- Q1 2007 revenues of $2.48 billion, up 4 percent year over year; excluding the impact of the UMTS Access divestiture, revenues increased by 12 percent(a)
- Q1 2007 gross margin of 40.4 percent, up 170 basis points year over year
- Q1 2007 operating margin(b) loss of 0.4 percent, 640 basis points better year over year
- Q1 2007 net loss of $103 million, or $0.23 per common share on a diluted basis
- Q1 2007 cash balance of $4.55 billion, which included net proceeds from the $1.15 billion Senior Notes offering
- Cash Flow from operations was an outflow of $561 million; excluding the $585 million outflow related to the litigation settlement, cash flow from operations was $24 million(c)

TORONTO, ONTARIO -- (MARKET WIRE) -- May 03, 2007 -- Nortel(1) Networks Corporation's (TSX: NT)(NYSE: NT) continued focus on growth initiatives and organizational simplification delivered measurable progress as the Company announced results for the first quarter of 2007, prepared in accordance with United States generally accepted accounting principles (GAAP) in U.S. dollars.

"I am very pleased with our revenue and gross margin performance to start the year. Our first quarter revenues grew 4 percent year over year or 12 percent if you consider that we divested our UMTS Access business at the end of last year, and we showed positive cash flow from operations for the second quarter in a row excluding the impact of the litigation settlement" said Mike Zafirovski, President and CEO, Nortel. "While our first quarter results demonstrated significantly improved financial performance, we must and will continue our relentless pursuit of customer satisfaction and business transformation to deliver on our 2007 business plan."

First Quarter 2007 Results

Revenues were $2.48 billion for the first quarter of 2007 compared to $2.39 billion for the first quarter of 2006 and $3.32 billion for the fourth quarter of 2006. The Company reported a net loss in the first quarter of 2007 of $103 million, or $0.23 per common share on a diluted basis, compared to a net loss of $171 million, or $0.39 per common share on a diluted basis, in the first quarter of 2006 and a net loss of $80 million, or $0.19 per common share on a diluted basis, in the fourth quarter of 2006.

The net loss in the first quarter of 2007 of $103 million included a shareholder litigation gain of $54 million reflecting a mark-to-market adjustment of the share portion of the class action settlement and special charges of $80 million for restructuring. The net loss in the first quarter of 2006 of $171 million included an income tax expense of approximately $25 million, a shareholder litigation loss of $19 million reflecting a mark-to-market adjustment of the share portion of the class action settlement, and a benefit of $39 million in gains related to the sale of businesses and assets. The net loss in the fourth quarter of 2006 of $80 million included a gain of $164 million on the sale of assets, a shareholder litigation expense of $234 million reflecting a mark-to-market adjustment of the share portion of the class action settlement and special charges of $29 million for restructuring.

Deferred revenues increased sequentially by $32 million from the fourth quarter of 2006. Order input for the quarter was $2.59 billion, down from $2.66 billion in the first quarter of 2006 (Note that first quarter of 2006 UMTS Access orders associated with the assets sold was approximately $175 million), and down from $3.43 billion in the fourth quarter of 2006.

As previously reported, in the first quarter of 2007, Nortel completed its services resegmentation to include network implementation services in the Global Services segment and, as well, has renamed the Mobility and Converged Core Networks segment Carrier Networks. The historical quarterly financial information in the attached tables reflects these changes.

Carrier Networks (CN) revenues in the first quarter of 2007 were $1.01 billion, a decrease of 6 percent compared with the year-ago quarter and a decrease of 32 percent sequentially. In the first quarter, the strong growth in CDMA was more than offset by declines in the GSM/UMTS and in the circuit and packet voice businesses. Excluding the impact of the UMTS Access divestiture, CN revenues increased by 5 percent in the first quarter of 2007 compared with the year-ago quarter.(a)

Recent CN highlights include:

- Nortel and Microsoft Innovative Communications Alliance announced plans to offer solutions for service providers to deliver unified communications services to small and medium business and large enterprises

- Moline Dispatch Publishing Co. (MDPC) will use Nortel 4G WiMAX technology to deliver high-speed broadband across western Illinois and eastern Iowa through its Internet service provider (ISP), Quad-Cities Online (QCO)

- Nortel signed a contract with Wind Telecom, a new network operator in the Dominican Republic, to deploy a WiMAX-based broadband network. Craig Wireless is deploying Nortel's WiMAX solution in Greece to deliver broadband, media-rich content to mobile users

- Nortel announced important WiMAX trials with Mobile Satellite Ventures, L.P. and TVA, one of the leading pay TV companies in Brazil

- Last month, Nortel announced GSM contract wins with Reseau Ferre de France (RFF) and Austrian Railways

Enterprise Solutions (ES) revenues in the first quarter of 2007 were $597 million, an increase of 31 percent compared with the year-ago quarter and a decrease of 24 percent sequentially. The year over year growth was driven by strong growth in both voice and data businesses. We believe that we gained market share again this quarter.

Recent ES highlights include:

- New Guangzhou Nansha Pearl River Delta World Trade Center will deliver personalized, intelligent multimedia communications services for residents and guests using a Nortel converged IP network

- Nortel and IBM collaborated to embed Nortel's multimedia communications solution into IBM Lotus Notes, adding unified communications capabilities for the millions of Lotus Notes users around the world

- Nortel drove strong momentum in the healthcare sector, including wins with the Canadian Specialist Hospital in Dubai, Geisinger Hospital and Hospital de Madrid Group.

- Nortel introduced enterprise portfolio enhancements across Wireless LAN (WLANs), Ethernet switching and Unified Communications, as well as new ready-to-use VoIP packages as part of its IPT 1-2-3 program

Global Services (GS) revenues in the first quarter of 2007 were $448 million, a decrease of 11 percent compared with the year-ago quarter, and a decrease of 17 percent sequentially. Excluding the impact of the UMTS Access divestiture, GS revenues increased by 1 percent in the first quarter of 2007 compared with the year-ago quarter.(a)

Recent GS highlights include:

- Nortel added 11 core integration services to its growing portfolio of services designed to help businesses around the world deploy unified communications

- Nortel added two new mobile communications solutions to its clinical-grade portfolio, helping hospital staff to make patient care more responsive and efficient

- 4G Metro, wireless network operator for the Trinity Railway Express, selected Nortel and Colubris Networks to provide a solution for what is expected to be the first end-to-end broadband wireless service offered by a major U.S. public railway

Metro Ethernet Networks (MEN) revenues in the first quarter of 2007 were $373 million, an increase of 27 percent compared with the year-ago quarter and a decrease of 17 percent sequentially. The year over year increase in revenues was primarily due to the completion of a large optical and a large data contract and continued traction in the Multiple System Operator market.

Recent MEN highlights include:

- Australian telecommunications carrier, PowerTel, enhanced the speed of its high-bandwidth services using Nortel's new ultra high-speed optical technology

- Hong Kong Exchanges and Clearing Ltd (HKEx) upgraded the speed and reliability of its backbone network with Nortel's products

Gross margin

Gross margin was 40.4 percent of revenue in the first quarter of 2007, primarily reflecting a strong contribution from CDMA solutions and cost reductions. This compared to gross margin of 38.7 percent for the first quarter of 2006 and 39.8 percent for the fourth quarter of 2006. Compared to the first quarter of 2006, there were significant improvements in CN gross margins due to the product mix shift resulting from lower UMTS revenues, and higher CDMA and Enterprise revenues.

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Jay Barta
Media
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Email: jbarta@nortel.com

Nortel
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Email: mohammna@nortel.com