<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended September 30, 1999

                                       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 000-26689

================================================================================

                            FOUNDRY NETWORKS, INC.
            (Exact name of registrant as specified in its charter)

            Delaware                                     77-0431154
 (State or other jurisdiction of             I.R.S. Employer Identification No.)
  incorporation or organization)

                        680 West Maude Avenue, Suite 3
                              Sunnyvale, CA 94086
         (Address of principal executive offices, including zip code)

                                (408) 530-3300
             (Registrant's telephone number, including area code)

                                      N/A
             (Former name, former address and former fiscal year,
                         if changed since last report)

================================================================================

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [_]    No [X]/1/

     As of September 30, 1999, there were 57,277,117 shares of the registrant's
common stock outstanding./2/

(1)  The Registrant has been subject to the filing requirements of the
     Securities Exchange Act of 1934 since the effective date of its
     Registration Statement on Form S-1 (September 27, 1999) and has filed all
     required reports since such effective date.

(2)  This share number assumes the conversion of all outstanding shares of the
     Registrant's preferred stock into common stock which was effectuated on
     October 1, 1999.

                                                                               1
<PAGE>

                                     INDEX
                                     -----
<TABLE>
<CAPTION>

                                                                              Page
                                                                              ----
<S>                                                                           <C>
PART I.  FINANCIAL INFORMATION

     Item 1.   Financial Statements:

               Condensed Balance Sheets as of September 30, 1999 and            3
               December 31, 1998

               Condensed Statements of Operations for the Three and             4
               Nine Months Ended September 30, 1999 and 1998

               Condensed Statements of Cash Flows for the Nine                  5
               Months Ended September 30, 1999 and 1998

               Notes to Condensed Financial Statements                          6


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

               Factors That May Affect Future Results                           15

     Item 3.   Quantitative and Qualitative Disclosures About Market Risk       25

PART II.  OTHER INFORMATION

     Item 1.   Legal Proceedings                                                26

     Item 2.   Changes in Securities and Use of Proceeds                        26

     Item 3.   Defaults Upon Senior Securities                                  26

     Item 4.   Submission of Matters to a Vote of Security Holders              26

     Item 5.   Other Information                                                27

     Item 6.   Exhibits and Reports on Form 8-K                                 27

SIGNATURES                                                                      28
</TABLE>

                                                                               2
<PAGE>

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.

                             FOUNDRY NETWORKS, INC.

                            CONDENSED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                 September 30,       December 31,
                                                                                     1999               1998
                                                                              ------------------  ----------------
                                                                                  (unaudited)
          <S>                                                                 <C>                 <C>
                                         ASSETS
          Current assets:
            Cash and cash equivalents........................................          $ 19,734          $  4,567
            Receivable from underwriters.....................................           133,688                --
            Accounts receivable, net.........................................            20,558             6,607
            Inventories, net.................................................            13,795             7,201
            Prepaid expenses and other current assets........................               680               367
                                                                                       --------          --------
                  Total current assets.......................................           188,455            18,742

            Property and equipment, net......................................               387               496
                                                                                       --------          --------
                                                                                       $188,842          $ 19,238
                                                                                       ========          ========

                    LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
          Current liabilities:
            Bank line of credit..............................................          $  2,000          $     --
            Current portion of capital lease obligations.....................                46               178
            Accounts payable.................................................             9,414             6,059
            Accrued liabilities..............................................             9,762             1,471
            Deferred revenue.................................................             2,387               371
                                                                                       --------          --------
                  Total current liabilities..................................            23,609             8,079
                                                                                       --------          --------

          Redeemable convertible preferred stock.............................            31,085            30,085
                                                                                       --------          --------

          Stockholders' equity (deficit):
            Common stock.....................................................                 4                 3
            Treasury stock...................................................                (4)               --
            Additional paid-in capital.......................................           160,383             6,120
            Notes receivable from stockholders...............................              (859)             (713)
            Deferred stock compensation......................................           (14,084)           (3,964)
            Accumulated deficit..............................................           (11,292)          (20,372)
                                                                                       --------          --------
                  Total stockholders' equity (deficit).......................           134,148           (18,926)
                                                                                       --------          --------
                                                                                       $188,842          $ 19,238
                                                                                       ========          ========
</TABLE>

           See accompanying notes to condensed financial statements.

                                                                               3
<PAGE>

                             FOUNDRY NETWORKS, INC.

                       CONDENSED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                            Three Months Ended          Nine Months Ended
                                                               September 30,              September 30,
                                                         -------------------------  -------------------------
                                                            1999          1998         1999          1998
                                                         -----------  ------------  -----------  ------------
                                                                (unaudited)                (unaudited)
<S>                                                      <C>          <C>           <C>          <C>
Revenue, net............................................     $38,896      $ 4,030       $78,383      $ 8,233
Cost of revenue.........................................      17,274        1,918        35,265        4,000
                                                             -------      -------       -------      -------
     Gross profit.......................................      21,622        2,112        43,118        4,233
                                                             -------      -------       -------      -------
Operating expenses:
     Research and development...........................       2,199        3,705         5,824        6,955
     Sales and marketing................................       6,654        1,887        13,627        4,632
     General and administrative.........................       1,025          365         2,680          934
     Amortization of deferred stock
     compensation.......................................       2,248          233         7,150          233
                                                             -------      -------       -------      -------
     Total operating expenses...........................      12,126        6,190        29,281       12,754
                                                             -------      -------       -------      -------
Income (loss) from operations...........................       9,496       (4,078)       13,837       (8,521)
Interest income, net....................................          47          135            71          348
                                                             -------      -------       -------      -------
Income (loss) before provision for income
 taxes..................................................       9,543       (3,943)       13,908       (8,173)
Provision for income taxes..............................       3,737           --         4,828           --
                                                             -------      -------       -------      -------
Net income (loss).......................................     $ 5,806      $(3,943)      $ 9,080      $(8,173)
                                                             =======      =======       =======      =======

Basic net income (loss) per share.......................     $  0.28      $ (0.28)      $  0.47      $ (0.64)
                                                             =======      =======       =======      =======
Weighted average shares used in computing
 basic net income (loss) per share......................      20,905       14,166        19,131       12,753
                                                             =======      =======       =======      =======

Diluted net income (loss) per share.....................     $  0.10      $ (0.28)      $  0.17      $ (0.64)
                                                             =======      =======       =======      =======
Weighted average shares used in computing
 diluted net income (loss) per share....................      56,709       14,166        54,300       12,753
                                                             =======      =======       =======      =======

Pro forma basic net income (loss) per share.............     $  0.13      $ (0.11)      $  0.22      $ (0.25)
                                                             =======      =======       =======      =======
Weighted average shares used in computing
 pro forma basic net income (loss) per
 share (1)..............................................      43,579       36,654        41,688       32,663
                                                             =======      =======       =======      =======
</TABLE>

(1)  Pro forma basic net income (loss) per common share has been calculated
     assuming the conversion of the redeemable convertible preferred stock using
     the if-converted method into an equivalent number of common shares as if
     the shares had been converted on the dates of issuance.

           See accompanying notes to condensed financial statements.

                                                                               4
<PAGE>

                             FOUNDRY NETWORKS, INC.

                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                             Nine Months Ended
                                                                                September 30,
                                                                          -------------------------
                                                                             1999          1998
                                                                          -----------  ------------
                                                                                (unaudited)
<S>                                                                      <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)....................................................    $  9,080       $(8,173)
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
        Depreciation...................................................         333           498
        Amortization of deferred stock compensation....................       7,150           233
        Provision for allowance for doubtful accounts..................         782           176
        Provision for excess and obsolete inventories..................       1,466           384
        Change in operating assets and liabilities:
          Accounts receivable..........................................     (14,733)       (2,232)
          Inventories..................................................      (8,060)       (2,775)
          Prepaid expenses and other current assets....................        (313)          (51)
          Accounts payable.............................................       3,355         2,524
          Accrued liabilities..........................................       8,291           348
          Deferred revenue.............................................       2,016           177
                                                                           --------       -------
             Net cash provided by (used in) operating
               activities..............................................       9,367        (8,891)
                                                                           --------       -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment..................................        (224)         (321)
                                                                           --------       -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from bank line of credit....................................       2,000            --
  Principal payments on capital lease obligations......................        (132)         (123)
  Proceeds from issuance of common stock...............................       3,160            37
  Repurchase of common stock...........................................          (4)          (25)
  Net proceeds from issuance of redeemable convertible
   preferred stock.....................................................       1,000        14,966
                                                                           --------       -------
             Net cash provided by financing activities.................       6,024        14,855
                                                                           --------       -------
INCREASE IN CASH AND CASH
EQUIVALENTS............................................................      15,167         5,643
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................................................       4,567         3,182
                                                                           --------       -------
CASH AND CASH EQUIVALENTS, END OF PERIOD...............................    $ 19,734       $ 8,825
                                                                           ========       =======
</TABLE>

           See accompanying notes to condensed financial statements.

                                                                               5
<PAGE>

                    NOTES TO CONDENSED FINANCIAL STATEMENTS
               (Information for the three and nine months ended
                   September 30, 1999 and 1998 is unaudited)


1.  BASIS OF PRESENTATION:
    ----------------------

     The condensed financial statements included herein have been prepared by
Foundry Networks, Inc. ("Foundry"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to  such rules and regulations. The condensed balance sheet as
of December 31, 1998 has been derived from the audited financial statements as
of that date, but does not include all disclosures required by generally
accepted accounting principles.  Foundry believes the disclosures included in
the unaudited condensed financial statements when read in conjunction with the
financial statements and the notes thereto included in Foundry's Prospectus
dated September 27, 1999 are adequate to make the information presented not
misleading.

     The unaudited condensed financial statements included herein reflect all
adjustments, which are in the opinion of management, necessary for a fair
presentation of financial position, results of operations and cash flows for the
periods presented. These adjustments are of a normal, recurring nature. The
results of operations for the three and nine months ended September 30, 1999 are
not necessarily indicative of the results that may be expected for future
quarters or the year ending December 31, 1999.


2.  SIGNIFICANT ACCOUNTING POLICIES:
    --------------------------------

Use of Estimates in Preparation of Financial Statements

     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 the
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 those estimates.

Stock Split

     A three for two stock split of Foundry's outstanding common and preferred
stock was approved by Foundry's board of directors in July 1999 and by its
stockholders' in August 1999. All share and per share information included in
these financial statements have been retroactively adjusted to reflect this
stock split.

Inventories

     Inventories are stated on a first-in, first-out basis at the lower of cost
or market, and include purchased parts, labor and manufacturing overhead.
Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                  September 30,    December 31,
                                                  -------------    ------------
                                                      1999             1998
                                                  -------------    ------------
        <S>                                       <C>            <C>
        Purchased parts...........................      $ 7,421         $5,302
        Work-in-process...........................        3,370          1,281
        Finished goods............................        3,004            618
                                                        -------         ------
                                                        $13,795         $7,201
                                                        =======         ======
</TABLE>

                                                                               6
<PAGE>

Revenue Recognition

     Foundry generally recognizes product revenue upon shipment to customers.
Revenue from customer support services is deferred and recognized on a straight-
line basis over the contractual period. At shipment date, Foundry establishes an
accrual for estimated warranty expenses associated with sales. Foundry's
warranty period extends 12 months from the date of sale. The contracts with
distributors do not provide for rights of return and the contract with the
original equipment manufacturer also does not provide for rights of return
except in the event products do not meet specifications or there has been an
epidemic failure, as defined in the agreement.

Net Income (Loss) Per Share

     Basic net income (loss) per common share and diluted net income (loss) per
common share are presented in conformity with Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" for all periods presented.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of the initial public
offering must be included in the calculation of basic and diluted net income
(loss) per common share as if such stock had been outstanding for all periods
presented. To date, Foundry has not had any issuances or grants for nominal
consideration.

     In accordance with SFAS No. 128, basic net income (loss) per common share
has been calculated using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. For the three
and nine months ended September 30, 1998 Foundry has excluded all convertible
preferred stock, outstanding stock options and shares subject to repurchase from
the calculation of diluted net loss per common share because all such securities
are anti-dilutive for those periods. The total number of shares excluded from
the calculations of diluted net loss per common share was 26,468,146 for the
three and nine months ended September 30, 1998.  For the three and nine months
ended September 30, 1999, diluted net income per common share has been
calculated assuming the conversion of all dilutive potential common stock. Pro
forma basic net income (loss) per common share for the three and nine months
ended September 30, 1999 and 1998 has been calculated assuming the conversion of
the redeemable convertible preferred stock using the if-converted method into an
equivalent number of common shares as if the shares had been converted on the
dates of issuance.


<TABLE>
<CAPTION>
                                                                                  Three Months Ended    Nine Months Ended
                                                                                    September 30,         September 30,
                                                                                 --------------------  --------------------
                                                                                   1999       1998       1999       1998
                                                                                 ---------  ---------  ---------  ---------
                                                                                   (in thousands, except per share data)
<S>                                                                              <C>        <C>        <C>        <C>
Net income (loss)............................................................     $ 5,806   $ (3,943)   $ 9,080   $ (8,173)
                                                                                  -------   --------    -------   --------
Basic:
 Weighted average shares of common stock outstanding.........................      28,544      6,388     28,209     26,365
 Less: Weighted average shares subject to repurchase.........................      (7,639)   (12,222)    (9,078)   (13,612)
                                                                                  -------   --------    -------   --------
 Weighted average shares used in computing basic net income
  (loss) per common share....................................................      20,905     14,166     19,131     12,753
                                                                                  =======   ========    =======   ========
Basic net income (loss) per common share.....................................     $  0.28   $  (0.28)   $  0.47   $  (0.64)
                                                                                  =======   ========    =======   ========

Diluted:
 Weighted average shares of common stock outstanding.........................      28,544                28,209
 Add: Weighted average dilutive potential common stock.......................      28,165                26,091
                                                                                  =======               =======
 Weighted average shares used in computing diluted net income (loss) per
  common share...............................................................      56,709     14,166     54,300     12,753
                                                                                  =======   ========    =======   ========
Diluted net income (loss) per common share...................................     $  0.10   $  (0.28)   $  0.17   $  (0.64)
                                                                                  =======   ========    =======   ========
Pro forma basic:
 Shares used above...........................................................      20,905     14,166     19,131     12,753
 Add:  Pro forma adjustment to reflect weighted effect of assumed conversion
 of redeemable convertible preferred stock...................................      22,674     22,488     22,557     19,910
                                                                                  -------   --------    -------   --------
 Weighted average shares used in computing pro forma basic
 net income (loss) per common share..........................................      43,579     36,654     41,688     32,663
                                                                                  =======   ========    =======   ========
</TABLE>

                                                                               7
<PAGE>

<TABLE>
<S>                                                                              <C>        <C>        <C>        <C>
Pro forma basic net income (loss) per
 common share  ..............................................................     $  0.13   $  (0.11)   $  0.22   $  (0.25)
                                                                                 =========  ========   =========  ========
</TABLE>

Business Segments

     Foundry is organized and operates as one operating segment, the design,
development, manufacturing and marketing of high performance Gigabit Ethernet
switches, switching routers, server load balancing and transparent caching
switches.

     For the nine months ended September 30,1999, sales to Hewlett-Packard and
America Online accounted for 15.8% and 11.9% of our revenue, respectively.  To
date, a limited number of customers and resellers have accounted for a
significant portion of  Foundry's revenue.  Loss of any one of these customers
could have a material adverse impact on  Foundry's financial condition or
results of operations.

     Foundry sells to various countries in North America, Europe, Asia, South
America and Australia.  For the nine months ended September 30, 1999, sales to
customers in the United States accounted for a majority of Foundry's revenue.
Sales to individual countries outside of the United States represent less than
10% of revenue.


Recent Accounting Pronouncements

     In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," (SOP No. 98-1).  SOP
No. 98-1 requires entities to capitalize certain costs related to internal-use
software once certain criteria have been met.  SOP No. 98-1 was adopted by
Foundry in 1998.  The adoption of SOP No. 98-1 did not have a material impact on
Foundry's financial position or results of operations.

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. Management believes the adoption of SFAS No. 133 will not have a
material effect on Foundry's financial position or results of operations.

     In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP
No. 97-2, Software Revenue Recognition, With Respect to Certain Transactions,"
(SOP No. 98-9). SOP No. 98-9 amends SOP No. 97-2 and SOP No. 98-4 by extending
the deferral of the application of certain provisions of SOP No. 97-2 amended by
SOP No. 98-4 through fiscal years beginning on or before March 15, 1999. All
other provisions of SOP No. 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. Foundry has not had significant
software sales to date and management does not expect the adoption of SOP
No. 98- 9 to have a significant effect on the financial position or results of
operations.


3. INITIAL PUBLIC OFFERING:
   ------------------------

     On September 28, 1999, Foundry commenced trading of its common stock on the
Nasdaq National Market in an initial public offering with the sale of 5,750,000
shares of common stock (including the exercise of the over-allotment option of
750,000 shares) at $25 per share. Cash proceeds from the offering, net of the
underwriters' discount, totaled approximately $133.7 million and were received
by Foundry upon the closing of the initial public offering on October 1, 1999.
Accordingly, the net proceeds have been presented as a receivable from
underwriters on the accompanying condensed balance sheet as of September 30,
1999. Concurrent with the closing of the offering, 22,674,885 shares of
redeemable convertible preferred stock were converted into equal shares of
common stock on October 1, 1999.

                                                                               8
<PAGE>

4. COMMON STOCK
   ------------

  As of September 30, 1999 there were 57,277,117 shares of common stock issued
and outstanding. This share number assumes the conversion of 22,674,885
outstanding shares of preferred stock into equal shares of common stock. The
conversion was effectuated on October 1, 1999 upon the closing of Foundry's
initial public offering. In connection with the filing of Foundry's Amended and
Restated Certificate of Incorporation on October 1, 1999, Foundry is authorized
to issue 200,000,000 shares of common stock, $0.0001 par value and 5,000,000
shares of preferred stock, $0.0001 par value.

    In July 1999, Foundry's board of directors approved the following:

a)  the adoption of Foundry's 1999 Employee Stock Purchase Plan (the "Purchase
    Plan"). A total of 750,000 shares of common stock have been reserved for
    issuance under the Purchase Plan. The Purchase Plan permits eligible
    employees to purchase shares of common stock through payroll deductions at
    85% of the fair market value of the common stock, as defined in the Purchase
    Plan.

b)  the adoption of Foundry's 1999 Directors' Stock Option Plan (the "Directors'
    Plan"). The Directors' Plan provides for the grant of common stock options
    to non-employee directors. A total of 675,000 shares of common stock have
    been reserved for issuance under the Directors' Plan.

c)  the increase of common shares reserved under the 1996 Stock Option Plan from
    18,405,000 to 21,405,000 shares.

d)  a three for two stock split of Foundry's outstanding common and preferred
    stock.

5. COMMITMENT
   ----------

  On September 28, 1999 Foundry entered into a lease for approximately 71,000
square feet to serve as Foundry's new headquarters and manufacturing facility in
San Jose, CA. The lease commences on January 1, 2000 and expires on December 31,
2005. The related rent expense will be $131,000 per month.

6. SUBSEQUENT EVENT
   -----------------

    In October 1999, Foundry repaid all outstanding borrowings under the line of
credit totaling $2.0 million.

                                                                               9
<PAGE>

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


     This discussion contains a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates," "believes," "expects," "future," "intends" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.

     The following information should be read in conjunction with the condensed
financial statements and the notes thereto included in Item 1 of this Quarterly
Report, the Company's Registration Statement on Form S-1 declared effective by
the Securities and Exchange Commission on September 27, 1999 and "Factors That
May Affect Future Results" in this document.


Overview

  Foundry designs, develops, manufactures and markets a comprehensive suite of
high performance networking products for enterprises and Internet service
providers. From our inception in May 1996 through April 1997, we were engaged
primarily in research and development activities and did not generate any
revenue.  A substantial portion of our operating expenses during this period was
related to the design and development of our custom ASICs, software development
and testing prototype designs.  We commenced commercial shipments of our
FastIron workgroup Layer 2 switch in May 1997, the initial product released in
our family of stackable products.  We shipped NetIron, our first generation
Layer 3 switch, in June 1997.  During the second quarter of 1998, we shipped the
first products in our Layer 4-7 ServerIron family.  We shipped BigIron, our
second generation of midsize and large-scale chassis-based products, in the
third quarter of 1998.  Since the first quarter of 1998, our revenue has
increased every quarter, and we were profitable for the first three quarters of
1999, although we cannot assure you that these results will be indicative of
future performance.

  We derive our revenue substantially from sales of our stackable and chassis-
based products, including fees for customer support services related to our
products. We market and sell our products primarily through a direct sales and
marketing organization and, to a lesser extent through resellers and through our
OEM relationship with Hewlett-Packard. We have sales representatives in the
United States, Canada, France, Germany, Taiwan, Singapore, Netherlands and the
United Kingdom. We have made significant investments to expand our international
operations and expect international revenue to increase as a percentage of total
revenue. Currently, all of our international sales, with the exception of
Canada, are denominated in U.S. dollars. We generally recognize product revenue
upon shipment to customers. Revenue from customer support services is deferred
and recognized on a straight-line basis over the contractual period.

  We expect the average selling price of our products to decline due to a number
of factors, including competitive pricing pressures and rapid technological
changes. Our gross margins may be affected by price declines if we are unable to
reduce costs. Furthermore, our gross margins may be affected by fluctuations in
manufacturing volumes, component costs, the mix of product configurations sold
and the mix of distribution channels through which our products are sold. We
generally realize higher gross margins on direct sales to the end user than on
sales through resellers or our OEM. Any significant shift in revenue through
resellers or our OEM, or the loss of any large customer, reseller or our OEM,
could harm our gross margins, operating results and financial condition.

  We rely on two third-party manufacturing vendors that produce different
assemblies for our products. Prior to the first quarter of 1999, we performed
final assembly, testing, quality assurance, manufacturing engineering,
documentation control and repairs of our products at our Sunnyvale facility. In
the first quarter of 1999, we began transitioning assembly and testing functions
from our Sunnyvale facility to our manufacturing partners. Any failure by these
manufacturers to obtain cost reductions or to meet their obligations could harm
our gross margins and operating results.

                                                                              10
<PAGE>

     In connection with the grant of stock options to employees, we recorded
deferred stock compensation of approximately $584,000 for the nine months ended
September 30, 1998 and $17.3 million for the nine months ended September 30,
1999, representing the difference between the exercise price and the deemed fair
market value of our common stock on the date these stock options were granted.
This amount is included as a component of stockholders' equity and is being
amortized to operations ratably over the respective vesting periods. We recorded
amortization of deferred stock compensation expense of approximately $233,000
for each of the three and nine months ended September 30, 1998 and $2.2 million
and $7.2 million for the three and nine months ended September 30, 1999,
respectively. At September 30, 1999 we had approximately $14.1 million remaining
to be amortized over the corresponding vesting period of each respective option,
generally four years. The amortization expense relates to options granted to
employees and directors.

     From inception to December 31, 1998, we have incurred significant losses
and, as of September 30, 1999, we had an accumulated deficit of $11.3 million.
These losses have resulted primarily from our activities to develop our
products, establish brand recognition and to develop our sales channels.

Results of Operations

  The following table sets forth selected items from our statement of operations
as a percentage of revenue for the periods indicated:

<TABLE>
<CAPTION>
                                                                       Three Months Ended    Nine Months Ended
                                                                         September 30,         September 30,
                                                                      --------------------  -------------------
                                                                        1999       1998       1999      1998
                                                                      ---------  ---------  --------  ---------
                                                                          (unaudited)           (unaudited)
               <S>                                                    <C>        <C>        <C>       <C>
               Revenue, net.........................................     100.0%     100.0%    100.0%     100.0%
               Cost of revenue......................................      44.4       47.6      45.0       48.6
                                                                         -----     ------     -----     ------
                Gross profit........................................      55.6       52.4      55.0       51.4
                                                                         -----     ------     -----     ------
               Operating expenses:
                Research and development............................       5.7       91.9       7.4       84.5
                Sales and marketing.................................      17.1       46.8      17.4       56.3
                General and administrative..........................       2.6        9.1       3.4       11.3
                Amortization of deferred stock compensation.........       5.8        5.8       9.1        2.8
                                                                         -----     ------     -----     ------
                 Total operating expenses...........................      31.2      153.6      37.4      154.9
                                                                         -----     ------     -----     ------
               Income (loss) from operations........................      24.4     (101.2)     17.7      103.5
               Interest income/expense, net.........................       0.1        3.3       0.1        4.2
                                                                         -----     ------     -----     ------
               Income (loss) before provision for income taxes......      24.5      (97.8)     17.7      (99.3)
               Provision for income taxes...........................      (9.6)        --      (6.2)        --
                                                                         -----     ------     -----     ------
               Net income (loss)....................................      14.9%     (97.8)%    11.6%     (99.3)%
                                                                         =====     ======     =====     ======
</TABLE>

     Revenue. Revenue increased from $4.0 million for the third quarter of 1998
to $38.9 million for the third quarter of 1999 and from $8.2 million for the
nine months ended September 30, 1998 to $78.4 million for the nine months ended
September 30, 1999. The increase in revenue was primarily due to the
introduction of our BigIron products in the third quarter of 1998 and a greater
demand for our ServerIron products in 1999. Our product introductions coincided
with broad market acceptance of Gigabit Ethernet technology resulting from the
adoption of the Gigabit Ethernet standard in June 1998.

     For the nine months ended September 30, 1999, sales to Hewlett-Packard and
America Online accounted for 15.8% and 11.9% of revenue, respectively. Hewlett-
Packard is both an OEM and an end user.

     Cost of revenue. Cost of revenue consists primarily of material, labor,
overhead and warranty costs. Cost of revenue increased from $1.9 million for the
third quarter of 1998 to $17.3 million for the third quarter of 1999 and from
$4.0 million for the nine months ended September 30, 1998 to $35.3 million for
the nine months ended September 30, 1999, primarily due to the related increase
in revenue. As a percentage of revenue, cost of revenue decreased from 44.4% for
the third quarter of 1999 to 47.6% for the third quarter of 1998 and from 45.0%
for the nine months ended September 30, 1999 to 48.6% for the nine months ended
September 30, 1998. The decrease as a percentage of revenue is primarily due to
a change in the mix of products sold, production efficiencies and reductions in
material and component costs.

                                                                              11
<PAGE>

     Gross profit. Gross profit increased from $2.1 million for the third
quarter of 1998 to $21.6 million for the third quarter of 1999 and from $4.2
million for the nine months ended September 30, 1998 to $43.1 million for the
nine months ended September 30, 1999. As a percentage of revenue, gross profit
increased from 52.4% for the third quarter of 1998 to 55.6% for the third
quarter of 1999 and from 51.4% for the nine months ended September 30, 1998 to
55.0% for the nine months ended September 30, 1999. We expect gross profit, as a
percentage of revenue, to fluctuate from period to period primarily due to the
mix of products sold.

     Research and development. Research and development expenses consist
primarily of salaries and related personnel expenses, prototype expenses related
to the development of our ASICs, software development and testing costs, and the
depreciation of property and equipment related to research and development
activities. Research and development expenses decreased from $3.7 million for
the third quarter of 1998 to $2.2 million for the third quarter of 1999 and from
$7.0 million for the nine months ended September 30, 1998 to $5.8 million for
the nine months ended September 30, 1999. These decreases were primarily due to
significantly higher prototype and ASIC design costs incurred during 1998
related to the development and launch of our BigIron and FastIron products.
Research and development costs are expensed as incurred. We believe continued
investment in product enhancements and new product development is critical to
attaining our strategic objectives, and as a result, we expect research and
development expenses to continue to increase in absolute dollars.

     Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions and related expenses for personnel engaged in marketing,
sales and customer support functions, as well as trade shows, advertising,
promotional expenses and the cost of facilities. Sales and marketing expenses
increased from $1.9 million for the third quarter of 1998 to $6.7 million for
the third quarter of 1999 and increased from $4.6 million for the nine months
ended September 30, 1998 to $13.6 million for the nine months ended September
30, 1999. These increases were primarily due to the hiring of additional sales
and marketing personnel, increased sales commissions expense as a result of
significantly higher revenue and increased advertising and marketing efforts. We
expect these expenses to increase significantly in absolute dollars as we
continue to build our field sales and support organizations and expand sales and
marketing activities in the future.

     General and administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, finance and
administrative personnel, facilities expenses and other general corporate
expenses. General and administrative expenses increased from $365,000 for the
third quarter of 1998 to $1.0 million for the third quarter of 1999 and
increased from $934,000 for the nine months ended September 30, 1998 to $2.7
million for the nine months ended September 30, 1999. These increases were
primarily due to an increase in the allowance for doubtful accounts, the
addition of personnel necessary to support the increase in revenue and other
general corporate expenses consistent with the increased scale of operations. We
expect general and administrative expenses to continue to increase in absolute
dollars as we continue to build the infrastructure necessary to support the
growth of our business and operate as a public company.

     Interest income. Interest income is the net result of the interest earned
on the funds we keep on deposit in an interest bearing account less any interest
expense incurred on our revolving bank line of credit and capital lease
obligations. Interest income decreased from $135,000 for the third quarter of
1998 to $47,000 for the third quarter of 1999. For the nine months ended
September 30, 1999, interest income decreased from $348,000 for the nine months
ended September 30, 1998 to $71,000 for the nine months ended September 30,
1999. The decreases were primarily due to the offset of interest expense related
to borrowing on our revolving line of credit against interest earned from cash
balances in our money market account in 1999. During the nine months ended
September 30, 1998, we had no borrowings against our line of credit and had
larger cash balances in an interest bearing account resulting from the proceeds
generated from the sale of preferred stock in March 1998.

     Income taxes. We have recorded income tax expense for the nine months ended
September 30, 1999 of $4.8 million. This reflects an effective tax rate of
34.7%, based upon the estimated annualized tax rate.

                                                                              12
<PAGE>

     Our operating results have varied significantly in the past and revenue and
operating results may vary significantly in the future due to a number of
factors, including: fluctuations in demand for our products and services,
particularly in Europe and Asia; the cancellation or rescheduling of significant
orders; our ability to develop, introduce, ship and support new products and
product enhancements and manage product transitions; announcements and
introductions of new products by our competitors and us; our ability to build
infrastructure to support increased growth; our ability to achieve required cost
reductions; our ability to obtain sufficient supplies of single- or limited-
sourced components for our products; increases in the prices of the components
we purchase; our ability to attain and maintain production volumes and quality
levels for our products; the mix of products sold and the mix of distribution
channels through which they are sold; and costs relating to possible
acquisitions and integration of technologies or businesses. See "Factors That
May Affect Future Results--We may not meet quarterly financial expectations,
which could cause our stock price to decline" for a discussion of the risk of
fluctuations in operating results.


Liquidity and Capital Resources

     Prior to our initial public offering, Foundry financed operations primarily
through the private sales of common and preferred stock and, to a lesser extent,
from a capital equipment lease line and bank line of credit. At September 30,
1999 Foundry had cash and cash equivalents of $19.7 million, which consist of
cash deposited in checking and money market accounts with original maturities of
less than three months. On October 1, 1999, Foundry received cash proceeds, net
of the underwriters' discount, totaling approximately $133.7 million upon the
closing of its initial public offering.

     Cash provided by operating activities was $9.4 million for the nine months
ended September 30, 1999. Cash utilized in operating activities was $8.9 million
for the nine months ended September 30, 1998. The cash utilized in 1998 was due
to net losses, as well as working capital required to fund our growth in
operations.

     Cash utilized in investing activities was $224,000 for the nine months
ended September 30, 1999 and $321,000 for the nine months ended September 30,
1998. These amounts primarily represent purchases of property and equipment,
specifically computers and electronic test equipment.

     Financing activities provided $6.0 million in cash for the nine months
ended September 30, 1999, consisting primarily of proceeds from the exercise of
stock options, the bank line of credit and proceeds from the issuance of
additional shares of redeemable convertible preferred stock, offset by principal
repayments on capital lease obligations. During the nine months ended September
30, 1998, we generated $14.9 million of cash primarily from an equity financing
and the exercise of stock options, offset by principal repayments on capital
lease obligations.

     We currently have a bank line of credit that provides for up to $10.0
million in borrowings. We can borrow up to 80% of eligible accounts receivable
against this line, which is collateralized by substantially all of our assets.
This line of credit contains provisions requiring us to maintain certain minimum
financial ratios measured on a monthly basis, and expires in February 2000. As
of September 30, 1999, there have been borrowings of $2.0 million under this
line of credit. In October 1999, we repaid these borrowings in full.
Additionally, the bank has issued a standby letter of credit in the amount of
$1.0 million to one of our contract manufacturers against the line of credit.

     As of September 30, 1999, we did not have any material commitments for
capital expenditures. However, we expect to incur capital expenditures as we
expand our operations. Although we do not have any current plans or commitments
to do so, from time to time, we may also consider the acquisition of, or
evaluate investments in, products and businesses complementary to our business.
Any acquisition or investment may require additional capital.

     On September 28, 1999, we entered into a lease for approximately 71,000
square feet to serve as our new headquarters and manufacturing facility in San
Jose, CA. Our lease commences on January 1, 2000 and expires on December 31,
2005. The related rent expense will be $131,000 per month.

                                                                              13
<PAGE>

     We believe that our cash balances and cash proceeds from our initial public
offering will enable us to meet our working capital requirements for at least
the next 12 months. However, there can be no assurance that we will not require
additional financing within this time frame or that such additional funding, if
needed, will be available on acceptable terms.


Year 2000

     Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. As a result, the networks which incorporate our products and our own
internal networks could fail leading to disruptions in operations and business
activities.

     To date, we have not experienced any year 2000 issues with any of our
internal systems or our products, and we do not expect to experience any.

     State of Readiness. Our business may be affected by year 2000 issues
arising from our products or related to non-compliant internal systems developed
by us or by third party vendors. Our Chief Financial Officer is responsible for
coordinating and monitoring the status of our year 2000 evaluation and
remediation efforts and reporting the status of our efforts to our board of
directors. To date, we have not discovered any year 2000 problems with our
internal systems. We continue to assess the year 2000 compliance and the
potential effect of remediating the year 2000 problem for any new components of
our internal systems. To date, we have not obtained verification or validation
from any independent third parties of our processes to assess and correct any of
our year 2000 problems.

     Our internal Quality Assurance Department has tested our current products
and intends to test any new products or modified versions of our current
products for year 2000 problems. To date, we have not discovered any year 2000
problems with our products. We believe that our products and our architecture
are year 2000 compliant. However, our products are generally integrated into
larger networks involving sophisticated hardware and software products supplied
by other vendors. If the software products of these vendors have year 2000
problems, the performance of our products may be negatively affected. For
example, the software components included in some of our products rely upon
dates generated by other network components which are supplied by other vendors.
Each network in which our products are installed involves different combinations
of third party products. We cannot evaluate whether every product which may
interact with our products is year 2000 compliant. Therefore, we may face claims
based on year 2000 problems in other companies' products or based on year 2000
issues arising from the integration of multiple products within the overall
network. Regardless of the merits of such claims, we may be required to incur
substantial expense and to devote substantial resources to legal proceedings
resulting from such claims. We have represented to our customers, resellers and
our OEM that our products are year 2000 compliant. If this is not true, these
parties may make claims against us for breach of our representations. At this
time, no such claims have been made by companies who have installed our products
in their networks.

     We have identified and evaluated approximately 230 personal computers and
servers and 36 software applications, including our enterprise resource planning
system, used in connection with our internal operations that will need to be
evaluated to determine if they must be modified, upgraded or replaced to
minimize the possibility of a material disruption to our business. We are
continuing the process of modifying and upgrading systems that have been
assessed as adversely affected, and expect to complete this process before the
occurrence of any material disruption of our business. Of all of our systems,
our most important system to our continuing operations is our enterprise
resource planning software. We have installed the necessary modifications to our
enterprise resource planning software which has been certified by the vendor to
be year 2000 compliant; however, we have not conducted, nor do we plan to
conduct any independent tests to confirm year 2000 compliance of this software.

     In addition to computers and related systems, the operation of office and
facilities equipment, such as fax machines, telephone switches, security systems
and other common devices used in our headquarters and the offices of our
approximately 35 sales representatives, may be affected by the year 2000
problem. To date, we have been able to correct any problems with these systems
relating to year 2000. We currently do not expect any significant problems to
arise with these systems relating to year 2000.

                                                                              14
<PAGE>

     If our suppliers, customers, resellers, contract manufacturers, service
providers or other third parties fail to correct year 2000 problems in their
products or internal systems, these failures could result in an interruption in,
or failure of, our normal business activities or operations. To date, we believe
all critical components that we obtain from third party suppliers are year 2000
compliant based on letters from our significant suppliers representing that they
are or will be year 2000 compliant. In addition, we are in the process of
evaluating the year 2000 readiness of other parties, including our customers,
resellers, contract manufacturers and service providers. We are checking the web
sites of these parties to determine if they are certifying that they are year
2000 compliant. However, we have not contacted any of these parties. We expect
that we will be able to resolve any significant year 2000 problems with these
parties; however, these parties may not resolve any or all year 2000 problems
before the occurrence of a material disruption to the operation of our business.

     Costs. We have funded our year 2000 efforts from operating cash flows and
have not separately accounted for these costs in the past. To date, these costs
have not been material. We will incur additional costs related to our year 2000
efforts for administrative personnel to manage our efforts, engineering
personnel to test and remediate our products and internal systems, sales and
marketing personnel to address customer concerns and outside contractors to
assist in our efforts. Since we have already reviewed the material systems in
our operations which could be affected by the year 2000 problem, we do not
anticipate that these expenses will be material; however, if these expenses are
higher than anticipated, our results of operations and financial condition could
be harmed.

     Risks. We believe that it is not possible to determine with complete
certainty that all year 2000 problems affecting us have been identified or
corrected. In addition, no one can accurately predict how many year 2000
problem-related failures will occur or the severity, duration or financial
consequences of these perhaps inevitable failures. As a result, we believe that
the following consequences are possible:

     .  a significant number of operational inconveniences and inefficiencies
        for us, our contract manufacturers and our customers that will divert
        management's time and attention and financial and human resources from
        ordinary business activities;

     .  business disputes and claims for pricing adjustments or penalties due to
        year 2000 problems by our customers, resellers and our OEM; and

     .  a number of serious business disputes alleging that we failed to comply
        with the terms of contracts or industry standards of performance, some
        of which could result in litigation or contract termination.

     Contingency Plans.  In the event that year 2000 problems do affect our
business, we have developed contingency plans. These plans include:

 .    maintaining safety inventory of critical components for our products; and

 .    providing a twenty-four hour emergency support program for our customers
     between December 27, 1999 and January 7, 2000.

     Our implementation of our contingency plans could harm our business,
operating results and financial condition.

FACTORS THAT MAY AFFECT FUTURE RESULTS


We have a history of losses and may not be profitable in the future.

     We have incurred net losses of $2.0 million from inception through December
31, 1996, $9.0 million in 1997 and $9.4 million in 1998. We had net income of
$9.1 million for the nine months ended September 30, 1999. As of September 30,
1999, we had an accumulated deficit of $11.3 million. We expect to incur
increased costs and expenses related to:

     .  sales and marketing, including expansion of our direct sales operation
        and distribution channels;

                                                                              15
<PAGE>

     .  product development;

     .  customer support;

     .  expansion of our corporate infrastructure; and

     .  facilities expansion.

     Our ability to remain profitable depends on our ability to generate and
sustain substantially higher revenue while maintaining reasonable cost and
expense levels. We may not be able to sustain or increase profitability on a
quarterly or annual basis in the future.

We may not meet quarterly financial expectations, which could cause our stock
price to decline.

     Our quarterly revenue and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. Delays in generating or
recognizing forecasted revenue could cause our quarterly operating results to be
below the expectations of public market analysts or investors, which could cause
the price of our common stock to fall.

     We may experience a delay in generating or recognizing revenue for a number
of reasons. Orders at the beginning of each quarter typically do not equal
expected revenue for that quarter and are generally cancelable at any time.
Therefore, we depend on obtaining orders in a quarter for shipment in that
quarter to achieve our revenue objectives. In addition, the failure to ship
products by the end of a quarter may negatively affect our operating results.
Our reseller agreements typically provide that the reseller may delay scheduled
delivery dates without penalty. Further, our customer purchase orders and
reseller agreements sometimes provide that the customer or reseller may cancel
orders within specified time frames without significant penalty.

     We also plan to significantly increase our operating expenses to expand our
sales and marketing efforts, expand our customer support capabilities, finance
increased levels of research and development, build our operational and
administrative infrastructure and obtain a larger facility. We base our
operating expenses on anticipated revenue trends and a high percentage of our
expenses are fixed in the short term. As a result, any shortfall in revenue
relative to our expectations could cause a significant decline in our quarterly
operating results.


Intense competition in the market for network solutions could prevent us from
increasing revenue and sustaining profitability.

     The market for network solutions is intensely competitive. In particular,
Cisco maintains a dominant position in this market and several of its products
compete directly with our products.

     We also compete with other large public companies, such as 3Com and Nortel
Networks, as well as other smaller public and private companies. Many of our
current and potential competitors have longer operating histories and
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and larger installed customer
bases than we do. Additionally, we may face competition from unknown companies
and emerging technologies that may offer new LAN, MAN and LAN/WAN solutions to
enterprises and Internet service providers.

     In order to remain competitive, we must, among other things, invest
significant resources in developing new products with superior performance at
lower prices than our competitors. We must also enhance our current products and
maintain customer satisfaction. If we fail to do so, our products may not
compete favorably with those of our competitors and our revenue and
profitability could suffer.

                                                                              16
<PAGE>

Our ability to increase our revenue depends on expanding our North American
direct sales operation and reseller distribution channels and continuing to
provide excellent customer support.

     Our inability to effectively expand, train and retain our domestic sales
and support staff or establish our indirect distribution channels could harm our
ability to grow and increase revenue. Our expansion of our direct sales
operation may not be successfully completed and the cost of our expansion may
exceed the revenue generated. In addition, we have recently increased our sales
force in advance of sales, and if this increase does not result in an increase
in sales, our business may suffer.

     If we fail to develop relationships with significant resellers, or if these
resellers are not successful in their sales efforts, sales of our products may
decrease and our operating results would suffer.

     We need to increase our customer service and support staff to support new
and existing customers and resellers. The design and installation of networking
products can be complex and our customers, particularly our Internet service
provider customers, require a high level of sophisticated support and services.
Hiring highly trained customer service and support personnel is very competitive
in our industry due to the limited number of people available with the necessary
technical skills and understanding of our products.


If we fail to introduce new products with superior performance in a timely
manner, our ability to sustain and increase our revenue could suffer.

     The current life cycle of our products is typically 18 to 24 months. To
remain competitive, we need to introduce new products in a timely manner that
offer substantially greater performance and support a greater number of users
per device, all at lower price points. We have experienced, and may in the
future experience, delays in developing and releasing new products and product
enhancements. This has led to, and may in the future lead to, delayed sales,
increased expenses and lower quarterly revenue than anticipated. During the
development of our products, we have also experienced delays in the prototyping
of our ASICs, which in turn has led to delays in product introductions. In
addition, when we announce new products or product enhancements that have the
potential to replace or shorten the life cycle of our existing products,
customers may defer purchasing our existing products. This could harm our
operating results by decreasing sales, increasing our inventory levels of older
products and exposing us to greater risk of product obsolescence.


We depend on large purchases from a few significant customers, and any loss,
cancellation or delay in purchases by these customers could cause a shortfall in
revenue.

     To date, a limited number of customers and resellers have accounted for a
significant portion of our revenue. If any of these customers stop or delay
purchases, our revenue and profitability could suffer. In 1998, Mitsui & Co.
(U.S.A.) accounted for 21% of our revenue. For the nine months ended September
30,1999, sales to Hewlett-Packard and America Online accounted for 15.8% and
11.9% of our revenue, respectively.

     While our financial performance depends on large orders from a few
significant customers and resellers, we do not have binding commitments from any
of them. For example:

     .  our reseller agreements generally do not require minimum purchases;

     .  our customers can stop purchasing and our resellers can stop marketing
        our products at any time;

     .  our reseller agreements generally are not exclusive and are for one year
        terms, with no obligation of the resellers to renew the agreements; and

     .  our reseller agreements provide for discounts based on expected or
        actual volumes of products purchased or resold by the reseller in a
        given period.

                                                                              17
<PAGE>

     Because our expenses are based on our revenue forecasts, a substantial
reduction or delay in sales of our products to, or unexpected returns from
customers and resellers, or the loss of any significant customer or reseller
could harm our business. Although our largest customers may vary from period-to-
period, we anticipate that our operating results for any given period will
continue to depend to a significant extent on large orders from a small number
of customers.


Our success depends upon sales to Internet service providers, whose
unpredictable demands, requirements and business models subject us to potential
adverse revenue fluctuations.

     We have recently introduced products specifically targeted at the Internet
service provider market and currently have under development other products to
address their requirements. As a result, our success depends on increased sales
to Internet service providers. Although we expect these sales to increase, we
believe that there are a number of risks arising from doing business with
Internet service providers which may not arise in our relationships with our
other customers, including:

     .  Internet service providers demonstrate a low level of brand loyalty and
        may switch to another supplier which provides superior performance;

     .  any failure of an Internet service provider's service to its customers,
        particularly in the case of our largest Internet service provider
        customer, America Online, that is correctly or incorrectly attributed to
        our products could lead to substantial negative publicity and undermine
        our efforts to increase our sales in both this market and other markets;

     .  we may lose Internet service provider customers if they fail due to the
        highly competitive nature of their business or if they do not survive as
        a result of mergers and acquisitions in the Internet service provider
        industry; and

     .  if the Internet does not continue to expand as a widespread
        communications medium and commercial marketplace, the growth of the
        market for Internet infrastructure equipment may not continue and the
        demand for our products could decline.

     Due to these factors, we may not successfully increase our penetration of
the Internet service provider market or maintain our current level of sales in
this market.


Hewlett-Packard is a major customer and our sole OEM, and the termination of our
relationship with Hewlett-Packard could harm our business.

     For the nine months ended September 30, 1999, Hewlett-Packard, currently
our sole OEM, accounted for 15.8% of our revenue, and we anticipate that it will
continue to account for a significant percentage of our revenue. In addition to
providing revenue through sales of our products to Hewlett-Packard, we believe
that this relationship is important to facilitate broad market acceptance of our
products and enhance our sales, marketing and distribution capabilities.
Therefore, in addition to directly affecting our revenue, the cancellation of
our agreement with Hewlett-Packard could harm our ability to market and sell our
products to potential customers.

     In addition, if we were to default under conditions specified in the
agreement, Hewlett-Packard could use our source code to develop and manufacture
competing products. This could harm our performance and ability to compete.

     This agreement creates the potential that we and Hewlett-Packard may
compete for sales to the same customer. If this situation occurs, it could harm
our relationship with Hewlett-Packard and also harm our business.


We expect the average selling prices of our products to decrease which may
reduce gross margins or revenue.

                                                                              18
<PAGE>

     Our industry has experienced rapid erosion of average product selling
prices due to a number of factors, particularly competitive pressures and rapid
technological change. We may experience substantial period-to-period
fluctuations in future operating results due to the erosion of our average
selling prices. We also anticipate that the average selling prices of our
products will decrease in response to competitive pressures, increased sales
discounts, new product introductions by our competitors or other factors.


If we are unable to hire additional qualified personnel as necessary or if we
lose key personnel, we may not be able to successfully manage our business or
achieve our objectives.

     We believe our future success will depend in large part upon our ability to
identify, attract and retain highly skilled managerial, engineering, sales and
marketing, finance and manufacturing personnel. Competition for these personnel
is intense, especially in the San Francisco Bay Area, and we have had difficulty
hiring employees in the timeframe we desire, particularly engineers. We may not
succeed in identifying, attracting and retaining personnel. The loss of the
services of any of our key personnel, the inability to identify, attract or
retain qualified personnel in the future or delays in hiring required personnel,
particularly engineers and sales personnel, could make it difficult for us to
manage our business and meet key objectives, such as timely product
introductions. In addition, companies in the networking industry whose employees
accept positions with competitors frequently claim that competitors have engaged
in unfair hiring practices. We have received one claim like this from another
company and we may receive additional claims in the future. We could incur
substantial costs in defending ourselves against any such claims, regardless of
the merits of such claims.

     Our success also depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, finance
and manufacturing personnel, many of whom would be difficult to replace. In
particular, we believe that our future success depends on Bobby R. Johnson, Jr.,
President, Chief Executive Officer and Chairman of the Board, and H. Earl
Ferguson, Vice President, Hardware Engineering. We do not have employment
contracts or key person life insurance covering any of our personnel.


Our ability to increase our international sales is subject to a number of risks
we do not control.

     Our success will depend, in part, on increasing international sales and
expanding our international operations. Our international sales primarily depend
on our resellers, including Boreal and Mitech in Europe, Mitsui in Japan and
Samsung in Korea. Although we expect international revenue to increase as a
percentage of our total revenue, the failure of our resellers to sell our
products internationally would limit our ability to sustain and grow our
revenue. In particular, our revenue from international sales depends on Mitsui's
ability to sell our products and on the strength of the Japanese economy which
has been weak in recent years.

     There are a number of risks arising from our international business,
including:

     .  potential recessions in economies outside the United States, such as
        Japan;

     .  longer accounts receivable collection cycles;

     .  difficulties in managing operations across disparate geographic areas;

     .  difficulties associated with enforcing agreements through foreign legal
        systems;

     .  import or export licensing requirements;

     .  potential adverse tax consequences; and

     .  unexpected changes in regulatory requirements.

                                                                              19
<PAGE>

     Our international sales currently are denominated in U.S. dollars. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive on a price basis in
international markets. In the future, we may elect to invoice some of our
international customers in local currency, which could subject us to
fluctuations in exchange rates between the U.S. dollar and the local currency.

     In January 1999, the new "Euro" currency was introduced in European
countries that are part of the European Monetary Union ("EMU"). During 2002, all
EMU countries are expected to completely replace their national currencies with
the Euro. Because a significant amount of uncertainty exists as to the effect
the Euro will have on the marketplace and because all of the final rules and
regulations have not yet been defined and finalized by the European Commission
regarding the Euro currency, we cannot determine the effect this will have on
our business.


Our reliance on single or limited sources for key components may inhibit our
ability to meet customer demand.

     We currently purchase several key components used in our products from
single or limited sources and depend on supply from these sources to meet our
needs. Our principal suppliers of key components include Celestica-Asia, Texas
Instruments, Toshiba, Hewlett-Packard, Molex and Intel. We acquire these
components through purchase orders and have no long-term commitments regarding
supply or price from these suppliers. We may encounter shortages and delays in
obtaining components in the future which could impede our ability to meet
customer orders. Our principal limited-sourced components include:

     .  dynamic and static random access memories, commonly known as DRAMs and
        SRAMs;

     .  printed circuit boards; and

     .  microprocessors.

     We depend on anticipated product orders to determine our material
requirements. Lead times for single- or limited-sourced materials and components
can be as long as six months, vary significantly and depend on factors such as
the specific supplier, contract terms and demand for a component at a given
time. If orders do not match forecasts, we may have either excess or inadequate
inventory of materials and components, which could negatively affect our
operating results and financial condition. From time to time, we have
experienced shortages in allocations of components, resulting in delays in
filling orders.


Our reliance on third-party manufacturing vendors to manufacture our products
may cause a delay in our ability to fill orders.

     We currently subcontract substantially all of our manufacturing to two
companies, Celestica-Asia, located in San Jose, California, which assembles and
tests our printed circuit boards, and Hadco Corporation, located in Santa Clara,
California, which assembles and tests our backplane products. We do not have
long-term contracts with either of these manufacturers. We have experienced
delays in product shipments from our contract manufacturers, which in turn
delayed product shipments to our customers. We may in the future experience
similar delays or other problems, such as inferior quality and insufficient
quantity of product, any of which could harm our business and operating results.
We intend to regularly introduce new products and product enhancements, which
will require us to rapidly achieve volume production by coordinating our efforts
with those of our suppliers and contract manufacturers. We attempt to increase
our material purchases, contract manufacturing capacity and internal test and
quality functions to meet anticipated demand. The inability of our contract
manufacturers to provide us with adequate supplies of high-quality products or
the loss of either of our contract manufacturers, or the ability to obtain raw
materials, could cause a delay in our ability to fulfill orders.

                                                                              20
<PAGE>

Due to the lengthy sales cycles of some of our products, the timing of our
revenue is difficult to predict and may cause us to miss our revenue
expectations.

     Some of our products have a relatively high sales price, and often
represent a significant and strategic decision by an enterprise or Internet
service provider. As a result, the length of our sales cycle in these situations
can be as long as 12 months and may vary substantially from customer to
customer. While our customers are evaluating our products and before they may
place an order with us, we may incur substantial sales and marketing expenses
and expend significant management effort. Consequently, if sales forecasted from
a specific customer for a particular quarter are not realized in that quarter,
we may not meet our revenue expectations.


The timing of the adoption of industry standards may negatively impact
widespread market acceptance of our products.

     Our success depends in part on both the adoption of industry standards for
new technologies in our market and our products' compliance with industry
standards. Many technological developments occur prior to the adoption of the
related industry standard. The absence of an industry standard related to a
specific technology may prevent market acceptance of products using the
technology. For example, we introduced Gigabit Ethernet products in May 1997,
over a year prior to the adoption of the industry standard for this technology.
We intend to develop products using other technological advancements, such as 10
Gigabit Ethernet, and may develop these products prior to the adoption of
industry standards related to these technologies. As a result, we may incur
significant expenses and losses due to lack of customer demand, unusable
purchased components for these products and the diversion of our engineers from
future product development efforts. Further, we may develop products that do not
comply with the eventual industry standard, which could hurt our ability to sell
these products. If the industry evolves to new standards, we may not be able to
successfully design and manufacture new products in a timely fashion that meet
these new standards. Even after industry standards are adopted, the future
success of our products depends upon widespread market acceptance of their
underlying technologies.


If our products contain undetected software or hardware errors, we could incur
significant unexpected expenses and lost sales and be subject to product
liability claims.

     Our products are complex and may contain undetected defects or errors,
particularly when first introduced or as new enhancements and versions are
released. Despite our testing procedures, these defects and errors may be found
after commencement of commercial shipments. Any defects or errors in our
products discovered in the future or failures of our customers' networks,
whether caused by our products or another vendors' products could result in :

     . negative customer reactions;

     . product liability claims;

     . negative publicity regarding us and our products;

     . delays in or loss of market acceptance of our products;

     . product returns;

     . lost sales; and

     . unexpected expenses to remedy errors.


Continued rapid growth will strain our operations and will require us to incur
costs to upgrade our infrastructure.

                                                                              21
<PAGE>

     We have experienced rapid growth which has placed, and continues to place,
a significant strain on our resources. Our management team has limited
experience managing rapidly growing companies on a public or private basis. As a
result, we may make mistakes in operating our business, such as inaccurately
forecasting our sales, which may result in unanticipated fluctuations in our
operating results. To accommodate anticipated growth, we must:

     .  improve existing and implement new operational and financial systems,
        procedures and controls;

     .  hire, train and manage additional qualified personnel, including in the
        near future, a significant number of new sales personnel; and

     .  effectively manage multiple relationships with our customers, suppliers
        and other third parties.

     Our current or planned personnel systems, procedures and controls may not
be adequate to support our future operations. Any delay in the implementation of
or disruption in the transition to new or enhanced systems, procedures or
controls, could harm our ability to accurately forecast sales demand, manage our
supply chain and record and report financial and management information on a
timely and accurate basis.


Relocation of our operations to our new facility could disrupt operations.

     We have entered into a lease for approximately 71,000 square feet to serve
as our new headquarters and manufacturing facility in San Jose, CA. We expect to
relocate operations to this new facility during the first quarter of 2000. If
not handled appropriately, the transition to the new facility could disrupt our
operations.


Failure to comply with domestic, foreign or international regulations could
prevent us from selling our products.

     In the United States, our products must comply with various regulations and
standards defined by the Federal Communications Commission and Underwriters
Laboratories. Internationally, products that we develop may be required to
comply with standards established by telecommunications authorities in various
countries as well as with recommendations of the International Telecommunication
Union. If we do not comply with existing or evolving standards and regulations
or if we fail to obtain timely domestic or foreign regulatory approvals or
certificates, we would not be able to sell our products where these standards or
regulations apply, which may prevent us from sustaining our revenue or
maintaining profitability.


We may engage in future acquisitions that could result in the dilution of our
stockholders, cause us to incur substantial expenses and harm our business if we
cannot successfully integrate the acquired business, products, technologies or
personnel.

     As part of our business strategy, we may review acquisition prospects that
would complement our existing business or enhance our technological
capabilities. Future acquisitions by us could result in large and immediate
write-offs, the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could
negatively affect our results of operations. Furthermore, acquisitions involve
numerous risks and uncertainties, including:

     .  difficulties in the assimilation of products, operations, personnel and
        technologies of the acquired companies;

     .  diversion of management's attention from other business concerns;

                                                                              22
<PAGE>

     .  risks of entering geographic and business markets in which we have no or
        limited prior experience; and

     .  potential loss of key employees of acquired organizations.

     Although we do not currently have any agreements or plans with respect to
any material acquisitions, we may make acquisitions of complementary businesses,
products or technologies in the future. We may not be able to successfully
integrate any businesses, products, technologies or personnel that might be
acquired in the future, and our failure to do so could harm our business.


We may need additional capital to fund our future operations which may not be
available to us on favorable terms when required or at all.

     We believe that our existing working capital together with the proceeds
from our initial public offering and cash available from credit facilities and
future operations will enable us to meet our working capital requirements for at
least the next 12 months. However, if cash from future operations is
insufficient, or if cash is used for acquisitions or other currently
unanticipated uses, we could be required to raise substantial additional
capital. Additional capital, if required, may not be available on acceptable
terms, or at all. If we are unable to obtain additional capital, we may be
required to reduce the scope of our planned product development and marketing
efforts, which could harm our business, financial condition and operating
results. To the extent that we raise additional capital through the sale of
equity or convertible debt securities, the issuance of such securities could
result in dilution to our existing stockholders. If additional funds are raised
through the issuance of debt securities, these securities would have rights,
preferences and privileges senior to holders of common stock and the terms of
debt securities could impose restrictions on our operations.


Problems arising from use of our products together with other vendors' products
could disrupt our business and harm our financial condition.

     Our customers generally use our products together with products from other
vendors. As a result, when problems occur in the network, it may be difficult to
identify the source of the problem. These problems may cause us to incur
significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer
relation problems.


If we fail to protect our intellectual property, our business and ability to
compete could suffer.

     Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. We do not own any patents nor do
we have any patent applications pending. We may not have taken actions that
adequately protect our intellectual property rights.

     We provide software to customers under license agreements included in the
packaged software. These agreements are not negotiated with or signed by the
licensee, and thus may not be enforceable in some jurisdictions. Despite our
efforts to protect our proprietary rights through confidentiality and license
agreements, unauthorized parties may attempt to copy or otherwise obtain and use
our products or technology. These precautions may not prevent misappropriation
or infringement of our intellectual property. Monitoring unauthorized use of our
products is difficult and the steps we have taken may not prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.


We may be subject to intellectual property infringement claims that are costly
to defend and could limit our ability to use certain technologies in the future.

     Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the networking

                                                                              23
<PAGE>

markets have extensive patent portfolios with respect to networking technology,
while we do not currently own any patents or have any patent applications
pending.

     We have received a letter from Resonate, Inc. alleging that our ServerIron
products infringe one of its patents. Although we intend to contest this claim
vigorously, these kinds of disputes are subject to inherent uncertainties and,
therefore, we cannot assure you that we will prevail in our objection to this
claim, nor can we assure you that this dispute will not result in litigation or
that an adverse result or judgment will not adversely affect our financial
condition.

     From time to time, other third parties, including leading companies, have
asserted against others and may assert against us exclusive patent, copyright,
trademark and other intellectual property rights to technologies and related
standards that are important to us. Third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers alleging
infringement of their proprietary rights with respect to our existing or future
products. Any of these claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management personnel,
or require us to develop non-infringing technology or enter into royalty or
license agreements. These royalty or license agreements, if required, may not be
available on acceptable terms, if at all. If there is a successful claim of
infringement or if we fail to develop non-infringing technology or license the
proprietary rights on a timely basis, our business could be harmed.


Our stock price may be extremely volatile.

     Equity markets, particularly the market for technology companies, have
recently experienced significant price and volume fluctuations that are
unrelated to the operating performance of individual companies. These broad
market fluctuations may cause the market price of our common stock to decline.
In addition, the market price of our common stock is likely to be highly
volatile. In the past, securities class action litigation has often been
instituted against companies following periods of volatility in the market price
of their securities. This litigation could result in substantial costs and a
diversion of management's attention and resources.


Our year 2000 compliance efforts may involve significant time and expense, and
our business could suffer if we, our customers, resellers, suppliers, contract
manufacturers, service providers or other third parties do not adequately
address year 2000 risks.

     Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond 2000. As a
result, the networks which incorporate our products and our own internal
networks could fail, leading to disruptions in operations and business
activities. As a result of the year 2000 problem, we believe that we face
potential risks which could harm our business in the following areas:

     .  disruption in our customer relationships or in our sales efforts because
        of failures of our customers' networks which are correctly or
        incorrectly attributed to the non-compliance of our products;

     .  claims from our customers based on alleged breach of warranties
        concerning the year 2000 compliance of our products;

     .  disruption of our business resulting from failure of systems we use to
        run our business;

     .  disruption of our business resulting from failure of systems used by our
        suppliers, customers and potential customers; and

     .  the potential reduced spending by companies on networking solutions as a
        result of significant information systems spending on year 2000
        remediation.

                                                                              24
<PAGE>

See "Management Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000" for more detailed information regarding our year 2000
compliance efforts.


Our executive officers and directors have substantial control over Foundry which
could delay or prevent a merger or other change in control of Foundry.

     Our executive officers, directors and entities affiliated with them
beneficially own approximately 48% of our outstanding common stock as of
September 30, 1999. These stockholders, if acting together, would be able to
significantly influence the election of directors and all other matters
requiring approval by our stockholders. This concentration of voting control
could have the effect of delaying or preventing a merger or other change in
control, even if it would benefit our other stockholders.


Some provisions of our charter documents may have anti-takeover effects that
could discourage a change in control, even if an acquisition would be beneficial
to our stockholders.

     Some provisions of our certificate of incorporation and bylaws could make
it more difficult for a third party to acquire us even if a change of control
would be beneficial to our stockholders.


Future sales of our common stock may depress our stock price.

     All of the 5,750,000 shares sold in the initial public offering in October
1999 are freely tradeable. The remaining shares of common stock outstanding are
subject to lock-up agreements that prohibit the sale of shares for 180 days
after September 27, 1999. Immediately after the 180 day lock-up period, the
remaining outstanding shares of our common stock will become available for sale,
subject, in some cases, to the expiration of one-year holding periods and/or the
lapse of our repurchase option. Sales of a substantial number of shares of
common stock in the public market after the expiration of the lock-up and
holding periods could cause the market price of our common stock to decline.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We do not use derivative financial instruments in
our investment portfolio. We place our investments with high credit quality
issuers and, by policy, limit the amount of credit exposure to any one issuer or
fund. The portfolio includes only marketable securities with original maturities
of less than 3 months and with active secondary or resale markets to ensure
portfolio liquidity. We have no investments denominated in foreign country
currencies and therefore are not subject to foreign currency risk on such
investments.

     Currently, all of our sales and expenses are denominated in U.S. dollars,
with the exception of Canada, and, as a result, we have not experienced
significant foreign exchange gains and losses to date. While we do expect to
effect some transactions in foreign currencies in the next 12 months, we do not
anticipate that foreign exchange gains and losses will be significant. We have
not engaged in foreign currency hedging activities to date.

                                                                              25
<PAGE>

PART II

Item 1.  Legal Proceedings.

     See "Factors that May Affect Future Results - We may be subject to
intellectual property infringement claims that are costly to defend and could
limit our ability to use certain technologies in the future."

Item 2.  Changes in Securities and Use of Proceeds.

     On September 27, 1999, in connection with our initial public offering,
a Registration Statement on Form S-1 (No. 333-82577) was declared effective by
the Securities and Exchange Commission, pursuant to which 5,750,000 shares of
our common stock were offered and sold for our account at a price of $25.00 per
share, generating gross offering proceeds of $143,750,000. The managing
underwriters were Deutsche Banc Alex. Brown, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, and J.P. Morgan Securities Inc. After deducting
approximately $10,062,500 in underwriting discounts and $1,273,000 in other
related expenses, the net proceeds of the offering were approximately
$132,414,500.

     We have not yet used any of the funds from the initial public offering. We
expect to use the net proceeds of the offering for working capital and general
corporate purposes, including increased spending on sales and marketing,
customer support, research and development, expansion of our operational and
administrative infrastructure, and the leasing of additional facilities.
Specific amounts for these purposes have not been determined. In addition, we
may use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, product lines or products. However, we have no current
plans, agreements or commitments with respect to any such acquisition, and we
are not currently engaged in any negotiations with respect to any such
transaction. Pending these uses, we intend to invest the net proceeds in short-
term, interest-bearing, investment grade securities.

     For the three months ended September 30, 1999, we issued 891,188 shares of
common stock pursuant to the exercise of stock options at exercise prices
ranging from $0.0667 to $23.00. All of these stock options were granted under
our 1996 Stock Plan prior to our initial public offering. Our issuance of shares
of our common stock upon the exercise of these options was exempt from
registration pursuant to rule 701 promulgated under the Securities Act of 1933,
as amended.

     Upon the closing of our initial public offering on October 1, 1999, all
outstanding shares of our Series A preferred stock (consisting of 8,625,000
shares), Series B preferred stock (consisting of 6,130,425 shares) and Series C
preferred stock (consisting of 7,919,460 shares) were converted on a share-for-
share basis into shares of our common stock in accordance with the terms of each
such series of preferred stock.

Item 3.  Defaults Upon Senior Securities. - Not applicable.

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

     Pursuant to a written consent of our stockholders dated August 27, 1999,
our stockholders approved the following matters, all of which were reflected in
our Registration Statement on Form S-1 or documents filed as exhibits thereto:

     (a)  a three for two forward stock split of our common and preferred stock;

     (b)  the adoption of the form of Amended and Restated Certificate of
          Incorporation to be filed upon completion of our initial public
          offering which form, among other things, eliminated the Series A,
          Series B and Series C preferred stock, increased the authorized shares
          of common stock to a total of 200,000,000 shares, authorized
          undesignated preferred stock consisting of 5,000,000 shares,
          eliminated the ability of our stockholders

                                                                              26
<PAGE>

          to take action by written consent, and provided for certain notice
          provisions as to the nomination of members to our board of directors
          and to provide for certain other matters;

     (c)  effective upon the effective date of the initial public offering, the
          adoption of our 1999 Employee Stock Purchase Plan, the reservation of
          750,000 shares of our common stock for issuance under the plan, and an
          annual increase to the number of shares reserved for issuance under
          the plan in an amount equal to the lesser of: (i) 2% of the shares of
          the number of shares of our common stock outstanding on the last day
          of the immediately preceding fiscal year, (ii) 750,000 shares, or
          (iii) such lesser number of shares as our board of directors may
          determine;

     (d)  effective upon the effective date of the initial public offering, the
          adoption of our 1999 Directors' Stock Option Plan and the reservation
          of 675,000 shares of common stock for issuance under the plan;

     (e)  amendments to our 1996 Stock Plan which, among other things, reserved
          an additional 3,000,000 shares of common stock for issuance under the
          plan and provided for an annual increase to the number of shares
          reserved for issuance under the plan in an amount equal to the lesser
          of: (i) 3% of the shares of common stock outstanding on the last day
          of the immediately preceding fiscal year, (ii) 2,250,000 shares, or
          (iii) such lessor number of shares as our board of directors may
          determine; and

     (f)  the selection of Arthur Anderson LLP as our independent auditors.

     Holders of 99.3% of our common stock and 100% of our preferred stock
consented to each of the foregoing actions.

Item 5.  Other Information - Not applicable.

Item 6.  Exhibits and Reports on Form 8-K.

     (a)  Exhibits:

          Exhibit 10.11 - Lease agreement dated September 28, 1999, between
                          Foundry Networks, Inc. and Legacy Partners Commercial
                          Inc., for offices located at 2100 Gold Street, San
                          Jose, CA 95002

          Exhibit 27.1 - Financial Data Schedule

     (b)  Reports on Form 8-K:

     Immediately following the end of the quarter ended September 30, 1999, we
filed a report on Form 8-K on October 7, 1999 pertaining to our announcement of
preliminary estimates of revenues for the quarter ended September 30, 1999.

                                                                              27
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        FOUNDRY NETWORKS, INC.
                                        (Registrant)


                                        By:  /s/ TIMOTHY D. HEFFNER
                                           ------------------------------------
                                             Timothy D. Heffner
                                             Vice President, Finance and
                                             Administration, Chief Financial
                                             Officer (Principal Financial and
                                             Accounting Officer)

Date:  November 12, 1999

                                                                              28
<PAGE>

                                 EXHIBIT INDEX
                                 -------------

10.11     Lease agreement dated September 28, 1999, between Foundry Networks,
          Inc., and Legacy Partners Commercial Inc., for offices located at 2100
          Gold Street, San Jose, CA 95002

27.1      Financial Data Schedule



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