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Optical/IP

Lucent Reports Q4

MURRAY HILL, N.J. -- Lucent Technologies (NYSE: LU) today reported results for the fourth quarter and fiscal year 2006, which ended Sept. 30, 2006, in accordance with U.S. generally accepted accounting principles (GAAP). For the quarter, Lucent reported net income of $371 million or 7 cents per diluted share. These results compare with net income of $79 million or 2 cents per diluted share in the third quarter of fiscal 2006, and net income of $372 million or 7 cents per diluted share in the year-ago quarter.

The company reported revenues of $2.56 billion in the quarter, an increase of 25 percent sequentially and an increase of 5 percent from the year-ago quarter. The company's revenues were $2.05 billion in the third quarter of fiscal 2006 and $2.43 billion in the year-ago quarter.

The fourth quarter's earnings per share included a positive impact of $73 million, or about 1 cent per diluted share, for discrete tax items and the reversal of U.S. deferred taxes. Similar items did not have a material impact in quarter ended June 30, 2006. In the year-ago quarter, earnings per share included a positive impact of $128 million, or about 2 cents per diluted share, primarily due to income tax items.1

For the fiscal year, Lucent reported revenues of $8.80 billion, a decrease of 7 percent compared with $9.44 billion in revenues for fiscal 2005. The net income for fiscal 2006 was $527 million or 11 cents per diluted share compared with net income of $1.19 billion or 24 cents per diluted share in fiscal 2005. Significant items previously identified in our quarterly earnings releases had a negative impact of $247 million, or about 5 cents per diluted share, on net income in fiscal 2006, and a positive impact of about $352 million, or about 7 cents per diluted share, on net income in fiscal 2005. The significant items included, among other things, two significant litigation charges related to the Winstar judgment and the shareowner settlement, as well as benefits from certain discrete tax items and recoveries of bad debt and customer financing.1

EXECUTIVE COMMENTARY

"We are pleased to have ended what's been a challenging year with a strong quarter. As anticipated, we posted our highest quarterly revenue period for the year, driven primarily by mobility deployments in North America, and we recorded a gross margin of 44 percent," said Lucent Technologies Chairman and CEO Patricia Russo.

"In addition to the rollout of our EV-DO Rev A and HSDPA solutions during the quarter, we also continued to convert IMS trials into contracts, announcing that KPN, The Netherlands' largest service provider, had selected Lucent's IP Multimedia Subsystem solution (IMS) to replace its legacy public switched-network. Lucent Worldwide Services, was also chosen as the prime integrator for the migration to KPN's All-IP network," added Russo.

"During the fiscal year, we added 6 customers for our IMS portfolio, announced more than 70 contracts in 25 countries, and saw revenue growth in UMTS, professional services, data, optical and applications," said Russo. "We also continued to lead the market in CDMA, including the introduction of EV-DO Rev A to support next-generation services."

"In fiscal 2006, we essentially maintained our annual U.S. revenue level, given our improved revenue performance in the fourth quarter," said Lucent Technologies Chief Financial Officer John Kritzmacher. "Outside the U.S., our annual revenues decreased by about $600 million, and as expected, roughly $500 million of the decrease came from the combined revenues for China and to a lesser extent India. Notwithstanding the fiscal 2006 revenue decline, we achieved an annual gross margin rate of 42 percent and continued to invest in the areas that are critical to our vision of next-generation networks."

Given the company's pending merger transaction with Alcatel, it is continuing its practice of not providing specific quarterly or annual guidance.

MERGER UPDATE

On September 7, 2006, shareholders of Alcatel and Lucent approved the proposed merger agreement. The companies continue to believe they are on track to complete their merger transaction by the end of calendar year 2006.

"With another key milestone behind us following the successful shareholder votes, we are moving closer to the integration of our two companies. We continue to make excellent progress on our integration planning to ensure a smooth transition from Day 1," said Russo. "We look forward to the successful closure of the merger transaction."

Lucent Technologies Inc. (NYSE: LU)

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