SECURITIES AND EXCHANGE COMMISSION
                            Washington, DC 20549
                             
                                 FORM 10-K

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
  ACT OF 1934
  For the fiscal year ended December 31, 1996
                             
                                 OR
                            
__ 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: 0-23110
                       DIGITAL LINK CORPORATION
         (Exact name of registrant as specified in its charter)

     California                                  77-0067742
(State or other jurisdiction of               (I.R.S. Employer
 incorporation or organization)              Identification Number)
  
   217 Humboldt Court
   Sunnyvale, California                              94089
(Address of principal executive offices)            (ZIP Code)

Registrant's telephone number, including area code: (408)745 6200

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: 
Common Stock, no par value
    (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Sections 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

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 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.  [x]

The aggregate market value of the voting stock held by non affiliates of 
the registrant as of March 28, 1997, was approximately $125,707,299.00. 

The number of shares outstanding of the registrant's Common Stock as of 
March 28, 1997, was shares 9,142,349.

                     DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement (the "Definitive Proxy 
Statement") to be filed with the Securities and Exchange Commission 
relative to the Company's annual meeting of stockholders to be held May
21, 1997 are incorporated by reference in Part III of this Form 10-K.


                      DIGITAL LINK CORPORATION 
                     ANNUAL REPORT ON FORM 10K

                 For the Year Ended December 31, 1996


                      TABLE OF CONTENTS


Form 10-K
Item No.                     Name of Item               Page
PART I
Item  1.  Business.......................................  3
Item  2.  Properties .................................... 10
Item  3.  Legal Proceedings.............................. 10

PART II
Item  5.  Market Price of and Dividends on the
          Registrant's Common Equity and Related
          Stockholder Matters ........................... 11
Item  6.  Selected Financial Data ......................  11
Item  7.  Management's Discussion and Analysis of
          Financial Condition and Results of Operations . 12
Item  8.  Financial Statements and Supplementary Data ... 22

PART III
Item  10.  Directors and Executive Officers of the 
           Registrant ................................... 38
Item  11.  Executive Compensation ....................... 38
Item  12.  Security Ownership of Certain Beneficial Owners
           and Management ............................... 39 
Item  13.  Certain Relationships and Related Transactions 39

PART IV
Item  14.  Exhibits, Financial Statement Schedules, and
           Reports on Form 8K .....  .................... 40
Signatures .......................... ................... 42


                          PART I
ITEM 1. BUSINESS

   Except for the historical statements contained herein, this Form 10-K 
contains forward looking statements within the meaning of Section  27A 
of the Securities Act of 1933, as amended ("the "Securities Act") and 
Section 21E of the Securities Exchange Act of 1934, as amended (the 
"Exchange Act").  These forward looking statements involve a number
of risks, known and unknown, and uncertainties, such as the loss of, 
or difference in actual from anticipated levels of purchases from, 
the Company's major customers, the impact of competitive products and 
pricing and other risks which are described throughout this Form 10-K, 
including under the sections titled "Products and Technology," 
"Customers and End Users," "Research and Development," "Manufacturing,"
"Competition," "Intellectual Property and Other Proprietary Rights" 
and "Employees" in Item 1 hereof and within "Management's Discussion 
and Analysis of  Financial Condition and Results of Operations," including
under the title "Other Factors That May Affect Future Operating Results," 
in Item 7 of this Form 10-K.  The actual results that Digital Link 
Corporation (the "Company" or "Digital Link") achieves may differ
materially from any forward looking statements due to such
risks and uncertainties.  Readers are urged to carefully review and 
consider the various disclosures made by the Company in this report 
and in the Company's reports filed with the Securities and Exchange 
Commission that attempt to advise interested parties of the risks 
and factors that may affect the Company's business.
   Due to all the foregoing factors, the Company believes that 
period-to-period comparisons of its results of operations are not 
necessarily meaningful and should not be relied upon as an indication 
of future performance. Similarly, past performances are not necessarily
indicative of future results. It is likely that, in some future quarters, 
the Company's operating results will be below the expectations of stock 
market analysts and investors.  In such event, the price of the Company's
Common Stock would likely be materially adversely affected. Consequently, 
the purchase or holding of the Company's Common Stock involves an extremely 
high degree of risk.

Overview

   The Company designs, manufactures, markets and supports a broad range 
of high speed digital access products for wide area networks ("WANs") 
worldwide.  The Company's products provide access to private WANs based 
on dedicated leased lines and public WANs based on centralized
switching networks such as Internet, Frame Relay, Switched Multimegabit 
Data Service ("SMDS") and Asynchronous Transfer Mode ("ATM").  The 
Company's products allow local area network ("LAN")-based internetworking 
devices, such as routers, to access WANs and also integrate data with
digitized voice and video traffic for more efficient line utilization.  
Digital Link's products are used both in the customer premise equipment 
("CPE") environment and in the networks of interexchange carriers 
("IXCs"), Internet service providers ("ISPs") and telephone companies.  
The Company believes it is a leader in the WAN access products
market because of its broad range of products and its diverse sales 
channels.  The Company markets and sells its products in North America, 
Europe, South America and Asia primarily through its direct sales force, 
value added resellers ("VARs") and original equipment manufacturers
("OEMs").
   The Company was incorporated in California in 1985.  Its principal 
executive offices are located at 217 Humboldt Court, Sunnyvale, California  
94089, its Internet address is www.dl.com, and its telephone number 
is (408) 745-6200.

Industry Background

   The growing reliance on enterprise-wide networks to facilitate the 
sharing of information has created an environment in which the linkage 
of multiple LANs over wide area networks is critical to daily operations.  
Two types of WANs have developed to satisfy internetworking
needs: private WANs, which are generally based on dedicated leased lines; 
and public WANs, which are based on centralized switching networks that 
route data to the proper destination.  In private WANs, the
functions of switching, routing and multiplexing are performed on the 
organization's premises utilizing customerowned equipment and dedicated 
lines leased from telephone companies and IXCs.  As an alternative to
private WANs, telephone companies, ISPs and IXCs offer public WAN services.
Companies that provide products for connecting LAN-based data networks to
WANs must support both private and public WANs, including public WANs based
on Frame Relay, SMDS and ATM technologies. In order for LANs to be 
interconnected to WANs, an interface is required to condition LAN-based 
data to a format appropriate for transmission over WANs.  The Company
believes equipment providers addressing the WAN access market must develop 
product solutions flexible enough to respond to the changing standards
and network requirements associated with emerging WAN technologies, 
forge strong relationships with telephone companies and ISPs
implementing these services and actively participate in standards 
development.

Products and Technology

  WAN Access Products

   The Company's principal products include 56/64kb, T1/E1 and T3/E3 access 
products for private WANs and public WANs which include Internet, Frame 
Relay, SMDS and ATM access products. The Company's products range from 
simple desktop or rack mounted units for smaller sites to intelligent
multiprocessor systems that support multiple lines and integrate data 
with digitized voice and video for larger and more complex sites. The 
Company's products are utilized in the CPE environment to enable 
internetworking equipment to access WANs.  The Company's products may 
also be used within the networks of telephone companies, ISPs
and IXCs to provide access to their backbone networks.  The list prices 
of the Company's products generally range from $300 to $40,000.
   The Company's access products are classified as Digital 
Service Units/Channel Service Units ("DSUs/CSUs"), access multiplexers 
and inverse multiplexers.  The Company's DSUs/CSUs generally provide 
the interface between a single data port and a single WAN line, and 
its access multiplexers are used to multiplex multiple data, voice or
video ports over one or more WAN lines.  Digital  Link's inverse 
multiplexers break down high speed data from a single source for 
transmission over multiple T1 WAN lines. 
   The Company introduced its first T1 access products in 1985. In 1993, 
the Company introduced its Encore family of products, which is the next 
generation of its T1/E1 access products with certain enhanced features.  
This product family is used to interface Ethernet and Token Ring LAN
based data traffic from internetworking devices to dedicated or Frame 
Relay based 56kb and T1/E1 lines.
   In 1993, the Company also introduced the DL3800 T1 inverse multiplexer 
in response to marketplace demand for a method of transporting information 
at data rates faster than T1 without the expense and availability
issues associated with T3 lines. The DL3800 accepts data from a single 
high speed data device and segments it for transmission over up to eight 
T1 lines.  In May 1995,  the Company introduced the DL3900 multiplexer 
shelf which allows customers to reduce the shelf space needed when 
installing multiple inverse multiplexers in the same location.  In June
1996, the Company introduced an international version of its inverse 
multiplexer product line.
   The Company introduced its first T3 access products in 1990. The Company's 
T3/E3 DSUs and multiplexers include the DL3100 and DL3000 which were
introduced in 1992 and 1991, respectively.  The DL3100 connects networking
equipment to T3/E3 lines and is available with single or multiple ports. 
The DL3000 is a T3/E3 multiplexer that allows LAN and Fiber Distributed 
Data Interface ("FDDI") based traffic from routers and channel extenders 
to be multiplexed with T1 traffic from devices such as private branch 
exchanges ("PBXs") in order to access multiple T3/E3 lines.
   The Company's SMDS and ATM access products consist of DSUs/CSUs and 
access multiplexers that connect internetworking equipment to SMDS or 
ATM networks.  In 1991, the Company began shipping the DL200, which is 
a DSU/CSU used to access public SMDS networks that operate over T1/E1 
lines.  In 1992, the Company began shipping the DL3200, which is a DSU 
used to access public SMDS and ATM networks that operate over T3/E3 lines.  
The DL3200 is designed to comply with Data Exchange Interface ("DXI")
standards and take data from an internetworking unit that is in DXI format 
over a high speed serial interface ("HSSI") and condition the data for 
SMDS or ATM connectivity.
   The Company believes that network reliability and management are some 
of the most important factors considered by users when selecting a 
network equipment supplier.  In order to maximize network reliability, 
the Company has built monitoring and diagnostic tools into all
of its products. Many of the Company's products are compatible with SNMP, 
a standards-based network management system.  In addition, the Company 
provides an SNMPbased graphical user interface, WANview, which can 
configure, maintain and test the Company's products.
   The markets for the Company's products are characterized by rapid 
technological advances, product obsolescence, changes in customer 
requirements and evolving regulatory requirements and industry standards.  
The Company's future prospects will depend in part on its ability to 
enhance the functionality of its existing WAN access products in a
timely manner and to identify, develop and achieve market acceptance of 
new products that address new technologies and meet market requirementst. 
Any failure by the Company to anticipate or to respond adequately to 
technological developments in its industry, changes in customer
requirements, or changes in regulatory requirements or industry standards, 
or any significant delays in the development, introduction or shipment of 
products, could have a material adverse effect on the Company's business
and operating results.  See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations Net Sales" in Item 7 of this 
Form 10-K.  In addition, customers could refrain from purchasing the 
Company's existing products in anticipation of new product introductions 
by the Company or its competitors.

  W/ATM GateWay Product

   The Company believes that telephone companies and IXCs view the 
implementation of a core ATM network infrastructure as a long-term 
strategy that will support integrated data and digitized voice and 
video traffic. Accordingly, while networks and services based on more
established technologies continue to be deployed, large capacity  ATM 
switches are also now being developed to implement a future core ATM 
infrastructure.  In support of this anticipated ATM infrastructure and 
to complement the large capacity ATM switches, the Company is developing 
its W/ATM GateWay product to connect non-ATM traffic and slower
speed ATM traffic to these high speed ATM switches. The W/ATM
GateWay is designed to be a multiservice access product for local traffic.  
The W/ATM GateWay is being designed for use primarily within telephone
company networks.  In addition, this product is expected to support all 
ATM traffic types, including constant and variable bit traffic for
data and delay sensitive voice and video.  The Company has experienced 
delays in the development of this product, in part related to technical 
problems which required some software to be redesigned.  This product was 
shipped to a customer for evaluation in February 1997.  Given its
complexity, there can be  no assurance that this product will not encounter 
further technical or other difficulties which could significantly delay 
its deployment or acceptance or could result in the termination of the
development program for this product. There can be no assurance that 
products currently available or under development by competitors would 
not directly compete with the W/ATM GateWay product, that the W/ATM 
GateWay will meet the needs of the emerging ATM  market or that markets
for the W/ATM GateWay will continue to develop, any of which would have a 
material adverse effect on the Company's business and operating results.

Customers and End Users

   Digital Link's customers and end users are diverse and represent many 
industries.  End users of private WANs that incorporate the Company's 
access products, as well as telephone companies, ISPs and IXCs that 
either incorporate the Company's products within their public networks 
or purchase the Company's access products for resale to end users, 
include major interexchange carriers, the  Regional Bell Operating 
Companies (RBOCs), major international carriers, industrial, electronics
and other companies and governments, universities and utilities.
   The Company sells a majority of its products to a relatively limited 
number of end users, VARs and telephone companies. There can be no 
assurance that the Company's current customers will continue to place 
orders with the Company or that the Company will be able to obtain orders
from new customers.  A significant portion of the Company's business is 
derived from substantial orders placed by large end users and telephone 
companies, and the timing of such orders could cause material fluctuations 
in the Company's business and operating results. See "Management's 
Discussion and Analysis of Financial Condition and Results of Operations 
Net Sales" and "Quarterly Results of Operations" in Item 7 of this Form
10-K.

Sales and Marketing

   The Company primarily markets its products worldwide directly to large 
end users, ISPs, IXCs and RBOCs and indirectly primarily through a network 
of VARs and OEMs to accommodate specific markets and customer support
requirements.  The Company's sales force consists of three groups that 
focus on (i) U.S. end users and ISPs, (ii) U.S. & Canadian IXCs and 
telephone companies ("carriers") and (iii) international customers.  Each 
of these groups includes one or more field based system engineers to 
provide technical sales support.  In addition, the Digital Link sales 
organization receives support from various groups within the Company 
such as the marketing department, which is responsible, among other 
things, for product marketing, customer service, advertising and other
marketing communications.

  U.S. End Users and ISPs

   Sales to U.S. end users are generally made through the Company's direct 
sales force and indirectly through VARs. Thus, the U.S. end users sales 
group is primarily responsible for developing and maintaining relationships
with selected end users and for supporting the sales activities of its VARs.
The Company's agreements with its VARs generally have terms of 12 months, 
are subject to renewal by mutual agreement and provide for discounts from 
the Company's list prices for products based on the expected annual sales 
volumes and require the Company to provide sales and application engineering
support. The U.S. end user sales group operates through the Company's 
headquarters in Sunnyvale, California and twelve other sales offices.

  Carriers

   Digital Link's carrier sales force focuses on developing relationships 
with carriers in the U.S. and Canada and on understanding the network 
deployment strategies of these carriers.  Products sold to carriers may 
be used (i) within a  carrier's network in conjunction with the provision 
of their services, (ii) to satisfy the needs of a carrier's management 
information systems, where the carrier is anend user of the products, 
or (iii) for resale in conjunction with a carrier's provision of services 
to an end user.  The Company has entered into agreements with certain 
carriers in the United States to purchase its  products.  However, 
these agreements do not obligate the carriers to purchase any minimum 
quantity of the Company's products.

  International Customers

   Sales to international customers are primarily made through OEMs and 
selected VARs.  International VARs authorized to sell the Company's 
products are located in several countries within Europe, South  America 
and Asia. Support for the Company's products sold internationally is
provided by the Company or its authorized VARs.  The Company currently 
has offices in the United Kingdom, Germany, and Hong Kong.

  Customer Support

   The Company believes that a high level of continuing service and support 
is integral to the Company's objective of developing and maintaining 
long-term relationships with its customers.  The Company's customer 
support personnel are responsible for servicing the Company's products 
and provide installation, technical training and post-sales
support (primarily over the  telephone).  The Company's products generally 
have a warranty of 24 months, and the Company offers free telephone 
support during normal business hours. The Company also offers customers
the option of entering into a maintenance and support contract that can 
include telephone support seven days a week and 24 hours a day, emergency 
replacement programs and on-site support. Internationally, the Company 
provides customer support either directly or through full service VARs.

Research and Development

   The Company's research and development efforts are focused on developing 
new products, core technologies and enhancements to existing products.  
The Company's product development activities are based on customer 
requirements, marketplace needs and active participation by the Company
in industry standards groups and forums.
   In 1996, 1995 and 1994, the Company's research and development 
expenditures were $10.1 million, $8.9 million, and $7.3 million, which
represented 19.4%, 20.1%, and 20.7%, respectively, of net sales.  The 
Company's research and development efforts in 1996 primarily focused on the
continued development of the Company's W/ATM GateWay product as well as on
the expansion of its Encore product family by introducing new products 
and new features for existing Encore products. During 1997, the Company 
expects that it will continue to devote research and development
resources to the development of its W/ATM GateWay product and anticipates 
continuing to maintain its focus on developing new products and features 
within its WAN access business. See "Products and TechnologyW/ATM GateWay
Product."  The Company considers its research and development efforts to 
be vital to its future success and anticipates that research and 
development expenditures as a percentage of net sales will remain 
significant for the foreseeable future.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operations Research and 
Development" in Item 7 of this Form 10-K.
   As referenced above, the Company's product development activities 
frequently address new WAN services and applications based on emerging 
technologies.  The Company believes this strategy has often resulted 
in early market penetration for products based on these technologies.
However, industry standards and requirements are more likely to change 
in new markets, which can adversely impact the Company's business and 
operating results. Moreover, technology and implementation approaches
selected by the Company may be rendered obsolete by such changes, and a 
new market may not become widespread.  See "Management's Discussion and 
Analysis of Financial Condition and Results of Operations - Net Sales" 
in Item 7 of this Form 10-K.
   The Company's success will depend upon its ability to
develop new products that achieve market acceptance and to provide
enhancements to existing products as required by the Company's customers 
and the communications marketplace.  In order to meet the challenges of 
rapidly changing technologies and services and new industry standards which
can render obsolete the Company's products, the Company has invested and 
expects to continue to invest substantial resources in the development 
of new products and technologies.  The Company is currently developing 
and may in the future develop products with which the Company has
only limited experience and/or that are targeted at emerging market 
segments.  There can be no assurance that the Company's product
development efforts will result in commercially successful products or 
that product delays will not result in missed market opportunities.
   As of December 31, 1996, the Company's research and development staff 
consisted of 53 employees, of whom 43 were engineers, and approximately 
half of such engineers were engaged principally in the development of 
software. The Company believes its ability to attract and retain
qualified development personnel is essential to the success of its 
development programs.  The market for such personnel is highly competitive, 
and the Company's development activities could be adversely affected if 
the Company is unsuccessful in attracting and retaining skilled
technical personnel.

Manufacturing

   The Company's manufacturing operations consist primarily of component 
procurement and final assembly, test and quality control of subassemblies 
and systems.  The Company uses local third party contractors to manufacture 
and assemble printed circuit boards.  The Company installs software
into the electronically programmable read only memory ("EPROM") of
its systems to maintain quality control and security.  The manufacturing 
process enables the Company to configure the hardware and software in 
combinations to meet a wide variety of customer requirements.  The 
Company performs "burn-in" procedures and functional tests, as well as
comprehensive inspections to assure the quality and reliability of its 
products.
   The Company's product designs are proprietary but generally incorporate 
industry standard hardware components. However, certain semiconductor 
devices and components and subassemblies are presently available only
from single sources, and certain other components are presently available 
or acquired only from a limited number of sources. To date, the Company 
has been able to obtain adequate supplies of these components, as well
as subassemblies from third party contractors, in a timely manner from 
existing sources or, when necessary, from alternative sources, or to 
redesign its products to accommodate an alternative component.  The 
inability to obtain sufficient sole or limited source components or
subassemblies as required in the  future, or to develop alternative 
sources or redesign its products if and as required in the future, could 
result in delays or reductions in product shipments that could materially
adversely affect the Company's business and operating results or damage 
customer relationships. 

Competition

   The market for the Company's products is highly competitive. Many of 
the Company's customers purchase products from both the Company and the 
Company's competitors.  The Company currently competes primarily
with Kentrox Industries, Inc., a subsidiary of ADC Telecommunications, 
Inc. ("Kentrox"), Larscom Inc. ("Larscom") and Verilink Corporation 
("Verilink").  The Company competes to a lesser extent with various other 
communications companies,  including Adtran, Inc., Paradyne Corporation 
and Visual Networks, Inc.  Many of the Company's  current and potential
competitors have greater financial, research and development, intellectual 
property, marketing and other resources than those of the Company and 
have broader product lines and longer standing relationships with
customers than the Company.
   The Company expects competition to increase in the future from existing 
competitors and from other companies that may enter the Company's existing 
or future markets.  In addition, the Company faces  competition from
internetworking suppliers, such as routers, and telephone equipment, such 
as switches, who included direct WAN interfaces in certain of their 
products that could reduce demand for the Company's products which could 
have a material adverse affect on the Company's business and
operating results.  As discussed above, increased competition has also 
placed increasing pressures on the pricing of the Company's products, 
which has resulted in lower operating results.  See "Management's 
Discussion and Analysis of Financial Condition and Results of Operations"
in Item 7 of this Form  10-K.  The Company anticipates that this increased 
pricing pressure will continue during 1997.
   The Company believes that its ability to compete successfully depends 
on a number of factors both within and outside of its control, including, 
but not limited to, price; announcements by competitors; rapid development
of new products and features; product quality and performance; experienced 
sales, marketing and service organizations; and evolving industry standards.
However, there  can be no assurance that the Company will be able
to continue to compete successfully with its existing competitors or that 
it will be able to compete successfully with new competitors. 

Intellectual Property and Other Proprietary Rights
 
   The telecommunications industry is characterized by the existence of a 
large number of patents and frequent litigation based on allegations of 
patent infringement. The Company has been contacted by two separate parties 
who have expressed their belief that certain of the Company's products 
may infringe upon patents held by these two parties.  See "Other Factors 
That May Affect Future Operating Results - Risk of Third Party Claims of
Infringement," in Item 7 of this Form 10-K.
   The Company treats its software and hardsware designs as proprietary  
and relies primarily on a combination of copyrights, trademark and trade 
secret laws, and employee and third party nondisclosure agreements, to 
protect its proprietary information.  There can be no assurance that
the contractual obligations to maintain the confidentiality of the 
Company's trade secrets or proprietary information will not be breached 
by employees, consultants, advisors or others, or that the Company's
trade secrets or proprietary technology will not otherwise become known 
or be independently developed by competitors. The Company has one patent 
with the U.S. Patent and Trademark office for certain ATM technology which 
expires in September 2011.  However, there can be no assurance that such 
patent will prove to be important in the Company's product development 
efforts.
   Certain technologies used in the Company's products are licensed from 
third parties on a non-exclusive basis.  In January 1992, Epilogue 
Technology Corporation ("Epilogue") granted the Company a twenty-year, 
nonexclusive, nontransferable, worldwide license to modify and
incorporate the source code of certain of Epilogue's software programs 
that are used in the Company's products. In addition, in December 1993, 
the Company entered into a nonexclusive license with QPSX Communications 
Ltd. ("QPSX") to use certain elements of patents owned by QPSX
to manufacture and distribute within the United States products that 
conform to certain standards of the Institute of Electrical and Electronic 
Engineers ("IEEE").

Employees

   As of December 31, 1996, the Company had 222 employees, of whom 53 were 
primarily engaged in research and development, 84 in sales, marketing and 
administration, 11 in customer support and 74 in manufacturing.  From time 
to time, Digital Link employs contract labor to assist with its short-term 
personnel needs.  The Company believes that its future success will depend 
in large part upon the continued contributions of members of the Company's 
senior management and other key personnel, and upon its ability to attract 
and retain highly skilled managerial, engineering, sales, marketing
and operations personnel, the competition for whom is intense.  Certain of 
the Company's key management personnel have only recently joined the 
Company, including Alan Fraser, the Company's President and Chief Executive 
Officer, who joined the Company in September 1996 and certain personnel
have only limited experience in the Company's industry.  In February 1997, 
Steve Tabaska joined the Company as Chief  Technical Officer and Vice 
President of Engineering. There can be no assurance that the Company
will be successful in attracting and retaining skilled personnel to hold 
these important position.  The Company expects to continue to experience 
growth in the number of its  employees, resulting in increased 
responsibilities for the Company's management.  The Company's employees 
are not represented by any collective bargaining organization.  The Company
believes that its employee relations are good.

ITEM 2. PROPERTIES

   The Company leases its 60,030 square foot principal facility, which 
is located in Sunnyvale, California, pursuant to a lease that expires  
in October 1997.  The Company has an option to extend the lease for one
additional one year period. The Company also leases facilities for its sales 
operations in the United States in Oak Brook Terrace, Illinois; Bethesda, 
Maryland; Fort Lee, New  Jersey; Cleveland, Ohio;  Houston, Texas;
Irving, Texas; and McLean, Virginia.  In Europe, the Company leases 
facilities in London, England, near Stuttgart, Germany, and in Hong Kong. 
The Company believes that its existing facilities are adequate to meet its
current needs and that suitable additional or alternative space will be 
available in the future on commercially reasonable terms.  See Note 3 of 
Notes to Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

   In April 1996, a class action complaint was filed against the Company 
and certain of its officers and directors in Santa Clara Superior Court 
of the State of California, alleging violations of the California 
Corporations Code and California Civil Code.  See "Other Factors That May
Affect Future Operating Results Legal Proceedings," in Item 7 of this 
Form 10K. 


                          PART II
                             
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
        COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
        
   The Common Stock of the Company began trading in the over the counter 
market on the Nasdaq National Market on February 1, 1994 under the symbol 
"DLNK."  The following table sets forth the high and low closing prices 
for the Company's Common Stock as reported on the Nasdaq National
Market for each quarterly period since January 1,  1995.  These prices 
reflect inter-dealer prices, without retail markup, mark-down or 
commission, and may not necessarily represent actual transactions.

                                      1996                 1995
                                 High      Low        High      Low
1st Quarter.................... $14.13   $ 8.19      $32.50    $21.25 
2nd Quarter.................... $22.00   $ 9.75      $30.75    $22.00
3rd Quarter.................... $18.25   $12.75      $33.50    $23.50
4th Quarter.................... $23.75   $16.50      $26.00    $13.75

   As of December 31, 1996, there were 127 holders of record of the Company's 
Common Stock and approximately 1,200 beneficial owners.  The Company has 
never declared or paid any cash dividends on its capital stock.  The Company
currently intends to retain any future earnings for use in its business 
and, therefore, does not anticipate paying any cash dividends in the 
foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

   The following selected consolidated financial data should be read in 
conjunction with the consolidated financial statements and the notes 
thereto included elsewhere herein. The consolidated statement of income 
data for the years ended December 31, 1996, 1995 and 1994, and the
consolidated balance sheet data at December 31, 1996 and 1995 are derived 
from, and are qualified by reference to, the audited consolidated 
financial statements included elsewhere in this report and should be 
read in conjunction with those financial statements and the notes thereto.
The consolidated statement of income data for the years ended December 31, 
1993 and 1992 and the consolidated balance sheet data at December 31, 
1994, 1993 and 1992 are derived from audited financial statements not 
included in this report.


                                       Year Ended December 31,
(in thousands, except           1996    1995   1994    1993    1992
per share data)

Statement of Income Data:
Net sales                      $52,078 $44,344 $35,222 $22,509 $17,079
Cost of sales                   21,457  16,769  11,927   7,540   5,316
     Gross profit               30,621  27,575  23,295  14,969  11,763

Expenses:
 Research and development       10,120   8,922   7,300   4,316   3,291
 Selling, general and           16,150  13,958  10,514   7,494   5,660
     administrative
     Total expenses             26,270  22,880  17,814  11,810   8,951
     Operating income            4,351   4,695   5,481   3,159   2,812
Other income                     2,495   2,281   1,098     242     184
     Income before provision
     for income taxes            6,846   6,976   6,579   3,401   2,996
Provision for income             2,149   2,162   2,171   1,197   1,055
     taxes
     Net income                 $4,697  $4,814  $4,408  $2,204  $1,941
Net income per share(1)         $ 0.50  $ 0.51  $ 0.48  $ 0.31  $ 0.28
Shares used in computing
per share amounts(1)             9,478   9,467   9,113   7,169   7,005

                                         Year Ended December 31,
(in thousands)                    1996   1995    1994    1993     1992

Balance Sheet Data:
Cash, cash equivalents
 and marketable securities     $44,048 $37,609 $31,688  $4,505  $4,128
Working capital                 28,523  27,483  23,352   8,789   6,821
Total assets                    62,733  54,755  46,829  14,687   9,793
Total shareholders'             53,802  47,773  40,211   9,905   7,573
   equity
_________________
(1)  See Note 1 of Notes to Consolidated FinancialStatements for an 
     explanation of the determination of the number of shares used  
     in computing net income per share.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     
   Except for the historical statements contained herein, this Form 10-K 
contains forward looking statements within the meaning of Section 27A 
of the Securities Act of 1933, as amended ("the "Securities Act") and 
Section 21E of the Securities Exchange Act of 1934, as amended 
(the "Exchange Act").  These forward looking statements involve a
number of risks, known and unknown, and uncertainties, such as the loss 
of, or difference in actual from anticipated levels of purchases from, 
the Company's major customers, the impact of competitive products and 
pricing and other risks which are described throughout this Form 10-K,
including under the sections titled "Products and Technology," 
"Customers and End Users," "Research and Development," "Manufacturing," 
"Competition," "Intellectual Property and Other Proprietary Rights"
and "Employees" in Item 1 hereof and within "Management's Discussion and 
Analysis of Financial Condition and Results of Operations," including
under the title "Other Factors That May Affect Future Operating Results," 
in Item 7 of this Form 10-K.  The actual results that Digital Link 
Corporation (the "Company" or "Digital Link") achieves may differ 
materially from any forward looking statements due to such risks and 
uncertainties. Readers are urged to carefully review and consider
the various disclosures made by the Company in this report and in the 
Company's reports filed with the Securities and Exchange Commission 
that attempt to advise interested parties of the risks and factors
that may affect the Company's business.
   Due to all the foregoing factors, the Company believes that 
period-to-period comparisons of its results of operations are not 
necessarily meaningful and should not be relied upon as an indication of 
future performance. Similarly, past performances are not necessarily 
indicative of future results.  It is likely that, in some future quarters, 
the Company's operating results will be below the expectations of
stock market analysts and investors.  In such event, the price of the 
Company's Common Stock would likely be materially adversely affected. 
Consequently, the purchase or holding of the Company's Common Stock
involves an extremely high degree of risk. 

Overview

   The Company designs, manufactures, markets and supports a broad 
range of high speed digital access products for wide area networks 
("WANs") worldwide. The Company's products provide access to private
WANs based on dedicated leased lines and public WANs based on centralized 
switching networks such as Internet, Frame Relay, Switched Multimegabit 
Data Service ("SMDS") and Asynchronous Transfer Mode ("ATM").  The 
Company's products allow local area network ("LAN")based internetworking 
devices, such as routers, to access WANs and also integrate data
with digitized voice and video traffic for more efficient line utilization.
Digital Link's products are used both in the customer premise equipment
("CPE") environment and in the networks of interexchange carriers ("IXCs"), 
Internet service providers ("ISPs") and telephone companies.  The
Company believes it is a leader in the WAN access products market because 
of its broad range of products and its diverse sales channels.  The
Company markets and sells its products in North America, Europe, 
South America and Asia primarily through its direct sales force, value 
added resellers ("VARs") and original equipment manufacturers ("OEMs").

Results of Operations

   The following table sets forth statement of income data as a percentage 
of net sales for the years ended December 31, 1996, 1995 and 1994:
   
                                      Year Ended December  31,
                                   1996        1995        1994
Net sales                          100.0%     100.0%      100.0%
Cost of sales                       41.2       37.8        33.9
     Gross profit                   58.8       62.2        66.1

Expenses:
  Research and development          19.4       20.1        20.7
  Selling, general
  and administrative                31.0       31.5        29.9
     Total expenses                 50.4       51.6        50.6
     Operating income                8.4       10.6        15.6
Other income                         4.8        5.1         3.1
      Income before
      provision for income taxes    13.2       15.7        18.7
Provision for income taxes           4.1        4.9         6.2
     Net income                      9.1%      12.5%       10.8%

  Net Sales

   Net sales increased 17% to $52.1 million in 1996 from $44.3 million 
in 1995.  The increase in 1996 was primarily attributable to an increase 
in unit sales of both narrowband (i.e., transmission rates up to T1/E1) 
products in the Encore product family and domestic broadband (i.e., 
transmission rates in excess of T1/E1) products.  These increases were 
offset in part by decreased unit sales of the Company's SMDS access 
products primarily sold in Europe and decreased average selling prices on 
certain of the Company's narrowband and broadband products as a result of 
price reductions made throughout 1996. Net sales increased 26% to $44.3 
million in 1995 from $35.2 million in 1994.  The increase in net sales
was primarily attributable to an increase in unit sales of the Encore 
family of products and the inverse multiplexer product, offset by a 
decrease in unit sales of SMDS access products primarily in Europe and a 
decrease in the average selling price of certain of the Company's 
narrowband and broadband products as a result of price reductions made
throughout 1995.  The Company believes that the decrease in unit sales of 
the Company's SMDS access products in Europe in 1996 and 1995 was due in 
part to delays in the further deployment of SMDS networks due to technical 
problems within the networks and market confusion in Europe among Frame 
Relay, SMDS and ATM technologies, which began in late 1995.
   In 1996, narrowband sales in absolute dollars increased by 28% and 
increased as a percentage of net sales to 61% as compared to 56% in 1995.  
Broadband sales increased in absolute dollars by 5% and decreased as
a percentage of net sales to 39% in 1996 as compared to 44% in 1995.  In
1996, narrowband sales increased primarily as a result of increased sales 
to ISPs and Frame Relay networks. Narrowband sales increased as a percentage
of net sales primarily as a result of lower broadband sales of SMDS products
in Europe. Broadband sales in absolute dollars increased in 1996 primarily 
as a result of higher sales to certain domestic carriers and ISPs which 
were offset in part by lower SMDS sales in Europe.  Broadband sales as a 
percentage of net sales decreased from 1995 to 1996 primarily as a result 
of lower SMDS sales in Europe, which were slightly offset by higher  
broadband sales to certain domestic carrier customers and ISPs.  In 1995, 
narrowband sales increased by 54% and increased as a percentage of net 
sales to 56% as compared to 46% in 1994.  In 1995, broadband sales 
increased by 3% and decreased as a percentage of net sales to 44% as 
compared to 54% in 1994. Narrowband sales increased primarily as a result 
of higher unit sales of the Company's Encore product line.  The broadband 
sales increased primarily as a result of higher unit sales of inverse 
multiplexer product, offset by a decrease in unit sales of SMDS access 
products in Europe.
   International sales (including sales in Canada) represented approximately 
17%, 28% and 31% of sales in 1996, 1995 and 1994, respectively.  The 
decrease in international sales as a percentage of net sales from year to 
year are primarily related to the decline in the sales of the Company's 
SMDS products, as described above.  International sales are subject
to inherent risks, including difficulties in homologating products in other 
countries, difficulties in staffing and managing foreign operations, 
greater difficulty in accounts receivable collection, unexpected changes 
in regulatory requirements and tariffs, and potentially adverse tax 
consequences, which may in the future contribute to fluctuations in the 
Company's business and operating results.
   In 1996, 1995 and 1994, net sales to MCI represented approximately 13%, 
12% and 20%, respectively, of the Company's net  sales.  In addition, net 
sales to Siemens during 1995 and 1994 were 11% and 14%, respectively,
and net sales to BBN Planet Corporation during 1996 were 13%, of the 
Company's net sales.  The Company anticipates that sales to BBN Planet 
Corporation will decrease as a  percentage of net sales in 1997
as a result of fluctuations in activities associated with the build
out of its Internet infrastructure.  A significant portion of the Company's 
business is derived from substantial orders placed by large end users and
telephone companies, and the timing of such orders could cause material 
fluctuations in the Company's business and operating results.
   During 1996, net sales through direct sales, value added resellers 
(VARs), and OEMs were 58%, 33%, and 9%, respectively, compared to 45%, 37%, 
and 18% in 1995. These increases in the percentage of direct sales were 
primarily a result of selling directly to BBN Planet Corporation during 
1996 compared to 1995 when sales to BBN Planet Corporation were made
through a VAR.  The decreases in the percentage of OEM sales were primarily 
a result of decreased sales of SMDS access products primarily sold in Europe.

  Gross Profit

   Gross profit increased 11% in 1996 to $30.6 million from $27.6 million 
for 1995.  Gross margin decreased to 58.8% of net sales in 1996 as compared
to 62.2% in 1995. This decrease in gross margin reflects the above 
referenced price reductions and a shift in the mix of products sold to 
include more narrowband products, which generally have lower gross margins
than broadband products. 
   Gross profit increased 18% to $27.6 million in 1995  from $23.3 million 
in 1994, while gross margin decreased to 62.2% from 66.1%.  This decrease 
in gross margin in 1995 was primarily due to the above referenced price 
reductions, and to a lesser extent, a shift in the mix of products sold to
include more narrowband products, which generally have lower gross margins 
than broadband products.
   Gross margins may vary significantly from quarter to quarter depending 
on many factors including competitive pricing pressures and changes in the 
mix of products sold.  A significant portion of the Company's business is 
very price competitive, which has in the past and will in the future require 
the Company to lower its prices, resulting in fluctuations in the Company's 
business and operating results. For example, periodically throughout 1995
and 1996, the Company reduced the prices on some of its access products to 
address competitive pricing pressures, which adversely affected the Company's
gross margins during 1995 and 1996.  The Company anticipates that this 
increased pricing pressure will continue during 1997.  In addition, the mix 
of products sold may continue to change to include a higher percentage of 
narrowband products which generally have lower gross margins and would
therefore adversely affect the Company's overall gross margins.

Research and Development

   The primary types of expenses included in research and development ("R&D")
expenses are personnel, consulting, prototype materials and professional
services.  R&D expenses increased 13% to $10.1 million in 1996 from $8.9 
million in 1995.  This increase is primarily attributable to higher
consulting fees related to the Company's W/ATM GateWay product, offset by 
a decrease in professional services, personnel related expenses and
material costs for prototype products.  As a percentage of net sales, 
R&D expenses were 19.4% in 1996 as compared to 20.1% in 1995.  R&D 
expenses increased 22% to $8.9 million in 1995 from $7.3 million in
1994.  As a percentage of net sales, R&D expenses decreased slightly to 
20.1% in 1995 from 20.7% in 1994. The increase in R&D expenses in absolute
dollars was due primarily to higher personnel-related expenses pertaining 
to the W/ATM GateWay, narrowband and broadband product developments.  The
Company anticipates that its R&D expenses will continue to increase in 
absolute dollars and as a percentage of sales may remain relatively flat
subject to, among other factors set forth or referenced in "Other Factors 
That May Affect Future Operating Results," below, the Company's ability 
to accelerate or defer operating expenses, achieve revenue levels during 
such period and hire new personnel.
   All of the Company's R&D expenditures to date have been expensed as 
incurred.  In the future, the Company may be required to capitalize a 
portion of its software development costs pursuant to Statement
of Financial Accounting Standards No. 86, "Accounting for Costs of
Computer Software to be Sold, Leased or Otherwise Marketed."

  Selling, General and Administrative
  
   The primary types of expenses included in selling, general and 
administrative ("SG&A") expenses are personnel, advertising, other 
promotional, and travel and entertainment. SG&A expenses increased
16% for 1996 to $16.2 million from $14.0 million for 1995.
   As a percentage of net sales, SG&A expenses decreased slightly to 
31.0% for 1996 as compared to 31.5% for the prior year.  The increase 
in SG&A expenses in absolute dollars was primarily a result of higher 
personnel related expenses, primarily within the sales and marketing 
organization, and higher evaluation product and promotional expenses.
The decrease as a percentage of net sales was primarily the result of 
operating efficiencies from higher net sales during 1996.  SG&A expenses
increased 33% to $14.0 million in 1995 from $10.5 million in 1994.  As 
a percentage of net sales, SG&A expenses increased to 31.5% in 1995 from 
29.9% in 1994.  The increase in absolute dollars was was primarily the 
result of of higher personnel related expenses, primarily within
the sales and marketing organization during 1995.
   The Company has in the past hired more of its SG&A personnel and 
incurred increased expenses related to trade shows and other promotional 
activities during the first half of the year.  Accordingly, SG&A
expenses as a percentage of net sales are generally higher during the 
first half of the year.  However, any decrease in such expenses as a 
percentage of net sales in the second half of the year are subject to,
among other factors set forth or referenced in "Net Sales" above and 
"Other Factors That May Affect Future Operating Results" below, the 
Company's ability to accelerate or defer operating expenses and achieve
revenue levels during such periods.

  Other Income

    Other income includes primarily interest income and purchase discounts.
Other income increased 9% in 1996 to $2.5 million from $2.3 million for 
1995. Other income increased 109% to $2.3 million in 1995 from $1.1 million 
in 1994.  These increases were primarily as a result of higher interest 
income due to higher rates of return on marketable securities.
  
  Provision for Income Taxes

   The Company's effective tax rate increased to 31.4% in 1996 compared to 
31.0% in 1995.  This increase is due primarily to lower foreign sales 
which resulted in lower foreign sales corporation tax benefit.  The
Company's effective tax rate was 31.0% in 1995 compared to approximately 
33.0% in 1994.  This decrease was primarily due to an increase in R & D
credit.  The Company anticipates that its effective tax rate will remain 
at similar levels during 1997 as compared to 1996.

Quarterly Results of Operations

   The following table sets forth certain unaudited quarterly financial 
information for each of the Company's last eight quarters.  The Company 
believes this information reflects all adjustments, consisting only of 
normal recurring adjustments, that the Company's management considers 
necessary for a fair representation of this information in accordance 
with generally accepted accounting principles.  Quarterly results
are not necessarily indicative of future results of operations.
      

(in thousands, except per share data)
                                          Quarter Ended
              Mar 31 Jun 30  Sep 30  Dec 31  Mar 31  Jun 30  Sep 30  Dec 31
               1995   1995    1995    1995    1996    1996    1996    1996

Net sales    $10,415 $11,409 $12,500 $10,021 $10,203 $12,026 $14,127 $15,722  
Cost of sales  3,572   4,212   4,687   4,298   4,366   4,838   5,666   6,587
Gross Profit   6,843   7,197   7,813   5,723   5,837   7,188   8,461   9,135
Expenses:
 Research &    2,204   2,314   2,405   1,999   2,050   2,335   2,749   2,986
  development
 Selling,      3,436   3,413   3,550   3,559   3,584   4,145   4,206   4,215
  general &    
  administrative
   Total       5,640   5,727   5,955   5,558   5,634   6,480   6,955   7,201
    expenses   
   Operating   1,203   1,470   1,858     165     203     708   1,506   1,934
    income
Other income     598     534     573     575     633     574     625     663
   Income      1,801   2,004   2,431     740     836   1,282   2,131   2,597
     before
     provision for
     income taxes
Provision for    558     621     753     230     280     430     650     789
  income taxes
  Net income  $1,243  $1,383  $1,678  $  510  $  556  $  852  $1,481  $1,808
Net income    $ 0.13  $ 0.15  $ 0.18  $ 0.05  $ 0.06  $ 0.09  $ 0.16  $ 0.19
  per share 
Shares used in 9,445   9,482   9,483   9,456   9,352   9,449   9,451   9,659
 computing per 
 share amounts

   A significant portion of the Company's business is derived from substantial
orders placed by large end users and telephone companies, and the timing of
such orders could cause material fluctuations in the Company's business and 
operating results.  For example, in the fourth quarter of 1995, the Company
had lower operating results than expected due in part to a weaker than 
expected demand from certain domestic carrier customers, as well as other 
factors discussed under "Net Sales," above.  In addition, the Company's 
business may be affected by rapidly evolving  industry standards and 
requirements as occurred in the fourth quarter and first half of 1996 as 
discussed under "Net Sales" above.  
   A significant portion of the Company's business is  very price 
competitive, which has in the past and will in the future require the 
Company to lower its prices, resulting in fluctuations in the Company's
business and operating results.  For example, periodically throughout 1995 
and 1996, the Company reduced the prices on some of its access products to
address competitive pricing pressures, which adversely affected the 
Company's gross margins during 1995 and 1996. The Company anticipates that
this increased pricing pressure will continue during 1997.  In addition, the
mix of products sold may continue to change to include a higher percentage 
of narrowband products which generally have lower gross margins and would 
therefore adversely affect the Company's overall gross margins.  Other 
factors that may cause fluctuations in the Company's operating results 
include the gain or loss of significant customers, seasonal capital 
spending patterns of large domestic customers, changes in sales volumes
through the Company's distribution channels, the timing of new product 
announcements and introductions by the Company and its competitors,
market acceptance of new or enhanced versions of the Company's products, 
availability and cost of components from the Company's suppliers and 
economic conditions generally or in various geographic areas.  In addition, 
the Company's expense levels are based, in part, on its expectations of 
future revenue.  The Company typically operates with limited order
backlog, and a substantial majority of its revenues in each quarter result 
from orders booked in that quarter.  If revenue levels are below 
expectations, the Company may be unable to adjust spending in a
timely manner, which would adversely affect operating results.

   In March 1997, the Financial Accounting Standards Board (FASB) issued 
Statement No. 128, "Earnings Per Share" (SFAS 128), and Statement No. 129,
"Disclosure of Information About Capital Structure" (SFAS 129). These 
Statements will be effective for the Company's fiscal year 1997.  SFAS 128 
requires a revised presentation and calculation of earnings per share (EPS) 
and that prior periods be restated to conform to that revised presentation 
and calculation.  SFAS 129 requires disclosure about the entity's capital
structure and contains no change in disclosure requirements for entities 
that were subject to the previously existing requirements.  Early adoption 
of these Statements is not permitted and the adoption of SFAS 129 will not 
have a material effect on the Company's financial position and results of
operations.  The impact of the adoption of SFAS 128 on the financial 
statements of the Company has not yet been determined.

Liquidity and Capital Resources

  With the exception of $1.0 million that the Company received from the 
sale of Preferred Stock in 1987, through 1993 the Company financed its 
operations and capital equipment requirements primarily from cash
flows from operations.  In early 1994, the Company sold approximately 
1,937,500 shares of common stock at a price per share of $14.00 in its 
initial public offering.  The Company has added the net proceeds of
that offering to working capital, where such proceeds are available to 
support general corporate purposes.  

   The Company's working capital increased to $28.5 million  at December 31, 
1996 from $27.5 million at December 31, 1995 and $23.4 million at December 
31, 1994.  The Company's cash, cash equivalents and long and short term
marketable securities increased to $44.0 million at December 31, 1996 from 
$37.6 million at December 31, 1995 and $31.7 million  at December 31, 1994.
Net cash provided by operating activities was $6.4 million, $4.6 million 
and $4.6 million in 1996, 1995 and 1994, respectively.  In 1996, such net 
cash provided was primarily a result of net income, a decrease in accounts
receiveable and an increase in accrued payroll and other accrued expenses, 
offset to some extent by increased inventories.  To date, the Company has 
not experienced any material inventory obsolescence as a result of new
product development, but there can be no assurance that future product 
development efforts will not render Company products obsolete.   Leasehold
improvements and capital equipment additions were $1.3 million in 1996,
$1.4 million in 1995, and $2.2 million in 1994.  Net cash provided by 
financing activities consisted of $812,000, $852,000 and $24.9 million, 
in 1996, 1995 and 1994, respectively.  In 1996 and in 1995, such
cash was the result of proceeds from employee stock option exercises
and stock purchases, while in 1994, it was primarily  a result  of  the 
Company's initial public offering.
  
   In October 1996, the Company's Board of Directors announced the 
authorization for the Company to repurchase up to 500,000 shares of common 
stock for cash from time-to-time at market prices and as market and business
conditions warrant, in open market, negotiated, or block transactions, at
which time the stock will be retired.  No time limit was set for completion 
of the program. 
   The Company believes that existing cash and cash flows from operations 
will be sufficient to meet its anticipated cash requirements for working
capital and capital expenditures for at least the next 12 months.
  
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
  
In addition to the factors set forth above in the "Management's Discussion 
and Analysis of Financial Conditions and Results of Operations," there are 
a number of other factors that may affect the Company's future operating 
results.
  
Operating Results May Fluctuate; Absence of Siginificant Backlog

The Company believes that the loss of, or difference in actual from 
anticipated levels of purchases from, the Company's major customers could 
in the future affect operating results.  Other factors that may cause 
fluctuations in the Company's operating results includes, but not limited 
to, seasonal capital spending patterns of large domestic customers, changes
in the product mix sold toward narrowband products that yield lower gross 
margins, completion of the build out of carrier and ISP infrastructures, 
the timing of new product introductions by the Company and its competitors,
changes in sales volumes through the Company's distribution channels, 
market acceptance of new or enhanced versions of the Company's products, 
availability and cost of components from the Company's suppliers and
economic conditions generally or in various geographic areas.  In addition, 
the Company's expense levels are based in part on its expectations of 
future revenue.  The Company operates with limited order backlog, and a
substantial majority of its revenues in each quarter result from orders 
booked in that quarter. If revenue levels are below expectations, the
Company may be unable to adjust spending in a timely manner which would 
adversely affect operating results.
  
Market for the Company's Products in Highly Competitive

The market for the Company's products is highly competitive. The Company 
expects competition to increase in the future from existing competitors
and from other companies that may enter the Company's existing or future 
markets.  In addition, the Company faces competition from internetworking 
suppliers such as routers, and telephone equipment, such as switches, who
included direct WAN interfaces their products that could reduce demand for 
the Company's products which would have a material adverse affect on the
Company's business and operating results.  As discussed above, increased 
competition has also placed increasing pressures on the pricing of the
Company's products, which has  resulted in lower operating results.  The 
Company anticipates that this increased pricing pressure will continue 
during 1997.
  
Company Must Respond to Technological Change
  
The Company's future prospects will depend in part on its ability to 
enhance the functionality of its existing WAN access products and W/ATM 
GateWay products in a timely manner and to identify, develop and achieve 
market acceptance of new products that address new technologies and meet
customer needs in the WAN access market.  Any failure by the Company to 
anticipate or to respond adequately to competitive solutions, technological
developments in its industry, changes in customer requirements, or changes 
in regulatory requirements or industry standards, or any significant 
delays in the development, introduction or shipment of products, could 
have a material adverse affect on the Company's business and operating 
results.  There can be no assurance that the Company's product development 
efforts will result in commercially successful products or that product 
delays will not result in missed market opportunities.  In addition, 
customers could refrain from purchasing the Company's existing
products in anticipation of new product introductions by the Company or 
its competitors. New products could also render certain of the
Company's existing products obsolete. Either of these events could 
materially adversely affect the Company's business and operating results.
  
Risks of Company's Involvement With Products for Emerging Markets

The Company is currently developing and may in the future develop products 
with which the Company has only limited experience and/or that are targeted
at emerging market segments, including the Company's W/ATM GateWay product.
The Company has experienced delays in the development of the W/ATM GateWay 
products, in part related to technical problems which required some 
software to be redesigned.  This product was shipped to a customer for 
evaluation in February 1997.  Given its complexity, there can be no 
assurance that this product will not encounter further technical
or other difficulties which could significantly delay its deployment or 
acceptance or could result in the termination of the development program 
for this product. If this product  becomes available, there can be no 
assurance that products currently available or under development by 
competitors would not directly compete with the W/ATM GateWay
product, that the W/ATM GateWay will meet the needs of the emerging ATM 
market or that markets for the W/ATM GateWay will continue to
develop, any of which would have a material adverse effect on the Company's 
business and operating results.
  
Company Depends on Key Personnel
  
The Company believes that its future success will depend in large part 
upon the continued contributions of members of the Company's senior
management and other key personnel, and upon its ability to attract and 
retain highly skilled managerial, engineering, sales, marketing and
operations personnel, the competition for whom is intense.  Certain of the
Company's senior management have only recently joined the Company.  For 
example, in September 1996, Alan Fraser joined the Company as President
and Chief Executive Officer, replacing Vinita Gupta, who remains as 
Chairperson of the Board of Directors, and in February 1997, Steve Tabaska
joined the Company as Chief Technical Officer and Vice President, 
Engineering.  There can be no assurance that the Company will be successful 
in attracting and retaining skilled personnel to hold important management 
positions  or will be able to successfully integrate any new management
personnel.
  
Legal Proceedings

As discussed under "Legal Proceedings" in Part I hereof, in April 1996, 
a class action complaint was filed against the Company and certain of its
officers and directors in the Santa Clara Superior Court of the State of 
California, alleging violations of the California Corporations Code and 
California Civil Code. In October 1996, a similar parallel lawsuit against 
the Company and the same individuals in the State Court action was
filed in the United States District Court for the Northern District of 
California alleging violations of the federal securities laws. The
class period in both of these lawsuits runs from September 12, 1994 
through December 29, 1995, and both complaints allege that the defendants
concealed and/or misrepresented material adverse information about the 
Company and that the individual defendants sold shares of the Company's
stock based upon material nonpublic information.  The complaints seek 
unspecified monetary damages.  On December 5, 1996, the Superior Court 
for the State of California, County of Santa Clara dismissed portions of 
plaintiff's state court complaint with leave to amend. Plaintiff has
amended his complaint, and the Company has again moved to dismiss the 
amended complaint.  The hearing on this motion is scheduled for April 29,
1997. The Company has also  moved to dismiss the federal complaint. The 
hearing on that motion is scheduled for April 18, 1997.  The Company
believes that both actions are without merit and intends to defend both 
actions vigorously.  However, litigation is subject to inherent
uncertainties and, thus, there can be no assurance that these lawsuits 
will be resolved favorably to the Company or that they will not have a 
material adverse affect on the Company's financial condition and results 
of operations.
  
Risk of Third Party Claims of Infringement

The telecommunications industry is characterized by the existence of a 
large number of patents and frequent litigation based on allegations of 
patent infringement. For example, a third party has expressed its belief 
on several occasions that certain of the Company's products, including 
its CSU/DSUs, may infringe upon patents held by it and has suggested on 
such occasions that the Company acquire a license to such patents. The 
Company believes that a license, to the extent required, will be available;
however, no assurance can be given that the terms of any offered license 
would be favorable to the Company.  Should a license be unavailable, the
Company could be required to discontinue the sale of or to redesign certain 
of its products.  In addition, Larscom, a competitor of the Company, has 
continued to express its belief that the Company's inverse multiplexer 
products may infringe a patent jointly owned by Larscom and a third party 
and has suggested that the Company acquire a license to the patent.  The 
Company does not believe that there is merit to Larscom's claim.
Management after review and consultation with counsel, believes that 
the ultimate resolution of these allegations is uncertain and there can 
be no assurance that these assertions will be resolved without costly 
litigation or in a manner that is not adverse to the Company.  While the 
Company has accrued certain amounts for these matters in prior
years, it is currently unable to estimate the possible loss or range of 
loss regarding these matters.  Therefore, the ultimate resolution of
these matters could result in payments in excess of the amounts accrued 
in the accompanying financial statements and require royalty payments in 
the future which could adversly impact gross margins. There can be no 
assurance that other third parties will not assert infringement claims 
against the Company in the future, that any such claims will not
result in costly litigation or that the Company will prevail in such 
litigation or be able to license any valid and infringed patents from 
third parties on commercially reasonable terms.

Possible Adverse Effect of Future Market Price

The risks outlined herein are difficult for the Company to forecast, and 
these or other factors can materially affect the  Company's operating 
results and stock price for one quarter or a series of quarters. Further, 
in recent years the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of securities
of many high technology companies, for reasons frequently unrelated to the
operating performance of the specific companies. These fluctuations, as well
as general economic, political and market conditions, may materially
adversely affect the market price of the Company's common stock.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The quarterly supplementary data is included as part of Item 7, 
"Management's Discussion and Analysis of Financial Condition and Results 
of Operations."  The financial statements required by this item are set
forth below.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                  Page
Report of Independent Accountants................................. 23

Consolidated Financial Statements:

  Consolidated Balance Sheets as of December 31, 1996 and 1995 ... 24

  Consolidated Statements of Income for each of the
  three years in the period ended December 31, 1996............... 25

  Consolidated Statements of Shareholders' Equity
  for each of the three years in the period ended
  December 31, 1996 .............................................. 26

  Consolidated Statements of Cash Flows for each of
  the three years in the period ended December 31, 1996 .......... 27

  Notes to Consolidated Financial Statements ......................28



                       REPORT OF INDEPENDENT ACCOUNTANTS
                          
                          
To the Board of Directors
Digital Link Corporation and Subsidiaries:

    We have audited the accompanying consolidated balance sheets of Digital 
Link Corporation and Subsidiaries as of December 31, 1996 and 1995, and 
the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
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 financial statements referred to above present 
fairly, in all material respects, the consolidated financial position of 
Digital Link Corporation and Subsidiaries as of December 31, 1996
and 1995, and the consolidated results of their operations and their cash 
flows for each of the three years in the period ended December 31, 1996 
in conformity with generally accepted accounting principles.



                                   COOPERS & LYBRAND L.L.P. 

San Jose, California
January 21, 1997


                   DIGITAL LINK CORPORATION AND SUBSIDIARIES 
                          CONSOLIDATED BALANCE SHEETS
                  (in thousands, except share data) 

                              ASSETS


                                                December 31, 
                                           1996              1995
Current assets:
  Cash and cash equivalents               $2,043            $2,639
  Short-term marketable securities        19,585            16,726 
  Accounts receivable, less allowance
    for doubtful accounts of
    $465 in 1996 and $895 in 1995          6,490             7,690
  Inventories, net                         5,920             4,603
  Prepaid and other current assets         1,131               986
  Deferred income taxes                    2,285             1,821
     Total current assets                 37,454            34,465

Property and equipment, at cost, net       2,147             1,608
Long-term marketable securities           22,420            18,244
Other assets                                 712               438
       Total assets                      $62,733           $54,755
             

                   LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                       $ 1,947           $ 1,371
  Accrued payroll expense                  1,648             1,433
  Other accrued expenses                   3,795             2,751
  Income taxes payable                     1,541             1,427
     Total current liabilities             8,931             6,982
Commitments and contingency (Note 3)
Shareholders' equity:
  Preferred stock, no par value:
     Authorized: 5,000,000 shares;
     Issued and outstanding: 0 shares 
     in 1996 and 1995 
  Common stock, no par value: 
     Authorized:  25,000,000 shares;
         Issued and outstanding: 
         9,218,150 shares in 1996 
         and 9,000,500 shares in 1995     30,913           29,283
  Unrealized gain on marketable securities   257              555
  Retained earnings                       22,632           17,935
     Total shareholders' equity           53,802           47,773

     Total liabilities and 
          shareholders' equity           $62,733          $54,755

The accompanying notes are an integral part of these consolidated
financial statements.


         

                DIGITAL LINK CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME 
                   (in thousands, except per share data)
                  

                                           Year Ended December 31, 
                                         1996        1995      1994

Net sales                              $52,078     $44,344    $35,222
Cost of sales                           21,457      16,769     11,927
     Gross profit                       30,621      27,575     23,295
Expenses:
Research and development                10,120       8,922      7,300
  Selling, general and
         administrative                 16,150      13,958     10,514
  Total expenses                        26,270      22,880     17,814
  Operating income                       4,351       4,695      5,481
Other income                             2,495       2,281      1,098
      Income before provision 
          for income taxes               6,846       6,976      6,579
Provision for income taxes               2,149       2,162      2,171
     Net income                        $ 4,697     $ 4,814    $ 4,408
Net income per share                   $  0.50     $  0.51    $  0.48
Shares used in computing 
     per share amounts                   9,478       9,467      9,113


The accompanying notes are an integral part of these consolidated 
financial statements.
              
              
                     DIGITAL LINK CORPORATION AND SUBSIDIARIES 
                  CONSOLIDATED STATEMENTS OF  SHAREHOLDERS' EQUITY
                                   (in thousands)

                                                    Unrealized
                                                  Gain (Loss) On
                  Preferred Stock   Common Stock   Marketable  Retained
                  Shares  Amount   Shares Amount   Securities  Earnings Total


Balances,
 December 31, 1993   850  $ 974     5,125  $ 218       ---     $8,713  $9,905
  Issuance of
   common stock in
   connection with:
    Initial public
     offering, net of 
     issuance costs 
     of$700          ---    ---     1,938 24,527       ---       ---   24,527
     Stock option
      plan           ---    ---       283    248       ---       ---      248
     Stock purchase 
      plan           ---    ---         7     87       ---       ---       87
  Conversion of 
   preferred stock 
   to common stock in 
   connection with 
   initial public 
   offering         (850)  (974)    1,275    974       ---       ---     ---
  Tax benefit related 
   to disqualifying 
   dispositions from
   exercise of 
   stock options     ---     ---      ---   1,108      ---       ---    1,108
  Unrealized loss on 
   marketable
   securities        ---     ---      ---   ----     $  (72)     ---      (72)
   Net income        ---     ---      ---   ----       ----     4,408   4,408
Balances, 
 December 31, 1994   ---     ---    8,628  27,162       (72)   13,121  40,211
  Issuance of common 
   stock in connection 
   with:
   Stock option plan ---     ---      356     600       ---      ---      600
   Stock purchase 
    plan             ---     ---       16     252       ---      ---      252
  Tax benefit 
   related to 
   disqualifying
   dispositions 
   from exercise
   of stock options  ---     ---      ---   1,269       ---      ---    1,269
  Unrealized gain on 
   marketable
   securities        ---     ---      ---    ---         627      ---     627
   Net income        ---     ---      ---    ---        ---     4,814   4,814
Balances, 
 December 31, 1995   ---     ---    9,000  29,283        555   17,935  47,773
  Issuance of common 
   stock in
   connection with:
   Stock option plan ---     ---      199     546        ---      ---     546
   Stock purchase 
   plan              ---     ---       19     266        ---      ---     266
  Tax benefit related 
   to disqualifying
   dispositions from 
   exercise of stock 
   options           ---      ---      ---    818         ---     ---    818
  Unrealized loss 
   on marketable
   securities        ---      ---       ---   ---        (298)    ---   (298)
  Net income         ---      ---       ---   ---         ---    4,697 4,697
Balances, 
 December 31, 1996   ---    $ ---     9,218 $30,913      $257 $22,632 $53,802

The accompanying notes are an integral part of these consolidated 
financial statements. 

                DIGITAL LINK CORPORATION AND SUBSIDIARIES 
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (in thousands)
                             
                                               Year Ended December 31,
                                            1996         1995       1994
Cash flows from operating activities:
  Net income                              $ 4,697      $ 4,814    $ 4,408
  Adjustments to reconcile net income 
  to net cash flows provided by operating 
  activities:
   Depreciation and amortization              752        1,720      1,172
   Provision (reduction in allowance) for 
   doubtful accounts                         (383)         434        250 
   Provision (reduction in allowance) for 
   excess and obsolete inventories            457         (160)       564
   Deferred income taxes                     (482)        (213)      (792)
   Changes in assets and liabilities:
     Accounts receivable                    1,583         (405)    (3,417)
     Inventories                           (1,775)      (1,819)        34
     Prepaid and other current assets        (402)        (148)      (545) 
     Accounts payable                         783         (656)       392
     Accrued payroll and other
        accrued expenses                    1,053         (407)     3,245 
     Income taxes payable                     114        1,427       (693)
        Net cash flows provided by 
          operating activities              6,398        4,587      4,618

Cash flows from investing activities:
 Purchases of marketable securities       (34,915)     (32,008)   (31,621)
 Maturities of marketable securities       24,391       13,168      7,685
 Sales of marketable securities             4,008       12,816          -
 Acquisition of property and equipment     (1,290)      (1,414)    (2,225)
      Net cash flows used in investing
             activities                    (7,806)      (7,438)   (26,161)

Cash flows from financing activities:
  Proceeds from initial public offering      ----         ---      24,527
  Proceeds from exercise of stock options
    and employee stock purchases              812          852        335
        Net cash flows provided by 
            financing activities              812          852     24,862
            Net increase (decrease) 
               in cash and cash
               equivalents                   (596)      (1,999)     3,319

Cash and cash equivalents at beginning 
  of year                                   2,639        4,638      1,319

Cash and cash equivalents at end of year  $ 2,043      $ 2,639    $ 4,638

Supplemental disclosure of cash flow information:
 Cash paid during the year for
   income taxes                           $ 1,727      $   662    $ 2,714
 Cash received during the year 
   for income taxes                       $    27      $ 1,137     ------

Supplemental schedule of noncash investing 
  and financing activities:
  Conversion of Series A preferred stock 
   to common stock                            ---         ---     $   974
  Unrealized gain (loss) on securities 
   carried at market                      $  (298)     $   627    $   (72)
 Tax benefit related to disqualifying 
   dispositions from exercise of
   stock options                          $   818      $ 1,269    $ 1,108


The accompanying notes are an integral part of these consolidated 
financial statements.


                     DIGITAL LINK CORPORATION AND SUBSIDIARIES
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  Business and Summary of Significant Accounting Policies:

  Basis of Consolidation:
  
   The consolidated financial statements include the accounts of Digital 
Link Corporation and its wholly owned subsidiaries (the "Company").  All 
significant intercompany balances and transactions have been
eliminated.

  Cash, Cash Equivalents and Marketable Securities:

   The Company considers all highly liquid investments with maturities of 
three months or less at the time of purchase and money market funds to be 
cash equivalents. The Company has deposited its cash and money market
funds at one major bank and two investment firms.  Cash equivalents are 
stated at cost plus accrued interest, which approximates market.
   All marketable securities are deemed by management to be available for 
sale and are reported at fair value with net unrealized gains or losses 
reported as a separate component in shareholders' equity.  Realized
gains and losses on the sale of marketable securities are computed
on the specific identification basis.  Available for sale marketable 
securities with maturities less than one year from the balance sheet date 
are classified as current and those with maturities greater than one year
from the balance sheet date are classified as long-term. 

  Revenue Recognition:

   Product revenues are recognized upon shipment of the product if remaining 
obligations are insignificant and collections of the resulting receivable 
is probable. The Company records estimated product returns and accrues for 
future warranty costs, anticipated retroactive price adjustments and 
insignificant vendor obligations at the time of product shipment.  Warranty
costs to date generally have not been significant. Maintenance and support 
revenues, which are not significant, are recognized over the terms of the
related agreements.

  Inventories:

   Inventories are stated at the lower of cost (determined on a first-in, 
first-out basis) or market.

  Property and Equipment:
   Effective January 1, 1996, the Company adopted the straight line method 
of depreciation for all property and equipment placed in service after 
that date.   Property and equipment placed in service prior to January 1, 
1996 continues to be depreciated using the double-declining balance method.
The estimated useful lives under either method range from 3 to 5 years.
Management believes that the change from the double declining balance 
method to the straight-line method provides a better matching of costs 
and revenues over the lives of its property and equipment and conforms to
predominant industry practice.  Use of the straight-line method of 
depreciation on assets placed in service in 1996 versus the double-declining
balance method resulted in no material difference on the pre-tax income or 
net income in the twelve months ended December 31, 1996. When property and 
equipment are retired or otherwise disposed of, the cost and related 
accumulated depreciation are removed from the accounts and the resulting 
gain or loss is included in income.

  Fair Value:

   The fair value of cash equivalents and marketable securities is disclosed 
in relevant notes to the financial statements.  For all other financial
instruments, the carrying amount approximates fair value.

  Concentration of Credit Risk:

   Financial instruments which potentially subject the Company to 
concentration  of credit risk consist principally of investments in 
marketable securities and accounts receivable.  
   The Company currently places its investments with three high credit 
qualified financial institutions.  With respect to accounts receivable, 
the  Company's customer base is dispersed across many different geographic
areas. While its customers are dispersed across many industries, a 
substantial portion of its sales are from ISPs and domestic carriers.  
The Company performs ongoing credit evaluations of its customers, 
generally does not require collateral and maintains an allowance for 
potential credit losses.  At December 31, 1996 and 1995, two customers 
accounted for 19% and 23% of accounts receivable, respectively.

  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 revenue and expenses during the 
reporting period. Actual results could differ from these estimates.

  Computation of Net Income per Share:

    Net income per share is computed using the weighted average number of 
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of stock options (using the
Treasury stock method for all periods presented) and the Series A preferred 
stock as if converted for  all periods prior to the effectiveness of the 
Company's initial public offering (see Note 4).

  Advertising Costs:

  Costs related to advertising and promotion of products is charged to 
advertising expense as incurred. Advertising expense was $1,408,000, 
$931,000, and $813,000 for 1996, 1995, and 1994, respectively.

  Research and Development Costs:

   Costs related to research, design and development of products are 
charged to research and development expenses as incurred.  Software 
development costs are capitalized beginning when a product's technological 
feasibility has been established and ending when a product is available 
for general release to customers provided that research and development 
activities for the related hardware portion of the product have been
completed.  Generally, the Company's products include hardware and software 
components that are developed  concurrently.   As  a result, the Company 
has not capitalized any software development costs since such costs have 
not been significant. 

  Foreign Currency Translation:
  
   The Company's foreign subsidiaries use the United States dollar as their 
functional currency.  Resulting foreign transition gains and losses, which 
have been insignificant, are included in the results of  operations.

  Accounting for Income Taxes:
 
   The Company's provision for income taxes comprises its estimated tax 
liability currently payable and the change in its deferred income taxes.  
Deferred tax assets and liabilities are determined based on differences 
between financial reporting and tax bases of assets and liabilities and 
are measured using the enacted tax rates and laws that will be in effect 
when the differences are expected to reverse.

  Stock-Based Compensation:

   During October 1995, the Financial Accounting Standards Board issued 
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation,"
which establishes a fair value based method of accounting for
stock-based compensation plans.  The Company has chosen to continue to 
account for employee stock options under APB Opinion No. 25, "Accounting 
for Stock Issued to Employees," and has provided pro forma disclosure in
Note 4 to the financial statements as if the measurement provisions of 
SFAS No. 123 had been adopted.

  Recent Pronouncements:
  
   In March 1997, the Financial Accounting Standards Board (FASB) issued 
Statement No. 128, "Earnings Per Share" (SFAS 128), and Statement No. 129,
"Disclosure of Information About Capital Structure" (SFAS 129).  These
Statements will be effective for the Company's fiscal year 1997.  SFAS 128 
requires a revised presentation and calculation of earnings per share (EPS) 
and that prior periods be restated to conform to that revised presentation 
and calculation.  SFAS 129 requires disclosure about the entity's capital 
structure and contains no change in disclosure requirements for entities 
that were subject to the previously existing requirements. Early adoption 
of these Statements is not permitted and the adoption of SFAS 129 will not 
have a material effect on the Company's financial position and results of 
operations.  The impact of the adoption of SFAS 128 on the financial 
statements of the Company has not yet been determined.

  2.  Balance Sheet Detail:
 
  Marketable Securities:
                                               December 31,
                                         1996              1995
                                              (in thousands)

                                            Market                  Market 
                                 Cost       Value          Cost      Value
Debt securities:
  U.S. government corporations
     and agencies               $21,829     $22,050       $25,034   $25,579
  U.S. treasury bills             2,007       2,007         4,333     4,341
  State and municipal
     securities                  15,361      15,387         2,723     2,725
  Other                           2,551       2,561         2,325     2,325
                                $41,748     $42,005       $34,415   $34,970

    Gross unrealized gains and unrealized losses for marketable securities 
were $288,000 and $31,000, respectively, at December 31, 1996 and $564,000 
and $9,000, respectively, at December 31, 1995.
     At December 31, 1996, scheduled maturities of marketable securities 
within one year are $19,585,000 (cost $19,446,000) and for one year to 
five years are $22,420,000 (cost $22,302,000).

  Inventories, net:
                                                 December 31,
                                              1996          1995
                                                 (in thousands)
                                           
Raw materials                                $2,255        $1,838
Work in progress                              2,301         1,965
Finished goods                                1,364           800
                                             $5,920        $4,603
 
   The Company's products are concentrated in a single segment in the 
telecommunications industry which is highly competitive and rapidly 
changing.  Significant technological changes in the industry segment could
affect operating results adversely.  The Company's inventories include high 
technology parts and components that may be specialized in nature or subject
to rapid technological obsolescence. While the Company has programs to 
minimize the required inventories on hand and considers technological 
obsolescence in estimating the required allowance to reduce recorded 
amounts to market values, such estimates could change in the
future.

  Property and Equipment, Net:
                                                   December 31,
                                                1996          1995
                                                  (in thousands)

Manufacturing and development equipment        $ 6,442       $ 5,650
Furniture and fixtures                           1,043           544
Leasehold improvements                             201           201
                                                 7,686         6,395
Less accumulated depreciation and amortization  (5,539)       (4,787) 
                                                $2,147       $ 1,608
                                         
Other Accrued Expenses:
                                                    December 31,
                                                 1996          1995
                                                   (in thousands)

Product warranty                                $  795       $   601
Deferred product revenue                            99            11
Other                                            2,901         2,139
                                                $3,795        $2,751


3.  Commitments and Contingency:
   
    Commitments:
    The Company leases its headquarters facility under an operating lease.
Under the terms of the lease agreement, the Company is responsible for 
insurance, maintenance and property taxes and has an option to extend the 
lease for one additional one year period. During the extension period, all 
terms and conditions under the agreement would remain the same, except that
the monthly rental payments would be the greater of 95% of the fair market 
value for similar properties or the preceding period rental rate.

  Future  minimum lease payments under the lease are as follows at 
  December 31, 1996:

            1997                                 $ 568,000
            1998                                    60,000
         Total minimum lease payments            $ 628,000


  Rent expense was $549,000, $510,000, and $495,000 for 1996, 1995 and 
1994, respectively.

  Contingency:

  Certain third parties have expressed their belief that certain of the 
Company's products may infringe patents held by them and have suggested 
that the Company acquire licenses to such patents.  The Company believes 
that licenses, to the extent required, will be available; however, no 
assurance can be given that the terms of any offered licenses would be 
favorable to the Company. Management, after review and consultation with 
counsel, believes that the ultimate resolution of these allegations is 
uncertain and there can be no assurance that these assertions will be 
resolved without costly litigation or in a manner that is not adverse to 
the Company.  While the Company has accrued certain amounts for these 
matters in prior years, it is currently unable to estimate the possible 
loss or range of loss regarding these matters. Therefore, the ultimate 
resolution of these matters could result in payments in excess of the
amounts accrued in the accompanying financial statements and require 
royalty payments in the future which could adversly impact gross margins.

  In April 1996, a class action complaint was filed against the Company and 
certain of its officers and directors in the Santa Clara Superior Court of
the State of California, alleging violations of the California
Corporations Code and California Civil Code.  In October 1996, a similar 
parallel lawsuit against the Company and the same individuals in the State
Court action was filed in the United States District Court for the Northern
District of California alleging violations of the federal securities laws.  
The class period in both of these lawsuits runs from September 12, 1994
through December 29, 1995, and both complaints allege that the defendants 
concealed and/or misrepresented material adverse information about the 
Company and that the individual defendants sold shares of the Company's
stock based upon material nonpublic information.  The complaints seek 
unspecified monetary damages. On December 5, 1996, the Superior Court for 
the State of California, County of Santa Clara dismissed portions of
plaintiff's state court complaint with leave to amend.  Plaintiff has 
amended his complaint, and the Company has again moved to dismiss the 
amended complaint.  The hearing on this motion is scheduled for April 29, 
1997. The Company has also moved to dismiss the federal complaint.  The 
hearing on that motion is scheduled for April 18, 1997.  The Company 
believes that both actions are without merit and intends to defend both 
actions vigorously.  However, litigation is subject to inherent
uncertainties and, thus, there can be no assurance that these lawsuits 
will be resolved favorably to the Company or that they will not have a 
material adverse affect on the Company's financial condition and results of
operations.  Accordingly, no provision for any liability that may result 
upon adjudication has been made on the accompanying financial statements.

4.  Shareholders' Equity:
    Initial Public Offering:
   
    On January 31, 1994, the Company made an initial public offering of 
2,550,000 shares of common stock at a price of $14.00 per share.  Of 
these shares, 1,900,000 were sold by the Company and 650,000 were sold by 
existing shareholders. On February 7, 1994, the Company's underwriters 
exercised an option to purchase an additional 382,500 shares to cover 
overallotments, of which 37,500 shares were sold by the Company and 345,000
were sold by existing shareholders.  The net proceeds realized by the 
Company from this offering were approximately $24.5 million after deducting 
underwriting discounts and commissions and expenses payable by the
Company related to the offering.
  In connection with the closing of the offering, all of the Company's 
Series A preferred stock outstanding at December 31, 1993 converted into 
an aggregate of 1,275,000 shares of common stock.

  Stock Options Plan:

  The Company has a 1992 Equity Incentive Plan ("Plan"), which succeeds 
the Company's prior plan.  All outstanding stock options issued under the 
prior plan will continue to be governed by the terms and conditions
of that plan, but no additional stock options will be granted under that 
prior plan.  During 1995, an additional 500,000 shares were authorized for 
grant or sale to employees, officers, directors and consultants
of the Company under the Plan. The Plan expires ten years after its 
adoption. 

  Options granted under the Plan may be either incentive stock options or 
nonqualified stock options, as designated by the Board of Directors.  The 
Plan provides that the exercise price of options granted must be no
less than the fair market value of the Company's common stock at the date 
of grant.  The Board of Directors also has the authority to set exercise 
dates (no longer than ten years from the date of grant), payment terms and
other provisions for each grant.  Generally, options granted under the Plan 
through October 31, 1995 become exercisable annually as to 20% and options 
granted on or after October 31, 1995 become exercisable as to 25% of
the shares one year after the first vesting date and thereafter with 
respect to an additional 2.084% at the end of each succeeding month.

  The Plan also provides for the award of common stock based on performance 
and the sale of restricted stock to eligible persons at the fair market 
value of the common stock of the Company at the date of sale or at discounts
of up to 15%, as determined by the Board of Directors. All restricted stock 
awards under this Plan are subject to a repurchase option that expires over 
a five year period at the original issuance price.  As of December 31,
1996, no restricted stock awards have been issued under the Plan.

Directors Stock Options Plan:

     In October 1994, the Company adopted the 1994 Directors Stock Option 
Plan (the "Directors Plan").  The Company has reserved 200,000 shares of 
Common Stock for issuance to directors of the Company who are not employees 
of the Company.  The Directors Plan expires ten years after its
adoption.

   Options granted under the Directors Plan are nonqualified stock options.
The Directors Plan provides that the exercise price of options granted shall
be the fair market value of the Company's common stock at the date of grant.
Options granted under the Directors Plan become exercisable ratably over
four years.  The maximum term of these options granted is ten years from the
date of grant. 

   Activity under the Plan and the Directors Plan during 1996, 1995 and 1994
is as follows:
                                 (in thousands, except per share amounts) 
                                              Oustanding Options

                                                                    Weighted 
                            Shares     Number   Price               Average
                            available  of       per       Aggregate  Exercise
                            for grant  Shares   Share     Price      Price

Balances, December 31, 1993  1,340     1,352  $0.27-$8.50  $ 2,057    $ 1.52
  Options granted             (483)      483  $9.25-$21.75   6,036    $12.50
  Options exercised             --      (283) $0.27-$4.67     (248)    $ 0.88
  Options cancelled            117      (117) $0.60-$14.00     (516)   $ 4.41
Balances, December 31, 1994    974     1,435  $0.33-$21.75    7,329    $ 5.11
  Additional shares reserved   500        --       --          --       -- 
  Options granted             (561)       561 $15.25-$28.25  10,882    $19.40
  Options exercised             --       (356)$0.33-$15.12     (600)   $ 1.69
  Options cancelled            178       (178)$0.67-$28.25   (1,798)   $10.10
Balances, December 31, 1995  1,091      1,462 $0.60-$28.25   15,813    $10.82
  Options granted             (984)       984 $10.125-$23.25 15,302    $15.55
  Options exercised            --        (199)$0.60-$21.75     (546)   $ 2.74
  Options cancelled            425       (425)$0.83-$28.25   (6,079)   $14.30
Balances, December 31, 1996    532      1,822 $0.83-$28.25   24,490    $13.44

The weighted-average fair value of those options granted in 1996 and 1995 
was $8.47, and $10.76, respectively. Options to purchase 350,000 shares,
267,000 shares and 338,000 shares were exercisable with a weighted-average 
exercise price of $8.88, $4.68, and $1.21 at December 31, 1996, 1995 and 
1994, respectively.

The following table summarizes information with respect to stock options 
outstanding at December 31, 1996:

                                  (number of options in thousands) 
                Options Outstanding                    Options Exercisable
                            Weighted
Range      Number           Average       Weighted   Number          Weighted
of         Outstanding at   remaining     Average    Exercisable     Average
Exercise   December 31,     Contractual   Exercise   at December 31, Exercise
Price      1996             Life (years)  Price      1996            Price

$0.83-$1.33     132            3.73        $ 1.13      96            $ 1.09
$1.67-$3.33     155            6.63        $ 2.10      66            $ 2.22
$4.67-$8.50      20            6.88        $ 5.19       3            $ 6.80
$9.00-$13.25    258            8.39        $10.14      53            $10.00
$14.00-$21.25 1,048            9.38        $15.69      99            $15.30
$21.75-$28.25   209            8.93        $23.29      33            $23.86
$0.83-$28.25  1,822            8.52        $13.44     350            $ 8.88


Employee Stock Purchase Plan:
  In December 1993, the Company established the 1993 Employee Stock 
Purchase Plan (the "Purchase Plan") under which 300,000 shares of Common 
Stock have been reserved for issuance.  Under the Purchase Plan, an
eligible employee may purchase shares of Common Stock from the Company 
through payroll deductions of up to 6% of his or her base compensation, at 
a price per share equal to 85% of the lesser of the fair market value of 
the Company's Common Stock as of the first day or last day of each six 
month offering period under the Purchase Plan.  The Company sold 19,000
shares, 16,000 shares, and 7,000 shares to employees in 1996, 1995, and 
1994 respectively.  The weighted-average fair value of those purchase 
rights granted in 1996 and 1995 was $5.66 and $7.72, respectively.

  Pro Forma Stock-Based Compensation:
  The Company accounts for the fair value of its grants under the Plan, the 
Directors Plan and the Purchase Plan, in accordance with APB  25.  
Accordingly, no compensation expense has been recognized for these plans.  
Had compensation expense been determined based on the fair value at the 
grant dates for awards under these plans consistent with the method of 
SFAS 123, the Company's net income would have been reduced to the pro forma 
amounts indicated below:

(Amounts in thousands, except per share data)        1996          1995

  Net income
        As reported ...........................     $4,697         $4,814
        Pro forma..............................     $3,771         $4,462
  Net income per share
        As reported............................     $ 0.50         $ 0.51
        Pro forma..............................     $ 0.43         $ 0.48

The fair value of each option is estimated on the date of grant using a 
type of Black-Scholes option-pricing model with the following 
weighted-average assumptions used for grants under the Plan and the
Directors Plan in 1996 and 1995: 

                                                   1996        1995
Dividend yield                                     0.00%       0.00%
Expected Life of option                            4.50 years  4.50 years
Risk-free interest rate                            6.05%       6.05%
Expected Volitility                               60.00%      60.00%

The Company has also estimated the fair value for the purchase rights 
issued under the Purchase Plan using the Black Scholes option pricing 
model with the following assumptions for grants in 1996 and 1995:

                                                    1996        1995 
Dividend yield                                      0.00%       0.00%
Expected Life of option                             0.50 years  0.50 years
Risk-free interest rate                             5.34%       5.07%
Expected Volitility                                60.00%      60.00%

  The above pro forma disclosures are not likely to be representative of 
the effects on reported net income for future years.

5.  Segments, Significant Customers, Suppliers and Foreign Revenues:

  The Company operates in a single industry segment encompassing the 
design, development, manufacture, marketing and support of highspeed 
digital access products for wide area networks worldwide.  The
Company markets and sells its products primarily in North America, Europe, 
South America and Asia, through a direct sales force, value added resellers 
(VARs) and original equipment manufacturers (OEMs).  In addition to twelve 
sales offices in the  United S tates, the Company opened its first 
international offices in the United Kingdom and Germany during 1993 and in 
Hong Kong during 1996. 
  Sales of the Company's products to end users, VARs and OEMs comprised 58%,
33% and 9% of net sales, respectively in 1996 and 45%, 37% and 18% of net 
sales, respectively in 1995.
  In 1996, sales to two customers accounted for 13% and 13% of net sales.  
In 1995, sales to two customers accounted for 12% and 11% of net sales.  
In 1994, sales to two customers accounted for 20% and 14% of net sales. 
The loss of any one or more of the Company's major customers could 
materially adversely affect the Company's business and operating results.
   The Company's product designs are proprietary but generally incorporate 
industry standard hardware components. However, certain semiconductor 
devices and components and subassemblies are presently available only from 
single sources, and certain other components are presently available or 
acquired only from a limited number of sources.  To date, the Company has 
been able to obtain adequate supplies of these components, as well as 
subassemblies from third party contractors, in a timely manner from
existing sources or, when necessary, from alternative sources.  The 
inability to obtain sufficient sole or limited source components or
subassemblies as required in the future, or to develop alternative 
sources or redesign its products if and as required in the future, could 
result in delays or reductions in product shipments that could materially 
adversely affect the Company's business and operating results or damage 
customer relationships.
  Outside of Europe, no geographic segment had sales in excess of 10% of 
total sales.  International sales in 1996, 1995, and 1994 were as follows;

                                     1996           1995            1994 

Europe                           $ 4,142,000      $ 7,524,000    $7,534,000
Other                              4,524,000        4,730,000     3,377,000

Total International Sales        $ 8,666,000      $12,254,000   $10,911,000

6.   Employee Benefit Plan:

  The Company has a 401(k) profit sharing plan for its full time employees 
who have attained the age of 21 and completed six months of service.  
Eligible employees may make voluntary contributions to the Plan up to 18% 
of their annual compensation.  The Company makes a matching contribution 
equal to 33% of each employee's contributions.  In applying this 
matching contribution, however, only contributions up to 6% of the employee's
compensation will be considered. For 1996, 1995 and 1994, the Company 
contributed $191,000, $184,000, and $112,000 respectively.

7.   Income Taxes:

  The provision for income taxes comprises:

                                      1996        1995        1994
                                              (in thousands) 
Current:
  Federal                             $2,376     $1,987      $2,385
  State                                  135        388         578
                                       2,511      2,375       2,963
Deferred:
  Federal                               (295)      (172)       (674)
  State                                  (67)       (41)       (118)
                                        (362)      (213)       (792)
                                      $2,149     $2,162      $2,171

The difference between the actual tax provision and the amount obtained by 
applying the U.S. Federal statutory rate to income before provision for 
income taxes is as follows:

                                            1996         1995       1994

Tax provision at federal statutory rate     34.0%        34.0%      34.0%
State taxes, net of federal tax benefit      5.4          6.1        4.8
Nontaxable municipal interest               (2.1)        (1.1)      (3.3)
Foreign sales corporation                   (0.6)        (1.9)      (3.2)
Research and development tax credit         (6.3)        (7.7)      (4.2)
Other                                        1.0          1.6        4.9
                                            31.4%        31.0%      33.0%

The components of the deferred tax asset are as follows:

                                                      December 31,
                                                 1996              1995
                                                     (in thousands) 
Deferred tax assets:
  Allowance for doubtful accounts receivable    $ 184            $ 359 
  Allowance for excess and obsolete inventories   577              339 
  Depreciation                                    418              474
  Accrual for warranty, royalties and other     1,524            1,049
     Total deferred tax assets                 $2,703           $2,221


The Company has not provided a valuation allowance on the deferred tax 
assets as those amounts can be realized through carryback to prior years 
when the Company paid income taxes or are expected to be realized from 
future operations based upon the Company's history of profitable operations.

Deferred tax assets included in the balance sheet are:

                                                       December 31, 
                                                 1996              1995

Current                                         $2,285            $1,821
Noncurrent (included in other assets)              418               400
                                                $2,703            $2,221

8.  Subsequent Event:

   During February and March of 1997, the Company repurchased on the open 
market a total of 117,000 shares of common stock at a price ranging  from
$15.00 to $17.88 a share. This stock has subsequently been retired.


                                      PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 

  Information required by this Item is incorporated by reference from the 
sections titled "Nominees" under "Proposal No. 1 - Election of Directors," 
"Executive Officers" and Section 16(a) "Beneficial Ownership Reporting 
Compliance" from the Definitive Proxy Statement to be filed with the
Securities and Exchange Commission relative to the Company's annual meeting 
of shareholders to be held on May  21, 1997 (the "Definitive Proxy 
Statement"). 

ITEM 11. EXECUTIVE COMPENSATION

  Information required by this Item is incorporated by reference from the 
sections titled "Director Compensation" under "Proposal No. 1 - Election of
Directors" and "Executive Compensation"  from the Definitive Proxy Statement.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  Information required by this Item is incorporated by reference from 
"Security Ownership of Certain Beneficial Owners and Management" from the
Definitive Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 

  Information required by this Item is incorporated by reference from 
"Certain Transactions" from the Definitive Proxy Statement.


                             PART IV
                          
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
        
  The following financial statements and schedules are filed as part of 
this report:

                                                               Page


(a)1.  Financial Statements
       See index in Part II, Item 8                             22

(a)2. and (d) Financial Statement Schedules

      Report of Independent Accountants                         43
      Schedule II - Valuation and Qualifying Accounts           44

   All schedules not listed above are omitted because they are not 
applicable or the required information is included in the financial 
statements or notes thereto.


(a)3. and (c)  Exhibits
   3.01 Registrant's Amended and Restated Articles of Incorporation filed on 
        February 7, 1994. (1)
   3.02 Registrant's Certificate of Correction of Amended and Restated 
        Articles of Incorporation filed on April 7, 1994. (1)
   3.03 Registrant's Bylaws, as amended. (2)
   4.01 Form of Specimen Certificate for Registrant's Common Stock. (3)
   4.02 Registration Rights Agreement among Registrant, Vinita Gupta, Summit
        Ventures L.P., SV Eurofund C.V. and Summit Investors,  L.P. dated 
        December 23, 1987 and certain exhibits thereto. (3)
  10.01 Registrant's 1986 Stock Option Plan, as amended. (3)
  10.02 Form of Agreement for Registrant's 1986 Stock Option Plan. (1)
  10.03 Registrant's 1986 Stock Purchase Plan. (3)
  10.04 Form of Agreement for Registrant's 1986 Stock Purchase Plan, as 
        amended. (1)
  10.05 Registrant's 1992 Equity Incentive Plan, as amended. (2)
  10.06 Form of Agreement for Registrant's 1992 Equity Incentive Plan, as 
        amended. (1)
   10.07 Registrant's 1993 Employee Stock Purchase Plan. (3)
   10.08 Registrant's 1994 Directors Stock Option Plan.  (1)
   10.09 Form of Agreement for Registrant's 1994 Directors Stock Option 
         Plan. (1)
   10.10 Form of Indemnity Agreement entered into with each of Registrant's
         directors. (3)
   10.11 Lease Agr eement between Registrant and John Hancock Mutual Life 
         Insurance Company dated June 17, 1992. (3)
   10.12 Form of Patent License Agreement between Registrant and QPSX
         Communications Ltd. dated December 1993. (3)
  10.13*Software License Agreement between Registrant and Epilogue Technology
        Corporation dated January 20, 1992. (3)
  10.14 Stockholder Agreement among Registrant, Vinita Gupta, Narendra Gupta,
        Summit Ventures, L.P., SV Eurofund C.V. and Summit Investors, L.P. 
        dated December 23, 1987. (3)
  10.15 Separation Agreement between Registrant  and Benjamin W. Berry dated
        November 11, 1994.(1)
  10.16 Original Equipment Manufacturer Agreement between Registrant
        and Siemens Aktiengesellschaft dated April 7, 1995.(4)
  10.17 Separation Agreement between Registrant and Daniel L. Palmer
        dated October 20, 1995.(5)
  10.18 Employment Agreement between Registrant and Alan Fraser dated 
        September 5, 1996.(6)
  10.19 Security Agreement between Registrant and Alan Fraser dated
        September 30, 1996.(6)
  10.20 Secured Promissory Note from Alan Fraser dated September 30, 1996. (6)
 +10.21 Separation Agreement between Registrant  and James Checco dated 
        November 19, 1996.
  11.01 Statement of Computation of Net Income Per Share. 
  21.01 List of Subsidiaries. (3)
  23.01 Consent of Independent Accountants
  27.01 Financial Data Schedule

   *      Confidential treatment has been obtained with respect to portions 
          of this exhibit.
  (1)     Filed as an exhibit to Registrant's Form  10-K for the year ended 
          December 31, 1994 andincorporated herein by reference.
  (2)     Filed as an exhibit to Registrant's Registration Statement on 
          Form S8 (No.  33-95176)  filed  on July 31,  1995  and
          incorporated herein by reference.
  (3)     Filed as an exhibit to Registrant's Form S-1 Registration
          Statement (File No. 33-72642), which  was  declared  effective  
          January  31, 1994,  and incorporated herein by reference.
  (4)     Filed  as  an exhibit to Registrant's Form 10-Q for  the quarter 
          ended June 30, 1995 and incorporated herein by reference.
  (5)     Filed  as  an exhibit to Registrant's Form  10-K for the year 
          ended December 31, 1995 and incorporated herein by reference.
  (6)     Filed  as  an exhibit to Registrant's Form  10-Q for  the  
          quarter ended September 30, 1996 and incorporated herein by 
          reference.
   +      Management contract or compensatory plan required to be filed as 
          an exhibit to this Form 10-K.

(b)   Reports on Form 8-K

      No reports on Form 8-K were filed during the last quarter of the 
period covered by this report.



                                   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.

                                  DIGITAL LINK CORPORATION 
March 28, 1997                 By:  /s/ Stanley E.  Kazmierczak
                                     Stanley E. Kazmierczak 
                                     Chief Financial Officer

  Each person whose signature appears below constitutes and appoints 
Alan I. Fraser and Stanley E. Kazmierczak, jointly and  severally, his or 
her true and lawful attorneys-infact, each with the power of substitution,
for him or her in any and all capacities, to sign amendments to this Report 
on Form 10-K, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange 
Commission, hereby ratifying and confirming all that said attorneys-in-fact,
or his or her substitute or substitutes, may do or cause to be done by 
virtue hereof. Pursuant to the requirements of the Securities Exchange  
Act of 1934, this Report has been signed below by the following person on 
behalf of the Registrant and in the capacities and on the dates
indicated.
   
    Signature                      Title                        Date
 
/s/ Vinita Gupta           Chairperson of the Board        March 28, 1997
Vinita Gupta


                           Chief Executive Officer
                                and President
/s/ Alan I. Fraser      (Principal Executive Officer)      March 28, 1997
Alan I. Fraser   


                           Chief Financial Officer and
                           Vice President, Finance and
                                 Administration
/s/ Stanley E. Kazmierczak  (Principal Financial and       March 28, 1997
Stanley E. Kazmierczak          Accounting Officer)
                              
   

/s/ Richard C. Alberding            Director               March 28, 1997
Richard C. Alberding
                      

/s/ Gregory M. Avis                 Director               March 28, 1997
Gregory M. Avis


/s/ Narendra K. Gupta               Director               March 28, 1997
Narendra K. Gupta



                                    Director               March 28, 1997
Charles R. Moore
                


                     
                        REPORT OF INDEPENDENT ACCOUNTANTS
                            
   Our report on the consolidated financial statements  of Digital Link  
Corporation and Subsidiaries is included on page 23 of  this Form  10-K.   
In  connection with our audits of such  financial statements, we have  
also audited the related financial statement schedule listed in the index 
on page 40 of this Form 10K.
   In our opinion, the financial statement schedule referred to above,  
when and considered in relation to the basic financial statements  
taken as a whole, presents fairly, in all material respects, the 
information required to be included therein.


                                   COOPERS & LYBRAND L.L.P.

San Jose, California
January 21, 1997




                                 SCHEDULE II
                          DIGITAL LINK CORPORATION
 
                     VALUATION AND QUALIFYING ACCOUNTS 
             For the Years Ended December 31, 1994, 1995 and 1996 
                             (Amounts in thousands)


                                                                  
                          Balance at    Charged to                  Balance 
                          Beginning     Costs                       at Endf 
                          of the        and          Deductions     of the
                          Period        Expenses  Description  Amt  Period
                              
        
Description
Balances for the year
   ended December 31, 1994:
   Allowance for doubtful    $ 211       $ 250                       $ 461
    accounts receivable
   Allowance for excess
    and obsolete inventories   440         564                       1,004
    
Balances for the year
   ended December 31, 1995:
    Allowance  for doubtful    461         434                         895      
     accounts receivable
    Allowance for excess     1,004         --         (a)      $160    844
     and obsolete inventories

Balances for the year
   ended December 31, 1996:
    Allowance for doubtful     895         --         (b)       383    
     accounts receivable   
                                                      (a)        47    465

    Allowance for excess       844         457        (a)       167  1,134    
     and obsolete inventories


(a)  Write-Off's & adjustments

(b)  Credit to G&A expenses