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Nortel Networks Corporation 08 July 2008

Update Report – 1Q 08 Results

Margin improvements to drive future growth

NYSE BUY Fundamental research indicates a 60%

60% upside in the NYSE common stock over the next 6-24 months.
Direct
We accessthe
have calculated totarget
the price
full based
report free of charge
on fundamental at a weighted average of target
factors, using
Common http://www.iirgroup.com/researchoracle/viewreport/show/20234
prices obtained using DCF and comparative valuation methodologies.
Stock
Ticker: NT
Target price: US$11.42
Current price: US$7.14 We upgrade the NYSE common stock rating from a HOLD to a BUY with a 6-24 month target price of
US$11.42 per share.

Canadian BUY The Canadian stock is expected to rise 68% % over the next 6-24 months. Approximately 60 percentage
points of this upside is attributable to fundamental upside augmented by 8 percentage points to the
Stock anticipated appreciation of the US dollar over the Canadian dollar over the same period.

Ticker: NT.TO
Target price: C$12.10
Current price: C$7.21 We upgrade the Canadian stock from a HOLD to a BUY with a 6-24 month target price of C$12.10 per
share.

Supervisor: Shilpen Shah
Analyst: Jatin Pradeep
Editor: Shem Pennant
Global Research Director:
Satish Betadpur, CFA
Investment horizon – short term actionable trading strategies
This report addresses the needs of strategic investors with a long term investment horizon of 6-24 months. If this
report is provided to you by your broker under the Global Settlement, you may now also access (free of charge) the
short term trading outlook that we publish from time to time for this issuer, looking at the coming 5-30 days for
readers with a shorter trading horizon. These are available online only at www.researchoracle.com.

Next news due:

2Q 08 results, 01 August 2008
Report summary
Although Nortel Networks Corporation (Nortel) reported higher than expected revenues in 1Q 08,
margins were lower than expected. On June 11 2008, Management outlined its vision for the future.
We believe that the company’s growth plans are significantly bullish and in view of the current softness
in our outlook for the company, we prefer to adopt a cautious stance towards the proposed growth
plan. Nevertheless, we see significant margin improvement compared to FY 2007. Going forward,
revenues are expected to grow moderately at 2.2% y-o-y in FY 2008 and 2.8% y-o-y in FY 2009 while
margins are expected to grow strongly at 5.6% in FY 2008 and further increase to 6.8% in FY 2009.
Subsequently, we maintain a positive outlook for the Nortel NYSE common stock in anticipation of
expected margin growth over the next two years.

Currency impact for US investors

The company reports in US dollars. Earnings forecasts are therefore also expressed in US dollars.
Although the company has costs as well as revenues in other currencies, we assume the net risk is
minimized through effective hedging strategies. As a result the impact of currency movements on the
price of the NYSE common stock is assumed to be neutral. Where specific currency risks are identified
these will be highlighted in the report.

Page 1 Refer to Page 5 for footnotes