---

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

|(Mark One)                                   
|---------------------------------------------
|                                             
|x                                            
|                                             
|For the quarterly period ended March 31, 2004
|                                             
|OR                                           
|                                             
|o                                            
|                                             
|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 incorporation or organization) |  | (I.R.S.   Employer Identification No.)

2100 Gold Street P.O. Box 649100 San Jose, CA 95164-9100
(Address of principal executive offices, including zip code)

(408) 586-1700(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
x | No
o
|----- | ----

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

|Yes
x | No
o
|----- | ----

As of May 5, 2004, there were 135,172,991 shares of the registrants common stock outstanding, par value $0.0001.

---



FOUNDRY NETWORKS, INC. TABLE OF CONTENTS

|           |                                                                                                        | PAGE
|---------- | ------------------------------------------------------------------------------------------------------ | ----
|           |                                                                                                        |     
|PART I     | FINANCIAL INFORMATION                                                                                  |     
|           |                                                                                                        |     
|Item 1.    | Financial Statements   (Unaudited):                                                                    |     
|           |                                                                                                        |     
|           | Condensed   Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003                     | 3   
|           |                                                                                                        |     
|           | Condensed   Consolidated Statements of Income for the Three Months Ended March 31, 2004   and 2003     | 4   
|           |                                                                                                        |     
|           | Condensed   Consolidated Statements of Cash Flows for the Three Months Ended March 31,   2004 and 2003 | 5   
|           |                                                                                                        |     
|           | Notes to   Condensed Consolidated Financial Statements                                                 | 6   
|           |                                                                                                        |     
|Item 2.    | Managements   Discussion and Analysis of Financial Condition and Results of Operations                | 14  
|           |                                                                                                        |     
|           | Risk   Factors That May Affect Future Results and the Market Price of Our Stock                        | 19  
|           |                                                                                                        |     
|Item 3.    | Quantitative   and Qualitative Disclosures About Market Risk                                           | 27  
|           |                                                                                                        |     
|Item 4.    | Controls   and Procedures                                                                              | 27  
|           |                                                                                                        |     
|PART II    | OTHER INFORMATION                                                                                      |     
|           |                                                                                                        |     
|Item 1.    | Legal   Proceedings                                                                                    | 28  
|           |                                                                                                        |     
|Item 2.    | Changes   in Securities and Use of Proceeds                                                            | 29  
|           |                                                                                                        |     
|Item 3.    | Defaults   Upon Senior Securities                                                                      | 29  
|           |                                                                                                        |     
|Item 4.    | Submission   of Matters to a Vote of Security Holders                                                  | 29  
|           |                                                                                                        |     
|Item 5.    | Other   Information                                                                                    | 29  
|           |                                                                                                        |     
|Item 6.    | Exhibits   and Reports on Form 8-K                                                                     | 30  
|           |                                                                                                        |     
|SIGNATURES | 32                                                                                                    

2



FOUNDRY NETWORKS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)

|                                                                                                                                                                                     |  | March 31,   2004 |         | December   31,   2003 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ------- | --------------------- | -
|                                                                                                                                                                                     |  |                  |         |                       |  
|                                                                                                                                                                                     |  | (unaudited)      |         | (1)                   |  
|ASSETS                                                                                                                                                                               |  |                  |         |                       |  
|Current assets:                                                                                                                                                                      |  |                  |         |                       |  
|Cash   and cash equivalents                                                                                                                                                          |  | $                | 195,191 |                       | $
|Short-term   investments                                                                                                                                                             |  |                  | 226,811 |                       |  
|Accounts   receivable, net of allowances for doubtful accounts of $4,167 and $4,151 and   sales returns of $1,295 and $2,020 at March 31, 2004 and December 31, 2003,   respectively |  |                  | 73,358  |                       |  
|Inventories                                                                                                                                                                          |  |                  | 41,533  |                       |  
|Deferred   tax assets                                                                                                                                                                |  |                  | 34,979  |                       |  
|Prepaid   expenses and other current assets                                                                                                                                          |  |                  | 5,969   |                       |  
|                                                                                                                                                                                     |  |                  |         |                       |  
|Total   current assets                                                                                                                                                               |  |                  | 577,841 |                       |  
|Property and equipment, net                                                                                                                                                          |  |                  | 10,725  |                       |  
|Long-term investments                                                                                                                                                                |  |                  | 138,615 |                       |  
|Other long-term assets                                                                                                                                                               |  |                  | 1,186   |                       |  
|                                                                                                                                                                                     |  |                  |         |                       |  
|Total   assets                                                                                                                                                                       |  | $                | 728,367 |                       | $
|                                                                                                                                                                                     |  |                  |         |                       |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                 |  |                  |         |                       |  
|Current liabilities:                                                                                                                                                                 |  |                  |         |                       |  
|Accounts   payable                                                                                                                                                                   |  | $                | 18,377  |                       | $
|Accrued   payroll and related expenses                                                                                                                                               |  |                  | 12,220  |                       |  
|Other   accrued expenses                                                                                                                                                             |  |                  | 6,203   |                       |  
|Deferred   support revenue                                                                                                                                                           |  |                  | 41,413  |                       |  
|                                                                                                                                                                                     |  |                  |         |                       |  
|Total   current liabilities                                                                                                                                                          |  |                  | 78,213  |                       |  
|Commitments and   contingencies (Note 3)                                                                                                                                             |  |                  |         |                       |  
|Stockholders equity:                                                                                                                                                                |  |                  |         |                       |  
|Preferred   stock, $0.0001 par value:                                                                                                                                                |  |                  |         |                       |  
|Authorized5,000   shares at March 31, 2004 and December 31, 2003; None issued and outstanding   as of March 31, 2004 and December 31, 2003                                          |  |                  |        |                       |  
|Common   stock, $0.0001 par value:                                                                                                                                                   |  |                  |         |                       |  
|Authorized300,000   shares at March 31, 2004 and December 31, 2003:                                                                                                                 |  |                  |         |                       |  
|Issued   and outstanding134,767 and 131,623 shares at March 31, 2004 and December 31,   2003, respectively                                                                          |  |                  | 13      |                       |  
|Additional   paid-in capital                                                                                                                                                         |  |                  | 439,517 |                       |  
|Note   receivable from stockholder                                                                                                                                                   |  |                  | (480    | )                     |  
|Accumulated   other comprehensive income                                                                                                                                             |  |                  | 77      |                       |  
|Retained   earnings                                                                                                                                                                  |  |                  | 211,027 |                       |  
|                                                                                                                                                                                     |  |                  |         |                       |  
|Total   stockholders equity                                                                                                                                                         |  |                  | 650,154 |                       |  
|                                                                                                                                                                                     |  |                  |         |                       |  
|Total   liabilities and stockholders equity                                                                                                                                         |  | $                | 728,367 |                       | $
|                                                                                                                                                                                     |  |                  |         |                       |  

(1) Derived from audited consolidated financial statements as of December 31, 2003.

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

3



FOUNDRY NETWORKS, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share amounts)

|                                                                         |  | Three   Months Ended   March 31, |        
|------------------------------------------------------------------------ |  | -------------------------------- | -------
|                                                                         |  |                                  |        
|                                                                         |  | 2004                             |        
|                                                                         |  |                                  |        
|Net revenues:                                                            |  |                                  |        
|Product                                                                  |  | $                                | 89,300 
|Service                                                                  |  |                                  | 14,716 
|                                                                         |  |                                  |        
|Total   net revenues                                                     |  |                                  | 104,016
|                                                                         |  |                                  |        
|Cost of revenues:                                                        |  |                                  |        
|Product                                                                  |  |                                  | 31,994 
|Service                                                                  |  |                                  | 3,126  
|                                                                         |  |                                  |        
|Total   cost of revenues                                                 |  |                                  | 35,120 
|                                                                         |  |                                  |        
|Gross   margin                                                           |  |                                  | 68,896 
|                                                                         |  |                                  |        
|Operating expenses:                                                      |  |                                  |        
|Research   and development                                               |  |                                  | 10,012 
|Sales   and marketing                                                    |  |                                  | 23,168 
|General   and administrative                                             |  |                                  | 5,425  
|Amortization   of deferred stock compensation                            |  |                                  |       
|                                                                         |  |                                  |        
|Total   operating expenses                                               |  |                                  | 38,605 
|                                                                         |  |                                  |        
|Income from operations                                                   |  |                                  | 30,291 
|Interest income                                                          |  |                                  | 1,807  
|                                                                         |  |                                  |        
|Income before provision for   income taxes                               |  |                                  | 32,098 
|Provision for income taxes                                               |  |                                  | 12,197 
|                                                                         |  |                                  |        
|Net income                                                               |  | $                                | 19,901 
|                                                                         |  |                                  |        
|                                                                        
|Basic net income per share                                               |  | $                                | 0.15   
|Weighted average shares   used in computing basic net income per share   |  |                                  | 133,311
|                                                                        
|Diluted net income per   share                                           |  | $                                | 0.14   
|Weighted average shares   used in computing diluted net income per share |  |                                  | 143,846

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

4



FOUNDRY NETWORKS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)

|                                                                                    |  | Three   Months Ended March 31, |        
|----------------------------------------------------------------------------------- |  | ------------------------------ | -------
|                                                                                    |  |                                |        
|                                                                                    |  | 2004                           |        
|                                                                                    |  |                                |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                                               |  |                                |        
|Net income                                                                          |  | $                              | 19,901 
|Adjustments to reconcile   net income to net cash provided by operating activities: |  |                                |        
|Depreciation and   amortization                                                     |  |                                | 1,501  
|Amortization of deferred   stock compensation                                       |  |                                |       
|Inventory provisions                                                                |  |                                | 4,865  
|Tax benefit from stock   option exercises                                           |  |                                | 17,296 
|Changes in operating assets   and liabilities:                                      |  |                                |        
|Accounts   receivable                                                               |  |                                | 3,719  
|Inventories                                                                         |  |                                | (18,381
|Prepaid   expenses and deferred tax and other assets                                |  |                                | (2,634 
|Accounts   payable                                                                  |  |                                | 8,297  
|Accrued   payroll and related expenses                                              |  |                                | (4,430 
|Other   accrued expenses                                                            |  |                                | 399    
|Deferred   support revenue                                                          |  |                                | 6,298  
|                                                                                    |  |                                |        
|Net   cash provided by operating activities                                         |  |                                | 36,831 
|                                                                                    |  |                                |        
|CASH FLOWS   FROM INVESTING ACTIVITIES:                                             |  |                                |        
|Maturities and purchases of   investments, net                                      |  |                                | (21,460
|Purchases of property and   equipment, net                                          |  |                                | (4,360 
|                                                                                    |  |                                |        
|Net   cash used in investing activities                                             |  |                                | (25,820
|                                                                                    |  |                                |        
|CASH FLOWS   FROM FINANCING ACTIVITIES:                                             |  |                                |        
|Proceeds from issuances of   common stock                                           |  |                                | 22,432 
|                                                                                    |  |                                |        
|Net   cash provided by financing activities                                         |  |                                | 22,432 
|                                                                                    |  |                                |        
|INCREASE (DECREASE) IN CASH   AND CASH EQUIVALENTS                                  |  |                                | 33,443 
|Effect of exchange rate   changes on cash                                           |  |                                | 30     
|CASH AND CASH EQUIVALENTS,   BEGINNING OF PERIOD                                    |  |                                | 161,718
|                                                                                    |  |                                |        
|CASH AND CASH EQUIVALENTS,   END OF  PERIOD                                         |  | $                              | 195,191
|                                                                                    |  |                                |        
|SUPPLEMENTAL CASH FLOW   INFORMATION:                                               |  |                                |        
|Cash refund from (paid for)   income taxes, net                                     |  | $                              | 3,444  

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

5



FOUNDRY NETWORKS, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information for the three months ended March 31, 2004 and 2003 is unaudited)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Foundry Networks, Inc., without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and include the accounts of Foundry Networks, Inc. and its wholly-owned subsidiaries (collectively Foundry or we). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk, and the Consolidated Financial
Statements and notes thereto included in Items 7, 7A, and 8, respectively, of the Foundry Networks, Inc. Annual Report on Form 10-K.

The unaudited condensed consolidated 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 months ended March 31, 2004 are not necessarily indicative of the results that may be expected for future quarters or for the year ending December 31, 2004.

Principles of Consolidation and Foreign Currency Translation

The Companys condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. Assets and liabilities of foreign operations are translated to U.S. dollars at the exchange rate in effect at the applicable balance sheet date, and revenues and expenses are translated using average exchange rates prevailing during that period. Translation adjustments have not been material to date and are included as a component of accumulated other comprehensive income within stockholders equity.

Reclassifications

Certain items previously reported in specific financial captions have been reclassified to conform to the March 31, 2004 presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Actual results could differ from those estimates. Estimates are used in accounting for allowances for doubtful accounts and sales returns, inventory provisions, product warranty liability, income taxes, contingencies and similar items. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are made.

Cash Equivalents and Investments

We consider all investments with original maturities of 90 days or less to be cash equivalents. Cash and cash equivalents consist of commercial paper, corporate and government debt securities, and cash deposited in checking and money market accounts. Our investment portfolio includes only marketable securities with original maturities of less than two years and with secondary or resale markets to ensure portfolio liquidity.

Investments in financial instruments with original maturities greater than 90 days but less than one year are classified as short-term investments. Investments with maturities greater than one year from the balance sheet date are classified as long-term investments. All of our investments are stated at amortized cost and classified as held-to-maturity.

6



Cash equivalents and investments consist of the following (in thousands):

|                           |  | March 31,   2004 |        
|-------------------------- |  | ---------------- | -------
|                           |  |                  |        
|                           |  | Amortized   Cost |        
|                           |  |                  |        
|Money market funds         |  | $                | 81,168 
|Corporate securities       |  |                  | 12,750 
|Corporate commercial paper |  |                  | 49,963 
|Government securities      |  |                  | 377,676
|                           |  |                  |        
|                           |  | $                | 521,557
|                           |  |                  |        
|Cash equivalents           |  | $                | 156,131
|Short-term investments     |  |                  | 226,811
|Long-term investments      |  |                  | 138,615
|                           |  |                  |        
|                           |  | $                | 521,557
|                           |  |                  |        

|                           |  | December   31, 2003 |        
|-------------------------- |  | ------------------- | -------
|                           |  |                     |        
|                           |  | Amortized   Cost    |        
|                           |  |                     |        
|Money market funds         |  | $                   | 84,952 
|Corporate securities       |  |                     | 14,388 
|Corporate commercial paper |  |                     | 21,983 
|Government securities      |  |                     | 338,741
|                           |  |                     |        
|                           |  | $                   | 460,064
|                           |  |                     |        
|Cash equivalents           |  | $                   | 116,098
|Short-term investments     |  |                     | 184,859
|Long-term investments      |  |                     | 159,107
|                           |  |                     |        
|                           |  | $                   | 460,064
|                           |  |                     |        

Inventories

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

|                |  | March 31,    2004 |        | December   31,   2003 |  
|--------------- |  | ----------------- | ------ | --------------------- | -
|                |  |                   |        |                       |  
|Purchased parts |  | $                 | 14,679 |                       | $
|Work-in-process |  |                   | 21,882 |                       |  
|Finished goods  |  |                   | 4,972  |                       |  
|                |  |                   |        |                       |  
|                |  | $                 | 41,533 |                       | $
|                |  |                   |        |                       |  

The networking industry is characterized by rapid technological change, frequent new product introductions, changes in customer requirements, and evolving industry standards. Our inventory purchases and commitments are made based on anticipated demand for our products. We perform a detailed assessment of our inventory each period, which includes a review of,
among other factors, demand requirements, manufacturing lead-times, product life cycles and development plans, component cost trends, product pricing and quality issues. Based on this analysis, we estimate the amount of excess
and obsolete inventory, and provide reserves to record inventory at its lower of cost or estimated net realizable value. Once inventory has been written down to the lower of cost or estimated net realizable value, it is reflected on our balance sheet at its new carrying value until it is sold or otherwise disposed. We had inventory reserves of $29.0 million and $25.6 million as of March 31, 2004 and December 31, 2003, respectively.

7



Concentrations

Financial
instruments that potentially subject us to a concentration of credit risk
consist principally of cash equivalents, short and long-term investments, and
accounts receivable. We seek to reduce credit risk on financial instruments by
investing in high-quality debt issuances and, by policy, limit the amount of
credit exposure with any one issuer or fund. As of March 31, 2004 and December
31, 2003, ten customers accounted for approximately 40% and 55% of our
outstanding trade receivables, respectively.

We purchase
our proprietary ASICs used in the manufacture of our products from sole sources
and depend on their supply to meet our needs.  Our custom designed ASICs
may not be readily available from other suppliers as the development period
required to fabricate our ASICs can be lengthy.  The inability of an ASIC
supplier to fulfill our production requirements, or the time required for us to
identify new suppliers if our relationship is terminated, could negatively
affect our future results.

Revenue
Recognition

General.We
generate the majority of our revenue from sales of stackable and chassis-based
networking equipment, with the remainder of our revenue coming from customer
support fees, training, and installation services. We recognize revenue when
persuasive evidence of an arrangement exists, delivery or performance has
occurred, the sales price is fixed or determinable, and collectibility is
reasonably assured. Evidence of an arrangement consists of customer purchase
orders and, in certain instances, sales contracts or agreements. Shipping terms
and related documents, or written evidence of customer acceptance, when
applicable, are used to verify delivery or performance. We assess whether the
sales price is fixed or determinable based on payment terms and whether the
sales price is subject to refund or adjustment. We assess collectibility based
on the creditworthiness of the customer as determined by credit checks and
payment history.

When sales
arrangements contain multiple elements (i.e., hardware, training and
installation), we allocate revenue to each element based on its relative fair
value, generally the price charged when the item is sold separately, and
recognize revenue for each element when revenue recognition criteria have been
met for that element. This is in accordance with Emerging Issues Task Force
Issue No. 00-21, Revenue Arrangements with Multiple Deliverables
(EITF 00-21), which was effective for revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. EITF 00-21 addresses
certain aspects of accounting by a vendor for arrangements under which the
vendor will perform multiple revenue generating activities. We adopted EITF
00-21 in the third quarter of 2003, and its adoption did not have a material
effect on our results of operations or financial position.

Product.Product
revenue is generally recognized at the time of shipment, unless an acceptance
period or other contingency exists, in which case revenue is recognized upon the
earlier of customer acceptance or expiration of the acceptance period, or upon
satisfaction of the contingency. Shipping charges billed to customers are
included in product revenue, and the related shipping costs are included in cost
of product revenues.

At the time product
revenue is recognized, we estimate the amount of warranty costs to be incurred
and record the amount as a cost of product revenue. Our standard warranty period
extends 12 months from the date of sale, and our estimate of the amount
necessary to settle warranty claims is based primarily on our past experience.
We also provide a provision for estimated sales returns at the time product
revenue is recognized and we record that amount as a reduction to product
revenue. Our provision is based primarily on actual historical sales returns and
our return policies. Our resellers generally do not have a right of return, and
our contracts with original equipment manufacturers only provide for rights of
return in the event our products do not meet specifications or there is an
epidemic failure, as defined in the contracts.

Services.Service
revenues consist primarily of revenue from customer support services and, to a
lesser extent, training and installation services. Our suite of customer support
programs provides customers with access to technical assistance, unspecified
software updates and upgrades, hardware repair, and replacement parts.

Support services are offered under renewable, fee-based contracts or as part of multiple-element arrangements. Revenue from customer support contracts is deferred and recognized ratably over the contractual support period, which generally ranges from one to five years.

Revenue from training and installation services is recognized when services have been performed, and accounted for less than 1% of total revenues for each of the three months ended March 31, 2004 and 2003.

8



Segment and Geographic Information

Operating segments
are defined as components of an enterprise for which separate financial
information is available and is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance. We are organized as, and operate in, one
reportable segment: the design, development, manufacturing and marketing of a
comprehensive, end-to-end suite of high-performance data networking solutions,
including Ethernet Layer 2 and Layer 3 switches, Metro routers, and Internet
traffic management products.

We sell to customers
located in various countries in North and South America, Europe, Asia, and
Australia. Our foreign offices conduct sales, marketing, and support activities.
We determine revenues by geographic location based on the physical destination
of our product shipments. Our international sales represented 32% and 31% of our
total revenues for the three months ended March 31, 2004 and 2003, respectively.
No individual country outside of the United States accounted for 10% or more of
our total revenues for the three months ended March 31, 2004.  One
individual country outside of the United States, Japan, accounted for 10% of our
total revenues for the three months ended March 31, 2003.

For the three months ended March 31, 2004 and 2003, a U.S. federal government integrator accounted for 12% and 20% of our revenues, respectively.  Sales to the U.S. federal government accounted for 32% and 30% of our revenues in the three months ended March 31, 2004 and 2003, respectively.

Computation of Per Share Amounts

Basic earnings per share (EPS) has been calculated using the weighted-average number of shares of common stock outstanding during the period. Diluted EPS has been calculated using the weighted-average number of shares of common stock outstanding during the period and potentially dilutive weighted-average common stock equivalents. Weighted-average dilutive common stock equivalents include the potentially dilutive effect of in-the-money stock options, determined based on the average share price for each period using the treasury stock method. Under the treasury stock method, the tax-effected proceeds that would be received assuming the exercise of all in-the-money stock options are assumed to be used to repurchase shares in the open market. Certain common stock equivalents were excluded from the calculation of diluted EPS because the exercise price of these common stock equivalents was greater
than the average market price of the common stock for the respective period and, therefore, their inclusion would have been anti-dilutive. Anti-dilutive common stock equivalents for the three months ended March 31, 2004 and 2003 were 1.1 million and 8.7 million, respectively.

|                                                        |  | Three   Months Ended March 31,        |        
|------------------------------------------------------- |  | ------------------------------------- | -------
|                                                        |  |                                       |        
|                                                        |  | 2004                                  |        
|                                                        |  |                                       |        
|                                                        |  | (In thousands, except per share data) |        
|                                                       
|Net income                                              |  | $                                     | 19,901 
|                                                        |  |                                       |        
|Basic:                                                  |  |                                       |        
|Weighted   average shares outstanding                   |  |                                       | 133,311
|Basic EPS                                               |  | $                                     | 0.15   
|                                                       
|Diluted:                                                |  |                                       |        
|Weighted average shares   outstanding                   |  |                                       | 133,311
|Add: Weighted average dilutive   potential shares       |  |                                       | 10,535 
|                                                        |  |                                       |        
|Weighted average shares used in   computing diluted EPS |  |                                       | 143,846
|                                                        |  |                                       |        
|Diluted EPS                                             |  | $                                     | 0.14   
|                                                        |  |                                       |        

Stock-Based Compensation

As permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), we have elected to follow the intrinsic value method of accounting for employee stock options as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, we only recognize compensation expense if options are granted with an exercise price below fair market value at the date of grant or if options are modified subsequent to the date of grant. Any resulting compensation expense is recognized ratably over the vesting period.

9



The following table illustrates the effect on reported net income and earnings per share had we accounted for our employee stock options and employee stock purchase plan under the fair value method prescribed by SFAS 123.

|                                                                                                                                    |  | Three   months ended March 31,            |       
|----------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ------
|                                                                                                                                    |  |                                           |       
|                                                                                                                                    |  | 2004                                      |       
|                                                                                                                                    |  |                                           |       
|                                                                                                                                    |  | (in   thousands, except  per  share data) |       
|                                                                                                                                   
|Net income as reported                                                                                                              |  | $                                         | 19,901
|Add: Total stock-based   compensation expense included in reported net income, net of tax effect                                    |  |                                           |      
|Deduct: Total stock-based   compensation expense determined using the fair value method for all awards,   net of related tax effect |  |                                           | (8,469
|                                                                                                                                    |  |                                           |       
|Pro forma net income                                                                                                                |  | $                                         | 11,432
|                                                                                                                                    |  |                                           |       
|Basic net income per share:                                                                                                         |  |                                           |       
|As   reported                                                                                                                       |  | $                                         | 0.15  
|Pro   forma                                                                                                                         |  | $                                         | 0.09  
|Diluted net income per   share:                                                                                                     |  |                                           |       
|As   reported                                                                                                                       |  | $                                         | 0.14  
|Pro   forma                                                                                                                         |  | $                                         | 0.08  

We estimate the fair value of our stock options using the Black-Scholes option valuation model, which is the most commonly used model for purposes of disclosure pursuant to SFAS 123. However, the Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Black-Scholes model requires the input of highly-subjective assumptions, including expected stock price volatility. Because our stock options have characteristics significantly different than those of traded options, and because changes in assumptions can materially affect fair value estimates, in managements opinion, the Black-Scholes model does not provide a reliable measure of the fair value of our options. The following weighted-average assumptions were used to estimate the fair value of stock options granted:

|                                  |  | Stock   Option Plan |             | Employee   Stock Purchase Plan | 
|--------------------------------- |  | ------------------- | ----------- | ------------------------------ | 
|                                  |  |                     |             |                                | 
|                                  |  | March 31,    2004   |             | March 31,    2003              | 
|                                  |  |                     |             |                                | 
|Average risk free interest   rate |  |                     | 2.62        | %                              | 
|Average expected life of   option |  |                     | 4.0   years |                                | 
|Dividend yield                    |  |                     | 0           | %                              | 
|Volatility of common stock        |  |                     | 75          | %                              | 

2. COMPREHENSIVE INCOME

Comprehensive income is defined in SFAS No. 130, Reporting Comprehensive Income, as the changes in equity of an enterprise except those resulting from stockholder transactions. Components of comprehensive income for the three months ended March 31, 2004 and 2003 were insignificant and consisted entirely of foreign currency translation adjustments.

3. COMMITMENTS AND CONTINGENCIES:

Guarantees and Product Warranties

FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), requires that upon issuance of a guarantee, the guarantor must disclose and recognize a liability for the fair value of the obligation it assumes under that guarantee. FIN 45 is applicable to our product warranty liability and to indemnification obligations contained in commercial agreements, including customary intellectual property indemnifications for our products contained in agreements with our resellers and end-users.

10



We provide all customers with a standard one-year hardware and 90-day software warranty. Customers can upgrade the standard warranty and extend the warranty for up to five years by purchasing one of our customer support programs. Our warranty accrual represents our best estimate of the amount necessary to settle future and existing claims as of the balance sheet date. We periodically assess the adequacy of our warranty accrual and adjust the amount as considered necessary.

Changes in the Companys product warranty liability for the three months ended March 31, 2004 are as follows:

|Balance, December 31, 2003                                                                               |  | $ | 1,781 |  
|-------------------------------------------------------------------------------------------------------- |  | - | ----- | -
|Liabilities   accrued for warranties issued during the period                                            |  |   | 260   |  
|Warranty   claims settled during the period                                                              |  |   | (105  | )
|Changes   in liabilities for pre-existing warranties during the period, including   changes in estimates |  |   | (269  | )
|                                                                                                         |  |   |       |  
|Balance, March 31, 2004                                                                                  |  | $ | 1,667 |  
|                                                                                                         |  |   |       |  

We offer our customers renewable support arrangements, including extended warranties, that generally range from one to five years. We do not separate extended warranty revenues from routine support service revenues, as it is not practical to do so. The change in our deferred support revenue balance was as follows for the three months ended March 31, 2004:

|Deferred support revenue   at December 31, 2003 |  | $ | 35,115  |  
|----------------------------------------------- |  | - | ------- | -
|Additions to deferred   support revenue         |  |   | 20,576  |  
|Recognition of support   revenue                |  |   | (14,278 | )
|                                                |  |   |         |  
|Ending balance at March   31, 2004              |  | $ | 41,413  |  
|                                                |  |   |         |  

In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the counter-party to such an arrangement from any losses relating to a breach of representations and warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the particular contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. No amounts are reflected in our financial statements as of March 31, 2004 or December 31, 2003 related to these indemnifications as, historically, payments made related to these indemnifications have not been material to our financial position or results of operations.

Purchase Commitments with Contract Manufacturers

We use contract manufacturers to assemble and test our products. In order to reduce manufacturing lead-times and ensure adequate inventories, our agreements with some of these contract manufacturers allow them to procure long lead-time component inventory on our behalf based on a rolling production forecast provided by us. We may be contractually obligated to purchase long lead-time component inventory procured by certain contract manufacturers in accordance with our forecast, unless we give notice of order cancellation at least 90 days prior to the delivery date. As of March 31, 2004, we were committed to purchase approximately $44.6 million of such inventory.

Litigation

In December 2000, several similar shareholder class action lawsuits were filed against us and certain of our officers in the United States District Court for the Northern District of California, following our announcement of our anticipated financial results for the fourth quarter ended December 31, 2000. The lawsuits were subsequently consolidated as a class action by the District Court, under the caption In re Foundry Networks, Inc. Securities Litigation, Master File No. C-00-4823-MMC, lead plaintiffs were selected and filed a consolidated amended complaint which alleged violations of federal securities laws and purported to seek damages on behalf of a class of shareholders who purchased our common stock during the period from September 7, 2000 to December 19, 2000. We then brought four successful motions to dismiss the complaint. Although the District Court granted each of the four dismissal
motions, it also provided plaintiffs leave to amend the complaint. On August 29, 2003, following the dismissal of the four amended complaints, the District Court granted our motion to dismiss the case with prejudice and without leave to amend and, on September 2, 2003, entered
judgment in our favor, dismissing the plaintiffs fifth amended complaint. On September 29, 2003, plaintiffs filed a Notice of Appeal with the United States Court of Appeals for the Ninth Circuit (Court of Appeals). On January 15, 2004, the plaintiff/appellants filed their opening brief with the Court of Appeals. On April 2, 2004, we filed our responsive brief.  When the briefings are complete, the Court of Appeals will schedule the oral argument.  We believe the District Courts judgment validates our conviction that the lawsuit is without merit and we will defend the District Courts judgment vigorously.

11



A class action lawsuit was filed on November 27, 2001 in the United States District Court for the Southern District of New York on behalf of purchasers of our common stock alleging violations of federal securities laws. The case was designated as In re Foundry Networks, Inc. Initial Public Offering Securities Litigation, No. 01-CV-10640 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, No. 21 MC 92 (SAS) (S.D.N.Y.). The case is brought purportedly on behalf of all persons who purchased our common stock from September 27, 1999 through December 6, 2000. The operative amended complaint names as defendants us and three of our officers (the Foundry Defendants), including our Chief Executive Officer and Chief Financial Officer; and investment banking firms that served as underwriters for our initial public offering in September 1999. The amended
complaint alleged violations of Sections 11 and 15 of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934, on the grounds that the registration statement for the initial public offering ( IPO) failed to disclose that (i) the underwriters agreed to allow certain customers to purchase shares in the IPO in exchange for excess commissions to be paid to the underwriters, and (ii) the underwriters arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The amended complaint also appears to allege that false or misleading analyst reports were issued. Similar allegations were made in lawsuits challenging over 300 other initial public offerings conducted in 1999 and 2000. The cases were consolidated for pretrial purposes. On February 19, 2003, the Court ruled on all defendants motions to dismiss. In ruling on motions to dismiss, the Court must treat the allegations in the complaint as if they were true solely
for purposes of deciding the motions. The motion was denied as to claims under the Securities Act of 1933 in the case involving us. The same ruling was made in all but 10 of the other cases. The Court dismissed the claims under Section 10(b) of the Securities Exchange Act of 1934 against us and one of the individual defendants and dismissed all of the Section 20(a) control person claims. The Court denied the motion to dismiss the Section 10(b) claims against our remaining individual defendants on the basis that those defendants allegedly sold our stock following the IPO, allegations found sufficient purely for pleading purposes to allow those claims to move forward. A similar ruling was made with respect to 62 of the individual defendants in the other cases. We have accepted a settlement proposal presented to all issuer defendants. Under the terms of this settlement, plaintiffs will dismiss and release all claims against the Foundry Defendants in exchange for a contingent payment by the
insurance companies collectively responsible for insuring the issuers in all of the IPO cases and for the assignment or surrender of control of certain claims we may have against the underwriters. The settlement, which is still being finalized, will require approval of the Court, which cannot be assured, after class members are given the opportunity to object to the settlement or opt out of the settlement.

In March 2001, Nortel Networks Corp. (Nortel) filed a lawsuit against us in the United States District Court for the District of Massachusetts alleging that certain of our products infringe several of Nortels patents and seeking injunctive relief and unspecified damages. Nortel has also brought suit, on the same or similar patents, against a number of other networking companies. We have analyzed the validity of Nortels claims and believe that Nortels suit is without merit. We are committed to vigorously defending ourself against these claims.

On October 9, 2002, we filed a lawsuit against Nortel in the United States District Court, Northern District of California alleging that certain of Nortels products infringe one of our patents and alleging breach of contract by Nortel. We are seeking injunctive relief and damages.  On November 18, 2002, Nortel filed an Answer and Counter Claims asserting infringement of five additional patents against us.  On December 6, 2002, we filed an Answer to Nortels counter claims denying infringement and asserting invalidity as to Nortels five asserted patents.  On April 11, 2003, the District Court set a trial date for November 29, 2004.  On November 18, 2003, after a Markman Hearing, the District Court issued an order on ten disputed terms as to the asserted patents construing each disputed term in our favor.  Discovery is ongoing and scheduled to close on June 11,
2004.  On April 2, 2004, we filed summary judgment motions on two of Nortels asserted patents.  The parties are awaiting a hearing date on the motions.  We analyzed the validity of Nortels counter claims and believe they are without merit.

In May 2003, Lucent Technologies Inc. (Lucent) filed a lawsuit against us in the United States District Court for the District of Delaware alleging that certain of our products infringe several of Lucents patents, and seeking injunctive relief, as well as unspecified damages. Lucent also brought suit on the same patents (and one additional patent) against one of our competitors. On August 12, 2003, we filed a motion to sever the cases, and on February 6, 2004, the District Court granted the motion. The parties are in the process of rescheduling the court dates in view the District Courts order to sever the cases. We have analyzed the validity of Lucents claims and believe that Lucents suit is without merit. We are committed to vigorously defending ourself against Lucents claims.

12



On February 13, 2004, we filed a lawsuit against Lucent in the United States District Court, Eastern District of Texas, Marshall Division. The lawsuit alleges that certain of Lucents products infringe one of our patents. We are seeking injunctive relief and damages.  On March 22, 2004, Lucent filed an Answer and Counter Claim seeking a declaration of invalidity as to our asserted patent.  On April 9, 2004, Lucent filed an Amended Answer and Counter Claim asserting infringement of U.S. patent #5649131.  We are in the process of evaluating Lucents counter claims.  We analyzed the validity of Nortels counter claims and believe they are without merit.

From time to time, we are subject to other legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights, patents and other intellectual property rights. In addition, from time to time, third parties assert patent infringement claims against us in the form of letters, lawsuits and other forms of communication. Regardless of the merits of our position, litigation is always an expensive and uncertain proposition. In accordance with SFAS No. 5, Accounting for Contingencies (SFAS 5), we record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review the need for any such provision on a quarterly basis and record any necessary adjustments to reflect the effect of ongoing negotiations, settlements, rulings, advice of legal counsel, and
other information and events pertaining to a particular case in the period they become known. To date, we have not recorded any such provisions in accordance with SFAS 5. We believe we have valid defenses with respect to the legal matters pending against us. In the event of a determination adverse to us, we could incur substantial monetary liability, and be required to change our business practices. Any unfavorable determination could have a material adverse effect on our financial position, results of operations, or cash flows.

4. INCOME TAXES:

We recorded income tax provisions of $12.2 million and $7.2 million for the three months ended March 31, 2004 and 2003, respectively. The effective tax rate for the three months ended March 31, 2004 was 38%, compared to 35% for the same period in 2003. These rates reflect federal statutory and state tax rates, offset by research and development tax credits, export sales incentives, and tax-exempt interest income.

Our income taxes payable for federal and state purposes have been reduced by the tax benefits associated with taxable dispositions of employee stock options. When an employee exercises a stock option issued under a nonqualified plan or has a disqualifying disposition related to a qualified plan, we receive an income tax benefit for the difference between the fair market value of the stock issued at the time of exercise or disposition and the option price, tax effected. These benefits are recorded in stockholders equity and were $17.3 million and $0.6 million for the three months ended March 31, 2004 and 2003, respectively.

Management believes the Company will likely generate sufficient taxable income in the future to realize the tax benefits arising from its existing net deferred tax assets of $35.0 million at March 31, 2004.

13



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

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q. This discussion and analysis contain forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those discussed in the section entitled Managements Discussion and Analysis of Financial Condition and Results of OperationsRisk Factors That May Affect Future Results and the Market Price of Our Stock. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect managements opinions only as of the date hereof. We undertake no obligation to
revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this document as well as in other documents we file from time to time with the SEC. All public reports filed by us with the SEC are available free of charge on our website at www.foundrynetworks.com or from the SEC at www.sec.gov as soon as practicable after we electronically file such reports with the SEC.

Overview

Founded in 1996,
Foundry designs, develops, manufactures and markets a comprehensive, end-to-end
suite of high performance data networking solutions, including Ethernet Layer 2
and Layer 3 switches, Metro routers, and Internet traffic management products.
Our customers include Internet and Metro service providers, and enterprises such
as e-commerce sites, entertainment, health and wellness, financial and
manufacturing companies, universities, and government agencies. Our product
suite includes the FastIron® family of Layer 2/3 enterprise switches, the
IronPointTM family of wireless access points, the BigIron® family of Layer
3 backbone switches, the EdgeIron® family of Layer 2 wiring closet
switches, the NetIron® family of Metro routers, the ServerIron® family
of Layer 4-7 traffic management switches, and the IronViewTM Network Management
software system.

Critical Accounting Policies and Estimates

Managements discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
condensed consolidated financial statements, and the reported amounts of revenue and expenses during the period reported. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. Management bases their estimates and judgments on historical experience, market trends, and other factors that are believed to be reasonable under the circumstances. The results of these estimates form the basis for judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003 reflect the more significant judgments and estimates used in preparation of our financial statements. Management has discussed the development, selection, and disclosure of these estimates with the Audit
Committee of Foundrys Board of Directors. Management believes there have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2004 compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2003.

14



Results of Operations

Net Revenues

We offer products in two configuration platforms, a fixed configuration stackable or a flexible configuration chassis. A stackable has a fixed configuration that cannot be altered. Chassis use a modular platform that can be populated and reconfigured with various management and line card modules as frequently as desired by the customer. For example, customers can use our chassis products at the edge of their network and then reconfigure the chassis to be used in the backbone or core of their network.  The physical connection between the stackable or chassis to a copper or fiber cable is called a port.  Customers purchase a number of ports based on their desired network functionality and throughput.  A port is used as a unit of measure for networking devices because it provides a more meaningful comparison of customer and market trends over time.  Higher port shipments in a particular
period is generally an indicator of potential network and revenue growth.  Our selling prices and gross margins on chassis-based products are generally higher than our stackable products because of the flexible configuration offered by chassis-based products.

The following table presents product and service revenues for the three months ended March 31, 2004 and 2003 (dollars in thousands):

|                   |  | Three   Months Ended March 31, |        
|------------------ |  | ------------------------------ | -------
|                   |  |                                |        
|                   |  | 2004                           |        
|                   |  |                                |        
|Net revenues:      |  |                                |        
|Product            |  | $                              | 89,300 
|Service            |  |                                | 14,716 
|                   |  |                                |        
|Total net revenues |  | $                              | 104,016
|                   |  |                                |        

Product revenues were $89.3 million and $81.0 million for the three months ended March 31, 2004 and 2003, respectively, representing an increase of 10%.  The increase is due primarily to increased volume. Total port shipments increased 21% in the first quarter of 2004, compared to the first quarter of 2003, primarily due to improved economic conditions and increased IT spending by enterprise customers and the U.S. federal government.  Sales to the U.S. federal government as a percentage of revenue were 32% and 30% for the three months ended March 31, 2004 and 2003, respectively.  Product revenues in the first quarter of 2004 also increased due to increased sales momentum of our Terabit-capacity, 10-Gigabit BigIron MG8 system, which was introduced in the third quarter of 2003.

The following table presents net chassis and stackable revenues for the three months ended March 31, 2004 and 2003 (dollars in thousands):

|                    |  | Three   Months Ended March 31, |        
|------------------- |  | ------------------------------ | -------
|                    |  |                                |        
|                    |  | 2004                           |        
|                    |  |                                |        
|Total net revenues: |  |                                |        
|Chassis             |  | $                              | 83,213 
|Stackable           |  |                                | 20,803 
|                    |  |                                |        
|Total net revenues  |  | $                              | 104,016
|                    |  |                                |        

15



Revenue from our chassis products accounted for 80% and 82% of our total net revenues for the three months ended March 31, 2004 and 2003, respectively. We do not expect sales of our chassis and stackable products to fluctuate significantly as a percentage of total net revenues in the future.

Service revenues consist primarily of revenue from customer support contracts, and to a lesser extent, from providing training and installation services. Service revenues were $14.7 million and $10.1 million, or 14% and 11% of total revenues, for the three months ended March 31, 2004 and 2003, respectively. Service revenue increased in absolute dollars in 2004 due to a larger installed base of our networking equipment.

For the three months ended March 31, 2004 and 2003, a U.S. federal government integrator accounted for 12% and 20% of our revenues, respectively.  Sales to the U.S. federal government accounted for 32% and 30% of our revenues in the three months ended March 31, 2004 and 2003, respectively.  International sales represented 32% and 31% of our total revenues for the three months ended March 31, 2004 and 2003, respectively. No individual country outside of the United States accounted for 10% or more of our total revenues for the three months ended March 31, 2004.  One individual country outside of the United States, Japan, accounted for 10% of our total revenues for the three months ended March 31, 2003.

Gross Margins

The following table presents gross margins and the related gross margin percentages for the three months ended March 31, 2004 and 2003 (dollars in thousands):

|                    |  | Three   Months Ended March 31, |       
|------------------- |  | ------------------------------ | ------
|                    |  |                                |       
|                    |  | 2004                           |       
|                    |  |                                |       
|                    |  | Gross   Margin $               |       
|                    |  |                                |       
|Gross margins:      |  |                                |       
|Product             |  | $                              | 57,306
|Service             |  |                                | 11,590
|                    |  |                                |       
|Total gross margins |  | $                              | 68,896
|                    |  |                                |       

Our cost of product
revenue consists primarily of material, labor, manufacturing overhead, freight,
warranty costs, and provisions for excess and obsolete inventory. Product gross
margins were $57.3 million and $45.6 million, or 64% and 56% of product
revenues, for the three months ended March 31, 2004 and 2003, respectively. The
increase in product gross margin as a percentage of product revenues was the
result of lower contract manufacturing and component costs such as memory
devices and printed circuit boards, cost efficiencies associated with increased
business volume, and increased sales of our high-end, high-margin products in the
first quarter of 2004.  Total port shipments increased 21%, with port
shipments of our high-end, high-margin Gigabit and 10-Gigabit Ethernet products
increasing 5% in the first quarter of 2004 compared to the first quarter of
2003.  These improvements in product gross margin in the first quarter of
2004 were offset somewhat by increased inventory provisions.  For the
first quarter of 2004, our inventory provisions were higher than they were in
the first quarter of 2003, primarily as a result of the
difficulties associated with forecasting demand and managing supply for our
broader product portfolio that includes numerous recently introduced
products.

Our cost of service revenues consists primarily of costs of providing services under customer support contracts. These costs include material costs, labor, and overhead. Service gross margins were $11.6 million and $8.1 million for the three months ended March 31, 2004 and 2003, or 79% and 80% of service revenues, respectively. The decrease in our service gross margin percentage was due primarily to increased inventory costs associated with supporting a larger customer base.  As a result, our level of service inventory has nearly doubled from the first quarter of 2003.

Our gross margins may be adversely affected by increased price competition, component shortages, increases in material or labor costs, excess, obsolete, and impaired inventory charges, changes in channels of distribution, or customer, product and geographic mix. See also Risk Factors That May Affect Future Results and Market Price of StockOur gross margins may decline over time and the average selling prices of our products may decrease as a result of competitive pressures and other factors.

16



Research and Development, Sales and Marketing, and General and Administrative Expenses

The following table presents research and development, sales and marketing, and general and administrative expenses for the three months ended March 31, 2004 and 2003 (dollars in thousands):

|                           |  | Three   Months Ended March 31, |       
|-------------------------- |  | ------------------------------ | ------
|                           |  |                                |       
|                           |  | 2004                           |       
|                           |  |                                |       
|Research and Development   |  | $                              | 10,012
|Sales and Marketing        |  | $                              | 23,168
|General and Administrative |  | $                              | 5,425 

Research and development expenses consist primarily of salaries and related personnel expenses, prototype materials and expenses related to the development of our ASICs, software development and testing costs, and depreciation of equipment related to research and development activities. Research and development expenses were $10.0 million and $9.9 million, or 10% and 11% of revenues, for the three months ended March 31, 2004 and 2003, respectively.  We have continued to invest in research and development efforts in areas such as data, voice, and video over IP; security; network management; and advanced core and edge switching technologies.

Sales and marketing expenses consist primarily of salaries, commissions and related expenses for personnel engaged in marketing, sales and customer service functions, as well as trade shows, advertising, promotional expenses and the cost of facilities. Sales and marketing expenses were $23.2 million and $20.0 million, or 22% of revenues, for the three months ended March 31, 2004 and 2003, respectively. The increase in absolute dollars was primarily due to an increase of $2.0 million in advertising expenses to enhance our brand recognition and to announce our Terabit-capacity Ethernet switching products. To a lesser extent, sales commissions increased $0.9 million as a result of higher sales for the three months ended March 31, 2004.

General and administrative expenses consist primarily of salaries and related expenses for executive, finance and administrative personnel, facilities, bad debt, legal, and other general corporate expenses. General and administrative expenses were $5.4 million and $4.0 million, or 5% and 4% of revenues, for the three months ended March 31, 2004 and 2003, respectively. The increase in absolute dollars was due to increased legal costs associated with litigation matters discussed in Note 3 and increased headcount.

Interest Income

We earn interest income on funds maintained in interest-bearing money market and investment accounts. We recorded interest income of $1.8 million and $1.1 million for the three months ended March 31, 2004 and 2003, respectively.  The increase in interest income was primarily a result of higher investment balances maintained during the three months ended March 31, 2004.  Our total cash and investments increased $209.3 million from March 31, 2003 to March 31, 2004.

Income Taxes

We recorded income tax provisions of $12.2 million and $7.2 million for the three months ended March 31, 2004 and 2003, respectively. The effective tax rates for the three months ended March 31, 2004 and 2003 were 38% and 35%, respectively. The increase in the effective tax rate can be attributed to reduced effects from research and development tax credits and tax-exempt interest income.  The effects of these items were reduced since the amounts did not increase at the same rate as pre-tax income.

Our income taxes payable for federal and state purposes have been reduced, and stockholders equity increased, by the tax benefits associated with taxable dispositions of employee stock options. When an employee exercises a stock option issued under a nonqualified plan, or has a disqualifying disposition related to a qualified plan, we receive an income tax benefit for the difference between the fair market value of the stock issued at the time of the exercise or disposition and the employees option price, tax effected. These benefits are recorded in stockholders equity and were $17.3 million and $0.6 million for the three months ended March 31, 2004 and 2003, respectively.

Liquidity and Capital Resources

At March 31, 2004, we had cash and investments totaling $560.6 million, an increase of $54.9 million from $505.7 million at December 31, 2003. The increase can be attributed to $32.1 million of pre-tax earnings in the first quarter of 2004 and $22.4 million of proceeds from the exercise of employee stock options, offset by $4.4 million of equipment purchases during the three months ended March 31, 2004.

Net accounts receivable at March 31, 2004 decreased $3.7 million from December 31, 2003. Our accounts receivable and days sales outstanding (DSO) are primarily affected by shipment linearity and collections performance.  Our DSO was 63 days as of March 31, 2004 and December 31, 2003.

17



Net inventories were $41.5 million and $28.0 million as of March 31, 2004 and December 31, 2003, respectively.  We significantly increased our inventory levels in the first quarter of 2004 to support a broader product offering, including new products, and in anticipation of increasing quarterly sales volume throughout the remainder of 2004. Annualized net inventory turnover was approximately 3.2 and 4.0 for the three months ended March 31, 2004 and December 31, 2003, respectively.

Based on past performance and current expectations, we believe our cash and cash equivalents, short-term investments, and cash generated from operations will satisfy our working capital needs, capital expenditures, commitments, and other liquidity requirements associated with our existing operations through at least the next twelve months.

Disclosures about Contractual Obligations and Commercial Commitments

The following table summarizes our contractual obligations at March 31, 2004 and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

|                                                       |  | Total |        | Less Than   1 Year |   | 13   Years |  | More   Than 3 Years |      
|------------------------------------------------------ |  | ----- | ------ | ------------------ | - | ----------- |  | ------------------- | -----
|                                                       |  |       |        |                    |   |             |  |                     |      
|Operating office leases                                |  | $     | 14,130 |                    | $ | 4,671       |  | $                   | 7,460
|Purchase commitments with   our contract manufacturers |  |       | 44,619 |                    |   | 44,619      |  |                     |     
|                                                       |  |       |        |                    |   |             |  |                     |      
|Total contractual cash   obligations                   |  | $     | 58,749 |                    | $ | 49,290      |  | $                   | 7,460
|                                                       |  |       |        |                    |   |             |  |                     |      

Key factors impacting our cash flows include our ability to effectively manage our working capital, in particular inventory and accounts receivable, as well as future demand for our products and related pricing. We may incur higher capital expenditures in the near future if market conditions improve and 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 products and businesses complementary to our business. Any acquisition or investment may reduce our current capital or require additional capital.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet transactions, arrangements, or obligations that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, or capital resources.

18



RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND THE MARKET PRICE OF OUR STOCK

Weak economic and market conditions or geopolitical turmoil may adversely affect our revenues, gross margins and expenses.

Our quarterly revenues and operating results may continue to fluctuate, due to the effects of general economic conditions in the United States and globally, and, in particular, market conditions in the communications and networking industries. Additionally, current political turmoil in many parts of the world, including terrorist and military actions, may weaken the global economy. If economic conditions in the United States and globally do not improve, or if they worsen, we may experience material negative effects on our business, operating results and financial condition. There can be no assurance that we will be able to maintain or improve our financial results or that economic and market conditions will continue to improve and will not deteriorate.

Because our financial results are difficult to predict, we may not meet quarterly financial expectations, which could cause our stock price to decline.

Our quarterly revenues and operating results are difficult to predict and may fluctuate significantly from quarter to quarter. Our quarterly revenue and earnings per share guidance is our best estimate at the time we provide guidance.  Delays in generating or recognizing forecasted revenues could cause our quarterly operating results to be below our expectations and those 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. Unfulfilled orders at the beginning of each quarter are typically substantially less than our expected revenue for that quarter, and once received, orders are generally cancelable at any time prior to shipment. Therefore, we depend on obtaining orders in a quarter for shipment in that quarter to achieve our revenue objectives. In addition, our reseller agreements typically allow the reseller to delay scheduled delivery dates without penalty. Moreover, demand for our products may fluctuate as a result of seasonality.

In addition, we may incur increased costs and expenses related to sales and marketing, including expansion of our direct sales operations and distribution channels, product marketing, customer support, expansion of our corporate infrastructure, legal matters, and facilities expansion. We base our operating expenses on anticipated revenue levels, and a high percentage of our expenses are fixed in the short-term. As a result, any significant shortfall in revenue relative to our expectations could cause a significant decline in our quarterly operating results.

Because of the uncertain nature of the economic environment and rapidly changing market we serve, period-to-period comparisons of operating results may not be meaningful. In addition, you may not be able to rely on the results for any period as an indication of future performance. In the future, our revenue may remain the same, decrease or increase, and we may not be able to sustain or increase profitability on a quarterly or annual basis. As a consequence, operating results for a particular quarter are extremely difficult to predict.

Although our customer base has increased, we still depend on large, recurring purchases from certain customers, and a loss, cancellation or delay in purchases by these customers could negatively affect our revenue.

Sales to our ten largest customers accounted for 43% and 55% of total revenues for the three months ended March 31, 2004 and 2003, respectively. The loss of continued orders from any of our more significant customers, such as the U.S. government or individual agencies within the U.S. government, Mitsui, America Online, or Hewlett Packard, could cause our revenue and profitability to suffer. Our ability to attract new customers will depend on a variety of factors, including the cost-effectiveness, reliability, scalability, breadth and depth of our products.

Although our financial performance may depend on large, recurring orders from certain customers and resellers, we do not generally have binding commitments from 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; and                                        
| |   |                                                                                                                                                 
| |  | our reseller   agreements generally are not exclusive and are for one-year terms, with no   obligation of the resellers to renew the agreements.

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

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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 on large orders from a small number of customers.

The United States government is a significant customer and has been one key to our financial success. However, government demand is unpredictable and there is no guarantee of future contract awards.

As part of the changing economic environment, the United States government has become an important customer for the networking industry, and for us in particular. The process of becoming a qualified government vendor takes considerable time and effort, and the timing of contract awards and deployment of our products are hard to predict. Typically, six to twelve months may elapse between the initial evaluation of our systems by governmental agencies and the execution of a contract. The revenue stream from these contracts is hard to predict and may be materially uneven between quarters. Government agency contracts are frequently awarded only after formal competitive bidding processes, which are often protracted and may contain provisions that permit cancellation in the event funds are unavailable to the government agency. Even if we are awarded contracts, substantial delays or cancellations of purchases
could result from protests initiated by losing bidders. In addition, government agencies are subject to budgetary processes and expenditure constraints that could lead to delays or decreased capital expenditures in certain areas. If we fail to win significant government contract awards, if the government or individual agencies within the government terminate or reduce the scope and value of our existing contracts, or if the government fails to reduce the budget deficit, our financial results may be harmed.

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

The market for network solutions is intensely competitive. In particular, Cisco Systems, Inc. maintains a dominant position in this market and several of its products compete directly with our products. Ciscos substantial resources and market dominance have enabled it to reduce prices on its products within a short period of time following the introduction of these products, which reduces margins and, therefore, the profitability of its competitors. Purchasers of networking solutions may choose Ciscos products because of its longer operating history, broader product line and strong reputation in the networking market. In addition, Cisco may have developed, or could in the future develop, new technologies that directly compete with our products or render our products obsolete. Although we are currently among the top providers of network infrastructure solutions, we cannot assure you that we
will be able to compete successfully against Cisco, currently the leading provider in the networking market.

We also compete with other companies, such as Extreme Networks, Juniper Networks, Nortel Networks, Enterasys Networks, 3Com, Huawei, and Alcatel. Some of our current and potential competitors have greater market leverage, longer operating histories, greater financial, technical, sales, marketing and other resources, more name recognition and larger installed customer bases. Additionally, we may face competition from unknown companies and emerging technologies that may offer new LAN, MAN and LAN/WAN solutions. Furthermore, a number of these competitors may merge or form strategic relationships that would enable them to apply greater resources and sales coverage than we can, and to offer, or bring to market earlier, products that are superior to ours in terms of features, quality, pricing or other factors.

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, enhance our current products and maintain customer satisfaction. In addition, we must make certain our sales and marketing capabilities allow us to effectively compete against our competitors. If we fail to do so, our products may not compete favorably with those of our competitors and our revenues and profitability could suffer.

We must continue to introduce new products with superior performance and features in a timely manner in order to sustain and increase our revenue.

The networking industry is characterized by rapid technological change, frequent new product introductions, changes in customer requirements, and evolving industry standards. Therefore, in order to remain competitive, we must 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.  Even if these objectives are accomplished, new products may not be successful in the marketplace, or may take more time than anticipated to start generating meaningful revenue. The process of developing new technology is complex and uncertain, and if we fail to develop or obtain important intellectual property and accurately predict customers changing needs and emerging technological trends, our business could be harmed. We must commit significant resources to develop new products before knowing whether our
investments will eventually result in

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products the market will accept. After a product is developed, we must be able to forecast sales volumes and quickly manufacture a sufficient volume of products and mix of configurations that meet customer requirements, all at low costs.

The current life cycle of our products is typically 18 to 24 months. The introduction of new products or product enhancements may shorten the life cycle of our existing products or replace sales of some of our current products, thereby offsetting the benefit of even a successful product introduction, and may cause customers to defer purchasing our existing products in anticipation of the new 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. In addition, 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 revenues 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.

Our ability to increase our revenues depends on expanding our direct sales operations and reseller distribution channels and continuing to provide excellent customer support.

If we are unable to effectively develop and retain our sales and support staff, or establish and cultivate relationships with our indirect distribution channels, our ability to grow and increase revenue could be harmed. Additionally, if our resellers are not successful in their sales efforts, sales of our products may decrease and our operating results could suffer. Some of our resellers also sell products that compete with our products. As a result, we cannot assure you that our resellers will market our products effectively or continue to devote the resources necessary to provide us with adequate sales, marketing and technical support.

In an effort to gain market share and support our customers, we may need to expand our direct sales operations and customer service staff to support new and existing customers. The timing and extent of any such expansion are uncertain in light of the current economic environment. Expansion of our direct sales operations and reseller distribution channels may not be successfully implemented and the cost of any expansion may exceed the revenues generated.

Our gross margins may decline over time and the average selling prices of our products may decrease as a result of competitive pressures and other factors.

Our industry has experienced erosion of average product selling prices due to a number of factors, particularly competitive and macroeconomic pressures and rapid technological change. The average selling prices of our products have decreased in the past and may continue to decrease in response to competitive pressures, increased sales discounts, new product introductions by our competitors or other factors. Both we and our competitors occasionally lower sales prices in order to gain market share or create more demand. Furthermore, as a result of the recent disruption in the technology sector, coupled with more broad macro-economic factors, both we and our competitors may pursue more aggressive pricing strategies in an effort to maintain sales levels. Such intense pricing competition could cause our gross margins to decline and may adversely affect our business, operating results or financial condition.

Our gross margins may be adversely affected if we are unable to reduce manufacturing costs and effectively manage our inventory levels. Although management continues to closely monitor inventory levels, declines in demand for our products could result in additional provisions for excess inventory. Additionally, our gross margins may be negatively 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. For example, we generally realize higher gross margins on direct sales to an end user than on sales through resellers or to our OEMs. As a result, any significant shift in revenues through resellers or to our OEMs could harm our gross margins. If product or related warranty costs associated with our products are greater than we have experienced, our gross margins may also be
adversely affected.

We need additional qualified personnel to maintain and expand our business. If we are unable to promptly attract and retain qualified personnel, our business may be harmed.

We believe our future success will depend in large part on our ability to identify, attract and retain highly-skilled managerial, engineering, sales and marketing, finance and manufacturing personnel. Despite the economic downturn, competition for these personnel can be intense, especially in the San Francisco Bay Area, and we may experience some difficulty hiring employees in the timeframe we desire, particularly engineer and sales personnel. Volatility or lack of positive performance in our stock price may also adversely affect our ability to retain key employees, all of whom have been granted stock options. In order to improve productivity, we have historically used stock options to motivate and retain our employees. Some of the proposals currently under consideration by the accounting standard setting body regarding the accounting treatment of stock options could limit our ability to continue to use
stock options as an incentive and retention tool. We may not succeed in identifying, attracting and retaining personnel. The loss of the services of any of

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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.

Our success also depends to a significant degree on 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. We do not have employment contracts or key person life insurance for any of our personnel.

Our presence in international markets involves inherent risks that we may not be able to control. As a result, our business may be harmed if we are unable to successfully address these risks.

Our success will depend, in part, on increasing international sales and expanding our international operations. Our international sales primarily depend on our resellers, including Pervasive Networks and Spot Distribution Ltd. in Europe, Mitsui in Japan, Shanghai Gentek and GTI in China, and Samsung in Korea. The failure of our international resellers to sell our products would limit our ability to sustain and grow our revenue. In particular, our revenue from Japan depends primarily 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;                    
| | - | ----------------------------------------------------------------------------------
| |   |                                                                                   
| |  | longer   accounts receivable collection cycles;                                   
| |   |                                                                                   
| |  | seasonal   reductions in business activity;                                       
| |   |                                                                                   
| |  | higher costs   of doing business in foreign countries;                            
| |   |                                                                                   
| |  | difficulties   in managing operations across disparate geographic areas;          
| |   |                                                                                   
| |  | difficulties   associated with enforcing agreements through foreign legal systems;
| |   |                                                                                   
| |  | political   instability and export restrictions;                                  
| |   |                                                                                   
| |  | potential   adverse tax consequences;                                             
| |   |                                                                                   
| |  | unexpected   changes in regulatory requirements;                                  
| |   |                                                                                   
| |  | military   conflict and terrorist activities; and                                 
| |   |                                                                                   
| |  | widespread   medical epidemics, such as SARS.                                     

One or more of such factors may have a material adverse effect on our future international operations and, consequently, on our business, operating results and financial condition.

Generally, our international sales 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.

We purchase several key components for our products from sole sources; if these components are not available, our revenues may be harmed.

We purchase several key components used in our products from sole sources, and depend on supply from these sources to meet our needs. The inability of any supplier to provide us with an adequate supply of key components, or the loss of any of our suppliers, may cause a delay in our ability to fulfill orders and may have a material adverse effect on our business and financial condition. Lead-times for various components have lengthened recently as a result of limits on IT spending and the economic uncertainty, which has made certain components scarce. As component demand increases and lead-times become longer, our suppliers may increase component costs. If component costs increase, our gross margins may also decline.

Our principal limited-sourced components include dynamic and static random access memories, commonly known as DRAMs and SRAMs, ASICs, printed circuit boards, optical components, microprocessors and power supplies. We acquire these components through purchase orders and have no long-term commitments regarding supply or price from these suppliers. From time-to-time, we have experienced shortages in allocations of components, resulting in delays in filling orders. We may encounter shortages and delays in obtaining components in the future which could impede our ability to meet customer orders.

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We depend on anticipated product orders to determine our material requirements. Lead-times for 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. Inventory management remains an area of focus as we balance the need to maintain strategic inventory levels to ensure competitive lead-times with the risk of inventory obsolescence due to rapidly changing technology and customer requirements. If orders do not match forecasts, or if we do not manage inventory effectively, we may have either excess or insufficient inventory of materials and components, which could negatively affect our operating results and financial condition.

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

We subcontract substantially all of our manufacturing to companies that assemble and test our products. Our agreements with some of these companies allow them to procure long lead-time component inventory on our behalf based on a rolling production forecast provided by us. We may be contractually obligated to purchase long lead-time component inventory procured by our contract manufacturers in accordance with our forecast, unless we give notice of order cancellation at least 90 days prior to the delivery date. If actual demand for our products is below our projections, we may have excess inventory as a result of our purchase commitments with our contract manufacturers. We do not have long-term contracts with 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 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, the loss of any of our contract manufacturers, or the inability to obtain raw materials, could cause a delay in our ability to
fulfill orders.

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 fail to meet our revenue expectations.

Some of our products have a relatively high sales price, and often represent a significant and strategic decision by a customer. The decision by customers to purchase our products is often based on their internal budgets and procedures involving rigorous evaluation, testing, implementation and acceptance of new technologies. As a result, 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.

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 on our internally developed technology and know-how. Our proprietary technology includes our ASICs, our IronCore, JetCore, and Terathon hardware architecture, our IronWare software, our IronView network management software, and certain mechanical designs. We rely on a combination of patent, copyright, trademark and trade secret laws and contractual restrictions on disclosure to protect our intellectual property rights in these proprietary technologies. Although we have patent applications pending, there can be no assurance that patents will be issued from pending applications, or that claims allowed on any future patents will be sufficiently broad to protect our technology.

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 some foreign countries in which the laws may not protect our proprietary rights as fully as in the United States.

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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.

The networking industry is increasingly characterized by the existence of a large number of patent claims and related litigation regarding patent and other intellectual property rights. In particular, some companies in the networking industry claim extensive patent portfolios. As a result of the existence of a large number of patents and rapid rate of issuance of new patents in the networking industry, it is not economically practical for a company of our size to determine in advance whether a product or any of its components may infringe intellectual property rights claimed by others. From time-to-time third parties have asserted exclusive patent, copyright and trademark rights to technologies and related standards that are important to us. Such third parties may assert claims or initiate litigation against us or our manufacturers, suppliers or customers alleging infringement of their intellectual
property rights with respect to our existing or future products.

In March 2001, Nortel filed a lawsuit against us in the United States District Court for the District of Massachusetts, alleging that certain of our products infringe several of Nortels patents and seeking injunctive relief and unspecified damages. Nortel has also brought suit, on the same or similar patents, against a number of other networking companies. We have analyzed the validity of Nortels claims and believe that Nortels suit is without merit. We are committed to vigorously defending ourself against these claims.

On October 9, 2002, we filed a lawsuit against Nortel in the United States District Court, Northern District of California, alleging that certain of Nortels products infringe one of our patents, and alleging breach of contract by Nortel. We are seeking injunctive relief and damages. On November 18, 2002, Nortel filed an Answer and Counter Claims asserting infringement of five additional patents against us.  On December 6, 2002, we filed an Answer to Nortels counter claims denying infringement and asserting invalidity as to Nortels five asserted patents.  On April 11, 2003, the District Court set a trial date for November 29, 2004.  On November 18, 2003, after a Markman Hearing, the District Court issued an order on ten disputed terms as to the asserted patents construing each disputed term in our favor.  Discovery is ongoing and scheduled to close on June 11,
2004.  On April 2, 2004, we filed summary judgment motions on two of Nortels asserted patents.  The parties are awaiting a hearing date on the motions.  We analyzed the validity of Nortels counter claims and believe they are without merit.

In May 2003, Lucent filed a lawsuit against us in the United States District Court for the District of Delaware, alleging that certain of our products infringe several of Lucents patents, and seeking injunctive relief and unspecified damages. Lucent also brought suit on the same patents (and one other patent) against one of our competitors. On August 12, 2003, we filed a motion to sever the cases, and on February 6, 2004, the District Court granted the motion. The parties are in the process of rescheduling the court dates in view of the District Courts order to sever the cases. We have analyzed the validity of Lucents claims and believe Lucents suit is without merit. We are committed to vigorously defending ourself against Lucents claims. Regardless of the merits of our position, we may incur substantial expenses in defending against third party claims. In the event of a
determination adverse to us, we could incur substantial monetary liability, and be required to change our business practices. Either of these could have a material adverse effect on our financial position, results of operations, or cash flows.

In difficult economic times, some companies have attempted to realize revenues from their patent portfolios by using licensing programs. Some of these companies have contacted us regarding a license. We carefully review all license requests, but are unwilling to license technology not required for our product portfolio. However, any asserted license demand can require considerable effort to review and respond. Moreover, a refusal by us to a license request could result in threats of litigation or actual litigation, which, if initiated, could harm our business.

We face litigation risks.

We are a party to lawsuits in the normal course of our business. Litigation in general, and intellectual property and securities litigation in particular, can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. We believe that we have defenses in the lawsuits pending against us as indicated in Part II, Item 1 Legal Proceedings, and we are vigorously contesting these allegations. Responding to the allegations has been, and probably will continue to be, expensive and time-consuming for us. An unfavorable resolution of the lawsuits could adversely affect our business, results of operations, or financial condition.

The timing of the adoption of industry standards may negatively affect 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 or delay of an industry standard related to a specific technology may prevent market acceptance of products using the technology. We intend to develop products using new technological advancements, such as MPLS Draft-Martini, 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

24



purchased components for these products and the diversion of our engineers from future product development efforts. Further, if the adoption of industry standards moves too quickly, we may develop products that do not comply with a later-adopted 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 on widespread market acceptance of their underlying technologies. At least one networking equipment standards body has reportedly stopped all work on a standard in response to assertions by Nortel that it controls the patent rights to certain industry standards. Attempts by third parties to impose licensing fees on industry standards could undermine the adoption of such standards and lessen industry
opportunities.

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.                  

If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage and grow our business may be harmed.

Our ability to successfully implement our business plan and comply with regulations requires an effective planning and management process. We expect that we will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our business effectively in the future. 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.

Our products may not meet the standards required for their sale, which may harm our business.

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 those of certain international bodies. Although we believe our products are currently in compliance with domestic and international standards and regulations in countries in which we currently sell, there can be no assurance that our existing and future product offerings will continue to comply with evolving standards and regulations. If we fail to obtain timely domestic or foreign regulatory approvals or certification, we may not be able to sell our products where these standards or regulations apply, which may prevent us from sustaining our revenues or maintaining profitability.

We may engage in 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.

Although we focus on internal product development and growth, we may learn of acquisition prospects that would complement our existing business or enhance our technological capabilities. Any acquisition by us could result in large and immediate write-offs, the incurrence of debt and contingent liabilities, or amortization expenses related to amortizable 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;
| | - | -------------------------------------------------------------------------------------------------------------------

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| |  | diversion of   managements attention from other business concerns;                                       
| | - | ----------------------------------------------------------------------------------------------------------
| |   |                                                                                                           
| |  | 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, and our failure to do so could harm our business.

Our stock price has been volatile historically, which may make it more difficult to sell shares when needed at attractive prices.

The trading price of our common stock has been, and may continue to be, subject to wide fluctuations. Our stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial estimates and recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable, and news reports relating to trends in our markets. In addition, the stock market in general, and technology companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Additionally, volatility or lack of positive
performance in our stock price may adversely affect our ability to retain key employees, all of whom have been granted stock options.

If we are required to record compensation expense in connection with stock option grants, our profitability may be reduced significantly.

The Financial Accounting Standards Board (FASB) has recently proposed an accounting standard that will require the fair value of all equity-based awards granted to employees be recognized in the income statement as compensation expense. The various methods for determining the fair value of stock options are based on, among other things, the volatility of the underlying stock. As noted above, our stock price has historically been volatile. Therefore, the adoption of an accounting standard requiring companies to expense stock options could negatively affect our profitability and may adversely affect our stock price. Such adoption could also limit our ability to continue to use stock options as an incentive and retention tool, which could, in turn, hurt our ability to recruit employees and retain existing employees. FASB is expected to issue final rules on stock option expensing in late 2004. We
will continue to monitor FASBs progress on the issuance of this standard.

Management owns approximately 10.0% of our stock; their interests could conflict with other shareholders; significant sales of stock held by them and other employees could have a negative effect on our stock price.

Our directors and executive officers own approximately 10.0% of our outstanding common stock as of March 31, 2004. As a result of their ownership and positions, our directors and executive officers collectively are able to significantly influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Our employees who own Foundry common stock are also collectively able to significantly influence such matters. Such concentration of ownership may have the effect of delaying or preventing a change in control of Foundry. In addition, sales of significant amounts of shares held by our employees, directors and executive officers, or the prospect of these sales, could adversely affect the market price of our common stock.

Anti-takeover provisions could make it more difficult for a third party to acquire us.

Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of common stock may be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of Foundry without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. We have no present plans to issue shares of preferred stock. Further, certain provisions of our charter documents, including provisions eliminating the ability of stockholders to take action by written consent and limiting
the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or management of Foundry, which could have an adverse effect on the market price of our stock. In addition, our charter

26



documents do not permit cumulative voting, which may make it more difficult for a third party to gain control of our board of directors.

Our operations could be significantly hindered by the occurrence of a natural disaster, terrorist acts or other catastrophic event.

Our operations are susceptible to outages due to fire, floods, power loss, power shortages, telecommunications failures, break-ins and similar events. In addition, certain of our local and foreign offices and contract manufacturers are located in areas susceptible to earthquakes and acts of terrorism, which could cause a material disruption in our operations. The prospect of such unscheduled interruptions may continue for the foreseeable future and we are unable to predict either their occurrence, duration or cessation. We do not have multiple site capacity for all of our services in the event of any such occurrence. Despite our implementation of network security measures, our servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems. We may not carry sufficient insurance to compensate us for losses that may occur as a result of
any of these events. Any such event could have a material adverse effect on our business, operating results, and financial condition.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Our investments are made in accordance with an investment policy approved by our Board of Directors. The primary objective of our investment activities is to preserve capital while maximizing yields without significantly increasing risk. Our exposure to interest rate risk relates to our investment portfolio. We do not use interest rate swaps in our investment portfolio. We place our investments with high-credit quality issuers and, by policy, limit the amount of credit exposure with any one issuer or fund. For liquidity purposes, our investment policy requires that we maintain a minimum of $75 million in money market accounts of suitable credit quality. We have performed a hypothetical sensitivity analysis assuming an immediate parallel shift in the yield curve of minus 50 basis points, while all other variables remain constant. A hypothetical 50 basis point decline in interest rates would reduce our
annualized interest income by approximately $2.6 million at March 31, 2004.

Our investment portfolio is classified as held-to-maturity and is recorded at amortized cost, and includes only securities with original maturities of less than two years and with secondary or resale markets to ensure portfolio liquidity. Since we hold our investments to maturity, we are exposed to risk in the event an issuer is not able to meet its obligations at maturity. To mitigate this risk, our investment policy does not allow us to invest more than $15 million with any one issuer. We do not have any investments denominated in foreign country currencies, and therefore are not subject to foreign currency risk on such investments.

Currently, the majority of our sales and expenses are denominated in U.S. dollars and, as a result, we have not experienced significant foreign exchange gains and losses to date. We do not currently enter into forward exchange contracts to hedge exposures denominated in foreign currencies or any other derivative financial instruments for trading or speculative purposes. However, in the event our exposure to foreign currency risk increases, we may choose to hedge those exposures. For most currencies, we are a net payer of foreign currencies and, therefore, benefit from a stronger U.S. dollar and are adversely affected by a weaker U.S. dollar relative to those foreign currencies. We have performed a sensitivity analysis as of March 31, 2004 using a modeling technique that measures the change in fair values arising from a hypothetical 10% adverse movement in foreign currency exchange rates relative to the
U.S. dollar, with all other variables held constant. Foreign currency exchange rates used were based on market rates in effect at March 31, 2004. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would not result in a material loss in the fair values of foreign currency denominated assets and liabilities at March 31, 2004.

Item 4. Controls and Procedures

We evaluated the design and operation of our disclosure controls and procedures to determine whether they are effective in ensuring that the disclosure of required information is made in accordance with the Exchange Act and the rules and forms of the Securities and Exchange Commission. This evaluation was made under the supervision, and with the participation of, management, including our principal executive officer and principal financial officer, as of the end of the period covered by this Quarterly Report on Form 10-Q. Our principal executive officer and principal financial officer have concluded, based on their review, that our disclosure controls and procedures, including those of our consolidated subsidiaries, are effective to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. No significant changes were made to our internal controls during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.  However, on April 30, 2004,
we filed our definitive proxy statement one day late.  We believe this was due to an administrative oversight, namely the failure of both us and our printing company to recognize that the filing was required one day earlier than the end of the month due to the fact that 2004 was a leap year. 
We believe this is an isolated incident caused by unusual circumstances, and will take necessary actions to ensure it does not recur.

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PART II  OTHER INFORMATION

Item 1. Legal Proceedings.

In December 2000, several similar shareholder class action lawsuits were filed against us and certain of our officers in the United States District Court for the Northern District of California, following our announcement of our anticipated financial results for the fourth quarter ended December 31, 2000. The lawsuits were subsequently consolidated as a class action by the District Court, under the caption In re Foundry Networks, Inc. Securities Litigation, Master File No. C-00-4823-MMC, lead plaintiffs were selected and filed a consolidated amended complaint which alleged violations of federal securities laws and purported to seek damages on behalf of a class of shareholders who purchased our common stock during the period from September 7, 2000 to December 19, 2000. We then brought four successful motions to dismiss the complaint. Although the District Court granted each of the four dismissal
motions, it also provided plaintiffs leave to amend the complaint. On August 29, 2003, following the dismissal of the four amended complaints, the District Court granted our motion to dismiss the case with prejudice and without leave to amend and, on September 2, 2003, entered judgment in our favor, dismissing the plaintiffs fifth amended complaint. On September 29, 2003, plaintiffs filed a Notice of Appeal with the United States Court of Appeals for the Ninth Circuit (Court of Appeals). On January 15, 2004, the plaintiff/appellants filed their opening brief with the Court of Appeals. On April 2, 2004, we filed our responsive brief.  When the briefings are complete, the Court of Appeals will schedule the oral argument.  We believe the District Courts judgment validates our conviction that the lawsuit is without merit and we will defend the District Courts judgment vigorously.

A class action lawsuit was filed on November 27, 2001 in the United States District Court for the Southern District of New York on behalf of purchasers of our common stock alleging violations of federal securities laws. The case was designated as In re Foundry Networks, Inc. Initial Public Offering Securities Litigation, No. 01-CV-10640 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, No. 21 MC 92 (SAS) (S.D.N.Y.). The case is brought purportedly on behalf of all persons who purchased our common stock from September 27, 1999 through December 6, 2000. The operative amended complaint names as defendants us and three of our officers (the Foundry Defendants), including our Chief Executive Officer and Chief Financial Officer; and investment banking firms that served as underwriters for our initial public offering in September 1999. The amended
complaint alleged violations of Sections 11 and 15 of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934, on the grounds that the registration statement for the initial public offering ( IPO) failed to disclose that (i) the underwriters agreed to allow certain customers to purchase shares in the IPO in exchange for excess commissions to be paid to the underwriters, and (ii) the underwriters arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The amended complaint also appears to allege that false or misleading analyst reports were issued. Similar allegations were made in lawsuits challenging over 300 other initial public offerings conducted in 1999 and 2000. The cases were consolidated for pretrial purposes. On February 19, 2003, the Court ruled on all defendants motions to dismiss. In ruling on motions to dismiss, the Court must treat the allegations in the complaint as if they were true solely
for purposes of deciding the motions. The motion was denied as to claims under the Securities Act of 1933 in the case involving us. The same ruling was made in all but 10 of the other cases. The Court dismissed the claims under Section 10(b) of the Securities Exchange Act of 1934, against us and one of the individual defendants and dismissed all of the Section 20(a) control person claims. The Court denied the motion to dismiss the Section 10(b) claims against our remaining individual defendants on the basis that those defendants allegedly sold our stock following the IPO, allegations found sufficient purely for pleading purposes to allow those claims to move forward. A similar ruling was made with respect to 62 of the individual defendants in the other cases. We have accepted a settlement proposal presented to all issuer defendants. Under the terms of this settlement, plaintiffs will dismiss and release all claims against the Foundry Defendants in exchange for a contingent payment by the
insurance companies collectively responsible for insuring the issuers in all of the IPO cases and for the assignment or surrender of control of certain claims we may have against the underwriters. The settlement, which is still being finalized, will require approval of the Court, which cannot be assured, after class members are given the opportunity to object to the settlement or opt out of the settlement.

In March 2001, Nortel Networks Corp. (Nortel) filed a lawsuit against us in the United States District Court for the District of Massachusetts alleging that certain of our products infringe several of Nortels patents and seeking injunctive relief and unspecified damages. Nortel has also brought suit, on the same or similar patents, against a number of other networking companies. We have analyzed the validity of Nortels claims and believe that Nortels suit is without merit. We are committed to vigorously defending ourself against these claims.

On October 9, 2002, we filed a lawsuit against Nortel in the United States District Court, Northern District of California alleging that certain of Nortels products infringe one of our patents and alleging breach of contract by Nortel. We are seeking injunctive relief and damages.  On November 18, 2002, Nortel filed an Answer and Counter Claims

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asserting infringement of five additional patents against us.  On December 6, 2002, we filed an Answer to Nortels counter claims denying infringement and asserting invalidity as to Nortels five asserted patents.  On April 11, 2003, the District Court set a trial date for November 29, 2004.  On November 18, 2003, after a Markman Hearing, the District Court issued an order on ten disputed terms as to the asserted patents construing each disputed term in our favor.  Discovery is ongoing and scheduled to close on June 11, 2004.  On April 2, 2004, we filed summary judgment motions on two of Nortels asserted patents.  The parties are awaiting a hearing date on the motions.  We analyzed the validity of Nortels counter claims and believe they are without merit.

In May 2003, Lucent Technologies Inc. (Lucent) filed a lawsuit against us in the United States District Court for the District of Delaware alleging that certain of our products infringe several of Lucents patents, and seeking injunctive relief, as well as unspecified damages. Lucent also brought suit on the same patents (and one additional patent) against one of our competitors. On August 12, 2003, we filed a motion to sever the cases, and on February 6, 2004, the District Court granted the motion. The parties are in the process of rescheduling the court dates in view the District Courts order to sever the cases. We have analyzed the validity of Lucents claims and believe that Lucents suit is without merit. We are committed to vigorously defending ourself against Lucents claims.

On February 13, 2004, we filed a lawsuit against Lucent in the United States District Court, Eastern District of Texas, Marshall Division. The lawsuit alleges that certain of Lucents products infringe one of our patents. We are seeking injunctive relief and damages. On March 22, 2004, Lucent filed an Answer and Counter Claim seeking a declaration of invalidity as to our asserted patent.  On April 9, 2004, Lucent filed an Amended Answer and Counter Claim asserting infringement of U.S. patent #5649131.  We are in the process of evaluating Lucents counter claims.

From time to time, we are subject to other legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights, patents and other intellectual property rights. In addition, from time to time, third parties assert patent infringement claims against us in the form of letters, lawsuits and other forms of communication. Regardless of the merits of our position, litigation is always an expensive and uncertain proposition. In accordance with SFAS No. 5, Accounting for Contingencies (SFAS 5), we record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review the need for any such provision on a quarterly basis and record any necessary adjustments to reflect the effect of ongoing negotiations, settlements, rulings, advice of legal counsel, and
other information and events pertaining to a particular case in the period they become known. To date, we have not recorded any such provisions in accordance with SFAS 5. We believe we have valid defenses with respect to the legal matters pending against us. In the event of a determination adverse to us, we could incur substantial monetary liability, and be required to change our business practices. Any unfavorable determination could have a material adverse effect on our financial position, results of operations, or cash flows.

Item 2. Changes in Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

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

None

Item 5. Other Information.

None

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

(a) Exhibits

|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.1    |  | Amended and Restated   Certificate of Incorporation of Foundry Networks, Inc. (Amended and Restated   Certificate of Incorporation filed as Exhibit 3.2 to Registrants   Registration Statement on Form S-1 (Commission File No. 333-82577) and   incorporated herein by reference; Certificate of Amendment to the foregoing   filed as Exhibit 3.1 to Registrants Quarterly Report on Form 10-Q for the   quarter ended June 30, 2000 and incorporated herein by reference.)                                                                                                                                                                             
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.2    |  | Amended and Restated   Bylaws of Foundry Networks, Inc. (Filed as Exhibit 3.2 to Registrants   Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 and   incorporated herein by reference.)                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.1   |  | 1996 Stock Plan. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.2   |  | 1999 Employee Stock   Purchase Plan. (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.3   |  | 1999 Directors Stock   Option Plan. (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.5   |  | OEM Purchase Agreement   dated January 6, 1999 between Foundry Networks, Inc. and Hewlett-Packard   Company, Workgroup Networks Division. (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.6   |  | Reseller Agreement dated   July 1, 1997 between Foundry Networks, Inc. and Mitsui & Co., Ltd. (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.7   |  | 2000 Non-Executive Stock   Option Plan. (5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|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.   (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|31.1   |  | Rule 13a-14(a)   Certification (CEO)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|31.2   |  | Rule 13a-14(a)   Certification (CFO)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|32.1   |  | Section 1350 Certification   (CEO)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|32.2   |  | Section 1350 Certification   (CFO)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|(1)    |  | Copy of original 1996   Stock Plan incorporated herein by reference to the exhibit filed with the   Companys Registration Statement on Form S-1 (Commission File No. 333-82577).   Copy of 1996 Stock Plan reflecting the amendments approved at the 2000 Annual   Meeting of Stockholders incorporated by reference to the Companys Definitive   Proxy Statement for such meeting (Commission File No. 000-26689). Copy of   1996 Stock Plan reflecting the amendments for approval at the 2002 Annual   Meeting of Stockholders incorporated by reference to the Companys Definitive   Proxy Statement for such meeting (Commission File No. 000-26689).
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2)    |  | Incorporated herein by   reference to the exhibit filed with the Companys Registration Statement on   Form S-1 (Commission File No. 333-82577).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(3)    |  | Incorporated herein by   reference to the exhibit filed with the Companys Registration Statement on   Form S-1 (Commission File No. 333-82577). Copy of Directors Plan reflecting   the amendment for approval at the 2002 Annual Meeting of Stockholders   incorporated by reference to the Companys Definitive Proxy Statement for   such meeting (Commission File No. 000-26689).                                                                                                                                                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(4)    |  | Incorporated herein by   reference to the exhibit filed with the Companys Registration Statement on Form   S-1 (Commission File No. 333-82577); Confidential treatment has been granted   by the Securities and Exchange Commission with respect to this exhibit.                                                                                                                                                                                                                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(5)    |  | Incorporated herein by   reference to the exhibit filed with the Companys Registration Statement on   Form S-8 filed on October 25, 2000 (Commission File No. 333-48560).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(6)    |  | Incorporated herein by   reference to the exhibit filed with the Companys Form 10-Q for the quarter   ended September 30, 1999 (Commission File No. 000-26689).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

30



(b) Reports on Form 8-K.

The Registrant furnished a Current Report on Form 8-K dated January 28, 2004 to report the announcement of our financial results for the quarter ended December 31, 2003 pursuant to Item 12 of Form 8-K.

31



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: May 10, 2004

32