Lucent Technologies Reports Results for the First Quarter of Fiscal 2006

» Records net loss of $104 million, or 2 cents per share, for the quarter
» Net loss includes a charge of $278 million, or about 6 cents per share, related to previously disclosed Winstar judgment
» Posts revenues of $2.05 billion for the quarter

Tuesday January 24, 2006, MURRAY HILL, N.J. — Lucent Technologies (NYSE: LU) today reported results for the first quarter of fiscal 2006, which ended Dec. 31, 2005, in accordance with U.S. generally accepted accounting principles (GAAP). For the quarter, Lucent reported a net loss of $104 million, or 2 cents per share. These results compare with net income of $372 million, or 7 cents per diluted share, in the fourth quarter of fiscal 2005, and net income of $174 million, or 4 cents per diluted share, in the year-ago quarter.

The first quarter’s loss included a charge of $278 million, or about 6 cents per share, for a bankruptcy court judgment related to litigation between Lucent and the trustee for Winstar Communications. This judgment is being appealed to the U.S. District Court in Delaware. In the fourth quarter of fiscal 2005, tax items and certain other significant items had a positive impact of $128 million, or about 2 cents per diluted share. Significant items had a negative impact of $22 million, or less than 1 cent per diluted share, in the year-ago quarter.1

The company reported revenues of $2.05 billion in the quarter, a decrease of 16 percent sequentially and a decrease of 12 percent from the year-ago quarter. The company’s revenues were $2.43 billion in the fourth quarter of fiscal 2005 and $2.34 billion in the year-ago quarter.

EXECUTIVE COMMENTARY
“This quarter, despite the decline in revenue, we maintained a solid gross margin performance due to our continued focus on simplifying our operations and diligently managing our cost structure,” said Lucent Technologies Chairman and CEO Patricia Russo. “Based on the review of our expectations for fiscal 2006 and ongoing interactions with our customers, we are confident that our revenue performance will be much stronger for the remainder of the year.

“We have continued to strengthen our position in next-generation networks this quarter by winning three more IMS contracts, and we are conducting an extensive lab trial with Verizon on a wide range of elements from our IMS solution,” said Russo. “We continue to pursue those market opportunities that align with our strengths and investments in IMS, 3G mobile networks, services, next-generation optical and access, and applications.”

“As we previously stated, we now expect Lucent’s annual revenues for fiscal 2006 to be essentially flat or increase on a percentage basis in the low-single digits for the year,” said Lucent Technologies Chief Operating and Financial Officer Frank D’Amelio. “As always, we will continue to look for ways to profitably grow the business and expand our customer base, while improving our productivity.”

GROSS MARGIN AND OPERATING EXPENSES
Gross margin for the first quarter of fiscal 2006 was 42 percent of revenues as compared with 46 percent in the fourth quarter of fiscal 2005 and 42 percent in the year-ago quarter.

Operating expenses for the first quarter of fiscal 2006 were $940 million as compared with $810 million for the fourth quarter of fiscal 2005 and $665 million in the year-ago quarter. Operating expenses in the first quarter of fiscal 2006 included a $278 million charge related to the judgment in the Winstar litigation.

The net pension and postretirement benefit credit for the first quarter was $104 million, compared with $185 million in the fourth quarter of fiscal 2005 and $175 million in the year-ago quarter.

BALANCE SHEET UPDATE
As of Dec. 31, 2005, Lucent had $4.38 billion in cash and marketable securities, a decrease of $550 million from the quarter ended Sept. 30, 2005. The decrease was primarily driven by the payment of the company’s fiscal 2005 employee incentive awards and, to a lesser extent, an increased use of working capital.2

REVIEW OF OPERATIONS – THREE MONTHS ENDED DEC. 31, 2005
On a sequential basis, revenues in the United States decreased 11 percent to $1.3 billion, and revenues outside the United States decreased 23 percent to $704 million. Compared with the year-ago quarter, U.S. revenues decreased by 7 percent and revenues outside the United States decreased by 20 percent.

Beginning this quarter, Lucent is reporting under a new segment structure, which is organized around its respective products and services. The reportable segments are as follows:

Mobility Access and Applications Solutions, which includes CDMA, UMTS, WiMax and applications.
Multimedia Network Solutions, which includes optical, access and data networking.
Converged Core Solutions, which includes both legacy voice and next-generation IMS/VoIP core products.
Services, which includes maintenance, deployment and network transformation services such as professional and managed services, as well as network operations software.
Revenues and operating income for these segments are included in Exhibit D in the accompanying financial reporting package.
FIRST FISCAL QUARTER 2006 HIGHLIGHTS
Lucent made several significant announcements this quarter related to key technologies for next-generation networks, including IMS, 3G mobile networks, services, next-generation access and optical, and applications.

IMS: Lucent made strong progress in the delivery of IP Multimedia Subsystem (IMS)-based next-generation applications and services, and announced the following wins:

Cingular Wireless will use Lucent’s comprehensive IMS solution, enabling the rapid development and launch of new personalized voice, video, data and multimedia services.
Lucent also was chosen by the new AT&T (formerly SBC Communications) to help integrate wireline and wireless services for next-generation Internet protocol (IP)-based services.
BellSouth also selected elements from Lucent’s IMS-based solution, including network integration and technical support, to be the platform for BellSouth’s voice over IP (VoIP) service for residential customers in its nine-state territory.
3G Mobile Networks: Lucent continued to build on its leadership position in the delivery of third-generation (3G) mobile networking solutions, announcing new CDMA2000® 1xEV-DO networks with:
Movistar, a leading mobile network operator in Venezuela.
Telus Mobility, a Canadian wireless carrier.
Bahamas Telecommunications Company Limited (BTC), the islands’ leading wireless telecommunications operator.
Services: Lucent services solutions were components of 13 contracts announced around the world during the first quarter, including:
A new contract with Fastfiber, a fiber bandwidth provider, to supply Lucent’s managed services solution, including design, installation, integration and network maintenance to support Fastfiber’s “fiber-to-the-business” network in the Netherlands.
Verizon was the first customer to announce it was using Lucent’s new Hosted Secure E-mail, a fully hosted and managed service based on Lucent’s alliance with Sun Microsystems and Echoworx, which provides a new e-mail security service.
VoIP and Core Networks: Lucent continued to deliver network solutions that lay the foundation for offering advanced multimedia communication services for consumer and enterprise customers.
After having been selected as a preferred bidder, Lucent signed a contract to supply the core elements of BT’s 21st Century IP Global Network, as well as deployment and maintenance support, which will enable BT to offer customers a diverse set of feature-rich services, including voice, broadband, Ethernet, virtual private networking (VPN) services and IP VPN.
Lucent VoIP solutions were chosen by KT, South Korea’s largest communications provider, to deliver the Lucent Feature Server – a platform delivering applications such as Hosted PBX, IP Centrex and Voice VPN.
Next-generation Access: Lucent announced the Multimedia Access Platform, an IP-based solution that enables service providers to profitably deliver high bandwidth video/IPTV, VoIP and multimedia services on a mass-market scale. The new platform, developed by Bell Labs, is one of the industry’s first products to support digital subscriber line (DSL) services, fiber to the home or premise (FTTx) and WiMAX wireless broadband in a single frame.
Applications: Lucent continued to demonstrate its expertise in next-generation applications for delivery of the communications services that end users demand. During the quarter, Lucent announced that Verizon Wireless joined a list of customers worldwide that are using Lucent’s MiRingBack application across its network nationwide to support the company’s popular Ringback Tone service, which enables subscribers to select from a wide variety of chart topping music or other audio content to play to incoming callers while they are waiting on the line for their call to be answered.

The quarterly earnings conference call will take place today at 8:30 a.m. EST and be broadcast live over the Internet at http://www.lucent.com/investor. It will be maintained on the site for replay through Tuesday, Jan. 31, 2006.

Lucent Technologies designs and delivers the systems, services and software that drive next-generation communications networks. Backed by Bell Labs research and development, Lucent uses its strengths in mobility, optical, software, data and voice networking technologies, as well as services, to create new revenue-generating opportunities for its customers, while enabling them to quickly deploy and better manage their networks. Lucent’s customer base includes communications service providers, governments and enterprises worldwide. For more information on Lucent Technologies, which has headquarters in Murray Hill, N.J., USA, visit www.lucent.com.

This press release contains statements about future performance, events or developments, which are also known as “forward-looking statements.” Forward-looking statements are based on current expectations, estimates, forecasts and projections about us, our future performance and the industries in which we operate as well as on our management’s assumptions and beliefs. Statements that contain words like “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or variations of such words and similar expressions are forward-looking statements. Since they relate to future developments, results or events, these statements are highly speculative and involve risks, uncertainties and assumptions that are difficult to assess. You should not construe any of these statements as a definitive or invariable expression of what will actually occur or result. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the risks and uncertainties include: our ability to operate effectively in a highly competitive industry with many participants; our ability to keep pace with technological advances and correctly identify and invest in the technologies that become commercially accepted; our reliance on a small number of key customers; fluctuations in the telecommunications market; the pricing, cost and other risks inherent in our long-term sales agreements; exposure to the credit risk of our customers; our reliance on two contract manufacturers to supply most of the products we sell; the social, political and economic risks of our foreign operations; the costs and risks associated with our pension and postretirement benefit obligations; the complexity of our products; changes to existing regulations or technical standards; existing and future litigation; our ability to protect our intellectual property rights and exposure to infringement claims by others; and compliance with environmental, health and safety laws. For a description of these and some other risks and uncertainties, you should read the reports we have filed with the Securities and Exchange Commission, including periodic reports on Forms 10-K, 10-Q and 8-K. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements we make, even if new information, future events, changes in assumptions or any other reason would alter those statements.

1 Details on the significant items impacting results are available in Exhibit E in the accompanying financial reporting package.

2 Changes in working capital requirements include the impact of changes in receivables, inventories and contracts in process, accounts payable and deferred revenue.

Contact Information

Bill Price

Media Inquiries

Lucent Technologies

Contact via E-mail