1. Leadership in Global Business Janet Davidson Chief Strategy Officer April 2006 NCMA World Congress 2006

2. Lucent Technologies – Proprietary Use pursuant to company instruction2 Pre-1984  AT&T – a regulated U.S. monopoly  Lucent – the R&D/manufacturing team for a monopoly parent 1984-1995  Post-divestiture – "freedom" to compete –In existing and new industries –Outside the U.S. 1996  Lucent IPO 1984-1996: The Lucent Heritage Understand who you are! AT&T

3. Lucent Technologies – Proprietary Use pursuant to company instruction3 1996-2000: Lucent Ascendant Market Conditions – Telecommunications –Internet Boom –Deregulation –Service Provider market grew from fewer than 1,000 carriers in 1996 to more than 15,000 service providers by 2000 –Service Provider Capital Spending grew from $213 billion in 1996 to $310 billion in 2000 Lucent was one of several companies riding the growth curve … –Grew revenue from $20 billion to $38 billion* –Increased headcount from 131,000 at IPO to 157,000 at peak* –Expanded customer base from hundreds to thousands* –Introduced more than 260 new products –Acquired 38 companies Deregulation, unlimited access to capital, and Internet boom led to the most intense growth period in the history of the telecommunications industry * Includes Avaya, Agere, OFS, Power Systems

4. Lucent Technologies – Proprietary Use pursuant to company instruction4 1996-2000: Lucent Ascendant Pre-Divestiture19841996+ A Few Other Suppliers Hundreds of Suppliers A Thousand Customers Network Systems And Seven RBOCs Network Systems

5. Lucent Technologies – Proprietary Use pursuant to company instruction5 2001-2006: The Lucent Transformation  Telecom market collapse forced dramatic restructuring involving fundamental, ongoing changes in: –Supply Chain (Manufacturing) –Research & Development –Customer Base and Relationships –Competition and Partnerships –Corporate Culture  Restructuring restored stability and positioned the company for growth in global markets

6. Lucent Technologies – Proprietary Use pursuant to company instruction6 Supply Chain 1996-2000 During the telecom boom, Lucent had:  11 independent business units  >20,000 people employed in 29 factories –Five major manufacturing facilities in United States  >500 warehouses  $1.9 billion annual corporate manufacturing budget  $5 billion in annual inventory

7. Lucent Technologies – Proprietary Use pursuant to company instruction7 Supply Chain Discipline Began in 2001 Formal Supply Chain Organization created in 2001  Reduced number of strategic suppliers from more than 1,000 to 90 by 2005  Developed sourcing strategies for about 70 different commodities, ranging from metals to memory chips –Reduced commodity costs by as much as 50 percent  Moved $1.2 billion in fixed cost to variable cost by leveraging EMS providers  Globalization of supply chain and delivery mechanisms –Two EMS manufacturers with global operations and facilities –Four regional systems integration centers for test and delivery of customized regional solutions

8. Lucent Technologies – Proprietary Use pursuant to company instruction8 Key Supply Chain Adjustments

9. Lucent Technologies – Proprietary Use pursuant to company instruction9 Lessons Learned - Supply Chain  Initial disruption causes pain –Changes reverberate through product design, development, manufacturing and distribution –Flexibility in product management, R&D are critical –Be clear about where you add value –Metrics matter  Benefits are well worth the price

10. Lucent Technologies – Proprietary Use pursuant to company instruction10 Lucent Main R&D Centers 1996-1999 Whippany Lisle/Naperville Holmdel Murray Hill World-renowned Bell Labs Was a U.S.-Centric Organization Serving Primarily U.S.-based Customers

11. Lucent Technologies – Proprietary Use pursuant to company instruction11 Lucent Main R&D Centers 2006 Shanghai Beijing Nanjing Qingdao Bangalore Whippany Lisle/Naperville Swindon Holmdel Nuremberg Westford Campinas Bydgoszcz Alcobendes Murray Hill Today, Lucent has 15 Global R&D Centers Aligned with Customer Concentrations

12. Lucent Technologies – Proprietary Use pursuant to company instruction12 Lessons Learned - R&D  "World renowned R&D" means little if your R&D is not visible to your customers around the world –Local problems require local solutions  There are brilliant people everywhere – Hire them! –It makes no sense to limit your R&D team to one region –It makes no sense to draw your ideas from one culture  Competing globally requires a competitive cost structure in all aspects of your operation  Diversity in R&D makes solid business sense

13. Lucent Technologies – Proprietary Use pursuant to company instruction13 Customers 19841995200619902001 Local and Long-distance Service Providers Wireless Service Providers CLECs Cable, xVNOs, xVNEs Global Service Providers CLECs

14. Lucent Technologies – Proprietary Use pursuant to company instruction14 Customers 1996-2005 In 1998, 40% of the world telecom spend occurred in the United States In 1996, 77% of Lucent’s business was done in the U.S. In 2005, 63% of Lucent’s business was done in the U.S.

15. Lucent Technologies – Proprietary Use pursuant to company instruction15 Lessons Learned - Customers  Products and services that work in your home market may or may not be relevant in other markets  Every customer is unique … treat them that way –Use your unique skills/assets to help them solve their business needs  Stay the course –Establishing a market presence/reputation takes time –If you leave a market, it may be a lifetime decision

16. Lucent Technologies – Proprietary Use pursuant to company instruction16 Competition 19841995200619902001 Similar Companies with Regional Focus Similar Companies with Global Scale Fast High-Tech Startups Low-Price Global Competitors Global IT Companies

17. Lucent Technologies – Proprietary Use pursuant to company instruction17 Lessons Learned - Competition  A regulated monopoly knows how to compete INTERNALLY  Every country is different –Regulatory policy –Political environment –Industrial policy, …  Every competitor is different… know what makes you unique

18. Lucent Technologies – Proprietary Use pursuant to company instruction18 People Each shockwave requires culture change to survive Competition Customers & Markets R&D Globalization Supply Chain Deregulation

19. Lucent Technologies – Proprietary Use pursuant to company instruction19 Lessons Learned - People  Change is a constant not an option –Work on the "critical few" –Stay the course  Communication is critical  "Culture" determines how quickly your people can anticipate and respond to changes in customer base, competition, technology and global politics  HR can be your most critical ally in creating a flexible, motivated work force –Never underestimate the need to communicate your strategy, your progress and your values to your people  Compliance is important – Employees need to be trained  Hire and train 3-to-5 years ahead of your business

20. Lucent Technologies – Proprietary Use pursuant to company instruction20 Key Takeaways  Globalize your supply chain  Globalize your R&D  Globalize your customer base  Be ready for global competition  Globalize your work force Do it, don’t fight it!