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LUCENT TECHNOLOGIES INC.
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On July 26, 2006, Lucent Technologies Inc. sent the following senior
leadership update to certain of its employees:
LUCENT TECHNOLOGIES
SENIOR LEADERSHIP UPDATE
July 26, 2006
IN THIS ISSUE: Lucent Reports Results for Third Quarter of Fiscal 2006
Lucent and Alcatel Name Additional Members of Combined Company's Leadership
Team
O Analyst Webcast Information
O News Release Links
O Talking Points
This morning we announced our financial results for the third quarter of fiscal
2006.
In a second news release this morning, Alcatel and Lucent named additional
members to the senior leadership team for the combined company. More on that is
included below in the Merger Update section.
3Q06 RESULTS
We recorded revenues of $2.05 billion, a decrease of 4 percent sequentially and
a decrease of 12 percent year over year.
We achieved gross margin of 41 percent, compared with 43 percent in the second
quarter of fiscal 2006 and 45 percent in the year-ago quarter.
We recorded a net income of $79 million or 2 cents per diluted share.
O In 2Q06, we recorded a net income of $181 million, or 4 cents per share.
O In 3Q05, we recorded net income of $372 million, or 7 cents per diluted
share.
We ended the quarter with $3.7 billion in cash and marketable securities, a
decrease of $272 million from the quarter ended March 31, 2006. The decrease was
primarily driven by the Riverstone acquisition.
3Q06 Highlights
While our third quarter results were clearly disappointing, we do not believe
these results are indicative of the longer-term opportunities we see in the
global mobility market. CDMA continues to represent a large, sustainable market,
and we see significant growth in the UMTS market as our customers enable their
networks to deliver the exciting new applications their customers are demanding.
We are encouraged that we achieved a gross margin rate of 41 percent, despite
decreasing revenues and a less favorable product and geographic mix. This is the
result of our continued emphasis on financial discipline across our operations.
Despite the aggregate decline in revenue, we did see pockets of growth this
quarter:
O Our Services segment grew both sequentially and year-over-year, posting
its highest quarterly revenue for this fiscal year.
O Our Multimedia Network Solutions segment also grew both sequentially and
year-over-year, primarily driven by our data and access businesses.
O On a year-to-date basis, our optical product revenues are growing.
O And we grew our revenues outside the United States sequentially this
quarter, particularly in Europe.
Looking Ahead
Clearly, this past quarter's results negatively affected the funding level for
our end-of-year incentive payment. However, there continues to be an opportunity
to earn some level of bonus funding for 2006 provided that we realize broad
top-line improvements in this final quarter and achieve our outlook.
More Information
More details about our third quarter fiscal 2006 results are available in the
news release (linked below), followed by talking points to help you in your
discussions with employees. In addition, Chairman and CEO Pat Russo will send an
e-mail letter to all employees covering today's announcement.
LIVE WEBCAST OF ANALYSTS CALL
Pat Russo and John Kritzmacher will host a call with financial analysts today
beginning at 8:30 a.m. Eastern time. A live webcast of the call can be
accessed at: HTTP://MY.LUCENT.COM/EB/PR/WEBCAST/072606WEBCAST.HTML
HTTP://MY.LUCENT.COM/EB/PR/WEBCAST/072606WEBCAST.HTML
NEWS RELEASE
To read today's third quarter earnings news release, click here
HTTP://WWW.LUCENT.COM/PRESS/0706/060726.COA.HTML.
TALKING POINTS
Key Messages
While our results were clearly disappointing, we do not believe they are
indicative of the longer-term opportunities we see in the global mobility
market.
O We believe the negative speculation about the CDMA market and its impact
on Lucent is unwarranted.
O CDMA continues to represent a large, sustainable market, and we see
significant growth in the UMTS market.
O This quarter's results reflect an impending shift in spending as some of
our North American customers begin to move from current-generation to next-
generation mobile high-speed data solutions.
Assuming that our EV-DO Rev. A and HSDPA rollouts remain on track, we expect
that mobility deployments in North America will enable us to make the fourth
quarter our highest quarterly revenue period for fiscal year 2006 by a
significant margin.
Our charge is to execute our business and remain focused on those things
necessary for a strong finish to our fiscal year and good momentum to start a
new year.
Our pending merger transaction with Alcatel provides us an excellent opportunity
-- and a challenge. To ensure that the merger is seamless and successful, we
must do everything we can to build momentum for the combined company. The best
way is by turning in an outstanding fourth quarter.
We gained a critical advantage with the announcement of our pending merger
transaction. Now we need to capitalize on that advantage by focusing on the job
at hand -- delivering on our fourth quarter commitments to our customers, our
shareholders and ourselves.
CDMA Market Opportunities
When we look at an average of both internal and external estimates, the total
addressable market for CDMA2000 equipment is about $8 billion in 2006 and will
remain steady -- or increase slightly -- through 2010. Within that market, we
see pockets of growth and significant opportunities.
O In developed markets, CDMA networks will continue to play a significant
role in delivering such high-end services as mobile broadband access to
multimedia content and VoIP.
O The majority of Lucent's CDMA customers in the United States, Canada, New
Zealand, Asia and Latin America already have upgraded -- or are about to upgrade
-- their networks to EV-DO, and most of them have confirmed their intentions to
migrate their networks to the next generation of EV-DO (known as Rev. A) to
enable multimedia services and mobile VoIP in 2007 and 2008.
O In emerging markets, we're seeing both upgrades to existing CDMA networks
and greenfield deployments of the technology.
While some carriers in developing markets are adding GSM overlays to expand
their addressable market and capture such new revenue streams as GSM roaming and
low-end voice subscribers, they are still deploying EV-DO to address the demand
for high-end services.
O As such, we do not see these overlays having a significant impact on the
overall CDMA market.
Lastly, it's important to remember that CDMA has a long-term evolution path that
is supported by the industry's standards bodies.
As we approach the close of our pending merger transaction with Alcatel, we will
continue to invest in our 3G portfolio so the combined company can leverage its
strengths in both CDMA and UMTS, as well as Alcatel's installed base of GSM.
Merger Update
This week, the European Commission granted its approval of our proposed merger
transaction with Alcatel. As we have stated previously, we believe we are on
track to complete the pending merger transaction by the end of calendar year
2006.
On July 10, 2006, the two companies announced a number of members of the senior
leadership team for the combined company. In a separate news release today,
Lucent and Alcatel announced additional members of the senior leadership team
for some of the critical corporate functions.
O Olivier Baujard, will serve as chief technology officer (CTO) for the
combined company. He currently serves as CTO for Alcatel.
O Jeong Kim will remain president of Bell Labs.
O Helle Kristoffersen, currently vice president of corporate strategy for
Alcatel, will become the vice president of corporate strategy for the combined
company.
Baujard, Kim and Kristoffersen will report to Mike Quigley, who will serve as
president, Science, Technology and Strategy, in the combined company. Quigley
now is president and chief operating officer (COO) of Alcatel.
O John Giere, currently chief marketing officer for Lucent, will assume that
post for the combined company.
O Lucent Chief Information Officer Elizabeth Hackenson has been named to
lead the combined company's Information Systems/Information Technology
organization.
Giere and Hackenson will report to Frank D'Amelio, who will oversee a number of
key corporate and cross-company functions for the combined company. D'Amelio
currently serves as COO for Lucent.
Lucent Technologies Senior Leadership Update is a proprietary publication of
Lucent Technologies Public Relations. We send the publication to all senior
leaders and directors in the company so that you will have advance information
about major announcements and initiatives, and so that you can pass the
information on to the people with whom you work. Past issues are available at
Infoview HTTP://INFOVIEW.LUCENT.COM/PUBS/SLU/ (only directors and senior
leaders can access the archive). For additional information, please contact Tom
Landers MAILTO:TLANDERS@LUCENT.COM ; telephone: 908 582-5897; facsimile: 908
582-2322; mail: 600 Mountain Ave. Room 3C-433, Murray Hill, NJ 07974.
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SAFE HARBOR FOR FORWARD LOOKING STATEMENTS AND OTHER IMPORTANT INFORMATION
This document contains statements regarding the proposed transaction between
Lucent and Alcatel, the expected timetable for completing the transaction,
future financial and operating results, benefits and synergies of the proposed
transaction and other statements about Lucent and Alcatel's managements' future
expectations, beliefs, goals, plans or prospects that are based on current
expectations, estimates, forecasts and projections about Lucent and Alcatel and
the combined company, as well as Lucent's and Alcatel's and the combined
company's future performance and the industries in which Lucent and Alcatel
operate and the combined company will operate, in addition to managements'
assumptions. Words such as "expects," "anticipates," "targets," "goals,"
"projects," "intends," "plans," "believes," "seeks," "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: the ability to consummate
the proposed transaction; difficulties and delays in obtaining regulatory
approvals for the proposed transaction; difficulties and delays in achieving
synergies and cost savings; potential difficulties in meeting conditions set
forth in the definitive merger agreement entered into by Lucent and Alcatel;
fluctuations in the telecommunications market; 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 respective
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; and compliance with environmental, health and
safety laws. For a more complete list and description of such risks and
uncertainties, refer to Lucent's annual report on Form 10-K for the year ended
September 30, 2005 and quarterly reports on Form 10-Q for the periods ended
December 31, 2005 and March 31, 2006 and Alcatel's annual report on Form 20-F
for the year ended December 31, 2005 as well as other filings by Lucent and
Alcatel with the U.S. Securities and Exchange Commission (the "SEC"). Except as
required under the U.S. federal securities laws and the rules and regulations of
the SEC, Lucent and Alcatel disclaim any intention or obligation to update any
forward-looking statements after the distribution of this document, whether as a
result of new information, future events, developments, changes in assumptions
or otherwise.
IMPORTANT ADDITIONAL INFORMATION FILED WITH THE SEC
In connection with the proposed transaction between Lucent and Alcatel, Alcatel
has filed a registration statement on Form F-4 (File no. 33-133919) (the "Form
F-4") to register the Alcatel ordinary shares underlying the Alcatel American
Depositary Shares ("ADS") to be issued in the proposed transaction. Alcatel and
Lucent have also filed, and intend to continue to file, additional relevant
materials with the SEC, including a registration statement on Form F-6 (the
"Form F-6" and together with the Form F-4, the "Registration Statements") to
register the Alcatel ADSs to be issued in the proposed transaction. The
Registration Statements and the related proxy statement/prospectus contain and
will contain important information about Lucent, Alcatel, the proposed
transaction and related matters. Investors and security holders are urged to
read the Registration Statements and the related proxy statement/prospectus
carefully, and any other relevant documents filed with the SEC, including all
amendments, because they contain important information. Investors and security
holders may obtain free copies of the documents filed with the SEC by Lucent and
Alcatel (including the Form F-4 and, when filed, the Form F-6) through the web
site maintained by the SEC at www.sec.gov. In addition, investors and security
holders may obtain free copies of materials filed with the SEC by Lucent and
Alcatel (including the Form F-4 and, when filed, the Form F-6) by contacting
Investor Relations at www.lucent.com, by mail to 600 Mountain Avenue, Murray
Hill, New Jersey 07974 or by telephone at 908-582-8500 and from Alcatel by
contacting Investor Relations at www.alcatel.com, by mail to 54, rue La Boetie,
75008 Paris, France or by telephone at 33-1-40-76-10-10.
Lucent and its directors and executive officers also may be deemed to
be participants in the solicitation of proxies from the stockholders of Lucent
in connection with the transaction described herein. Information regarding the
special interests of these directors and executive officers in the transaction
described herein is included in the Form F-4 (and will be included in the
definitive proxy statement/prospectus for the proposed transaction). Additional
information regarding these directors and executive officers is also included in
Lucent's proxy statement for its 2006 annual meeting of stockholders, which was
filed with the SEC on or about January 3, 2006. This document is available free
of charge at the SEC's web site at www.sec.gov and from Lucent by contacting
Investor Relations at www.lucent.com, by mail to 600 Mountain Avenue, Murray
Hill, New Jersey 07974 or by telephone at 908-582-8500.
Alcatel and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from the stockholders of Lucent in
connection with the transaction described herein. Information regarding the
special interests of these directors and executive officers in the transaction
described herein is included in the Form F-4 (and will be included in the
definitive proxy statement/prospectus for the proposed transaction). Additional
information regarding these directors and executive officers is also included in
Alcatel's annual report on Form 20-F filed with the SEC on March 31, 2006. This
document is available free of charge at the SEC's web site at www.sec.gov and
from Alcatel by contacting Investor Relations at www.alcatel.com, by mail to 54,
rue La Boetie, 75008 Paris, France or by telephone at 33-1-40-76-10-10.