Lucent Technologies reports results for third quarter of fiscal 2004

The company recorded revenues of 2.19 billion dollar in the quarter, essentially flat sequentially and an increase of 11 percent from the year-ago quarter. The company recorded revenues of 2.19 billion dollar in the second quarter of fiscal 2004 and recorded 1.96 billion dollar in the year-ago quarter.

The third quarter's earnings per share included the positive impact of certain items, including the revaluation of warrants that are expected to be issued as part of Lucent's global settlement of shareowner litigation, bad debt and financing recoveries, and a net reversal of certain business restructuring charges. The net effect of these items was a positive impact of about 4 cents per diluted share.(1) The impact of similar items resulted in an unfavorable impact of about 1 cent per diluted share in the second quarter of fiscal 2004 and no impact in the year-ago quarter.(1)

EXECUTIVE COMMENTARY
"We continued our profitable momentum this quarter and saw some positive signs in the key areas we have identified for growth," said Lucent Technologies Chairman and CEO Patricia Russo. "This quarter, we announced 35 customer wins and trials, spanning 20 countries around the world. We are seeing more progress in areas like VoIP, mobile high-speed data and broadband access, while tapping into new international markets."

"Progress in our 3G wireless business was highlighted by a $5 billion agreement announced with Verizon Wireless last week and a number of network expansions and agreements in the quarter with existing CDMA customers such as China Unicom, U.S. Cellular, Tata Teleservices and Telecom New Zealand. Cingular announced a UMTS trial agreement with us this quarter as well," said Russo. "We now have announced more than 20 customers for our Accelerate VoIP portfolio, including an agreement with BellSouth. We continue to build our services business, highlighted by new professional and managed services contracts, including recent announcements with HOT Telecom in Israel and Nextel Peru. We are showing progress in our government and broadband access businesses, including two new deals with the U.S. Department of Defense and an agreement with Microsoft to develop IPTV for broadband networks."

"With recent announcements from our customers, we are seeing more significant, multi-year plans being developed for next-generation networks that will deliver IP-based multimedia services, while managing network operating costs," said Russo. "We see these developments playing to our strengths in designing, deploying and servicing converged networks for our customers."

Lucent Technologies Chief Financial Officer Frank D'Amelio said: "We have consistently generated profitable results as the market has stabilized and expect to report a full year of profitability when we talk to you again in October. At this point, we expect annual revenues to increase on a percentage basis in the mid-single digits for the 2004 fiscal year. We will continue to manage our cost and expense profile as we go forward, while making selective investments in areas like VoIP and mobile high-speed data to profitably grow the business."

GROSS MARGIN AND OPERATING EXPENSES
Gross margin for the quarter was 43 percent of revenues, which was the same as the gross margin rate for the second quarter of fiscal 2004.

Operating expenses for the third quarter of fiscal 2004 were $598 million as compared with $623 million for the second quarter of fiscal 2004.

BALANCE SHEET UPDATE
As of June 30, 2004, Lucent had about $4.7 billion in cash and marketable securities, which represents an increase of more than $100 million from the previous quarter. The increase was primarily driven by operating activities.

REVIEW OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2004 On a sequential basis, revenues in the United States increased 7 percent to $1.4 billion, and revenues outside the United States decreased 10 percent to $785 million. Compared with the year-ago quarter, U.S. revenues and revenues outside the United States increased by 17 percent and 3 percent, respectively.

Integrated Network Solutions (INS)
Revenues for the third quarter of fiscal 2004 were $715 million, a decrease of 3 percent sequentially and 12 percent compared with the year-ago quarter.

In the third quarter, Lucent made several important contract, product, partnership and acquisition announcements, including wins in areas such as voice over Internet protocol (VoIP), broadband access and optical:

Lucent continues to announce new customers for its Accelerate(tm) VoIP portfolio, including a three-year agreement with BellSouth that will enable the company to expand VoIP services throughout its nine-state territory, as well as other announcements with KPY Networks of Finland, FiberNet, Telscape, Rye Telephone, ALLTEL, Pac-West Telecomm and PAETEC.

Lucent announced an optical networking win with Jiangsu Telecom; network upgrades and expansions with KPN of the Netherlands and Hondutel of Honduras; broadband access deals with Telefônica of Brazil and KT of South Korea; and a series of Personal Handyphone System (PHS) contracts with China Telecom.

In the area of new product development, Lucent introduced an IP/MPLS module, jointly developed with Juniper Networks, that extends the life and capability of the widely deployed CBX 500® Multiservice Switch; the company announced the new high-capacity CBX 3500(tm) Multiservice Edge Switch, which Choice One is trialing and China Unicom intends to trial; and it enhanced its metro optical portfolio with the Metropolis® Wavelength Services Manager.

Lucent's partnership with Juniper Networks continues to gain momentum as part of a $35 million agreement with Xspedius, which will offer VoIP services to its business customers in the southern United States. Lucent announced its acquisition of Telica, a provider of next-generation VoIP solutions, to allow it to address a much wider range of VoIP network buildouts. The acquisition is still expected to close in Lucent's fourth fiscal quarter.

Mobility Solutions
Revenues for the third quarter of fiscal 2004 were $986 million, an increase of 4 percent sequentially and 58 percent compared with the year-ago quarter.
In the third quarter, Lucent continued to show its strength in 3G spread spectrum technology:

During the quarter, Lucent announced 3G network deployments and expansions with U.S. Cellular, China Unicom, Tata Teleservices, Telecom New Zealand and Bermuda Digital Communications, as well as its first wireless contracts in Pakistan and Vietnam.
Lucent and Novatel Wireless continued to make progress in Universal Mobile Telecommunications System (UMTS) wireless PC cards with a sale to 3, the global brand name for Hutchison Whampoa's 3G services, for its customers in Australia, Denmark, Italy and Sweden. Lucent continues to build its mobile high-speed data business, highlighted in the third quarter by an announced trial of 3G UMTS technology with Cingular Wireless in Atlanta. Lucent announced a successful CDMA450 trial with Anatel, Brazil's federal communications agency, and a 3G CDMA2000 1X-EVDO data network trial with VIVO in Brazil.

Lucent Worldwide Services (LWS)
Revenues for the third quarter of fiscal 2004 were $473 million, a decrease of 1 percent sequentially and an increase of 5 percent compared with the year-ago quarter. Lucent Worldwide Services continues to focus on broadening its business and leveraging its multivendor and network integration capabilities with new professional, managed and maintenance services wins, as well as contributions to several other major contracts:

Just last week, Lucent announced a $35 million contract with HOT Telecom for network integration and security services on its VoIP network in Israel. During the quarter, Lucent announced that it had been selected by Nextel Peru, a leading provider of fully integrated wireless communications services in Peru, to provide managed services for its multivendor network.

In April, Lucent announced a contract with T-Systems International, the systems division of Deutsche Telekom, to provide multivendor maintenance and support services for IP equipment. Lucent also signed a multiyear agreement with MoviStar P.R., a leading mobile communications operator in Puerto Rico, to provide operations and maintenance support for MoviStar's CDMA wireless network. There were also services components in several other contract announcements this quarter, including BellSouth, ALLTEL, U.S. Cellular, Xspedius, Jiangsu Telecom and China Unicom.

The quarterly earnings conference call will take place today at 8:30 a.m. EDT and be broadcast live over the Internet HERE. It will be maintained on the site for replay through Wednesday, July 28, 2004.

Lucent Technologies designs and delivers the systems, services and software that drive next-generation communications networks. Backed by Bell Labs research and development, Lucent uses its strengths in mobility, optical, software, data and voice networking technologies, as well as services, to create new revenue-generating opportunities for its customers, while enabling them to quickly deploy and better manage their networks. Lucent's customer base includes communications service providers, governments and enterprises worldwide. For more information on Lucent Technologies, which has headquarters in Murray Hill, N.J., USA, visit http://www.lucent.com.

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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: fluctuations in the telecommunications market; our ability to compete effectively; our product portfolio and ability to keep pace with technological advances in our industry; our reliance on a limited number of key customers; our exposure to the credit risk of our customers; the pricing, cost and other risks inherent in our long-term sales agreements; the costs and risks associated with our pension and postretirement benefit obligations; the social, political and economic risks of our foreign operations; our reliance on third parties to manufacture most of our products; our ability to generate positive cash flow; existing and future litigation; our ability to protect our intellectual property rights and the expenses we may incur in defending such rights; the complexity of our products; changes to existing regulations or technical standards; changes in environmental health and safety laws; the potential impact on us in connection with negotiating new collective bargaining agreements; and our ability to retain and recruit key personnel. 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) Details on the significant items impacting results are available in Exhibit E in the accompanying financial reporting package.

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