Agere Systems Reports Results for Third Fiscal Quarter 2001

The Optoelectronics business reported revenues of $277 million during the third quarter, down from $379 million in the March quarter, as the industry softness spread beyond the long-haul market.

July 25, 2001

ALLENTOWN, Pa., Agere Systems, the world leader in communications components, today reported that revenues for its third fiscal quarter, ended June 30, 2001, were $927 million, slightly above the updated guidance of $920 million provided on June 29, 2001, and down approximately 22 percent both sequentially and over the year-ago quarter.

Pro forma net loss, which excludes amortization of goodwill and acquired intangibles, purchased in-process research and development, and restructuring and separation charges, was $492 million or $0.30 per share for the June quarter, in line with the company s updated guidance. Pro forma EPS assumes that the 1.635 billion shares outstanding after the company s IPO were outstanding for all periods. The pro forma net loss includes an inventory write-down of approximately $270 million, which is somewhat above the $255 million inventory write-down the company estimated on June 29, as well as the deferred recognition of tax benefits on losses.

Excluding the inventory write-down, and assuming full realization of income tax benefits, pro forma net loss in the June quarter would have been $115 million or $0.07 per share.

Pro forma net income was $4 million or breakeven per share for the March quarter, and $126 million or $0.08 per share for the third fiscal quarter of 2000.

Reported net loss for the June quarter was $1.1 billion or $0.68 per share, and reflects all the items excluded from pro forma net loss, including approximately $440 million in restructuring charges associated with the consolidation of manufacturing and workforce reduction announced during the quarter. Reported net loss for the second fiscal quarter of 2001 was $148 million, or $0.15 per share, and reported net income for the year-ago quarter was $365 million or $0.35 per share.

"We re taking significant actions on two fronts to manage the business through these difficult times and prepare for the market upturn, said John Dickson, president and CEO, Agere Systems. "First, our consolidation and workforce actions announced in June, combined with other cost-cutting measures across the business, will enable us to lower our breakeven point. Secondly, strong design win activity with major customers, new product introductions and our continued investment to support our leadership in optoelectronics and integrated circuits position us well for future revenue growth. Executing quickly and decisively on these two fronts will enable us to emerge stronger from this downturn.

On June 29, the company announced a series of business restructuring initiatives, including its intention to sell its chip fabrication plant in Madrid, Spain, and discontinue operations in that facility by the end of the year. The company has now identified a buyer for the plant, BP, which is a leading energy supplier based in the UK, and expects to sign the sale agreement soon. The company also announced a workforce reduction of 4,000 employees on June 29, and has begun to notify affected employees, with expected completion of a majority of the reduction by the end of the calendar year. This reduction was incremental to the workforce action announced in April of 2,000 employees, which has now been completed.

RESULTS BY SEGMENT:

Optoelectronics The Optoelectronics business reported revenues of $277 million during the third quarter, down from $379 million in the March quarter, as the industry softness spread beyond the long-haul market. In the third quarter, the Optoelectronics business: * Introduced two powerful new products to support Raman amplification, which amplifies communications signals as they travel through optical fiber more effectively than current techniques. Agere launched the industry s first undersea pump laser for Raman amplification in ultra high-capacity submarine optical networks, as well as the industry s most powerful distributed feedback Raman pump laser. * Announced a multi-source agreement for 10-Gigabit Ethernet transceivers, enabling systems manufacturers to procure components from multiple sources. * Launched the industry s lowest-voltage, highest-bandwidth 40 Gbit/s lithium niobate modulator, which converts a continuous laser signal output into high-speed light pulses that transmit voice, data and video signals over fiber optic cables.

Integrated Circuits The Integrated Circuits business reported revenues of $650 million during the June quarter, down from $812 million in the March quarter, driven primarily by reduced capital spending in the telecom sector. In the third quarter, the Integrated Circuits business: * Unveiled industry-leading products to address the high-speed networking market, including a 10 Gbit/s network processor and traffic management chip set, as well as a next-generation chip for switching 40 Gbit/s traffic. * Introduced a system-on-a-chip solution to efficiently move voice and data traffic between high-speed networks and the access networks that connect to homes and offices. * Signed an agreement with NEC to provide it with chips for high-speed Internet access over general packet radio service (GPRS) cellular phones. The two companies are also working on broader development of 3G cellular phones.

Outlook

Agere expects revenues in the September quarter to decrease about 30 to 35 percent from the June quarter. The decline reflects continued low order levels for Agere as systems providers continue to manage their orders and inventory in light of reduced capital expenditures by carriers. Agere expects a pro forma net loss per share, deferring recognition of tax benefits on losses, in the range of $0.30 to $0.33 per share in the fourth fiscal quarter. The company notes that market conditions remain uncertain, leading to limited visibility.

Agere Systems is the world s No. 1 provider of components for communications applications with leadership in optical components and integrated circuits. This dual capability uniquely positions Agere to deliver integrated solutions that form the building blocks for advanced wired, wireless, and optical communications networks. Agere also designs and manufactures a wide range of semiconductor solutions for communications-related devices used by consumers such as cellular phones, modems, and hard disk drives for personal computers and workstations. In addition, the company supplies complete wireless computer networking solutions through the ORiNOCO(TM) product line. More information about Agere Systems is available from its Web site at http://www.agere.com.

This release contains forward-looking statements based on information available to Agere as of the date hereof. Agere s actual results could differ materially from those results stated or implied by such forward-looking statements due to a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, completion of the distribution of Agere stock by Lucent Technologies Inc., price and product competition, keeping pace with technological change, dependence on new product development, reliance on major customers and suppliers, customer demand for our products and services, availability of manufacturing capacity, components and materials, control of costs and expenses, timely completion of employment reductions and other restructuring activities, 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 discussion of these and other risks and uncertainties, see the prospectus filed by Agere with the Securities and Exchange Commission on March 28, 2001, and the company s report on Form 10-Q for the quarterly period ended March 31, 2001. Agere disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.