Nortel Reports Results for the Second Quarter 2007

Nortel Reports Results for the Second Quarter 2007

Nortel* Networks Corporation [NYSE/TSX: NT] today announced results for the second quarter of 2007 prepared in accordance with United States generally accepted accounting principles (GAAP) in U.S. dollars. Results were driven by solid operating and gross margin expansion, evidence of the continued traction of the Company’s business transformation program.

“Good progress is being made in our effort to reshape Nortel to deliver sustained value to shareholders. On balance, the key indicators of our financial health moved in a positive direction in the quarter,” said Nortel President and CEO Mike Zafirovski. “Gross margin of 41.1 percent was the highest in eight quarters and the operating margin expanded significantly on a year-over-year basis for the fourth consecutive quarter. Revenues were down 8% this quarter, principally as a result of the UMTS divestiture and the timing of contract completion. Revenues were up 3% sequentially and we are confident that the traction we are seeing with customers will translate into much higher sequential growth for the remainder of the year.”

Revenues were $2.56 billion for the second quarter of 2007 compared to $2.78 billion for the second quarter of 2006 and $2.48 billion for the first quarter of 2007. The Company reported a net loss in the second quarter of 2007 of $37 million, or $0.07 per common share on a diluted basis, compared to net earnings of $342 million, or $0.79 per common share on a diluted basis, in the second quarter of 2006 and a net loss of $103 million, or $0.23 per common share on a diluted basis, in the first quarter of 2007. The net loss in the second quarter of 2007 of $37 million included special charges of $36 million for restructuring, a $35 million provision related to ongoing discussions with the SEC, a gain of $69 million due to favourable effects of changes in foreign exchange rates and a gain of $10 million on the sale of assets.

The net earnings in the second quarter of 2006 of $342 million included a shareholder litigation recovery of $510 million reflecting a mark-to-market adjustment of the share portion of the global class action settlement, special charges of $49 million for restructuring and a loss of $12 million on the sale of assets. 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.

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