Alcatel-Lucent Reports Fourth Quarter and Full Year 2006 Results

Alcatel-Lucent Reports Fourth Quarter and Full Year 2006 Results

- For the fourth quarter 2006, posts adjusted pro-forma revenues of Euro 4,421 million and operating profit(2) of Euro 21 million

- For the full year 2006, reports adjusted pro-forma revenues of Euro 18,254 million and operating profit of Euro 1,025 million

- As of December 31, 2006, our total cash and marketable securities was Euro 6.7 billion leaving a net cash position of Euro 508 million

- Proposal for a dividend payment of Euro 0.16 at next Shareholders’ Meeting on June 1, 2007

Alcatel-Lucent’s Board of Directors (Euronext Paris and NYSE: ALU) reviewed and approved reported results for the fourth quarter and full year 2006.

Executive Commentary

“This is the first quarter that Alcatel-Lucent is reporting results as a combined company,” stated Patricia Russo, Chief Executive Officer of Alcatel-Lucent. “While the results for the fourth quarter are clearly disappointing, the positive long-term benefits of the merger and the growth potential of Alcatel-Lucent remain as envisioned. Since we began operating as a combined company on December 1, 2006, we have made progress against our integration plans, and we expect to increasingly recognize the benefits of our integration over the course of the year.

“Our newly combined company is focused on supporting the overall transformation occurring in our industry. This includes the transformation of networks to all-IP, video and multimedia content to enhance communication services, broadband mobility as well as high value services,” continued Patricia Russo.

“We have now finalized Alcatel-Lucent’s product portfolio and aligned it with these key areas as evidenced by our investments in IMS, 3G mobile networks, services, next-generation optical, as well as wireless and wireline broadband access,” added Patricia Russo. “This is a strong portfolio that we intend to leverage across fixed, mobile, converged and enterprise opportunities to grow our business and gain market share over time. In fact, we’ve recently announced contracts with Softbank Mobile in Japan to deploy a 3G UMTS/HSDPA solution and with Globacom in Nigeria to provide fixed and mobile networks as well as next generation, IP/MPLS and optical network solution.”

“Our integration plans are proceeding. We are leveraging the integration of our two companies to create a more competitive enterprise over the long term, and enhance our operating model to enable greater efficiencies in our operations,” said Patricia Russo. “We now believe the combination of our original synergy plan (Euro 1.4 billion) and additional cost reductions will enable us to realize a total of Euro 1.7 billion pre-tax cost savings within three years, with at least Euro 600 million for 2007. These savings will include among other things, the optimization of our supply chain and services, the elimination of duplicate resources and product rationalization. We believe these actions will enhance our competitiveness in this dynamic industry. As a result, we expect the impact on our global workforce will be about 12,500 positions over three years. These are difficult but necessary decisions, and we will manage these reductions with care. We are committed to serving our customers’ needs, with a competitive cost structure and effective operating model. We will maintain the appropriate workforce level to do that.”

“As we previously stated, the results for the fourth quarter were impacted by a combination of short-term uncertainty for both our customers and our people, as well as challenging market conditions, particularly in North America. While we believe these factors will be mitigated, we expect they will continue to have a more limited effect on our business in the early months of the year, leading to some revenue decline in the first quarter 2007.” stated Patricia Russo. “We are confident that we can resume revenue growth as the year progresses. Looking forward to the full year 2007, we expect revenues to increase on a percentage basis at least at the carrier market growth rate of mid single digits.”

Reported Results

In accordance with regulatory reporting requirements, the fourth quarter 2006 reported results include Alcatel stand-alone operations for October and November 2006, and the combined operations of Alcatel-Lucent for December 2006. Businesses to be contributed to Thales are presented as discontinued activities. There were neither capital gains nor cash proceeds from the Thales transaction recognized during the quarter. Results from Nortel’s UMTS radio access business are not included as the transaction was completed on December 31, 2006. For the fourth quarter, Alcatel-Lucent’s reported revenues amounted to Euro 3,871 million and reported operating income(1) was Euro 102 million, including the impact from purchase price allocation entries of Euro (226) million. For the quarter, net income (group share) was Euro (615) million or Euro (0.37) per diluted share (USD (0.48) per ADS), which included the negative pre-tax impact of Euro (0.48) per diluted share (Euro 802 million) for restructuring charges and impairment of intangible assets.

In accordance with regulatory reporting requirements, full year 2006 reported results include Alcatel stand-alone operations from January to November 2006, and combined operations of Alcatel-Lucent for December 2006. Businesses to be contributed to Thales are presented as discontinued activities. For the full year 2006, Alcatel-Lucent’s reported revenues amounted to Euro 12,282 million and reported operating income(1) was Euro 694 million, including the impact from purchase price allocation entries of Euro (226) million. For the full year 2006, net income (group share) was Euro (176) million, or Euro (0.12) per diluted share (USD (0.16) per ADS), which included the negative pre-tax impact of Euro (0.59) per diluted share (Euro 848 million) for restructuring charges and impairment of intangible assets. As of December 31, 2006, Alcatel-Lucent’s net (debt)/cash was Euro 508 million