Paris, February 11, 2010
For the fourth quarter 2009
• Revenues of Euro 3.967 billion, down 19.9% year-over-year and 16.8% at constant currency
• Adjusted2 gross profit of Euro 1.454 billion or 36.7% of revenues
• Adjusted2 operating income1 of Euro 271 million or 6.8% of revenues
• Reported net profit (group share) of Euro 46 million or Euro 0.02 per share , including one time items
• Operating cash flow3 of Euro 635 million

For the year 2009
• Revenues of Euro 15.157 billion, down 10.8% year-over-year and 12.4% at constant currency
• Adjusted2 gross profit of Euro 5.112 billion or 33.7% of revenues
• Adjusted2 operating income1 of Euro (56) million or (0.4)% of revenues
• Reported net loss (group share) of Euro (524) million or Euro (0.23) per share
• Net (debt)/cash of Euro 886 million as of December 31, 2009

EXECUTIVE COMMENTARY
Ben Verwaayen, CEO, commented:
“We delivered on our commitments for 2009 and I am pleased with the operational progress we have made.

Revenue came in at the lower end of the indicated range for the year due to the fact that our fourth quarter was not as strong as expected. However, I am encouraged by the strong sequential growth in our orders and by the accelerated traction we are seeing in next generation technologies, as evidenced by our selection by AT&T as a key supplier for LTE.

We materially exceeded our cost and expense reduction target in 2009, allowing us to be around break-even at the adjusted operating income level for the year.

In the last two quarters, we demonstrated our ability to generate cash through a more disciplined management of our working capital. With asset divestitures and the convertible bond offering, we finished the year with a much stronger balance sheet.

A more stable economic environment and the explosive growth of mobile internet will drive market growth in 2010 and beyond. As the trusted partner of our customers in the migration towards IP and LTE, we are well positioned to benefit from this growth and are on the right track to become a normal company by 2011.”

KEY HIGHLIGHTS
• Fourth quarter revenue decreased 19.9% year-over-year and increased 7.6% sequentially to Euro 3.967 billion. At constant currency exchange rates, revenue decreased 16.8% year-over-year and rose 9.1% sequentially. The carrier segment saw a double-digit decline in revenue, driven by 2G wireless access, TDM switching, terrestrial optics and broadband access. The segment did see slight growth in Submarine, good growth in IP and double-digit growth in W-CDMA. Enterprise revenue declined at a more moderate rate this quarter which is due to the recovery of Industrial Components. Applications software revenue grew at a mid single-digit rate and finally Services revenue grew slightly. From a geographic standpoint and at constant currency, revenue declined at a double-digit rate in Europe (-15%), Asia Pacific (-26%) and in the rest of the world (-24%) and declined at a high single-digit rate in North America (-9%).

• Fourth quarter adjusted2 operating income1 of Euro 271 million or 6.8% of revenue.Adjusted2 gross margin came in at 36.7% of revenue for the quarter, compared to 33.3% in the year ago quarter and 33.4% in the third quarter 2009. Excluding the two one-time items booked in the year ago quarter (with net impact of a negative 50bp) gross margin rose 2.9 percentage points year over year and 3.2 percentage points sequentially. This strong improvement reflects a more favorable geographic/product mix, ongoing cost reduction initiatives in fixed operations, procurement and product design and - on a year over year basis only – the weakening of the US dollar versus the Euro. Operating expenses decreased 12.4% year-over-year and 4.8% sequentially, reflecting ongoing cost reduction plans and, on a year over year basis only, the weakening of the US dollar versus the Euro.

• Fourth quarter reported net profit (group share) of Euro 46 million or Euro 0.02 per share. Three one time items impacted both the reported and adjusted net income of Alcatel-Lucent this quarter. These include: 1) tax free income of Euro 211 million related to the amendment of the post retirement benefit plan 2) a tax free capital gain of Euro 99 million related to the sale of the motors and drives activity; 3) an increase in litigation reserves of Euro (109) million with no tax impact. The net impact of these three items was a positive Euro 201 million or Euro 0.09 per share this quarter.

• Net (debt)/cash of Euro 886 million, versus Euro 592 million as of September 30, 2009. Operating cash flow reached Euro 635 million which reflects the higher level of adjusted operating income in the fourth quarter as well as an additional reduction in working capital and other assets and liabilities of Euro 228 million. Free cash flow was Euro 173 million, including restructuring cash outlays of Euro (157) million, cash interest expense of Euro (17) million, contribution to pensions and OPEB of Euro (67) million, cash tax of Euro (27) million and capital expenditure of Euro (194) million. The net (debt)/cash position improved by Euro 294 million, including Euro 128 million related to the sale of the motors and drives activity.

• Funded status of Pensions and OPEB of Euro (985) million at end December, compared to Euro (1,267) million as of September 30, 2009. The slight sequential narrowing in the deficit reflects the increase in the discount rates used for pensions and post-retirement healthcare plans in the US, the euro zone and the UK. From a regulatory perspective – which determines the funding requirements – the preliminary assessment of the company’s US plans suggest that no funding contribution should be required through at least 2011. As of December 31st, 2009, fixed income accounted for approximately 66% of the group’s plan assets, up from 63% at the end of 2008.

• The board has recommended not to pay a dividend for fiscal year 2009.

PROGRESS ON TRANSFORMATION PLAN
As of the fourth quarter 2009 and on an annualized exit run rate, Alcatel-Lucent has reduced its cost and expense structure by approximately Euro 950 million at constant currency, of which approximately 40% in COGS (including fixed operations, product and procurement costs), 25% in R&D and 35% in SG&A (including selling & marketing, general & administrative costs).

In 2009, the company estimates that it has reduced its break-even point – defined as the amount of revenue required to achieve break-even at the adjusted2 operating level – by Euro 1.05 billion at constant currency.

In 2009, Alcatel-Lucent reduced its operating working capital by Euro 597 million through a decrease in net inventories of Euro 488 million or 5 days, a decrease in net receivables of Euro 1,174 million or 16 days, partially offset by a decrease in payables, progress payments and product reserves on construction contracts of Euro 1,065 million or 11 days. In 2009, the company reduced its cash conversion cycle by 10 days.

OUTLOOK
In a global economic environment that appears to be stabilizing, the telecommunications equipment and related services market should recover in 2010. Given its improved product portfolio and the effectiveness of its cost reduction actions, Alcatel-Lucent feels confident in its ability to grow and increase its margins. However, in what remains a highly competitive environment, it is too early to have a firm view on the extent of margin expansion. The company is therefore widening the targeted range for its adjusted operating margin in 2010, while remaining committed to the 2011 goals of its three-year transformation plan:

• For 2010, Alcatel-Lucent continues to expect nominal growth (defined as between 0% and 5%) for the telecommunications equipment and related services market.

• For 2010, Alcatel-Lucent aims to reach an adjusted operating margin in the low to mid single-digit (defined as between 1% and 5%).

• For 2011, Alcatel-Lucent continues to aspire to an adjusted operating margin in the mid to high single-digit (defined as between 5% to 9%), depending on market growth.