Marconi Corporation plc trading update for the three months ended 31 December 2003

* Group sales up 5% to lb408 million (Q2 FY04: lb389 million)

* Europe/rest of world sales driven by growth in fixed wireless access and value-added services

* Strong growth in Outside Plant & Power and North American Access offset by reduction in sales to US federal government as expected

* Group sales reported after negative foreign exchange impact of approximately lb11 million due to weakening of the US dollar; group sales of lb419 million, up 8% on Q2 on constant currency basis

* Continued improvement in operating performance; good progress on adjusted gross margin (before exceptional items) to within our targeted range; further reduction in adjusted operating cost exit run-rate (before goodwill amortisation and exceptional items)

* Fifth consecutive quarter of positive operating cash flow (before exceptional items); Net cash position further reinforced to lb108 million at 31 December 2003 (from lb99 million at 30 September 2003)

* Disposal of North American Access (NAA) agreed; completion expected in first calendar quarter 2004; $240 million gross proceeds to fund final pay-down of Junior Notes and first partial redemption of Senior Notes

* Q3 sales excluding NAA up 4% to lb374 million (Q2 FY04: lb359 million)

* Year-end operational targets adjusted to exclude NAA; no impact on adjusted gross margin exit run-rate target (before exceptional items) maintained in the range of 27 to 29% by 31 March 2004; adjusted operating cost exit run-rate revised down to below lb410 million by 31 March 2004

* Recently announced business wins include extension to BT service support contract and new optical frame contract with TeliaSonera

* Maintaining cautious view on market outlook; Q4 FY04 sales (excluding NAA and on constant currency basis) expected to be flat to slightly up on Q3 FY04; Year on year stability expected in Q1 FY05 in line with the typical seasonal pattern of customer demand

* Full Q3 results to be announced on 12 February 2004

Marconi Corporation plc today provided a trading update for the third quarter ended 31 December 2003.

Mike Parton, Chief Executive, said: "We recorded a strong sales performance in our third quarter despite negative currency movements. This and good progress towards our year-end operational targets have led to a further improvement in our operational performance. While we remain cautious on market outlook in the near-term, we are encouraged by the level of interest in our next generation product platforms and we continue to win important new business."

Ian Clubb, a non-executive director of the company, has resigned from the board with immediate effect. Clubb joined the board at the time of the completion of the company`s financial restructuring in May 2003 and is leaving for personal reasons. John Devaney, Chairman of Marconi Corporation plc, thanked Clubb for his contribution to the recovery of Marconi and wished him well for the future.

Q3 Results - 12 February 2004

We will announce results for the three months and nine months ended 31 December 2003 on 12 February 2004 and will host a conference call for analysts and investors at 4pm on that date. Full details will be issued shortly. Consequently, we will not host a conference call in connection with this trading update. Analyst and investor enquiries should be directed to Heather Green, EVP Investor Relations.

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The financial information in this trading update is un-audited and has been prepared in accordance with UK accounting policies set out in Marconi Corporation plc`s 2003 annual report and accounts.

Following our previously announced agreement for the disposal of our North American Access business (see press release dated 5 January 2004), this unit will be accounted for as a discontinued operation at 31 March 2004 as we expect to have completed the transaction by this date. We will provide additional detail of North American Access performance in the first three quarters of the financial year when we report our interim results on 12 February.

The main geographic and product area trends impacting sales excluding NAA during the third quarter compared to the second quarter were as follows:

* Continued strength in demand in the German market, with a further increase in sales of fixed wireless access equipment to mobile operators ahead of the 31 December deadline set by the national regulator to achieve 25% 3G mobile coverage. We also experienced a slight seasonal increase in sales of narrowband access products at the end of the financial year of a number of our German customers.

* Continued stability in sales of optical networks equipment as customer spending in this area is focused on infill of existing network infrastructure rather than new build projects. Increased shipments of SDH equipment to Telecom Italia offset a reduction in the level of sales of optical equipment to BT mainly due to timing of shipments.

* A slight reduction in the level of access hub sales recorded during the quarter (from lb10 million in Q2 to lb9 million in Q3). While the volume of shipments to Telecom Italia increased significantly during this period, a high proportion of these were scheduled towards the end of the quarter and in accordance with the contract terms will be recognised as sales during the current quarter.

* An increase in sales of network services in Europe/rest of world driven by growth in value-added services. This resulted mainly from the higher level of sales under one specific long-term cable service contract in the UK as well as an increase in wireless service sales under one specific contract in the Middle East. We also recorded modest growth in sales of integrated systems mainly driven by completion of key milestones in transport sector projects in Germany.

* A reduction in sales of broadband routing and switching (BBRS) to the US Federal Government, as expected, after the seasonally higher level of spend in the previous quarter. This trend is in line with the US Federal Government`s typical seasonal purchasing pattern.

* Strong growth in sales of Outside Plant & Power equipment. Continued softness in central office spending by US wireline operators led to a further reduction in sales of OPP services but this was more than offset by an approximate 10% increase in OPP equipment sales resulting from the continued strong level of shipments to wireless operators in the US and CALA during the period.

Excluding NAA, our ten largest customers during the three months ended 31 December 2003 were (in alphabetical order) AT&T, BT, E- Plus (Germany), Metro City Carriers (Germany), O2, Telecom Italia, the US Federal Government, Verizon, Vodafone Group and Wind (Italy). In aggregate, these customers accounted for 47% of sales excluding NAA (Q2 FY04: ten largest customers 50%).

BT accounted for 18% of sales from Operations excluding NAA (Q2 FY04: 21%). The reduction in sales to BT resulted from the reduced level of optical sales described above, partially offset by increased sales of narrowband voice systems and cable services.

Excluding NAA, we recorded a total book-to-bill ratio of 1.00 during the third quarter (Q2: 1.23).

In Network Equipment, book to bill reduced from 1.15 in the second quarter to 0.90 mainly as a result of lower levels of orders received in OPP and BBRS. In OPP, following the strong order intake in the first half of the financial year, we are now beginning to see some slowdown in orders, as our main wireless operator customers are nearing completion of the planned network builds which have positively impacted OPP sales in recent quarters and wireline operators are continuing to squeeze capital expenditure in central office applications. The lower order intake in BBRS was mainly due to the reduction in spend by the US Federal Government described above.

The 1.18 book to bill ratio in Network Services was driven by extensions to two existing long-term service contracts in the UK (BT) and Germany (TollCollect) booked during the period. These were not however as large in value as the two major contracts signed in the Middle East and Germany during the previous quarter, which resulted in a book to bill ratio of 1.37.

The following outlook is based on our view of the expected like-for-like sales profile of our operations excluding NAA and does not take into consideration any impact of future foreign exchange movements.

We believe that our markets are beginning to stabilise although we remain cautious and will continue to see volatility in sales from quarter to quarter as a result of various regional demand drivers that we describe below.

Overall, on a like for like basis, we expect fourth quarter sales to be flat to slightly up on the lb374 million recorded in the third quarter (excluding NAA). We expect to benefit from good growth in the UK partly as a result of the scheduled phasing of sales to BT. This, however, will be partially offset by expected reductions in sales in Germany following completion of the fixed wireless access build-outs by many of the German wireless operators, the Middle East and in the US where we expect growth in BBRS sales to the US Federal Government to be offset by a decrease in sales of Outside Plant & Power equipment driven mainly by the slowdown in demand from our major wireless operator customers described in Book to Bill above.

While it remains difficult to predict sales beyond the next quarter to a high degree of accuracy, our current view of the first quarter of the next financial year shows relative stability year on year compared to the lb342 million excluding NAA recorded in the first quarter of this financial year, in line with the seasonal pattern of customer demand experienced in the current year.

We continued to make progress towards our operational targets during the quarter, recording a further improvement in adjusted gross margin (before exceptional items) to within our targeted range despite the reduced level of higher-margin BBRS sales. This was achieved mainly due to improvements in our European supply chain resulting from the sequential increase in volumes and further cost reductions. In addition, we recorded a similar rate of reduction in our adjusted operating cost run-rate (before goodwill amortisation and exceptional items) as that reported in the second quarter.

Group headcount was reduced to approximately 13 025 at 31 December 2003 from approximately 14 100 at 30 September 2003, including approximately 250 employees within our North American Access business. Approximately 260 employees were transferred to Elcoteq during the quarter following the outsourcing of our manufacturing facility in Offenburg (Germany), which was completed in November 2003.

The disposal of our North American Access business does not impact our targeted gross margin exit run-rate (before exceptional items) as gross margins in this business are in line with group average. We remain on track to achieve our targeted range of 27 to 29% gross margin run-rate (before exceptional items) in our Operations excluding NAA by 31 March 2004. If we exclude the operating costs associated with NAA which will be transferred to the buyer, AFC upon completion of disposal, this reduces our adjusted operating cost exit run-rate target (before goodwill amortisation and exceptional items) to below lb410 million (previously lb425 million including North American Access).

We will disclose full details of gross margin, operating costs, exceptional items (relating mainly to our ongoing operational restructuring process) and overall operating result in our third quarter interim results announcement on 12 February.

We recorded our fifth consecutive quarter of positive operating cash flow (before exceptional items) as a result of our improved operating performance and further modest improvements in working capital. This was almost sufficient to cover our non-operating cash outflows, which mainly comprised exceptional operating cash costs relating to our ongoing operational restructuring and interest payments. Overall for the three months ended 31 December 2003, we recorded a slight cash outflow prior to partial redemptions and repurchases of our Junior Notes undertaken during the period.

In accordance with the terms of our Junior and Senior Secured Notes, proceeds from disposals (mainly the disposal of our 50% stake in Confirmant and the outsourcing of our manufacturing facility in Germany) and certain releases of cash collateral relating to performance bonds were applied to the mandatory partial redemption of Junior Notes at 110% face value. In total during the quarter, approximately US$62 million (approximately lb37 million) was used to fund the US$56 million (approximately lb34 million) reduction in principal amount of the Junior Notes and the US$6 million (approximately lb3 million) redemption premium.

In addition, we repurchased $24 million (approximately lb13 million) principal amount of the Junior Notes in open market transactions for a total cash outlay (excluding accrued interest and fees) of $26 million (approximately lb15 million).

Full cash flow details will be disclosed in our third quarter results announcement.

The lb36 million reduction in cash collateral on performance bonds outside the new lb50 million super-priority bonding facility resulted, as previously disclosed, from a reduction in the amount of cash collateral held against certain facilities issued by one of our major performance bonding providers and the expiry of certain other performance bonds and letters of credit.

The lb8 million increase in cash collateral in our new performance bonding facility related to new performance bonds issued during the period, in respect of which 50% collateral has to be placed at the time of issue of the bond, while the lb3 million reduction in the performance bonding escrow account resulted from adverse movements in foreign exchange.

The lb32 million balance in our Mandatory Redemption Escrow Account was used on 12 January 2004 to fund the fifth partial redemption of our Junior Notes described above.

The lb85 million reduction in our available Treasury deposits was a result of our third quarter cash outflow after Junior Notes redemptions and repurchases described above (lb59 million) and adverse foreign exchange movements (lb26 million) caused mainly by the weakening of the US dollar.