Alcatel-Lucent Reports First Quarter 2008 Results

PARIS, April 30 /PRNewswire/ --

- Note: 1st Quarter 2008 Reported and Adjusted Profit and Loss Statement 
is Enclosed in Annex (lien vers
http://www1.alcatel-lucent.com/1q2008/pdf/annex_E.pdf)

Key Highlights for the Quarter

- Revenues of Euro 3.864 billion, up 6.3% year-over-year at Euro/USD
      constant currency

    - Adjusted(ii) gross profit of Euro 1.399 billion or 36.2% of revenues

    - Adjusted(ii) operating income(i) of Euro 36 million or 0.9% of revenues

    - Adjusted(ii) net loss (group share) of Euro (95) million or Euro (0.04)
      per diluted share

    - Reported net loss (group share) of Euro (181) million or Euro (0.08)
      per diluted share

    - Net debt of Euro (30) million versus a net cash position of Euro 271
      million at end 2007



Alcatel-Lucent's Board of Directors (Euronext Paris and NYSE:
ALU) reviewed and approved reported results for the first quarter 2008.

During the quarter, revenues declined 0.5% year-over-year and 26.2%
sequentially to Euro 3.864 billion. At constant Euro/USD exchange rate,
revenues grew 6.3% year-over-year and declined 23.2% sequentially. At
constant exchange rate and on a year-over-year basis, Carrier revenues grew
1.7%, Enterprise revenues grew 8.4% and Services revenues grew 14.6%. The
adjusted(ii) gross margin was 36.2% of revenues, of which approximately
0.9-percentage point is due to gains on currency hedging. Adjusted(ii) 
operating income(i) was Euro 36 million or 0.9% of sales, including a Euro 31 
million capital gain from the receipt of proceeds due to a sale of 
intellectual property rights.

Executive commentary

Patricia Russo, CEO commented:

"Considering the impact of the Euro/USD adverse shift, our
revenue performance was in line with our expectations, with a year-over-year
growth of 6.3% and a sequential decline in the mid point of our typical
seasonal pattern of -20% to -25%. Our carrier business grew year-over-year at
constant exchange rate, reflecting the solid performance of our wireline
business, essentially driven by optics. Our wireless access business showed
good resilience, as the expected decline in CDMA was more than offset by the
strong year-over-year double-digit growth of our revenue in GSM, W-CDMA and
RFS. Our strategic initiatives to enhance growth in the Enterprise and
Services businesses are paying off as we report a strong year-over-year
growth in each of these segments at constant exchange rate. And our business
in North America showed good year-over-year growth in US dollar terms."

"We achieved significant progress in our adjusted gross
margin, up 3.8 points quarter-over-quarter to 36.2%, in spite of
significantly lower volumes. This is attributable in part to one-time gains
and a favourable mix, but also reflects an improved ability to retain the
benefits of our product costs reduction programs. Additionally, we reduced
our operating expenses by 12% year-over-year, excluding the one time capital
gain."

"This quarter we made progress in a number of areas and
believe we are taking the right actions to position the company to take
advantage of the long-term growth potential we see in the industry driven by
new subscribers, more broadband deployments and video and data traffic
growth."

Market and outlook

While the long-term prospects for the industry are positive,
the current macroeconomic environment remains uncertain, leading the company
to continue to be prudent in its market assumptions. The company's updated
projections for 2008 now indicate that the global telecommunications
equipment and related services market should be flat versus the company's
previous forecast of flat to slightly up.

With approximately half of its revenue in US dollar or
dollar-linked currencies, Alcatel-Lucent expects its full year 2008 revenue,
expressed in current rate, to be down in the low to mid-single digit range.
This is due primarily to the significant deterioration in the Euro/USD
exchange rate and, to a much lesser extent, the potential for lower capital
spending by a few customers. Against this backdrop, Alcatel-Lucent will
continue to execute against its three-year plan, with an aim to improve gross
margin, reduce operating expenses and turn around underperforming businesses.

- For full year 2008, the company believes it can achieve an
adjusted gross margin in the mid thirties and confirms its target to achieve
a low to mid single-digit adjusted operating margin in percentage of
revenues.

- For the second quarter 2008, Alcatel-Lucent expects revenues
to increase in the mid single-digit range sequentially.

Reported results

For the first quarter 2008, Alcatel-Lucent's reported revenues
amounted to Euro 3,864 million. The reported gross profit was Euro 1,397
million, including the impact from purchase price allocation (PPA) entries of
Euro (2) million. Reported operating loss(i) was Euro (106) million, 
including the negative impact from PPA entries of EUR (142) million. For the 
quarter, reported net loss (group share) was Euro (181) million or Euro 
(0.08) per diluted share (USD (0.13) per ADS), including the negative after 
tax impact from PPA entries of Euro (86) million.

Adjusted results

In addition to the reported results, Alcatel-Lucent is
providing adjusted financial results in order to provide meaningful
comparable information, which exclude the main non-cash impacts from PPA
entries in relation to the Lucent business combination. These non-cash
impacts are very material and non-recurring due to the different amortization
periods depending on the nature of the adjustments, as detailed in the annex.
Reported figures are not comparable with our main competitors and many
business players who have not undergone any similar business combinations as
the Alcatel and Lucent one.

For the first quarter 2008, Alcatel-Lucent generated revenues
of Euro 3,864 million, compared to Euro 3,882 million in the year-ago
quarter, a decrease of 0.5%. The adjusted(ii) gross profit was Euro 1,399
million or 36.2% of revenues, compared to an adjusted(ii) gross profit of EUR
1,335 million or 34.4% of revenues in the year-ago quarter. Adjusted(ii)
operating income(i) was Euro 36 million, 0.9% of revenues, compared with an
adjusted(ii) operating loss of Euro (244) million or (6.3%) of revenues in 
the year-ago quarter. For the quarter, adjusted(ii) net loss (group share) 
was  Euro (95) million or Euro (0.04) per diluted share (USD (0.07) per ADS), 
compared to an adjusted(ii) net income of EUR 199 million or Euro 0.09 per 
share (USD 0.12 per ADS) in the year ago quarter which included a one-time 
net gain of Euro 674 million or Euro 0.30 per diluted share related to the 
sale of assets to Thales.

Balance sheet and pension status

The net (debt)/cash position was Euro (30) million as of March 31, 2008,
compared with Euro 271 million as of December 31, 2007. It should be noted
that the amount of accounts receivable sold during the quarter was reduced by
Euro 217 million sequentially. The funded status of pensions and other post
retirement benefits (OPEB) amounted to Euro 2.609 billion as of March 31,
2008, down from Euro 2.806 billion as of December 31, 2007. As of March 31,
2008, the global asset allocation of the group's funds was 20% in equity
securities, 60% in bonds and 20% in alternatives (i.e., real estate, private
equity and hedge funds), unchanged from year-end 2007.

Key figures

Adjusted Profit & Loss     First      First    Change,   Fourth   Change,
    Statement                 quarter    quarter    y-o-y    quarter  q-o-q
                               2008       2007                2007
    In Euro million except                        (% or pt)         (% or pt)
    for EPS
    Revenues                   3 864      3 882     -0.5%    5 234    -26.2%
    Gross profit               1 399      1 335     +4.8%    1 694    -17.4%
    In % of revenues            36.2%      34.4%    +1.8 pt   32.4%   +3.8 pt
    Operating income(i)           36       -244       Nm       303       Nm
    In % of revenues             0.9%      -6.3%    +7.2 pt    5.8%   -4.9 pt
    Net income (loss),           -95        199       Nm       -48       Nm
    group share
    EPS diluted (in Euro)      -0.04       0.09       Nm     -0.02       Nm
    E/ADS* diluted (in USD)    -0.07       0.12       Nm     -0.03       Nm
    Diluted number of         2259.1     2252.0     +0.3%   2258.7     +0.0%
    shares

*E/ADS calculated using the US Federal Reserve Bank of New York noon
Euro/dollar buying rate of USD 1.5805 as of March 31, 2008, of USD 1.3374 as
of March 31, 2007 and of USD 1.4603 as of Dec. 31,2007.

Breakdown of           First        First    % change,  Fourth  % Change,
    segment revenues      quarter      quarter              quarter    q-o-q
    (In Euro million)      2008        2007       y-o-y     2007
     
                                                                  
    Carriers                2 700        2 839      -4.9%    3 734    -27.7%
    Enterprise                382          371      +3.0%      435    -12.2%
    Services                  679          627      +8.3%    1 020    -33.4%
    Other & eliminations      103           45        Nm        45       Nm
    Total group revenues    3 864        3 882      -0.5%    5 234    -26.2%



Breakdown of segment       First     First    Change,   Fourth  % Change,
    operating income(i)       quarter   quarter             quarter   q-o-q
    (loss)                      2008     2007     y-o-y      2007
                                                (% or pt)          
    (In Euro million)                             
    Carriers                    -34      - 194        Nm       94       Nm
    In % of revenues           -1.2%      -6.8%     +5.6 pt   2.5%    -3.7 pt
    Enterprise                   16         19     -15.8%      56    -71.4%
    In % of revenues            4.2%       5.1%     -0.9 pt  12.9%    -7.8 pt
    Services                     19        -29        Nm      107       Nm
    In % of revenues            2.8%      -4.6%     +7.4 pt  10.5%    -7.7 pt
    Other & eliminations         35        -40        Nm       47       Nm
    Segment op. income           36       -244        Nm      303    -88.1%
    (loss)

Business Commentary

Carrier Operating Segment

Revenues for the Carrier operating segment were Euro 2,700 million in the
first quarter 2008, compared to Euro 2,839 million in the year-ago quarter, a
4.9% decrease at current exchange rate and growth of 1.7% at constant rate.
Adjusted(ii) operating(i) loss was Euro (34) million, a negative operating 
margin of (1.2%) compared to a loss of Euro (194) million or a negative 
operating margin of (6.8%) in the year ago period.

Key highlights:

- Optical networking enjoyed a sustained momentum this quarter
and a strong year-over-year growth, especially in submarine activities where
both revenues and orders doubled in the first quarter 2008. The company
announced major customer wins in the quarter in both the terrestrial and
submarine business.

- Our Fixed access activities were impacted by the ongoing
decline in new subscribers to copper-based broadband access, with shipments
of ADSL ports down 8% year-over-year to 6.6 million. We continued to enjoy
very strong growth in the FTTx market, with an increase in shipments of our
GPON solutions to a number of European, Korean and U.S. large customers such
as AT&T, Verizon and France Telecom/Orange.

- In data networking, our IP routing activity continued to
enjoy strong growth partly offset by a decline in legacy ATM revenues.
Alcatel-Lucent added ten new customers in IP routing and reasserted its
technology leadership with the introduction of the next generation 7750 SR
and 7450 ESS, the industry's first Terabit service edge routers.

- In mobile networks, our GSM business grew year-over-year in
a declining market, driven by network expansions in China, India, the Middle
East and Africa. W-CDMA revenues more than doubled year-over-year, albeit
from a low base, benefiting from the ramp-up in revenues at several key
clients. Our CDMA revenues declined materially year-over-year, from an
especially strong first quarter 2007. Radio Frequency Systems enjoyed very
strong year-over-year growth, benefiting from surging demand in North America
and China.

- Our core switching business declined strongly
year-over-year, as the rapid drop in legacy TDM voice was only partly offset
by growth in mobile and fixed NGN.

- Our applications activities grew moderately at constant
exchange rate, due to the softness in revenues from Payment & IP
communications applications in emerging markets. The rationalisation of the
product portfolio is underway, with a focus on IP communications, Subscriber
data management, Messaging and Payment.

Enterprise Operating Segment

For the first quarter 2008, revenues for the Enterprise
operating segment were Euro 382 million compared to Euro 371 million in the
year-ago quarter, an increase of 3.0% at current exchange rate and of 8.4% at
constant rate. Adjusted(ii) operating income(i) was Euro 16 million, or 4.2% 
of revenues compared to Euro 19 million or 5.1% in the year ago quarter.

Key Highlights:

- Enterprise solutions grew in the mid single-digit range at
constant currency, with a particularly strong performance in data networking,
in North America - driven by good progress on the delivery of our large
end-to-end contract with UPMC - and in the service provider channel.

- Genesys, the contact centre software activity, enjoyed
another strong quarter, with revenue growth in the mid teens at constant
Euro/USD exchange rate driven by a strong performance in Europe.

- Alcatel-Lucent continued to build its sales force and grow
its revenues in targeted growth markets, including Security, Services,
Verticals and Emerging countries. The associated investments, mainly in human
resources are temporarily weighing on the segment's adjusted(ii) operating
income(i).

Services Operating Segment

For the first quarter 2008, revenue for the Services operating
segment were Euro 679 million compared to Euro 627 million in the year-ago
quarter, an increase of 8.3% at current exchange rate and of 14.6% at
constant rate. Adjusted(ii) operating income(i) was Euro 19 million or 2.8% 
of revenues compared to an operating loss of Euro (29) million or (4.6)% of
revenues in the year ago quarter.

Key Highlights:

- Network operations grew in the high teens, as a result of
some of the very large contracts won in 2007. In February, Alcatel-Lucent was
awarded a major contract from Brasil Telecom to support and maintain its
Fixed and Wireless networks.

- Revenues from Network integration and Professional services
both grew very strongly, driven by IPTV, IP transformation and Applications
integration projects.

- Maintenance grew at constant Euro/USD exchange rate, as the
decline in legacy maintenance is now more than offset by growth in
multi-vendor maintenance.

- The segment enjoyed a material improvement in profitability
year-over-year, mainly due to an improved absorption of fixed costs.

Alcatel-Lucent will host an audio webcast at 1:00 p.m. CET,
which can be accessed at http://www.alcatel-lucent.com/1q2008

Notes

All adjusted figures are unaudited.

(i)- Operating income (loss) is the Income (loss) from operating
activities before restructuring costs, impairment of assets, gain (loss) on
disposals of consolidated entities and post-retirement benefit plan
amendment.

(ii)- "Adjusted" refers to the fact that it excludes the main
impacts from Lucent's purchase price allocation (See annex for detailed
information).

2008 Upcoming Events/ Announcements

May 30 Annual shareholders' Meeting in Paris

July 29 Second quarter 2008 results

About Alcatel-Lucent

Alcatel-Lucent (Euronext Paris and NYSE: ALU) provides
solutions that enable service providers, enterprises and governments
worldwide, to deliver voice, data and video communication services to
end-users. As a leader in fixed, mobile and converged broadband networking,
IP technologies, applications and services, Alcatel-Lucent offers the
end-to-end solutions that enable compelling communications services for
people at home, at work and on the move. With operations in more than 130
countries, Alcatel-Lucent is a local partner with global reach. The company
has the most experienced global services team in the industry, and one of the
largest research, technology and innovation organizations in the
telecommunications industry. Alcatel-Lucent achieved revenues of Euro 17.8
billion in 2007 and is incorporated in France, with executive offices located
in Paris. For more information, visit Alcatel-Lucent on the Internet:
http://www.alcatel-lucent.com



SAFE HARBOR FOR FORWARD LOOKING STATEMENTS

Except for historical information, all other information in
this press release consists of forward-looking statements within the meaning
of the US Private Securities Litigation Reform Act of 1995, as amended. These
forward looking statements include statements regarding the future financial
and operating results of Alcatel-Lucent such as (i) expected revenues for the
second quarter 2008, (ii) expected revenues, gross margin and operating
margin for full year 2008. Words such as "expects," "anticipates," "targets,"
"projects," "intends," "plans," "believes," "estimates," variations of such
words and similar expressions are intended to identify such forward-looking
statements which are not statements of historical facts. These
forward-looking statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
assess. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements. These
risks and uncertainties are based upon a number of important factors
including, among others: 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; difficulties and delays in achieving
synergies and cost savings; fluctuations in the telecommunications market;
exposure to the pricing pressures in the regions in which we sell; the
pricing, cost and other risks inherent in long-term sales agreements;
exposure to the credit risk of customers; reliance on a limited number of
contract manufacturers to supply products we sell; the social, political and
economic risks of our global operations; the costs and risks associated with
pension and postretirement benefit obligations; the complexity of products
sold; changes to existing regulations or technical standards; existing and
future litigation; difficulties and costs in protecting intellectual property
rights and exposure to infringement claims by others; compliance with
environmental, health and safety laws; whether Alcatel-Lucent can execute
against and obtain benefits from its three-year plan to improve gross margin,
cut operating expenses, and turn around underperforming businesses in order
to achieve an improved operating margin, and whether these efforts will
achieve their expected benefits; the economic situation in general (including
exchange rate fluctuations) and uncertainties in Alcatel-Lucent's customers'
businesses in particular; customer demand for Alcatel-Lucent's products and
services; control of costs and expenses; international growth; conditions and
growth rates in the telecommunications industry; and the impact of each of
these factors on sales and income. For a more complete list and description
of such risks and uncertainties, refer to Alcatel-Lucent's Form 20-F for the
year ended December 31, 2007, as well as other filings by Alcatel-Lucent with
the US Securities and Exchange Commission. Except as required under the US
federal securities laws and the rules and regulations of the US Securities
and Exchange Commission, Alcatel-Lucent disclaims any intention or obligation
to update any forward-looking statements after the distribution of this news
release, whether as a result of new information, future events, developments,
changes in assumptions or otherwise.