Lucent Technologies to spin off its microelectronics business

IPO for world leader in communications semiconductors planned

Murray Hill, NJ. Lucent Technologies (NYSE: LU) today announced that it would spin off its microelectronics business, which includes the optoelectronics components and integrated circuits (IC) divisions, into a separate company. The new company, which will be named later, will begin its life as the world s leading provider of communications semiconductors with more than $4 billion in revenues over the last four quarters.

Lucent is planning an initial public offering (IPO) for up to 20 percent of the new company and intends to spin off the remaining shares in a tax-free distribution. The IPO should take place by the end of the first calendar quarter of 2001, and the spinoff should be completed by the summer of 2001.

Lucent s microelectronics business makes silicon chips and optoelectronic components, such as lasers, that are the building blocks for communications systems ranging from wireless phones and modems to Internet equipment and optical networking systems. It is focused on one of the fastest growing segments of the semiconductor market -- communications.

"We are creating a vibrant new company that from its beginning will be an industry leader in two of the hottest growth markets in the semiconductor industry: optoelectronics and communications ICs," said Richard McGinn, Lucent Technologies chairman and chief executive officer. "It will be the only stand-alone component company with the ability to marry the worlds of silicon and optical on its own."

With more than 75 percent of its sales coming from outside of Lucent today, the microelectronics business often sells to Lucent s competitors. "This new company will be able to accelerate its growth now that it s free from this strategic conflict," continued McGinn. "This move will also unleash the shareholder value of our microelectronics business, whose success will now be more fully recognized outside of Lucent s larger communications networking systems business.

"At the same time, Lucent will now be able to completely focus on the largest network build-out in world history - a more than $225 billion global opportunity in broadband and mobile Internet infrastructure that is expected to double in five years," said McGinn. "We will concentrate our investments, resources and management attention on a triple play of optical, data and wireless solutions with the network design, consulting and integration services to support them.

"The communications infrastructure and semiconductor markets have become so big, so fast-moving and so competitive that it is time to divide in order to accelerate growth," said McGinn. "The best way to excel in these markets is through two more focused and agile companies - each with a singular mission, concentrated resources and an increased intensity. With this increased focus, both companies will be able to grow even faster."

Lucent continues taking steps to strengthen its focus on next-generation Internet networks. In the last year, Lucent has made 10 acquisitions in the core networking and professional services areas, including the acquisition of Chromatis, which is a leader in metro optical networking systems, the fastest-growing segment of the optical networking market

The New Microelectronics Company

McGinn said that John Dickson, executive vice president and chief executive officer of Lucent s Microelectronics and Communications Technologies group, will lead the effort to form the new company. The senior leadership team for the new public company will be named at a later date.

The new company is the leader in the fastest growing piece of the worldwide component market - the communications sector. Over the last 18 months, it has invested about $1 billion in expanding manufacturing capability and almost $4 billion in acquisitions to keep pace with industry demand. In the last six months, the business has acquired Herrmann Technology and Ortel in the optoelectronics space, and Agere and the design, marketing and sales teams of VTC in the IC space.

The company will become the only major, stand-alone semiconductor business with leadership in both optoelectronics components and integrated circuits. As companies look to converge electrical and optical technologies, the new company will be uniquely positioned with its dual expertise. It will compete with optoelectronics companies such as JDS Uniphase and integrated circuits companies like Texas Instruments, Broadcom and ST Microelectronics.

The new company will be the worldwide leader in communications semiconductors ranking No. 1 in digital signal processors (DSP s) for wireless network infrastructure, integrated circuits (ICs) for SONET and SDH optical networking systems, wired communications ICs, modem ICs for laptop computers and system-on-a-chip solutions. It also will lead the optoelectronics industry in manufacturing automation, modulators for 10 and 40 gigabit-per-second optical networking systems, submarine optoelectronics, and a variety of lasers used in communications applications.

Lucent s optoelectronics components business grew more than 80 percent - twice the industry rate over the last 12 months. The business recently completed an expansion of its automated optoelectronics manufacturing facilities in Pennsylvania, which will quadruple capacity by year-end. In April, the company completed its acquisition of Ortel, an optoelectronics component supplier for cable modem manufacturers, and recently announced an expansion of the Ortel manufacturing operations in Southern California.

"No semiconductor company can match our end-to-end capability, or our leadership in communications segments from wired to wireless, voice to data, or copper to optical transport," Dickson said. "The new company becomes a pure play for communications semiconductors in the industry - a market growing greater than 20 percent."

The new company will maintain its current customer and supplier relationships. Almost half of its business comes from outside the United States. Its customer list includes virtually every major network equipment manufacturer worldwide, including nine of the top 10 PC manufacturers. Lucent will continue to be a significant customer for the microelectronics business.

The business, headquartered in Allentown, Pa., employs more than 16,000 people in 105 locations worldwide, including major research and development and manufacturing facilities in Allentown, Reading and Breinigsville, Pa.; Orlando, Fla.; Alhambra, Calif.; Tres Cantos, Spain; Bangkok, Thailand; Matamoros, Mexico; and Singapore.

Lucent Technologies Sharpened Focus

Backed by the innovations of Bell Labs, Lucent will sharpen its focus on the fastest growing opportunity in the communications networking industry: Internet infrastructure based on optical, data and wireless networks supported by professional services and software. Excluding the microelectronics, enterprise networks and power businesses, ongoing Lucent produced about $25 billion in revenues over the past four quarters.

Lucent will remain the worldwide leader in communications networking with strong leadership positions in the Internet infrastructure, optical networking and wireless markets. Lucent boasts the largest and most experienced team in network consulting, design and integration services. Lucent s Bell Labs remains the premier research and development organization in communications.

"No one knows networks better than Lucent," said McGinn. "At a time when the Internet is being overhauled, it is no longer sufficient to supply just hot boxes. Customers are looking for a complete solution, including the building blocks and expertise to put them together."

After the spinoff, each company will have its own brand, board of directors and R&D organizations. Lucent expects to take a business restructuring charge associated with the redesign of its business.

Lucent Technologies, headquartered in Murray Hill, N.J., USA, designs and delivers the systems, software, silicon and services for next-generation communications networks for service providers and enterprises. Backed by the research and development of Bell Labs, Lucent focuses on high-growth areas such as broadband and mobile Internet infrastructure; communications software; communications semiconductors and optoelectronics; Web-based enterprise solutions that link private and public networks; and professional network design and consulting services. For more information on Lucent Technologies, visit its Web site at http://www.lucent.com.

This news release contains forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include price and product competition, dependence on new product development, reliance on major customers, customer demand for our products and services, the ability to successfully integrate acquired companies, obtaining a favorable tax ruling on the proposed spin off of the new company, timely completion of the proposed IPO and spin off of the new company, control of costs and expenses, international growth, general industry and market conditions and growth rates and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations. For a further list and description of such risks and uncertainties, see the reports filed by Lucent with the Securities and Exchange Commission. Lucent disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact: Mary Lou Ambrus Lucent Technologies 908-582-3060 (office) Email:mambrus@lucent.com or Bill Price Lucent Technologies 908-582-4820 (office) Email:williamprice@lucent.com