Delivers Highest Operating Margin(a) since 2004

TORONTO, ONTARIO--(Marketwire - November 06, 2007) - Nortel(1) Networks Corporation (TSX: NT)(NYSE: NT) today announced results for the third quarter of 2007 prepared in accordance with United States generally accepted accounting principles (GAAP) in U.S. dollars. Results were again driven by solid operating and gross margin expansion, evidence of the continued traction of the Company's business transformation program.

"Nortel achieved solid results this quarter in a challenging business environment. We delivered operating margin of 5 percent, the highest since 2004, driven by the highest gross margin in nine quarters," said Mike Zafirovski, Nortel President and CEO. "I am also encouraged by the top-line activity. Adjusted for the UMTS sale, orders in the third quarter were up 9 percent and up 5 percent year to date, which demonstrates Nortel's increasing relevance in the marketplace. With an ongoing focus on customers and execution, we expect to continue to deliver operational and financial improvements in the fourth quarter and beyond."

Highlights

- Orders of $2.38B were up 2 percent year over year and were down 2 percent year to date; excluding the impact of the UMTS Access divestiture, orders increased by 9 percent year over year and by 5 percent year to date.

- Revenue of $2.70 billion, down 8 percent year over year and 4 percent on a year-to-date basis; excluding the impact of the UMTS Access divestiture, revenue decreased by 2 percent in the quarter and grew by 2 percent year to date(b). Compared to the second quarter of 2007, revenue grew by 6 percent.

- Gross margin of 43.0 percent, up 460 basis points year over year.

- Operating margin(a) of 5.0 percent, 277 basis points better year over year.

- Net Earnings of $27 million, or $0.05 per common share on a diluted basis.

- Cash balance of $3.13 billion, with Cash Flow used in operations of $139 million.

- Nortel and Microsoft's ICA alliance gained further traction by unveiling new product plans. In the year since the alliance was formed, the two have signed more than 300 joint customers and 900,000 licenses for their unified communications solution.

- Nortel further accelerated its enterprise go-to-market strategy through an agreement with Dell, who will become a key sales channel for Nortel's entire Enterprise portfolio, and some Services offerings.

- Nortel will enable Baylor Health to securely send medical orders directly to radiology technicians wirelessly, enabling better patient care.

- Nortel and Polycom are adding high definition (HD) video conferencing and telepresence to unified communications for enterprises.

- Pine Cellular and Choctaw Electric Cooperative will use Nortel 4G WiMAX to deliver broadband access to rural communities in southeastern Oklahoma.

- AT&T will be among the first to deploy selected elements of a new All-IP product line from Nortel for their GSM and UMTS network which is designed to help service providers easily evolve to an all-IP network.

- Australia's Silk Telecom will deploy a Metro Ethernet using Nortel's innovative PBT (Provider Backbone Transport).

- Mumbai's International Airport Private Limited will build one of the most extensive IP networks ever deployed by an international airport in India.

- Nortel reached a settlement on all issues with the United States Securities and Exchange Commission (SEC).

- Nortel announced the appointment of Pavi S. Binning as Executive Vice President and Chief Financial Officer, Joel Hackney as President, Enterprise Solutions, and Joe Flanagan as Senior Vice President, Global Operations.

Revenue
Revenue was $2.70 billion for the third quarter of 2007 compared to $2.93 billion for the third quarter of 2006 and $2.56 billion for the second quarter of 2007. In the third quarter, as a result of a transition of a CDMA manufacturing centre, Nortel encountered some difficulty in fulfilling certain customer orders resulting in the deferral of approximately $45 million in revenue.

Revenue


YoY excl
UMTS
Q3 2007 YoY Access (b) QoQ
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Carrier Networks $ 1,080M (19%) (11%)(b) 2%
Enterprise Solutions $ 671M 18% 18% 14%
Global Services $ 540M (0%) 6% (b) 9%
Metro Ethernet Networks $ 360M (13%) (13%) (1%)
Other $ 54M (11%) (11%) (5%)
--------------------------------------------------------------------
Total $ 2,705M (8%) (2%)(b) 6%

Carrier Networks (CN) revenue in the third quarter of 2007 was $1,080 million, a decrease of 19 percent compared with the year-ago quarter and an increase of 2 percent sequentially. In the third quarter, CN revenue was impacted by the UMTS Access divestiture, the transition of a CDMA manufacturing centre, as mentioned above, and decreases in legacy products, partially offset by a significant contribution from the LG Nortel joint venture.

Enterprise Solutions (ES) revenue in the third quarter of 2007 was $671 million, an increase of 18 percent compared with the year-ago quarter and an increase of 14 percent sequentially. ES recorded the fifth consecutive quarter of year over year growth, driven by contract completions in the quarter across all portfolios and strong double digit growth in the data and applications businesses.

Global Services (GS) revenue in the third quarter of 2007 was $540 million, essentially flat compared with the year-ago quarter and an increase of 9 percent sequentially. A decrease in network implementation services, primarily due to the UMTS Access divestiture and lower GSM services revenue, was offset by growth in support services. Excluding the impact of the UMTS Access divestiture, GS revenue increased by 6 percent in the third quarter of 2007 compared with the year-ago quarter.(b)

Metro Ethernet Networks (MEN) revenue in the third quarter of 2007 was $360 million, a decrease of 13 percent compared with the year-ago quarter and a decrease of 1 percent sequentially. The year over year decrease in revenue was primarily due to decreases in long-haul optical revenue resulting from revenue recognized in the third quarter of 2006 and not repeated to the same extent in the third quarter of 2007, as well as decreases in legacy data, partially offset by increases in metro optical and carrier ethernet revenue.

Outlook (c)

In the fourth quarter 2007, Nortel expects:

- Revenue to be approximately flat compared to fourth quarter 2006, with an expected range of plus or minus $100 million, dependent on customer spending decisions.

-- Note that fourth quarter 2006 UMTS Access revenue associated with the assets sold was approximately $157 million.

- Gross margin as a percentage of revenue to improve slightly compared to the third quarter of 2007.

- Operating margin(d) as a percentage of revenue to be approximately 10%, with an expected range of plus or minus 125 basis points, dependent on revenue.

For the full year 2007, Nortel expects:

- Revenue to be down slightly compared to 2006.

- Gross margin in the low 40s as a percentage of revenue.

- Operating margin(d) as a percentage of revenue to be in the range of 4% to 5%.