LUCENT TECHNOLOGIES REPORTS RESULTS FOR FIRST QUARTER OF FISCAL 2003

FOR RELEASE: WEDNESDAY, JANUARY 22, 2003
      
MURRAY HILL, N.J. - Lucent Technologies (NYSE: LU) today reported results for the first quarter of fiscal 2003, which ended Dec. 31, 2002, in accordance with U.S. generally accepted accounting principles (GAAP). The company recorded revenues of $2.08 billion in the quarter, which represented a 9 percent sequential decline from the $2.28 billion in revenues achieved in the fourth quarter of fiscal 2002. The company had previously stated that revenues for the quarter would be flat to down 10 percent on a sequential basis. The company recorded $3.58 billion in revenues in the year-ago quarter.
      
The company's net loss for the quarter was $264 million or 11 cents per share¹. These results compare with a loss of $2.81 billion or 84 cents per share in the fourth quarter of fiscal 2002 and a loss of $423 million or 14 cents per share in the year-ago quarter.
      
The first quarter's loss per share included the favorable impact of 5 cents per share² due to the reduction of reserves for a legal settlement associated with Lucent's former consumer products leasing business and certain business restructuring actions, as well as customer financing recoveries. These favorable items were partially offset by a negative impact of 1 cent per share² from the repurchase of convertible securities, including the resulting tax benefits. These items resulted in a net favorable impact of 4 cents per share in the first quarter.
      
By comparison, the loss per share for the fourth quarter of fiscal 2002 was negatively impacted by charges of 59 cents per share², primarily due to business restructuring charges, a significant customer financing default and other asset impairment charges. The loss per share for the year-ago quarter was favorably impacted by 13 cents per share², primarily due to gains related to the sale of the optical fiber business and certain other investments and the reversal of certain business restructuring charges. In addition, results for the year-ago quarter included significant tax benefits, which are not currently recognized due to the full valuation allowance on the company's net deferred tax assets. 

EXECUTIVE COMMENTARY ON FINANCIAL RESULTS AND OUTLOOK
      
"We made good progress on our path to profitability with an improvement in gross margins and continued reductions in expenses, despite a decline in revenue that was in line with the low end of our guidance. We did what we said we would do this past quarter," said Lucent Chief Executive Officer Patricia Russo. "We also announced 20 new contracts in the past quarter and continue to expect a significant increase in revenues this quarter."
      
While not forecasting an improvement in the overall market, Lucent continues to expect an increase in its revenues to about $2.5 billion in the second quarter of fiscal 2003. Excluding the net favorable impact of 4 cents per share in the first quarter, the company expects sequential improvement to the bottom line in the second quarter. The company also reiterated that it continues to work toward a return to profitability in late fiscal 2003.
      
Lucent Chief Financial Officer Frank D'Amelio emphasized, "With the ongoing actions to reduce our cost and expense structure, we still expect to achieve EPS breakeven at $2.5 billion of quarterly revenue by the end of the fiscal year, and we are working to reduce that breakeven further.  In the second quarter, we expect to see margin improvements as we increase our volumes and continue to get traction from our latest restructuring actions. We remain totally focused on executing our plan."
     
BALANCE SHEET UPDATE
      
As of Dec. 31, 2002, Lucent had $3.7 billion in cash and short-term investments. This represents a decline of approximately $700 million in the quarter, which was less than originally planned. The decline primarily resulted from cash used in operations, business restructuring and capital spending. 
      
The total cash expected to be used for the full fiscal year remains as previously forecast. The company reaffirmed that it has sufficient liquidity to fund its plans, and as stated previously, it still expects to end fiscal 2003 with more than $2 billion in cash.
      
During the quarter, Lucent repurchased $392 million of its 8% convertible preferred stock and $218 million of its 7.75% trust preferred securities for 214 million shares of common stock.    Additionally, since Dec. 31, 2002, Lucent repurchased another $143 million of its 8% convertible preferred stock and $170 million of its 7.75% trust preferred securities for 116 million shares of common stock. Since beginning its repurchases in the fourth quarter of fiscal 2002, the company has repurchased a total of more than $1 billion of convertible securities to date.
      
The company also said today that it has elected to pay the semiannual dividend on its 8% convertible preferred stock by issuing shares of its common stock to preferred shareowners.  Under the terms of this security, the shares of common stock will be sold so that preferred shareowners will receive cash.
      
GROSS MARGIN AND OPERATING EXPENSES
      
Gross margin for the quarter was 22 percent of revenues as compared with negative 15 percent for the fourth quarter of fiscal 2002, a sequential increase of 37 percentage points.  The fourth quarter of fiscal 2002 was adversely impacted by approximately $700 million of charges, or about 31 percentage points, primarily resulting from additional inventory-related charges and adjustments related to certain long-term contracts and customer obligations, including a significant customer financing default. In the year-ago quarter, gross margin was 12 percent.
      
Operating expenses for the first quarter of fiscal 2003 were $766 million as compared with $2.45 billion for the fourth quarter of fiscal 2002. The sequential decrease was driven by the fourth quarter's significant business restructuring charges, a significant customer financing default and asset impairment charges, as well as the first quarter's continuing cost reductions and lower provisions for bad debt and customer financing. In the year-ago quarter, operating expenses were $1.79 billion. The decrease from the year-ago quarter was driven by lower provisions for bad debt and customer financing and cost savings resulting from the company's business restructuring actions.
      
REVIEW OF OPERATIONS - THREE MONTHS ENDED DEC. 31, 2002
      
On a sequential basis, revenues in the U.S. declined 10 percent to $1.29 billion and international revenues decreased 7 percent to $783 million. Compared with the year-ago quarter, the U.S. and international revenues each decreased 42 percent. The declines were primarily due to continuing reductions in capital spending by service providers.
      
Despite continuing market declines in the quarter, Lucent announced 20 new contracts representing close to $1.5 billion in revenues.
      
The company also continued to deploy products to help its customers evolve and expand existing networks and introduced new products that add next-generation capabilities where customers need them.
      
Lucent's Worldwide Services organization played a major role in many of Lucent's contract wins and also won an "Investing in Excellence" award from BT in December. The award acknowledged Lucent's role in effectively supporting BT's network infrastructure and helping BT reduce overall costs and operational expenditures.

Integrated Network Solutions (INS)
      
Revenues for the first quarter of fiscal 2003 were $1.02 billion, a decrease of 18 percent sequentially and a decrease of 45 percent compared with the year-ago quarter. 
      
Recent highlights include:
* Announcing the Lucent 5E-XC(tm) switch - a significant upgrade to the Lucent 5ESS® switch - and that SBC would begin to deploy it immediately. The 5E-XC switch triples the capacity of existing switches, requires less space, and can save customers up to 50 percent annually in operating costs. It also provides a cost-effective optical interface and upgrade path to IP networking.
* Winning optical networking contracts in China, Belgium, Poland, the Czech Republic and Indonesia.
* Introducing a new Line Access Gateway, to be deployed by Korea Telecom, which supports twice as many subscribers as Lucent's previous gateway.

Mobility Solutions
      
Revenues for the first quarter of fiscal 2003 were $1.01 billion, an increase of 9 percent sequentially and a decrease of 31 percent compared with the year-ago quarter. 
      
During the quarter, Lucent continued its CDMA market leadership with a series of significant 3G CDMA contract announcements, including Tata Teleservices and Reliance Infocom, both in India; Metro PCS for $190 million, U.S. Cellular for $100 million, and with China Unicom for hundreds of millions of dollars. 
      
Other recent highlights include:
*Announcing a new flagship CDMA base station, the Flexent® OneBTS(tm), and that Verizon Wireless would be among its first customers. Built on a revolutionary technology platform that can support CDMA and UMTS, this new base station provides customers with significant cost savings and time-to-market advantages.
* Announcing Sprint would deploy a new Lucent base station called the Flexent CDMA Enhanced Distributed Base Station that, because of its compact design, can serve as either a cost-effective capacity "add-on" for existing base stations in heavily populated areas, or as a stand-alone base station to support service in low density population areas.
      
Just this week, Lucent announced a 3G UMTS pilot network trial for high-speed data services with T-Mobile of Germany and a multimillion dollar contract with Orange in the UK to provide solutions and services that will boost the capacity of its ATM Access Transport network as it rolls out 3G service offerings.
      
The quarterly earnings conference call will take place today at 8:30 a.m. EST and be broadcast live over the Internet at http://www.lucent.com/investor/conference/webcast. It will be maintained on the site for replay through Jan. 29, 2003.
      
Lucent Technologies, headquartered in Murray Hill, N.J., USA, designs and delivers networks for the world's largest communications service providers.  Backed by Bell Labs research and development, Lucent relies on its strengths in mobility, optical, data and voice networking technologies as well as software and services to develop next-generation networks.  The company's systems, services and software are designed to help customers quickly deploy and better manage their networks and create new revenue-generating services that help businesses and consumers. For more information on Lucent Technologies, visit its Web site at http://www.lucent.com.

This news release contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, the industries in which we operate, our beliefs and our management's assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of us.  Words such as "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. These risks and uncertainties include: the failure of the telecommunications market to improve or improve at the pace we anticipate; continued net losses may reduce or impair our legally available surplus; our ability to realize the benefits we expect from our strategic direction and restructuring program; our ability to secure additional sources of funds on reasonable terms; our credit ratings; our ability to compete effectively; our reliance on a limited number of key customers; our exposure to the credit risk of our customers as a result of our vendor financing arrangements and accounts receivable; our reliance on third parties to manufacture most of our products; the cost and other risks inherent in our long-term sales agreements; our product portfolio and ability to keep pace with technological advances in our industry; the complexity of our products; our ability to retain and recruit key personnel; existing and future litigation; our ability to protect our intellectual property rights and the expenses we may incur in defending such rights; changes in environmental health and safety law; changes to existing regulations or technical standards; the social, political and economic risks of our foreign operations; the impact if our common stock is de-listed from the New York Stock Exchange; and the costs and risks associated with our pension and postretirement benefit obligations. For a further list and description of such risks and uncertainties, see the reports filed by us with the Securities and Exchange Commission. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this news release, whether as a result of new information, future events, changes in assumptions, or otherwise.

¹ For all periods presented, the loss per share information reported in this release represents basic and diluted loss per share. As a result of the net loss reported for the respective periods presented, potentially dilutive securities have been excluded from the calculation of loss per share because their effect would reduce the loss.  The loss per share for the three months ended December 31, 2002, September 30, 2002, and December 31, 2001, include the impact of preferred dividends and accretion of $25 million, $43 million and $42 million, respectively.    In addition, the loss per share for the three months ended December 31, 2002 and September 30, 2002, include the effect of $100 million and $29 million, respectively, of conversion expense associated with the repurchase of 8% redeemable convertible preferred stock.

² Further details on the charges impacting results are available in Exhibit D in the accompanying financial reporting package.