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Q3 2010 Earnings

November 4, 2010

Introductory RemarksBen Verwaayen - CEO

All Rights Reserved © Alcatel-Lucent 2010 November 20103 | Q3 2010 Earnings

Safe Harbor For Forward Looking Statements

Except for historical information, all other information in this presentation consists of forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995, as amended. These forward looking statements include statements regarding the future financial and operating results of Alcatel-Lucent such as, for example, an adjusted operating margin in the low to mid single-digit (between 1% and 5%) for 2010. Words such as “expects,” “anticipates,” “guidance,” “targets,” “projects,” “intends," “plans,” “believes,” “estimates,”“aim,” “goal,” “outlook,” momentum,” “continue,” variations of such words and similar expressions are intended to identify such forward-looking statements which are not statements of historical facts. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to assess. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. These risks and uncertainties are based upon a number of important factors including, among others: our ability to operate effectively in a highly competitive industry with many participants; our ability to keep pace with technological advances and correctly identify and invest in the technologies that become commercially accepted; difficulties and delays in our ability to execute on our strategic plan to adjust our product portfolio by boosting investment in certain segments and reducing spending in others, co-source certain business processes, focus on cash, and reduce costs; fluctuations in the telecommunications market; exposure to the pricing pressures in the regions in which we sell; the pricing, cost and other risks inherent in long-term sales agreements; exposure to the credit risk of customers; reliance on a limited number of contract manufacturers to supply products we sell and in particular to source components in a tight market; the social, political and economic risks of our global operations; the costs and risks associated with pension and postretirement benefit obligations; the complexity of products sold; changes to existing regulations or technical standards; existing and future litigation; difficulties and costs in protecting intellectual property rights and exposure to infringement claims by others; compliance with environmental, health and safety laws; the economic situation in general (including exchange rate fluctuations) and uncertainties in Alcatel-Lucent’s customers’ businesses in particular; customer demand for Alcatel-Lucent’s products and services; control of costs and expenses; international growth; conditions and growth rates in the telecommunications industry; and the impact of each of these factors on sales and income. For a more complete list and description of such risks and uncertainties, refer to Alcatel-Lucent's Annual Report on Form 20-F for the year ended December 31, 2009, as well as other filings by Alcatel-Lucent with the US Securities and Exchange Commission. Except as required under the US federal securities laws and the rules and regulations of the US Securities and Exchange Commission, Alcatel-Lucent disclaims any intention or obligation to update any forward-looking statements after the distribution of this presentation, whether as a result of new information, future events, developments, changes in assumptions or otherwise.


Q3 2010 Highlights

Full year guidance maintainedStrong sequential increase expected for top-line & profits

Strong market traction and customer endorsement

Continuing progress in our transformation journeyBack to top-line growth & improved profitability


Q3 2010 Highlights: NetworksStrong momentum accross all divisions

Acceleration of growth in IP/MPLSwith double-digit growth in all regions

In Wireless, double-digit growth in all major technologies: W-CDMA, CDMA & GSM

Turning point for Terrestrial Opticswith growth in WDM, Intelligent Optical Network

& microwave transmission

Improvement in Wireline driven by VDSL & PON

All Rights Reserved © Alcatel-Lucent 2010 November 2010

28%

30%

32%

34%

36%

38%

40%

42%

Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010

600

700

800

900

1000

1100

in % of Networks Sales

in M Euros

6 | Q3 2010 Earnings

Q3 2010 Highlights: NetworksInvest to win strategy paying off

*Products supporting our HLN strategy:IP, DWDM, WT, WCDMA, LTE, IPDSLAM, FTT&OLT, IMS Core

Next Gen. Product Sales: +23% YoY+ 14% QoQ

Next Gen. Product Sales: +23% YoY+ 14% QoQStrong growth and increased share

of our next generation product sales*

All Rights Reserved © Alcatel-Lucent 2010 November 20107 | Q3 2010 Earnings 7 | Q3 2010 Earnings

High Leverage NetworkTM

Strong market traction and customer endorsement – Highlights from Q3

N°1 in IP/Ethernet cell site router/gateways

Growing wireless market share:16.3% in Q2 (from 13.6% in Q2’09)WCDMA: Best quarter ever, with 33%YoY revenue growth

Converged VDSL/GPON with TDC

41% of Q3 Networking portfolio sales on HLN-related products

Strong momentum around 100G, with:

1st 100G combined IP/Opticaldeployments (360networks, PT Telkom)

100GE growing shipments (China Telecom, Portugal Telecom, Verizon)

1st single-carrier 100G coherent WDM deployments (Etisalat, Softbank, T-Systems)

LTE: 7 contracts & 58 trials

Small Cells: 14 contracts & 20+ trials

Driving copper & fiber innovations:

Vectoring, Bonding & Phantom mode market trials (Turk Telecom)

Broadband Innovation of the Year (BB InfoVision Awards) with Phantom Mode

World 1st 10G symmetrical GPON market trials (Verizon, Portugal Telecom)

IP Routing: Best quarter ever, with 35% YoY revenue growth;N°2 position with 20% market share


Q3 2010 Highlights: Applications & ServicesResumed growth and profitability improved

Strong growth in data networking for Enterprise

New 10GigE switch released

Recent wins & large contracts in Strategic Industries driving growth in Services

Solutions for digital content delivery gainingmomentum in Network applications

Digital Media Store for Telus, Mobile advertising with Etisalat


Q3 2010 HighlightsBy geographies: rising demand across all regions

+22% yoy growth in North AmericaWireless & IP being the growth engine

India & China driving recovery in APACSales doubling in India

Growth in Eastern EuropeDriven by Russia

Improvement in Western Europe


Q3 Operational highlights

On track for fixed costs reduction

Level of inventories maintained

to support top-line growth

Gross margin driven by product & geographic mix


Outlook

Significant top-line sequential increase

Strong leverage effect on profitability

Full-year 2010 outlook maintained

Q3 2010 ResultsPaul Tufano - CFO


Q3 ’10 Adjusted P&L

In Euro Million Q3 '10 Q3 '09 YoY Q2 '10 QoQ

Revenues 4,074 3,687 10.5% 3,813 6.8%

Gross profit 1,377 1,232 145 1,377 0Gross margin 33.8% 33.4% 0.4 pt 36.1% -2.3 pt

R&D Gross (633) (573) 10.5% (621) 1.9%in % of revenues 15.5% 15.5% 0.0 pt 16.3% -0.7 pt

Capitalization / Other 4 1 (9 )

R&D Net (629) (572) 10.0% (630) -0.2%in % of revenues 15.4% 15.5% -0.1 pt 16.5% -1.1 pt

SG&A (687) (671) 2.4% (719) -4.5%in % of revenues 16.9% 18.2% -1.3 pt 18.9% -2.0 pt

Total OPEX (1,316) (1,243) 5.9% (1,349) -2.4%in % of revenues 32.3% 33.7% -1.4 pt 35.4% -3.1 pt

Op. income (loss) 61 (11) 72 28 33Operating margin 1.5 % -0.3 % 1.8 pt 0.7 % 0.8 pt


10 000

11 000

12 000

13 000

14 000

15 000

16 000

17 000

18 000

Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10

31.5%

32.0%

32.5%

33.0%

33.5%

34.0%

34.5%

35.0%

35.5%

Sales

GM as % of sales

14 | Q3 2010 Earnings 14 | Q3 2010 Earnings

Consistent & continuous gross margin improvement

*Gross margin as a % of sales of the last 4 trailing quarters

Gross margin (%) & Sales from 2007*


Q3 ’10 Revenue Breakdown by Operating Segments

In Euro Million

RevenuesQ3 '10 Q3 '09

YoY Current

YoY Constant *

Q2 '10QoQ

CurrentQoQ

Constant *

Networks 2,459 2,231 10.2% 1.8% 2,304 6.7% 6.5%IP 366 283 29.3% 19.4% 318 15.1% 15.4%

Optics 651 706 -7.8% -13.8% 622 4.7% 4.3%

Wireless 1,068 860 24.2% 14.0% 1,021 4.6% 3.9%

Wireline 396 404 -2.0% -9.4% 366 8.2% 8.5%

Other & eliminations (22) (22) 0.0% nm (23) -4.3% nm

Applications 499 473 5.5% -0.8% 489 2.0% 2.5%Enterprise Applications 299 279 7.2% 1.4% 305 -2.0% -1.6%

Networks Applications 206 199 3.5% -3.5% 188 9.6% 10.1%

Other & eliminations (6) (5) nm nm (4) nm nm

Services 948 869 9.1% 1.8% 883 7.4% 7.7%Other & Eliminations 168 114 nm nm 137 nm nmTotal 4,074 3,687 10.5% 2.9% 3,813 6.8% 6.8%

* YoY & QoQ change, at constant FX rate & perimeter


Q3 ‘10 Operating Income Breakdown by Operating Segments

In Euro Million

Adj. operating income (loss)Q3 '10 Q3 '09

YoY Current

Q2 '10QoQ

Current

Networks 31 (26) nm 55 nmin % of revenues 1.3% -1.2% 2.4 pt 2.4% -1.1 pt

Applications 15 0 nm (17) nmin % of revenues 3.0% 0.0% 3.0 pt -3.5% 6.5 pt

Services 28 38 nm 19 nmin % of revenues 3.0% 4.4% -1.4 pt 2.2% 0.8 pt

Other & Eliminations (13) (23) nm (29) nmTotal 61 (11 ) nm 28 nm


North America 11 %Asia Pacific 7 %Europe 0 %RoW -7 %

17 | Q3 2010 Earnings

RoWRoW Asia PacificAsia Pacific

EuropeEurope North AmericaNorth America

~30% ~36%

~21%~13%RoWRoW Asia PacificAsia Pacific

EuropeEurope North AmericaNorth America

~33% ~33%

~20%~14%

YoY Revenue Δ (in local currencies)

Q3 ’10 Revenues Geographical Breakdown

Q3 ’10 Total Revenue: €4,074M

Q3 ’09 Total Revenue: €3,687M


Balance Sheet Highlights

In Euro Million Sept. 30, '10 June 30, '10 Sept. 30, '09

Goodwill 4,311 4,583 4,129

Other intangible assets 2,096 2,354 2,249

Other non-current assets (excl. market. sec & pensions) 2,762 2,985 2,921

Operating working capital 890 960 1,165Net assets/(liabilities) held for sale 148 80 53

Net cash / (debt) (190) 107 592

Shareholders’ equity - Group share 2,377 2,473 3,603

Minority interests 631 675 537Net Pensions & OPEB 3,211 3,694 2,906

Non current liabilities (excl.debt & pensions) 1,373 1,460 1,335

Reserves 1,969 2,265 2,074

Other current liabilities/(assets) net 456 502 654


Operating Working Capital

In Euro Million Sept 30, 2010 June 30, 2010 Sept 30, 2009

Net inventories* 2,567 2,669 2,171

Net receivables* 3,323 3,467 3,481

Payables & progress payments (5,000) (5,176) (4,487)

OWC as reported ** 890 960 1,165

As % of revenues (12 months) 5.9% 6.5% 7.2%

Trailing 4 quarter revenues 15,101 14,713 16,144

OWC before sales of receivables 1,524 1,601 1,784

As % of revenues (12 months) 10.1% 10.9% 11.1%

* Including amounts related to construction contracts

** Reserves on construction contracts have been reclassified to Provisions in the statement of financial position


Cash Flow Statement

In Euro Million Q3 '10 Q2 '10 Q3 '09

Net (debt)/cash at beginning of period 107 512 28 Adjusted operating income 61 28 (11)

Depreciation & Amort; OP non cash; other 275 66 197

Op. Cash Flow before change in WCR* 336 94 186 Change in operating WCR (82) (202) 430

Change in other WCR (61) 50 123

Operating Cash Flow** 193 (58) 739 Interest (92) (45) (41) Taxes (61) (46) (20)

Cash contribution to pension & OPEB (56) (64) (37) Restructuring cash outlays (73) (76) (122)

Cash flow from operating activities (89) (289) 519 Capital expenditures (incl. R&D cap.) (184) (146) (157)

Free Cash Flow (273) (435) 362 Discontinued, Cash from financing & Forex (24) 30 202

Change in net(debt)/cash position (297) (405) 564

Net (debt)/cash at end of period (190) 107 592

* Before changes in working capital, interest/tax paid, restructuring cash outlay and pension & OPEB cash outlay

**Operating cash flow now defined as cash generated from operations after changes in working capital but before interest/tax paid, restructuring cash outlay and

pension & OPEB outlay


Funded Status of Alcatel-Lucent Pensions & OPEB (IFRS)

In Euro Million

Pensions OPEB Pensions OPEB Pensions OPEBFair value of plan assets 27,017 394 28,480 490 24,380 400(In USD Million) 36,873 538 34,948 601 35,700 586

Benefit obligations (25,505) (3,315) (27,123) (3,649) (22,957) (3,090)(In USD Million) (34,809) (4,524) (33,283) (4,478) (33,616) (4,525)

1,512 (2,921) 1,357 (3,159) 1,423 (2,690)

Funded Status (In USD Million)

Asset ceiling (1,802) - (1,892) - (1,639) -

Net balance sheet (3,694)

(1,923)

(3,211)

Sept 30, '10 June 30, '10

(1,802)(2,211)

(1,409)

Sept 30, '09

(1,267)(1,855)

(2,906)


Outlook

2010 Guidance

• 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-digits (defined as between 1% and 5%).

Questions & Answers

Additional Information


Q3 2010 Reported and Adjusted Results

Q3 '10 Reported

PPAimpacts

Q3 '10 Adjusted

In Euro Million

Revenues 4,074 0 4,074

Gross profit 1,377 0 1,377

SG&A (718) 31 (687)

Net R&D (670) 41 (629)

Operating income (loss) (11) 72 61

Restructuring (71) 0 (71)

Post-retirement benefit plan amendment 30 0 30

Litigations 10 0 10Financial income (loss) 61 0 61

Share in net income of equity affiliates 4 0 4

Income Tax 23 (29) (6)

Income from discontinued operations 0 0 0

Net Income 46 43 89

Minority Interest (21) (21)

Net Income (Group share) 25 43 68

Diluted EPS, in € 0.01 0.03

# shares (Million) 2,275.7 2,640.5


Restatement of 2009 Breakdown by Operating Segments

In Euro Million

Revenues Q1 '10 Q2 '10 Q3 '10 Q1 '09 Q2 '09 Q3 '09 Q4 '09 FY 2009

Networks 1,928 2,304 2,459 2,219 2,384 2,231 2,242 9,076IP 272 318 366 288 286 283 320 1,177Optics 567 622 651 657 728 706 763 2,854Wireless 819 1,021 1,068 915 972 860 800 3,547Wireline 298 366 396 393 424 404 398 1,619Other & eliminations (28) (23) (22) (34) (26) (22) (39) (121)

Applications 416 489 499 444 462 473 535 1,914

Enterprise Applications 271 305 299 276 298 279 317 1,170Networks Applications 149 188 206 173 173 199 232 777Other & eliminations (4) (4) (6) (5) (9) (5) (14) (33)

Services 772 883 948 797 873 869 1,030 3,569Other & Eliminations 131 137 168 138 186 114 160 598Total 3,247 3,813 4,074 3,598 3,905 3,687 3,967 15,157

Adj. operating income (loss) Q1 '10 Q2 '10 Q3 '10 Q1 '09 Q2 '09 Q3 '09 Q4 '09 FY 2009

Networks (128) 55 31 (154) (136) (26) 19 (297)in % of revenues -6.6% 2.4% 1.3% -6.9% -5.7% -1.2% 0.8% -3.3%

Applications (27) (17) 15 (55) (30) 0 80 (5)in % of revenues -6.5% -3.5% 3.0% -12.4% -6.5% 0.0% 15.0% -0.3%

Services (40) 19 28 (63) 87 38 141 203in % of revenues -5.2% 2.2% 3.0% -7.9% 10.0% 4.4% 13.7% 5.7%

Other & Eliminations 0 (29) (13) 18 17 (23) 31 43Total (195) 28 61 (254) (62) (11) 271 (56)


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