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Foundry Networks Reports Fourth Quarter And Fiscal 2007 Financial Results

Record Quarterly and Full-Year Revenues of $168.7 Million and $607.2 Million

SANTA CLARA, Calif. – January 29, 2008 - Foundry Networks®, Inc. (Nasdaq: FDRY) a performance and total solutions leader for end-to-end switching and routing, today announced financial results for its fourth quarter and fiscal year ended December 31, 2007. 

Foundry's revenue for the fourth quarter of 2007 was $168.7 million, compared to $132.0 million in the fourth quarter of 2006 and compared to $159.5 million in the third quarter of 2007, an increase of 27.7% and 5.7% respectively.  Net income was $28.9 million, or $0.18 per diluted share, compared to net income of $15.7 million, or $0.10 per diluted share, in the fourth quarter of 2006, and net income of $27.6 million, or $0.18 per diluted share, in the third quarter of 2007. 

Revenue for fiscal 2007 was $607.2 million, compared to $473.3 million for fiscal 2006, an increase of 28.3%.  Net income for fiscal 2007 was $81.1 million, or $0.52 per diluted share, compared to net income of $38.7 million, or $0.26 per diluted share, for fiscal 2006.  

Included in Foundry's results for the fourth quarter of 2007 were $13.2 million of non-cash stock-based compensation expense and $54,000 of expenses related to the stock option investigation and restatement of Foundry's consolidated financial statements.  Excluding these expenses and the related tax effect, non-GAAP net income in the fourth quarter of 2007 was $37.8 million and non-GAAP net income per diluted share was $0.24.  Included in Foundry's results for fiscal 2007 were $46.0 million of non-cash stock-based compensation expense and $13.3 million of expenses related to the stock option investigation and restatement of Foundry's consolidated financial statements.  Excluding these expenses and the related tax effect, non-GAAP net income in fiscal 2007 was $118.9 million or $0.76 per diluted share.  Please refer to the table below for a reconciliation of GAAP to non-GAAP net income and earnings per share.

In the fourth quarter of 2007, North American commercial (non Federal Government) revenue represented 48% of total revenue while sales to Europe, the Middle East and Africa (EMEA) represented 18% of total revenue.  Business from Japan increased to 6% of total revenue, while sales from the rest of Asia increased to 9% of total revenue.

Sales to the U.S. Federal Government remained strong, representing 19% of total revenue.  Within the service provider market, router revenue grew to 20% of total revenue, a 26% increase from the third quarter of 2007.  Overall, service provider revenue grew to represent 26% of total revenue in the quarter.

The Company's cash and marketable securities grew to $965.7 million in the fourth quarter, an increase of $20.0 million from the third quarter of 2007.  During the quarter, the Company spent $45.0 million repurchasing 2.3 million shares of Foundry common stock at an average price of $19.96.  To date, the Company has spent $82.9 million to repurchase 4.4 million shares of Foundry common stock at an average price of $18.93.

"2007 was a year of record achievements for Foundry Networks.  We broke industry records for port density and capacity with the delivery of our 32-slot routers, we achieved all-time record revenues while also delivering record-high profits," said Bobby Johnson, President and CEO of Foundry Networks.  "We continued to deliver on our long-term objectives of diversification within our federal government business, increasing our penetration in the service provider market and expanding our share of the enterprise market," concluded Mr. Johnson.

Click here to view the financial tables

About Non-GAAP Financial Measures

Foundry uses non-GAAP net income and non-GAAP net income per share for internal planning purposes, to assess the results of its business on an ongoing basis, to determine management compensation, and for the convenience of analysts and investors. These measures are not in accordance with, or an alternative to, similarly-named measures under GAAP.  The measures are intended to supplement GAAP financial information, and may be different from non-GAAP financial measures used by other companies.  Foundry believes these measures provide useful information to its management, board of directors and investors regarding Foundry's performance when used in conjunction with GAAP information.  Foundry believes it is useful to investors to receive information about how items in the statement of operations are affected by stock-based compensation, litigation settlement charges, the expenses related to the stock option investigation and restatement of the Company's consolidated financial statements and the related income tax effect.  Stock-based compensation expense consists of expenses recorded under SFAS 123(R), "Share-Based Payment," in connection with awards granted under the Company's equity incentive plans and shares issued pursuant to the Company's employee stock purchase plan.  The Company excludes stock-based compensation expense from non-GAAP financial measures because it is a non-cash measurement that does not reflect the Company's ongoing business and because the Company believes that investors want to understand the impact on the Company of the adoption of SFAS 123(R);  the Company believes that the provision of non-GAAP information that excludes stock-based compensation improves the ability of investors to compare its period-over-period operating results, as there is significant variability and unpredictability across companies with respect to this expense.  The Company also excludes legal, accounting and one-time employee compensation costs related to the stock option investigation and restatement of the Company's consolidated financial statements in addition to litigation settlement charges because these payments do not reflect the Company's ongoing business and the exclusion of these payments improves the ability of investors to compare its period-over-period operating results.  However, investors should be aware that non-GAAP measures have inherent limitations and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP.

Conference Call

Foundry Networks will host a conference call today to discuss these results at 2:00 p.m. Pacific Time.  The call can be accessed via a webcast at www.foundrynetworks.com.  A Web replay will also be available for approximately 90 days at this same Web address.

Forward-Looking Statements

This press release contains forward-looking statements, as defined under federal securities laws.  These forward-looking statements include statements regarding Foundry's intention to (1) diversify its customer base, (2) increase its penetration in the service provider market and (3) expand its share of the enterprise market.  These statements are not historical facts or guarantees of future performance or events and are based on current expectations, estimates, beliefs, assumptions, goals and objectives, and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from the results expressed or implied by these statements.  These risks include the intense competition that Foundry faces in the market for networking solutions and Foundry's need to continue to introduce new products with superior performance and features in a timely manner, as well as those risks and uncertainties included under the captions "Risk Factors" in Foundry's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, which is on file with the SEC and is available on Foundry's investor relations website at http://www.foundrynet.com/company/ir/ir-sec and on the SEC website at www.sec.gov.  Additional information will also be set forth in the Company's report on Form 10-K for the year ended December 31, 2007, which will be filed with the SEC in February 2008.  All information provided in this release and in the attachments is as of January 29, 2008, and should not be unduly relied on because Foundry undertakes no duty to update this information.

About Foundry Networks

Foundry Networks, Inc. (NASDAQ: FDRY) is a leading provider of high-performance enterprise and service provider switching, routing, security and Web traffic management solutions, including Layer 2/3 LAN switches, Layer 3 Backbone switches, Layer 4-7 application switches, wireless LAN and access points, metro routers and core routers. Foundry's customers include the world's premier ISPs, metro service providers, and enterprises, including e-commerce sites, universities, entertainment, health and wellness, government, financial and manufacturing companies. For more information about the company and its products, call 1.888.TURBOLAN or visit www.foundrynet.com.

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