tbr 1q11 alcatel-lucent initial response report

TBRT EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

Alcatel‐Lucent

NETWORK BUSINESS QUARTERLYSM

1Q11 INITIAL RESPONSE

Publish Date: May 6, 2011Author: Chris Antlitz ([email protected]), NMP AnalystContent Editor: Scott Dennehy, NMP Senior Analyst

First Calendar Quarter 2011First Fiscal Quarter 2011 Ended March 31, 2011

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Alcatel‐Lucent 1Q11 Initial Response | Network Business Quarterly ©2011 Technology Business Research, Inc.2

TBR Assessment Corporate Strategic ObjectivesAlcatel‐Lucent began 2011 on a strong note, as large contracts with Tier 1 operators in the United States supported growth and margin expansion in all operating segments. Exponential growth in video and data traffic is spurring demand for products and services across the company’s entire portfolio.

Reduce fixed‐cost structure by trimming legacy costs and consolidating operationsMulling a sale of the enterprise unit demonstrates Alcatel‐Lucent’s desire to shed non‐core assets and focus on its core service provider customers.

Drive sales of High Leverage Network solutions by helping operators realize the benefits of network transformation and modernizationSales of High Leverage Network (HLN) solutions rose 19% year‐to‐year, approaching €900 million (or $1.2 billion) on strong LTE and data equipment sales. HLN sales comprised 37% of total equipment sales. Alcatel‐Lucent views its portfolio as horizontal, meaning sales of one solution are driving sales of other solutions because they can work cohesively together in the architecture of a network.

Focus R&D on promising technologies, such as applications enablement and femtocellsCollaboration with Telefonica and China Mobile will accelerate the concept of lightRadio and fine tune Alcatel‐Lucent’s small cell solutions for commercial deployment.

LTE in North America is fueling Alcatel‐Lucent’s revivalTBR Position

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Key Developments

The balance of revenue has shifted from EMEA to North America

Major contracts with AT&T, Verizon and Sprint are ramping up and led to a 40% increase in North America revenue year‐to‐year in 1Q11. North America now comprises nearly 42% of Alcatel‐Lucent’s total revenue, surpassing EMEA as its largest region for the first time since the merger was consummated in 2006; this is significant because the company’s stronghold historically has been in EMEA and is expected to remain there for several years. Between the aforementioned operators, Alcatel‐Lucent stands to garner more than $6 billion over the next four years, much of which is for high‐margin LTE‐related products and services.

Barring a double‐dip recession, profits are on the horizon

High‐margin IP and wireless products are the fastest‐growing segments in Alcatel‐Lucent’s mix, which is contributing to rising gross margin. That mix and the benefits from the internal transformation initiative are quickly improving the bottom line and positioning the company for sustained profitability. Although Alcatel‐Lucent will continue to struggle with legacy costs, such as pensions and restructuring charges, the promise of persistent profits will ease pressure on the balance sheet and allow some breathing room to invest in the future.

Getting out of the enterprise business makes strategic sense

• Despite efforts to collaborate, Alcatel‐Lucent’s enterprise arm is loosely associated with its core telecom business. The company’s decision to sell the unit makes a lot of strategic sense because such a move will not only help strengthen the balance sheet, but will allow Alcatel‐Lucent to exit legacy voice and customer contact businesses, which have struggled to gain traction in recent years.

• The enterprise unit achieved sales of over €1.2 billion (or $1.6 billion) in 2010 and is expected to fetch around $1.5 billion. Likely buyers include Cisco, Siemens and/or private equity firms. The unit includes Genesys contact center software, IP telephony, and Ethernet switching, with the majority of its install base in Europe.

Executive Summary

Divestiture of the enterprise business should help Alcatel‐Lucent focus on its core service provider business and strengthen its balance sheet

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Executive Summary

Exponential growth in video and data traffic is spurring demand for products and services spanning Alcatel‐Lucent’s entire portfolioSegment Revenue Performance and Strategies

Networks€2.4 billion(or $3.3 billion)

• Growth was reported across the Networks portfolio for the second straight quarter, indicating that the bounce in 4Q10 has legs.

• Wireless equipment comprised 30% of total revenue in 1Q11 and continues to grow faster than Alcatel‐Lucent’s other segments.

Services€809 million(or $1.1 billion)

• Near 30% growth in the Network and Systems Integration (NSI) drove revenue in the Services division.

• Strategic Industries continues to be a major contributor to services growth. Deals were inked with Swiss Federal Railways, New Jersey Transit and PECO utility in 1Q11, underscoring the range of non‐telco industries Alcatel‐Lucent is able to service with its expertise in telecom infrastructure services.

Applications Software€451 million(or $617 million)

Applications Software revenue grew 8.4% year‐to‐year on balanced growth in both network and enterprise applications.

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ALCATEL‐LUCENT SEGMENT REVENUE GROWTH


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Network Segment Revenue Performance and StrategiesWireless€1.1 billion(or $1.5 billion)

Wireless revenue surged 36.5% year‐to‐year, driven by 3G, including WCDMA and EV‐DO, and LTE.

Wireline€309 million(or $423 million)

• Double‐digit growth in fixed access equipment offset weakness in legacy TDM and led the wireline division to its second straight quarter of year‐to‐year revenue growth.

• Demand for broadband access is strong, aided by operator desires to deploy GPON and IMS to enable delivery of advanced services over an IP network.

Optics€654 million(or $895 million)

• Terrestrial grew at a double‐digit rate, driven by a 40% increase in WDM.

• The submarine business returned to growth after a year of contraction as a raft of deals inked in 4Q10 started to ramp up.

IP Routing€349 million(or $477 million)

IP routing revenue grew 28.3% year‐to‐year due to continued operator hunger for bandwidth.

All sub‐segments under the Network umbrella grew in 1Q11 thanks to persistent operator hunger for bandwidth and more efficient networks

Executive Summary

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ALCATEL‐LUCENT NETWORK REVENUE GROWTH TBR


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Wireline Wireless Optics IP Routing

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RevenuesTotal revenue grew €493 million, or 15.2% year‐to‐year to €3.7 billion (or $5.1 billion), due to strong global demand for IP and wireless equipment.

Expenses• SG&A comprised 19.9% of total revenue, down 150 basis points year‐to‐year on cost savings from restructuring.

• R&D spend grew €38 million, or 6.1%, year‐to‐year, as Alcatel‐Lucent invested in promising areas within copper, IP and multimedia.

Margins• Reported gross margin surged 360 basis points year‐to‐year to 36.2% on favorable product mix skewed toward IP and wireless products.

• Only the Networks unit was profitable in 1Q11 on an adjusted basis, but losses narrowed in Services and Applications Software.

• Networks adjusted operating margin improved from –6.6% in 1Q10 to 2.6% in 1Q11, as HLN products, which carry higher margins, comprised a growing proportion of total equipment sales.

Favorable product mix plus opex cuts led to strong margin improvementFinancial Model Strategy

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Alcatel‐Lucent is converting trials for LTE, small cells, IP transformation, GPON and other next‐gen technologies into commercial contracts

Go‐to‐Market & Product Strategies

Key Developments

Wire

line PTCL in Pakistan is using Alcatel‐Lucent’s VDSL2 bonding technology to boost throughput on its existing

copper pipes to 50 Mbps. The contract calls for a range of TIS services, the ISAM IP access platform, and CPE that is compatible with copper bonding.

Wire

less

• Alcatel‐Lucent will deploy the first commercial LTE network in the Middle East after Etisalat opted for the vendor’s end‐to‐end solution in February. As the wave of LTE trials from 2010 comes to an end around the globe, vendors are jockeying to land lucrative commercial deployment contracts. End‐to‐end contracts like the one with Etisalat not only bring in equipment revenue but also draw in revenue for services.

• The lightRadio movement gained momentum after Telefonica and China Mobile voiced their support. Both operators will work with Alcatel‐Lucent to spur innovation around small cells and search for ways to leverage the cloud in the network.

• Interest in small cells is rising rapidly as operators search for ways to offload traffic from their wireless networks. Alcatel‐Lucent has notched 19 contracts for commercial deployment of small cells and is currently engaged in over 20 trials worldwide. Although revenue and margins from small cells is relatively low compared to other wireless equipment, Alcatel‐Lucent can bundle its small cell products into its solutions to drive incremental revenue as well as use small cells to penetrate new customer accounts.

Optics Alcatel‐Lucent notched six new contracts for submarine cable deployments in 1Q11, adding to its momentum

from 4Q10. Demand for undersea cables is growing as operators in remote areas seek to link their networks to major network hubs.

IP

• Demand for IP/MPLS was encouraging with Tunisiana and MTN Nigeria both selecting Alcatel‐Lucent’s solution for IP transformation.

• Mobile backhaul is another bright spot in the IP division, with operators clambering to beef up capacity on their networks to boost speeds.

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With good growth and new portfolio additions, the Enterprise unit looks attractive to potential buyers

Go‐to‐Market & Product Strategies

Key Developments

Services

• Strong network transformation, integration and deployment activity drove growth in Alcatel‐Lucent’s Services business in 1Q11. Demand for infrastructure is trickling down to services as operators are agreeing to “pay the experts” to offload responsibility and ensure that operations are not disrupted while complex projects are underway.

• Sprint’s Network Vision contract was a key contributor to the NSI unit as the contract calls for significant spectrum reclamation and transitioning iDEN infrastructure to CDMA.

• Multivendor remains very weak, down double‐digits year‐to‐year, precipitated by the re‐scoping of legacy contracts with major customers. The trend of customers keeping maintenance internalized is a growing concern for vendors, especially as multivendor maintenance typically commands higher margins than other types of services.

Application Software

• To promote and encourage greater adoption of the OpenPlug platform, Alcatel‐Lucent announced that its OpenPlug Studio App Development Tools are free to use starting in April. Alcatel‐Lucent also launched a certification program to train and assist software developers in making applications for a range of web‐connected devices, including smartphones and tablets.

• Payment, Digital Media & Advertising and Motive solutions were the primary growth drivers within the Network Applications unit. Applications maintenance and software customization are also growing strong.

• New customer wins in APAC and the Americas pushed Genesys to double‐digit growth in 1Q11. Demand for Intelligent Workload Distribution (iWD), Work Force Optimization (WFO) and Analytics are the main revenue drivers.

• During 1Q11, Alcatel‐Lucent unveiled three new solutions for its enterprise portfolio: OpenTouch Communication Server for voice; MyIC phone, which infuses applications and IP voice technology to create a smart desktop phone; and the Omniswitch 6900 for the datacenter.

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Resource Management Strategy

Alcatel‐Lucent retained its top executives in 1Q11, as the company is finally on solid footing and its prospects are improving

Resource Management Performance and Strategy• Alcatel‐Lucent closed its optics R&D center in Israel and revamped the site to focus on cloud computing. Dor Skuler, vice president of Cloud Enablement, is leading the team, which is tasked with merging the benefits of cloud computing with telecom infrastructure to create more efficient solutions for carriers.

• Similar to Ericsson, the issues in Japan are having a minor impact on Alcatel‐Lucent’s supply chain. Ericsson quickly rectified its supply issues by adding secondary suppliers and using alternative parts in its products, an approach Alcatel‐Lucent is also employing.

• 2011 marks the third and final year of Alcatel‐Lucent’s transformation initiative. The company lowered its fixed costs and breakeven point by €300 million and €1 billion, respectively, in 2010, and is confident it will achieve an adjusted operating margin above 5% in 2011 by reducing organizational complexity and inventory and targeting efficiencies in areas such as procurement, logistics, production and administrative expenses. The goal for 2011 is to reduce the fixed cost structure by €300 million to €400 million.

Personnel Changes• No major executive changes took place in 1Q11. With the company’s prospects improving drastically from a year ago, senior management will likely feel inspired to stick with Alcatel‐Lucent as it charts its course for sustainable growth and profitability.

• Total headcount was relatively unchanged from 4Q10 at approximately 78,000.

• The shift of labor from high‐cost regions to low‐cost regions will continue as Alcatel‐Lucent seeks to improve its cost structure.

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Income StatementALCATEL‐LUCENTConsolidated Income Statement (in € Thousands)

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.FISCAL QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.Revenue € 3,247,000 € 3,813,000 € 4,074,000 € 4,862,000 € 3,740,000 € 4,308,690Cost of Sales 2,189,000 2,436,000 2,697,000 3,103,000 2,386,000 2,679,600 Gross Profit € 1,058,000 € 1,377,000 € 1,377,000 € 1,759,000 € 1,354,000 € 1,629,090SG&A 696,000 751,000 718,000 742,000 746,000 745,000 Research and Development 625,000 671,000 670,000 696,000 663,000 660,000 Operating Income (€ 263,000) (€ 45,000) (€ 11,000) € 321,000 (€ 55,000) € 224,090Restructuring Costs 134,000 110,000 71,000 60,000 31,000 68,000 Impairment charges/Litigation & settlement 6,000 10,000 (10,000) 22,000 (4,000) ‐ Post‐retirement benefit plans amendment ‐ ‐ (30,000) ‐ (69,000) ‐ Gain/(loss) on disposal of consolidated entities 3,000 ‐ ‐ (65,000) (4,000) ‐ Income (Loss) from operating activities (€ 406,000) (€ 165,000) (€ 42,000) € 304,000 (€ 9,000) € 156,090Financial Result (71,000) (17,000) 61,000 54,000 17,000 ‐ Shares in net income (loss) of equity affiliates 26,000 7,000 4,000 2,000 ‐ ‐ EBITD (€ 451,000) (€ 175,000) € 23,000 € 360,000 € 8,000 € 156,090Income Tax Expense (47,000) (4,000) 23,000 (9,000) (12,000) 23,414 Income (loss) from continuing operations (€ 498,000) (€ 179,000) € 46,000 € 351,000 (€ 4,000) € 179,504Income (loss) from discontinued operations (9,000) (4,000) ‐ 1,000 (1,000) ‐ Net Income (€ 507,000) (€ 183,000) € 46,000 € 352,000 (€ 5,000) € 179,504Net income attributable to minority interests 8,000 1,000 21,000 12,000 5,000 20,000 Net income attributable to equity holders of the parent (€ 515,000) (€ 184,000) € 25,000 € 340,000 (€ 10,000) € 179,504PERCENTAGE OF REVENUERevenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Cost of Sales 67.4% 63.9% 66.2% 63.8% 63.8% 62.2%Gross Profit 32.6% 36.1% 33.8% 36.2% 36.2% 37.8%SG&A 21.4% 19.7% 17.6% 15.3% 19.9% 17.3%Research and Development 19.2% 17.6% 16.4% 14.3% 17.7% 15.3%Operating Income ‐8.1% ‐1.2% ‐0.3% 6.6% ‐1.5% 5.2%EBITD ‐13.9% ‐4.6% 0.6% 7.4% 0.2% 3.6%Net Income ‐15.6% ‐4.8% 1.1% 7.2% ‐0.1% 4.2%

YEAR‐TO‐YEAR GROWTHRevenue ‐9.8% ‐2.4% 10.5% 22.6% 15.2% 13.0%Cost of Sales ‐11.2% ‐6.7% 9.9% 23.4% 9.0% 10.0%Gross Profit ‐6.6% 6.5% 11.8% 21.1% 28.0% 18.3%SG&A ‐5.6% ‐2.3% 2.7% 9.6% 7.2% ‐0.8%Research and Development ‐3.8% 2.6% 10.0% 22.3% 6.1% ‐1.6%Operating Income ‐3.5% 65.4% 85.5% 55.1% 79.1% 598.0%Net Income ‐34.1% ‐9250.0% 125.7% 270.5% 99.0% 198.1%NOTE: ADJSUTED PRO FORMA RESULTSSOURCE: TBR ESTIMATES AND ALCATEL‐LUCENT

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Income StatementALCATEL‐LUCENTConsolidated Income Statement (in $ Thousands)

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.FISCAL QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.Revenue 4,490,299$ 4,854,050$ 5,260,944$ 6,603,908$ 5,116,548$ 5,894,550$ Cost of Sales 3,027,184 3,101,093 3,482,760 4,214,711 3,264,193 3,665,856Gross Profit 1,463,116 1,752,958 1,778,183 2,389,197 1,852,355 2,228,694SG&A 962,503 956,043 927,186 1,007,836 1,020,573 1,019,205Research and Development 864,317 854,201 865,202 945,356 907,024 902,920Operating Income (363,705)$ (57,286)$ (14,205)$ 436,005$ (75,243)$ 306,569$

Restructuring Costs 185,310 140,033 91,686 81,496 42,410 93,028Impairment charges/Litigation & settlement 8,297 12,730 ‐12,913 29,882 ‐5,472 ‐ Post‐retirement benefit plans amendment ‐ ‐ (38,740) ‐ (94,396) ‐ Gain/(loss) on disposal of consolidated entities 4,149 ‐ ‐ (88,288) (5,472) ‐ Income (Loss) from operating activities (561,460)$ (210,049)$ (54,237)$ 412,914$ (12,313)$ 213,541$

Financial Result (98,186) (21,641) 78,772 73,347 23,257 ‐ Shares in net income (loss) of equity affiliates 35,956 8,911 5,165 2,717 ‐ ‐

EBITD (623,691)$ (222,780)$ 29,701$ 488,977$ 10,944$ 213,541$

Income Tax Expense (64,997) (5,092) 29,701 (12,224) (16,417) 32,031

Income (loss) from continuing operations (688,688)$ (227,872)$ 59,402$ 476,753$ (5,472)$ 245,572$

Income (loss) from discontinued operations (12,446) (5,092) ‐ 1,358 (1,368) ‐ Net Income (701,134)$ (232,964)$ 59,402$ 478,111$ (6,840)$ 245,572$

Net income attributable to minority interests 11,063 1,273 27,118 16,299 6,840 27,361Net income attributable to equity holders of the parent (712,197)$ (234,237)$ 32,284$ 461,812$ (13,681)$ 245,572$

PERCENTAGE OF REVENUERevenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Cost of Sales 67.4% 63.9% 66.2% 63.8% 63.8% 62.2%Gross Profit 32.6% 36.1% 33.8% 36.2% 36.2% 37.8%SG&A 21.4% 19.7% 17.6% 15.3% 19.9% 17.3%Research and Development 19.2% 17.6% 16.4% 14.3% 17.7% 15.3%Operating Income ‐8.1% ‐1.2% ‐0.3% 6.6% ‐1.5% 5.2%EBITD ‐13.9% ‐4.6% 0.6% 7.4% 0.2% 3.6%Net Income ‐15.6% ‐4.8% 1.1% 7.2% ‐0.1% 4.2%

YEAR‐TO‐YEAR CHANGERevenue ‐9.8% ‐2.4% 10.5% 22.6% 15.2% 13.0%Cost of Sales ‐11.2% ‐6.7% 9.9% 23.4% 9.0% 10.0%Gross Profit ‐6.6% 6.5% 11.8% 21.1% 28.0% 18.3%SG&A ‐5.6% ‐2.3% 2.7% 9.6% 7.2% ‐0.8%Research and Development ‐3.8% 2.6% 10.0% 22.3% 6.1% ‐1.6%Operating Income ‐3.5% 65.4% 85.5% 55.1% 79.1% 598.0%Net Income ‐34.1% ‐9250.0% 125.7% 270.5% 99.0% 198.1%

SOURCE: TBR ESTIMATES AND ALCATEL‐LUCENT

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Balance SheetALCATEL‐LUCENTConsolidated Balance Sheets(in € Thousands)

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11FISCAL QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11ASSETSGoodwill and intangible assets, net € 6,590,000 € 6,937,000 € 6,407,000 € 6,426,000 € 6,113,000Goodwill 4,331,000 4,583,000 4,311,000 4,370,000 4,219,000Intangible assets, net 2,259,000 2,354,000 2,096,000 2,056,000 1,894,000Property, Plant & Equipment, Net 1,282,000 1,309,000 1,207,000 1,311,000 1,224,000Share in net assets of equity affiliates 58,000 57,000 56,000 9,000 9,000Other non‐current financial assets, net 452,000 461,000 430,000 400,000 379,000Deferred tax assets 892,000 930,000 922,000 948,000 920,000Prepaid pension costs 2,602,000 2,902,000 2,803,000 2,746,000 2,510,000Other non‐current assets 223,000 306,000 220,000 257,000 236,000Total Non‐Current Assets € 12,099,000 € 12,902,000 € 12,045,000 € 12,097,000 € 11,391,000Inventories and Work in Progress, net 2,186,000 2,669,000 2,567,000 2,295,000 2,294,000Trade receivables and related accounts, net 3,287,000 3,467,000 3,323,000 3,664,000 3,301,000Advances and progress payments 81,000 74,000 88,000 75,000 78,000Other current assets 1,105,000 1,248,000 1,126,000 885,000 1,043,000Assets held for sale 56,000 80,000 219,000 3,000 6,000Current income taxes 162,000 187,000 161,000 168,000 167,000Marketable securities, net 1,632,000 1,788,000 1,197,000 649,000 661,000Cash and cash equivalents 3,675,000 3,053,000 3,227,000 5,040,000 3,796,000Total Current Assets € 12,184,000 € 12,566,000 € 11,908,000 € 12,779,000 € 11,346,000Total Assets € 24,283,000 € 25,468,000 € 23,953,000 € 24,876,000 € 22,737,000

LIABILITIES AND EQUITYShareholders' equity‐ attributable to the equity holders of the parent € 3,514,000 € 2,473,000 € 2,377,000 € 3,545,000 € 3,490,000Minority Interest 615,000 675,000 631,000 660,000 624,000Total Shareholders' Equity € 4,129,000 € 3,148,000 € 3,008,000 € 4,205,000 € 4,114,000Pensions, retirement indemnities and other post‐retirement benefits 5,158,000 6,596,000 6,014,000 5,090,000 4,513,000Bonds and Notes Issues, long‐term 3,428,000 3,710,000 3,479,000 4,037,000 3,886,000Other long‐term debt 89,000 61,000 61,000 75,000 62,000Deferred tax liabilities 1,168,000 1,232,000 1,127,000 1,126,000 1,008,000Other non‐current liabilities 253,000 229,000 247,000 259,000 243,000Total Non‐Current Liabilities € 10,096,000 € 11,828,000 € 10,928,000 € 10,587,000 € 9,712,000Provisions 2,152,000 2,265,000 1,969,000 1,858,000 1,689,000Current portion of long‐term debt 1,356,000 1,040,000 1,146,000 1,266,000 413,000Customers' Deposits and Advances 782,000 858,000 915,000 803,000 972,000Trade Payables and Related Accounts 4,033,000 4,392,000 4,173,000 4,325,000 3,980,000Current income tax liabilities 84,000 116,000 68,000 137,000 119,000Other current liabilities 1,651,000 1,821,000 1,746,000 1,695,000 1,738,000Total Current Liabilities € 10,058,000 € 10,492,000 € 10,017,000 € 10,084,000 € 8,911,000Total Liabilities and Shareholders' Equity € 24,283,000 € 25,468,000 € 23,953,000 € 24,876,000 € 22,737,000

FINANCIAL RATIOSDay Sales Outstanding 91.11 81.83 73.41 67.82 79.44Turns on Inventory 4.60 4.01 4.12 5.11 4.16Days Inventory Outstanding 79.41 90.93 88.58 71.49 87.75Fixed Asset Turnover 10.22 11.77 12.95 15.45 11.80Days Cash Outstanding 147.10 114.26 97.73 105.31 107.25Total Asset Turnover 0.54 0.61 0.66 0.80 0.63Debt/Asset Ratio 0.40 0.41 0.42 0.43 0.45Current Ratio 1.93 1.86 1.83 1.94 1.81Return on Assets ‐2.1% ‐0.7% 0.2% 1.4% 0.0%Return on Equity ‐11.5% ‐4.5% 1.2% 9.4% ‐0.1%Annualized Revenue per Employee ‐ Euro 191,432€ 189,325€ 194,304€ 206,068€ 212,419€ Annualized Revenue per Employee ‐ USD 264,733$ 241,016$ 250,914$ 279,895$ 290,602$ Employee Count 78,000 77,500 77,000 78,000 78,000 Exchange Rate ($US to Euro) 1.383 1.273 1.291 1.358 1.368SOURCE: TBR ESTIMATES AND ALCATEL‐LUCENT

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Balance SheetALCATEL‐LUCENTConsolidated Balance Sheets(in $ Thousands )

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11FISCAL QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11ASSETSGoodwill and intangible assets, net 9,113,358$ 8,830,986$ 8,273,654$ 8,728,242$ 8,362,957$ Goodwill 5,989,371 5,834,281 5,566,993 5,935,639 5,771,849Intangible assets, net 3,123,987 2,996,705 2,706,661 2,792,603 2,591,107Property, Plant & Equipment, Net 1,772,887 1,666,392 1,558,655 1,780,692 1,674,507Share in net assets of equity affiliates 80,209 72,563 72,315 12,224 12,313Other non‐current financial assets, net 625,074 586,865 555,279 543,308 518,495Deferred tax assets 1,233,553 1,183,915 1,190,621 1,287,640 1,258,616Prepaid pension costs 3,598,324 3,694,323 3,619,643 3,729,809 3,433,833Other non‐current assets 308,388 389,546 284,096 349,075 322,862Total Non‐Current Assets 16,731,794$ 16,424,589$ 15,554,263$ 16,430,990$ 15,583,582$ Inventories and Work in Progress, net 3,023,035 3,397,708 3,314,885 3,117,229 3,138,332Trade receivables and related accounts, net 4,545,616 4,413,583 4,291,143 4,976,701 4,515,969Advances and progress payments 112,015 94,204 113,638 101,870 106,709Other current assets 1,528,112 1,588,737 1,454,056 1,202,069 1,426,888Assets held for sale 77,443 101,842 282,805 4,075 8,208Current income taxes 224,031 238,056 207,907 228,189 228,466Marketable securities, net 2,256,904 2,276,172 1,545,741 881,517 904,288Cash and cash equivalents 5,082,184 3,886,550 4,167,174 6,845,680 5,193,159Total Current Assets 16,849,341$ 15,996,852$ 15,377,348$ 17,357,330$ 15,522,019$ Total Assets 33,581,134$ 32,421,442$ 30,931,611$ 33,788,321$ 31,105,602$

LIABILITIES AND EQUITYShareholders' equity‐ attributable to the equity holders of the parent 4,859,536$ 3,148,195$ 3,069,529$ 4,815,067$ 4,774,533$ Minority Interest 850,488 859,293 814,839 896,458 853,670Total Shareholders' Equity € 5,710,024 € 4,007,488 € 3,884,369 € 5,711,525 € 5,628,203Pensions, retirement indemnities and other post‐retirement benefits 7,133,035 8,396,884 7,766,155 6,913,594 6,174,059Bonds and Notes Issues, long‐term 4,740,606 4,722,929 4,492,593 5,483,335 5,316,285Other long‐term debt 123,079 77,655 78,772 101,870 84,820Deferred tax liabilities 1,615,236 1,568,369 1,455,347 1,529,412 1,379,005Other non‐current liabilities 349,876 291,523 318,962 351,792 332,439Total Non‐Current Liabilities 13,961,831$ 15,057,359$ 14,111,829$ 14,380,003$ 13,286,608$ Provisions 2,976,016 2,883,405 2,542,660 2,523,665 2,310,655Current portion of long‐term debt 1,875,222 1,323,948 1,479,883 1,719,570 565,009Customers' Deposits and Advances 1,081,433 1,092,257 1,181,582 1,090,691 1,329,755Trade Payables and Related Accounts 5,577,265 5,591,133 5,388,787 5,874,517 5,444,883Current income tax liabilities 116,164 147,671 87,812 186,083 162,799Other current liabilities 2,283,180 2,318,181 2,254,690 2,302,267 2,377,690Total Current Liabilities 13,909,280$ 13,356,595$ 12,935,413$ 13,696,793$ 12,190,791$ Total Liabilities and Shareholders' Equity 33,581,134$ 32,421,442$ 30,931,611$ 33,788,321$ 31,105,602$

FINANCIAL RATIOSDay Sales Outstanding 91.11 81.83 73.41 67.82 79.44Turns on Inventory 4.60 4.01 4.12 5.11 4.16Days Inventory Outstanding 79.41 90.93 88.58 71.49 87.75Fixed Asset Turnover 10.22 11.77 12.95 15.45 11.80Days Cash Outstanding 147.10 114.26 97.73 105.31 107.25Total Asset Turnover 0.54 0.61 0.66 0.80 0.63Debt/Asset Ratio 0.40 0.41 0.42 0.43 0.45Current Ratio 1.93 1.86 1.83 1.94 1.81Return on Assets ‐2.1% ‐0.7% 0.2% 1.4% 0.0%Return on Equity ‐11.5% ‐4.5% 1.2% 9.4% ‐0.1%Average Annual Revenue per Employee ‐ USD 264,733$ 241,016$ 250,914$ 279,895$ 290,602$ Employee Count 78,000 77,500 77,000 78,000 78,000 Exchange Rate ($US to Euro) 1.383 1.273 1.291 1.358 1.368SOURCE: TBR ESTIMATES AND ALCATEL‐LUCENT

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