tbr 4q10 alcatel-lucent initial response report

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T 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

4Q10 INITIAL RESPONSE

Publish Date: Feb. 11, 2011 Author: Chris Antlitz ([email protected]), NBQ Analyst Content Editor: John Byrne, NBQ Director

Fourth Calendar Quarter 2010

Fourth Fiscal Quarter 2010 Ended Dec. 31, 2010

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Alcatel-Lucent 4Q10 Initial Response | Network Business Quarterly ©2011 Technology Business Research, Inc. 2

Alcatel-Lucent is in growth mode and plans to keep that momentum going by investing in HLN, copper “life extension” solutions, and apps

Alcatel-Lucent Corporate Strategies • Reduce fixed-cost structure by trimming legacy costs

and consolidating operations • Drive sales of High Leverage Network solutions by

helping operators realize the benefits of network transformation and modernization

• Focus R&D on promising technologies, such as multiscreen delivery and femtocells

• Leverage assets from ProgrammableWeb and OpenPlug to gain traction in Applications Enablement

TBR Position: Strong growth prospects across nearly all operating segments, mixed with reduction in fixed costs, will help make 2011 a strong year for Alcatel-Lucent.

• All segments and regions grew in 4Q10, with particular strength in equipment sales in the U.S. and China.

• Sales of High Leverage Network (HLN) solutions surged 72% year-to-year, exceeding €1.3 billion (or $1.8 billion) on strong data equipment sales. HLN sales comprised 46% of total equipment sales, up from 35% in 4Q09.

• Component shortages are easing, but lead times remain longer than usual, which will prolong revenue recognition of outstanding projects.

• Though 2011 is poised to be a good year for Alcatel-Lucent, management maintained previous guidance, which targets an operating margin of 5% of higher.

• IP transformation and network convergence projects are in the early stages. With strong offerings in equipment, apps and services, Alcatel-Lucent continues to position itself as a one-stop shop for all of an operator’s needs.

Executive Summary

€ 2,242

€ 1,928 € 2,304

€ 2,459 € 2,952

€ 535

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€ 489 € 499

€ 575 € 1,030

€ 772

€ 883 € 948 € 1,140

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ALCATEL-LUCENT REVENUE BY SEGMENT AND GROWTH

Services Applications Software

Carrier Year-to-year Revenue Growth

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SOURCE: TBR AND ALCATEL-LUCENT

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Key Developments

Tier 1 operators in the U.S. and China fueled equipment growth

• LTE, CDMA, optical and IP revenue flooded in from Verizon, while Sprint began its ambitious Network Vision project, which will require high volumes of multimode base stations and IP equipment. From just these two operators, Alcatel-Lucent will reap over $5 billion over the next four years.

• China was the other big consumer of network equipment in 4Q10, as telcos in the country continued to aggressively bulk up their 2G and 3G capacity to handle an influx of voice and data traffic. Chinese sales grew over 50% year-to-year in 4Q10. Major frame agreements with China Mobile, China Unicom and China Telecom, which are worth a combined €1.2 billion ($1.6 billion), will drive equipment sales in APAC.

Unable to win 3G contracts in India, Alcatel-Lucent will look to services

• Though management views India as a key growth market for Alcatel-Lucent, the vendor was absent from the flurry of 3G infrastructure deals struck in the last five months.

• As the last major market for greenfield network rollout, NEPs have been vigilant in locking up market share and strengthening customer relationships with Indian operators. The result is a cut-throat price war that will surely pressure gross margin for Ericsson, Nokia Siemens, Huawei and ZTE through 2011.

• TBR believes Alcatel-Lucent will look to services and applications to grow in India, as it appears unwilling to reduce prices to secure market share. Alcatel-Lucent has beefed up its services presence in India, establishing a network operations and support center in Bangalore to handle outsourced networks and planning to move its global services HQ to India over the next three years to better position itself for TIS contracts.

The Strategic Industries unit has promising future

• Alcatel-Lucent’s Strategic Industries segment, which includes transportation, energy and public sector verticals, posted double-digit growth in 4Q10, aided by a contract with Stratos Global to supply IP/MPLS equipment and professional services to oil and gas platforms in the Gulf of Mexico. Though Alcatel-Lucent has historically been involved in the Enterprise segment, its telco expertise in networks and services is trickling into deals with non-telco customers.

• Leveraging TIS and equipment resources beyond traditional telcos greatly increases the addressable market for network vendors, opening up new opportunities for long-term growth.

Executive Summary

Growth in India largely hinges on services, as Alcatel-Lucent failed to land any 3G contracts

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Quarterly Segment Performance

Segment Key Changes & Drivers 4Q10

Revenue Growth

Y/Y Trends to Monitor

Networks

• IP and wireless registered the strongest growth, as uptake of HLN solutions gained momentum.

• LTE comprised 3.4% of Networks revenue and 2.1% of total revenue. LTE is expected to comprise a larger share of revenue through 2011 as Verizon and AT&T ramp up rollout.

€3

billion

(or $4 billion)

31.7%

• Operators around the globe will push into rural areas to acquire new customers as urban and suburban areas reach saturation.

• This trend will fuel mobile broadband equipment sales, because it is less expensive to deploy wireless to the last mile than to roll out fixed service to each end-user.

Applications Software

• Enterprise investment in data networking solutions grew revenue for Genesys and offset declines in traditional voice.

• Digital media and remote customer management are driving Network applications sales.

€575 million

(or $781 million)

7.5%

The telecommunications market is clearly moving toward network convergence, which requires investment in application enablement and multiscreen software to give consumers access to content anywhere on any screen.

Services

• Strategic Industries unit is running at a €1 billion+ annual run-rate.

• Multivendor maintenance revenue is weak, as operators increasingly prefer to keep that function internalized. Maintenance is a high-margin business, and the fall-off in revenue in 4Q10 hampered overall services margin.

€1.1 billion

(or $1.5 billion)

10.7%

Alcatel-Lucent will leverage its TIS expertise to sell telecom services to non-telecom customers, greatly expanding the addressable market.

Executive Summary

The exponential rise in global data traffic levels is fueling growth in applications and services, as well as in equipment

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Revenues • Total revenue grew €895 million, or 22.6% year-to-

year to €4.9 billion (or $6.6 billion), fueled by strong global demand for IP and wireless equipment.

Expenses • SG&A comprised 15.3% of total revenue, down 180

basis points year-to-year on cost savings from restructuring.

• R&D spend grew €127 million (or 22.3%) year-to-year as Alcatel-Lucent invests in promising areas within copper, IP and multimedia.

Margins • Reported gross margin narrowed 40 basis points

year-to-year to 36.2% on price competition in EMEA and APAC.

• All operating segments were profitable in 4Q10 on an adjusted basis, indicating that Alcatel-Lucent’s transformation strategy is working.

• Networks adjusted operating margin surged to 7.8% from 0.8% in 4Q09, as HLN products, which carry higher margins, comprised a growing proportion of total equipment sales.

• Applications and services adjusted operating margins declined from 4Q09 levels on unfavorable mix.

The reduction of fixed costs over the past two years has positioned Alcatel-Lucent for margin growth in 2011

Financial Model Strategy

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ALCATEL-LUCENT PROFITABILITY AND GROWTH

Total Revenue Gross Profit

Operating Profit Year-to-Year Revenue Growth

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ALCATEL-LUCENT ADJUSTED OPERATING MARGINBY SEGMENT

Networks Applications Software Services

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Operator efforts to bulk up data capacity is fueling demand for products across Alcatel-Lucent’s portfolio, particularly IP and wireless

Financial Model Strategy

Networks Revenue Performance Networks Segment Revenue Drivers

Wireless:

€1.2 billion

($1.6 billion),

44.5% Y/Y

• LTE revenue exceeded €100 million ($136 million), with nearly all of it from Verizon.

• GSM, CDMA and WCDMA all grew at a double-digit rate year-to-year as operators bulked up capacity on 2G and 3G networks.

Wireline:

€488 million

($663 million),

22.6% Y/Y

• All segments except TDM switching grew, with fixed broadband access technologies driving growth.

• PON grew 55% year-to-year, offsetting significant contraction in legacy fixed technologies.

Optics:

€815 million

($1.1 billion),

6.8% Y/Y

• The component shortages experienced in 2010 primarily affected optics, stifling sales growth; however, terrestrial sales remained strong, led by WDM, which grew 50% from 4Q09.

• Submarine sales fell 30% year-to-year but should rebound strongly in 1Q11 as deals signed in 4Q10 start to ramp up.

IP Routing:

€508 million

($690 million),

58.8% Y/Y

Strong demand for backhaul pushed the IP division into record sales territory. IP transformation projects are sprouting up in all regions, indicating that operators are feeling pressured to modernize their networks to better handle data traffic.

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ALCATEL-LUCENT NETWORKS REVENUE BY SUBSEGMENT

Wireline

Wireless

Optics

IP Routing

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ALCATEL-LUCENT NETWORKS REVENUE COMPOSITION

IP Routing Optics Wireless Wireline

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Sprint’s Network Vision and Verizon and AT&T’s LTE builds will stimulate sales across Alcatel-Lucent’s product and service portfolios through 2011

Go-to-Market & Product Strategies

Wireline Wireless Extending the life of copper is a promising niche market for Alcatel-Lucent to exploit. Though new fixed-access deployments are fiber-based, legacy copper infrastructure is still widely used and maintained by legacy operators. Vectoring, bonding and phantom mode technologies all allow incumbent operators to leverage their copper infrastructure, saving opex and capex and increasing the utility of those assets. Trials and close collaboration with A1 Telekom in Austria and Turk Telekom in Turkey aim to prepare these technologies for commercial deployments.

Sprint’s Network Vision and AT&T’s LTE build will ramp up during 2011, supporting wireless sales. In Network Vision, Alcatel-Lucent joins Ericsson and Samsung in phasing out Sprint’s iDEN network and refarming the spectrum for CDMA. Alcatel-Lucent will provide a range of services, as well as multimode RAN, IP/MPLS and microwave backhaul, to consolidate Sprint’s four network technologies onto one platform. TBR believes Alcatel-Lucent will reap 15& to 20% of the $4 billion to $5 billion contract, with 75% going to Ericsson and 5& to 10% going to Samsung.

Optics IP • Submarine sales fell at a double-digit rate in 2010, but

recent signings with GlobeNet, Bezeq International, Seychelles Cable System and UNIFI place the unit on solid footing in 2011.

• Alcatel-Lucent’s Converged Backbone Transformation solution was selected by 360networks in the U.S., and its 100G coherent optical transport solution was selected by Orion in Canada.

• Exponential growth in video is already straining global data networks, pushing operators to migrate toward all-IP. This trend augurs well for sales of Alcatel-Lucent’s High Leverage Network solutions.

• Alcatel-Lucent won a major three-year IP transformation contract from America Móvil to deploy an IP/MPLS mobile backhaul solution. Alcatel-Lucent will supply its 7750 Service Router, 7705 Service Aggregation Router, and 5620 Service Aware Manager to create a scalable, packet-based network across the operator’s entire Latin America footprint, which spans 11 countries.

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Alcatel-Lucent hopes to mine opportunities in network automation following its inclusion in the UniverSelf consortium

Go-to-Market & Product Strategies

Services

• Alcatel-Lucent joined 16 European operators, IT firms, infrastructure vendors and academic institutions to launch “UniverSelf.” The consortium will focus on employing automation in networks to lower opex. Automation is a growing area of interest for operators and vendors alike. Automation reduces the human element in the process of rolling out and maintaining networks, saving money on truck rolls and installation.

• Operators committing to converge their networks provide Alcatel-Lucent with a prime opportunity to sell an array of services. Recent converged network projects awarded from Vodafone Qatar and China Unicom included an equipment, applications and services component. In both instances, Alcatel-Lucent was selected to not only converge the network but also provide managed services.

Applications Software

• Digital Media & Advertising and Motive solutions are the primary growth drivers within the Network applications unit. Applications maintenance and software customization are also growing strong, helping to offset contraction in legacy payment and messaging solutions.

• In Applications Enablement, Alcatel-Lucent partnered with Mobinil of Egypt to trial its Optism mobile advertising solution. Mobile advertising is a promising area with the potential for scalable growth. With smartphone penetration expected to exceed 500 million units by the end of 2012 and new categories such as tablets and eReaders gaining momentum, marketers have a huge opportunity to sell advertisements through these mobile devices.

• The data networking business of Genesys is growing rapidly as enterprises struggle to cope, maintain and generate useful information from its data. Notable wins include selling MTS the Genesys Contact Center solution and an intelligent workload distribution solution (iWD) to an operator in Eastern Europe. Going forward, Genesys hopes to spur revenue from the SMB segment by pushing its new Omni eXchange Office platform, which boasts modern multimedia and collaboration functionality.

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Resource Management Strategy

Bell Labs is focused on network efficiency, automation, small cells and extending the life of legacy technologies, such as copper

Investments/R&D Focus • Alcatel-Lucent is aiming to expand its enterprise

business in the coming quarters, specifically in Middle Eastern markets. It hopes to achieve an “above market” growth of 10% in the segment, focusing primarily on penetrating the healthcare, education and transportation industries.

• In January, Bell Labs stepped up its involvement with Green Touch, a global consortium tasked with making networks more energy-efficient. The initiative brings to light the issue of balancing network capacity with efficiency.

Personnel Changes • In February, Alcatel-Lucent appointed Lucy Dimes

as CEO of U.K. and Ireland operations, replacing former CEO Lakh Jemmett.

• In January, Gianluca Baini was appointed as chairman and CEO of Alcatel-Lucent Italia, replacing former CEO Stefano Lorenzi.

• In December, Alcatel-Lucent appointed Frédéric Sutter as global head of Defense Markets (excluding the U.S. Federal Government).

• Alcatel-Lucent added about 1,000 employees in 4Q10, mainly as transfers from managed services deals. The vendor ended 4Q10 with 78,000 employees.

Alcatel-Lucent’s Worldwide Operations

Alcatel-Lucent is investing $500 million over the next three years to move its services HQ to India

and build out more support facilities in the country. Alcatel-Lucent will leverage India’s low-cost, highly skilled labor pool to compete more effectively in the increasingly crowded remote

network services segment.

Restructuring Initiatives 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 that 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.

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Income Statement ALCATEL-LUCENT

Consolidated Income Statement

(in € Thousands)

CALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.

FISCAL QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.Revenue € 3,967,000 € 3,247,000 € 3,813,000 € 4,074,000 € 4,862,000 € 4,058,750

Cost of Sales 2,514,000 2,189,000 2,436,000 2,697,000 3,103,000 2,714,360

Gross Profit € 1,453,000 € 1,058,000 € 1,377,000 € 1,377,000 € 1,759,000 € 1,344,390

SG&A 677,000 696,000 751,000 718,000 742,000 726,750

Research and Development 569,000 625,000 671,000 670,000 696,000 665,500

Operating Income € 207,000 (€ 263,000) (€ 45,000) (€ 11,000) € 321,000 (€ 47,860)

Restructuring Costs 268,000 134,000 110,000 71,000 60,000 93,750

Impairment charges/Litigation & settlement 109,000 6,000 10,000 (10,000) 22,000 -

Post-retirement benefit plans amendment (211,000) - - (30,000) - -

Gain/(loss) on disposal of consolidated entities (99,000) 3,000 - - (65,000) -

Income (Loss) from operating activities € 140,000 (€ 406,000) (€ 165,000) (€ 42,000) € 304,000 (€ 141,610)

Financial Result (12,000) (71,000) (17,000) 61,000 54,000 6,750

Shares in net income (loss) of equity affiliates 5,000 26,000 7,000 4,000 2,000 9,750

EBITD € 133,000 (€ 451,000) (€ 175,000) € 23,000 € 360,000 (€ 125,110)

Income Tax Expense (41,000) (47,000) (4,000) 23,000 (9,000) (9,250)

Income (loss) from continuing operations € 92,000 (€ 498,000) (€ 179,000) € 46,000 € 351,000 (€ 134,360)

Income (loss) from discontinued operations 3,000 (9,000) (4,000) - 1,000 -

Net Income € 95,000 (€ 507,000) (€ 183,000) € 46,000 € 352,000 (€ 134,360)

Net income attributable to minority interests 49,000 8,000 1,000 21,000 12,000 10,500

Net income attributable to equity holders

of the parent € 46,000 (€ 515,000) (€ 184,000) € 25,000 € 340,000 (€ 134,360)

PERCENTAGE OF REVENUERevenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of Sales 63.4% 67.4% 63.9% 66.2% 63.8% 66.9%

Gross Profit 36.6% 32.6% 36.1% 33.8% 36.2% 33.1%

SG&A 17.1% 21.4% 19.7% 17.6% 15.3% 17.9%

Research and Development 14.3% 19.2% 17.6% 16.4% 14.3% 16.4%

Operating Income 5.2% -8.1% -1.2% -0.3% 6.6% -1.2%

EBITD 3.4% -13.9% -4.6% 0.6% 7.4% -3.1%

Net Income 2.4% -15.6% -4.8% 1.1% 7.2% -3.3%

YEAR-TO-YEAR GROWTHRevenue -19.9% -9.8% -2.4% 10.5% 22.6% 25.0%

Cost of Sales -24.0% -11.2% -6.7% 9.9% 23.4% 24.0%

Gross Profit -11.7% -6.6% 6.5% 11.8% 21.1% 27.1%

SG&A -16.1% -5.6% -2.3% 2.7% 9.6% 4.4%

Research and Development -16.7% -3.8% 2.6% 10.0% 22.3% 6.5%

Operating Income 32.7% -3.5% 65.4% 85.5% 55.1% 81.8%

Net Income 102.5% -34.1% -9250.0% 125.7% 270.5% 73.5%

NOTE: ADJSUTED PRO FORMA RESULTS

SOURCE: TBR ESTIMATES AND ALCATEL-LUCENT

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Income Statement ALCATEL-LUCENT

Consolidated Income Statement

(in $ Thousands)

CALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.

FISCAL QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.

Revenue 5,870,436$ 4,490,299$ 4,854,050$ 5,260,944$ 6,603,908$ 5,512,878$

Cost of Sales 3,720,261 3,027,184 3,101,093 3,482,760 4,214,711 3,686,833

Gross Profit 2,150,175 1,463,116 1,752,958 1,778,183 2,389,197 1,826,044

SG&A 1,001,836 962,503 956,043 927,186 1,007,836 987,123

Research and Development 842,016 864,317 854,201 865,202 945,356 903,929

Operating Income 306,322$ (363,705)$ (57,286)$ (14,205)$ 436,005$ (65,007)$

Restructuring Costs 396,591 185,310 140,033 91,686 81,496 127,338

Impairment charges/Litigation & settlement 161,300 8,297 12,730 -12,913 29,882 -

Post-retirement benefit plans amendment (312,241) - - (38,740) - -

Gain/(loss) on disposal of consolidated entities (146,502) 4,149 - - (88,288) -

Income (Loss) from operating activities 207,174$ (561,460)$ (210,049)$ (54,237)$ 412,914$ (192,345)$

Financial Result (17,758) (98,186) (21,641) 78,772 73,347 9,168

Shares in net income (loss) of equity affiliates 7,399 35,956 8,911 5,165 2,717 13,243

EBITD 196,816$ (623,691)$ (222,780)$ 29,701$ 488,977$ (169,933)$

Income Tax Expense (60,673) (64,997) (5,092) 29,701 (12,224) (12,564)

Income (loss) from continuing operations 136,143$ (688,688)$ (227,872)$ 59,402$ 476,753$ (182,497)$

Income (loss) from discontinued operations 4,439 (12,446) (5,092) - 1,358 -

Net Income 140,583$ (701,134)$ (232,964)$ 59,402$ 478,111$ (182,497)$

Net income attributable to minority interests 72,511 11,063 1,273 27,118 16,299 14,262Net income attributable to equity holders

of the parent 68,072$ (712,197)$ (234,237)$ 32,284$ 461,812$ (182,497)$

PERCENTAGE OF REVENUE

Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of Sales 63.4% 67.4% 63.9% 66.2% 63.8% 66.9%

Gross Profit 36.6% 32.6% 36.1% 33.8% 36.2% 33.1%

SG&A 17.1% 21.4% 19.7% 17.6% 15.3% 17.9%

Research and Development 14.3% 19.2% 17.6% 16.4% 14.3% 16.4%

Operating Income 5.2% -8.1% -1.2% -0.3% 6.6% -1.2%

EBITD 3.4% -13.9% -4.6% 0.6% 7.4% -3.1%

Net Income 2.4% -15.6% -4.8% 1.1% 7.2% -3.3%

YEAR-TO-YEAR CHANGE

Revenue -19.9% -9.8% -2.4% 10.5% 22.6% 25.0%

Cost of Sales -24.0% -11.2% -6.7% 9.9% 23.4% 24.0%

Gross Profit -11.7% -6.6% 6.5% 11.8% 21.1% 27.1%

SG&A -16.1% -5.6% -2.3% 2.7% 9.6% 4.4%

Research and Development -16.7% -3.8% 2.6% 10.0% 22.3% 6.5%

Operating Income 32.7% -3.5% 65.4% 85.5% 55.1% 81.8%

Net Income 102.5% -34.1% -9250.0% 125.7% 270.5% 73.5%


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Balance Sheet ALCATEL-LUCENT

Consolidated Balance Sheets

(in € Thousands)

CALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10

FISCAL QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10

ASSETS

Goodwill and intangible assets, net € 6,382,000 € 6,590,000 € 6,937,000 € 6,407,000 € 6,426,000

Goodwill 4,168,000 4,331,000 4,583,000 4,311,000 4,370,000

Intangible assets, net 2,214,000 2,259,000 2,354,000 2,096,000 2,056,000

Property, Plant & Equipment, Net 1,260,000 1,282,000 1,309,000 1,207,000 1,311,000

Share in net assets of equity affiliates 60,000 58,000 57,000 56,000 9,000

Other non-current financial assets, net 392,000 452,000 461,000 430,000 400,000

Deferred tax assets 836,000 892,000 930,000 922,000 948,000

Prepaid pension costs 2,400,000 2,602,000 2,902,000 2,803,000 2,746,000

Other non-current assets 314,000 223,000 306,000 220,000 257,000

Total Non-Current Assets € 11,644,000 € 12,099,000 € 12,902,000 € 12,045,000 € 12,097,000

Inventories and Work in Progress, net 1,624,000 2,186,000 2,669,000 2,567,000 2,295,000

Trade receivables and related accounts, net 3,221,000 3,287,000 3,467,000 3,323,000 3,664,000

Advances and progress payments 93,000 81,000 74,000 88,000 75,000

Other current assets 960,000 1,105,000 1,248,000 1,126,000 885,000

Assets held for sale 51,000 56,000 80,000 219,000 3,000

Current income taxes 157,000 162,000 187,000 161,000 168,000

Marketable securities, net 1,993,000 1,632,000 1,788,000 1,197,000 649,000

Cash and cash equivalents 3,577,000 3,675,000 3,053,000 3,227,000 5,040,000

Total Current Assets € 12,204,000 € 12,184,000 € 12,566,000 € 11,908,000 € 12,779,000

Total Assets € 23,848,000 € 24,283,000 € 25,468,000 € 23,953,000 € 24,876,000

LIABILITIES AND EQUITY

Shareholders' equity- attributable to the equity holders

of the parent € 3,740,000 € 3,514,000 € 2,473,000 € 2,377,000 € 3,545,000

Minority Interest 569,000 615,000 675,000 631,000 660,000

Total Shareholders' Equity € 4,309,000 € 4,129,000 € 3,148,000 € 3,008,000 € 4,205,000

Pensions, retirement indemnities and other post-

retirement benefits 5,043,000 5,158,000 6,596,000 6,014,000 5,090,000

Bonds and Notes Issues, long-term 4,084,000 3,428,000 3,710,000 3,479,000 4,037,000

Other long-term debt 95,000 89,000 61,000 61,000 75,000

Deferred tax liabilities 1,058,000 1,168,000 1,232,000 1,127,000 1,126,000

Other non-current liabilities 209,000 253,000 229,000 247,000 259,000

Total Non-Current Liabilities € 10,489,000 € 10,096,000 € 11,828,000 € 10,928,000 € 10,587,000

Provisions 2,008,000 2,152,000 2,265,000 1,969,000 1,858,000

Current portion of long-term debt 576,000 1,356,000 1,040,000 1,146,000 1,266,000

Customers' Deposits and Advances 639,000 782,000 858,000 915,000 803,000

Trade Payables and Related Accounts 3,926,000 4,033,000 4,392,000 4,173,000 4,325,000

Current income tax liabilities 72,000 84,000 116,000 68,000 137,000

Other current liabilities 1,763,000 1,651,000 1,821,000 1,746,000 1,695,000

Total Current Liabilities € 9,050,000 € 10,058,000 € 10,492,000 € 10,017,000 € 10,084,000

Total Liabilities and Shareholders' Equity € 23,848,000 € 24,283,000 € 25,468,000 € 23,953,000 € 24,876,000

FINANCIAL RATIOS

Day Sales Outstanding 73.08 91.11 81.83 73.41 67.82

Turns on Inventory 5.76 4.60 4.01 4.12 5.11

Days Inventory Outstanding 63.37 79.41 90.93 88.58 71.49

Fixed Asset Turnover 12.71 10.22 11.77 12.95 15.45

Days Cash Outstanding 126.37 147.10 114.26 97.73 105.31

Total Asset Turnover 0.66 0.54 0.61 0.66 0.80

Debt/Asset Ratio 0.42 0.40 0.41 0.42 0.43

Current Ratio 2.06 1.93 1.86 1.83 1.94

Return on Assets 0.4% -2.1% -0.7% 0.2% 1.4%

Return on Equity 1.7% -11.5% -4.5% 1.2% 9.4%

Annualized Revenue per Employee - Euro 202,961€ 201,980€ 202,104€ 205,304€ 212,925€

Annualized Revenue per Employee - USD 300,346$ 279,320$ 257,283$ 265,119$ 289,210$

Employee Count 71,717 71,500 74,000 77,000 78,000

Exchange Rate ($US to Euro) 1.480 1.383 1.273 1.291 1.358


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Balance Sheet ALCATEL-LUCENT

Consolidated Balance Sheets

(in $ Thousands)

CALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10

FISCAL QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10

ASSETS

Goodwill and intangible assets, net 9,444,195$ 9,113,358$ 8,830,986$ 8,273,654$ 8,728,242$

Goodwill 6,167,879 5,989,371 5,834,281 5,566,993 5,935,639

Intangible assets, net 3,276,316 3,123,987 2,996,705 2,706,661 2,792,603

Property, Plant & Equipment, Net 1,864,570 1,772,887 1,666,392 1,558,655 1,780,692

Share in net assets of equity affiliates 88,789 80,209 72,563 72,315 12,224

Other non-current financial assets, net 580,088 625,074 586,865 555,279 543,308

Deferred tax assets 1,237,127 1,233,553 1,183,915 1,190,621 1,287,640

Prepaid pension costs 3,551,562 3,598,324 3,694,323 3,619,643 3,729,809

Other non-current assets 464,663 308,388 389,546 284,096 349,075

Total Non-Current Assets 17,230,994$ 16,731,794$ 16,424,589$ 15,554,263$ 16,430,990$

Inventories and Work in Progress, net 2,403,223 3,023,035 3,397,708 3,314,885 3,117,229

Trade receivables and related accounts, net 4,766,492 4,545,616 4,413,583 4,291,143 4,976,701

Advances and progress payments 137,623 112,015 94,204 113,638 101,870

Other current assets 1,420,625 1,528,112 1,588,737 1,454,056 1,202,069

Assets held for sale 75,471 77,443 101,842 282,805 4,075

Current income taxes 232,331 224,031 238,056 207,907 228,189

Marketable securities, net 2,949,276 2,256,904 2,276,172 1,545,741 881,517

Cash and cash equivalents 5,293,307 5,082,184 3,886,550 4,167,174 6,845,680

Total Current Assets 18,059,692$ 16,849,341$ 15,996,852$ 15,377,348$ 17,357,330$

Total Assets 35,290,686$ 33,581,134$ 32,421,442$ 30,931,611$ 33,788,321$

LIABILITIES AND EQUITY

Shareholders' equity- attributable to the equity holders

of the parent 5,534,517$ 4,859,536$ 3,148,195$ 3,069,529$ 4,815,067$

Minority Interest 842,016 850,488 859,293 814,839 896,458

Total Shareholders' Equity € 6,376,533 € 5,710,024 € 4,007,488 € 3,884,369 € 5,711,525

Pensions, retirement indemnities and other post-

retirement benefits 7,462,719 7,133,035 8,396,884 7,766,155 6,913,594

Bonds and Notes Issues, long-term 6,043,574 4,740,606 4,722,929 4,492,593 5,483,335

Other long-term debt 140,583 123,079 77,655 78,772 101,870

Deferred tax liabilities 1,565,647 1,615,236 1,568,369 1,455,347 1,529,412

Other non-current liabilities 309,282 349,876 291,523 318,962 351,792

Total Non-Current Liabilities 15,521,805$ 13,961,831$ 15,057,359$ 14,111,829$ 14,380,003$

Provisions 2,971,473 2,976,016 2,883,405 2,542,660 2,523,665

Current portion of long-term debt 852,375 1,875,222 1,323,948 1,479,883 1,719,570

Customers' Deposits and Advances 945,603 1,081,433 1,092,257 1,181,582 1,090,691

Trade Payables and Related Accounts 5,809,763 5,577,265 5,591,133 5,388,787 5,874,517

Current income tax liabilities 106,547 116,164 147,671 87,812 186,083

Other current liabilities 2,608,918 2,283,180 2,318,181 2,254,690 2,302,267

Total Current Liabilities 13,392,348$ 13,909,280$ 13,356,595$ 12,935,413$ 13,696,793$

Total Liabilities and Shareholders' Equity 35,290,686$ 33,581,134$ 32,421,442$ 30,931,611$ 33,788,321$

FINANCIAL RATIOS

Day Sales Outstanding 73.08 91.11 81.83 73.41 67.82

Turns on Inventory 5.76 4.60 4.01 4.12 5.11

Days Inventory Outstanding 63.37 79.41 90.93 88.58 71.49

Fixed Asset Turnover 12.71 10.22 11.77 12.95 15.45

Days Cash Outstanding 126.37 147.10 114.26 97.73 105.31

Total Asset Turnover 0.66 0.54 0.61 0.66 0.80

Debt/Asset Ratio 0.42 0.40 0.41 0.42 0.43

Current Ratio 2.06 1.93 1.86 1.83 1.94

Return on Assets 0.4% -2.1% -0.7% 0.2% 1.4%

Return on Equity 1.7% -11.5% -4.5% 1.2% 9.4%

Average Annual Revenue per Employee - USD 300,346$ 279,320$ 257,283$ 265,119$ 289,210$

Employee Count 71,717 71,500 74,000 77,000 78,000

Exchange Rate ($US to Euro) 1.480 1.383 1.273 1.291 1.358


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