SECURITIES AND EXCHANGE COMMISSION
                        WASHINGTON, D.C.  20549
                              FORM 10-Q

(Mark One)

   /X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
            For the Quarterly period ended October 3, 1998

   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
            For the Transition period from        to
                                           -----     -----

                     Commission File Number 000-24918
                                            -------

                           SHIVA CORPORATION
        (Exact name of registrant as specified in its charter)


         Massachusetts                        0004-2889151
------------------------------       --------------------------------
  (State or other jurisdiction       (IRS Employer Identification No.)
 of incorporation or organization)

                  28 Crosby Drive, Bedford, MA 01730
     (Address of principal executive offices, including Zip Code)

                             (781) 687-1000
         (Registrant's telephone number, including area code)

                     ----------------------------

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 for 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
           ---      ---

The number of shares outstanding of the registrant's Common Stock as
of November 4, 1998 was 30,422,850.


<PAGE>
                            SHIVA CORPORATION

                                 INDEX
                                 -----
                                                                    Page
                                                                    ----
Part I        Financial Information

   Item 1     Consolidated Financial Statements

              Consolidated Balance Sheet
              October 3, 1998 and January 3, 1998                     3

              Consolidated Statement of  Operations
              Three and nine months ended October 3, 1998
              and September 27, 1997                                  4

              Consolidated Statement of Cash Flows
              Nine months ended October 3, 1998 and September 27,
              1997                                                    5

              Notes to Consolidated Financial Statements              6

   Item 2     Management's Discussion and Analysis of Financial
              Condition and Results of Operations                    10

   Item 3     Quantitative and Qualitative Disclosures About Market 
              Risk                                                   19

Part II       Other Information

   Item 1     Legal Proceedings                                      20

   Item 6     Exhibits and Reports on Form 8-K                       20

   Signature                                                         21

<PAGE>

<TABLE>
                            SHIVA CORPORATION
                        Consolidated Balance Sheet
                 (in thousands, except share related data)
<CAPTION>
                                             October 3,    January 3,
                                               1998          1998
                                           -------------  ------------
                                            (unaudited)
<S>                                           <C>         <C>
Assets
Current assets:
  Cash and cash equivalents                   $ 28,662     $ 58,915
  Short-term investments                        39,353       36,868
  Accounts receivable, net of allowances
   of $8,718 at October 3, 1998 and
   $8,037 at January 3, 1998                    15,978       23,169
  Inventories                                   12,694       14,058
  Deferred income taxes                          8,684        8,683
  Prepaid expenses and other current assets      1,667        2,369
                                              --------     --------
     Total current assets                      107,038      144,062
Property, plant and equipment, net              19,703       26,093
Deferred income taxes                           23,686        8,840
Other assets                                     6,881        3,251
                                              --------     --------
     Total assets                             $157,308     $182,246
                                              ========     ========
Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                            $  6,017     $  9,376
  Accrued expenses                              29,300       22,304
  Deferred revenue                               4,969        4,068
                                              --------     --------
     Total current liabilities                  40,286       35,748
                                              --------     --------             
Deferred income taxes                              575          554
                                              --------     --------
     Total liabilities                          40,861       36,302
                                              --------     --------
Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.01 par value;
   1,000,000 shares authorized,
   none issued                                    -            -
  Common stock. $.01 par value;
   100,000,000 shares authorized,
   30,527,765 and 29,605,848 shares
   issued at October 3, 1998 and
   January 3, 1998, respectively                   305          296
  Additional paid-in capital                   155,076      153,036
  Treasury stock at cost, 106,115 shares
   at October 3, 1998                           (1,307)        -
  Unrealized gain on investments                   227          110
  Cumulative translation adjustment               (200)        (308)
  Accumulated deficit                          (37,654)      (7,190)
                                              ---------    ---------
     Total stockholders' equity                116,447      145,944
                                              ---------    ---------
     Total liabilities and stockholders'
      equity                                  $157,308     $182,246
                                              ========     ========
<FN>
                 The accompanying notes are an integral part
                  of the consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
                             SHIVA CORPORATION
                     Consolidated Statement of Operations
                    (in thousands, except per share data)
                                 (unaudited)
<CAPTION>
                             Three months ended         Nine months ended
                        --------------------------  --------------------------
                          October 3,  September 27,  October 3,  September 27,
                            1998        1997           1998         1997
                        ------------ -------------   ----------  -------------
<S>                       <C>         <C>            <C>          <C>
Revenues:
   Product                $ 22,594    $ 29,117       $ 80,089     $ 88,083
   Service                   2,578       1,965         19,211        5,134
   Licenses, royalties      
    and other                6,520       4,499          8,717       13,261
                          --------    --------       --------     --------
     Total revenues         31,692      35,581        108,017      106,478

Cost of revenues:
   Product                  10,746      13,609         36,625       47,952
   Service                   1,343       1,710         11,575        4,955
                          --------    --------       --------     --------   
     Total cost of
      revenues              12,089      15,319         48,200       52,907
                          --------    --------       --------     --------
Gross profit                19,603      20,262         59,817       53,571
                          --------    --------       --------     --------
Operating expenses:
   Research and
    development              6,402       6,937         15,623       18,676
   Selling, general and
    administrative          15,138      17,622         45,148       55,929
   In-process research
    and development              -           -         34,500            -
   Restructuring expenses    2,235           -         13,300            -
                          --------    --------       --------     --------
   Total operating
    expenses                23,775      24,559        108,571       74,605
                          --------    --------       --------     --------
Loss from operations        (4,172)     (4,297)       (48,754)     (21,034)

Interest income                810         887          2,824        2,787
Interest and other income
 (expense), net                715         (26)         1,130         (294)
                          --------    ---------      ---------    ---------
Loss before income taxes    (2,647)     (3,436)       (44,800)     (18,541)
Income tax benefit            (847)     (1,306)       (14,336)      (7,045)
                          ---------   ---------      ---------    ---------
Net loss                  $ (1,800)   $ (2,130)      $(30,464)    $(11,496)
                          =========   =========      =========    =========

Net loss per share -
 basic and diluted        $  (0.06)   $  (0.07)      $  (1.01)    $  (0.39)
                          =========   =========      =========    =========
Shares used in computing
 net loss per share -
 basic and diluted          30,394      29,387         30,175       29,165
                          =========   =========      =========    ========= 
<FN>
                   The accompanying notes are an integral part
                    of the consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
                           SHIVA CORPORATION
                  Consolidated Statement of Cash Flows
            Increase (Decrease) in Cash and Cash Equivalents
                            (in thousands)
                             (unaudited)
<CAPTION>
                                                  Nine Months Ended
                                           -------------------------------
                                            October 3,      September 27,
                                               1998             1997
                                           ------------     -------------
<S>                                         <C>              <C>
Cash flows from operating activities
  Net loss                                  $ (30,464)       $ (11,496)
  Adjustments to reconcile net loss
   to net cash provided (used) by
   operating activities:
   In-process research and development         34,500                -
   Depreciation and amortization                9,024            7,430
   Non-cash restructuring charge                3,570                -
   Deferred income taxes                      (14,399)          (8,123)
   Changes in assets and liabilities,
    net of effects of acquisition:
    Accounts receivable                         8,066           14,633
    Inventories                                 1,467              658
    Prepaid expenses and other current
     assets                                       768              (89)
     Accounts payable                          (3,947)          (3,285)
     Accrued expenses                           6,627              851
     Deferred revenue                             881            1,061
     Other long term liabilities                    -              (17)
                                            ---------        ----------
    Net cash provided by operating
     activities                                16,093            1,623
                                            ---------        ----------
Cash flows from investing activities
  Purchases of property, plant and
   equipment                                   (3,529)          (8,788)
  Payments for acquisition                    (39,925)               -
  Capitalized software development costs         (320)            (889)
  Purchases of short-term investments         (32,367)         (23,104)                                              
  Proceeds from maturity and sales of
   short-term investments                      29,999           16,309
  Change in other assets                         (556)          (2,176)
                                            ----------       ----------
    Net cash used by investing activities     (46,698)         (18,648)
                                            ----------       ----------
Cash flows from financing activities
  Principal payments on long-term debt
   and capital lease obligations                 (119)            (344)
  Purchases of treasury stock                  (1,307)               -
  Proceeds from exercise of stock options       1,601            2,014
                                            ----------       ----------
    Net cash provided by financing
     activities                                   175            1,670
                                            ----------       ---------- 
Effects of exchange rate changes on
 cash and cash equivalents                        177              223
                                            ----------       ----------
Net decrease in cash and cash
 equivalents                                  (30,253)         (15,132)
Cash and cash equivalents, beginning
 of period                                     58,915           72,067
                                            ----------       ----------
Cash and cash equivalents, end of
 period                                     $  28,662        $  56,935
                                            ==========       ==========
<FN>
                   The accompanying notes are an integral part
                    of the consolidated financial statements.
</TABLE>

<PAGE>

                           SHIVA CORPORATION
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              (unaudited)

1.  BASIS OF PRESENTATION:

    The accompanying unaudited consolidated financial statements include
    the accounts of the Company and its wholly-owned subsidiaries, and
    have been prepared by the Company in accordance with generally
    accepted accounting principles.  In the opinion of management, these
    unaudited consolidated financial statements contain all adjustments
    necessary for a fair presentation of the Company's financial position,
    results of operations and cash flows at the dates and for the periods
    indicated.  Such adjustments are of a normal recurring nature, except
    for the restructuring charges incurred during the three-month and nine-
    month periods ended October 3, 1998 and the in-process research and
    development charges incurred during the nine-month period ended
    October 3, 1998.  While the Company believes that the disclosures
    presented are adequate to make the information not misleading, these
    consolidated financial statements should be read in conjunction with
    the consolidated financial statements and related notes included in
    the Company's Annual Report on Form 10-K for the fiscal year ended
    January 3, 1998.

    The results of operations for the three-month and nine-month periods
    ended October 3, 1998 are not necessarily indicative of the results
    expected for the full fiscal year.


2.  EARNINGS PER SHARE:

    The Company has adopted Statement of Financial Accounting Standards
    (SFAS) No. 128, "Earnings per Share," and has restated earnings per
    share amounts for all periods presented herein.

<TABLE>
<CAPTION>
                                     Three months ended   Three months ended
                                       October 3, 1998    September 27, 1997
                                     ------------------   ------------------
<S>                                    <C>                  <C>
Net loss                               ($1,800,000)         ($2,130,000)
                                       ============         ============ 
Weighted average shares outstanding     30,394,028           29,387,230
Common-equivalent shares outstanding             -                    -
                                       ------------         ------------
  Weighted average and common
   equivalent shares outstanding        30,394,028           29,387,230
                                       ------------         ------------
Basic and diluted net loss per share        ($0.06)              ($0.07)
                                      =============         ============

                                      Nine months ended    Nine months ended
                                       October 3, 1998    September 27, 1997
                                     ------------------   ------------------
<S>                                    <C>                  <C>
Net loss                               ($30,464,000)        ($11,496,000)
                                       =============        ============= 
Weighted average shares outstanding      30,174,813           29,165,388
Common-equivalent shares outstanding             -                    -
                                       -------------        -------------
  Weighted average and common
   equivalent shares outstanding         30,174,813           29,165,388
                                       -------------        -------------
Basic and diluted net loss per share         ($1.01)              ($0.39)
                                       =============        =============
</TABLE>

<PAGE>

3.  CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

    At October 3, 1998, the Company had cash and cash equivalents of
    $28,662,000 and short-term investments of $39,353,000, including an
    unrealized gain of $227,000 recorded as a separate component of
    stockholders' equity.  The Company's short-term investments at October
    3, 1998, classified as available-for-sale, consist of municipal
    securities, corporate debt securities and U.S. Treasury securities,
    with various maturity dates through August 2000.

4.  INVENTORIES:

<TABLE>
<CAPTION>
    Inventories consist of the following:

                                      October 3,   January 3,
    (in thousands)                       1998         1998
                                      ----------   ----------
    <S>                               <C>          <C>
    Raw materials                     $  6,424     $  7,199
    Work-in-process                         61           57
    Finished goods                       6,209        6,802
                                      --------     --------
                                      $ 12,694     $ 14,058
                                      ========     ========
</TABLE>


5.  COMPREHENSIVE INCOME:

    In June 1997, the Financial Accounting Standards Board issued
    Statement of Financial Accounting Standards No. 130 ("FAS 130"),
    "Reporting Comprehensive Income."  The Company adopted FAS 130 on
    January 4, 1998, which establishes standards for reporting
    comprehensive income and its components in the consolidated financial
    statements.  Comprehensive loss for the three-month and nine-month
    periods ended October 3, 1998 was $1,638,000 and $30,311,000,
    respectively, and includes the after-tax effect of foreign currency
    translation adjustments and unrealized holding gains on its cash and
    short-term investments arising during the periods.


6.  ACQUISITION:

    On March 26, 1998, the Company acquired Isolation Systems, Limited, a
    leading developer of virtual private networking ("VPN") hardware and
    software solutions based in Toronto, Ontario in exchange for cash paid
    by the Company from its existing cash and short-term investment
    balances.  The acquisition was accounted for as a purchase.
    Accordingly, the purchase price of approximately $39,925,000 was
    allocated to the underlying assets and liabilities based on their
    respective fair values at the date of closing.  The fair value of the
    net assets acquired was $617,000, and $34,500,000 of the purchase
    price was allocated to in-process research and development. The amount
    allocated to in-process research and development was determined
    through established valuation techniques in the high-technology
    communications industry and was expensed upon acquisition, as it was
    determined that technological feasibility had not been established and
    no alternative uses existed.  The excess of the purchase price over
    the net assets acquired, excluding the in-process research and
    development charge recorded in the first quarter of 1998, will be
    amortized on a straight-line basis over three years.  This excess
    approximated $4,808,000, and consisted of developed technology of
    $2,000,000, an assembled workforce of $300,000 and $2,508,000 in other
    intangible assets.  Pursuant to an indemnification agreement, upon
    the occurrence of certain events, the Company may also pay an amount
    not to exceed $6,500,000, which would be recorded as additional
    goodwill and amortized over the remaining useful life of the asset.

    The following summary, prepared on an unaudited pro forma basis,
    combines the results of operations as if Isolation Systems, Limited
    had been acquired as of December 29, 1996; however the one-time charge
    of $34,500,000 as a result of the purchase price allocated to in-
    process research and development has been excluded due to its non-
    recurring nature.  The pro forma results have been adjusted in each of
    the periods presented below to reflect the loss of interest income as
    a result of the cash used in the acquisition as well as the
    amortization of goodwill resulting from the transaction.

<PAGE>

<TABLE>
<CAPTION>
                             Three months ended          Nine months ended
                        ---------------------------  -------------------------
                          October 3,  September 27,  October 3,  September 27,
    (in thousands)           1998        1997           1998         1997
                        ------------  -------------  ----------  -------------
    <S>                  <C>         <C>              <C>         <C>
    Total revenues       $31,692     $36,120          $109,275    $107,396
    Operating loss        (4,172)     (4,969)          (14,273)    (23,210)
    Net loss              (1,800)     (3,036)           (7,501)    (14,277)
                         ========    ========         =========   =========
    Net loss per share -
     basic and diluted    ($0.06)     ($0.10)           ($0.25)     ($0.49)
                         ========    ========         =========   =========
</TABLE>

    The unaudited pro forma results are not necessarily indicative of what
    actually would have occurred if the acquisition had been in effect for
    the entire periods presented.  In addition, they are not intended to
    be a projection of future results and do not reflect any synergies
    that might be achieved from combined operations.


7.  RESTRUCTURING EXPENSES:

    During the second quarter of fiscal 1998, the Company approved and
    implemented a restructuring program to align its financial model with
    its strategic focus on providing remote access solutions for business.
    The plan included a reduction of the Company's worldwide workforce by
    approximately 130 employees, most of whom were based in Europe, with
    the remainder in the United States. A majority of these employees
    identified were terminated on July 13, 1998 and the remaining
    terminations were completed on October 15, 1998. The Company recorded
    restructuring expenses of $2,235,000 in the three-month period ended
    October 3, 1998, which included $1,176,000 for severance, benefits and
    other personnel-related expenses and $1,059,000 in professional fees,
    facilities and other costs.  As of October 3, 1998, $40,000 of
    severance, benefits and other personnel-related costs and $121,000 of
    professional fees, facilities and other costs had been paid.

    The Company also recorded restructuring expenses of $9,435,000 in the
    three-month period ended July 4, 1998, which included $4,585,000 for
    severance, benefits and other personnel-related expenses, $3,570,000
    in non-cash expenses for fixed asset write-downs, and $1,280,000 in
    professional fees, facilities and other costs.  As of October 3, 1998
    $3,196,000 of severance, benefits and other personnel-related costs
    and $645,000 of professional fees, facilities and other costs have
    been paid.

    In addition, the Company recorded $1,630,000 of restructuring expenses
    during the first quarter of fiscal 1998.  These expenses, comprised
    primarily of severance-related costs, were the result of the
    restructuring of the Company's sales and marketing operations.
    Substantially all of these costs have been paid.


8.  RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS:

    In June 1998, the Financial Accounting Standards Board (FASB) issued
    Statement of Financial Accounting Standards No. 133, Accounting for
    Derivative Instruments and Hedging Activities ("FAS 133").  FAS 133 is
    effective for all fiscal quarters of all fiscal years beginning after
    June 15, 1999.  FAS 133 requires that all derivative instruments be
    recorded on the balance sheet at their fair value.  Changes in the
    fair value of derivatives are recorded each period in current earnings
    or other comprehensive income, depending on whether a derivative is
    designated as part of a hedge transaction and, if it is, the type of
    hedge transaction.  For fair-value hedge transactions in which the
    Company is hedging changes in an asset's, liability's, or firm
    commitment's fair value, changes in the fair value of the derivative
    instrument will generally be offset in the income statement by changes
    in the hedged item's fair value.  For cash-flow hedge transactions, in
    which the Company is hedging the variability of cash flows related
    to a variable-rate asset, liability, or a forecasted transaction,
    changes in the fair value of the derivative instrument will be
    reported in other comprehensive income.  The gains and losses on the
    derivative instrument that are reported in other comprehensive income
    will be reclassified as earnings in the periods in which earnings are
    impacted by the variability of the cash flows of the hedged item.  The
    ineffective portion of all hedges will be recognized in current-period
    earnings.

    The Company has not yet determined the impact that the adoption of FAS
    133 will have on its earnings or statement of financial position.


9.  SUBSEQUENT EVENT

    On October 19, 1998, Shiva Corporation and Intel Corporation ("Intel")
    entered into a definitive merger agreement. Under the merger
    agreement, if the proposed merger is consummated, Shiva will become a
    wholly-owned subsidiary of Intel.  In the merger, each share of Shiva
    stock, other than shares held by stockholders who exercise statutory
    appraisal rights, would be converted into the right to receive $6 per
    share in cash.  The transaction is subject to approval by Shiva
    stockholders, regulatory approval and other conditions.


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF
             FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of Operations

Nortel Agreements. The Company has been party to a strategic
relationship with Northern Telecom, Inc. ("Nortel") since 1995 which
has evolved over time. On September 28, 1998, the Company signed an
amended agreement with Nortel (the "1998 Amendment") under which the
Company will receive a revenue stream of $20,000,000, with little or
no direct cost, over the contract term which began in the three-month
period ended October 3, 1998 and expires in the fourth quarter of fiscal
1999.  The financial terms of the 1998 Amendment provide the Company
with a comparable level of gross profit, and supersedes the terms of,
the OEM agreement (the "1998 Agreement") signed on February 28, 1998,
under which Nortel was to issue purchase orders for a minimum of
$5,000,000 per quarter to purchase the Company's products with a
minimum aggregate amount of $40,000,000 over the term of the contract,
which began in the three-month period ended April 4, 1998.  These OEM
purchases from Nortel had replaced the minimum royalty arrangement
with the Company that was in effect during fiscal 1997.  In the first
two quarters of fiscal 1998, the Company also received total
professional services revenue of $12,000,000 from Nortel related to
the development of carrier class remote access technology.  The OEM
purchases and professional services in the first two quarters of 1998
had resulted in higher revenues from Nortel through such period,
which carried lower gross margins than those achieved in 1997.
Beginning in the three-month period ended October 3, 1998, however,
gross margins as a percentage of revenues from Nortel are expected to
increase, as a significant portion of the revenues from Nortel will
consist of the revenue stream provided under the terms of the 1998
Amendment, which carry little or no direct cost.

On April 23, 1998, Nortel exercised its option under the 1998
Agreement to license certain Shiva technology.  Pursuant to the terms
of the agreement, Shiva will record a total of $26,000,000 ratably
over ten quarters, or $2,600,000 per quarter, which began in the
second quarter of fiscal 1998, for the license and other items related
to intellectual property.  Proceeds from this license agreement are
being accounted for as $2,000,000 in LanRover Access Switch revenue
and $600,000 in other income per quarter over the license term.

Revenues.  Revenues in the three-month and nine-month periods ended
October 3, 1998 were $31,692,000 and  $108,017,000, respectively,
compared to $35,581,000 and $106,478,000 in the comparable periods in
fiscal 1997, respectively.  The 11% decrease in revenues in the three-
month period ended October 3, 1998 was primarily due to lower revenues
from the Company's LanRover and LanRover Access Switch products,
partially offset by increased revenues from other remote access
products.  Revenues increased slightly in the nine-month period ended
October 3, 1998 compared to the corresponding period in fiscal 1997
principally due to higher service revenues, which increased to
$19,211,000 in the nine-month period ended October 3, 1998 from
$5,134,000 during the comparable period in fiscal 1997.  This increase
was primarily due to $12,000,000 in professional services revenue from
Nortel related to the development of carrier class remote access
technology pursuant to the 1998 Agreement.  This increase in service
revenues was partially offset by lower revenues from the Company's
LanRover product line due to lower volume shipments, as well as
decreased license, royalty and other revenues, primarily related to
the LanRover Access Switch products as discussed below.  Revenues in
the nine-month period ended September 27, 1997 were negatively
impacted by price protection provisions of $6,700,000, of which
$3,900,000 related to the LanRover and $2,800,000 related to the
LanRover Access Switch, due to increased price competition and price
reductions on the V.34 modem card due to the availability of 56K
modem technology in the access concentrator market.  Price protection
rights require the Company to grant retroactive price adjustments for
inventories of the Company's products held by distribution partners if
the Company lowers its prices for such products.

Revenues from the LanRover Access Switch in the three-month and nine-
month periods ended October 3, 1998 decreased to $11,413,000 and
$40,930,000, respectively, from $14,700,000 and $45,947,000 in the
comparable periods in fiscal 1997, primarily due to lower license and
royalty revenues from Nortel, and lower volume shipments.  Revenues
from the LanRover Access Switch in fiscal 1997 included minimum
royalty revenues from Nortel, which will not recur in fiscal 1998 (as
described above) that were based on sales of the Nortel Rapport 112,
an OEM version of the LanRover Access Switch.  The loss of these
royalty revenues was partially offset by license revenues from Nortel
as part of the 1998 Agreement recorded in the second and third
quarters of fiscal 1998, and by the price protection provisions of
$2,800,000 recorded in the first quarter of fiscal 1997 as described
above.

Revenues from the LanRover product line in the three-month and nine-
month periods ended October 3, 1998 decreased to $7,396,000 and
$25,534,000, respectively, from $13,475,000 and $39,238,000 in the
comparable periods in fiscal 1997, primarily due to lower volume
shipments.  LanRover revenues in the nine-month period ended September
27, 1997 were negatively impacted by price protection provisions of
$3,900,000.

Revenues from the Company's other remote access products increased to
$9,517,000 and $18,696,000, respectively, in the three-month and nine-
month periods ended October 3, 1998 from $3,984,000 and $11,016,000 in
the comparable periods in fiscal 1997.  The increase in the three-
month and nine-month periods ended October 3, 1998 was primarily
related to revenues recorded in accordance with the 1998 Amendment
with Nortel, increased revenues from the Company's AccessPort product,
and the introduction of the LanRover VPN Gateway product as a result
of the acquisition of Isolation Systems, Limited on March 26, 1998,
partially offset by decreased revenues from certain other products.

The Company provides its distributors and resellers with product
return rights for stock balancing and product evaluation.  Revenues
were reduced by provisions for product returns of $2,125,000 and
$7,441,000, or 6% of gross revenues, in the three-month and nine-month
periods ended October 3, 1998, respectively.  Provisions for product
returns were $2,439,000, or 6% of gross revenues, and $13,784,000, or
11% of gross revenues in the corresponding periods in fiscal 1997.
Provisions for product returns were higher in the nine-month period
ended September 27, 1997 compared to the nine-month period ended
October 3, 1998 primarily a result of provisions recorded in the first
quarter of fiscal 1997 to account for slow-moving and discontinued
products in the Company's North American distribution channels.

Revenues from OEM customers represented 21% and 29% of revenues in the
three-month and nine-month periods ended October 3, 1998, respectively,
compared to 26% and 25% in the comparable periods in fiscal 1997.  The
decrease in the three-month period ended October 3, 1998 was primarily
due to decreased OEM purchases from Nortel and IBM, partially offset
by increased revenues from Nortel related to the 1998 Amendment.
The increase in the nine-month period ended October 3, 1998 was
primarily due to the $12,000,000 in professional services revenue
received from Nortel in the first two quarters of 1998.  The Company
anticipates that OEM revenues will decline in future periods.

International revenues accounted for 41% and 37% of revenues in the
three-month and nine-month periods ended October 3, 1998, respectively,
compared with 43% and 50% in the corresponding periods in fiscal 1997.
International revenues were lower in the three-month and nine-month
periods ended October 3, 1998 due to decreased sales in the Pacific
Rim and Europe.  In addition, international revenues represented a
significantly higher proportion of total revenues in the nine-month
period ended September 27, 1997 due to the impact of the return
provisions and price protection provisions that significantly reduced
revenues from the Company's North American distribution channels in
1997.

Gross Profit.  Gross profit was $19,603,000 and $59,817,000, for the
three-month and nine-month periods ended October 3, 1998, respectively,
compared to $20,262,000 and $53,571,000 for the comparable periods in
fiscal 1997.  This represented 62% and 55% of revenues in the three-
month and nine-month periods ended October 3, 1998, respectively,
compared to 57% and 50% in the corresponding periods in 1997.  Gross
profit as a percentage of revenues increased in the three-month period
ended October 3, 1998 due to the increase in license, royalty and
other revenues, which carry little or no direct cost.  Gross profit
in the nine-month period ended September 27, 1997 included the
negative impact of price protection provisions of $6,700,000, as
previously described, and provisions for slow-moving inventories.
The provisions for slow-moving inventories increased cost of revenues
by $6,463,000, and related to V.34 modem cards, for which demand had
decreased due to the availability of 56K modem technology, and certain
other products. Excluding the impact of these provisions, gross profit
as a percentage of revenues would have been 59% in the nine-month
period ended September 27, 1997.  Gross profit as a percentage of
revenues was negatively impacted in the nine-month periods ended
October 3, 1998 due to the professional services revenue and OEM
product (non-license and royalty) revenues from Nortel. Each of these
revenue streams from Nortel carried lower gross profit percentages
than the Company's non-Nortel product revenues, and significantly
lower gross profit percentages than the Nortel royalty revenues 
recorded in the year earlier period.  In the future, the Company's
gross margins may be affected by several factors, including but not
limited to the competitive pricing environment, product mix, the level
of license and royalty revenue as a percentage of total revenue, the
distribution channels used, changes in component costs and the
introduction of new products.

Research and Development. Research and development expenses during the
nine-month period ended October 3, 1998 primarily related to the
development of new and existing remote access products, including
products which incorporate technology to support virtual private
networking.  Research and development expenses decreased to $6,402,000
and $15,623,000 in the three-month and nine-month periods ended
October 3, 1998 from $6,937,000 and $18,676,000 during the comparable
periods in fiscal 1997.  The decrease in research and development
expenses for the three-month period ended October 3, 1998 compared to
the three-month period ended September 27, 1997 was primarily due to
restructuring actions as the Company discontinued operations at the
Edinburgh, Scotland, facility.  The Edinburgh facility was primarily
focused on jointly funded engineering activities with Nortel.  The
decrease in these expenses for the nine-month period ended October 3,
1998 compared to the nine-month period ended September 27, 1997 was
primarily due to the restructuring of the Company's relationship with
Nortel in fiscal 1998 under which Nortel had previously contracted
with the Company for the development of carrier class remote access
technology.  Under the terms of the 1998 Agreement, the Company
recognized a total of $12,000,000 in professional services revenue in
the nine-month period ended October 3, 1998 as work was performed.
Accordingly, expenses related to these development efforts of
$7,422,000 in the nine-month period ended October 3, 1998, have been
included in cost of service revenues in the accompanying statement of
operations.  This decrease in research and development expenses
associated with the 1998 Agreement was partially offset by a reduction
in capitalized software development costs, as well as a decrease
in customer funded development fees, which are recorded as an offset
to research and development expenses.  There were no such fees
recorded in the three-month and nine-month periods ended October 3,
1998, compared to $1,500,000 and $4,954,000 in the three-month and
nine-month periods ended September 27, 1997.  Capitalized software
development costs were $233,000 and $320,000 for the three-month and
nine-month periods ended October 3, 1998, compared with $488,000 and
$888,000 in the comparable periods in fiscal 1997.  Gross research and
development expenses decreased to $6,635,000 and $23,365,000,
respectively, in the three-month and nine-month periods ended October
3, 1998 from $8,925,000 and $24,518,000 in the comparable periods in
fiscal 1997.  The Company anticipates continued significant investment
in research and development primarily focused on providing remote
access solutions for the business access market.

Selling, General and Administrative.  Selling, general and
administrative expenses decreased to $15,138,000 and $45,148,000 in
the three-month and nine-month periods ended October 3, 1998 from
$17,622,000 and $55,929,000 in the comparable periods in fiscal 1997.
These expenses represented 48% and 42% of revenues in the three-month
and nine-month periods ended October 3, 1998, respectively, compared
to 50% and 53% in the corresponding periods in 1997.  The decrease in
gross expenses was due to several factors, including lower personnel
costs due to the restructuring of the Company's sales and marketing
organization as discussed below, as well as decreased costs incurred
for travel, channel and marketing programs, trade shows, recruiting,
temporary help and various facilities related expenses.  These
decreases were partially offset by increased bad debt expense.
Selling, general and administrative expenses in the three-month and
nine-month periods ended September 27, 1997 are net of expenses
reimbursed by Nortel of $1,623,000 and $3,831,000, respectively,
related to Shiva's Service Provider Group (SPG), a worldwide business
unit comprised of technical sales and support personnel that had been
dedicated to marketing Nortel's remote access equipment to carriers
and service providers through the first quarter of fiscal 1998.
Expenses reimbursed by Nortel in the first quarter of 1998 were
$1,018,000.  Nortel no longer funds the SPG unit.

Restructuring Expenses.  The Company recorded restructuring expenses
of $2,235,000 and $13,300,000 in the three-month and nine-month
periods ended October 3, 1998, respectively.  Restructuring expenses
in the three-month period ended October 3, 1998 consisted of
$1,176,000 in severance, benefits and other personnel-related expenses
and $1,059,000 in professional fees, facilities and other costs.
Restructuring expenses for the nine-month period ended October 3, 1998
consisted of $6,957,000 in severance, benefits and other personnel-
related expenses, $3,570,000 in non-cash expenses for fixed asset
write-downs, and $2,773,000 in professional fees, facilities and other
costs.  These restructuring expenses were primarily a result of the
restructuring of the Company's sales and marketing operations as well
as a formal plan announced by the Company on April 15, 1998 to
restructure its worldwide operations and align its financial model
with the strategic focus on providing remote access solutions for
business.  Specifically, Shiva discontinued operations at the
Edinburgh, Scotland, facility and has relocated certain technical
support staff to the Wokingham, United Kingdom, facility.  The
Edinburgh facility was primarily focused on jointly funded engineering
activities with Nortel.  The Company anticipates that substantially
all of the cash restructuring charges will be paid out from the
Company's cash and short-term investment balances by the end of fiscal
1998.

Interest Income and Expense.  Interest income decreased during the
three-month period ended October 3, 1998 over the corresponding period
in fiscal 1997 primarily as a result of the cash used in the
acquisition of Isolation Systems, Limited.  Interest income increased
during the nine-month period ended October 3, 1998 over the
corresponding period in fiscal 1997 primarily due to the Company's
shift from federal tax-exempt securities into taxable securities,
which resulted in a higher overall yield on its investments. Interest
and other income for the three-month period ended October 3, 1998 was
$715,000 compared with interest and other expense of $26,000 for the
period ended September 27, 1997.  This change is primarily due to the
inclusion of $600,000 of income resulting from the option exercised by
Nortel under the 1998 Agreement to license certain Shiva technology.

Income Tax Benefit.  The Company's effective tax rate in each of the
three-month and nine-month periods ended October 3, 1998 was 32%, down
from 38% in each of the three-month and nine-month periods ended
September 27, 1997, primarily due to the impact of nondeductible
restructuring charges.


Foreign Currency Fluctuations and Conversion to Euro

Foreign currency fluctuations did not have a significant impact on the
results of operations in the three-month and nine-month periods ended
October 3, 1998 as compared with those of the comparable periods in
fiscal 1997.  However, the Company's international operations will
continue to be exposed to adverse movements in foreign currency
exchange rates which may have a material adverse impact on the
Company's financial results.  The Company enters into forward exchange
contracts to hedge those currency exposures related to certain assets
and liabilities denominated in non-functional currencies and does not
generally hedge anticipated foreign currency cash flows.

Certain of the member countries of the European Union have agreed to
adopt a new currency, the Euro, as their common legal currency.  On
January 1, 1999, the countries will establish fixed conversion rates
between their existing currencies and the Euro.  The Company has not
yet completed its analysis of the potential impact the conversion to
the Euro may have on its business or results of operations.


Year 2000

The Company recognizes that it must ensure that its products and
operations will not be adversely impacted by Year 2000 software
failures (the "Year 2000 issue"), which can arise in certain time-
sensitive software applications that utilize a field of two digits to
define the applicable year.  In such applications, a date using "00"
as the year may be recognized as the year 1900 rather than the year
2000.

The Company is in the process of assessing its exposure to the Year
2000 issue.  The Company has divided the assessment into multiple
projects which are currently being undertaken by Company employees in
applicable functions. The Company may consider the use of independent
consultants or other external resources if major incremental Year 2000
issues are found as a result of the Company's internal Year 2000
assessment.  The assessment project includes the Company's product
compliance testing (and related engineering remedial work), internal
systems assessment and third-party supplier assessment.  All Year
2000 activity has been funded from operating cash flows, and the
Company has not separately accounted for these costs.  The Company's
total cost relating to all of these activities (excluding replacement
systems) has not been, and management anticipates that such costs are
not expected to be material to the Company's financial position,
results of operations or cash flows.

The Company has developed an extensive Year 2000 product test suite
which is based on various industry standard Year 2000 tests. The test
suite can be found on the Company's web site.  The Company has tested
approximately fifty percent of its products against the suite, and has
published the test results on the Company's web site at www.shiva.com.
The web site is updated weekly with test results as the testing is
completed.  The Company anticipates that all of its products will have
been tested by the end of 1998.

To date, the Company is aware that the SpiderManager and certain Shiva
Access Manager products are not Year 2000 compliant.  The
SpiderManager product will display the year number in the activity log
date field as three digits.  The Company believes that this
characteristic does not have any system operational implications for
the product, therefore, the Company does not anticipate undertaking
additional research and development or remediation efforts to change
this display characteristic.  The Shiva Access Manager NT 1.0 product
uses only two digits to store year information.  The system interprets
these two digits as being in the twentieth century before year 2000,
and will interpret the two digits as being in the twenty-first century
after year 2000.  The Company believes that this date calculation
methodology could reactivate previously terminated user accounts and
may produce incorrect log files if both twentieth and twenty-first
century dates are involved.  This Year 2000 issue has been corrected
in Shiva Access Manager NT at version 2.0 and higher versions.  The
Company has strongly recommended that its customers implement the suggested
upgrade to correct the problem.  The Company does not anticipate
undertaking additional research and development or remediation efforts
incurring additional expenses to correct this Year 2000 issue.  Shiva
Access Manager version 2.x and 3.x support Vasco Data Security, Inc.'s
("Vasco's") time-based hard tokens.  After the change of century, any
Vasco time-based hard tokens will fail to authenticate a user which
will cause an authorized user to be denied access to the system.
This Year 2000 issue has been corrected in Shiva Access Manager 4.0
which incorporates new token libraries from Vasco.  The Company has
strongly recommended that its customers using Vasco time-based hard
tokens upgrade to version 4.0 or higher versions to correct the
problem.  All users of a Vasco time-based hard token must also have
their hard tokens reprogrammed by Vasco in order to correct the Year
2000 issue.  The Company does not anticipate undertaking additional
research and development or remediation efforts for this Year 2000
issue.  The Shiva Access Manager Accountant cannot allow entry of full
Year 2000 compliant dates into some of its data entry screens.  This does
not affect the operation of the software but may cause some resulting
reports to be incorrect.  This Year 2000 issue has been corrected and
will be released in the next revision of the product, which is due to
be released in the last quarter of 1998 or first quarter of 1999. The
Company has strongly recommended that customers using Shiva Access Manager
Accountant upgrade to the new release when available.  The Company
does not anticipate undertaking additional research and development or
remediation efforts or incurring additional expenses for this Year
2000 issue.  To assist customers who have Shiva Access Manager
products that are not Year 2000 compliant, the Company plans to launch
a special upgrade program within the next six months to ensure the
Year 2000 compliant versions are in place by the century change.  The
Company does not expect the cost of the upgrade program to be material
to the results of the Company.

Even after extensive testing, there can be no guarantee that one or
more current Company products do not contain Year 2000 issues that may
result in material costs to remedy.  The Company's risk of being
subjected to lawsuits relating to Year 2000 issues with its software
products is likely to be greater than other industries.  Since
computer systems may involve various hardware, software and firmware
components from different manufacturers, it may be difficult to
determine which component in a computer system may cause a Year 2000
issue.  As a result, the Company may be subjected to Year 2000-related
lawsuits independent of whether its products or services are Year 2000
compliant.  The possibility and outcome of any such lawsuits and the
potential impact on the Company cannot be determined at this time.

The Company has completed its initial audit of the Company's major
information technology ("IT") systems.  The Company replaced its North
American finance and manufacturing system in the third quarter of fiscal
1998 with a Year 2000 compliant system.  The Company is planning to complete
all necessary Year 2000 upgrades of its major systems in 1999, and is
currently identifying and developing compliance strategies for its
remaining systems that may be impacted by the Year 2000 issue.  The
Company is also assessing its non-IT systems for Year 2000 non-compliance.
The initial assessment of non-IT systems is scheduled to be completed in
the first quarter of 1999.

The Company is in process of developing a Year 2000 plan with each of
the Company's manufacturing contractors.  The plans are targeted to be
completed by the end of 1998.  The plans will address manufacturing
process, component and supplier Year 2000 readiness/compliance and the
Company does not expect the cost of such plans to be material.  The
Company has begun to initiate formal communications and projects with
its significant suppliers and service providers to determine the
extent to which the Company is vulnerable to those third parties'
failure to remedy their Year 2000 issues.  The Company has received
some assurances regarding the status of Year 2000 issues from its
vendors; however, there is no guarantee that third party systems will
be compliant, and such non-compliance could have an adverse effect on
the Company.  For example, if some of the Company's component vendors
are not Year 2000 compliant it could adversely impact the Company's
Year 2000 compliance program.

The Company currently does not have a comprehensive contingency plan
to address situations that may result if the Company is unable to
achieve Year 2000 readiness of its critical operations.  The cost of
developing and implementing such a plan may itself be material.  Such
a plan will be developed if it becomes clear that the Company is not
going to achieve its scheduled compliance objectives.  If the Company
does not become Year 2000 compliant in a timely manner, the Year 2000
issue could have a material impact on the business, financial condition
and results of operations.  Delays in Year 2000 compliance could also 
adversely affect the Company's reputation and competitive position and
impair its ability to process customer transactions and orders and payments
of supplierr merchandise.

The foregoing shall be considered a Year 2000 readiness disclosure to
maximum extent allowed under the Year 2000 Information and Readiness
Disclosure Act.

Liquidity and Capital Resources

As of October 3, 1998, the Company had $28,662,000 of cash and cash
equivalents and $39,353,000 of short-term investments.  Working
capital decreased by 38% to $66,752,000 at October 3, 1998 from
$108,314,000 at January 3, 1998, primarily due to cash used to acquire
Isolation Systems, Limited.

Net cash provided by operations totaled $16,093,000 for the nine-month
period ended October 3, 1998 compared with $1,623,000 during the
comparable period in fiscal 1997.  Net cash provided by operations in
the nine-month period ended October 3, 1998 resulted primarily from
the net loss adjusted for non-cash expenses including in-process
research and development, as well as the decrease in accounts 
receivable and inventories and the increase in accrued expenses,
partially offset by a decrease in accounts payable.  The decrease in
accounts receivable is primarily due to lower revenues and increased
collection activities.  The decrease in inventories is due to decreased
inventory requirements as a result of lower revenue levels.  The
increase in accrued expenses is primarily due to increases in accrued
sales, marketing and manufacturing expenses, and the accrued severance
and other costs related to the Company's restructuring efforts.  Net
cash provided by operations in the nine-month period ended September
27, 1997 resulted primarily from the decrease in accounts receivable,
partially offset by the net loss adjusted for non-cash expenses and
the increase in deferred income taxes.  The decrease in accounts
receivable was due to decreased revenue levels and the previously
mentioned increase in product return and price protection provisions,
as well as increased collection activity.

Net cash used by investing activities totaled $46,698,000 for the nine-
month period ended October 3, 1998, compared to $18,648,000 during the
comparable period in fiscal 1997.  Investment activity in the nine-
month period ended October 3, 1998 consisted primarily of payments
related to the purchase of Isolation Systems, Limited, as well as the
net purchase of short-term investments and fixed assets.  Investment
activity in the nine-month period ended September 27, 1997 consisted
primarily of purchases of short-term investments and fixed assets,
partially offset by proceeds from short-term investments upon maturity
or sale.

Net cash provided by financing activities totaled $175,000 for the
nine-month period ended October 3, 1998, compared to $1,670,000 during
the comparable period in fiscal 1997.  Net cash provided by financing
activities for the nine-month period ended October 3, 1998 primarily
consisted of proceeds from stock option exercises, partially offset by
the purchase of treasury stock.  Net cash provided by financing
activities in the nine-month period ended September 27, 1997
consisted of proceeds from stock option exercises and purchases of
stock under the Company's stock purchase plan, partially offset by
principal payments on long-term debt and capital lease obligations.

The Company has a $5,000,000 unsecured revolving credit facility with
a bank which expires in March 1999. The terms of the credit facility
require the Company to comply with certain restrictive financial
covenants.  Borrowings under this facility bear interest at the bank's
prime rate.  At October 3, 1998, available borrowings were reduced by
outstanding letters of credit of $842,000 which expire at various
dates in 1998.  The Company had no borrowings outstanding under this
line at October 3, 1998.  The Company also has a foreign credit
facility of approximately $2,720,000, all of which was available at
October 3, 1998.  Available borrowings under this facility are
decreased by guarantees on certain foreign currency transactions.  The
terms of the foreign credit facility require the Company to comply
with certain restrictive financial covenants.  There were no
borrowings outstanding under this foreign credit facility at October
3, 1998.

The Company enters into forward exchange contracts to hedge against
certain foreign currency transactions for periods consistent with the
terms of the underlying transactions.  The forward exchange contracts
have maturities that do not exceed one year.  At October 3, 1998, the
Company had outstanding forward exchange contracts to purchase
$7,093,000 and to sell $1,016,000 in various currencies which mature
on various dates through February 26, 1999.

The Company believes that its existing cash and short-term investment
balances, together with borrowings available under the Company's bank
credit facilities, will be sufficient to meet the Company's cash
requirements for at least the next twelve months.


Certain Factors That May Affect Future Results

Certain information contained herein, and information provided by the
Company or statements made by its employees may, from time to time,
contain "forward-looking" information which involve risks and
uncertainties.  Any statements contained in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere herein that are not historical facts may be
"forward-looking" statements.  Certain information contained herein
concerning the Company's anticipated plans and strategies for its
business, available cash and cash equivalents and sources of financing,
research and development and other expenditures, effects of the
restructuring actions, ability to achieve Year 2000 compliance,
and effects of the 1998 Agreement and the 1998 Amendment with Nortel
consists of forward-looking statements.  Without limiting the
foregoing, the words "believes," "expects," "anticipates," "plans,"
and similar expressions are intended to identify forward-looking
statements.  The Company's actual future results may differ
significantly from those stated in any forward-looking statements.
Factors that may cause such differences include, but are not limited
to, the factors discussed below.

The Company's quarterly operating results may vary significantly from
quarter to quarter depending on factors such as the timing of
significant orders and shipments of its products, changes and delays
in product development, new product introductions by the Company and
its competitors, the mix of distribution channels through which the
Company's products are sold and seasonal customer buying patterns.
There can be no assurance that the Company will be able to achieve
future revenue growth and profitability on a quarterly or annual
basis.  Revenues can be difficult to forecast due to the fact that the
Company's sales cycle varies substantially depending upon market,
distribution mechanism and end-user customer.  The Company's expense
levels are based, in part, on its expectations as to future revenues.
If revenue levels are below expectations, operating results may be
adversely affected.  In addition, the Company's distribution partners
typically stock significant levels of inventory, and the Company's
revenues may fluctuate based on the level of partner inventories in
any particular quarter.

The Company's LanRover and LanRover Access Switch products are
experiencing increased market competition which has caused the Company
to take pricing actions and may require the Company to take future
pricing actions.  The Company provides most of its distribution
partners with product return rights for stock balancing or product
evaluation and price protection rights.  Stock balancing rights permit
a return of products to the Company for credit against future product
purchases, within specified limits.  Product evaluation rights permit
end-users to return products to the Company through the distribution
partner from whom such products were purchased, within 30 days of
purchase if such end-user is not fully satisfied.  Price protection
rights require the Company to grant retroactive price adjustments for
inventories of the Company's products held by distribution partners if
the Company lowers its prices for such products.  These price
protection provisions have adversely affected and may continue to
adversely affect revenues and profitability in the future.  There can
be no assurance that the Company will not experience significant
returns or price protection adjustments in the future or that the
Company's reserves will be adequate to cover such returns and price
reductions.

The Company operates in a highly competitive market that is
characterized by an increasing number of well-funded competitors from
diverse industry sectors, including but not limited to suppliers of
software, modems, terminal servers, routers, hubs, data communications
products and companies offering remote access solutions based on
emerging technologies, such as switched digital telephone services,
remote access service offerings by telephony providers via telephone
networks and other providers through public networks such as the
Internet.  In particular, the rapid entry of large telecommunications
and service provider competitors, such as Lucent and Nortel, to the
remote access market, in addition to large traditional networking
vendors, such as Cisco and 3Com, has resulted in increased
competition.  In addition, customers increasingly view remote access
offerings as a component of an end-to-end solution that is most
effectively provided by very large-scale companies, which have
significantly greater resources than the Company and which customers
may perceive as best suited to address a variety of their needs over a
long period of time.  Increased competition has resulted and may
continue to result in price reductions and loss of market share, which
has and may continue to adversely affect the Company's revenues and
profitability.  There can be no assurance that the Company will be
able to continue to compete successfully with new or existing
competitors.

The Company currently relies on sales of the LanRover Access Switch
to achieve its revenue and profitability objectives.  Sales of other
communications products and other remote access products, including
the LanRover product, decreased in the first nine months of fiscal
1998 and fiscal 1997, due in part to increased competition.  There can
be no assurance that the Company will be successful in modifying
current product offerings to increase sales of its products.

The Company depends on third party distributors and value-added
resellers for a significant portion of the Company's revenues.  The
loss of certain of these distributors and resellers could have a
material adverse impact on the Company's results of operations.
Moreover, many of these distributors and resellers also act as
resellers of competitive products.  Therefore, there is risk that
these distributors and resellers may focus their efforts on marketing
products other than those sold by the Company.  This may require the
Company to offer various incentives to such distributors and
resellers, which may adversely impact the Company's results of
operations.

The market for remote access products has changed dramatically in
recent years.  Computer users have increasingly utilized the Internet
for remote access.  A number of factors contributed to this
transition, including cost, ease of use and the increasing public
awareness, use and acceptance of the Internet.  In order to address
the changing needs of this market, the Company has recently revised
its strategic focus, seeking to decrease its reliance on its
traditional products and on its relationship with Nortel while
devoting additional resources to products that increase the security
of remote access conducted on the Internet and allowing the
establishment of virtual private networks ("VPNs").  The introduction
of new products and the Company's new strategic focus will require the
Company to successfully manage the transition from traditional product
offerings in order to minimize the impact on customer ordering
patterns, avoid excessive levels of obsolete inventories and ensure
that adequate supplies of both new and traditional products are
available to meet customer demand.  The new Internet-based products
represented less than 10% of the Company's sales in the third quarter
of 1998, and there can be no assurance the Company's new products will
achieve increased market acceptance.  The Company's future success
will depend upon its ability to implement the transition to Internet-
based and VPN products and to meet and adapt to changing customer
requirements and emerging technologies.  There can be no assurance the
Company will be successful in its new strategic focus.

The Company's success in accomplishing development objectives depends
in large part upon its ability to attract and retain highly skilled
technical personnel including, in particular, management personnel in
the areas of research and development and technical support.
Competition for such personnel is intense.  There can be no assurance
that the Company will be successful in attracting and retaining the
personnel it requires to accomplish its objectives.  Delays in new
product development or the failure of new products to achieve market
acceptance, could have a material adverse effect on the Company's
operating results.  In addition, there can be no assurance that the
Company will be successful in identifying, developing, manufacturing
or marketing new product or service offerings or enhancing its
existing offerings.

The Company does business worldwide, both directly and via sales to
United States-based original equipment manufacturers, who sell such
products internationally. The Company expects that international
revenues will continue to account for a significant portion of its
total revenues. Although most of the Company's sales are denominated
in US Dollars, exchange rate fluctuations could cause the Company's
products to become relatively more expensive to customers in a
particular country, causing a decline in revenues and profitability in
that country.  In addition, international sales, particularly in
Europe, are typically adversely affected in the third quarter due to a
reduction in business activities during the summer months.
Furthermore, global and/or regional economic factors and potential
changes in laws and regulations affecting the Company's business,
including without limitation, communications regulatory standards,
safety and emissions control standards, difficulty in staffing and
managing foreign operations, longer payment cycles and difficulty in
collecting foreign receivables, currency exchange rate fluctuations,
changes in monetary and tax policies, tariffs, difficulties in
enforcement of intellectual property rights and political
uncertainties, could have an adverse impact on the Company's financial
condition or future results of operations.

Some of the Company's products incorporate encryption, or scrambling,
features to protect the security, confidentiality, and integrity of
text or data transmissions.  Products with encryption features are
subject to export restrictions under the laws of the U.S., Canada, and
other countries.  In countries other than the U.S. and Canada,
encryption products may also be subject to import and/or use
restrictions.  These restrictions may require the Company or its
customers to obtain licenses; may require technical modifications to
products; and may prohibit sales of some products to certain
destinations or customers.  In light of these restrictions, the
Company's products available abroad may contain significantly weaker
encryption capabilities than those available in the U.S. and Canada,
and there can be no assurance that the Company will continue to be
able to export its products to destinations outside of the U.S. and
Canada.  Accordingly, these restrictions could potentially have an
adverse effect on the Company's business, financial conditions, or
results of operations.

The Company is exposed to potential credit risks as a result of
accounts receivable from distributors, resellers, OEM and direct
customers, with respect to which the Company does not generally
require collateral.

The Company is currently dependent on three subcontractors for the
manufacture of significant portions of its products.  Although the
Company believes that there are a limited number of other qualified
subcontract manufacturers for its products, a change in subcontractors
could result in delays or reductions in product shipments.  In
addition, certain components of the Company's products are only
available from a limited number of suppliers.  The inability to obtain
sufficient key components as required could also result in delays or
reductions in product shipments.   Such delays or reductions could
have an adverse effect on the Company's results of operations.

The Company's proposed acquisition by Intel Corporation is subject to
a number of closing conditions, including, without limitation,
regulatory and stockholder approval.  Accordingly, there can be no
assurance the proposed transaction will be consummated.  The failure
of the Company to consummate the transaction could require the Company
to pay certain fees and expenses pursuant to its agreement with Intel
and could also adversely impact the Company's relationships with
current and potential employees, customers, suppliers and others.  As
a result of these and other factors, such failure could have a
material adverse effect on the Company's business, financial condition
and results of operations, including an adverse impact on the Company's
fourth quarter revenues.  In addition, any announcement concerning
the actual or potential termination of the transaction could have a
material adverse effect on the trading price of the Common Stock.

The legal proceedings discussed below under the caption "Legal
Proceedings" could have a material adverse effect on the Company's
financial condition.

See also the discussion above under the caption "Year 2000."

The market price of the Company's securities could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating
results, changes in earnings estimates by analysts, and market
conditions in the industry, as well as general economic conditions and
other factors external to the Company.

Other factors that may affect future results include the accuracy of
the Company's internal estimates of revenues and operating expense
levels and the realization of the intended benefits of the 1998
restructuring.

Because of the foregoing factors, the Company believes that period-to-
period comparisons of its financial results are not necessarily
meaningful and expects that its results of operations may fluctuate
from period to period in the future.


                QUANTITATIVE AND QUALITATIVE DISCLOSURES
                           ABOUT MARKET RISK

Not Applicable.


<PAGE>

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is a defendant in the following legal proceedings:
Lirette, et al. v. Shiva Corporation, et al., Civil Action No. 97-
11159-WGY, a purported class action complaint filed against the
Company, Frank Ingari, Cynthia Deysher and David Cole, in the United
States District Court for the District of Massachusetts on May 21,
1997 and Abraham Schwartz and Norman Marcus v. Shiva  Corporation,
Case No. BC164278, a purported class action complaint filed against
the Company in the Superior Court of the State of California for the
County of Los Angeles on January 17, 1997. The federal court complaint
seeks damages, interest, fees and expenses.  The state court complaint
seeks damages, interest, fees and expenses, including punitive damages
and treble damages.  The federal matter is in the pre-discovery phase,
and a motion to dismiss has been filed and is being considered by the
court.  The state matter is in discovery. The Company is unable to
determine at this time the potential liability, if any, of either of
these actions.  Accordingly, no provision has been made in the
consolidated financial statements for these claims.  It is possible
that the Company could incur a material loss related to these actions
in the future.



Item 6.  Exhibits and Reports on Form 8-K

    (a)  Exhibits

         Exhibit No.   Description of Exhibit
         -----------   ----------------------
         Exhibit 4.1   Amendment No. 1 to Rights Agreement dated as of
                       September 29, 1995 between the Company and
                       American Stock Transfer & Trust Company, dated
                       as of October 19, 1998.

         Exhibit 10.1  Amendment dated September 28, 1998 to the
                       Agreement dated February 27, 1998 by and
                       between the Company and Northern Telecom, Inc.

         Exhibit 27.0  Financial Data Schedule.


    (b) Reports on Form 8-K:  The Company filed no reports on Form 8-K
        during the three-month period ended October 3, 1998.


<PAGE>
                               SIGNATURE

Pursuant to the requirements 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.


                                   SHIVA CORPORATION



Date:   November 17, 1998          by: /s/ Robert P. Cirrone
                                       ------------------------------
                                       Senior Vice President, Finance
                                       and Administration,
                                       Chief Financial Officer
                                       (Principal Financial and
                                       Accounting Officer)
<PAGE>

                             SHIVA CORPORATION
                               EXHIBIT INDEX
<TABLE>
<CAPTION>

Exhibit No.     Description of Exhibit
-----------     ----------------------

<S>             <C>
Exhibit 4.1     Amendment No. 1 to Rights Agreement dated as of
                September 29, 1995 between the Company and
                American Stock Transfer & Trust Company, dated as
                of October 19, 1998.

Exhibit 10.1    Amendment dated September 28, 1998 to the
                Agreement dated February 27, 1998 by and between
                the Company and Northern Telecom, Inc.

Exhibit 27.0    Financial Data Schedule.

----------------------------------------
</TABLE>

<PAGE>