Future Research and Development Portfolio Corporation :Alcatel-Lucent Division :Wireless Carrier Equipment Analyst :Daniel Henkel

Company Facts CEO: Patricia Russo; Wireless: Mary Chan HQ: Paris, 80,000 employees, 130 countries Revenue: €18.6 billion (2006) R&D: 10 countries (China, India), €2.7bn (2006) Dec 1, 2006: Alcatel and Lucent merger Revenues

Vision – Mission - Values Vision: To enrich people’s lives by transforming the way the world communicates Customers First Innovation Teamwork Respect Accountability Ensuring that our custo- mers thrive, our business grows, and people’s per- sonal communications experience gets enriched. Mission Values

Research Strategy & Focus Bell Labs main R&D facility Develop technically advanced products Conduct fundamental research Create innovations for ALU’s new products Current focus Wireless network modeling WiMAX technology Next generation cellular networks

ALU SWOT Analysis WeaknessesStrengths ThreatsOpportunities Worldwide presence IP portfolio Innovation capability WiMAX leader Financial situation Merger integration Product line confusion Wireless broadband All-IP networks Emerging markets Few big customers FCC regulation Fast technology pace Strong competitors

Financials Shares down 47% YoY Q3’07: op.margin 1.6%, net income €-258M €12.36B market cap, €4B cash position

Markets & Customers Market segments along wireless network lines 2G voice only 3G voice and data 4G all-IP Fund/Platform Main customers: cellular network operators Opportunities in WISP market

Competitors Strong worldwide competition Asian players growing fast

Project Selection Methodology

New Project Sources Customer input Employee idea process Alcatel-Lucent Venture University Cooperation

Value Scorecard Criteria – scale {0, 4, 7, 10} Option Value (3) Strategic Fit (9) Innovation Content (7) Prob. of technical success (5) Prob. of commercial success (6) Core Competency (4)

Resource Limitations Estimated €2.2bn R&D budget (total) At disposal now: €360 million (wireless) 2G (10%): €36m, 3G (25%): €90m 4G (40%): €144m, F/P (25%): €90m Full Time Employees Not the bottleneck

Portfolio Findings 29 projects evaluated – c:11, o:10, d:8 17 projects funded – c:7, o:8, d:2

Balance Example Plot X – Risk Y – Value Size – Strategic Fit Innovation Content: HighMediumLow Superior

Summary & Outlook Alcatel-Lucent strong innovator, but distracted by merger integration Tailored project selection methodology supports financial and subjective criteria Currently 17 out of 29 projects funded €328M spent, 32M contingency Portfolio: strategic fit, optimal value and balance Strong performance expected in 2009