Lucent Technologies, Inc.
Analyst Meeting
August 23, 2001

This link provides a PDF document of Lucent Technologies Inc. presentation to the investment community on August 23, 2001. Please click on the colored section to read this document.

The following are unedited notes I took during the conference call.

I. Lucent to present phase II restructuring plans.

II. Lucent has received full bank covenant approval to do this restructuring. Lucent was prevented to discuss this until today, hence the call. A more detailed look will be given in November.

III. Regarding product line, there is not many changes, no great shakes.

IV. Overview

A. Do we have a plan if executed that gets you to profitability and industry levels
B. Does adequate liquidity exist /
C. Can you execute? “We obviously feel the answer is yes. “ We have a plan, if executed, will get us to our goals by a significant amount. Liquidity should never again be discussed, since that is no longer a concern. (Tone is excellent!!!!)

V. Where is the market itself right now. Players have changed. What is happening to the spenders? What Lucent feels is happening is business models are changing. Consolidation taking place with big players, i.e. globalization with Verizon, ATT, NTT, etc. What will happen in this environment? Clearly a spending downturn of Lucent markets of 5 to 10 %. CLECS have gone away and major providers are pulling back. Expectation of market coming back in 2003. Networks are becoming hot and networks will be forced to build out. Base business is having slight decline in RBOC, whereas mobility sector has slight growth. They see strong spending, just not growth in spending. Beyond 2002, Lucent sees a combined voice and data growth rate of 15 – 20 %. Traffic onto networks is growing. Data traffic is growing. Look forward to reasonable growth rates, solid business, but not returning to 25 – 30 % growth rates. Adjusting business model.

VI. Focus of business will become core customers. 30 customers to serve 75 % of Lucent revenues. Lucent then follows core customers to 20 core countries. For example, Germany set up with Deutchse Telecom. Lucent stands in German infrastructure. Lucent plans on piggybacking that relationship to a related German customer. R & D in this section is minimum for this structure. Lucent begins with customer first. (Reminds me of an IP network, start at the core and move to the edge). Now there is synergy between various lucent products, since customers are common. Bell Labs cross-sections here. Global partner program will be set up. Product programs being refocused, not just in costs and R & D. Lucent broke up products in 2 segments, making sure commitments will be honored. This is showing a significant decrease in R&D. Now, Lucent has extra funds for future growth (5 billion cap in 2002 plans). Lucent feels the peg of R&D announced previously of 12 % is key. Continue the network from the edge into the core. Customer’s needs are revenue-generating services. Lucent will help those companies create those services. Lucent will focus in wireless, optics and data. That is their new core and should have been core all along. Focus will be on optics. Lucent says they are back in the optics game. New competitive products coming out. Focus on ATM, IP routing backbone, and edge service capability with Spring Tide and edge router; continue to focus on Circuit to Packet. Will invest heavily in wireless, UTMS and CDMA. Focus on software and services to make this all work.
VII. Fiscal 2003 goals

Revenue growth 10 – 12 %
Gross margin 35 %
R&D 12 %
Marketing and Sales 9 %
G & A 4 %

Overall market to stay roughly flat. Operating cash flow to stay positive. Qtly breakeven of 4.75 billion once restructuring has occurred.

Credit facility now has changed, ebitda and revenue has changed. Credit facilities do not tie into quarterly numbers. Has plenty of money to pay convertible dividends. Covenants afforded flexibility for continuity and to bring in plan. Restructuring charge was discussed. Total restructuring efforts include Phase I and Phase II. Phase 1 reduced annual expense of 2 billion. They actually reduced capex by 700 million when goal was 400 million. Hence Phase I was more successful than anticipated. Phase II looking for further improvements which you can see later at website. Headcount will have a range of 57000 to 62000 people. This is approximately half of original workforce before phase-outs.

Gross margin discussion. Target is 35 %. 3 major buckets to bring us from 25 to 35 %. This consists of cost reductions. Product and market rationalization discussed earlier and introduction of new products. This coupled with the new charges, which will be the last of the charges. One times will be about 10 % gross margin hit.

Funding discussion – chart shows a surplus in Q1’02. A/R securitization facility. Look like surplus of 3.0 billion over current cash needs. Sources of cash are greater than needs. At end of June 01 they had 2.3 billion, less 1 billion reserve they like to keep, you have 1.3 billion remaining. Rather than writing this, look at press release and you can see some nice charts Key message is funding sources are quite accurate. Expects EBITDA positive before March 31, 2002. Lucent needs EBITDA positive for one entire quarter as per covenants to spin – off Agere.

Vendor Financing – continuing to reduce vendor financing exposure, also making immediate reserves at time of financing. Please see financial discussion regarding vendor financing .

The following is a link to my Yahoo briefcase. This link contains a lot of Lucent data which I have gathered. We expect to have our website fully operational by the end of October 2001.

Please understand that this is not an offer, solicitation or recommendation to invest in Lucent Technologies, Inc. Should you have any comments or questions, please call our office at 908 276 7226