Reliant FORM 10-K manual Enterprise Networks, Wireline Networks, Optical Networks

reductions in the selling price of certain products; and

•improvements in other operations related costs; partially offset by

•an increase in contract-related costs including customer trials.

Wireless Networks gross margin improved by approximately 15 percentage points in 2002 compared to 2001 primarily due to:

•changes in product mix mainly related to increased volumes of certain products with higher margins;

•improvements in our product costs primarily as a result of favorable material pricing;

•reduced inventory provisioning as a result of our inventory levels being better aligned to customer demand and a decrease in other contract and customer settlement costs; and

•improvements in other operations related costs.

Enterprise Networks

Enterprise Networks gross margin improved by approximately 4 percentage points in 2003 compared to 2002 and by approximately

2 percentage points in 2002 compared to 2001 primarily due to:

•improvements in our product costs primarily as a result of favorable material pricing;

•changes in product mix mainly related to increased volumes of certain products with higher margins;

•reductions in other operations related costs including product defects, customer service and warranty costs; and

•reduced inventory provisioning as a result of our inventory levels being better aligned to customer demand and a decrease in other contract and customer settlement costs; partially offset by

•reductions in the selling price of certain of our products.

Wireline Networks

Wireline Networks gross margin declined by approximately 4 percentage points in 2003 compared to 2002 primarily due to:

•changes in product mix mainly related to decreased volumes of certain products with higher margins; partially offset by

•improvements in our cost structure as a result of favorable supplier pricing and design improvements;

•reductions in other operations related costs, mainly in the U.S. and Canada; and

•reduced inventory provisioning as a result of our inventory levels being better aligned to customer demand.

Wireline Networks gross margin improved by approximately 14 percentage points in 2002 compared to 2001 primarily due to:

•improvements in our cost structure as a result of favorable supplier pricing and design improvements;

•reductions in other operations related costs, mainly in the U.S. and Canada; and

•reduced inventory provisioning as a result of our inventory levels being better aligned to customer demand.

Optical Networks

Optical Networks gross margin improved by approximately 26 percentage points in 2003 compared to 2002 primarily due to:

•reduced inventory provisioning and other contract and customer settlement costs throughout 2003 including a reduction in accruals of $53 associated with a certain customer bankruptcy settlement;

•reductions in operations related costs throughout 2003 mainly in the U.S., Canada and EMEA;

•improvements in our cost structure primarily as a result of favorable supplier pricing which were partially offset by continued pricing pressures on the sale of certain products;

•the sale of certain optical components assets to Bookham and, as a result, our 2003 gross margin excluded the impact of excess capacity of those optical components assets; and

•reduced warranty charges in 2003.

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