Nortel Reports Financial Results for the First Quarter 2008

Nortel(1) Networks Corporation (TSX: NT)(NYSE: NT) announced its results for first quarter 2008, which demonstrated continued progress against the Company's turnaround strategy. Strong operational progress in margins combined with steady revenue growth kept Nortel on track to meet full year goals. Results were prepared in accordance with United States generally accepted accounting principles (GAAP) in U.S. dollars.

"Nortel had a strong first quarter, driven by the completion of a contract in our LG-Nortel joint venture and continued improvements in gross and operating margins. Nortel's operating margin, a critical measure of our plan's traction, expanded for the seventh consecutive quarter year over year, recording a 512 bps improvement to 4.7 percent," said Mike Zafirovski, Nortel president and chief executive officer. "We expect to achieve our full year guidance and we continue to make solid progress against the strategy to turn around the company. Our relentless focus on execution and our determination to deliver value to customers is strengthening the foundation upon which to build our performance over the balance of 2008 and beyond."

2008 Financial Highlights

- Revenue in the first quarter of $2.76 billion, up by 11 percent year over year, which included a release of deferred revenue associated with the completion of a significant contract in the LG-Nortel joint venture that was previously expected to occur in the second quarter.

- Gross margin in the first quarter of 41.6 percent, up 120 basis points year over year.

- Operating margin in the first quarter of 4.7 percent, up 512 basis points year over year.

- Cash balance, as at March 31, 2008 of $3.22 billion, included a seasonal outflow of cash from operations in the quarter of $260 million, in-line with the 2008 target.

Business Highlights

- Nortel launched the industry's first 40/100G solution - a significant technology milestone enabling four times the network throughput immediately, while providing the foundation to simply and affordably increase capacity tenfold, as required. This equips carriers to keep pace with dramatically increasing demand from high bandwidth applications. Also, Nortel won two related contracts with Neos and TDC; and in a technology first, conducted a live 100G network trial with Comcast.

- Customers such as CTM in Macau, Intercontinental in San Francisco and RMIT University in Australia came to Nortel for unified communications solutions that will help them streamline communication and enhance business processes.

- Nortel won a 4G contract with Charles Street Partners to bring wireless broadband to rural citizens of Florida and Arizona, and secured a trial agreement with Loxley of Thailand to demonstrate mobile VoIP, high-definition video and other interactive applications. In addition, Nortel achieved several technology milestones, including, with LG Electronics, the world's first demo of mobile LTE while traveling in a vehicle at 110 kilometers per hour with data rates of up to 50 Mbps, fast enough to support mobile multimedia applications.

- Market demand for 2G and 3G infrastructure continued and Nortel won key deals with operators around the world, including a $100 million contract with India's BSNL and a five-year contract extension with US Cellular.

- Nortel also announced a telepresence and video conferencing resale agreement with TANDBERG, further enabling the delivery of a fully-managed telepresence solution with an open-architecture, a key competitive differentiator, to help businesses decrease their travel costs, increase their productivity and significantly reduce their carbon footprint.

Revenue

Revenue was $2.76 billion for the first quarter of 2008 compared to $2.48 billion for the first quarter of 2007 and $3.20 billion for the fourth quarter of 2007. In the first quarter of 2008, revenue increased by 11 percent compared with the year ago quarter and decreased by 14 percent compared to the fourth quarter of 2007. The first quarter of 2008 included the release of deferred revenue associated with the completion of a large contract in the LG-Nortel joint venture.

                                 Revenue B/(W)

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                             Q1 2008         YoY           QoQ
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Carrier Networks              $1,218          21%          (10%)
Enterprise Solutions           $ 641           7%          (16%)
Global Services                $ 516          15%          (15%)
Metro Ethernet Networks        $ 327         (12%)         (24%)
Other                          $  56           0%            0%
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 Total                        $2,758          11%          (14%)
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