SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C.  20549


                            FORM 10-K
      Annual Report Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934

For The Year Ended December 28, 1997         Commission File No. 0-12064


                     STRATUS COMPUTER, INC.
     (Exact name of registrant as specified in its charter)


  MASSACHUSETTS                                     04-2697554
 (State or other jurisdiction of                  (I.R.S. Employer
 incorporation or organization)                   Identification No.)


  55 FAIRBANKS BOULEVARD, MARLBOROUGH, MA                01752
(Address of principal executive offices)                 (Zip Code)


                         (508)  460-2000
      (Registrant's telephone number, including area code)

   Securities Registered Pursuant to Section 12(b) of The Act:

Title of each class             Name of each exchange on which registered
 Common Stock, $.01 par             New York Stock Exchange, Boston Stock
 value per share                      Exchange, Chicago Stock Exchange,
                                      Pacific Exchange
 Common Stock Purchase Rights       New York Stock Exchange, Boston Stock
                                      Exchange, Chicago Stock Exchange,
                                      Pacific Exchange

   Securities Registered Pursuant to Section 12(g) of The Act:
                              NONE

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.        YES  x    No

Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $1,046,322,161 based on the last reported sale
price of the Common Stock on the New York Stock Exchange, Boston Stock
Exchange,
Chicago Stock Exchange, and Pacific Exchange on March 23, 1998.

Number of shares outstanding of each class of Common Stock as of
March 23, 1998: 24,297,757 shares of Common Stock (par $.01).

DOCUMENTS INCORPORATED BY REFERENCE
                                             Part of Form 10-K into
     Document                                which incorporated

     Portions of Annual Report to
     Stockholders for the Year Ended
     December 28, 1997.                       Parts I, II and IV

     Portions of Proxy Statement for
     Annual Meeting of Stockholders
     on April 22, 1998.                        Part III


PART I

Item 1.   Business

     Stratus  Computer, Inc. ("Stratus" or "the Company")  was  founded  in
1980,  The  Company's business objective is to be the premier  supplier  of
hardware, software and service solutions to targeted telecommunications and
enterprise server markets where continuous availability is a critical need.
Continuous  availability,  as  compared to the  term  "high  availability,"
refers to Stratus(R) systems' ability to substantially reduce the two  main
sources of downtime: 1) downtime due to unexpected system failures such  as
hardware  or  operating  system crashes, and 2)  downtime  associated  with
shutting  down  a  system for planned maintenance and  upgrade  procedures.
Stratus  systems  are  used primarily for on-line  transaction  processing,
message switching, communications control, distributed computing and  other
interactive  applications in which system availability and  data  integrity
are critical.

     The  Company competes in two major market areas: 1) telecommunications
where  service  providers use Stratus systems at critical points  in  their
networks   and  operations  support  systems,  and  2)  enterprise   server
applications  which  support enterprise-wide computing in  a  client/server
architecture. Five key telecommunications applications have been  targeted:
1)  home  location  register;  2)  local number  portability;  3)  internet
infrastructure; 4) intelligent network services; and 5) network  operations
support systems. Enterprise server applications are found in the electronic
commerce,  financial  services,  retail,  travel,  healthcare,  and  gaming
industries


PRODUCTS

     The core business includes continuously available hardware-based fault-
tolerant  computer  systems, and a customer service organization  providing
customer  support,  education and professional  services.    The  Company's
software business offers application software and professional services for
targeted markets.

Core Business

     Stratus  Continuous Processing(TM) Systems are used as highly reliable
and expandable computer "platforms" on which businesses run critical online
business operations.  Key Stratus product features which apply to this type
of computing and provide a high level of application availability include a
hardware-based   fault-tolerant   design   which   provides   uninterrupted
operations  in  the  event  of hardware component failures,  remote  online
service, customer-replaceable components and support of industry standards.

     Stratus systems achieve fault tolerance through a proprietary hardware
architecture,  duplication  of  off-the-shelf  microprocessors  and   other
critical processing components, and one of four operating systems:  1)  the
proprietary Stratus Virtual Operating System (VOS); 2) Stratus FTX(R),  the
Company's  UNIX(R) System V.4-compliant operating system; 3) the  Company's
implementation  of  the HP-UX(TM) operating system; and  4)  Windows  NT(R)
Server running on its cluster-based hardware product. The hardware products
which  use  Stratus' hardware-based fault-tolerant design  do  not  require
unique   application  programming,  a  competitive  advantage  over   high-
availability clustering.

     The  Continuum(R)  family of hardware fault-tolerant computer  systems
was   announced   in  1995.   Using  Hewlett-Packard(TM)  PA-RISC   7100(R)
microprocessors,  Continuum  systems  provided  up  to   four   times   the
price/performance of the previous core product line, the XA/R(TM) Series of
fault-tolerant   systems,   and  represented  the   largest   increase   in
price/performance  in the Company's history.  In June 1996,  Stratus  began
shipments  of  the  Continuum Series 400, an entry-level extension  of  the
existing  Continuum hardware family, and in November 1996, made  the  HP-UX
operating  system  available  on this new  system.   In  1997,  the  entire
Continuum   family  was  upgraded  to  the  Hewlett-Packard  PA-RISC   8000
microprocessor, the PA-RISC 8000, providing a performance increase  of  two
to  four  times  over previous Continuum products while maintaining  binary
compatibility.

     The Continuum Series offers three ranges of systems.  Continuum Models
412,  415, 418, 422, 425, and 428 are entry-level systems. The Series 400's
Peripheral   Component   Interconnect  subsystem  leverages   off-the-shelf
components to provide high-performance, industry-standard bus capabilities.
This  means  the  system's  I/O  options can  be  expanded  as  readily  as
technology  allows.   Continuum Models 610,  618,  620,  625  and  628  are
midrange  high-performance systems that provide open continuously available
computing  in  distributed and departmental environments. Continuum  Models
1210,  1215,  1218,  1220, 1225, 1228 and 1245 are  the  family's  high-end
systems  for  the expandability and growth path customers  need  for  large
online transaction processing applications. Models 418, 428, 618, 628, 1218
and  1228 were introduced in 1997 and use the Hewlett-Packard PA-RISC  8000
microprocessor.

     The  Continuum family offers high performance, continuous availability
and  open systems.  Design innovations include incorporating up to 2 GB  of
memory on each CPU board, offloading memory traffic from the bus, dedicated
I/O  processors and symmetric multiprocessing.  The Continuum  architecture
allows users to expand system capabilities incrementally as needs increase.
All  Continuum models within each range and product generation utilize  the
same  system logic cabinet and are upgradable simply by swapping or  adding
processor  boards.   Designs of the memory, disk, and I/O  subsystems  also
simplify incremental growth.  The Continuum Series supports up to three I/O
communications  processors, four logical RISC  processors,  2GB  of  duplex
memory, 855GB of duplex disk and 84 I/O adapters.

     The Continuum Series' architecture enables the Company to offer one of
the  strongest availability guarantees in the industry.  In the  guarantee,
the  Company  agrees to refund a month's maintenance fees to a customer  if
the customer experiences even one second of unplanned downtime in hardware,
Stratus  value-added  software or operating  system.   Stratus  offers  the
guarantee  in addition to the standard Stratus Continuum hardware  one-year
warranty.

     Stratus  systems can identify and isolate many of their own  component
failures, and automatically dial in to a Stratus Customer Assistance Center
(CAC)  to  report  the  failure  and order  replacement  parts.   Duplicate
hardware components keep the system running the same as before the failure.
Users can readily replace these components.  CAC personnel can diagnose and
fix most software problems remotely.

     As with all Stratus systems, the Continuum Series is binary compatible
among  all  models  and is source code compatible with  all  prior  Stratus
models,  including  the previous XA/R Series based on i860  microprocessors
from  Intel  and  the XA2000(TM) Series based on the 680X0  microprocessors
from  Motorola.  Full source code compatibility protects existing  software
investments  by  allowing earlier applications to easily run  on  Continuum
with only a recompile.

      All  Continuum  models can be ordered with the FTX operating  system,
Stratus'  native implementation of the UNIX System V, Release  4  operating
system.  All 400 Series Continuum products can also be ordered with Hewlett-
Packard's  HP-UX operating system, and all Continuum Series  600  and  1200
products  can  be  ordered  with VOS, the Company's  proprietary  operating
system.  The Company plans to make the HP-UX operating system available  on
Continuum models 1218 and 1228 later in 1998.

     The  FTX  operating  system  provides an industry  standard  computing
environment  that complies with SVID (System V Interface Definition)  Issue
3,  POSIX  1003.1  and X/Open's XPG3 standard.  FTX facilitates  customers'
implementations  of  heterogeneous networks  based  on  open  systems,  and
provides for the portability of applications from other UNIX systems.   FTX
is  a  fault-tolerant and scalable native port of UNIX System V, Release  4
Multiprocessing,  maintaining  all of the open  features  and  benefits  of
standard  UNIX,  with  added extensions for reliability,  availability  and
serviceability.   In addition, FTX provides an adaptable  UNIX  environment
that  allows users to customize their telecommunications services  to  meet
local requirements.

     The   HP-UX   operating  system,  running  on   the   HP(TM)   PA-RISC
microprocessor, is one of the most open UNIX operating systems available in
the  industry today.  It provides enterprise-level functionality, including
broad   scalability,  high  performance,  a  large  number  of  application
solutions and integrated system and network management solutions.  The  HP-
UX  operating  system  running on Stratus hardware also  provides  complete
Application  Binary Interface compatibility with other systems running  the
same  release of HP-UX operating system.  This means that a broad range  of
middleware  and applications currently operating on HP-UX operating  system
can  be  moved  without  change  to Stratus' implementation  of  the  HP-UX
operating system.

     The VOS operating system provides a sophisticated environment tuned to
meet  the  needs  of  critical  online computing  environments.   VOS  also
supports  a large portfolio of industry-specific applications that  provide
solutions to customers with critical computing needs.

     RADIO  Cluster(TM) supports the Windows NT Server operating system  to
provide  a  high level of reliability in a PC superserver.   Redundancy  of
RADIO   Cluster's  compute  processing,  storage  handling  and  high-speed
networking eliminates the single points of failure common to PC servers.

     In  1997,  the  Company  announced its  intention  to  base  the  next
generation of Continuum systems on the Intel(R) IA-64 microprocessor,
     ,  which is being jointly developed by Intel and Hewlett-Packard.  The
next generation will bring Stratus' continuous availability and the IA-64's
64-bit  processing  to  both UNIX and Windows NT Server  environments.   In
1997,  the  Company  began to re-deploy its Windows NT  Server  engineering
resources away from the RADIO Cluster product line to re-focus them on  the
Merced-based  fault-tolerant Continuum products which  will  run  both  the
Windows NT Server and HP-UX operating systems.

Application Software

     Application software and professional services solutions, designed for
Stratus  systems  and other platforms, are provided through  the  company's
wholly owned subsidiaries, S2 Systems, Inc. (S2(TM)) and the TCAM Group  of
companies  (TCAM(TM)),  as well as through select  third  parties  such  as
software houses, systems integrators and value-added resellers.

     S2  is  a  leading  provider of business applications,  advanced  data
communications,  middleware  and  consulting  and  support   services   for
businesses   in   the  financial  services,  banking,  brokerage,   retail,
healthcare,  insurance and travel and transportation industries.   Products
include ON/2(TM) for banking solutions, the Customer Relationship Marketing
suite   for   retail  solutions  and  HealthLine(TM)  for  medical   claims
processing.   S2  also specializes in high-performance  communications  and
connectivity  solutions  with  its Network Express(TM)  product,  providing
businesses from virtually any industry a flexible gateway for their  legacy
systems  (central systems housing vital business data) to  connect  with  a
wide array of remote systems and terminals.

     TCAM is a leading provider of application software and services to the
worldwide  securities industry.  TCAM offers a broad range  of  application
solutions,  including  its Alaris product for stock  lending,  an  Advanced
Order    Management   product   for   Internet-enabled   retail   brokerage
transactions,  and  its SWAN product for settlements in PC,  client/server,
distributed and continuous availability computing environments  using  both
open  and  proprietary  operating systems on  a  broad  range  of  hardware
platforms.

     Stratus,   the   Stratus  logo,  Continuum  and  FTX  are   registered
trademarks, and RADIO, RADIO Cluster, Continuous Processing, HealthLine, XA-
R  and  XA  are trademarks of Stratus Computer, Inc.  ON/2 is a  registered
trademark  and  S2 and Network Express are trademarks of S2  Systems,  Inc.
TCAM  is  a trademark of TCAM Systems, Inc.  HP, Hewlett-Packard and  HP-UX
are  trademarks of Hewlett-Packard Company.  All other trademarks  are  the
property of their respective owners.


MARKETING AND SALES

     A  headquarters staff of sales and marketing professionals is employed
with  responsibility  for  direction of the field  sales  force,  marketing
strategy, technical support, advertising and public relations, customer and
field training, competitive analysis and product planning.  The Company  is
in the process of expanding its marketing function in order to increase the
Company's  identity in the marketplace and to improve its understanding  of
product    requirements   in   strategic   market    segments    such    as
telecommunications.

     Stratus  sells its products and services to end users directly through
its  sales  organization  in  the United States,  Mexico,  Canada,  Western
Europe,  the  Far  East, Japan, Australia and New Zealand,  and  indirectly
through  or  in conjunction with its system integrators, VARs,  application
software houses and distributors. The Company's distributors are located in
Central  and  South America, Central and Eastern Europe, the  Middle  East,
Africa and the Far East.  The Company has reseller agreements with Hewlett-
Packard's  Local Product Organizations in Germany/Switzerland,  France  and
the  United Kingdom which allow the Hewlett-Packard organization to  resell
Stratus  products  to  their  customers.  The Company  also  sells  through
certain  general  purpose  OEMs  such as NEC  Corporation.   NEC  has  non-
exclusive  rights  to  sell  Stratus'  UNIX-based,  fault-tolerant  systems
worldwide.   Targeting  the  telecommunications market,  NEC  uses  Stratus
systems  in  a variety of applications, including integration with  various
NEC telecommunications solutions.

     The  Company's strategy is to continue to focus the sales organization
on  targeted vertical industries and major application opportunities within
the telecommunications and enterprise server markets, expand indirect sales
channels and improve selling efficiencies.

     For  information on sales by geographic segment, see Note 13 in  Notes
to  Consolidated Financial Statements included as part of the  1997  Annual
Report to Stockholders, which Note 13 is incorporated herein by reference.

Competition

     The  Company  faces  intense competition  from  a  growing  number  of
companies who offer a wide spectrum of business-class servers and employ  a
variety  of  techniques aimed at maintaining system and data  availability.
Most  of these companies offer their solutions to the same markets targeted
by  Stratus.   While the Company's primary competitors are Compaq  Computer
Corporation  (as  a  result of its acquisition of Tandem Computers,  Inc.),
Hewlett-Packard  Company,  IBM  and Sun  Microsystems,  Inc.,  the  Company
expects to encounter additional competition in the future from vendors such
as  Sequent  Computer  Systems, Inc. who integrate  hardware  and  software
products   from   such  providers  as  Intel  Corporation   and   Microsoft
Corporation.   While its primary competitors are substantially  larger  and
have  significantly more resources, the Company believes that its  singular
focus on critical online business applications, its expertise in continuous
availability,  automated service and its specialized  vertical  application
focus  provide  unique advantages compared with those of  its  competitors.
The  Company also believes it competes successfully on the basis of product
capabilities,  total  cost  of  ownership and  its  third  party  marketing
programs.


BACKLOG

     Part  of the Company's manufacturing and distribution strategy  is  to
minimize  the elapsed time between receipt of customer purchase orders  and
delivery  of equipment.  The final completion of the Company's manufactured
products  is usually accomplished with standard parts and without the  need
for  additional  engineering,  generally permitting  shipment  of  products
within  30  to  60  days from receipt of order.  Throughout  the  Company's
history  a very substantial portion of quarterly shipments tend to be  made
in  the  last  month of each quarter, and any backlog is  generally  filled
within  weeks  of  the beginning of the next quarter.  Customers  have  the
ability  to accelerate, defer or cancel delivery of any orders placed  with
the Company.  For these reasons, the amount of backlog is not important  to
an understanding of the Company's business.


RAW MATERIALS, SUBCONTRACT LABOR AND MANUFACTURING

     The Company's volume manufacturing is located outside the United States at
the Company's manufacturing facility in Dublin, Ireland.  The Company purchases
all of its system component parts and peripheral devices from other
manufacturers.  The majority of printed circuit boards are purchased from board
subcontractors in the United States who manufacture in accordance with
production standards and quality controls established by Stratus.  Presently,
the Company believes it has adequate supplies and commitments from vendors to
satisfy 1998 forecasted requirements, and no delays in product shipments are
expected.  Peripheral devices, assemblies and parts are available from a number
of different suppliers, but certain integrated circuits, printed circuit
boards, plastic parts, and disk and tape drives are purchased from single
sources of supply.

     During the second half of 1997, the company experienced favorable cost
trends on the purchases of its disk drive products.  This resulted from excess
capacity in most of the segments of the disk drive industry, which is expected
to continue in 1998. The Company has not experienced any significant
difficulties in obtaining supplies of memory devices, integrated circuits,
peripherals, assemblies or parts, but shortages, if any, could result in
production delays that may adversely affect its business.


PRODUCT DEVELOPMENT

     Hardware and software development expenditures are expected to grow in
absolute dollars over the next 12 months, but remain constant as as percentage
of total revenues.  The Company's total research and development expenditures,
which include certain capitalized software development costs, were $101.5
million in 1997, $90.3 million in 1996, and $94.2 million in 1995.  These
investments reflect the Company's long-standing commitment to provide leading-
edge hardware and software products to the telecommunications and reliable
enterprise server marketplaces, particularly in support of mission critical
applications.  The Company leverages base hardware and software technologies
supplied by partners, with development activities primarily focused on
technologies which enhance systems and applications availability. The Company
has made significant investments in telecommunications middleware products
which simplify service creation for telecommunications providers and software
developers, and which provide a high level of reliability for the delivery of
those services.

     In 1997, the major development efforts were directed towards the Company's
Continuum product line, and the Company began to transition resources away from
its RADIO Cluster product line.  Resources not focused at sustaining
engineering for RADIO Cluster are being re-deployed to focus on the Company's
new Merced-based fault-tolerant products that will support the Microsoft(R)
Windows NT Server operating system.

     The Company owns patents and has patent applications pending in the United
States and abroad relating to certain of its products.  While the Company
believes that the pending applications relate to patentable devices or
concepts, there can be no assurance that any patents will be issued or that any
patents issued can be successfully defended.  The Company believes that patents
are less significant in its industry than such factors as innovative and
creative skills, technical experience and the management ability of its
personnel.


EMPLOYEES

     As of December 28, 1997, the Company employed 2,487 persons.


Item 2.   Properties

     The Company currently occupies three buildings on a 112 acre site at its
corporate headquarters location in Marlborough, Massachusetts.  These three
buildings and the underlying land (approximately 50 acres) plus a 62 acre
adjoining parcel are owned by the Company.  In the third quarter of 1997, the
Company purchased the third building and underlying land (all of which had been
leased under an operating lease) for $21.6 million in cash.  The Company also
owns its manufacturing and office facility in Dublin, Ireland.  The aggregate
amount of office, engineering, manufacturing and customer service space that is
owned by the Company is approximately 612,836 square feet.


Information relating to the above facilities is set forth in the
following table.

                                        Floor
                                        Space     Owned/
Plant Location        Use               (Sq. Ft.)      Leased
--------------  ---------------         ---------      ------

Marlborough,    Office, engineering      202,087        Own
MA

Marlborough,    Office, engineering      198,341        Own
MA               and customer service

Marlborough,    Office, engineering      102,408        Own
MA               and manufacturing

Dublin,         Office, engineering
Ireland          and manufacturing       110,000        Own



     Prior to the purchase of the third building at the Marlborough site, the
Company's fiscal year 1997 rent for the leased Marlborough facility was
approximately $1.5 million for the eight month period plus real estate taxes
and other occupancy expenses.

     The Company also leases additional sales, customer service and education
space at locations throughout the United States, Canada, Mexico, Europe, the
Far East, Australia, New Zealand and South Africa at an aggregate annual rent
of approximately $11.3 million for fiscal year 1997.



Item 3.   Legal Proceedings

     The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business.  Management does not believe these actions
will have a material adverse affect on the financial position or results of
operations of the Company.


Item 4.   Submission of Matters to a Vote of Security Holders

     Not applicable.



PART II


Item 5.   Market for Registrant's Common Stock and Related Stockholder Matters

     The approximate number of holders of record of the Company's common stock
at March 23, 1998 was 1,103. Additional information required by this item is
incorporated herein by reference to the "Common Stock Information" appearing on
page 34 of the 1997 Annual Report to stockholders.


Item 6.   Selected Financial Data

     The information required by this item is incorporated herein by reference
to the "Financial History" appearing on pages 14-15 of the 1997 Annual Report
to Stockholders.


Item 7.   Management's Discussion and Analysis of Financial Condition and
Results of Operations

     The information required by this item is incorporated herein by reference
to the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" appearing on pages 16-20 of the 1997 Annual Report to
Stockholders.


Item 8.   Financial Statements and Supplementary Data

     The financial statements listed in the "Index to Consolidated Financial
Statements" filed as part of the Annual Report, together with the report of
Ernst & Young LLP dated January 21, 1998, are incorporated herein by reference
to the "Financial Statements and Supplementary Data" contained in pages 21-35
of the 1997 Annual Report to Stockholders.


Item 9.   Disagreements on Accounting and Financial Disclosure

     None.



PART III

Item 10.  Directors and Executive Officers of the Registrant

A.   Directors of the Company:

     The information required by this item is incorporated herein by reference
to the "Election of Directors" appearing on pages 2-4 of the Proxy Statement
for Annual Meeting of Stockholders on April 22, 1998.

B.   The executive officers of the Company are as follows:

          Name             Age                 Position

     Bruce I. Sachs        38   President and Chief Executive Officer

     William E. Foster     53   Chairman

     Maurice L. Castonguay 46   Vice President, Finance and
                                Administration, and Chief Financial Officer

     Stephen C. Kiely      52   Vice President, Platform Products

     Edward J. Mezzanotte  53   Vice President, Stratus Software Group

     J. Donald Oldham      56   Vice President, Worldwide Sales

     Roderick K. Randall   39   Vice President, Worldwide Marketing

     David M. Weishaar     46   Vice President, Worldwide Operations

     John F. Young         55   Vice President, Human Resources

     Eileen Casal          39   Vice President, General Counsel

     David P. Gamache      40   Vice President, Corporate Controller


     Mr. Sachs began his employment with Stratus in April 1997 and assumed the
positions of President and Chief Executive Officer in May 1997. Previously, Mr.
Sachs served as Executive Vice President and General Manager of the Internet
Telecom Business Group at Bay Networks, Inc. from December, 1995, to May, 1997.
He also served as Chief Executive Officer of Xylogics, Inc. from August, 1993
until the company was purchased by Bay Networks in December, 1995.  Mr. Sachs
joined Xylogics in May 1989 as Director of Engineering.

     Mr. Foster, a founder of the Company, was, from February 1980, to January
1996, Chairman and Chief Executive Officer of the Company.  From 1980 until
November 1993, Mr. Foster also served as President of the Company. From August
1996, to May 1997, he was President and Chief Executive Officer. From January
1996, he has been Chairman of the Company.

     Mr. Castonguay was appointed Vice President of Finance and Administration,
and Chief Financial Officer in August 1997.  Mr. Castonguay previously served
as Vice President of Finance and Chief Financial Officer at Gradient
Technologies, Inc. from March, 1996 to August, 1997. He also served as Chief
Financial Officer of Xylogics, Inc. from September, 1990 to March, 1996.

     Mr. Kiely was, prior to joining the Company in 1994, Vice President for
EON Corporation and prior to that from 1990 through June 1993 Vice President
for Bull HN Information Systems, Inc.  He joined the Company and was elected
Vice President, Engineering in September 1994.  From January 1996 to November
1996, he served as Vice President, Continuum Products Group.  From November
1996, he has served as Vice President, Platform Products.

     Mr. Mezzanotte was appointed Vice President and General Manager,
Software Business Group in October 1997.  Mr. Mezzanotte previously served
as Vice President and General Manager of the Company's Isis Distributed
Systems Division.  Prior to joining the Company in 1996, Mr. Mezzanotte
served as President of Powertel Inc. from June 1995 to July 1996.  From
April 1993 to June 1995 Mr. Mezzanotte was president of the Systems
Exchange, a company he co-founded in 1993.

     Mr. Oldham joined the Company in March 1984 as Regional Director for the
Company's Eastern Sales Region.  In December 1990 he was appointed Vice
President, Telecommunications Sales.  In May 1994 he was elected Vice
President, Telecommunications Division.  He has served as Vice President,
Worldwide Sales since his election in October 1994.

     Mr. Randall was appointed Vice President of Worldwide Marketing in
October 1997.  Mr. Randall previously served as Vice President of Strategic
Market Development at Madge Networks, Inc. from  May, 1996 to September,
1997, when the company he co-founded in 1987, Teleos Communication, Inc.
was acquired by Madge Networks, Inc. in 1996.  Mr. Randall held a variety
of senior executive roles at Teleos between 1987 and 1996, most recently as
Vice President and Chief Technology Officer.

     Mr. Weishaar joined the Company in August 1993, and was elected Vice
President, Worldwide Operations.  Prior to that time, he was Vice President of
European Operations and prior to that Vice President, East Coast Operations for
Sun Microsystems, Inc.

     Mr. Young joined the Company in 1985 as Director, Human Resources.  He was
elected Vice President, Human Resources in October 1990.

     Ms. Casal joined the Company in September 1986 as Corporate Staff
Attorney.  From October 1990 to October 1995, she served as Division Counsel
for the Company's International Division.  From October 1995 she served as
Associate General Counsel and in February 1996 she was elected Vice President,
General Counsel.

     Mr. Gamache joined the Company in June 1983. Since that time he has served
in several corporate and operational finance positions including General
Accounting Manager, International Sales Controller, Director, Finance and
Administration - International Division and Director, Finance and
Administration - Worldwide Sales. In October 1995 he was elected Vice
President, Corporate Controller.  Effective April 27, 1998, Mr. Gamache will
resign from his position.


Item 11.  Executive Compensation

     The information required by this item is incorporated herein by reference
to the "Executive Compensation" appearing on pages 6-10 of the Proxy Statement
for Annual Meeting of Stockholders on April 22, 1998.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The information required by this item is incorporated herein by reference
to the tables on pages 1 and 5 of the Proxy Statement for Annual Meeting of
Stockholders on April 22, 1998.


Item 13.  Certain Relationships and Related Transactions

     None.


<TABLE>
Financial History
<CAPTION>

In thousands except per share amounts and employees, unaudited

                               1997    1996(F1)    1995(F1)    1994(F2)    1993(F2)    1992      1991    1990     1989     1988
-----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>      <C>         <C>         <C>         <C>         <C>      <C>      <C>      <C>      <C>
Summary of operations
-----------------------------------------------------------------------------------------------------------------------------------
Total revenues                $688,275 $609,329    $587,922    $576,556    $513,680    $486,266 $448,632 $403,850 $341,327 $265,314
-----------------------------------------------------------------------------------------------------------------------------------
Product revenue percent            71%      67%         65%         72%         77%         79%      82%      84%      85%      88%
Service revenue percent            29%      33%         35%         28%         23%         21%      18%      16%      15%      12%
Gross profit margin            310,685  269,771     284,732     321,961     292,811     289,070  267,312  237,995  207,613  160,787
Gross profit margin percent
  to sales                       45.1%    44.3%       48.4%       55.8%       57.0%       59.4%    59.6%    58.9%    60.8%    60.6%
Operating expenses             228,545  219,637(F1) 272,664(F1) 252,283(F2) 267,395(F2)  220,649  205,241  186,913  153,920  115,671
Operating expenses percent
  to sales                         33%      36%         46%         44%         52%         45%      46%      46%      45%      44%
Operating income                82,140   50,134      12,068      69,678      25,416      68,421   62,071   51,082   53,693   45,116
Operating income percent
  to sales                         12%       8%          2%         12%          5%         14%      14%      13%      16%      17%
-----------------------------------------------------------------------------------------------------------------------------------
Net income                   $  74,114 $ 43,520    $ 17,338    $ 60,982    $ 16,607    $ 56,945 $ 49,705 $ 36,987 $ 35,393 $ 29,344
-----------------------------------------------------------------------------------------------------------------------------------

Cash flow data
Net cash provided by
  operating activities       $186,268  $ 99,118    $ 48,090    $140,621    $121,919    $ 97,445 $ 81,127 $ 36,102 $ 21,622 $ 12,696
Acquisition of property,
  plant and equipment          73,832    48,165      54,734      53,858      33,668      60,759   31,478   27,395   36,963   17,807
Depreciation of property,
  plant and equipment          47,786    41,790      42,864      40,395      35,111      31,778   28,910   19,893   16,889   10,547

Share data
Shares used to compute
  earnings per share-basic     23,522    23,437      23,417      24,132      23,271      22,564   21,314   20,378   19,872   19,441
Shares used to compute
  earnings per share-diluted   24,635    23,774      23,757      24,649      23,769     23,457    22,419   20,894   20,712   20,257
Earnings per share-basic     $   3.15  $   1.86    $   0.74    $   2.53    $   0.71    $  2.52  $   2.33 $   1.82 $   1.78 $   1.51
Earnings per share-diluted   $   3.01  $   1.83    $   0.73    $   2.47    $   0.70    $  2.43  $   2.22 $   1.77 $   1.71 $   1.45
Common stock price
     High                    $  58.81  $  34.87    $  39.62    $  38.50    $  41.25    $ 54.25  $  50.62 $  29.00 $  35.25 $  31.50
     Low                     $  26.63  $  17.12    $  23.37    $  23.25    $  20.25    $ 29.50  $  20.75 $  14.62 $  19.25 $  19.50
Book value per share         $  25.09  $  22.28    $  20.49    $  20.31    $  18.13    $ 17.03  $  14.18 $  11.15 $   9.12 $   7.08

Year-end position
Total assets                 $750,361  $638,921    $607,809    $613,410    $558,531    $467,182 $397,081 $327,574 $274,098 $199,787
Working capital               383,875   325,724     292,993     324,431     299,293     277,600  237,977  170,306  136,257  101,273
Long-term obligations
  and deferrals                   887     3,634       7,168      10,150      13,743       3,951    6,543   18,822   29,402   10,170
Stockholders' equity          600,776   519,484     478,391     490,152     435,960     389,663  314,026  230,281  183,972  138,985
Return on average
  stockholders' equity            13%        9%          4%         13%          4%         16%      18%      18%      22%      24%
Employees                       2,487     2,293       2,441       2,878       2,610       2,622    2,492    2,381    2,147    1,711
-----------------------------------------------------------------------------------------------------------------------------------

<FN>
<F1> Operating expenses in 1996 and 1995 included charges of $4,623 and $24,500,
respectively, to cover the costs of reducing the Company's cost structure.
<F2> Operating expenses in 1994 and 1993 included charges of $7,800 and $36,230,
respectively, to write off purchased research and development acquired in
connection with the Company's acquisitions.
</FN>
</TABLE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations


The following table summarizes the percentage relationships of income and
expense items included in the Consolidated Statements of Income for the three
years ended December 28, 1997 and the percentage changes in those items when
compared to the preceding year.

                   Percentage of total revenues  Percentage increase (decrease)
                        1997    1996    1995             1997    1996     1995
-------------------------------------------------------------------------------
Product sales           71%     67%      65%              20%      6%      (8%)
Service revenue         29%     33%      35%              (2%)    (1%)     27%
-------------------------------------------------------------------------------
Total revenues         100%    100%     100%              13%      4%       2%
-------------------------------------------------------------------------------
Product cost of
  sales                 37%     35%      32%              18%     14%      11%
Service expense         18%     21%      20%               0%      8%      36%
-------------------------------------------------------------------------------
Gross profit            45%     44%      48%              15%     (5%)    (12%)
-------------------------------------------------------------------------------
Research & development
  expense               13%     13%      14%              14%     (5%)     (1%)
Selling, general &
  administrative
  expenses              20%     22%      28%               2%    (18%)      3%
Restructuring charge      -      1%       4%              N/A    (81%)     N/A
-------------------------------------------------------------------------------
Total operating
  expenses              33%     36%      46%               5%     (1%)      8%
-------------------------------------------------------------------------------
Operating Income        12%      8%       2%              64%    315%     (83%)
-------------------------------------------------------------------------------
Other income, including
  interest income and
  interest expense       2%      1%       2%              94%    (31%)     29%
-------------------------------------------------------------------------------
Income before provision
  for income taxes      14%      9%       4%              67%    162%     (72%)
Provision for income
  taxes                  3%      2%       1%              58%    205%     (73%)
-------------------------------------------------------------------------------
Net income              11%      7%       3%              70%    151%     (72%)
-------------------------------------------------------------------------------


OVERVIEW
Stratus' mission is to be the premier supplier of computer systems and services
where continuous availability is a critical need. The Company differentiates
itself from its competitors with two core competencies: a hardware-based fault-
tolerant computer architecture which provides the most reliable computer
platforms on the market; and a customer service organization and service
products which are uniquely suited to supporting the most demanding computing
environments in the world. The Company intends to focus its sales and marketing
resources on those industry markets, applications and customers which place the
greatest value on computer availability and customer support.
     In 1997, the largest and fastest growing of these markets was
telecommunications, accounting for 53 percent of product revenue. The Company
has reallocated a significant share of its engineering, marketing, and sales
resources to this market and believes that strong growth in telecommunications
will continue well into the future. The Company has made a significant
investment in telecommunications middleware products which simplify service
creation for telecommunications providers, and which provide the highest level
of reliability for the delivery of those services. Partnerships with key
application providers enable the Company to offer comprehensive solutions for
complex telecommunications requirements, including Local Number Portability
(LNP) and Home Location Register (HLR).
     The second major market focus of the Company is financial services.
Marketing and sales resources are directed at the increasing number of online
applications which require continuous access by customers to account
information, and in which there is an absolute requirement for data integrity in
customer-initiated transactions. The Company's software subsidiaries, S2
Systems, Inc. and TCAM Systems, Inc., provide leading-edge application solutions
to the banking, securities, and retail industry markets.
     The Company markets its products and services through direct sales
organizations in the U.S., and in certain countries internationally, as well as
through international distributors and international OEM partners. NEC, an OEM
partner since 1990, was the Company's largest customer in 1997, with product
revenues of $153.2 million. Increasing the proportion of its product sales
through indirect channels is part of the Company's strategy to increase
revenues. Selling efficiencies gained by this model allow the Company to include
a strong low-end offering in its product family, providing the Company access to
the much broader market available at lower price points. The Company markets
these products as open, easy-to-use and affordable. They are used to support a
wide variety of critical applications where fault tolerance was not previously
economical.
     To strengthen its market position as a supplier of open systems, the
Company offers four operating systems: The Hewlett-Packard HP-UX Operating
system (OS), which is the most commercially successful UNIX operating system
available; the Microsoft Windows NT Server, the fastest growing operating
system; FTX, Stratus' own fault-tolerant UNIX offering; and VOS, Stratus'
proprietary operating system. Sales of systems running the HP-UX OS, introduced
in late 1996, began to increase rapidly in the fourth quarter of 1997. The
Company expects continued strong growth in sales of systems using the HP-UX OS
due to the very large number of third-party HP-UX application software providers
who are now able to combine their products with Stratus' continuous availability
for critical applications.
     The Company maintains a significant level of engineering investment to
ensure that its products remain competitive in terms of price/performance. In
1997, the Continuum family of computer platform products was upgraded to the
Hewlett-Packard PA-RISC 8000 microprocessor, providing a performance increase of
two to four times over previous Continuums. Since the new generation is fully
compatible with previous Continuum PA-RISC models, the Company anticipates a
smooth product transition. Also in 1997, the Company announced its intention to
base the next generation of Continuum products on the Intel IA-64
microprocessor, code-named Merced, which is being jointly developed by Intel and
Hewlett-Packard, and which is planned to support both the HP-UX OS and Windows
NT Server computing environments.
     The Company remains focused on computer availability and intends to
leverage the technology advances of other companies such as Hewlett-Packard,
Intel and Microsoft to reduce cost and time to market for future generations of
products. The Company plans to improve performance, functionality and
price/performance across all of its product lines to compete in broader markets.

OPERATING RESULTS
The Company's 1997 net income of $74.1 million, or $3.01 per share (diluted),
increased $30.6 million, or 70% from 1996 net income of $43.5 million, or $1.83
per share (diluted). Net income in 1996 increased $26.2 million, or 151% from
1995 income of $17.3 million, or $0.73 per share (diluted). Operating income for
1996 and 1995 included restructuring charges of $4.6 million, or $0.19 per share
(diluted) and $24.5 million, or $1.03 per share (diluted), respectively.
Excluding these charges, 1996 net income would have been $47.1 million, or $1.98
per share (diluted) and 1995 net income would have been $36.9 million, or $1.55
per share (diluted).

NET REVENUES
Total 1997 net revenues increased $78.9 million to $688.3 million, 13% higher
than in 1996. This compares with an increase of $21.4 million, or 4%, from 1995
to 1996 and an increase of $11.4 million, or 2%, from 1994 to 1995. The increase
in 1997 was primarily due to product revenue growth in the telecommunications
and financial services markets, while the 1996 increase was primarily
attributable to growth in telecommunications.
     The following table details the percentage of product sales for each of the
Company's distribution channels:

                              Percent of total
                             1997   1996   1995
------------------------------------------------
Domestic direct               34     38     44
International direct          22     28     33
NEC                           31     22     11
Distributors                  13     12     12
------------------------------------------------
Total                        100    100    100
------------------------------------------------

The Company's product sales increased 20% in 1997 compared with 1996. This
compares to 6% growth in 1996 and an 8% decline in 1995. The 1997 increase was
driven primarily by increased hardware product revenues. Strong results in 1997
were realized through domestic direct and sales to NEC. In spite of competitive
pressure, there was not a material impact on the Company's pricing structure.
The 1996 increase was driven primarily by increased hardware product revenues
through the NEC and domestic direct channels into the telecommunications market
sector.
     In 1997, international direct product sales decreased 4% from 1996,
following a decline of 8% in 1996 and 12% in 1995. International direct sales in
1997 were strong in the United Kingdom, Hong Kong, PRC and Singapore, but were
more than offset by declines in Mexico and several continental European
countries. The Company's direct product sales in the U.S. increased 9% from 1996
following declines of 9% in 1996 and 12% in 1995. The increase in the U.S. was
mainly due to stronger sales in the financial services and electronic commerce
industries.
     Revenue from the Company's indirect product channels grew by 52%, 53% and
9% in 1997, 1996 and 1995, respectively. This revenue growth was due primarily
to increased sales to NEC. In 1997, sales to NEC grew by 70%, following
increases of 111% in 1996 and 70% in 1995. Distributor sales increased 20% in
1997 compared with a 2% increase in 1996 and a 17% decline in 1995. Year-over-
year 1997 distributor revenues increased due to stronger sales through Olivetti
and in Europe. While the Far East region contributed 35% of the Company's
revenues during 1997, the sales in Far Eastern countries currently experiencing
significant economic, currency devaluation and liquidity problems during the
year contributed only 4% of total revenues.
     The Company's service revenue declined 2% in 1997 compared with 1996. This
decline compares to a decrease of 1% in 1996 and 27% growth in 1995. The decline
in 1997 was mainly due to an 18% decrease in professional services revenue due
to the completion of several large integration projects during 1997. This
decline was partially offset by a 2% increase in maintenance and education
revenue.

GROSS PROFIT
Product sales generated a gross profit of 48% in 1997 compared with 47% in 1996
and 51% in 1995. The one point growth in 1997 was primarily the result of a
favorable product mix and manufacturing efficiencies gained as a result of
increased volume. The decline from 1995 to 1996 resulted primarily from
increased competitive pressure, an aggressively priced Continuum product line
introduced early in the year, unfavorable impact of foreign exchange rate
movement and a decrease in software license revenues.
     Service gross profit was 37%, 38%, and 44% in 1997, 1996, and 1995,
respectively. The decreases from 1996 to 1997 and from 1995 to 1996 were due
primarily to lower professional services revenues.

RESEARCH AND DEVELOPMENT
The Company's investment in research and development of $90.6 million in 1997
increased 14% over 1996, compared with a 5% decrease in 1996 and a 1% decrease
in 1995. Research and development expense as a percent of revenue was 13% for
both 1997 and 1996, and 14% in 1995. These investments reflect the Company's
long-standing commitment to provide leading-edge hardware and software products
to the telecommunications and reliable enterprise server marketplaces,
particularly in support of mission critical applications.
     In 1997, the Company's research and development efforts were directed
primarily towards the Company's Continuum product line. The Company continued to
enhance its Continuum product line, leveraged by the successful incorporation of
the Hewlett Packard industry-leading PA-RISC microprocessor, and the HP-UX, FTX
and VOS operating system technologies. During 1997, the Company began to
transition resources away from its RADIO Cluster product line. Resources not
focused at sustaining engineering for RADIO Cluster are being re-deployed to
focus on the Company's new Merced-based fault-tolerant products that will
support the Microsoft Windows NT Server operating system. This Intel IA-64
microprocessor technology with 64-bit processing will be brought to the next
generation of Continuum products.
     Management believes that ongoing expenditures in research & development,
and focusing on core competencies further leveraged by effective partnerships
are vital to future growth. The Company expects to continue to invest in these
technologies in the normal course of its business cycle to bring competitive
products to market, and to realize the benefits of purchased research and
development.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $2.7 million, or 2%, in
1997 to $137.9 million compared with a decrease of $29.1 million, or 18%, in
1996 and an increase of $4.1 million, or 3%, in 1995. As a percentage of total
revenues, selling, general and administrative expenses were 20% in 1997, down
from 22% in 1996 and 28% in 1995. The Company's strategy is to continue to focus
the sales organization on targeted vertical industries and application
opportunities within the telecommunications and enterprise server markets,
expand indirect sales channels and improve selling efficiencies. The Company is
in the process of expanding its marketing function in order to increase the
Company's identity in the marketplace and to improve its understanding of
product requirements in strategic market segments such as telecommunications.

RESTRUCTURING
During 1996, the Company restructured its software business to improve operating
results by aligning expenses with revenues, and to focus on new strategic
product offerings. As a result, a $4.6 million restructuring charge was recorded
for workforce reductions and asset write-downs related to the discontinuation of
certain product programs.
     During 1995, after completing an evaluation of the Company's economic model
and cost structure, management approved a plan to restructure its operations. As
a result, a $24.5 million restructuring charge was recorded for the reduction of
the worldwide workforce by approximately 575 employees, as well as the
consolidation of certain manufacturing and sales operations. The action was
taken to re-size the expense structure of the Company, bringing expense levels
in line with the new economic model. Of the total charge, $13.0 million was
related to the workforce reduction and $11.5 million was related to the
consolidation of facilities and operations.

OTHER INCOME
Interest income increased in 1997 primarily due to higher amounts of invested
cash and marketable securities as compared to 1996. A decrease in 1997 interest
expense was attributable to lower levels of long-term debt. Through the use of
forward foreign exchange contracts, the Company substantially negates the
effects of foreign currency fluctuations on foreign currency denominated
intercompany receivables and payables. The cost of hedging the Company's
currency exposures is included in other income.

INCOME TAXES
The Company's effective tax rate was 22.0% in 1997, 23.3% in 1996 and 20.0% in
1995. The 1997 tax rate was lower than the previous year due to a change in the
mix of the taxable income among the Company's subsidiaries, and the increased
utilization of research credits.
     The Company has recorded a net deferred tax asset at December 28, 1997.
Although realization is not assured, based on the Company's history of
profitability and expectation of future income, management believes it is likely
that the deferred tax asset will be realized.

LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and marketable securities of $259.7
million at the end of 1997. Corresponding balances at the end of 1996 and 1995
were $174.9 million and $155.1 million, respectively. Total assets at the end of
1997 increased to $750.4 million compared with $638.9 million in 1996.
Stockholders equity increased to $600.8 million in 1997 from $519.5 million in
1996.
     Cash generated from operating activities was $186.3 million in 1997
compared to $99.1 million in 1996 and $48.1 million in 1995. The increase in
cash generated from operating activities in 1997 compared with 1996 is primarily
attributable to higher profits in 1997.
     The Company used net cash of $13.7 million for the acquisition of
businesses in 1995. There were no such expenditures in 1996 or 1997.
     Capital expenditures were $73.8 in 1997 compared to $48.2 million in 1996
and $54.7 million in 1995. In the third quarter of 1997, the Company purchased
the third building and underlying land (all of which had been leased under an
operating lease) at its corporate headquarters site in Marlborough,
Massachusetts for $21.6 million in cash. In addition, the Company expended $28.8
million in 1997, $25.1 million in 1996 and $23.2 million in 1995 on other long-
term assets. The Company continues to invest in capital equipment and other
long-term assets, principally software technologies used to broaden the
functionality of product offerings aimed at target markets. Investments will be
made in amounts sufficient to support future growth and enhance operations in
order to maintain the highest standards of overall quality. In 1998, the
Company plans to spend approximately $45 million on capital equipment and $25
million for other long-term assets.
     Net proceeds from the Company's Employee Stock Purchase Plan and stock
option plans were $29.8 million in 1997, $10.5 million in 1996, and $16.3
million in 1995. For fiscal years 1997, 1996, and 1995, the Company repurchased
common stock on the open market as follows: 765,700 shares for $26.2 million,
534,300 shares for $12.6 million, and 1,511,800 shares for $44.6 million,
respectively. The Company has an approved stock repurchase program designed to
fund the Employee Stock Purchase Plan and stock option plans. The Company
anticipates that it will repurchase approximately 1.1 million shares in the open
market in 1998.
     The Company believes its existing cash balance, including cash equivalents
and marketable securities and cash generated from future operations, will be
sufficient to meet the Company's cash requirements for the foreseeable future.

YEAR 2000
In 1996, the Company recognized the need to ensure its operations would not be
adversely impacted by Year 2000 software failures. The Company has dedicated
resources to coordinate the identification, evaluation and implementation of the
changes to computer systems and applications necessary to achieve a Year 2000
data conversion with no effect on customers or disruption to business
operations. These actions are necessary to ensure that the systems and
applications will recognize and process information in the year 2000 and beyond.
     Major areas of potential business impact have been identified and initial
conversion efforts are underway. In 1997, the Company replaced its core
financial, order management and manufacturing systems with year 2000 compliant
applications. The Company also is communicating with customers, suppliers,
dealers, financial institutions and others with which it does business to
coordinate year 2000 conversion. The Company estimates these activities will be
completed by June 1999. In addition, the Company has funded internal development
plans to ensure that all products for sale are year 2000 compliant by the end of
1998. The total cost of compliance is not expected to have a material adverse
impact on the Company's financial position or results of operations.

OUTLOOK
Future operating results of the Company will be dependent, in part, upon its
ability to continue to execute its strategy for growth in its two principal
business areas: 1) the telecommunications and financial services markets with
focus on the core product line of Continuum fault-tolerant computer systems, and
2) the application software markets addressed by the Company's S2 and TCAM
subsidiaries. The Company will align its product strategies to meet the
industry-specific requirements of targeted growth markets.
     The Company will continue to invest in its core business by developing and
introducing products which will expand the breadth of the Continuum product
family. In addition, the Company plans to continue to support customer needs for
its distributed computing products. The development and delivery of
telecommunications middleware, application software and professional services
will be targeted towards those market segments where computer availability is a
critical need.

FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for the historical information contained herein, the matters discussed in
this Annual Report are forward-looking statements. The Company cautions readers
to recognize that actual future results could differ materially from historical
performance as a result of the following and other factors:
     Future operating results are dependent upon the timing and market
acceptance of new and enhanced product introductions by the Company or its
competitors, several of which are larger than the Company, including competitors
offering high-availability solutions.
     The transition of customers from existing to new products in a rapidly
changing technological environment, as well as unexpected delays and/or
cancellations in customer purchases of existing products in anticipation of new
products, are inherent risks.
     Revenues and earnings may be impacted by the Company's ability to
strengthen its position in open systems by increasing sales of its Continuum
systems running the HP-UX operating system.
     The Company historically books and ships a large percentage of its revenues
towards the end of each quarter, making revenue forecasting difficult. In
addition, product volumes and product mix comprising the forecast are dependent
upon customers' changing demands and needs. As the Company increases its product
and service offerings, the process of planning and forecasting revenue becomes
increasingly difficult. Each of these factors may subject the Company to
fluctuations in revenues and earnings.
     Substantially all of the Company's product manufacturing and many of its
suppliers are located outside the United States. In conjunction with the
forecast process discussed above, the Company must adjust operations to satisfy
production requirements as demand changes. Production capacity is dependent upon
the ability of the Company's suppliers to provide components on time and at
reasonable prices. Supply constraints, dependence on single-source vendors,
foreign currency exchange rate fluctuations, foreign country political and
economic changes, as well as changes in export and trade regulations could
adversely impact the Company's operations.
     A significant amount of the Company's business is derived from
international markets, including the Far East. While existing business levels in
countries which are currently experiencing significant economic, currency
devaluation and liquidity problems did not materially impact the Company during
1997, there is no assurance that future financial results will not be adversely
impacted by economic events in other parts of the Far East or elsewhere.
     In addition to its direct channels, the Company continues to expand its
indirect distribution channels through resellers and distributors. One customer,
NEC, represented 22%, 15% and 7% of net revenues in 1997, 1996 and 1995,
respectively. The financial condition of, and ongoing business relationship
with, such resellers and distributors is important to the Company's financial
success. Fluctuations in channel mix may be significant and can have a
significant impact on gross margins and therefore on earnings per share.
     As the technology marketplace continues to evolve in anticipation of
meeting customers' changing needs, the industry continues to experience
competitive pressures on price and gross margins. Downward pressures on price
and gross margins and unexpected revenue and margin shifts may cause the Company
to change its operations and as such, may adversely impact the Company's
financial results.
     Competition for employees with the skills required by the Company is
intense in the geographic areas in which the Company's primary operations are
located. The Company believes that its future success will depend on its
continued ability to attract and retain qualified employees, especially in the
high-technology engineering areas.

CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 28, 1997, December 29, 1996, and December 31, 1995
In thousands, except per share amounts         1997         1996         1995
-------------------------------------------------------------------------------
Revenues
     Product sales                          $489,214      $406,956     $383,850
     Service                                 199,061       202,373      204,072
-------------------------------------------------------------------------------
Total revenues                               688,275       609,329      587,922
-------------------------------------------------------------------------------
Cost of sales
     Product cost of sales                   252,487       214,580      187,935
     Service expense                         125,103       124,978      115,255
-------------------------------------------------------------------------------
Gross profit                                 310,685       269,771      284,732
-------------------------------------------------------------------------------

Operating expenses
     Research and development expense         90,647        79,818       83,824
     Selling, general and administrative
       expenses                              137,898       135,196      164,340
     Restructuring charge                          -         4,623       24,500
-------------------------------------------------------------------------------
Total operating expenses                     228,545       219,637      272,664
-------------------------------------------------------------------------------
Operating income                              82,140        50,134       12,068
     Interest income                          10,903         6,545        8,715
     Interest expense                           (354)         (760)      (1,077)
     Other income                              2,328           836        1,966
-------------------------------------------------------------------------------
Income before provision for income taxes      95,017        56,755       21,672
Provision for income taxes                    20,903        13,235        4,334
-------------------------------------------------------------------------------
Net income                                  $ 74,114      $ 43,520     $ 17,338
-------------------------------------------------------------------------------

Earnings per share:
     Basic                                  $   3.15      $   1.86     $   0.74
     Diluted                                $   3.01      $   1.83     $   0.73
Shares used to compute earnings per share:
     Basic                                    23,522        23,437       23,417
     Diluted                                  24,635        23,774       23,757
-------------------------------------------------------------------------------

See accompanying notes


CONSOLIDATED BALANCE SHEETS

At December 28, 1997 and December 29, 1996
In thousands, except share and per share amounts            1997         1996
-------------------------------------------------------------------------------
Assets
Current assets
     Cash and cash equivalents                            $178,611     $131,683
     Marketable securities                                  81,070       43,187
     Accounts receivable, net                              161,346      175,061
     Inventories                                            76,635       63,283
     Prepaid expenses                                       14,699       14,540
     Other current assets                                   20,212       13,773
-------------------------------------------------------------------------------
Total current assets                                       532,573      441,527
-------------------------------------------------------------------------------
Property, plant and equipment, less
  accumulated depreciation                                 148,790      122,756
Other assets, net                                           68,998       74,638
-------------------------------------------------------------------------------
Total assets                                              $750,361     $638,921
-------------------------------------------------------------------------------

Liabilities and stockholders' equity
Current liabilities
     Accounts payable                                     $ 34,860     $ 30,357
     Accrued expenses:
          Compensation-related                              24,395       17,422
          Other                                             31,636       34,204
-------------------------------------------------------------------------------
     Total accrued expenses                                 56,031       51,626
     Income taxes payable                                   27,906       13,564
     Short-term borrowings and obligations                   1,487        2,667
     Deferred revenue                                       28,414       17,589
-------------------------------------------------------------------------------
Total current liabilities                                  148,698      115,803
Long-term obligations and deferrals                            887        3,634
Stockholders' equity
     Common stock, $.01 par value, 150,000,000 shares
      authorized, 27,645,033 and 26,252,242 shares
      issued and outstanding in 1997 and 1996, respectively    276          263
     Junior common stock, $.01 par value, 500,000 shares
      authorized                                                 -            -
     Additional paid-in capital                            255,691      219,237
     Retained earnings                                     465,538      391,424
     Cumulative translation adjustment                      (5,877)      (2,826)
-------------------------------------------------------------------------------
Subtotal                                                   715,628      608,098
     Less: shares in treasury, at cost, 3,700,000
      and 2,934,300 shares in 1997 and 1996, respectively (114,852)     (88,614)
-------------------------------------------------------------------------------
Total stockholders' equity                                 600,776      519,484
-------------------------------------------------------------------------------
Total liabilities and stockholders' equity                $750,361     $638,921
-------------------------------------------------------------------------------

See accompanying notes

<TABLE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<CAPTION>

For the period January 1, 1995 to December 28, 1997

                                                        Additional                        Cumulative     Total
                                                Common   paid-in   Retained    Treasury   translation  stockholders'
In thousands, except share amounts              stock    capital   earnings     stock     adjustment     equity
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>    <C>        <C>         <C>          <C>        <C>
Balance at January 1, 1995                       $250   $191,971   $330,566    $ (31,402)   $(1,233)   $490,152
Repurchase of 1,511,800 shares of common stock      -          -          -      (44,616)         -     (44,616)
Exercise of 472,124 options issued
     under employee stock option plans              5      9,688          -            -          -       9,693
Issuance of 248,332 shares of common stock
     under Employee Stock Purchase Plan             2      6,588          -            -          -       6,590
Foreign currency translation adjustment             -          -          -            -       (827)       (827)
Compensation expense associated with
     grant of stock options                         -         61          -            -          -          61
Net income for the year ended December 31, 1995     -          -     17,338            -          -      17,338
--------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995                      257    208,308    347,904      (76,018)    (2,060)    478,391
Repurchase of 534,300 shares of common stock        -          -          -      (12,596)         -     (12,596)
Exercise of 242,091 options issued
     under employee stock option plans              3      4,480          -            -          -       4,483
Issuance of 264,028 shares of common stock
     under Employee Stock Purchase Plan             3      5,963          -            -          -       5,966
Foreign currency translation adjustment             -          -          -            -       (766)       (766)
Tax benefit from non-qualified stock options        -        424          -            -          -         424
Compensation expense associated with
     grant of stock options                         -         62          -            -          -          62
Net income for the year ended December 29, 1996     -          -     43,520            -          -      43,520
--------------------------------------------------------------------------------------------------------------------
Balance at December 29, 1996                      263    219,237    391,424      (88,614)    (2,826)    519,484
Repurchase of 765,700 shares of common stock        -          -          -      (26,238)         -     (26,238)
Exercise of 1,035,751 options issued
     under employee stock option plans             10     21,882          -            -          -      21,892
Issuance of 357,040 shares of common stock
     under employee stock purchase plan             3      7,856          -            -          -       7,859
Foreign currency translation adjustment             -          -          -            -     (3,051)     (3,051)
Tax benefit from non-qualified stock options        -      6,219          -            -          -       6,219
Compensation expense associated with
     grant of stock options                         -        497          -            -          -         497
Net income for the year ended December 28, 1997     -          -     74,114            -          -      74,114
--------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1997                     $276   $255,691   $465,538    $(114,852)   $(5,877)   $600,776
--------------------------------------------------------------------------------------------------------------------

See accompanying notes

</TABLE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 28, 1997, December 29, 1996 and December 31, 1995

In thousands                                   1997         1996         1995
-------------------------------------------------------------------------------
Operating activities
Cash flows from operating activities:
     Net income                             $ 74,114      $ 43,520    $  17,338
Adjustments to reconcile net income to
  net cash provided by operating
  activities:
     Depreciation and amortization            80,974        67,345       66,040
     Restructuring charge                          -         4,623       24,500
     Add (deduct) changes in working capital:
          Accounts receivable, net            13,715        (9,485)     (22,596)
          Inventory                          (13,352)       (2,013)     (15,725)
          Accounts payable and accrued
            liabilities                        8,290       (12,301)       7,233
          Income tax payables                 14,342         4,947      (24,710)
          Other working capital items          8,185         2,482       (3,990)
-------------------------------------------------------------------------------
Net cash provided by operating activities    186,268        99,118       48,090
Investing activities
Cash flows from investing activities:
     Acquisition of property, plant
       and equipment                         (73,832)      (48,165)     (54,734)
     Acquisition of businesses, net of
       cash acquired                               -             -      (13,711)
     Purchases of marketable securities     (129,295)      (31,557)    (119,945)
     Proceeds from sale and maturity of
       marketable securities                  91,412        51,875       94,516
     Acquisition of other assets             (28,846)      (25,092)     (23,172)
-------------------------------------------------------------------------------
Net cash used in investing activities       (140,561)      (52,939)    (117,046)
Financing activities
Cash flows from financing activities:
     Net proceeds from employee stock plans   29,751        10,511       16,344
     Acquisition of treasury stock           (26,238)      (12,596)     (44,616)
     Reduction of long-term obligations
       and deferrals                          (1,776)       (3,531)      (3,187)
-------------------------------------------------------------------------------
Net cash (used in) provided by financing
  activities                                   1,737        (5,616)     (31,459)
Effect of exchange rate changes on cash         (516)         (472)          73
-------------------------------------------------------------------------------
Net increase (decrease) in cash and
  cash equivalents                            46,928        40,091     (100,342)
Cash and cash equivalents at beginning
  of year                                    131,683        91,592      191,934
-------------------------------------------------------------------------------
Cash and cash equivalents at end of year    $178,611      $131,683    $  91,592
-------------------------------------------------------------------------------

See accompanying notes


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. The investment in the
Company's joint venture with Axime S.A. of France (see Note 12) is accounted
for using the equity method. All intercompany transactions and balances have
been eliminated in consolidation.

Cash equivalents and marketable securities
Cash equivalents include highly liquid investments with maturities of three
months or less at time of acquisition and are comprised primarily of government
securities, commercial paper and bank notes carried at cost, which approximates
fair value. Marketable securities consist of securities with maturities greater
than ninety-one days. Marketable securities are reported at fair values which
are based on quoted market prices.

Translation of foreign currencies
The Company translates the assets and liabilities of its foreign subsidiaries at
the exchange rates in effect at the balance sheet date. Revenues and expenses
are translated at average exchange rates for the period. Gains and losses from
foreign currency translation are recorded in "cumulative translation
adjustment", a separate component of stockholders' equity.

Accounts receivable
The Company states its accounts receivable at their estimated net realizable
value. The allowance for doubtful accounts was $8.3 million at December 28, 1997
and December 29, 1996.

Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market.

Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation expense of $47.8
million in 1997, $41.8 million in 1996 and $42.9 million in 1995 was calculated
using the straight-line method based upon the following estimated useful lives:

Land improvements                  15 years
Buildings and improvements         15-39 years
Machinery and equipment            2-5 years
Leasehold improvements             shorter of term of lease
                                     or life of asset
Service and spare parts            4 years


Software
Costs related to the conceptual formulation and design of software are expensed
as research and development. Costs incurred subsequent to attaining
technological feasibility to produce the finished product are generally
capitalized. These costs are amortized over the lesser of three years or the
estimated product life cycle.

Intangible assets
The Company has classified as goodwill the cost in excess of fair value of net
assets acquired in purchase transactions. Unamortized goodwill costs, included
in other assets on the consolidated balance sheets, were $14.2 million at
December 28, 1997 and $18.5 million at December 29, 1996. Goodwill is being
amortized using the straight-line method over a period of seven years. The
Company periodically evaluates the carrying value of intangible assets for
impairment. Any impairment is charged to expense in the period identified.

Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates include, but are not limited to, collectibility of
accounts receivable, carrying value of inventory, and recoverability of
capitalized software, goodwill and deferred tax assets. Actual results could
differ from those estimates.

Revenue recognition
Revenue from product sales is generally recognized at the time of shipment.
Software license revenue is recognized at the time of delivery. Service, product
support and professional services revenues are recognized over the contractual
period or as the services are provided. The American Institute of Certified
Public Accountants issued Statement of Position 97-2 "Software Revenue
Recognition" (SOP 97-2) in October 1997. SOP 97-2 will be effective for the
Company beginning with transactions entered into on or after December 29, 1997.
The Company believes SOP 97-2 will not have a material impact on the Company's
financial position or results of operations.

Income taxes
The Company provides deferred taxes to recognize temporary differences between
financial reporting and tax accounting.
     The Company's practice is to reinvest the earnings of its foreign
subsidiaries in those operations and to repatriate unremitted earnings only when
it is advantageous to do so.

Foreign exchange contracts
The Company continually enters into forward foreign exchange contracts to hedge
foreign currency transactions for periods consistent with its committed
exposures. These contracts protect the Company from risk due to exchange rate
movements because gains and losses on the contracts offset losses and gains on
the assets, liabilities and transactions being hedged. As of December 28, 1997
and December 29, 1996, the Company had $42.5 million and $71.9 million,
respectively, of net foreign exchange contracts outstanding, predominantly in
European currencies and Japanese yen. The maturities of foreign exchange
contracts generally do not exceed six months. Foreign currency transaction gains
and losses, which are included in other income, as well as unrealized gains and
losses on forward foreign exchange contracts, are not material to the Company's
consolidated financial statements.

Concentration of credit risk
The Company sells its products to customers in diversified industries, primarily
in the United States, Europe, the Asia Pacific Rim, and Central and South
America. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
     The Company invests its cash equivalents principally in deposits with major
banks and in money market securities of companies and municipal government
entities with strong credit ratings. These securities mature within three months
of their purchase date and therefore, are subject to minimal risk. The Company's
investments in marketable securities consist primarily of time deposits,
obligations of states and political subdivisions, U.S. government issues,
commercial paper and corporate bonds. The weighted average maturity of these
investments does not exceed eighteen months.

Employee stock plans
Proceeds from the sale of common stock issued under the Employee Stock Purchase
Plan and stock option plans are credited to common stock at the par value. The
excess of the share price over par value is credited to additional paid-in
capital. The Company's stock plans are accounted for under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.
     Income tax benefits arising from employee's premature disposition of
purchased shares and exercise of non-qualified stock options are credited to
additional paid-in capital.

Earnings per share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted for financial
statements issued for periods ending after December 15, 1997. In accordance with
this Statement, the Company changed the method previously used to compute
earnings per share and restated all prior periods presented. Basic earnings per
share is calculated based on the weighted average number of common shares
outstanding. Diluted earnings per share includes the effect of dilutive stock
options of 1,113,000 shares in 1997, 337,000 shares in 1996 and 340,000 shares
in 1995. The anti-dilutive impact of employee stock options was not material in
each of the three years. There is no difference between diluted earnings per
share and amounts previously reported as earnings per share.

Effect of recent accounting pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income," which is effective for fiscal years beginning
after December 15, 1997. This Statement establishes standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income includes unrealized gains or
losses on available-for-sale securities and foreign currency translation
adjustments, both of which currently are reported in stockholders' equity.
Application of Statement 130 only changes the display and disclosure of
previously reported information and will not impact amounts previously reported
for net income or stockholders equity, nor affect the comparability of
previously issued financial statements. Adoption of this standard is not
expected to have a material impact on the Company's financial statements or
results of operations.
     In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which is effective for fiscal years beginning after December 15, 1997. The
Statement changes the way that public companies report segment information in
annual financial statements and also requires those companies to report selected
segment information in interim financial reports to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997 and therefore, the
Company will adopt the new requirements retroactively in 1998. Management has
not completed its review of Statement 131 and therefore, has not concluded
whether the adoption of this statement will have a significant effect on the
Company's reported segments.

2. AVAILABLE-FOR-SALE INVESTMENTS
Management determines the appropriate classification of investments at the time
of purchase and reevaluates such designation as of each balance sheet date. All
of the Company's investments at December 28, 1997 and December 29, 1996 have
been classified as being "available-for-sale", and are included in cash
equivalents and marketable securities on the consolidated balance sheets.
     Gross realized and unrealized gains and losses were not material in 1997,
1996 and 1995. The cost of investments sold is based on the specific
identification method.
The following is a summary of available for sale investments at December 28,
1997 and December 29, 1996:

                                        Estimated      Estimated
                                        fair value     fair value
In thousands                              1997           1996
----------------------------------------------------------------
Time deposits at banks                  $130,726       $ 74,155
Obligations of states and
     political subdivisions                2,000         30,242
U.S. government issues                    58,712          4,900
Commercial paper                          20,903              -
Corporate bonds                           16,500          4,000
----------------------------------------------------------------
Total available-for-sale investments    $228,841       $113,297
----------------------------------------------------------------

3. INVENTORIES
Inventories consisted of the following:

In thousands                              1997           1996
----------------------------------------------------------------
Finished products                       $32,872        $35,921
Work in process                           2,665          1,542
Parts and assemblies                     41,098         25,820
----------------------------------------------------------------
Total inventories                       $76,635        $63,283
----------------------------------------------------------------

4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:

In thousands                              1997           1996
----------------------------------------------------------------
Land and improvements                  $  6,424       $  3,241
Buildings                                50,175         33,620
Machinery and equipment                 296,817        267,083
Leasehold improvements                   25,057         24,282
Service and spare parts                  19,333         19,829
Construction in progress                  6,488          7,042
----------------------------------------------------------------
Total property, plant and equipment     404,294        355,097
----------------------------------------------------------------
Less accumulated depreciation           255,504        232,341
Net property, plant and equipment      $148,790       $122,756
----------------------------------------------------------------

5. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Unamortized software development costs, included in other assets on the
consolidated balance sheets, were $33.8 million and $34.0 million at December
28, 1997 and December 29, 1996, respectively. Amortization expense, along with
adjustments to net realizable value, is included in product cost of sales, and
amounted to $29.0 million in 1997, $23.1 million in 1996 and $20.1 million in
1995.

6. INCOME TAXES
The components of income (loss) before provisions for income taxes consisted of
the following:

In thousands                          1997       1996       1995
-------------------------------------------------------------------
Domestic                            $ 5,667   $(3,087)    $(27,157)
Foreign                              89,350    59,842       48,829
-------------------------------------------------------------------
Income before provision
     for income taxes               $95,017   $56,755     $ 21,672
-------------------------------------------------------------------

     The provision for income taxes includes $6.2 million and $0.4 million in
1997 and 1996, respectively, resulting from the allocation of tax benefits from
non-qualified stock options directly to additional paid-in capital.

     The provision (benefit) for income taxes consisted of the following:

In thousands                          1997       1996       1995
-------------------------------------------------------------------
Current
Federal                             $ 6,290   $   452     $(3,312)
State                                   750       295         250
Foreign                              17,032    11,518      14,465
-------------------------------------------------------------------
Total current                        24,072    12,265      11,403
-------------------------------------------------------------------
Deferred
Federal                              (2,815)      419      (4,612)
State                                  (699)      105        (382)
Foreign                                 345       446      (2,075)
-------------------------------------------------------------------
Total deferred                       (3,169)      970      (7,069)
Provision for income taxes          $20,903   $13,235     $ 4,334
-------------------------------------------------------------------

     The following table reconciles the Federal income tax rate to the tax rate
used in the calculation of the provision for income taxes as reported in the
financial statements:

                                      1997       1996       1995
-------------------------------------------------------------------
Income tax at U.S.
     Federal statutory rate           35.0%      35.0%      35.0%
State income taxes, net
     of Federal benefit                0.1%       0.5%      (0.4%)
Foreign sales corporation
     exempt income                    (0.1%)         -      (0.6%)
Tax effect of foreign
     operations                      (14.4%)    (13.8%)    (15.5%)
Research and
     development credits              (2.1%)     (1.3%)         -
Tax exempt interest
     income                           (0.3%)     (0.9%)     (3.4%)
Goodwill                               1.2%       1.1%       1.6%
Other, net                             2.6%       2.7%       3.3%
-------------------------------------------------------------------
Effective tax rate                    22.0%      23.3%      20.0%
-------------------------------------------------------------------

     The Company paid income taxes of $10.3 million in 1997, $12.4 million in
1996 and 26.3 million in 1995.
     The earnings from products manufactured and sold by the Company's Ireland
manufacturing subsidiary are subject to a 10% tax rate through December 2010.
     The Company has research and development credit carryforwards of $6.4
million that begin to expire in the year 2005, and alternative minimum tax
credit carryforwards of $0.6 million which carry forward indefinitely.
     Deferred tax assets and (liabilities) included in other current assets and
other non-current assets on the consolidated balance sheets as of December 28,
1997 and December 29, 1996 were comprised of the following:

In thousands                          1997       1996
--------------------------------------------------------
Deferred tax assets
Depreciation/amortization, net      $11,988    $10,862
Inventory/other reserves             15,581     14,052
Carryforward losses, federal
     and state tax credits            8,207      7,169
Deferred gain on sale of building         -        698
Intercompany profit elimination         563        741
Deferred compensation                   355        706
Other                                 2,316      3,128
--------------------------------------------------------
Total deferred tax assets            39,010     37,356
Valuation allowance                  (3,947)    (3,947)
--------------------------------------------------------
Net deferred tax assets             $35,063    $33,409
--------------------------------------------------------

     Taxes are not provided on unremitted earnings of subsidiaries outside the
United States as such earnings are permanently reinvested. Unremitted earnings
at December 28, 1997 and December 29, 1996 approximated $327.2 million and
$256.9 million, respectively. If these earnings are remitted in the form of
dividends or otherwise, the Company will be potentially subject to both U.S.
income taxes and foreign withholding taxes less an adjustment for applicable
foreign tax credits. It is not practical to estimate the amount of taxes payable
on these foreign earnings.
     The Company has recorded a net deferred tax asset on December 28, 1997.
Although realization is not assured, based on the Company's history of
profitability and expectation of future taxable income, management believes it
is likely that the deferred tax asset will be realized.

7. DEBT
On January 3, 1997, the Company canceled its $50 million Multicurrency Revolving
Credit Agreement because management concluded that it was no longer needed.
There were never any borrowings against this Agreement.
     In 1993, the Company issued $7.5 million of promissory notes and $4.1
million of deferred compensation obligations in connection with the acquisition
of Isis Distributed Systems, Inc. The remaining balance of $1.5 million on these
obligations was paid in January 1998.
     Certain subsidiaries have entered into credit arrangements with local
banks, principally in the form of overdraft borrowings, for the purpose of
short-term liquidity management. Borrowings under these agreements, whose
carrying amounts approximated fair value, were $0.9 million at December 29, 1996
with a weighted average interest rate of 4.8%. There were no outstanding
borrowings at December 28, 1997. The Company paid interest of approximately
$0.4 million in 1997, $0.7 million in 1996 and $1.2 million in 1995.

8. STOCK PLANS
Employee option plans The Company maintains three active stock option plans: the
1983 Stock Option Plan; the Non-Qualified Stock Option Plan; and the 1997 Non-
Qualified Stock Option Plan. The 1983 Stock Option Plan provides for the
granting of both incentive stock options and non-statutory (non-qualified) stock
options. On April 23,1997, both the 1983 Stock Option Plan and the Non Qualified
Stock Option Plan increased the number of shares reserved for option grants
under the plans by a combined 1,500,000 for a total of 10,880,200. In addition,
the number of options a participant may be granted under these plans increased
from 100,000 to 500,000 shares. The 1997 Non-Qualified Plan was adopted and
approved by the Board of Directors of the Company on January 13, 1997 and
provided for the reservation of 3,000,000 shares of common stock for issuance
upon the exercise of options. The option prices for non-qualified grants under
all plans are determined by the Compensation and Stock Option Committee of the
Board of Directors (the Committee), subject to a minimum option price of not
less than 50% of the fair market value of the stock at the time of grant for
options granted under the 1983 Stock Option Plan and, for options granted under
the Non-Qualified Stock Option Plan to persons whose transactions are subject to
Section 16(b) of the Securities Exchange Act of 1934. The option price for
grants intended to qualify as incentive stock options under Section 422A of the
Internal Revenue Code, as amended, shall not be less than 100% of the fair
market value of the stock on the date of grant. The terms of exercise of the
options are also determined by the Committee. All options granted to date become
exercisable in full not later than one year from the date of grant, have a ten
year life and vest over a four or five year period from the date of grant.
     At December 28, 1997, shares available for future grants consisted of
1,808,136 for the 1997 plan and 2,128,341 on a combined basis for the 1983 Stock
Option Plan and the Non-Qualified Stock Option Plan. At December 29, 1996,
930,927 shares were available for future grants on a combined basis under the
1983 Stock Option Plan and the Non-Qualified Stock Option Plan.
     The Company applies APB Opinion No.25 and related interpretations in
accounting for its stock-based compensation plans, including its Employee Stock
Purchase Plan. During 1997, the Company issued options to certain executives at
exercise prices which were below the market value of the stock on the date of
grant. The compensation expense related to these options, which was $0.5 million
in 1997, will be recognized over the vesting period of four years. Had
compensation expense for the Company's stock-based compensation plans been
determined based upon the fair market value at the grant date for stock option
awards (stock options) and at the end of the plan period for stock purchased
under its Employee Stock Purchase Plan (stock purchase shares), the Company's
net income and diluted earnings per share on a pro forma basis would have been
$64.2 million, or $2.61 per share (diluted) in 1997, $37.8 million, or $1.59 per
share (diluted) in 1996 and $14.1 million, or $0.59 per share (diluted) in 1995.
     The fair value of stock options granted and stock purchase shares issued
during 1997, 1996 and 1995 was estimated at the date of the grant and the end of
the plan period, respectively, using the Black-Scholes option-pricing model with
the following weighted-average assumptions: volatility 46.9%, 36.3% and 29.5%,
respectively; risk-free interest rate of 6.25%, 6.13% and 5.99%, respectively;
and no dividends. The weighted-average expected life was 3.0 years for 1997 and
4.0 years for both 1996 and 1995. The effects on fiscal 1997, 1996 and 1995 pro
forma net income and earnings per share of expensing the estimated fair value of
stock options and stock purchase shares are not necessarily representative of
the effects on reported net income for future years due to such factors as the
vesting period of the stock options and the potential for issuance of additional
stock options and stock purchase shares in future years.

Stock option activity was as follows:

                                     Shares     Weighted-
                                     under       average
                                    options   exercise price
-------------------------------------------------------------
Outstanding, January 1, 1995       3,145,515      $24.74
Granted                            1,226,168      $26.79
Exercised                           (472,124)     $20.11
Canceled                            (708,487)     $27.61
-------------------------------------------------------------
Outstanding, December 31, 1995     3,191,072      $25.58
-------------------------------------------------------------
Exercisable, December 31,1995      3,191,072      $25.58
-------------------------------------------------------------

Granted                            3,779,521      $20.08
Exercised                           (242,091)     $20.14
Canceled                          (3,072,104)     $26.53
-------------------------------------------------------------
Outstanding, December 29, 1996     3,656,398      $19.57
-------------------------------------------------------------
Exercisable, December 29, 1996     3,656,398      $19.57
-------------------------------------------------------------

Granted                            2,039,846      $31.85
Exercised                         (1,035,751)     $21.13
Canceled                            (545,396)     $21.01
-------------------------------------------------------------
Outstanding, December 28, 1997     4,115,097      $25.09
-------------------------------------------------------------
Exercisable, December 28, 1997     4,115,097      $25.09
-------------------------------------------------------------

     The weighted-average fair value of stock options granted during 1997 was
$14.51 for options issued at market price and $28.12 for below market options.
The weighted-average fair value of stock options granted in 1996 and 1995 was
$7.78 and $9.77, respectively. The weighted average fair value of stock
purchase shares issued during 1997, 1996 and 1995 was $8.35, $7.61 and $9.95,
respectively.
     Stock options outstanding at December 28, 1997 are summarized as follows:

                                    Weighted-
                                     average        Weighted-
     Range of        Number         remaining        average
     exercise      outstanding     contractual      exercise
     prices        at 12/28/97        life           price
-------------------------------------------------------------
$11.88-$26.75      2,824,752          8.3            $20.45
$27.00-$41.63        961,530          8.9            $32.13
$43.00-$56.75        328,815          9.5            $44.40
-------------------------------------------------------------
$11.88-$56.75      4,115,097          8.6            $25.09

     During 1996, the Board of Directors authorized the Company to offer holders
of all outstanding unexercised stock options granted between January 1, 1994,
and July 25, 1996, under the Company's stock option plans the opportunity to
exchange such options for an equal number of new options under the 1983 Stock
Option Plan and the Non-Qualified Stock Option Plan. Approximately 2,467,000
shares were exchanged for new options issued at the fair market value ($17.125)
of the Company's common stock on the date of the exchange (July 25, 1996). These
new options were non-qualified and began a new four-year vesting schedule.

Employee purchase plan
Under the Company's Employee Stock Purchase Plan, employees may purchase the
Company's common stock at a price equal to 85% of the fair market value of the
stock, as defined. In April 1997, the shareholders approved an increase in the
number of shares which may be issued under the Plan from 3,100,000 to 4,100,000.
Common stock reserved for future grants aggregated 815,898 and 172,938 shares at
December 28, 1997 and December 29, 1996, respectively. There were 357,040 shares
issued at an average price of $23.64 in 1997, 264,028 shares issued at an
average price of $21.36 in 1996 and 248,332 shares issued at an average price of
$26.56 in 1995.

Stockholder rights plan
In December 1990, the Company adopted a Stockholder Rights Plan, and declared a
distribution of Rights under the Plan to holders of record of common stock on
December 20, 1990. The Plan is designed to assure that all Stratus Computer,
Inc. stockholders receive fair and equal treatment in the event of any
unsolicited attempt to acquire control of the Company. Under the Plan, each
share of common stock carries one Right to purchase additional stock at a
purchase price of $110.00 subject to adjustment in certain circumstances. The
Rights are not exercisable or transferable apart from the common stock until
ten days after, (i) another person or group of persons has acquired, or obtained
the right to acquire, at least 20% of the common stock, (ii) notice of a tender
or exchange offer that would result inanother person or group of persons
beneficially owning at least 20% of the outstanding shares of common stock or
(iii) determination by the Board of Directors of the Company that a 15%
stockholder is an "Adverse Person".
     On the occurrence of certain Triggering Events, as described in the Plan,
holders of Rights become entitled, upon exercise, to purchase shares of the
Company's common stock at a substantial discount. The Rights are redeemable by
the Company for $0.01 per Right and expire on December 4, 2000.

Common stock repurchase program
Beginning in April 1994 through December 1997, the Board of Directors has
approved four plans to repurchase up to 4.8 million shares of Common Stock on
the open market. In 1997, 1996, and 1995 the Company repurchased 765,700 shares
for $26.2 million, 534,300 shares for $12.6 million and 1,511,800 shares for
$44.6 million, respectively.

9. EMPLOYEE BENEFIT PLANS
The Company has a benefit plan available to all domestic employees which
qualifies as a deferred compensation plan under Section 401(k) of the Internal
Revenue Code. Employees may contribute to the plan from 2% to 15% of their
salary on a pre-tax basis, subject to certain statutory limitations ($9,500 in
1997). The Company matches 100% of the first 11/2% of the employee's pre-tax
contributions. The Company may make an additional contribution of 11/2% of the
employee's pre-tax contributions, up to a maximum of $4,800 per participant,
based on the achievement of certain performance criteria established by the
Board of Directors. Contributions are invested at the direction of the employee
in one or more investment funds. Company contributions accrued to the plan were
$3.4 million in 1997 and $2.6 million in 1996. There were no Company
contributions accrued to the plan in 1995. Employees in several countries
outside of the U.S. are covered by defined contribution plans in accordance with
applicable government regulations and local practices. Expenses attributable to
these plans were not material in 1997, 1996 and 1995.

10. COMMITMENTS AND CONTINGENCIES
Lease Obligations
The Company leases certain corporate and branch sales offices. The leases range
from one to seven years and generally contain renewal options for periods
ranging from one to twenty years and require the Company to pay all executory
costs. The following is a schedule of required future minimum lease payments
under operating leases at December 28, 1997:

In thousands               Operating leases
--------------------------------------------
1998                            $10,843
1999                              8,430
2000                              5,570
2001                              2,878
2002                              1,161
Subsequent years                  1,166
--------------------------------------------
Total minimum lease payments    $30,048
--------------------------------------------

     Total rental expense was $15.2 million in 1997, $18.1 million in 1996 and
$18.7 millon in 1995.
     The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Management does not believe these actions will
have a material adverse affect on the financial position or results of
operations of the Company.

11. RESTRUCTURING
During the second quarter of 1996, the Company restructured its software
business to improve operating results by aligning expenses with revenues, and to
focus on new strategic product offerings. The restructuring action resulted in a
charge of $4.6 million, and included charges for workforce reductions and asset
write-downs related to the discontinuation of certain product programs. This
restructuring was substantially completed in 1996.During the third quarter of
1995, the Company recorded a $24.5 million restructuring charge for the
reduction of its worldwide workforce, as well as the consolidation of certain
manufacturing and sales operations. The action was taken to re-size the expense
structure of the Company, as a result of a significant decline in gross margins,
and to place expense levels in line with its new economic model. Of the total
charge, $13.0 million was related to the workforce reduction and $11.5 million
was related to the consolidation of facilities and operations. In 1995 and 1996,
the Company released 575 employees and charged $15.0 million and $9.5 million,
respectively, against the reserve for severance and facility related actions,
thereby completing the restructuring action.

12. ACQUISITIONS AND STRATEGIC INVESTMENTS
In December 1995, the Company entered into a joint venture relationship with
Axime, S.A. of Paris, France to develop, support and market certain integrated
solutions for the Automated Teller Machines/Point of Sale market in France and
other authorized countries. The Company invested approximately $6.0 million in
cash for 50% ownership of Axime's banking and retail application software and
professional services business. This investment is accounted for using the
equity method. The difference between the carrying amount of the investment and
the underlying equity net assets of the joint venture entity is being amortized
over seven years.
     In July 1995, the Company acquired all the outstanding stock of
Comercializacion TEA, S.A. DE C.V. (COMTEA), its Mexico distributor, for
approximately $4.1 million in cash plus additional consideration of up to $13.6
million based upon COMTEA's attainment, if achieved, of certain objectives over
a three-year period commencing at acquisition.
     In January 1995, the Company, through its TCAM Systems, Inc. subsidiary,
acquired all the outstanding stock of Femcon Associates, Inc., which provides
system integration and customized software solutions to the worldwide securities
industry, for approximately $3.0 million in cash.
     The 1995 acquisitions were accounted for using the purchase method of
accounting. The excess cost over the fair value of the acquired net assets is
being amortized on a straight-line basis over seven years.

13. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in one industry segment; the design, manufacture, marketing
and service of continuously available online transaction processing systems and
related software.

Geographic information for 1997, 1996 and 1995 was as follows:

In thousands                                  1997          1996         1995
-------------------------------------------------------------------------------
Revenues
United States                               $289,151      $274,892     $289,500
Intercompany                                  37,789        41,296       46,165
-------------------------------------------------------------------------------
Total United States                          326,940       316,188      335,665
Ireland                                      187,546       129,145       66,760
Intercompany                                 189,478       155,342      110,003
-------------------------------------------------------------------------------
Total Ireland                                377,024       284,487      176,763
Europe                                       103,846       107,136      124,956
Other international, principally
  the Far East                               107,732        98,156      106,706
Eliminations                                (227,267)     (196,638)    (156,168)
-------------------------------------------------------------------------------
Total revenues                              $688,275      $609,329     $587,922

Operating income (loss)
United States                               $    296      $ (8,734)    $ (3,260)
Ireland                                       82,726        42,642       29,741
Europe                                           849         5,448      (13,365)
Other international, principally
  the Far East                                 9,165         7,631        4,691
Eliminations                                 (10,896)        3,147       (5,739)
-------------------------------------------------------------------------------
Total operating income                      $ 82,140      $ 50,134     $ 12,068

Assets
United States                               $627,063      $526,333     $507,638
Ireland                                      125,454       122,234       67,926
Europe                                       102,635        62,585       72,335
Other international, principally
  the Far East                                45,716        48,893       51,180
Corporate assets (cash, cash equivalents
  and marketable securities)                 259,681       174,870      155,097
Eliminations                                (410,188)     (295,994)    (246,367)
-------------------------------------------------------------------------------
Total assets                                $750,361      $638,921     $607,809
-------------------------------------------------------------------------------

Intercompany transactions are accounted for at prices which approximate arm's-
length transactions. The Company has distribution agreements with various
companies, including NEC. During 1997,1996 and 1995, product and service revenue
from NEC accounted for 22%, 15% and 7% of total revenues, respectively.

<TABLE>
UNAUDITED QUARTERLY FINANCIAL DATA

<CAPTION>

                                                                                   Diluted earnings
In thousands, except                        Total       Gross        Net income     (loss)               Stock prices
per share amounts and stock prices        revenues      profit         (loss)        per share          High       Low
<S>                                       <C>           <C>           <C>           <C>                <C>        <C>
-------------------------------------------------------------------------------------------------------------------------
Fiscal 1997
First quarter                             $155,665      $ 69,949      $14,778       $0.62              $34.50     $26.63
Second quarter                             167,572        75,943       17,401        0.71               50.25      30.63
Third quarter                              175,023        78,976       19,260        0.77               58.81      48.25
Fourth quarter                             190,015        85,817       22,675        0.91               50.13      31.44
-----------------------------------------------------------------------------
Total                                     $688,275       $310,685     $74,114       $3.01
-------------------------------------------------------------------------------------------------------------------------
Fiscal 1996
First quarter                             $142,925      $ 64,119      $10,583       $0.45               $34.87    $25.50
Second quarter                             140,301        60,735        4,455        0.19                31.75     26.50
Third quarter                              150,010        65,799       10,757        0.45                29.00     17.12
Fourth quarter                             176,093        79,118       17,725        0.74                27.75     19.12
-----------------------------------------------------------------------------
Total                                     $609,329      $269,771      $43,520       $1.83
-------------------------------------------------------------------------------------------------------------------------
Fiscal 1995
First quarter                             $128,502      $ 64,523      $ 6,414       $0.26               $39.62    $26.37
Second quarter                             140,317        67,763        6,089        0.26                31.75     26.37
Third quarter                              150,743        71,957       (9,268)      (0.40)               32.75     23.37
Fourth quarter                             168,360        80,489       14,103        0.60                35.50     24.25
-----------------------------------------------------------------------------
Total                                     $587,922      $284,732      $17,338       $0.73
-------------------------------------------------------------------------------------------------------------------------

Second quarter 1996 results include a non-recurring pre-tax charge of $4.6
million to cover the cost of workforce reductions and asset dispositions
relating to the Company's software business.
Third quarter 1995 results include a non-recurring pre-tax charge of $24.5
million to cover the cost of a 21% workforce reduction and the consolidation of
certain manufacturing and sales facilities.
Stratus Computer, Inc. common stock is traded via the New York Stock Exchange,
the Boston Stock Exchange, the Chicago Stock Exchange and the Pacific Exchange
under the trading symbol SRA. No dividends have been declared on the common
stock.

</TABLE>


REPORT OF INDEPENDENT AUDITORS


The Board of Directors
Stratus Computer, Inc.

We have audited the accompanying consolidated balance sheets of Stratus
Computer, Inc. as of December 28, 1997 and December 29, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 28, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Stratus
Computer, Inc. at December 28, 1997 and December 29, 1996 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 28, 1997, in conformity with generally accepted accounting
principles.


                                                  ERNST & YOUNG LLP


Boston, Massachusetts
January 21, 1998



     Senior Management List

Directors

Alexander V. d'Arbeloff
Chairman, Teradyne, Inc.

Paul J. Ferri
General Partner, Matrix Partners

William E. Foster
Chairman, Stratus Computer, Inc.

Gardner C. Hendrie
Sigma Partners

Robert M. Morrill
Private Investor

Candy M. Obourn
Vice President, Eastman Kodak Company
President, Business Imaging Systems

Bruce I. Sachs
President and Chief Executive Officer, Stratus Computer, Inc.

Paul J. Severino
Former Chairman, Bay Networks, Inc.

Officers

Bruce I. Sachs
President and Chief Executive Officer

William E. Foster
Chairman

Eileen Casal
Vice President, General Counsel

Maurice L. Castonguay
Vice President, Finance and Administration
and Chief Financial Officer

David P. Gamache
Vice President, Corporate Controller

Stephen C. Kiely
Vice President, Platform Products

Edward J. Mezzanotte
Vice President, Stratus Software Group

J. Donald Oldham
Vice President, Worldwide Sales

Roderick K. Randall
Vice President, Worldwide Marketing

David M. Weishaar
Vice President, Worldwide Operations

John F. Young
Vice President, Human Resources

Clerk
Richard N. Hoehn, Esq.
Partner, Choate, Hall & Stewart

Treasurer
Gerald P. Campenella


PART IV

Item 14.  Exhibits, Financial Statements, Schedules and Reports on Form 8-K

(a)       1.   Financial Statements:

               The financial statements are listed in the Index to
               Consolidated Financial Statements filed as part of this  Annual
               Report.

          2.   Schedule:

               The schedule listed in the accompanying Index to Consolidated
               Financial Statements is filed as part of this Annual Report.

          3.   Exhibits:

               The exhibits listed in the accompanying Index to Exhibits are
               filed as part of this Annual Report.


(b)       Reports on Form 8-K

          None.




STRATUS COMPUTER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT AUDITORS

Item 14(a)                                                   Reference
                                                               (page)
                                              ------        -------------
                                               Form         Annual Report
                                               10-K              to
                                                             Stockholder
                                              ------        -------------

Data incorporated by reference to the attached 1997 Annual Report to
Stockholders:

  Consolidated Balance Sheets at
     December 29, 1996 and
     December 28, 1997                                             22

  For the years ended December 31, 1995,
     December 29, 1996 and
     December 28, 1997:

          Consolidated Statements of
          Income                                                   21

          Consolidated Statements of
          Stockholders' Equity                                     23

          Consolidated Statements of
          Cash Flows                                               24

          Notes to Consolidated Financial
          Statements                                               25-33

          Supplementary information:
          Quarterly Financial Data (unaudited)                     34



Consolidated schedule for the year ended December 28, 1997:




  II  -   Valuation and qualifying accounts     F-1


     All other schedules have been omitted since the required information is
not applicable or not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
Consolidated Financial Statements or the Notes thereto.

     The financial statements listed in the preceding index which are included
in the 1997 Annual Report to Stockholders are hereby incorporated by reference.
With the exception of the pages listed in the preceding index, and pages 14-20
and 34 noted in items 5 through 7, the 1997 Annual Report to Stockholders is
not to be deemed filed as part of this report.


                     STRATUS COMPUTER, INC.


                          SCHEDULE II.
                VALUATION AND QUALIFYING ACCOUNTS
           FOR THE THREE YEARS ENDED DECEMBER 28, 1997




ACCOUNTS        BALANCE AT                             BALANCE AT
RECEIVABLE     BEGINNING OF                             END OF
ALLOWANCE         PERIOD     ADDITIONS  DEDUCTIONS(1)    PERIOD
----------     ------------  ---------  -------------  ----------

FISCAL
YEAR 1995      $8,593,634     7,520,111    (7,478,021)  $8,635,724

FISCAL
YEAR 1996      $8,635,724     5,852,630    (6,168,457)  $8,319,897

FISCAL
YEAR 1997      $8,319,897     4,587,320    (4,600,297)  $8,306,920


(1) Write-offs of uncollectible accounts receivable net of recoveries.



                         F - 1




INDEX TO EXHIBITS

3.1       - Articles of Organization of Registrant. (1)
3.1 (a)   - Amendments to Articles of Organization. (2) (4)
3.2 (b)   - By-Laws of Registrant, as amended through January 31, 1995, (1)
4.11      - Stock Option Plan (January 1983). (3)
4.11(a)   - Restatement of Employee Stock Option Plan dated
             January 28, 1992.(7)
4.11(b)   - Amendment to Option Plans dated January 25, 1994. (6).
4.11(c)   - Amendment to Option Plans dated January 31, 1995.
4.11(d)   - Amendment to Option Plans dated August 1, 1995. (8)
4.11(e)   - Amendment to Option Plans dated April 23, 1997. (11)
4.13      - Employee Stock Purchase Plan. (3)
4.13(a)   - Amended and Restated Employee Stock Purchase Plan dated
             April 21, 1992. (7)
4.13(b)   - Amendment to Employee Stock Purchase Plan dated January 25, 1994.
4.13(c)   - Amendment to Employee Stock Purchase Plan dated January 31, 1995.
4.13(d)   - Employee Stock Purchase Plan amended and restated as of
             August 1, 1995. (8)
4.13(e)   - Employee Stock Purchase Plan amended and restated as of
             April 23, 1997. (11)
4.15      - Non-Qualified Common Stock Option Plan (November 1984). (3)
4.15(a)   - Restatement of Non-Qualified Common Stock Option Plan dated
             January 28, 1992. (7)
4.15(b)   - Non-Qualified Common Stock Option Plan Restatement Number 4
             effective August 1, 1995. (8)
4.15(c)   - Non-Qualified Common Stock Option Plan Restatement Number 5
             effective April 23, 1997. (11)
4.18      - Rights Agreement dated December 4, 1990. (5)
4.20      - 1997 Non-Qualified Common Stock Option Plan (January 1997). (11)
10.18     - Lease dated January 30, 1990 between Registrant and LePercq
             Corporate Income Fund, L.P. (2)
10.19     - Employment Agreement for Bruce I. Sachs, dated April 23, 1997. (9)
10.20     - Consultant Agreement for Bruce I. Sachs, dated April 23, 1997. (9)
10.21     - Employment Agreement for Maurice L. Castonguay, dated July 17,
             1997.
10.22     - Employment Agreement for William E. Foster, dated September 10,
             1997.
10.23     - Employment Agreement for Roderick K. Randall, dated October 23,
             1997. (10)
13.0      - 1997 Annual Report to Stockholders (which is not deemed to be
           "filed" except to the extent that portions thereof are expressly
           incorporated by reference in this Annual Report on Form 10-K).
21.1      - Subsidiaries of the Registrant, filed herewith.
23.1      - Consent of Ernst & Young LLP, filed herewith.

(1)  Incorporated herein by reference to same exhibit number of Item 16 to
     Registration Statement on Form S-1 (No. 2-85169) filed with the Securities
     and Exchange Commission on July 15, 1983 as amended on August 25, 1983 and
     August 26, 1983.

(2)  Incorporated herein by reference to same exhibit number of Item 14 to
     Annual Report on Form 10-K filed with the Securities and Exchange
     Commission on March 28, 1990.

(3)  Incorporated herein by reference to Items 4 through 13 of Registration
     Statements on Form S-8 (No. 33-2174, No. 33-11864, No. 33-28742,
     No. 33-67758, No. 33-64709 and No. 333-27147) filed with the Securities
     and Exchange Commission on December, 16, 1985, February 17, 1987, May 15,
     1989, August 23, 1993, December 4, 1995 and May 15, 1997, respectively.

(4)  Incorporated herein by reference to same exhibit number of Item 14 to
     Annual Report on Form 10-K filed with the Securities and Exchange
     Commission on March 31, 1988.

(5)  Incorporated herein by reference to Exhibit 1 to Registration Statement on
     Form 8-A filed with the Securities and Exchange Commission on December 6,
     1990.

(6)  Incorporated herein by reference to same exhibit number of Item 14 to
     Annual Report on Form 10-K  filed with the Securities and Exchange
     Commission on March 30, 1994.

(7)  Incorporated herein by reference to Exhibit 28 of Registration Statement
     on form S-8 (33-67758) filed with the Securities and Exchange Commission
     on August 23, 1993.

(8)  Incorporated herein by reference to Exhibits 10.1, 10.2, 10.3 of
     Registration Statement on form S-8 (33-64709) filed with the Securities
     and Exchange Commission on December 4, 1995.

(9)  Incorporated herein by reference to same exhibit number of Item 6  of
     Form 10-Q filed with the Securities and Exchange Commission on August 13,
     1997.

(10) Incorporated herein by reference to Exhibit 10 of Item 6 of Form 10-Q
     filed with the Securities and Exchange Commission on November 12, 1997.

(11) Incorporated herein by reference to Exhibits 10.1, 10.2, 10.3 of
     Registration Statement on form S-8 (333-27147) filed with the Securities
     and Exchange Commission on May 15, 1997.



SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 27th day of
March 1998.

                        Stratus Computer, Inc.


                         BY:  Maurice L. Castonguay
                              ---------------------
                         Maurice L. Castonguay, Vice President, Finance
                         and Administration, and Chief Financial Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


            Name                        Title                      Date


BRUCE I. SACHS            President                          March 27, 1998
--------------            and Chief Executive Officer
(Bruce I. Sachs)            (Principle Executive Officer)


MAURICE L. CASTONGUAY     Vice President, Finance and        March 27, 1998
---------------------     Administration, and Chief
(Maurice L. Castonguay)   Financial Officer
                          (Principal Financial Officer and
                          Principal Accounting Officer)


WILLIAM E. FOSTER         Chairman                           March 27, 1998
-----------------          and Director
(William E. Foster)


ALEXANDER V. D'ARBELOFF   Director                           March 27, 1998
-----------------------
(Alexander V. d'Arbeloff)


PAUL J. FERRI             Director                           March 27, 1998
-------------
(Paul J. Ferri)


GARDNER C. HENDRIE        Director                           March 27, 1998
------------------
(Gardner C. Hendrie)


ROBERT M. MORRILL         Director                           March 27, 1998
-----------------
(Robert M. Morrill)


CANDY M. OBOURN           Director                           March 27, 1998
---------------
(Candy M. Obourn)


PAUL J SEVERINO            Director                          March 27, 1998
---------------
(Paul J.Severino)


Exhibit 10 - Material Contracts
10.21


July 17, 1997


Mr. Maurice Castonguay


Dear Maurice:

On behalf of Stratus Computer, Inc. ("Stratus") it is my pleasure to offer you
the position of Vice President of Finance and Administration, Chief Financial
Officer and Treasurer of Stratus, reporting to me.

You will be paid in accordance with Stratus' Executive Variable Compensation
Program which is composed of the following elements:

         Base Salary of $10,000 bi-weekly, which is equivalent to $260,000
annually.

         Variable compensation component at a rate of 48% of your base salary
as listed above, under Stratus' current Variable Compensation Plan ("VC Plan").
This equates to $125,000 annually at 100% attainment of your goals.  The annual
variable compensation is based on your attainment of certain individual goals
in combination with the Company meeting or exceeding designated financial
performance goals, as approved by the Board of Directors and the Compensation
Committee. The terms of the VC Plan will be discussed with you after having
been set by the Board and the Compensation Committee at the beginning of each
fiscal year.

         Guaranteed variable compensation for the first twelve (12) months of
your employment, at the annual rate of $125,000 per annum. Your 1998 annual
variable compensation shall be paid to you on a pro-rata basis for those months
remaining in 1998 following the end of your guaranteed twelve (12) month
period, in accordance with the terms of the VC Plan.

         Your total compensation at 100% attainment of goals is $385,000
annually.  You will also be eligible for the over-achievement rates, if
applicable, as outlined in the VC Plan documents.

         You will have the option to purchase 100,000 shares of Stratus common
stock under the Company's 1983 Employee Stock Option Plan and/or the 1997 Non-
Qualified Stock Option Plan ("Plans").  The purchase price for these options
will be discounted by $10.00/share below the fair market value on the date
determined by the Stock and Compensation Committee.  All options will vest over
a four (4) year period and have a ten (10) year exercise period as provided in
the Plans.  All options vest in full, immediately, in the event of certain
change of control events further described in the Plans.

         Participation in such Stratus executive officer and employee benefit
programs as shall be in effect from time to time.  Enclosed is a copy of the
additional benefits which you receive as a member of my staff.

Due to the Immigration Control and Reform Act of 1986, you will be required to
verify your identity and employment eligibility by completing the I-9
Employment Eligibility Form and supplying Stratus with the required documents
on your fist day of employment.  Your acceptance of this offer of employment is
contingent upon compliance with the Immigration Act of 1986.  Failure to
complete the I-9 form or provide original documentation may result in
termination of employment.

You will be required to sign Stratus' Standard Employee Proprietary Information
Agreement covering inventions, concepts and protection of confidential and
proprietary information.  A copy of this agreement is available for your review
upon request.

In the event that your employment with the Company is terminated upon certain
change of control events (as defined in the Plans), you shall be entitled to a
lump sum payment of one year's total compensation (base and target salary at
100% attainment) as of the termination date upon execution of a separate
mutually agreed termination agreement containing customary release and non-
competition language.

Maurice, I am excited about the prospect of having an individual with your
background and experience on the Executive Management Team at Stratus.  I would
like your official start date to be on or before September 2, 1997.  If this
letter sets forth the terms of the offer we have negotiated with you, kindly
indicate your acceptance in the space provided and send one signed original
back to me or John Young, Vice President, Human Resources.

Welcome aboard.

Very truly yours,                  I accept the position of Vice President
                              of Finance and Administration, Chief Financial
                              Officer and Treasurer commencing on or before
                              September 2, 1997 in accordance with the terms
                              hereof.


------------------------------       ------------------------------
John F. Young,                            Maurice Castonguay
Vice President, Human Resources
on behalf of
Bruce I. Sachs                       ------------------------------
President,                           Date
Chief Executive Officer              ------------------------------
                                     Start Date



Exhibit 10 - Material Contracts
10.22

                           EMPLOYMENT AGREEMENT
                                    AND
                                  RELEASE
                      Issue Date: September 10, 1997

The  following  is an agreement between William E. Foster,  as  undersigned
Employee  (hereinafter  referred  to  as  "you"  or  "your"),  and  Stratus
Computer,  Inc.  ("Company") regarding the termination of  your  employment
with  the  Company.   The Effective Date shall be the last  date  that  the
Agreement is executed by both you and the Company.

A.   EMPLOYMENT
          (1)    Employment/Benefits:  Your  regular  employment  with  the
          Company  shall continue until 5:00 PM, EST, on January 30,  2001,
          or, when you begin full time employment elsewhere, whichever date
          is  earlier  ("Termination Date").  (For  the  purposes  of  this
          Agreement  "full time employment" shall be defined to  mean  your
          accepting any position for which a W-2 form will be submitted  to
          the  Internal  Revenue Service and for which the  average  weekly
          hours to be worked by you can reasonably be expected to exceed 30
          hours  per  week  but  shall expressly  exclude  any  consultancy
          arrangements you may enter into).  From May 16, 1997 through  the
          Termination  Date, inclusive, ("Relevant Period") you acknowledge
          that  you have been and will continue to be on special assignment
          to    the    Company's    Chief   Executive   Officer    ("CEO").
          Notwithstanding this and subject only to Sections  C,  D,  and  E
          below,  the  Company understands that nothing contained  in  this
          Agreement  shall prohibit Employee from entering into consultancy
          arrangements.

          (2)  For the period of September 10, 1997 - December 31, 1997 you
          shall  continue  to  be  paid a salary, in  accordance  with  the
          Company's  standard practices, based on your current base  salary
          of  four  hundred thousand and ten dollars ($400,010), at  a  bi-
          weekly  rate  of  fifteen thousand, three hundred and eighty-five
          dollars  ($15,385).  In addition you shall be eligible to receive
          any  1997 variable compensation pursuant to the terms of the 1997
          Stratus'  Executive  Variable  Compensation  Plan  ("VC   Plan"),
          attached hereto as Appendix A.

          (3)   For  the period of January 1, 1998 - January 30, 2001,  you
          shall be paid a salary, in accordance with the Company's standard
          practices, based on a total compensation figure (base salary plus
          variable  compensation)  of  one million  five  hundred  thousand
          dollars  ($1,500,000) for the entire period, at a bi-weekly  rate
          of  eighteen thousand, seven hundred and fifty dollars ($18,750).
          In  the  event January 30, 2001 does not fall on the last day  of
          the  pay  period, the last applicable pay period will be prorated
          based  on  the biweekly rate stated herein, so that you are  paid
          until January 30, 2001.

          (4)   In the event that (a) you begin full time employment  prior
          to  January 30, 2001 as defined above, your employment  with  the
          Company  shall  cease, all payments being made  to  you  and  all
          benefits  being provided to you under this Agreement shall  cease
          and  your stock options shall cease vesting, effective as of  the
          date you begin such full time employment elsewhere.

          (5)  For so long as your regular employment continues pursuant to
          the terms of this Agreement, you shall continue to:
                          (i)   participate in the Company's Benefit  Plans
                                and Programs, either directly; and/or
                          (ii)  be  offered participation in  separate  but
                                comparable  plans  and programs  to  those
                                of  the Company; and/or
                          (iii) be  offered monetary compensation necessary
                                to  allow you to obtain comparable  benefits
                                under  separate  plans and programs  to
                                those  of  the Company,

                to  the  same extent as you participated in such plans  and
          programs and with the same levels of Company contribution as were
          provided to you prior to the Effective Date (or under such  plans
          or  programs and with such contributions as are provided  by  the
          Company under amendments to any such plans or programs made after
          the  Effective  Date affecting generally executive  employees  in
          positions  comparable  to that you held prior  to  the  Effective
          Date). The Company's Benefit Plans and Programs shall include the
          following:   health and dental insurance plans,  the  short  term
          disability  plan, the long term disability plan,  life  insurance
          plan, Section 401(k) SECAP plan, Employee Stock Purchase Plan and
          stock option plans.  Further the coverages alternatives described
          in  (i)-(iii)  above are not limited to one coverage  alternative
          being applied against all plans and programs (i.e. some plans and
          programs  may utilize coverage alternative (i), while others  may
          utilize  coverage alternative (ii) or (iii)). The application  of
          which  option  shall apply to which plans and programs  shall  be
          mutually  agreed between the parties but shall take into  account
          that which the Company is legally capable of providing.

                Notwithstanding the generality of the foregoing  you  agree
          that  there is no vacation balance owing to you and that you will
          stop accruing vacation hours as of the Issue Date.

     (6)  Beginning   on  May  16,  1997  through  the  Termination   Date,
          inclusive, ("Relevant Period") you acknowledge that you have been
          and  will  continue to be on special assignment to the  Company's
          CEO.  It  is  agreed that you will have those duties specifically
          requested by the CEO which shall include the following:

          (a)  Assisting  the CEO with developing, monitoring,  maintaining
               and  modifying the Company's Strategic Planning Program  and
               Process.
          (b)  Regularly   reviewing,   commenting   upon   and   providing
               recommendations on the Company's Product Plans  and  Product
               Development;
          (c)  Reviewing and assessing, on an on-going basis, the Company's
               (including  its  subsidiaries)  corporate  structure  as  it
               relates  to  possible asset and stock mergers,  acquisitions
               and dispositions.
          (d)  Reviewing  and  assessing possible merger,  acquisition  and
               disposition strategies for the Company and its subsidiaries;
          (e)  Furthering the Company's Channel Development by assisting to
               foster key strategic alliance relationships;
          (f)  Promoting major customer account growth; and
          (g)  Enhancing  the Company's market recognition and  penetration
               in order to generate new Customer accounts.

          The  Company  shall  reimburse you for any normal  and  customary
          expenses incurred by you when performing any duties requested  by
          the CEO.

     (7)  In  addition, in consideration of your releasing the Company from
          any  claims  that you may have with regard to your age,  as  such
          release is stated in Section I below, including rights under  the
          ADEA,  you  will  be  paid  an  additional  one  hundred  dollars
          ($100.00),  which  sum shall be included with your  last  payment
          under this Agreement.

     (8)  Stock Options
               (a)  Notwithstanding any provision to the contrary contained
               in  any  other agreement between the parties hereto,  it  is
               agreed  that  any options to purchase Stratus  Common  Stock
               which  you  have been previously granted (as  of  the  Issue
               Date)  and  which are currently unvested shall  continue  to
               vest  during  your  employment until your  Termination  Date
               pursuant  to  the  terms  of their applicable  Stock  Option
               Agreements  and  Stock  Option Plans.   A  summary  of  such
               options, as of the Issue Date, is contained in Appendix B to
               this Agreement.

               (b)   You  may  exercise  all  fully  vested  stock  options
               identified  in Appendix B during the period commencing  with
               the  Issue  Date  and  ending thirty (30)  days  after  your
               Termination Date.

               (c)   For  purposes of clarity, in the event you begin  full
               time  employment elsewhere, prior to January 30, 2001,  your
               stock  options shall cease to vest and you shall have thirty
               (30)  days  after  the date you begin full  time  employment
               elsewhere to exercise all fully vested stock options.

     (9) Financial  Planning:  From the date of this Agreement  until  your
         Termination  Date  the Company agrees to pay  for  your  financial
         planning with The AYCO Company, L.P., P.O. Box 15073, Albany,  NY.
         12212-5073, to the same extent as was provided to you prior to the
         Effective Date.

     (10)Benefits  Upon Death:     With the exception of the right to exercise
         stock  options,  and life insurance benefits, if any, all rights  and
         benefits  of  the Employee under this Agreement shall terminate  upon
         your  death.   In the event that any options remain unvested  on  the
         date  of  your  death, it is agreed that said unvested options  shall
         have their vesting date accelerated so that they vest on the date  of
         your  death  and  that your estate shall have thirty (30)  days  from
         said date to exercise any and all remaining options.


B.   DIRECTORSHIPS
          (1)   Notwithstanding anything to the contrary herein, Employee  and
          the Company acknowledge that this Agreement shall have no impact  or
          effect on the Employee's position as a member of the Company's Board
          of  Directors ("Board") and/or as Chairman of said Board.  As  such,
          all  Company and Employee rights and obligations arising solely from
          such  Board  and Chairman positions shall remain unaffected  by  the
          execution of this Agreement.

          (2)  Further to Section B(1) above, Employee understands that:

                Commencing in 1998 and continuing through 2,000 or the earlier
          termination  of this Agreement, the Employee shall, as a  result  of
          his Director position with the Company and  pursuant to the terms of
          one  of  the Company's Stock Option Plans be granted, on  an  annual
          basis, an amount of non-qualified stock options equivalent in number
          and  comparable in terms of grant date, price, and vesting  schedule
          with  those granted, on an annual basis, to Outside Directors  under
          the NQ Plan, so long as the Employee is a Director of the Company on
          the date of the stock option award.

          (3)    Notwithstanding anything to the contrary herein, the  Company
          acknowledges  that  nothing  in this Agreement  shall  prohibit  the
          Employee  from  maintaining  his  Directorship  positions  at   Avid
          Technology,  Inc.  and  Video Server, Inc. and  his  Advisory  Board
          position at Greenwich Street Travelers Fund.   Additionally, nothing
          in  this  Agreement  shall prohibit or restrict  the  Employee  from
          serving as a Board of Director member for additional companies whose
          principal  business  is not in competition with the  fault  tolerant
          computer products of the Company.

C.   NONCOMPETITION
     With respect to any consultancy arrangement that the Employee enters into
     during the term of this Agreement, the Employee agrees, until January 30,
     2001,  he  will  not, directly or indirectly, without the  prior  written
     consent of the entire Board of Directors of the Company, (i) provide such
     consultancy  service with or without pay, or (ii) own,  manage,  operate,
     join, control, participate in, or be connected as a stockholder, partner,
     or otherwise with any consultancy business whose principal business is in
     competition with the fault tolerant computer products of the  Company  as
     listed  in  the Company's price book or under development by or  for  the
     Company as of the Effective Date.

     It  is  further  expressly agreed that the Company will or  would  suffer
     irreparable  injury if Employee were to compete with said  businesses  of
     Company  or  any subsidiary or affiliate of the Company in  violation  of
     this  Agreement  and that Company would by reason of such competition  be
     entitled to injunctive relief in a court of appropriate jurisdiction, and
     Employee  further consents and stipulates to the entry of such injunctive
     relief  in  such  a  court prohibiting Employee from competing  with  the
     Company  or  any  subsidiary or affiliate of the Company,  as  set  forth
     above, in violation of this Agreement.

D.   ANTISOLICITATION
     With respect to any consultancy arrangement that the Employee enters into
     during the term of this Agreement the Employee promises and agrees, until
     January  30,  2001, that   he will not influence or attempt to  influence
     customers of the Company or any of its present or future subsidiaries  or
     affiliates,  either directly or indirectly, to divert their  business  to
     (i)  Employee  as a consultant or (ii) to any other consultancy  business
     which the Employee owns, manages, operates, joins, controls, participates
     in or is connected to as a shareholder, partner or otherwise that is then
     in  competition  with the business of the Company, or any  subsidiary  or
     affiliate of the Company.

E.   SOLICITING EMPLOYEES
     With respect to any consultancy arrangement that the Employee enters into
     during the term of this Agreement, the Employee promises and agrees  that
     he will not, before January 30, 2001,  directly or indirectly solicit any
     of the Company employees who earned annually $50,000 or more as a Company
     employee  during the last six (6) months of his or her own employment  to
     work  for  (i)  Employee's consultancy service; or (ii)  any  consultancy
     arrangement  in  which  the  Employee  owns,  arranges,  operate,  joins,
     controls, participates in or is connected to as a shareholder, partner or
     otherwise.

F.   SAVINGS AND SURVIVAL CLAUSE
     (1)  Should any valid federal or state law or final determination of  any
          administration agency or court of competent jurisdiction affect  any
          provision of this Agreement, the provision or provisions so affected
          shall  be  automatically conformed to the law or  determination  and
          otherwise this Agreement shall continue in full force and effect.

     (2)  Notwithstanding anything to the contrary herein, the Company  agrees
          that  this  Agreement  and the rights and obligations  herein  shall
          survive  any  change of ownership of the Company including  but  not
          limited to a merger, consolidation, disposition or acquisition  such
          that  the  surviving or acquiring entity shall be required to  honor
          the terms of this Agreement.

G.   ELECTION OF EMPLOYMENT AGREEMENT
     You  understand,  notwithstanding anything to the contrary,  that  you
     have twenty-one (21) days from physical receipt of this Agreement,  as
     stated  above, to execute this Agreement, but are under no  obligation
     to do so.

H.   PROPRIETARY INFORMATION
     You  have  previously signed a Proprietary Information Agreement  with
     the  Company,  which shall remain in full force and effect.   Included
     among  the  materials  the Company considers to be  trade  secrets  or
     otherwise   confidential,  and  thus  covered  by   that   Proprietary
     Information Agreement, and which you agree not to disclose  to  anyone
     else  without  the  Company's  written consent  signed  by  a  Company
     officer, are customer lists and marketing strategies; this list is not
     all encompassing.

I.   RELEASE
     In  consideration  of  the foregoing Sections A(1)  -  A(10)  of  this
     Employment Agreement you hereby release and discharge the Company  and
     its officers, directors, stockholders, employees, agents, subsidiaries
     and  affiliates  from  any  and  all claims,  demands  or  liabilities
     ("Claims") whatsoever, whether known or unknown or suspected to  exist
     by you, which you ever had or may now have against the Company, or any
     of them, including, without limitation, any Claims, in connection with
     your   employment  with  the  Company  and  the  termination  of  that
     employment, or pursuant to any federal, state, or local employment  or
     discrimination   laws,  regulations,  executive   orders,   or   other
     requirements,  including any actions related  to  age  (including  any
     Claims related to the ADEA), sex, sexual orientation, race or handicap
     discrimination,  excepting  any  Claims  arising  solely   from   your
     positions  as  Chairman of and a member of the  Company's  Board,  and
     excepting the obligations of the Company pursuant hereto. In  addition
     you agree not to bring any action against the Company or any employee,
     director,  officer,  agent, subsidiary or affiliate  of  the  Company,
     based on any of the foregoing.

J.   INDEMNIFICATION
     In  consideration for your continuing cooperation with and  assistance
     to  Stratus  as may be requested from time to time from the  Company's
     Board,  CEO or Executive Staff, and notwithstanding anything contained
     herein  to  the  contrary,  the Company agrees  that  this  Employment
     Agreement  and  Release  shall not release the  Company  or  otherwise
     modify  the Company's obligation to defend and indemnify the  Employee
     against any and all claims, demands or liabilities arising out of  the
     Employee's activities and duties which were performed within the scope
     of  work  of  the Employee in his various positions with  the  Company
     including,  without  limitation,  as President,  COO,  CEO,  Chairman,
     Officer  or  Director  of the Company or any of  its  subsidiaries  or
     affiliates, which obligation the Company acknowledges and confirms and
     further  agrees shall survive the Termination Date or any  termination
     of  this  Agreement.   The Company agrees to  reimburse  you  for  all
     expenses that you incur in providing such cooperation and assistance.

K.   DISCONTINUANCE OF EMPLOYMENT
     It  is  understood  that if you violate any of your commitments  under
     this Agreement, the Company may discontinue your employment and/or all
     payments  and benefits it is hereby agreeing to pay to you in addition
     to  exercising  all other rights it may have under  the  law.  Without
     limiting the foregoing, should this Agreement be terminated by Stratus
     pursuant  to this Section K, you will receive no further payments,  or
     any of the other rights and/or benefits contained herein.

L.   ENTIRE AGREEMENT
     It is expressly understood that there is no agreement or understanding
     between you and the Company about or pertaining to the termination  or
     reinstatement  of your employment with the Company, or  the  Company's
     obligations  to you with respect to such termination, except  what  is
     set  forth  in this Agreement. It is specifically agreed that  in  any
     event such employment shall cease on the Termination Date.

M.   ARBITRATION/GOVERNING LAW
     Employee  and the Company agree to arbitrate any disputes  that  might
     arise under this Agreement. Such arbitration shall take place in front
     of  one arbitrator, before the American Arbitration Association (AAA),
     in  Massachusetts.  The  arbitrator may award  legal  fees  if  deemed
     appropriate.

     This  Agreement shall be construed, enforced and governed by the  Laws
     of the Commonwealth of Massachusetts.

N.   BINDING EFFECT
     This  Agreement  shall be binding upon and inure to the  benefit  of  any
     successor  of  the  Company   and  any such  successor  shall  be  deemed
     substituted  for  the  Company   for  all  purposes.   As  used   herein,
     "successor" shall include any person, firm, corporation or other business
     entity  which  at  any  time, whether by purchase, merger  or  otherwise,
     directly  or indirectly acquires the assets or business or stock  of  the
     Company.

O.   INDEPENDENT REVIEW
     Employee  declares that he has read the foregoing, has been given  the
     opportunity  to  have the agreement reviewed by  an  attorney  of  his
     choice  and  agrees to the conditions and obligations  as  set  forth.
     Employee  understands  that he has seven (7) days  from  the  date  of
     execution to revoke this Agreement in writing.

Dated:----------------------  ------------------------------------
                              William E. Foster

Dated:----------------------  ------------------------------------
                              On Behalf of the Company & the Board of Directors:
                              Bruce I. Sachs
                              Chief Executive Officer
                              President
                              Director


                                APPENDIX A

 Bill's incentive is $350K, 50% or $175K is for corporate performance and
 50% or $175K is for performance on individual goals.

 His individual goals and the percentages of his award were:

 30%  Add  one  new major partner during 1997 that will produce a minimum
      of $50M when the partnership matures.

 30%  Achieve  at  least 90% of each target market:  $219.7M  for  Telco;
      $79.7M for RES and $24.5M for Radio.

 40%  Hire a CEO by June 1997.

 The  individual performance component is leveraged by an EPS multiplier.
 For  example if Bill made 90% of his goals and the company achieved  EPS
 of $2.30, Bill's individual award would be .9 x $175 x 1.00 = $157.5K.

 The  corporate score is based on two metrics:  (1) Increase  revenue  by
 14%  in  1997  over  1996; and (2) improve customer  satisfaction,  i.e.
 reduce  below satisfactory responses on our customer satisfaction survey
 by  10%  over  1996 score.  These two components are not weighted.   The
 Board  sets the overall score in January.  If the Board said  the  score
 was .9, then Bill would receive .9 x $175K = $157.5.

                                APPENDIX B

<TABLE>
Stock Option Personnel Summary

<CAPTION>

AS OF 9/10/97                      Stratus Computer, Inc.   ID:  04-2697554
                                   55 Fairbanks Boulevard   Marlboro, MA 01752

WILLIAM E. FOSTER                                ID:     0001
32 Saddlebrook Road
Sherborn, MA USA 01770

        Option
Number  Date      Plan   Type    Granted     Price     Exercised    Vested      Cancelled    Unvested   Outstanding   Exercisable
<S>     <C>       <C>    <C>     <C>         <C>       <C>          <C>         <C>          <C>        <C>           <C>
000011   5/12/80  80     RSP     800,000.00   $0.01     800,000.00    800,000.00  0.00            0.00         0.00          0.00
000264   5/10/83  83     ISO      16,000.00   $1.50      16,000.00     16,000.00  0.00            0.00         0.00          0.00
000401  11/15/83  83     ISO       4,000.00  $11.75       4,000.00      4,000.00  0.00            0.00         0.00          0.00
000940  11/28/84  83     ISO      10,000.00   $9.50      10,000.00     10,000.00  0.00            0.00         0.00          0.00
002853  10/26/87  83     NQ       15,000.00  $15.25      15,000.00     15,000.00  0.00            0.00         0.00          0.00
006159  10/12/90  83     NQ       85,000.00  $15.25      85,000.00     85,000.00  0.00            0.00         0.00          0.00
006715  10/12/90  83     NQ       30,000.00  $15.25      15,000.00     30,000.00  0.00            0.00    15,000.00     15,000.00
007532   2/25/93  83     NQ       30,000.00  $30.75           0.00     27,000.00  0.00        3,000.00    30,000.00     27,000.00
008276   9/ 8/93  83     NQ       30,000.00  $23.25           0.00     24,000.00  0.00        6,000.00    30,000.00     24,000.00
010656   7/25/96  83     NQ      100,000.00  $17.13           0.00     25,000.00  0.00       75,000.00   100,000.00     25,000.00
011203   1/13/97  83     NQ       40,000.00  $26.75           0.00      5,000.00  0.00       35,000.00    40,000.00      5,000.00
TOTAL                          1,160,000.00  [$5.6560]  945,000.00  1,041,000.00  0.00      119,000.00   215,000.00     96,000.00

</TABLE>



EXHIBIT 21.1 - SUBSIDIARIES


     The following is a list of the Company's current subsidiaries,
all of which are wholly-owned:
                                                    ORGANIZED
                                                UNDER LAWS OF
                                                -------------
Stratus Securities Corporation                  Massachusetts
Stratus World Trade Corporation                 Delaware
Stratus International, Inc.                     Massachusetts
Stratus F.S.C., Inc.                            U.S. Virgin Islands
S2 Systems, Inc.                                Delaware
SRA Holding L.L.C.                              Delaware
SRA Investments L.L.C.                          Delaware
TCAM Systems, Inc.                              New York


     The following is a list of subsidiaries of Stratus World Trade
Corporation, all of which are wholly-owned:
                                                ORGANIZED
                                                UNDER LAWS OF
                                                -------------
Stratus Computer Belgium N.V.                   Belgium
Stratus Computer GmbH                           Germany
Stratus Computer B.V.                           Netherlands
Stratus Holding & Finance, B.V.                 Netherlands
Stratus Computer (H.K.) Ltd.                    Hong Kong
Stratus Computer Corporation                    Canada
Stratus Computer Japan Company, Ltd.            Japan
Stratus Computer S.A.                           France
Stratus Computer Pty., Ltd.                     Australia
Stratus Holding & Finance Company, Ltd.         Ireland
Stratus Computer AB                             Sweden
Stratus Computer AG                             Switzerland
Stratus Computer (Singapore) Pte., Ltd.         Singapore
Stratus Computer (N.Z.) Ltd                     New Zealand
Stratus Computer Luxembourg S.A.                Luxembourg
Stratus Computer (Korea) Ltd.                   Korea
Stratus Computer Philippines, Inc.              Philippines
Stratus Computer (Pty.) Ltd.                    South Africa
Stratus (Bermuda) Holding Ltd.                  Bermuda
Stratus (Bermuda) Financing Ltd.                Bermuda
Stratus Computer C.V.                           The Netherlands

     The following are wholly-owned subsidiary companies of Stratus
Holding & Finance Company, Ltd:
                                                ORGANIZED
                                                UNDER LAWS OF
                                                -------------
Stratus Computer Limited                        Ireland
Stratus Investments Limited                     Bermuda
Stratus U.K. Holding and Finance, Ltd.          United Kingdom


     The following is a wholly-owned subsidiary company of Stratus
Computer, Ltd.:
                                                ORGANIZED
                                                UNDER LAWS OF
                                                -------------
Stratus Computer Ireland                        Ireland


     The following is a wholly-owned subsidiary company of Stratus
Holding & Finance B.V.:

                                                ORGANIZED
                                                UNDER LAWS OF
                                                -------------
Stratus Computer S.A.                           Spain


     The following is an 80% owned subsidiary company of Stratus
Holding & Finance B.V. and a 20% owned subsidiary of Stratus World
Trade Corporation:

                                                ORGANIZED
                                                UNDER LAWS OF
                                                -------------
Stratus Italia S.R.L.                           Italy


     The following are wholly-owned subsidiary companies of Stratus
UK Holding & Finance Company, Ltd.:
                                                ORGANIZED
                                                UNDER LAWS OF
                                                -------------
Stratus Computer Limited                        United Kingdom
S2 Systems International Limited                United Kingdom
Stratus de Mexico S.A. de C.V.                  Mexico


     The following is a 90% owned subsidiary company of Stratus U.K.
Holding & Finance Company, Ltd., and a 10% owned subsidiary of
Stratus World Trade Corporation:

                                                ORGANIZED
                                                UNDER LAWS OF
                                                -------------
TCAM Systems (U.K.) Limited                     United Kingdom


The following is a list of the Company's current joint ventures, all of
which are 50% owned:
                                                ORGANIZED
                                                UNDER LAWS OF
                                                -------------
Astria S.A.                                     France



EXHIBIT 23.1 - Consent of Independent Auditors


We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Stratus Computer, Inc. of our report dated January 21, 1998, included in the
1997 Annual Report to Stockholders of Stratus Computer, Inc.

Our audits also included the financial statement schedule of Stratus Computer,
Inc. listed in Item 14(a).  This schedule is the responsibility of the
Company's management.  Our responsibility is to express an opinion on this
schedule based on our audits.  In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 2-88104, 2-89901, 33-2174, 33-11864, 33-28742,
33-67758, 33-64709 and 333-27147, and Form S-3 No. 33-77764 and in the related
prospectus) of our report dated January 21, 1998, with respect to the
consolidated financial statements and schedule of Stratus Computer, Inc.
included or incorporated by reference in the Annual Report (Form 10-K) for the
year ended December 28, 1997.


                                                  ERNST & YOUNG LLP


Boston, Massachusetts
March 25, 1998