Alcatel Lucent (ALU)

ALU 
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TRANSCRIPT SPONSOR

Alcatel-Lucent (ALU)
Q1 2007 Earnings Call
May 11, 2007 7:00 am ET

Executives

Pascal Bantegnie - VP of IR
Patricia Russo - CEO
Jean-Pascal Beaufret - CFO

Analysts

Kulbinder Garcha - Credit Suisse
Mark Sue - RBC Capital Markets
Tim Boddy - Goldman Sachs
Remi Thomas - Cheuvreux
Jeffrey Schlesinger - UBS
Paul Sagawa - Bernstein
Alexandre Peterc - Exane BNP Paribas
Simon Leopold - Morgan Keegan
Phil Cusick - Bear Stearns
Jason Mauricio - Arete Research
Gareth Jenkins - Deutsche Bank
Frank Maccary - IXIS

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Alcatel-Lucent 2007 First Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session (Operator Instructions).

And, as a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr. Pascal Bantegnie. Please go ahead.

Pascal Bantegnie

Thank you, Rashya (ph). Hello, to everyone and welcome to our first quarter 2007 earnings call. With me today on the call are Patricia Russo, Alcatel-Lucent Chief Executive Officer, and Jean-Pascal Beaufret, Chief Financial Officer. Pat and Jean-Pascal will provide an overview of first quarter results and discuss the market and company’s outlook.

Later in the call, we'll conduct a Q&A session. Please restrict yourself to one question and no follow-up, please. If anyone has not yet seen a copy of our earnings release or the slide deck for this webcasted call, it is available on our website at alcatel-lucent.com.

Before we begin, I would like to remind you that certain statements we will be making today maybe considered forward looking. Please refer to the Safe Harbor Statement contained in today's releases.

Now, at this point, I will turn the call over to Pat.

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Patricia Russo

Thank you, Pascal. Hello, everyone. Thank you for joining us. As you know, earlier today we announced our audited results for the first quarter of 2007, which is in fact our first full quarter of operations as a combined company.

Jean-Pascal Beaufret will go over the numbers in a few minutes but I thought I would start by giving you some context around the quarter and let me start with the snapshot. While our first quarter financial results were lower than we could have liked, we are encouraged by the progress that we've made in several key areas during the quarter.

First, we worked very hard to reduce the uncertainty that accompanied the merger. You'll recall we commented on this in our fourth quarter review. As is normal in these situations, uncertainty can be felt by our employees, our customers and our partners in the weeks leading up to and following the merger.

During this quarter, we took several actions to address each of these important constituents. Internally, we brought further clarity to our organizational model, our operating model, and stepped up to work with our HR folks to communicate as much information as possible about each employee's role in the new company.

That work is ongoing. And we essentially finalized our product and technology roadmaps and we have been aggressively communicating the details around these decisions with our customers. And that communication is ongoing as well.

Secondly, with an increased external focus on selling and greater certainty around the portfolio and, as well, the sales team stability, we saw good momentum in our order flow across the businesses, which resulted in an improving order backlog with a book-to-bill at 1.3. We recognize this is based off of a lower revenue base, but it is still strong.

That said, as we had anticipated, our first quarter revenues declined as a result of lower volumes in wireless and core networks, and this of course occurred at a time when we continue to make considerable investments in the next generations of these technologies. Our wireline business grew on a constant basis and our enterprise business grew, and I'll make some comments on those in a minute.

Thirdly, in the quarter, we continued to sharpen the focus of the company and completed, on April 10th, the transfer of our satellite shareholdings to Thales. This is in addition to the transfer of the railway signaling business and our integration in services activities for mission critical commercial systems, which were transferred in January.

We have an ongoing partnership with Thales, which will include commercial cooperation for such markets as defense, security, energy and transportation. So I think, as you look at these, we've made good progress in positioning the company for growth in what is a highly competitive market and, at the same time, starting to build some good business momentum.

Let me comment on that. In addition to what we observe in the book-to-bill, we signed and announced several key contracts during the quarter. The point I would make about these is that they span geography and they span our entire portfolio and I think speak to the power of the combination represented now by the combined portfolio.

And they include a $6 billion agreement with Verizon Wireless, this is for EV-DO Rev. A, in addition to IMS and IP routing solutions, an agreement with China Mobile where Alcatel Shanghai Bell and our partner Datang will participate in deploying TD-SCDMA networks, a contract with E-Plus to operate and manage its cellular network in Germany.

An agreement with Verizon to deploy our GPON technology in its Fiber-to-the-Home network. We announced several submarine contracts, including wins with Telstra and Mediterranean Nautilus. And we announced a large contract with Globacom to supply and install the first UMTS/HSDPA network in West Africa and, lastly, our first UMTS/HSDPA win in Western Europe, and that was with SFR.

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