Lucent Technologies Reports Results for Fourth Fiscal Quarter

Source: Lucent Technologies

- Revenues for Lucent s Pro Forma Continuing Operations Up 14.6 Percent - Company Lowers Guidance for First Fiscal Quarter 2001

Murray Hill, NJ. Lucent Technologies (NYSE: LU) today said that pro forma revenues from continuing operations(1) increased 14.6 percent to $9.4 billion for its fourth fiscal quarter ended Sept. 30, 2000, versus $8.2 billion in the year-ago quarter.

Pro forma earnings per share from continuing operations for the quarter were 18 cents a share, or $600 million, down from 24 cents a share, or $768 million, a year ago. These results are in line with the announcement the company made on Oct. 10, saying that it expected its fourth fiscal quarter earnings to be lower than its previously announced guidance.

For the fiscal year ended Sept. 30, 2000, pro forma revenues from continuing operations rose 14.5 percent over fiscal year 1999 to $34.3 billion. Pro forma earnings per share from continuing operations declined 9.8 percent.

"We are clearly disappointed in our results for fiscal year 2000," said Henry Schacht, who was named Lucent chairman and CEO today. "We are looking at fiscal year 2001 as a transition and rebuilding year for Lucent. Lucent remains a company with world-class products, people and knowledge of networks, and we are fortunate to compete in one of the world s leading growth markets."

"We have already begun a number of initiatives to sharpen our execution, reduce complexity and increase our efficiencies," said Deborah Hopkins, Lucent s chief financial officer. Hopkins said that these initiatives include an intense review of Lucent s product portfolio to align resources against the highest value opportunities. Additionally, these initiatives also include consolidating Lucent s corporate infrastructure, re-deploying the company s marketing and sales resources to align them with the highest growth opportunities, improving supply chain management and implementing a new customer ordering system. As previously announced, the company expects to take a restructuring charge in the quarter ending Dec. 31, 2000, to cover these activities.

"We intend to create a new Lucent -- a dynamic company that, in the long term, will be stronger, more focused and better positioned to capitalize on the opportunities that exist in this robust and growing market," Hopkins added.

Revised Expectations for First Fiscal Quarter of 2001

Hopkins said that Lucent expects pro forma revenues from continuing operations will decline about 7 percent from the prior year, and pro forma earnings per share from continuing operations will break even for the first fiscal quarter of 2001. The company also said it expects results from operations to improve sequentially each quarter for the rest of the fiscal year. This guidance does not include the effect of plans for a business restructuring charge. She noted that the company will provide revised guidance for fiscal year 2001 when it reports its first fiscal quarter earnings in January. These revised expectations reflect the continuing issues related to the deployment of the OC-192 optical system; the continuing decline in switching hardware and software sales; the anticipated revenue impact of realigning sales resources; and aggressively investing in the next generation of wireless, optical and data products.

Results on an as-reported basis

On an as reported basis, revenue from continuing operations for the fourth fiscal quarter of 2000 increased 12.1 percent to $9.4 billion compared to $8.3 billion in the year-ago quarter. After including charges of $131 million for purchased in-process research and development related to the acquisition of Spring Tide, $335 million in amortization of goodwill and acquired technology, and a $433 million (or 13 cents per share) net loss from discontinued operations, Lucent s as reported results for the quarter were a net loss of $225 million, or 7 cents per share, compared with net income of $947 million, or 29 cents per share, in the year-ago quarter.

For the fiscal year ended Sept. 30, 2000, on an as reported basis, revenue from continuing operations increased 12.7 percent to $34.5 billion compared to $30.6 billion a year ago. After including certain one-time items and amortization of goodwill and acquired technology(2), Lucent s as reported net income was $1.5 billion, or 44 cents per share, compared with net income of $4.8 billion, or $1.49 per share, for the fiscal year ended Sept. 30, 1999.

A Review of Fourth Fiscal Quarter Performance

Commenting on the results for the fourth fiscal quarter of 2000, Hopkins said, "Three key issues negatively impacted our performance. We saw lower-than-expected revenues and gross margins in our optical business, due primarily to being late to market with our OC-192 product and the effect that had on the entire product cycle, from engineering and manufacturing to deployment and launch. We also experienced lower-than-expected revenues and margins from switching products. And specific credit concerns in the growing emerging service provider market led us to increase our reserves for bad debt related to trade receivables."

During the quarter, the company showed strong revenue growth in its Internet infrastructure, professional services and Microelectronics and Communications Technologies businesses. Lucent completed its spin off of the enterprise business on Sept. 30, 2000. As previously announced, Lucent also plans to spin off its microelectronics business, which includes the optoelectronics components and integrated circuits (IC) divisions.

REVIEW OF OPERATIONS - THREE MONTHS ENDED SEPT. 30, 2000

Service Provider Networks Revenues increased by 4.8 percent over the year-ago quarter to $7.2 billion, driven by growth in the company s service provider Internet infrastructure and professional services businesses. This increase was fueled by strong sales to competitive and incumbent local exchange carriers.

Within the U.S., revenues increased 3.4 percent, impacted by a decline in sales to one customer, which decreased 48 percent over the year-ago quarter. Without that one customer, sales within the U.S. would have increased 21 percent quarter over quarter. Revenues outside of the U.S. represented approximately 33.8 percent of total service provider revenues and increased 7.6 percent as sales growth continued to be adversely affected by the substantial reduction of a major long-term foreign project. Excluding the impact of this project, revenues outside of the U.S. would have been 22.7 percent higher than the year-ago quarter.

For the 12 months ended Sept. 30, 2000, revenues increased 9.5 percent to $27.2 billion.

Since July, the Service Provider Networks group: · Announced agreements worth up to $3.5 billion from a wide range of broadband, wireless and optical networking projects. · Entered into major agreements with WINFirst, SBC Communications and Telemar of Brazil to launch Lucent s next-generation Internet infrastructure products. The 7R/E switching solution was included in these agreements to provide a smooth transition from circuit to packet networks. · Provided Lucent softswitch technology to Sprint to help manage the data and Internet traffic across its nationwide network. · Announced agreements with Net2Wireless, Sanyo and MapInfo, among others, to develop applications and services for the mobile Internet. · Shipped the industry s first all-optical switch to Global Crossing for live network testing -- routing 2.5 gigabit traffic between New York and England. · Turned up commercial service on a 10-gigabit optical network for China s Beijing Telecommunications Administration and announced a contract with China s Fujian Mobile Communication Co. Ltd. to build three 10-gigabit backbone optical networks in the Fujian Province. · Added two new models of its highly successful Stinger DSL line of access concentrators; introduced the OCELOT(tm) software system, which increases the capacity and coverage of current and third generation (3G) wireless networks; introduced a new business performance software package for service providers called VitalSuite SP; and unveiled Contact Assist software that provides rapid, personalized assistance on e-commerce Web sites. Microelectronics & Communications Technologies (M&CT) Revenues increased by 58.9 percent over the year-ago quarter to $2.1 billion, reflecting growth in optoelectronic components and increased sales of optical fiber, power systems, wireless networking systems and customized chips for high-speed communications and storage products. Within the U.S., revenues increased 80.9 percent over the year-ago quarter. Revenues outside the U.S. increased 34.6 percent and represented approximately 40.2 percent of total M&CT revenues. For the 12 months ended Sept. 30, 2000, revenues rose 38.3 percent to $7.0 billion. Since July, the Microelectronics and Communications Technologies Group: · Introduced the executive leadership of the planned Microelectronics spin off: John Dickson will be president and CEO, and John Young, former CEO of Hewlett-Packard, will be the chairman. · Unveiled the industry s first 20-channel tunable integrated laser module for high-speed optical networking systems and unveiled an InfiniBand(tm) system chip for speeding up Internet data flow across computer networks. · Entered into a $700 million research and development agreement with Chartered Semiconductor, its manufacturing partner in Singapore.

DISCONTINUED OPERATIONS

On Sept. 30, 2000, Lucent Technologies completed the spin off of its enterprise networks business, which is now known as Avaya Inc., and has accounted for the financial results of that business as discontinued operations. The results from discontinued operations for the quarter were a net loss of $433 million. Lucent s financial results for discontinued operations will differ from the results reported by Avaya due to different assumptions and allocations required to be made by the two companies.

GROSS MARGIN

As a percentage of pro forma revenue from continuing operations, the gross margin for the quarter was 39.2 percent, a decrease of 6.2 percentage points over the year-ago quarter. The margin erosion was primarily due to: decreased volumes and margins in the optical and switching businesses; increased pricing pressures in our other businesses; and Lucent s expansion into overseas markets.

EXPENSES

Selling, general and administrative expenses (SG&A), excluding one-time events in the prior fiscal quarter and goodwill and acquired technology amortization, were $1.7 billion, an increase of 14.7 percent from the year-ago quarter. The increases were primarily due to specific credit concerns in the emerging service provider market that led to increasing reserves for bad debt related to trade receivables. As a percentage of revenue, SG&A expenses were 17.9 percent for the quarter, unchanged from the fourth fiscal quarter of 1999.

Research and development spending was 11.1 percent of overall revenues for the quarter. The quarterly earnings conference call will take place at 5:00 pm EDT and be broadcast live over the internet at http://www.lucent.com/investor/conference/webcast.

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 and suppliers, customer demand for our products and services, the ability to successfully integrate acquired companies, availability of manufacturing capacity, components and materials, control of costs and expenses, international growth, credit concerns in the emerging service provider market, 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. All earnings per share reported in this release are diluted EPS figures.

(1) Pro forma net income/EPS excludes the enterprise networks business that was spun off Sept. 30, the consumer products business, amortization of goodwill and acquired technology and one-time events, including purchased in-process research and development. Pro forma revenues exclude the enterprise networks business and the consumer products business.

(2) Fiscal 2000 included $1.0 billion for purchased in-process research and development related to acquisitions, $551 million of goodwill and acquired technology amortization, merger-related costs of $61 million, a $189 million gain on the sale of an equity investment and a $462 million net loss from discontinued operations. Fiscal 1999 included $292 million for purchased in-process research and development related to acquisitions, $310 million amortization of goodwill and acquired technology amortization, merger-related costs of $237 million, a $274 million gain on the sale of an investment, net income from discontinued operations of $455 million and a gain of $1.3 billion (net of tax of $842 million) related to a cumulative effect of an accounting change.

Contact: Bill Price Tel: 908-582-4820 or home 973-515-5038 williamprice@lucent.com or Michelle Davidson Tel: 908-582-7635 or home 973-218-0032 mmdavidson@lucent.com both of Lucent Technologies