Alcatel reports second quarter 2003 results.

    Business Editors/High-Tech Writers

    PARIS--(BUSINESS WIRE)--July 29, 2003--

        --  Sales up sequentially by 6% at Euro 3,149 million

       -- Gross margin improved sequentially and by 5 points YoY

        --  Operating results turn positive at Euro 21 million

        --  Net cash position remains strong at Euro 476 million

    Alcatel's Board of Directors (Paris: CGEP.PA and NYSE: ALA)
reviewed second quarter 2003 results. Second quarter sales increased
sequentially by 6% to Euro 3,149 million. At a constant exchange rate,
sales increased by 9%. Year over year, sales decreased 26% (19% at
constant exchange rate). Income from operations amounted to Euro 21
million, while net loss was registered at Euro 675 million or diluted
Euro (0.56) per share (USD (0.64) per ADS).
-0-

                                      Quarterly(a)
                            -------------------------------
Key Figures                   Second   Second     First
 in millions of euros except Quarter   Quarter   Quarter
  for EPS                      2003     2002      2003
-----------------------------------------------------------


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Profit & Loss
------------------------------------------------------------
Net Sales                         3,149    4,234      2,958
------------------------------------------------------------
Income from Operations               21     (126)      (137)
------------------------------------------------------------
Net Income pre-Goodwill & MI       (568)  (1,315)      (313)
------------------------------------------------------------
Net Income                         (675)  (1,438)      (461)
------------------------------------------------------------
EPS (Class A) Diluted             (0.56)   (1.21)     (0.38)
------------------------------------------------------------
E/ADS (Class A)(b)                (0.64)   (1.39)     (0.44)
------------------------------------------------------------
Number of Shares (in
 billions)                         1.20     1.18       1.20
------------------------------------------------------------


(a) The Optronics business is accounted for as a discontinued activity
from January 1, 2003. Second Quarter 2002 has been restated for
comparison purposes.

(b) E/ADS has been calculated using the US Federal Reserve Bank of New
York noon euro/dollar buying rate of USD1.15 as of June 30, 2003.

    Serge Tchuruk, Chairman and CEO summarized the Board's
observations:

    "Alcatel returned to operational profitability in the second
quarter with each business segment either at breakeven or positive.
Gross margins continued to grow sequentially leading to a 5 point
improvement year over year. Fixed costs declined substantially in Q2.
They should continue to decline in coming quarters and, based on
expected trends, the relative rate of change in sales and fixed costs
should favorably impact profitability. Our employees can be proud of
these accomplishments as they have been achieved in a depressed
market, with a weakened US dollar and unprecedented pricing
pressures."
    "We continue to maintain a severe restructuring pace, with our net
loss reflecting associated termination and depreciation costs,
including those related to the divestment of the Optronics business.
Once again working capital improvements cover cash outs, leaving our
positive net cash situation practically unchanged. This extensive
restructuring is combined with strategic moves, such as the
divestiture of our optical components business, and with process
improvements in core operations. These programs will continue
throughout the second half, resulting in a streamlined company with
minimum capital employed in operations."
    "At the same time, we remain focused on offering solutions
responding to the increasing concern of carriers for revenue growth
opportunities, particularly in broadband access and mobile
infrastructure and applications. Our good performance in Q2 in these
areas offset continuing challenges in the overall optics portfolio and
in cellular handsets. Also, we are pleased by our increasing momentum
in enterprise IP telephony and applications. Our acquisition of
TiMetra, a technology leader in IP edge service routers, will
considerably enhance our capability in the IP carrier space".

    Outlook

    "While our environment remains difficult, we still anticipate that
the market in the second half of this year will be close to the second
half of 2002, at a constant dollar/euro exchange rate. For the third
quarter we expect Alcatel's revenues to be about stable, with a
continued improvement in our operating results in line with the
declining trend of our costs."
    "Today we are comfortable with our previously stated targets for
the year. We intend to significantly increase our marketing efforts as
our customers are beginning to look more towards the future and are
exploring their own strategic options".

    Business Highlights

-0-

Segment Breakdown                      Quarterly(a)
 in millions of euros
                             ------------------------------
                               Second   Second     First
                              Quarter   Quarter   Quarter
                                2003     2002      2003
-----------------------------------------------------------


-0-

Sales
----------------------------------------------------------
Fixed Communications(a)         1,405    2,095      1,315
----------------------------------------------------------
Mobile Communications             834    1,110        798
----------------------------------------------------------
Private Communications          1,012    1,152        952
----------------------------------------------------------
Other & Eliminations             (102)    (123)      (107)
----------------------------------------------------------

----------------------------------------------------------
            Total               3,149    4,234      2,958
----------------------------------------------------------


-0-

Income from Operations
----------------------------------------------------------
Fixed Communications(a)             0     (153)       (81)
----------------------------------------------------------
Mobile Communications              10       28         15
----------------------------------------------------------
Private Communications             37       36        (21)
----------------------------------------------------------
Other                             (26)     (37)       (50)
----------------------------------------------------------

----------------------------------------------------------
            Total                  21     (126)      (137)
----------------------------------------------------------


(a) The Optronics business is accounted for as a discontinued
operation from January 1,2003. Second Quarter 2002 has been restated
for comparison purposes.

    Second Quarter Business Update

    Fixed Communications

    Second quarter revenue increased sequentially by 6.8% to Euro
1,405 million from Euro 1,315 million. The broadband access activity
benefited from a sustained demand in DSL worldwide and recorded sales
of 5.5 million lines during the first half of this year, a 55%
increase compared to the first half of last year. Voice networks
turned in a good performance, especially in China. Optical network
sales increased substantially from a very low level in Q1,
particularly in terrestrial transmission where significant growth was
recorded in the SDH business. However, the overall optical market
continues to be depressed.
    Fixed Communications was breakeven at the operating level,
compared to a loss of Euro (81) million in Q1 with increasing
profitability in the broadband access activity. Optical networks
continued to narrow its losses due to the effects of restructuring.

    Mobile communications

    Second quarter revenue increased sequentially by 4.5% to Euro 834
million from Euro 798 million. Mobile networks grew in the quarter,
particularly in China, and continued to gain market share, which more
than offset the weak mobile phone sales.

    Income from operations was Euro 10 million compared to Euro 15
million in Q1. The mobile networks' sequential growth in profitability
was partially offset by the negative results of mobile phones.

    Private Communications

    Second quarter revenue increased sequentially by 6.3% to Euro
1,012 million over Euro 952 million. This increase is primarily
attributed to the space activity which registered good satellite
deliveries and which also benefited from substantial order intake
during the quarter. Enterprise activities were sustained by an upturn
in the IP telephony markets where Alcatel is well positioned, which
offset the decline of the traditional voice PBX business. Genesys
turned in a very good performance during the quarter, particularly in
Europe. The Integration and Services business continues to grow, in
particular private communications network design as well as fixed
infrastructure projects in emerging markets.

    Income from operations was Euro 37 million compared to a loss from
operations of Euro (21) million in Q1. The increase was largely volume
related but also resulted from better margins and lower fixed costs
with a significant contribution from Integration and Services and
Transport Solutions.

   *           *          *            *           *           *

Alcatel will host an audio webcast at 1:00 p.m. Paris time (12:00 p.m.
London and 7:00 a.m. New York), which can be accessed at
http://www.alcatel.com/2q2003 or http://www.alcatel.fr/2q2003.

    Second Quarter 2003 Results (unaudited)

    PROFIT AND LOSS STATEMENT:

-- Net Sales: Euro 3,149 million vs. Euro 4,234 million 2Q 02 (down
   26%) and vs. Euro 2,958 million sequentially (up 6%).

-- Geographical distribution of sales: W. Europe: 42% Other Europe: 8%
   North America: 15% Asia: 17% RoW: 18%

-- Gross margin: 31.4% (30.2% for Q1 2003).

-- Selling, general and administration ("SG&A") costs: Euro (568)
   million (18.0% of sales).

-- Research and development ("R&D") expenses: Euro (401) million
   (12.7% of sales).

-- Income (loss) from operations: Euro 21 million, which included Euro
   (2) million in inventory depreciation vs. Euro (16) million in Q1
   03,

-- Earnings before tax and amortization of goodwill: Euro (447)
   million and included:

-- Interest paid on convertible bonds Euro (12) million

-- Net financial loss of Euro (67) million

-- Restructuring costs of Euro (305) million

-- Net other revenue/(expenses) of Euro (84) million

-- Net Income Pre-Goodwill and Minority Interest: Euro (568) million

-- Net Income: Euro (675) million and included a related tax charge of
   Euro (17) million, share in net income of equity affiliates and
   discontinued activities of Euro (104) million, goodwill
   amortization of Euro (115) million, and minority interests of Euro
   8 million.

-- Diluted A share EPS: Euro (0.56) (USD (0.64) per ADS) based on an
   average of 1.20 billion A shares.

    BALANCE SHEET ITEMS:

-- Operating working capital: Euro 987 million, a sequential decrease
   of Euro 273 million

-- Cash and equivalents: Euro 7,000 million, compared to Euro 6,206
   million at the end of Q1 2003.

-- Net Cash: Euro 476 million.

-- Gearing: (11%)

-- Operating Cash Flow: Euro (35) million.

    About Alcatel

    Alcatel provides end-to-end communications solutions, enabling
carriers, service providers and enterprises to deliver contents to any
type of user, anywhere in the world. Leveraging its long-term
leadership in telecommunications networks equipment as well as its
expertise in innovative applications and network services, Alcatel
enables its customers to focus on optimizing their service offerings
and revenue streams. With sales of EURO 16.5 billion in 2002, Alcatel
operates in more than 130 countries. For more information, visit
Alcatel on the Internet: http://www.alcatel.com

"Safe Harbor" statement under the Private Securities Litigation Reform
Act of 1995: This press release contains forward-looking statements
relating to (i) Alcatel's performance in future periods, including
without limitation, with respect to third quarter 2003 revenue,
operating income and, and 2003 breakeven points (ii) Alcatel's ability
to remain competitive and a leader in the industries in which it
operates, and its future growth including without limitation growth in
market share, the telecom industry and market conditions in general;
and (iii) the benefits to Alcatel in 2003 from its restructuring
efforts and strategic moves. These forward looking statements are
based on current expectations, forecasts and assumptions that involve
risks and uncertainties that could cause actual outcomes and results
to differ materially from those projected. These risks and
uncertainties include: whether Alcatel can continue to implement its
restructuring efforts and strategic moves and whether these efforts
will achieve their expected benefits, including contributing to both
improved gross margins, the achievement of breakeven targets and
improved operational profitability, among other benefits; the economic
slowdown, in general, and setbacks in Alcatel's customers' businesses
in particular; customer demand for Alcatel's products and services;
control of costs and expenses; international growth; conditions and
growth rates in the telecommunications industry and general domestic
and international economic conditions; and the impact of each of these
factors on expected sales increases and realization of positive
operating income. For a further list and description of such risks and
uncertainties, see the reports filed by Alcatel with the Securities
and Exchange Commission. Alcatel disclaims any intention or obligation
to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.

Upcoming Events/Announcements

October 30, 2003    Q3 Earnings Announcement

November 20, 2003   Analysts' Day

    --30--SM/lo*

    CONTACT: Alcatel Press Contacts
             Aurelie Boutin
             Tel:  [phone]
             [e-mail]
             or
             Regine Coqueran
             Tel : [phone]
             [e-mail]
             or
             Alcatel Investor Relations Contacts
             Claire Pedini
             Tel : [phone]
             [e-mail]
             or
             Laurent Geoffroy
             Tel : [phone]
             [e-mail]
             or
             Pascal Bantegnie
             Tel : [phone]
             [e-mail]
             or
             Peter Campbell
             Tel : [phone]
             [e-mail]
             or
             Charlotte Laurent-Ottomane
             Tel : [phone]
             [e-mail]

    KEYWORD: FRANCE INTERNATIONAL EUROPE
    INDUSTRY KEYWORD: TELECOMMUNICATIONS EARNINGS
    SOURCE: Alcatel