Revenues were US$6.18 billion for the first quarter of 2001 compared to US$6.32 billion for the same period in 2000. Net loss from operations applicable to common shares(b) for the quarter was US$385 million, or US$0.12 per share, compared to net earnings from operations of US$347 million, or US$0.12 per share on a diluted basis, for the same period in 2000. Including Acquisition Related Costs(b), stock option compensation from acquisitions, and one-time gains and charges, Nortel Networks recorded a net loss applicable to common shares for the first quarter of 2001 of US$2.58 billion or US$0.82 per share.

Our revenues in the quarter reflected reduced capital spending by service providers and enterprises resulting from tighter capital markets and a severe slowdown in the U.S. economy, said John Roth, president and chief executive officer, Nortel Networks. As anticipated, we saw substantially lower sales in Optical Inter-city solutions. We saw slightly lower sales for our Local Internet solutions, driven by a sharp reduction in circuit switching, which was nearly offset by considerable growth in our industry leading Optical Metro and Core IP Network solutions. We also saw strong growth in Wireless Internet solutions in the quarter driven by our IP, personalization and services enabling capabilities.

The lack of available funding from the capital markets, high debt levels at many service providers and the compounding effect of the U.S. economic downturn and its impact on other regions will continue to constrain capital spending by service providers, Roth said. We only expect a meaningful rebound in capital spending following a period of industry rationalization and an improved economic environment. Given the uncertainty as to the extent and timing of these events, we are not providing specific financial guidance for the next quarter or full year 2001.

During this period of rationalization, Roth said, we continue to align our cost structure and operations with the current environment, and reduce our breakeven point to drive improved profitability. We now expect an aggregate net reduction, by midyear 2001, of approximately 20,000 from the number of employees at December 31, 2000. We are committed to working with our customers through this period to help them unleash potential profits by driving new revenue streams, faster time to market and continuous cost leadership. We continue to sharpen our focus and activities around the key markets of tomorrow, specifically the lowest cost intelligent Optical networks, Core IP networking and Wireless Internet solutions for service providers and enterprises.

We are confident that these efforts will enable us to build on our strong customer relationships and market position and allow us to extend our global leadership position, Roth said.

Revenue Breakdown

Segment revenues for the first quarter of 2001, based on our new segment presentation, reflect a decrease of two percent for the Network Infrastructure segment, a decrease of 22 percent for the Photonic Components segment, and a decline of four percent for Other compared to the same period in 2000.

Network Infrastructure revenues reflected considerable growth in Wireless Internet solutions in the United States, Asia, and Canada, partially offset by a slight decline in Europe. Revenues for Optical Inter-city solutions were down sharply in the United States, which more than offset substantial growth in Europe and Asia. Local Internet solutions revenues declined substantially in the United States, which were nearly offset by growth in all other regions.

Photonic Components segment revenues were down considerably in the first quarter compared to the same period last year. The overall decline in the segment was largely due to lower sales of Nortel Networks Optical Inter-city solutions. External revenues increased in the quarter with growth in Asia and Europe, more than offsetting a slight decline in the United States.

Other revenues declined in the first quarter compared to first quarter of 2000. Strong growth in Global Professional Services in all major regions was offset by declines in enterprise solutions across all regions, except Europe which was essentially flat. A considerable decline in narrowband access solutions products in the United States and Asia was partially offset by substantial growth in Latin America and Europe.

Geographic revenues for the first quarter of 2001 compared to the same period in 2000 decreased 23 percent in the United States and two percent in Canada, which was nearly offset by growth of 38 percent outside the United States and Canada.

Expenses

Selling, general and administration (SG&A) expenses in the first quarter of 2001 were US$1.39 billion or 22.5 percent of revenue, compared with US$1.19 billion, or 18.9 percent of revenue, in the first quarter of 2000. The SG&A expenses in the quarter did not reflect the full impact of initiatives undertaken during the quarter to streamline our business and reduce our cost structure.

Research and development (R&D) expenses were US$1.03 billion, or 16.6 percent of revenue, in the first quarter of 2001, compared with US$851 million, or 13.5 percent of revenue, in the first quarter of 2000. The increased R&D expenses in the quarter reflected planned expenses across the business focused on Wireless Internet solutions, Optical Inter-city solutions and the Core IP Networks and Metro portions of our Local Internet solutions