283			1,061			—			1,373			—
Related to operating expenses:
Research and development - share-based payments		612			416			36			1,321			193
Sales and marketing - share-based payments		232			130			15			451			61
General and administrative - share-based payments		996			571			22			2,189			112
Amortization of intangibles		912			1,386			2,000			5,448			5,723
Restructuring:
Share-based payments		27			15			—			69			—
All other		(1,252	)		140			21,229			1,843			29,272
(Gain) loss on disposal of property and equipment		(1,810	)		(2,486	)		36			(5,064	)		(1,850	)
Total related to operating expenses		(283	)		172			23,338			6,257			33,511
Total related to loss from operations		—			1,233			23,338			7,630			33,511
Related to interest and other expense:
Write-off of long-term investment		—			—			4,400			—			4,400
Loss on debt refinancing		—			—			—			4,525			—
Total related to interest and other expense		—			—			4,400			4,525			4,400
Total related to net loss		—			1,233			27,738			12,155			37,911
Non-GAAP net loss	$	(8,372	)	$	(8,934	)	$	(15,074	)	$	(41,850	)	$	(70,460	)
Non-GAAP net loss per share - basic and diluted	$	(0.04	)	$	(0.06	)	$	(0.10	)	$	(0.26	)	$	(0.49	)
Weighted average common shares outstanding - basic and diluted		204,040			158,246			144,822			163,242			144,253