1

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                    FORM 10-Q



            X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           ---
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 1998

                                       OR

            ---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

         For the transition period from _____________to _____________


                        Commission file number 001-11639

                            LUCENT TECHNOLOGIES INC.

          A Delaware                                   I.R.S. Employer
          Corporation                                  No. 22-3408857


               600 Mountain Avenue, Murray Hill, New Jersey 07974

                       Telephone - Area Code 908-582-8500


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes .X No ....

At April 30, 1998 1,311,974,043 common shares were outstanding.


<PAGE>
 2                                                           Form 10-Q - Part I

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                    LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                           For the Three        For the Six
                                            Months Ended       Months Ended
                                             March 31,           March 31,
                                           1998     1997       1998      1997

<S>                                     <C>      <C>        <C>        <C>    
Revenues.............................   $ 6,157  $ 5,149    $ 14,881   $13,087

Costs................................     3,433    2,981       7,952     7,277

Gross margin.........................     2,724    2,168       6,929     5,810

Operating Expenses
Selling, general and
  administrative expenses ...........     1,487    1,287       3,042     2,746
Research and development expenses ...       929      738       1,758     1,372
In-process research
 and development expenses............       157        -         584        79
Total operating expenses.............     2,573    2,025       5,384     4,197

Operating income.....................       151      143       1,545     1,613
Other income - net ..................        47       40         210        49
Interest expense.....................        74       77         153       156
Income before income taxes...........       124      106       1,602     1,506
Provision for income taxes...........       101       40         787       581

Net income...........................   $    23  $    66    $    815   $   925

Earnings per common share - basic....   $   0.02 $   0.05   $   0.63   $  0.73

Earnings per common share - diluted..   $   0.02 $   0.05   $   0.62   $  0.72

Dividends declared
  per common share...................   $   0.00 $   0.00   $   0.075  $  0.0375
</TABLE>


See Notes to Consolidated Financial Statements.
<PAGE>

 3                                                           Form 10-Q - Part I

                    LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                          March 31,    September 30,
                                            1998           1997

<S>                                       <C>            <C>    
ASSETS

Cash and cash equivalents..............   $   969        $ 1,350

Accounts receivable less
 allowances of $369 at
 March 31, 1998 and $352 at
 September 30, 1997 ...................     5,576          5,373

Inventories............................     2,874          2,926

Contracts in process, net of contract
 billings of $2,606 at
 March 31, 1998 and $2,003 at
 September 30, 1997....................     1,332          1,046

Deferred income taxes - net............     1,477          1,333

Other current assets...................       481            473

Total current assets...................    12,709         12,501

Property, plant and equipment, net
  of accumulated depreciation of
  $6,132 at March 31, 1998 and
  $6,407 at September 30, 1997.........     4,805          5,147

Prepaid pension costs..................     3,462          3,172

Deferred income taxes - net............     1,002          1,262

Capitalized software development costs.       279            293

Other assets...........................     2,407          1,436

TOTAL ASSETS...........................   $24,664        $23,811
</TABLE>


See Notes to Consolidated Financial Statements.

                                    (CONT'D)
<PAGE>

 4                                                           Form 10-Q - Part I

                    LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS (CONT'D)
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                          March 31,     September 30,
                                             1998           1997

<S>                                       <C>             <C>    
LIABILITIES

Accounts payable.......................   $ 1,659         $ 1,931
Payroll and benefit-related
  liabilities..........................     2,048           2,178
Postretirement and postemployment
  benefit liabilities..................       195             239
Debt maturing within one year..........     1,898           2,538
Other current liabilities..............     3,618           3,852

Total current liabilities..............     9,418          10,738

Postretirement and postemployment
  benefit liabilities..................     6,249           6,073
Long-term debt ........................     1,918           1,665
Other liabilities......................     2,043           1,948

Total liabilities .....................    19,628          20,424

SHAREOWNERS' EQUITY

Preferred stock-par value $1.00 per share
 Authorized shares: 250,000,000
 Issued and outstanding shares: none...         -               -
Common stock-par value $.01 per share
 Authorized shares: 3,000,000,000
 Issued and outstanding shares:
 1,310,223,404 at March 31, 1998
 1,284,125,312 at September 30, 1997...        13              13
Additional paid-in capital.............     4,076           3,047
Guaranteed ESOP obligation.............       (63)            (77)
Foreign currency translation...........      (304)           (191)
Retained earnings......................     1,314             595

Total shareowners' equity...............    5,036           3,387

TOTAL LIABILITIES AND
 SHAREOWNERS' EQUITY...................   $24,664         $23,811
</TABLE>


See Notes to Consolidated Financial Statements.
<PAGE>

 5                                                           Form 10-Q - Part I

                  LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Dollars in Millions)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                For the Six Months
                                              Months Ended March 31,
                                                1998           1997

<S>                                            <C>           <C>    
Operating Activities      
Net income...............................      $ 815         $   925
Adjustments to reconcile net income
  to net cash provided by
  operating activities:
   Business restructuring charge.........        (33)            (54)
   Asset impairment and other charges....          -             (46)
   Depreciation and amortization.........        647             681
   Provision for uncollectibles..........         84              63
   Deferred income taxes.................         78             (11)
   Purchased in-process research and
     development.........................        584              79
   (Increase)decrease in
     accounts receivable ................       (615)            111
   (Increase)decrease in inventories
     and contracts in process............       (245)            390
   Decrease in accounts payable..........       (226)           (679)
   Changes in other operating assets
     and liabilities.....................       (494)           (869)
   Other adjustments for noncash
     items - net.........................       (295)            (71)
Net cash provided by
 operating activities....................        300             519

Investing Activities
Capital expenditures ....................       (602)           (681)
Proceeds from the sale or disposal of
  property, plant and equipment..........         42              36
Purchases of equity investments..........        (68)            (89)
Sales of equity investments..............         25               -
Acquisitions, net of cash acquired.......        (15)           (135)
Dispositions.............................        265             181
Other investing activities - net.........        (45)            (36)
Net cash used in investing activities....       (398)           (724)

Financing Activities
Repayments of long-term debt ............        (62)             (7)
Issuance of long-term debt...............        335              42
Proceeds of issuance of common stock.....        228             128
Dividends paid...........................        (97)            (96)
Decrease in short-term
  borrowings - net.......................       (645)            (84)
Net cash used in financing activities....       (241)            (17)
</TABLE>

See Notes to Consolidated Financial Statements.

                                    (CONT'D)
<PAGE>

 6                                                           Form 10-Q - Part I

                    LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
                              (Dollars in Millions)
                                   (Unaudited)

                                                     For the Six
                                               Months Ended March 31,
                                                  1998         1997
                                      
Effect of exchange rate
  changes on cash........................          (42)           (6)

Net decrease in cash and
  cash equivalents.......................         (381)         (228)

Cash and cash equivalents
  at beginning of year...................        1,350         2,241

Cash and cash equivalents
  at end of period.......................      $   969       $ 2,013


See Notes to Consolidated Financial Statements.
<PAGE>

 7                                                            Form 10-Q - Part I

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
by Lucent Technologies Inc. ("Lucent" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of management, include all adjustments necessary for a fair presentation
of the results of operations, financial position and cash flows for each period
shown.

The financial statement results for interim periods are not necessarily
indicative of financial results for the full year. These unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1997 and the unaudited
consolidated financial statements and notes thereto included in the Company's
quarterly report on Form 10-Q for the quarterly period ended December 31, 1997.

The financial statements presented have been restated to reflect the two-for-one
split of Lucent's common stock which became effective on April 1, 1998.

2.  ACQUISITIONS

Prominet Corporation
---------------------

In January 1998, Lucent completed the purchase of Prominet Corporation
("Prominet"), a participant in the emerging Gigabit Ethernet networking
industry, in a merger involving $164 of Lucent stock and options. Under the
terms of the agreement, there are contingent obligations to pay $35 in stock,
which Lucent expects to pay in the current fiscal year upon resolution of the
related contingencies. In that event, goodwill will be recorded under the
purchase method of accounting. The fair market value of Prominet's assets and
liabilities, which were independently determined, has been included in the
balance sheet as of March 31, 1998.

Included in the purchase price was $157 of purchased in-process research and
development which was a one-time, non-cash, non-tax deductible charge to
earnings as this technology had not reached technological feasibility and has no
alternative use. This technology will require varying additional development,
coding and testing efforts over the next year before technological feasibility
can be determined. The remaining purchase price was allocated to tangible assets
and acquired technology, less liabilities assumed.

Livingston Enterprises
----------------------

In December 1997, Lucent completed the purchase of Livingston Enterprises, Inc.
("Livingston"), a provider of remote access networking solutions, in a merger
involving $610 of Lucent stock and options. The acquisition was accounted for
using the purchase method of accounting. The fair market value of Livingston's
assets and liabilities, which were independently determined, has been included
in the balance sheet as of March 31, 1998.

The acquired technology valuation included both existing technology and
in-process research and development. The valuation of these technologies was
made by applying the income forecast method which considers the present value of
cash flows by product lines.

<PAGE>

 8                                                           Form 10-Q - Part I

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

The fair value of existing technology products was valued at $69 and is being
amortized over eight years. In-process research and development valued at $427
was a one-time, non-cash, non-tax deductible charge to earnings as this
technology had not reached technological feasibility and has no alternative use.
This technology will require varying additional development, coding and testing
efforts over the next year before technological feasibility can be determined.

Goodwill was valued at $114 and is being amortized over five years.

3.   SUPPLEMENTARY BALANCE SHEET INFORMATION

Inventories at March 31, 1998 and September 30, 1997 were as follows:

<TABLE>
<CAPTION>
                                      March 31,     September 30,
                                        1998            1997

<S>                                    <C>             <C>    
     Completed goods ...............   $ 1,463         $ 1,611
     Work in process and
       raw materials................     1,411           1,315
     Total inventories .............   $ 2,874         $ 2,926
</TABLE>

4.   BUSINESS RESTRUCTURING AND OTHER CHARGES

Cash payments of $64 and $90 were made for the three months and six month
periods ended March 31, 1998, respectively, for the 1995 business restructuring
charge of $2,801 (pre-tax). The reserve for business restructuring as of March
31, 1998 was $432.

For the three months ended March 31, 1998 and December 31, 1996, Lucent reversed
$33 and $54, respectively, of business restructuring and other charges primarily
related to employee separations.

<PAGE>

 9                                                           Form 10-Q - Part I

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

5. EARNINGS PER COMMON SHARE

Basic earnings per common share was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share was calculated by dividing net income by the sum of the
weighted average number of common shares outstanding plus all additional common
share that would have been outstanding if potentially dilutive common shares had
been issued.

Earnings per share amounts for the periods presented have been restated to
reflect the two-for-one split of Lucent's common stock which became effective on
April 1, 1998. The following table reconciles the number of shares utilized in
the earnings per share calculations for the three and six month periods ended
March 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                     Three Months Ended          Six Months Ended
                                          March 31,                  March 31,
                                       1998        1997           1998        1997
                                   ------------------------------------------------

<S>                                    <C>        <C>            <C>        <C>   
Net income                             $   23     $   66         $  815     $  925

Earnings per common share - basic      $ 0.02     $ 0.05         $ 0.63     $ 0.73

Earnings per common share - diluted    $ 0.02     $ 0.05         $ 0.62     $ 0.72


Number of Shares (in millions)
---------------------------------
Common shares - basic                  1,304.0    1,276.2        1,295.7    1,275.2

Effect of dilutive securities:
Stock options                            23.6        4.4           20.9        3.5
Other                                     1.2        0.2            0.9        0.1

Common shares - diluted               1,328.8    1,280.8        1,317.5    1,278.8

Shares excluded from the
computation of earnings per
share - diluted since option 
exercise price was greater than
the average market price of the
common shares for the period              0.1        3.2            0.2        7.7
</TABLE>

<PAGE>

 10                                                           Form 10-Q - Part I

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

6.  COMMITMENTS AND CONTINGENCIES

In the normal course of business, Lucent is subject to proceedings, lawsuits and
other claims, including proceedings under government laws and regulations
related to environmental and other matters. Such matters are subject to many
uncertainties, and outcomes are not predictable with assurance. Consequently,
the ultimate aggregate amount of monetary liability or financial impact with
respect to these matters at March 31, 1998 cannot be ascertained. While these
matters could affect the operating results of any one quarter when resolved in
future periods and while there can be no assurance with respect thereto,
management believes that after final disposition, any monetary liability or
financial impact to Lucent beyond that provided for at March 31, 1998 would not
be material to the annual consolidated financial statements.

Lucent's current and historical operations are subject to a wide range of
environmental protection laws. In the United States, these laws often require
parties to fund remedial action regardless of fault. Lucent has remedial and
investigatory activities underway at numerous current and former facilities. In
addition, Lucent was named a successor to AT&T Corp. ("AT&T") as a potentially
responsible party ("PRP") at numerous "Superfund" sites pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") or comparable state statutes. Under the Separation and Distribution
Agreement ("Separation and Distribution Agreement"), among Lucent, AT&T and NCR
Corporation ("NCR"), dated as of February 1, 1996 as amended and restated,
Lucent is responsible for all liabilities primarily resulting from or relating
to the operation of Lucent's business as conducted at any time prior to or after
the separation from AT&T of the businesses and operations transferred to form
Lucent (the "Separation") including related businesses discontinued or disposed
of prior to the Separation, and Lucent's assets including, without limitation,
those associated with these sites. In addition, under the Separation and
Distribution Agreement, Lucent is required to pay a portion of contingent
liabilities paid out in excess of certain amounts by AT&T and NCR, including
environmental liabilities.

It is often difficult to estimate the future impact of environmental matters,
including potential liabilities. Lucent records an environmental reserve when it
is probable that a liability has been incurred and the amount of the liability
is reasonably estimable. This practice is followed whether the claims are
asserted or unasserted. Management expects that the amounts reserved will be
paid out over the periods of remediation for the applicable sites which range
from 5 to 30 years. Reserves for estimated losses from environmental remediation
are, depending on the site, based primarily upon internal or third party
environmental studies, and estimates as to the number, participation level and
financial viability of any other PRPs, the extent of the contamination and the
nature of required remedial actions. Accruals are adjusted as further
information develops or circumstances change. The amounts provided for in
Lucent's consolidated financial statements for environmental reserves are the
gross undiscounted amount of such reserves, without deductions for insurance or
third party indemnity claims. In those cases where insurance carriers or third
party indemnitors have agreed to pay any amounts and management believes that
collectibility of such amounts is probable, the amounts are reflected as
receivables in the financial statements. Although Lucent believes that its
reserves are adequate, there can be no assurance that the amount of capital
expenditures and other expenses which will be required relating to remedial
actions and compliance with applicable environmental laws will not exceed the
amounts reflected in Lucent's reserves or will not have a material adverse
effect on Lucent's financial condition, results of operations or cash flows. Any
amounts of environmental costs that may be incurred in excess of those provided
for at March 31, 1998 cannot be determined.

<PAGE>

 11                                                           Form 10-Q - Part I

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

7. SECURITIZED CUSTOMER FINANCING ARRANGEMENT

Lucent has a wholly owned subsidiary, L.T. Funding, LLC, ("L.T. Funding") which
is a separate legal entity from Lucent and its other subsidiaries and which has
its own assets and liabilities. L.T. Funding purchases customer financing
obligations from Lucent and its other subsidiaries, and sells these obligations
to Global Telecom Funding Trust (the "Trust"), which is an unaffiliated entity
established pursuant to a securitized vendor financing program with Citicorp. As
of March 31, 1998, about $135 of these customer financing obligations had been
sold to the Trust with recourse to Lucent in the event of failure to pay by the
customer.

8. SUBSEQUENT EVENTS

Yurie Systems, Inc.
-------------------

On April 27, 1998, Lucent announced that it commenced a tender offer to acquire
Yurie Systems, Inc. ("Yurie") for about $1,000 in cash. Lucent plans to pay for
the acquisition from its general funds which consist of cash from operations and
proceeds from short-term borrowings. Yurie is a provider of asynchronous
transfer mode ("ATM") access technology and equipment for data, voice and video
networking. The transaction is expected to be completed by the end of the
quarter ending June 30, 1998, subject to completion of customary legal
requirements. The acquisition will be accounted for using the purchase method of
accounting.

The purchase is expected to result in a one-time, non-tax deductible, non-cash
charge to earnings for purchased in-process research and development of
approximately $620 when the acquisition is completed. The remaining purchase
price will be allocated to tangible assets and intangible assets, including
goodwill and acquired technology, less liabilities assumed.

Optimay GmbH
-------------

On April 17, 1998, Lucent acquired Optimay GmbH ("Optimay") for approximately
$65 in cash. Optimay specializes in the development of software products and
services for chip sets to be used for Global System for Mobile communications
cellular phones. The acquisition was accounted for using the purchase method of
accounting.

The purchase resulted in a one-time, non-tax deductible, non-cash charge to
earnings for purchased in-process research and development of about $48 in the
quarter ending June 30, 1998. The remaining purchase price will be allocated to
tangible assets and intangible assets, including goodwill and acquired
technology, less liabilities assumed.

<PAGE>

 12                                                           Form 10-Q - Part I


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

OVERVIEW

Lucent reported net income of $23 million, or $0.02 per share(diluted) for the
quarter ended March 31, 1998. The year-ago quarterly net income was $66 million,
or $0.05 per share(diluted). For the current six month period, Lucent reported
net income of $815 million, or $0.62 per share(diluted) compared with net income
of $925 million, or $0.72 per share(diluted) in the same prior period. Net
income for the three and six months periods ended March 31, 1998 include a $33
million, pre-tax (or $21 million, after-tax) reversal of the 1995 business
restructuring charges. Excluding the in-process research and development charge
associated with the acquisition of Prominet, Lucent's net income was $180
million, or $0.14 per share(diluted) for the three months ended March 31, 1998.
Excluding the in-process research and development charges associated with the
acquisitions of Prominet and Livingston as well as the gain on the sale of
Lucent's Advanced Technology Systems ("ATS") business, Lucent's net income was
$1,304 million, or $0.99 per share(diluted) for the six months ended March 31,
1998.

Gross margin increased $556 million and $1,119 million for the quarter and six
month periods ended March 31, 1998, respectively, compared with the year-ago
periods. These increases in gross margin were primarily due to an improved mix
of products and services as well as higher sales volume compared with the same
periods of the prior year.

Operating income of $151 million reflects an increase of $8 million in the
quarter compared with the same quarter in 1997 and was 2.5% percent of revenues.
For the six months ended March 31, 1998, operating income of $1,545 million
reflects a decrease of $68 million, largely due to the in-process research and
development charges associated with the acquisitions of Livingston and Prominet.

During the current quarter, Lucent completed its acquisition of Prominet.

During the current six month period, Lucent sold it ATS business, contributed
its Consumer Products business to a new venture formed by Lucent and Philips
Electronics N.V. ("Philips"), and completed its acquisitions of Livingston and
Prominet.

Lucent is one of the world's leading designers, developers and manufacturers of
communications systems, software and products. Lucent is a global leader in the
sale of public communications systems, and is a supplier of systems and/or
software to the world's largest network operators. Lucent is also a global
leader in the sale of business communications systems and in the sale of
microelectronic components for communications applications to manufacturers of
communications systems and computer manufacturers. Lucent was formed from the
systems and technology units that were formerly part of AT&T Corp. ("AT&T").
Lucent's research and development activities are conducted through Bell
Laboratories, one of the world's foremost industrial research and development
organizations.

KEY BUSINESS CHALLENGES

Lucent continues to face significant competition and expects that the level of
competition on pricing and product offerings will increase. Lucent expects that
new and different competitors will enter its markets as a result of both the
trend toward global expansion by foreign and domestic competitors as well as
continued changes in technology and public policy. These competitors may include
entrants from the telecommunications, software, data networking and
semiconductor industries. Existing competitors have, and new competitors may
have, strong financial capability, technological expertise and well-recognized
brand names.

<PAGE>

 13                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Lucent's sales continue to be highly seasonal. Many of Lucent's large customers
have historically delayed a disproportionate percentage of their capital
expenditures until the fourth quarter of the calendar year. Consequently,
Lucent's results of operations for the first three quarters of each calendar
year historically have, in the aggregate, been significantly less profitable
than the fourth quarter. However, Lucent has taken steps to manage the
seasonality by changing its year-end and its compensation programs for its
employees.

The purchasing behavior of Lucent's large customers has increasingly been
characterized by the use of fewer, but larger contracts, which contributes to
the variability of Lucent's results. To manage this fluctuation caused by the
buying behaviors of large customers, Lucent continues to seek out new types of
customers globally, such as competitive local exchange carriers, cable
television network operators and computer manufacturers.

Historically, Lucent has relied on a limited number of customers for a
substantial portion of its total revenues. Lucent is seeking to diversify its
customer base; nevertheless, Lucent expects that a significant portion of its
future revenues will continue to be generated by a limited number of customers.
The loss of any of these customers or any substantial reduction in orders by any
of these customers could materially adversely affect Lucent's operating results.

REVENUES - THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED
MARCH 31, 1997

Total revenues increased 19.6% to $6,157 million in the quarter compared with
the same quarter of 1997, primarily due to gains in sales from Systems for
Network Operators, Microelectronic Products and Business Communications Systems.
The overall revenue growth was impacted by the elimination of the Consumer
Products sales as a component of total revenue as well as lower revenues from
Other Systems and Products. The decline in Other Systems and Products was due
primarily to the sale of Lucent's ATS business in October 1997. Revenue growth
was driven by sales increases globally. Total revenue growth for the quarter was
driven by sales within the United States which grew by 20.2% compared with the
same quarter in 1997, and sales outside the United States which increased 17.5%
compared with the same quarter last year.

The following table presents Lucent's revenues by product line, and the
approximate percentage of total revenues for the three months ended March 31,
1998 and 1997:

<TABLE>
<CAPTION>
                                                      Three Months
                                                          Ended
                                                        March 31,
  Dollars in Millions                       --------------------------------
                                                 1998         1997
                                               -------       -------
<S>                                             <C>     <C>   <C>     <C>
Systems for Network Operators........           $3,654   59%  $2,930   57%
Business Communications Systems......            1,730   28    1,308   25
Microelectronic Products.............              705   12      615   12
Consumer Products....................                -    -      174    4
Other Systems and Products...........               68    1      122    2
Total................................           $6,157  100%  $5,149  100%
</TABLE>

Revenues from SYSTEMS FOR NETWORK OPERATORS increased $724 million, or 24.7% in
1998 compared with the same quarter in 1997. The increase resulted from higher
sales of switching and wireless systems with associated software, optical
networking systems, professional services, and data networking systems for
service providers including those provided by recently-acquired Livingston.
Demand for those products was driven in part by second line subscriber growth in
businesses and residences for Internet services and data traffic.

<PAGE>

 14                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Revenues from Systems for Network Operators in the United States increased by
30.0% over the year-ago quarter. The revenue increase in the United States was
led by sales to Regional Bell Operating Companies ("RBOC's"), competitive local
exchange carriers, wireless service providers and long distance carriers.
Revenues generated outside the United States increased 8.5% compared with the
same quarter in 1997 due to revenue growth in Europe/Middle East/Africa,
Caribbean/Latin America and Canada. Revenues generated outside the United States
represented 21.3% of revenues for the quarter compared with 24.5% for the same
quarter of 1997.

On April 27, 1998, Lucent announced that it commenced a tender offer to acquire
Yurie Systems, Inc. ("Yurie") for about $1,000 million in cash. Yurie is a
provider of asynchronous transfer mode ("ATM") access technology and equipment
for data, voice and video networking. The transaction is expected to be
completed during the quarter ending June 30, 1998 (Also see Note 8 above).

Revenues from BUSINESS COMMUNICATIONS SYSTEMS increased $422 million, or 32.3%
compared with the year-ago quarter. This increase was led by sales of
DEFINITY(R) enterprise communication servers, messaging systems, including
systems provided by recently-acquired Octel Communications Corporation
("Octel"), services, SYSTIMAX(R) structured cabling and enterprise data
networking systems. Revenues generated outside the United States increased by
67.5%, due to growth in all major international regions. Revenues generated
outside the United States represented 19.4% of revenues for the quarter compared
with 15.3% in the same period in 1997. Sales within the United States increased
25.9% for the quarter compared with the same quarter of 1997.

Revenues from MICROELECTRONIC PRODUCTS increased $90 million, or 14.6% compared
with the year-ago quarter due to higher sales of customized chips for computing
and communications, including components for wireless telephones, local area
networks, power systems, optoelectronic components, data networking, high-end
computer workstations and the licensing of intellectual property. Sales within
the United States increased 22.9% compared to the same quarter in 1997, led by
sales to original equipment manufacturers ("OEMs"). Revenues generated outside
the United States increased 7.1%. The growth in revenues outside the United
States was driven by sales in the Europe/Middle East/Africa and Caribbean/Latin
America regions. Revenues generated outside the United States represented 49.1%
sales for the quarter compared with 52.5% for the same quarter of 1997.

On April 17, 1998, Lucent acquired Optimay GmbH ("Optimay") for approximately
$65 million in cash. Optimay specializes in the development of software products
and services for chip sets to be used for Global System for Mobile
communications cellular phones. (Also see Note 8 above).

On October 1, 1997, Lucent contributed its CONSUMER PRODUCTS unit to a venture
formed with Philips. Lucent has an equity interest of 40% in the venture which
is called Philips Consumer Communications, L.P.("PCC").

Revenues from OTHER SYSTEMS AND PRODUCTS decreased $54 million, or 44.3%
compared with the year-ago quarter. The decrease is largely due to the sale of
Lucent's ATS business.

Total costs increased $452 million, or 15.2% compared with the year-ago quarter
resulting primarily from the increase in sales volume. Gross margin percentage
increased to 44.2% from 42.1% in the year-ago quarter reflecting a favorable mix
of higher margin product sales.


--------------------------------------
(R)  Registered trademark of Lucent

<PAGE>

 15                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OPERATING EXPENSES - THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED
MARCH 31, 1997

Selling, general and administrative expenses as a percentage of revenues were
24.2% for the quarter compared with 25.0% for the same quarter in 1997.

Selling, general and administrative expenses increased $200 million, or 15.5%
compared with the same year-ago quarter. This increase was attributed to an
increase in sales volume and investment in growth initiatives, offset by the
reversal of $33 million of 1995 business restructuring charges.

Research and development expenses represented 15.1% of revenues for the quarter
compared with 14.3% of revenues for the same quarter of 1997.

Research and development expenses increased $191 million during the quarter
compared with the same year-ago quarter. This was primarily due to increased
expenditures in support of wireless, data networking, optical networking,
switching and access and microelectronic products.

The purchased in-process research and development expenses for the quarter were
$157 million reflecting charges associated with the acquisition of Prominet.

OTHER INCOME, INTEREST EXPENSE AND PROVISION FOR INCOME TAXES - THREE
MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997

Other income -- net increased $7 million to $47 million for the quarter compared
with the same quarter in 1997.

Interest expense for the quarter decreased $3 million to $74 million compared
with the same quarter in 1997.

The effective income tax rate of 81.5% for the quarter increased from the
effective income tax rate of 38.1% in the same quarter of 1997. The increase was
due to the write-off of non-tax deductible purchased in-process research and
development expenses associated with the acquisition of Prominet. Excluding the
impact of the purchased in-process research and development expenses associated
with the Prominet acquisition, the effective income tax rate was 36.0%. This
decrease was primarily due to the tax impact of foreign activity.

REVENUES - SIX MONTHS ENDED MARCH 31, 1998 VERSUS SIX MONTHS ENDED MARCH 31,
1997

Total revenues increased to $14,881 million, or 13.7% compared with the same six
month period in 1997, primarily due to increases in sales from Systems for
Network Operators, Microelectronic Products and Business Communications Systems.
The overall revenue growth was impacted by the elimination of the Consumer
Products sales as a component of total revenue as well as lower revenues from
Other Systems and Products. The decline in Other Systems and Products was due
primarily to the sale of Lucent's ATS in October 1997 and Custom Manufacturing
Services ("CMS") businesses in December 1996. Revenue growth was driven by sales
increases globally. Total revenue growth for the six month period was driven by
sales within the United States which grew 14.5% compared with the same period in
1997, and sales outside the United States which increased 11.3% compared with
the same period in 1997.

<PAGE>

 16                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following table presents Lucent's revenues by product line, and the
approximate percentage of total revenues for the six months ended March 31, 1998
and 1997:

<TABLE>
<CAPTION>
                                                     Six Months
                                                        Ended
                                                      March 31,
  Dollars in Millions                       --------------------------------
                                                 1998            1997
                                               -------         -------
<S>                                           <C>       <C>   <C>       <C>
Systems for Network Operators........         $  9,597   64%  $  7,956   61%
Business Communications Systems......            3,660   25      3,041   23
Microelectronic Products.............            1,480   10      1,286   10
Consumer Products....................                -    -        504    4
Other Systems and Products...........              144    1        300    2
Total................................         $ 14,881  100%  $ 13,087  100%
</TABLE>

Revenues from SYSTEMS FOR NETWORK OPERATORS increased $1,641 million, or 20.6%
compared with the same six month period in 1997. The increase resulted from
higher sales of switching and wireless systems with associated software, optical
networking systems, professional services, data networking systems for service
providers including those provided by recently-acquired Livingston. Demand for
those products was driven in part by second line subscriber growth in businesses
and residences for Internet services and data traffic.

Revenues from Systems for Network Operators in the United States increased by
27.1% over the year-ago six month period. The revenue increase in the United
States was led by sales to RBOC's, competitive local exchange carriers, wireless
service providers and long distance carriers. Revenues generated outside the
United States for 1998 increased 3.9% compared with the same six month period in
1997 due to revenue growth in the Caribbean/Latin America and Canada regions.
Revenues generated outside the United States represented 24.0% of revenues for
1998 compared with 27.9% in same six month period of 1997.

Revenues from BUSINESS COMMUNICATIONS SYSTEMS increased $619 million, or 20.4%
compared with the same six month period in 1997. This increase was led by sales
of messaging systems, including systems provided by recently acquired Octel,
SYSTIMAX(R) structured cabling, services, DEFINITY(R) enterprise communication
servers, and enterprise data networking systems. Revenues generated outside the
United States increased by 54.4%, due to growth in all major international
regions. Revenues generated outside the United States represented 19.0% of the
revenue for 1998 compared with 14.8% in the same six month period of 1997. For
1998, sales within the United States increased 14.4% compared with the same six
month period of 1997.

Revenues from MICROELECTRONIC PRODUCTS increased $194 million, or 15.1% for 1998
compared with the same six month period in 1997 due to higher sales of
customized chips for computing and communications, including components for
wireless telephones, local area networks, power systems, optoelectronic
components, data networking, high-end computer workstations, and the licensing
of intellectual property. Sales within the United States increased 23.9%
compared with the same period in 1997, led by sales to OEMs. Revenues generated
outside the United States increased 7.1% compared with the same period in 1997.
The growth in revenues generated outside the United States was driven by sales
in the Europe/Middle East/Africa and Caribbean/Latin America regions. Revenues
generated outside the United States represented 48.9% of sales compared with
52.6% for the same six month period of 1997.

--------------------------------------
(R)  Registered trademark of Lucent
<PAGE>

 17                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On October 1, 1997, Lucent contributed its CONSUMER PRODUCTS unit to PCC. Lucent
has an equity interest of 40% in PCC.

Revenues from sales of OTHER SYSTEMS AND PRODUCTS decreased $156 million, or
52.0% compared with the same quarter in 1997. The reduction in revenues was
primarily due to the sale of Lucent's ATS and CMS businesses.

Total costs increased $675 million, or 9.3% compared with the same six month
period in 1997 due to the increase in sales volume. Gross margin percentage
increased to 46.6% from 44.4% in the year-ago period. The increase in gross
margin percentage for the current six months was due to overall favorable mix of
higher margin product sales.

OPERATING EXPENSES - SIX MONTHS ENDED MARCH 31, 1998 VERSUS SIX MONTHS ENDED
MARCH 31, 1997

Selling, general and administrative expenses as a percentage of revenues were
20.4% for 1998, a decrease of 0.6 percentage points from the same period in
1997.

Selling, general and administrative expenses increased $296 million, or 10.8%
compared with the same period in 1997. This increase is attributed to the higher
sales volume, investment in growth initiatives as well as the implementation of
SAP, an integrated software platform, offset by the reversal of $33 million of
1995 business restructuring charges. In addition, the 1997 period included a $54
million reversal of 1995 business restructuring charges.

Research and development expenses represented 11.8% of revenues for the period
as compared with 11.1% of revenues from the same period in 1997.

Research and development expenses increased $386 million compared with the same
period in 1997. This was primarily due to increased expenditures in support of
wireless, data networking, optical networking, switching and access and
microelectronic products.

The purchased in-process research and development expenses for 1998 were $584
million reflecting the charges associated with the acquisitions of Livingston
and Prominet, compared with $79 million related to the acquisition of Agile
Networks, Inc. for the same period in 1997.

<PAGE>

 18                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OTHER INCOME, INTEREST EXPENSE AND PROVISION FOR INCOME TAXES - SIX
MONTHS ENDED MARCH 31, 1998 VERSUS SIX MONTHS ENDED MARCH 31, 1997

Other income -- net increased $161 million for 1998 compared with the same
period in 1997. This increase was primarily due to the pre-tax gain of $149
million associated with the sale of Lucent's ATS business.

Interest expense was $153 million for the first six months of 1998, a decrease
of $3 million compared with the same period in 1997.

The effective income tax rate of 49.1% for 1998 increased from the effective
income tax rate of 38.6% in the same year-ago period. The increase was due to
the write-off of non-tax deductible purchased in-process research and
development expenses associated with the acquisitions of Livingston and
Prominet. Excluding the impact of the purchased in-process research and
development expenses associated with the Livingston and Prominet acquisitions,
the effective income tax rate was 36.0% for 1998. This decrease was primarily
due to the tax impact of foreign activity.

TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY

Total assets increased $853 million, or 3.6%, from fiscal year-end 1997. This
overall increase was due to an increase in other assets of $971 million and an
increase of receivables of $203 million, offset by a decrease in cash and cash
equivalents of $381 million. The increase in other assets was largely due to the
receipt of notes issued by customers under certain long-term contracts, as well
as due to Lucent's contribution of its Consumer Products business to PCC. The
decrease in cash and cash equivalents was largely due to the repayment of
commercial paper and vendor payments.

Total liabilities decreased $796 million, or 3.9% from fiscal year-end 1997.
This decrease was largely due to the paydown of commercial paper and the
reduction of accounts payable.

Working capital, defined as current assets less current liabilities, increased
$1,528 million from fiscal year-end 1997 primarily resulting from the increase
in accounts receivable as discussed above and the issuance of $300 million of 30
year debentures and use of the proceeds to pay down a portion of commercial
paper.

Lucent expects that, from time to time, outstanding commercial paper balances
may be replaced with short- or long-term borrowings as market conditions permit.
At March 31, 1998, Lucent maintained approximately $5,200 million in credit
facilities of which a portion is used to support Lucent's commercial paper
program. At March 31, 1998, approximately $5,000 million was unused. Future
financings will be arranged to meet Lucent's requirements with the timing,
amount and form of issue depending on the prevailing market and general economic
conditions. Lucent anticipates that borrowings under its bank credit facilities,
the issuance of additional commercial paper, cash generated from operations and
short- and long-term debt financings will be adequate to satisfy its future cash
requirements, although there can be no assurance that this will be the case.

Lucent plans to pay for the acquisition of Yurie from its general funds which
consist of cash from operations and proceeds from short-term borrowings.

<PAGE>

 19                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Network operators, inside and outside the United States, increasingly have
required their suppliers to arrange or provide long-term financing for them as a
condition to obtaining or bidding on infrastructure projects. These projects may
require financing in amounts ranging from modest sums to over a billion dollars.
Lucent has increasingly provided or arranged long-term financing for customers.
In this regard, Lucent entered into a credit agreement in October 1996 to
provide Sprint Spectrum* Holdings L.P. ("Sprint PCS") long-term financing of
$1,800 million for purchasing equipment and services for its personal
communications services ("PCS") network.

In May 1997, under the $1,800 million credit facility provided by Lucent to
Sprint PCS, Lucent closed transactions to lay off $500 million of loans and
undrawn commitments and $300 million of undrawn commitments to a group of
institutional investors and Sprint Corporation (a partner in Sprint PCS),
respectively. As of March 31, 1998, all of these commitments were drawn down by
Sprint PCS. Of Lucent's remaining commitment of $1,000 million, approximately
$500 million was drawn down by Sprint PCS as of March 31, 1998.

As part of the revenue recognition process, Lucent has assessed the
collectibility of the accounts receivable relating to the Sprint PCS purchase
contract in light of its financing commitment to Sprint PCS. Lucent has
determined that the receivables under the contract are reasonably assured of
collection based on various factors among which was the ability of Lucent to
sell the loans and commitments without recourse. Lucent intends to continue
pursuing opportunities for the sale of the $500 million of loans, and the future
loans and commitments to Sprint PCS.

In addition, as of March 31, 1998, Lucent had made commitments or entered into
an agreement to extend credit of up to an aggregate of approximately $1,200
million to five other PCS or wireless network operators for possible future
sales. As of March 31, 1998, $188 million had been advanced under one of these
arrangements. Lucent has provided, or proposed or committed to provide,
financing where appropriate for its business, in addition to the above
arrangements. (Also see Note 7 above, regarding a securitized customer financing
arrangement.) The ability of Lucent to arrange or provide financing for network
operators will depend on a number of factors, including Lucent's capital
structure and level of available credit.

Lucent believes that it will be able to access the capital markets on terms and
in amounts that will be satisfactory to Lucent and that it will be able to
obtain bid and performance bonds, to arrange or provide customer financing as
necessary, and to engage in hedging transactions on commercially acceptable
terms, although there can be no assurance that this will be the case.

RISK MANAGEMENT

Lucent is exposed to market risk from changes in foreign currency exchange rates
and interest rates, which could impact its results of operations and financial
condition. Lucent manages its exposure to these market risks through its regular
operating and financing activities and, when deemed appropriate, through the use
of derivative financial instruments. Derivative financial instruments are viewed
as risk management tools and are not used for speculative or trading purposes.
In addition, derivative financial instruments are entered into with a
diversified group of major financial institutions in order to manage Lucent's
exposure to nonperformance on such instruments.


-------------------------
*Sprint Spectrum is a service mark of Sprint Communications Company, LP.
<PAGE>

 20                                                         Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Lucent manages its ratio of fixed to floating rate debt with the objective of
achieving a mix that management believes is appropriate. To manage this mix in a
cost effective manner, Lucent, from time to time, enters into interest rate swap
agreements, in which it agrees to exchange various combinations of fixed and/or
variable interest rates based on agreed upon notional amounts. Lucent had no
material interest rate swap agreements in effect as of March 31, 1998 and 1997.
Management does not foresee or expect any significant changes in its exposure to
interest rate fluctuations or in how such exposure is managed in the near
future.

CASH FLOWS

Cash provided by operating activities for the six months ended March 31, 1998
was $300 million compared with $519 million in the same year-ago period. This
decrease was due to the receipt of notes issued by customers under certain
long-term contracts, increases in accounts receivable and inventories and
contracts in process, offset by decreases in accounts payable and payroll and
benefits-related liabilities.

Cash payments of $64 million and $90 million were made for the three-month and
six-month periods ended March 31, 1998, respectively, for the business
restructuring charge recorded in the quarter ended December 31, 1995. Of the
23,000 positions that Lucent announced it would eliminate in connection with the
restructuring charges, approximately 19,600 positions have been eliminated as of
March 31, 1998.

Comparing the six months ended March 31, 1998 and 1997, cash used in investing
activities decreased to $398 million from $724 million primarily due to a
decrease in cash used in acquisitions and an increase in cash provided by
dispositions. The acquisitions of Livingston and Prominet in 1998 were completed
through issuance of stock and options and did not require the use of cash.
Lucent disposed of its ATS business in 1998. During the six months ended March
31, 1997, Lucent acquired Agile and disposed of its interconnect products and
custom manufacturing services businesses

Capital expenditures, the largest component of investing activities, were $602
million and $681 million for the six month periods ended March 31, 1998 and
1997, respectively. Capital expenditures relate to expenditures for equipment
and facilities used in manufacturing and research and development, including
expansion of manufacturing capacity, and expenditures for cost reduction efforts
and international growth.

Cash used in financing activities for the six months ended March 31, 1998 was
$241 million compared with $17 million in the same period a year-ago. This
increase in cash used was primarily due to the paydown of commercial paper.

<PAGE>

 21                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The ratio of total debt to total capital (debt plus equity) was 43.1% at March
31, 1998 compared to 55.4% on at September 30, 1997.

OTHER

Lucent's current and historical operations are subject to a wide range of
environmental protection laws. In the United States, these laws often require
parties to fund remedial action regardless of fault. Lucent has remedial and
investigatory activities underway at numerous current and former facilities. In
addition, Lucent was named a successor to AT&T as PRP at numerous "Superfund"
sites pursuant to the CERCLA or comparable state statutes. Under the Separation
and Distribution Agreement, among AT&T, Lucent and NCR dated as of February 1,
1996, as amended and restated, Lucent is responsible for all liabilities
primarily resulting from or related to the operation of Lucent's business as
conducted at any time prior to or after the Separation including related
businesses discontinued or disposed of prior to the Separation, and Lucent's
assets including, without limitation, those associated with these sites. In
addition, under the Separation and Distribution Agreement, Lucent is required to
pay a portion of contingent liabilities paid out in excess of certain amounts by
AT&T and NCR, including environmental liabilities.

It is often difficult to estimate the future impact of environmental matters,
including potential liabilities. Lucent records an environmental reserve when it
is probable that a liability has been incurred and the amount of the liability
is reasonably estimable. This practice is followed whether the claims are
asserted or unasserted. Management expects that the amounts reserved will be
paid out over the period of remediation for the applicable site which ranges
from 5 to 30 years. Reserves for estimated losses from environmental remediation
are, depending on the site, based primarily upon internal or third party
environmental studies, and estimates as to the number, participation level and
financial viability of any other PRPs, the extent of the contamination and the
nature of required remedial actions. Accruals are adjusted as further
information develops or circumstances change. The amounts provided for in
Lucent's consolidated financial statements in respect to environmental reserves
are the gross undiscounted amount of such reserves, without deductions for
insurance or third party indemnity claims. In those cases where insurance
carriers or third party indemnitors have agreed to pay any amounts and
management believes that collectibility of such amounts is probable, the amounts
are reflected as receivables in the financial statements. Although Lucent
believes that its reserves are adequate, there can be no assurance that the
amount of capital and other expenditures that will be required relating to
remedial actions and compliance with applicable environmental laws will not
exceed the amounts reflected in Lucent's reserves or will not have a material
adverse effect on Lucent's financial condition, results of operations or cash
flows. Any amounts of environmental costs that may be incurred in excess of
those provided for at March 31, 1998 cannot be determined.

<PAGE>

 22                                                           Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis of Results of Operations and Financial
Condition and other sections of this report contain forward-looking statements
that are based on current expectations, estimates, forecasts and projections
about the industries in which Lucent operates, management's beliefs and
assumptions made by management. In addition, other written or oral statements
which constitute forward-looking statements may be made by or on behalf of the
Company. Words such as "expects," anticipates," "intends," "plans," "believes,"
"seeks," "estimates," variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions ("Future Factors") which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.

Future Factors include increasing price and product/services competition by
foreign and domestic competitors, including new entrants; rapid technological
developments and changes and the Company's ability to continue to introduce
competitive new products and services on a timely, cost effective basis; the mix
of products/services; the achievement of lower costs and expenses; domestic and
foreign governmental and public policy changes which may affect the level of new
investments and purchases made by customers; changes in environmental and other
domestic and foreign governmental regulations; protection and validity of patent
and other intellectual property rights; reliance on large customers;
technological, implementation and cost/financial risks in increasing use of
large, multi-year contracts; the cyclical nature of the Company's business; the
outcome of pending and future litigation and governmental proceedings and
continued availability of financing, financial instruments and financial
resources in the amounts, at the times and on the terms required to support the
Company's future business. These are representative of the Future Factors that
could affect the outcome of the forward- looking statements. In addition, such
statements could be affected by general industry and market conditions and
growth rates, general domestic and international economic conditions including
interest rate and currency exchange rate fluctuations and other Future Factors.

For a further description of Future Factors that could cause actual results to
differ materially from such forward-looking statements, see below in this report
including the other sections referred to and also see the discussion in the
Company's Form 10-K for the year ended September 30, 1997 in Item 1 in the
section entitled "OUTLOOK-Forward Looking Statements" and the remainder of the
OUTLOOK section.

Competition:
See discussion above under KEY BUSINESS CHALLENGES.

<PAGE>

 23                                                           Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Dependence On New Product Development:
The markets for the Company's principal products are characterized by rapidly
changing technology, evolving industry standards, frequent new product
introductions and evolving methods of building and operating communications
systems for network operators and business customers. The Company's operating
results will depend to a significant extent on its ability to continue to
introduce new systems, products, software and services successfully on a timely
basis and to reduce costs of existing systems, products, software and services.
The success of these and other new offerings is dependent on several factors,
including proper identification of customer needs, cost, timely completion and
introduction, differentiation from offerings of the Company's competitors and
market acceptance. In addition, new technological innovations generally require
a substantial investment before any assurance is available as to their
commercial viability, including, in some cases, certification by international
and domestic standards-setting bodies.

Reliance on Major Customers:
See discussion above under KEY BUSINESS CHALLENGES.

Readiness for Year 2000:
Lucent has taken actions to understand the nature and extent of the work
required to make its systems, products, factories and infrastructure Year 2000
ready. Lucent began work several years ago to prepare its products and its
financial, information and other computer-based systems for the Year 2000,
including replacing and/or updating existing legacy systems. Lucent has been
contacting customers who are operating product versions that are not Year 2000
ready to present them with evolution plans to update or migrate to Year 2000
ready product versions. In addition, where Lucent determines that critical
suppliers are not Year 2000 ready, Lucent will monitor their progress and take
appropriate actions. Lucent believes it is taking the necessary steps to resolve
Year 2000 issues, however, given the uncertain consequences of failure to
resolve significant Year 2000 issues, there can be no assurance that any one or
more such failures would not have a material adverse effect on Lucent. Lucent
continues to evaluate the estimated costs associated with the efforts to prepare
for Year 2000 based on actual experience. While the efforts will involve
additional costs, Lucent believes, based on available information, that it will
be able to manage its total Year 2000 transition without any material adverse
effect on its business operations, products or financial prospects.

Employee Relations:
On March 31, 1998, Lucent employed approximately 131,000 persons, of whom 79.3%
were located in the United States. Of these domestic employees, 41.1% are
represented by unions, primarily the Communications Workers of America
("CWA")and the International Brotherhood of Electrical Workers ("IBEW").
Lucent's labor agreements with these unions expire on May 30, 1998. Lucent is
currently negotiating with its unions for new collective bargaining agreements.

Multi-Year Contracts:
Lucent has significant contracts for the sale of infrastructure systems to
network operators which extend over a multi-year period, and expects to enter
into similar contracts in the future, with uncertainties affecting recognition
of revenues, stringent acceptance criteria, implementation of new technologies
and possible significant initial cost overruns and losses. See also discussion
above under TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY, and KEY BUSINESS
CHALLENGES.

Seasonality:
See discussion above under KEY BUSINESS CHALLENGES.

Future Capital Requirements:
See discussion above under TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY.

<PAGE>

 24                                                           Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Growth Outside the U.S., Foreign Exchange and Interest Rates: Lucent intends to
continue to pursue growth opportunities in markets outside the U.S. In many
markets outside the U.S., long-standing relationships between potential
customers of Lucent and their local providers, and protective regulations,
including local content requirements and type approvals, create barriers to
entry. In addition, pursuit of such growth opportunities outside the U.S. may
require significant investments for an extended period before returns on such
investments, if any, are realized. Such projects and investments could be
adversely affected by reversals or delays in the opening of foreign markets to
new competitors, exchange controls, currency fluctuations, investment policies,
repatriation of cash, nationalization, social and political risks, taxation, and
other factors, depending on the country in which such opportunity arises.
Difficulties in foreign financial markets and economies, and of foreign
financial institutions, could adversely affect demand from customers in the
affected countries.

See discussion above under RISK MANAGEMENT with respect to foreign exchange and
interest rates. A significant change in the value of the dollar against the
currency of one or more countries where Lucent sells products to local customers
or makes purchases from local suppliers may materially adversely affect Lucent's
results. Lucent attempts to mitigate any such effects through the use of foreign
currency contracts, although there can be no assurances that such attempts will
be successful.

While Lucent hedges transactions with non-U.S. customers, the decline in value
of the Asia/Pacific currencies, or declines in currency values in other regions,
may, if not reversed, adversely affect future product sales because Lucent's
products may become more expensive to purchase for local customers doing
business in the countries of the affected currencies.

Legal Proceedings and Environmental:
See discussion above in Note 6 - COMMITMENTS AND CONTINGENCIES.

RECENT PRONOUNCEMENTS

In February 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial accounting Standards ("SFAS") No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS
132 revises employers' disclosures about pension and other postretirement
benefit plans but does not change the measurement or recognition of these plans.
SFAS 132 is effective for fiscal years beginning after December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily available. Lucent is in the
process of evaluating the disclosure requirements. The adoption of SFAS No. 132
will have no impact on Lucent's consolidated results of operations, financial
position or cash flows.

In October 1997, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP
97-2"). SOP 97-2 provides guidance on when revenue should be recognized and in
what amounts for licensing, selling, leasing, or otherwise marketing computer
software. SOP 97-2 is effective for financial statements for fiscal years
beginning after December 15, 1997. Earlier application for financial statements
or information that has not been issued is encouraged. Lucent is in the process
of evaluating if the adoption of SOP 97-2 will have an impact on its software
revenue recognition practices. During March 1998, the AICPA issued Statement of
Position 98-4, " Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition",("SOP 98-4"). SOP 98-4 defers for one year the
requirement of vendor- specific objective evidence of the fair value of the
various elements in a multiple- element arrangement as a condition to recognize
revenue for elements delivered early in the arrangement.

<PAGE>

 25                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use. This pronouncement identifies the
characteristics of internal use software and provides guidance on new cost
recognition principles. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Earlier application for
financial statements that have not been issued is encouraged. Lucent is
evaluating the impacts of adopting SOP 98-1.

In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs by requiring these
costs to be expenses as incurred. SOP 98-5 is effective for financial statements
for fiscal years beginning after December 15, 1998. Earlier application for
financial statements or information that has not been issued is encouraged. The
adoption of SOP 98-5 is not expected to have a material impact on Lucent's
consolidated results of operations, financial position or cash flows.

<PAGE>

 26                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

SHARE RESTATEMENT

Effective on April 1, 1998, Lucent split its common stock in a two-for-one split
through the issue of one additional share for each outstanding share. As result,
the tables below represent a retroactive restatement of the earnings(loss) per
share as reported in the Company's Annual Report on Form 10-K for the year ended
September 30, 1997 and the Form 10-Q for the quarter ended December 31, 1997:

                                Five Year Summary
                 (Dollars in millions, except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                            Twelve Months
                               Ended        Nine Months Ended       Twelve Months
                            September 30,     September 30,        Ended December 31,
                           ---------------  ------------------  -----------------------
                             1997     1996     1996     1995     1995     1994     1993
                                       (1)      (4)               (1)
<S>                          <C>      <C>     <C>       <C>      <C>       <C>      <C>
Earnings(loss) per common
 share - basic (2)           0.42    (0.69)    0.19     0.14    (0.83)     n/a      n/a
Earnings(loss) per common
 share - diluted (2)         0.42    (0.69)    0.19     0.14    (0.83)     n/a      n/a
Earnings(loss) per common
 share - Pro Forma (3)        n/a    (0.62)    0.18     0.12    (0.68)     n/a      n/a
Dividends per common share   0.1125   0.075   0.075       -        -       n/a      n/a
</TABLE>

(1) Includes pretax restructuring and other charges of $2,801 ($1,847 after
    taxes) recorded as $892 of costs, $1,645 of selling, general and
    administrative expenses and $264 of research and development expenses.

(2) The calculation of earnings(loss) per common share - basic and
    earnings(loss) per common share - diluted includes the retroactive
    recognition to January 1, 1995 of the 1,049,249,788 shares (524,624,894
    shares on a pre-split basis) owned by AT&T on April 10, 1996.

(3) The calculation of earnings(loss) per common share on a pro forma basis
    assumes that all 1,273,323,862 common shares (636,661,931 shares on a
    pre-split basis) outstanding on April 10, 1996 were outstanding since
    January 1, 1995 and gives no effect to the use of proceeds from the initial
    public offering of Lucent common stock in April 1996 ("IPO").

(4) Beginning September 30, 1996, Lucent changed its fiscal year-end from
    December 31 to September 30, and reported results for the nine-month
    transition period ended September 30, 1996.

<PAGE>

 27                                                          Form 10-Q - Part I

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

QUARTERLY INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                           FISCAL YEAR QUARTERS
                              FIRST       SECOND      THIRD      FOURTH       TOTAL
                              -------    --------    -------    --------    ---------
<S>                           <C>         <C>        <C>        <C>         <C>      
Year Ended                                                                  
 September 30, 1997                                                         
Earnings(loss) per                                                          
 common share - basic.......  $ 0.67      $ 0.05     $ 0.17     $(0.47)(b)  $  0.42 (b)
Earnings(loss) per                                                          
 common share - diluted.....  $ 0.67      $ 0.05     $ 0.17     $(0.47)     $  0.42
Dividends per share.........  $ 0.0375    $ 0.000    $ 0.0375   $ 0.0375    $  0.1125
Stock price:(d)                                                             
   High.....................   26 9/16     30 5/16    37 3/32     45 3/8      45 3/8
   Low......................   21 1/16     22 3/8     24 15/16    36 3/32     21 1/16
   Quarter-end close........   23 1/8      26 1/4     36 1/32     40 11/16    40 11/16
                                                                            
Year Ended                                                                  
    September 30, 1996                                                      
Earnings(loss) per                                                          
 common share - basic(c)....  $(0.97)(a)  $(0.10)    $ 0.06     $ 0.20      $ (0.69)(a)
Earnings(loss) per                                                          
 common share - diluted(c)..  $(0.97)     $(0.10)    $ 0.06     $ 0.20      $ (0.69)
Dividends per share.........  $ 0.00      $ 0.00     $ 0.0375   $ 0.0375    $  0.075
Stock price:(d)                                                             
   High.....................    n/a          n/a      19 5/8      22 15/16    22 15/16
   Low......................    n/a          n/a      14 7/8      15  5/16    14 7/8
   Quarter-end close........    n/a          n/a      18 15/16    22 15/16    22 15/16
</TABLE>

(a)  1996 includes a pretax charge of $2,801 ($1,847 after taxes), to cover
     restructuring costs of $2,613 and asset impairment and other charges of
     $188.

(b)  As a result of the 1997 acquisition of Octel, Lucent took a charge of $979
     ($966 after tax) in the fourth quarter for acquired in-process research and
     development and other charges.

(c)  The number of weighted average shares outstanding increased in 1996 as new
     common shares were issued through the IPO. For this reason, the sum of the
     quarterly earnings(loss) per common share amounts for 1996 does not equal
     the earnings per common share for the year. The calculation of earnings per
     common share on a historical basis includes the retroactive recognition to
     January 1, 1995 of the 1,049,249,788 shares (524,624,894 shares on a
     pre-split basis) owned by AT&T.

(d)  Obtained from the Composite Tape. Stock prices have been restated to
     reflect the two-for-one split of the Company's common stock effective April
     1, 1998.

<PAGE>

 28                                                          Form 10-Q - Part II

                           Part II - Other Information

Item 4. Submission of Matters to a Vote of Security Holders.

Lucent held its 1998 Annual Meeting of Shareowners on February 18, 1998. At that
meeting, shareowners elected three individuals as Directors of the Company for
terms to expire at the Annual Meeting to be held in the year 2001. In addition,
shareowners approved two Company proposals and rejected two shareowner
proposals. The persons elected and the results of the voting are as follows:

<TABLE>
<CAPTION>
                           Votes                   Votes
                           For                     Withheld

<S>                        <C>                     <C>      
Richard A. McGinn          509,478,034             6,916,688
Paul H. O'Neill            509,257,605             7,137,117
Franklin A. Thomas         509,666,970             7,727,752
</TABLE>

<TABLE>
<CAPTION>
                        Votes         Votes                     Broker
                        For           Against       Abstain     Non-votes

<S>                     <C>           <C>           <C>         <C>
Company proposal        
number 1 - Approval     
of Amended Short        
Term Incentive Plan. .  490,826,851   19,309,477    6,258,394   0

Company proposal        
number 2 - Approval     
of Amended 1996 Long    
Term Incentive Plan. .  473,111,545   36,864,080    6,419,097   0

Shareowner proposal     
number 1 - Eliminate    
classified board . . .  185,553,493   221,145,652   9,943,245   99,752,332

Shareowner proposal     
number 2 - Anti-        
slave labor policy . .  31,804,616    336,566,152   48,271,622  99,752,332
</TABLE>

Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits:

<TABLE>
<CAPTION>
     Exhibit Number

     <S>               <C>                               
     (10) (iii) (A)1   Lucent Technologies Inc. 1996 Long Term Incentive Program *

     (10) (iii) (A)2   Lucent Technologies Inc. Short Term Incentive Program *

     (10) (iii) (A)3   Lucent Technologies Inc. Officer Life Insurance Option Plan *

     (10) (iii) (A)4   Lucent Technologies Inc. Deferred Compensation Plan *

     (10) (iii) (A)5   Consulting Agreement of Mr. Schacht effective March 1, 1998 *

     (12)              Computation of Ratio of Earnings to Fixed Charges

     (27)              Financial Data Schedule
</TABLE>

      * Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K:

     Not applicable

<PAGE>

 29                                                          Form 10-Q


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                            Lucent Technologies Inc.




Date May 12, 1998

                          By James S. Lusk
                          Vice President and Controller
                         (Principal Accounting Officer)


<PAGE>

 30                                                          Form 10-Q


                                Exhibit Index

<TABLE>
<CAPTION>
Exhibit
Number

<S>               <C>                               
(10) (iii) (A)1   Lucent Technologies Inc. 1996 Long Term Incentive Program *

(10) (iii) (A)2   Lucent Technologies Inc. Short Term Incentive Program *

(10) (iii) (A)3   Lucent Technologies Inc. Officer Life Insurance Option Plan *

(10) (iii) (A)4   Lucent Technologies Inc. Deferred Compensation Plan *

(10) (iii) (A)5   Consulting Agreement of Mr. Schacht effective March 1, 1998 *

(12)              Computation of Ratio of Earnings to Fixed Charges

(27)              Financial Data Schedule
</TABLE>


* Management contract or compensatory plan or arrangement.