ALCATEL 2e kwartaal en halfjaar cijfers 2002

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Press Release

Second Quarter and First Half 2002 Results

· Quarterly Sales Unchanged and Income from Operations Improved Sequentially · Net Income Impacted by Restructuring Charges and Asset Write-downs · Fourth Consecutive Quarter of Positive Operating Cash Flow · Net Debt at Euro 1.3 Billion, Down Euro 4.0 Billion Year-on-Year

Paris,  July  25,  2002 – The Board of Directors of Alcatel (Paris: CGEP.PA and  NYSE:  ALA)  met  yesterday  and approved second quarter 2002 results. Group  sales  for  the  second quarter were down 1.4% at Euro 4,235 million compared to sales of Euro 4,296 million from the previous quarter, and were unchanged  on  a  comparable  basis  at  Euro  4,245  million.  Income from operations totaled Euro (177) million versus first quarter 2002 income from operations of Euro (343) million [on a comparable basis, first quarter 2002 income from operations was Euro (333) million]. Quarterly net loss was Euro
(1,438)  million  for a diluted EPS of Euro (1.20) per A share [$(1.18) per ADS]  compared  with  first quarter 2002 net loss of Euro (836) million, or diluted Euro (0.72) per A share [$(0.71) per ADS].

Group sales for the second quarter 2002 were down 33% compared to restated¹ Euro  6,363  million  one year ago. Restated income from operations for the second  quarter  2001 was Euro 177 million, and net income was Euro (3,117) million,  yielding  a  diluted  EPS of Euro (2.74) per A share [$(2.70) per ADS].

Serge  Tchuruk,  CEO,  said,  “Alcatel  is  focused on restoring its profit potential in today’s adverse environment while preserving its capability to rebound  when  markets  improve.  Second  quarter  results reflect on-going actions  as  the first quarter operating loss was cut nearly in half at the same  level of sales. This was largely due to an 10% sequential decrease of fixed  costs.  Alcatel’s  ability  to  withstand  the  downturn was further evidenced  by  the  Euro  800  million  positive operating cash flow in the second  quarter,  which brought net debt to a low of Euro 1.3 billion. This was  again  largely  the  result  of  a  further  Euro 2 billion sequential reduction in working capital.

The  further  weakening of market prospects appearing in the second quarter has  led  Alcatel to intensify restructuring programs in order to lower its quarterly  sales  breakeven  point  to  well below Euro 4.5 billion for the fourth  quarter  of  2002, with another Euro 1 billion to be cut during the subsequent four quarters. The evaluation of future prospects also led us to reassess all balance sheet items associated with the financial situation of customers  particularly  exposed  to  the  slack in long distance business. Overall,  exceptional  provisions for restructuring and reserves booked and impacting net income in the second quarter amounted to over Euro 1 billion. Our  strict  management  of capital employed in operations secured cash and cash  equivalents  of  Euro  4.8  billion  at the end of June. We have also
renegotiated   the   terms   and   conditions   of  our  credit  and  asset
securitization  facilities.  These actions should help offset the impact of the  recent  rating agencies downgrades and should perpetuate the financing of operations throughout 2003 and beyond.

Business  development remains a key priority of Alcatel. The merger of most of  our  activities in China into the new Alcatel Shanghai Bell company was effective  July  1st,  broadening  Alcatel’s already wide geographic reach. Businesses  such  as broadband access, cellular infrastructure, service and applications,  and  Space  are  performing  relatively  well  given current conditions.  These adverse conditions particularly hit the Optics sector on the other hand, which accounted for nearly all the second quarter operating loss.  Despite  the  slack  in  optics,  the  Group’s  overall gross margin continued  to  improve, reflecting strong advances in the design efficiency of the newly marketed products .

Alcatel  continues  to invest significantly in next generation technologies which  are  being  favorably  received by customers as they well meet their need  to  combine  new  revenue stream generation with operating cost cuts. Particular  emphasis  is  being  placed  on  enhancing  the intelligence of networks,  including  optical,  cellular  and  enterprise  networks,  while developing their broadband capabilities.

Alcatel  expects markets to stay depressed in the second half of 2002, with no  sign  of recovery in view. Not including the impact of Alcatel Shanghai Bell,  the  outlook  for  the  second half, with a weak third quarter and a seasonally  stronger fourth quarter, is close to the first half in terms of sales, however with significantly improved income from operations. In spite of  the downgrades of our credit ratings, we maintain our year end 2002 net debt  target  at  below the year end 2001 level, factoring in some increase throughout the second half.”

Second Quarter 2002 Results (unaudited)

· Net sales: Euro 4,235 million vs. reported Euro 4,296 million last quarter (down 1.4%) and vs. Euro 4,245 million on a comparable basis last quarter (down 0.2%). · Geographical distribution of sales:

W. Europe:    42%
Other Europe:      8%
USA :        16%
Asia :       19%
RoW:         15%

· Gross margin: 25.6% (25.2% for Q1 2002).
· Selling, general and administration (“SG&A”) costs: Euro (728) million (17.2% of sales). · Research and development (“R&D”) expenses: Euro (532) million (12.6% of sales). · Income from operations: Euro (177) million including Euro (45) million of inventory write-offs vs. reported Euro (343) million including Euro (33) million of inventory write-offs in Q1 2002. · Earnings before tax and amortization of goodwill: Euro (1,226) million and included: o Net financing expenses of Euro (291) million compared to Euro (70) million during the first quarter. o Restructuring costs of Euro (504) million compared to Euro (139) million in Q1 2002. o Net other losses of Euro (254) million [composed of Euro 215 million in capital gains and Euro (469) million in provisions] and compared to a loss of Euro (249) million during the same period three months ago. · Net Income Pre-Goodwill: Euro (1,261) million vs. Euro (720) million in the first quarter. · Net Income: Euro (1,438) million and included a related tax charge of Euro (20) million, share in net income of equity affiliates and discontinued activities of Euro (15) million and goodwill amortization of Euro (177) million. · Diluted A share EPS: Euro (1.20) [$(1.18) per ADS] based on an average of 1,159 million A shares. · Operating working capital: Euro 3,232 million, a sequential decrease of Euro 2,094 million: o Net Inventory: Euro 3,416 million, a sequential decline of Euro 877 million. o Trade Receivables: Euro 5,357 million, a sequential decrease of Euro 1,217 million. o Trade Payables and customers’ deposits: Euro 5,542 million, unchanged sequentially.

· Cash and equivalents: Euro 4,805 million, compared to Euro 4,619 million at the end of Q1 2002. · Net Debt: Euro 1,264 million (ratio to equity plus minority interests: 16%). · Operating Cash Flow: Euro 793 million. . Net sales: Euro 8,531 million vs. published Euro 12,974 million one year ago (-34.2%) and vs. restated Euro 12,154 million one year ago (-29.8%).

Geographical distribution of sales:

W. Europe:   42%
Other Europe:      7%
USA :        17%
Asia :       18%
RoW:         16%

· Gross margin: 25.4%
· Selling, general and administration (“SG&A”) costs: Euro (1,546) million (18.1% of sales). · Research and development (“R&D”) expenses : Euro (1,141) million (13.4% of sales). · Income from operations: Euro (520) million including Euro (78) million of inventory write-offs vs. published Euro 222 million including Euro (345) million of inventory write-offs during the same period one year ago. · Earnings before tax and amortization of goodwill: Euro (2,028) million and included:
o    Net financing expenses of Euro (362) million compared to restated Euro
(1,165) million during the same period last year.
o    Restructuring costs of Euro (643) million compared to restated Euro

(1,235) million during the first half of 2001.
o    Net other losses of Euro (503) million [composed of Euro 196 million
in capital gains which was offset by Euro (699) million in provisions] and compared to a gain of Euro 222 million during the same period one year ago. · Net Income: Euro (2,274) million and included a related tax credit of Euro 166 million, share in net income of equity affiliates and discontinued activities of Euro (119) million, and goodwill amortization of Euro (290) million. · Diluted A share EPS: Euro (1.92) [$(1.89) per ADS] based on an average of 1,156 million A shares. Business Analysis of the Second Quarter:

Carrier Networking
Second  quarter revenue of Euro 1,969 million was down 5.6% from Euro 2,085 million  the  previous  quarter  (down 3.2% from Euro 2,034 on a comparable basis  and  compared  with  restated  Euro  2,986  million  one  year ago). Broadband networking revenues were relatively stable thanks to DSL sales in the  US,  China  and  Europe  and  improved ATM market share worldwide. GSM infrastructure  continued to hold up well thanks to commercial successes in Latin  America, Asia, the Middle East and Africa. Applications software and voice  switching  recorded  sequential growth. Revenues for network design, build  and operational services were slightly down due to contract slippage in Asia Pacific during the quarter.

Income  from operations was Euro 24 million compared with a loss Euro (119) million  during  the  first  quarter  of  2002  [Euro  (109)  million  on a comparable  basis]  and  a  gain of restated Euro 54 million for the second quarter  of 2001. Profitability was improved across the board as fixed cost reductions are flowing through to the bottom line. Significant progress was achieved  in  broadband  networking, while mobile networking also increased its  operating  margin.  Advances were also recorded in network management, services and software applications.

Optics
Revenue  of  Euro  1,012  million for the Optics segment was down 3.3% from Euro  1,047 million in the previous quarter. Revenue during the same period last  year  was Euro 2,115 million. Terrestrial optical networking revenues were  up  in Asia Pacific but mixed in Europe with some additional weakness appearing  in the southern region. Sales in North America and Latin America remained poor compared to last year. Submarine sales remained at a very low level, though up sequentially due to increased billings during the quarter. Optical fiber sales continued to post a sequential decline as operators are working through their remaining inventories. Optronics revenues amounted to Euro  25  million  as compared to Euro 35 last quarter and Euro 150 million one year ago.

Loss  from  operations  was  Euro  (176) million compared to a loss of Euro
(153)  million  in  the first quarter of 2002. During the second quarter of 2001,  the  Optics  segment  registered  income from operations of Euro 208 million.  The  deterioration  in  the  segment’s profitability came despite further  reductions  in  fixed  costs  and was mainly due to an unfavorable product  mix.  Operating  margins  stabilized  for  optical  fiber as sales volumes  continued  to slip. Submarine networking margins also continued to improve,  due  to  both improved volumes and reduced fixed costs. Optronics posted an operating loss during the quarter of Euro (51) million.

Full  details  of  Alcatel  Optronics  2nd  quarter  2002  performance  are explained in a separate earnings release today.

e-Business
Quarterly  revenues  of Euro 603 million were up 2.0% from Euro 591 million during the first quarter of 2002. Revenue for the same period last year was Euro 541 million. Sales of GSM mobile handsets remained stable sequentially at  3.0  million  units  and compared to 1.7 million one year ago. Sales of Genesys  software  applications  were sequentially flat but somewhat higher than  their year ago level.  Voice and data networking solutions sales were also unchanged from last quarter but down year on year.

Loss  from  operations was Euro (18) million and improved from an operating loss  of  Euro (28) million for the first quarter of 2002 and restated Euro
(178)  million  for  the  second  quarter  of  2001.  Genesys profitability remained  essentially  unchanged  from  the first quarter while the handset activity  was  close  to  breakeven.  R&D  expenses  associated  with  data networking product introductions planned for the second quarter of 2002 had a  relatively  smaller negative impact on e-business networking than in the prior  quarter,  while the voice business was generating positive operating margin.

Space & Components
Quarterly  revenues  were up 6.6% to Euro 748 million from Euro 702 million the  previous quarter, and were Euro 920 million during the same period one year  ago.  Satellite  revenues  were  strong  and  compared favorably on a
sequential   basis   as   telecommunication  sales  held  up  as  forecast.
Components   revenues  were  slightly  off,  while  battery  revenues  were
relatively unchanged from the previous quarter.

The segment posted income from operations of Euro 31 million as compared to Euro  15  million  in the first quarter of 2002 and Euro 71 million for the second  quarter  of  2001.  The  sequential  improvement  was due to higher satellite sales volumes and lower fixed cost structures in both the battery and components units.

                     FULL VERSION IN PDF WITH APPENDIX

About Alcatel
Alcatel   designs,   develops   and   builds   innovative  and  competitive
communications   networks,   enabling   carriers,   service  providers  and
enterprises  to  deliver  any  type  of  content,  such  as voice, data and multimedia,  to any type of consumer, anywhere in the world. Relying on its leading and comprehensive products and solutions portfolio, stretching from end-to-end  optical infrastructures, fixed and mobile networks to broadband access, Alcatel's customers can focus on optimizing their service offerings and  revenue  streams.  With  sales  of  EURO 25 billion in 2001 and 99,000
employees,   Alcatel   operates  in  more  than  130  countries.  For  more
information, visit Alcatel on the Internet: http://www.alcatel.com.

“Safe  Harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements relating to
(i)  Alcatel's performance in future periods, including without limitation, with  respect  to  income  from  operations  for  2002  and  its  financing activities  in  2003;  (ii)  Alcatel's  ability to remain competitive and a leader  in  the  industries  in  which  it  operates, and its future growth including  without  limitation growth in market share, the telecom industry and  the  economy  in  general; and (iii) the expected level of benefits to Alcatel  from  its  working  capital reduction activities and restructuring
efforts.   These   forward   looking   statements   are  based  on  current
expectations,   forecasts   and   assumptions   that   involve   risks  and
uncertainties  that  could  cause  actual  outcomes  and  results to differ materially  from  those  projected.  These risks and uncertainties include: whether  Alcatel  can  continue  to implement its working capital reduction activities and restructuring efforts and whether these efforts will achieve their  expected  benefits,  including  contributing  to both improved gross margins  and  the  achievement  of quarterly breakeven targets, among other benefits;  the  current  economic  slowdown,  in  general,  and setbacks in
Alcatel's   customers'   businesses  in  particular;  customer  demand  for
Alcatel's   products   and   services;   control  of  costs  and  expenses;
international growth; conditions and growth rates in the telecommunications industry  and  general  domestic and international economic conditions; and the  impact  of  each  of  these  factors  on  expected sales increases and
realization   of   positive  operating  income.  For  a  further  list  and
description  of  such  risks  and  uncertainties,  see the reports filed by Alcatel  with the Securities and Exchange Commission. Alcatel disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Upcoming Events/Announcements
October 30, 2002 - Third Quarter 2002 Earnings Release

November 21, 2002 - Analysts’ Day

January 30, 2003 - Fourth Quarter and Full Year 2002 Earnings Release

http://www.alcatel.com/vpr/?body=/latestnews/25072002uk

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