Nortel Provides Certain Expected Financial Results For The First Quarter 2007 And Confirms Full Year 2007 Outlook

-Q1 2007 revenues expected to be approximately $2.48 billion, up 4 percent year over year, excluding the impact of our UMTS Access divestiture, revenues increased by 12 percent(a)
-Q1 2007 gross margin expected slightly above 40 percent
-Operating Margin(b) is expected to be slightly negative, 640 basis points better year over year
-March 31, 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, which includes $585 million outflow related to the litigation settlement
TORONTO - In advance of tomorrow’s Annual and Special Meeting of Shareholders, Nortel* Networks Corporation [NYSE/TSX: NT] today announced certain expected results for the first quarter of 2007. All dollar amounts in this press release are in U.S. dollars. As previously announced, the Company will hold a teleconference/audio webcast on Thursday, May 3, 2007 at 4:30 pm ET to discuss its first quarter 2007 financial results.


Revenues are expected to be approximately $2.48 billion for the first quarter of 2007, up 4 percent year over year. Excluding the impact of our UMTS Access divestiture, revenues increased by 12 percent compared to the year ago quarter(a). Gross margin is expected to be slightly higher than 40 percent of revenue and operating margin is expected to be slightly negative, 640 basis points better year over year.

Cash balance at the end the first quarter of 2007 was $4.55 billion. The increase in cash from the year end 2006 balance of $3.49 billion was primarily a result of the net proceeds from the $1.15 billion Senior Notes offering in March 2007.

For the full year 2007, the Company continues to expect revenues to be flat to down slightly compared to 2006, reflecting a decrease in revenues as a result of the UMTS Access disposition (note that 2006 UMTS Access revenues associated with the assets sold was approximately $660 million). The Company also continues to expect full year 2007 gross margin to be in the low 40’s, as a percentage of revenues, and operating margin(b) to be at 5 percent, or higher, of revenues.

The Company also announced that David Drinkwater has been appointed as Chief Financial Officer on an interim basis, effective May 1, 2007. As previously announced, Peter Currie stepped down from this position effective April 30, 2007, and he will continue to provide advice and assistance to the Company to ensure a smooth transition. Drinkwater has served as the Company’s Chief Legal Officer since December 2005, and has held senior positions with other world-class businesses, including as chief financial officer of Ontario Power Generation.

Gordon Davies, who has held a number of positions in the Company’s legal organization, including most recently as General Counsel - Corporate and Corporate Secretary, will assume the role of Chief Legal Officer on an interim basis, effective May 1, 2007.

Drinkwater has also been appointed interim Chief Financial Officer and Davies, interim Chief Legal Officer, of Nortel Networks Limited, the Company’s principal operating subsidiary.

(a) First quarter of 2006 included revenues of $173 million that related to the UMTS Access business that was sold on December 31, 2006. Revenues for the first quarter of 2006 excluding UMTS revenues is a non-GAAP measure. Nortel’s management believes that this supplemental information is meaningful, given the sale of the UMTS Access business, by providing greater transparency to investors with respect to Nortel’s performance and by facilitating comparisons to Nortel’s historical performance. This non-GAAP measure may also facilitate comparisons to Nortel’s historical performance and our competitors’ operating results. This non-GAAP measure should be considered in addition to, but not as a substitute for, the information contained in our financial statements prepared in accordance with GAAP.

(b) Operating Margin is a non-GAAP measure defined as Gross Profit less SG&A and R&D expenses. Operating Margin percentage is a non-GAAP measure defined as Operating Margin divided by Revenue. Nortel’s management believes that these measures are meaningful measurements of operating performance and provides greater transparency to investors with respect to Nortel’s performance and supplemental information used by management in its financial and operational decision making. These non-GAAP measures may also facilitate comparisons to Nortel’s historical performance and our competitors’ operating results. No reconciliation of the projected non-GAAP measure is provided to the comparable projected GAAP measure because Nortel does not predict special items that might occur in the future, and Nortel’s forecasts are developed at a level of detail different than that used to prepare GAAP-based financial measures. Thus, such a reconciliation is not available without unreasonable efforts. These non-GAAP measures should be considered in addition to, but not as a substitute for, the information contained in our financial statements prepared in accordance with GAAP. These measures may not be synonymous to similar measurement terms used by other companies.