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UNITED STATESSECURITIES AND
  EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

|(Mark One)
|----------
||X|       
|          
|          
|          
|          
|          
||_|       

For the transition
  period from _______________ to _______________

Commission
  file number 000-26689

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

|Delaware                              | 77-0431154               
|------------------------------------- | -------------------------
|(State
      or other jurisdiction of | (I.R.S.
      Employer   
|incorporation
      or organization)  | 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**
  |_|

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

**Yes
  |X|   No**
  |_|

As of August 11, 2003, there
  were 126,773,107 shares of the registrants common stock outstanding, par value
  $0.0001.

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FOUNDRY
  NETWORKS, INC.TABLE OF CONTENTS

Page

|PART
      I   | FINANCIAL
      INFORMATION                                                                
|-------------- | -------------------------------------------------------------------------------------------
|               |                                                                                            
|Item
      1.  | Financial
      Statements (Unaudited):                                                    
|               |                                                                                            
|               | Condensed
      Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002      
|               |                                                                                            
|               | Condensed
      Consolidated Statements of Income for the Three and Six Months Ended       
|               | June
      30, 2003 and 2002                                                               
|               |                                                                                            
|               | Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended             
|               | June
      30, 2003 and 2002                                                               
|               |                                                                                            
|               | Notes
      to Condensed Consolidated Financial Statements                                 
|               |                                                                                            
|Item
      2.  | Managements
      Discussion and Analysis of Financial Condition and Results of Operations
|               |                                                                                            
|               | Risk
      Factors That May Affect Future Results and Market Price of Stock                
|               |                                                                                            
|Item
      3.  | Quantitative
      and Qualitative Disclosures About Market Risk                           
|               |                                                                                            
|Item
      4.  | Controls
      and Procedures                                                              
|               |                                                                                            
|PART
      II  | OTHER
      INFORMATION                                                                    
|               |                                                                                            
|Item
      1.  | Legal
      Proceedings                                                                    
|               |                                                                                            
|Item
      2.  | Changes
      in Securities and Use of Proceeds                                            
|               |                                                                                            
|Item
      3.  | Defaults
      Upon Senior Securities                                                      
|               |                                                                                            
|Item
      4.  | Submission
      of Matters to a Vote of Security Holders                                  
|               |                                                                                            
|Item
      5.  | Other
      Information                                                                    
|               |                                                                                            
|Item
      6.  | Exhibits
      and Reports on Form 8-K                                                     
|               |                                                                                            
|SIGNATURES    
|               |                                                                                            
|CERTIFICATIONS
|              

2

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

|                                                                                                    | June
      30,
      2003 |   | December
      31,
      2002
|--------------------------------------------------------------------------------------------------- | ------------------------- | - | -----------------------------
|                                                                                                    |                          
|ASSETS                                                                                              | (unaudited)               |   | (1)                          
|Current assets:                                                                                     |                           |   |                              
|Cash and
      cash equivalents                                                                     |                           | $ | 225,574                      
|Short-term
      investments                                                                        | 185,707                   |   |                              
|Accounts
      receivable, net of allowances for doubtful accounts of $4,780 and $5,833
      and   |                           |   |                              
|sales
      returns of $1,824 and $1,584
      at June 30, 2003 and December 31, 2002, respectively |                           |   | 55,148                       
|Inventories                                                                                         |                           |   | 25,116                       
|Deferred
      tax assets                                                                           |                           |   | 28,569                       
|Prepaid expenses
      and other current assets                                                     |                           |   | 3,934                        
|                                                                                                    |                          
|Total
      current assets                                                                          | 524,048                   |   |                              
|                                                                                                    |                          
|                                                                                                    |                           |   |                              
|Property
      and equipment                                                                        |                           |   | 20,903                       
|Less:
      Accumulated depreciation                                                                | (14,313                   | ) |                              
|                                                                                                    |                          
|Net
      property and equipment                                                                    |                           |   | 6,590                        
|                                                                                                    |                          
|Other long-term
      assets                                                                        |                           |   | 1,206                        
|                                                                                                    |                          
|Total
      assets                                                                                  |                           | $ | 531,844                      
|                                                                                                    |                          
|                                                                                                    |                           |   |                              
|LIABILITIES
      AND STOCKHOLDERS EQUITY                                                          |                           |   |                              
|Current liabilities:                                                                                |                           |   |                              
|Accounts
      payable                                                                              |                           | $ | 14,526                       
|Accrued payroll
      and related expenses                                                          |                           |   | 14,074                       
|Warranty
      accrual                                                                              |                           |   | 2,040                        
|Other accrued
      expenses                                                                        |                           |   | 4,283                        
|Income taxes
      payable                                                                          |                           |   | 9,510                        
|Deferred
      support revenue                                                                      |                           |   | 29,784                       
|                                                                                                    |                          
|Total
      current liabilities                                                                     |                           |   | 74,217                       
|                                                                                                    |                          
|Commitments
      and contingencies (Note 3)                                                        |                           |   |                              
|Stockholders
      equity:                                                                         |                           |   |                              
|Preferred
      stock, $0.0001 par value:                                                           |                           |   |                              
|Authorized5,000
      shares at June 30, 2003 and December 31, 2002; None issued                   |                           |   |                              
|and
      outstanding as of June 30, 2003
      and December 31, 2002                               |                           |   |                             
|Common stock,
      $0.0001 par value:                                                              |                           |   |                              
|Authorized300,000
      shares at June 30, 2003 and December 31, 2002:                             |                           |   |                              
|Issued
      and outstanding 124,890 and 121,329 shares at June 30, 2003 and                       |                           |   |                              
|December
      31, 2002, respectively                                                               | 13                        |   |                              
|Additional
      paid-in capital                                                                    | 311,801                   |   |                              
|Note receivable
      from stockholder                                                              |                           |   | (480                         
|Deferred
      stock compensation                                                                   |                           |   | (37                          
|Accumulated
      other comprehensive income                                                        |                           |   | 52                           
|Retained
      earnings                                                                             | 146,278                   |   |                              
|                                                                                                    |                          
|Total
      stockholders equity                                                                    | 457,627                   |   |                              
|                                                                                                    |                          
|Total
      liabilities and stockholders equity                                                    |                           | $ | 531,844                      
|                                                                                                    |                          

|   
|---
|(1)

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

3

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

|                                                                             | Three
      Months EndedJune 30, |         | Six
      Months EndedJune 30, |  
|---------------------------------------------------------------------------- | -------------------------------- | ------- | ------------------------------ | -
|                                                                             |                                  |         |                                |  
|                                                                             | 2003                             |         | 2002                           |  
|                                                                             |                                  |         |                                |  
|Net revenues:                                                                |                                  |         |                                |  
|Product                                                                      | $                                | 83,444  |                                | $
|Service                                                                      |                                  | 12,268  |                                |  
|                                                                             |                                  |         |                                |  
|Total
      net revenues                                                     |                                  | 95,712  |                                |  
|Cost of revenues:                                                            |                                  |         |                                |  
|Product                                                                      |                                  | 32,428  |                                |  
|Service                                                                      |                                  | 2,196   |                                |  
|                                                                             |                                  |         |                                |  
|Total
      cost of revenues                                                 |                                  | 34,624  |                                |  
|                                                                             |                                  |         |                                |  
|Gross
      profit                                                           |                                  | 61,088  |                                |  
|                                                                             |                                  |         |                                |  
|Operating
      expenses:                                                    |                                  |         |                                |  
|Research
      and development                                               |                                  | 10,045  |                                |  
|Sales
      and marketing                                                    |                                  | 23,415  |                                |  
|General
      and administrative                                             |                                  | 2,948   |                                |  
|Amortization
      of deferred stock compensation                            |                                  | 72      |                                |  
|                                                                             |                                  |         |                                |  
|Total
      operating expenses                                               |                                  | 36,480  |                                |  
|                                                                             |                                  |         |                                |  
|Income from
      operations                                                 |                                  | 24,608  |                                |  
|Interest
      and other income                                              |                                  | 1,229   |                                |  
|                                                                             |                                  |         |                                |  
|Income before
      provision for income taxes                               |                                  | 25,837  |                                |  
|Provision
      for income taxes                                             |                                  | 9,043   |                                |  
|                                                                             |                                  |         |                                |  
|Net
      income                                                             | $                                | 16,794  |                                | $
|                                                                             |                                  |         |                                |  
|Basic net
      income per share                                             | $                                | 0.14    |                                | $
|                                                                             |                                  |         |                                |  
|Weighted
      average shares used in computing basic net income per share   |                                  | 123,353 |                                |  
|                                                                             |                                  |         |                                |  
|Diluted net
      income per share                                           | $                                | 0.13    |                                | $
|                                                                             |                                  |         |                                |  
|Weighted
      average shares used in computing diluted net income per share |                                  | 132,609 |                                |  
|                                                                             |                                  |         |                                |  

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

4

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

|                                                                                        | Six
      Months Ended
      June 30,
|--------------------------------------------------------------------------------------- | -------------------------------------
|                                                                                        |                                      
|                                                                                        | 2003                                 
|                                                                                        |                                      
|CASH
      FLOWS FROM OPERATING ACTIVITIES:                                             |                                      
|Net
      income                                                                        | $                                    
|Adjustments
      to reconcile net income to net cash provided by operating activities: |                                      
|Depreciation                                                                            |                                      
|Amortization
      of deferred stock compensation                                       |                                      
|Reduction
      of provision for doubtful accounts                                      |                                      
|Inventory
      provision                                                               |                                      
|Tax
      benefit from stock option exercises                                           |                                      
|Change
      in operating assets and liabilities:                                       |                                      
|Accounts
      receivable                                                               |                                      
|Inventories                                                                             |                                      
|Prepaid
      expenses and other assets                                                 |                                      
|Accounts
      payable                                                                  |                                      
|Accrued
      payroll and related benefits                                              |                                      
|Income
      taxes payable                                                              |                                      
|Other
      accrued liabilities                                                         |                                      
|Deferred
      revenue                                                                  |                                      
|                                                                                        |                                      
|Net
      cash provided by operating activities                                         |                                      
|                                                                                        |                                      
|CASH FLOWS
      FROM INVESTING ACTIVITIES:                                             |                                      
|Purchases
      of property and equipment                                               |                                      
|Maturities
      of short-term investments                                              |                                      
|Purchases
      of short-term investments                                               |                                      
|                                                                                        |                                      
|Net
      cash used in investing activities                                             |                                      
|                                                                                        |                                      
|CASH FLOWS
      FROM FINANCING ACTIVITY                                                |                                      
|Proceeds
      from issuance of common stock under employee stock plans                 |                                      
|                                                                                        |                                      
|Net
      cash provided by financing activity                                           |                                      
|                                                                                        |                                      
|                                                                                        |                                      
|INCREASE
      IN CASH AND CASH EQUIVALENTS                                             |                                      
|Effect
      of exchange rate changes on cash                                           |                                      
|CASH AND
      CASH EQUIVALENTS, BEGINNING OF PERIOD                                    |                                      
|                                                                                        |                                      
|CASH AND
      CASH EQUIVALENTS, END OF PERIOD                                          | $                                    
|                                                                                        |                                      

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

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FOUNDRY
  NETWORKS, INC. NOTES TO CONDENSED CONSOLIDATED
  FINANCIAL STATEMENTS

(Information
  for the three and six months ended June 30, 2003 and 2002 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 the Company). Certain information and footnote
  disclosures normally included in financial statements prepared in accordance
  with generally accepted accounting principles 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, as amended on June 5, 2003.

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 and six months ended June 30, 2003 are
  not necessarily indicative of the results that may be expected for future quarters
  or for the year ending December 31, 2003.

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 significant 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 stockholders
  equity.

Reclassifications

Certain
  items previously reported in specific financial captions have been reclassified
  to conform with the June 30, 2003 presentation.

Use
  of Estimates in Preparation of Financial Statements

The
  preparation of financial statements in conformity with generally accepted accounting
  principles 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, but not limited to, allowances for doubtful accounts and
  sales returns, inventory provisions, product warranty, income taxes and contingencies.
  Estimates and assumptions are reviewed periodically and the effects of revisions
  are reflected in the condensed consolidated financial statements in the period
  they are determined.

6

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Cash
  Equivalents and Short-Term Investments

Foundry
  considers all highly liquid 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.

Investments
  in highly liquid financial instruments with original maturities greater than
  three months but less than one year are classified as short-term investments.
  All of Foundrys short-term investments are stated at amortized cost and
  classified as held-to-maturity.

Cash
  equivalents and short-term investments all mature within one year and consist
  of the following (in thousands):

|                                            | June
      30, 2003 
|------------------------------------------- | --------------------
|                                            |                     
|                                            | Amortized
      Cost
|                                            |                     
|Money market
      funds                    |                     
|Corporate
      debt securities             |                     
|Commercial
      paper                      |                     
|Government
      securities                 | 151,787             
|                                            |                     
|                                            |                     
|                                            |                     
|                                            |                     
|Included
      in cash and cash equivalents |                     
|Included
      in short-term investments    | 185,707             
|                                            |                     
|                                            |                     
|                                            |                     
|                                            |                     
|                                            |                     
|                                            | **December 31,**2002
|                                            |                     
|                                            | Amortized
      Cost
|                                            |                     
|Money
      market funds                    |                     
|Corporate
      debt securities             | 5,000               
|Commercial
      paper                      | 91,869              
|Government
      securities                 | 149,415             
|                                            |                     
|                                            | 246,677             
|                                            |                     
|                                            |                     
|Included
      in cash and cash equivalents |                     
|Included
      in short-term investments    | 138,734             
|                                            |                     
|                                            |                     
|                                            |                     

Inventories

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

|                      | **June 30,** |   | **December
      31,**
|--------------------- | ------------ | - | ----------------------
|                      |             
|                      | **2003**     |   | **2002**              
|                      |             
|Purchased
      parts |              | $ | 8,067                 
|Work-in-process       | 13,204       |   |                       
|Finished
      goods  |              |   | 3,845                 
|                      |             
|                      |              | $ | 25,116                
|                      |             

7

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The
  networking industry is characterized by rapid technological change, frequent
  new product introductions, changes in customer requirements, and evolving industry
  standards. Inventory purchases and commitments are made in order to build inventory
  to meet future shipment schedules based on forecasted demand for Foundrys
  products. The Company performs a detailed assessment of inventory each period,
  which includes a review of, among other factors, demand requirements, product
  life cycle and development plans, component cost trends, product pricing and
  quality issues. Based on this analysis, Foundry records adjustments to inventory
  for excess, obsolescence or impairment, when appropriate, to reduce inventory
  to net realizable value. Provisions for inventory in the amounts of $4.4 million
  and $1.4 million were recorded for the three months ended June 30, 2003 and
  2002, respectively, and $5.7 million and $3.9 million for the six months ended
  June 30, 2003 and 2002, respectively.

Concentrations

Financial
  instruments that potentially subject Foundry to a concentration of credit risk
  principally consist of cash equivalents, short-term investments and accounts
  receivable. Foundry seeks to reduce credit risk on financial instruments by
  investing in high quality debt issuers and, by policy, limits the amount of
  credit exposure to any one issuer or fund. Exposure to customer credit risk
  is controlled through credit approvals, credit limits, continuous monitoring
  procedures and establishment of an allowance for doubtful accounts when deemed
  necessary. Sales are typically made to customers for which there is a history
  of successful collection. New customers are subjected to a credit review process,
  which evaluates the customers financial position and ability to pay. New
  customers are typically assigned a credit limit based on a formulated review
  of their financial position. Such credit limits are only increased after a successful
  collection history with the customer has been established. Specific allowances
  for bad debts are recorded when Foundry becomes aware of a specific customers
  inability to meet its financial obligation to us such as in the case of bankruptcy
  filings or deterioration of financial position. Estimates are used in determining
  our allowances for all other customers based on factors such as current trends,
  the length of time the receivables are past due and historical collection experience.
  Foundry mitigates some collection risk by requiring some international customers
  to secure letters of credit or bank guarantees prior to placing an order with
  the Company.

Foundry
  purchases several key components used in the manufacture of products from several
  sources and depends on supply from these sources to meet its needs. In addition,
  Foundry depends on several contract manufacturers for major portions of the
  manufacturing requirements. The inability of the suppliers or manufacturers
  to fulfill the production requirements of Foundry could negatively impact future
  results.

Revenue
  Recognition

General.Foundrys revenue
  recognition policy follows SEC Staff Accounting Bulletin (SAB) No. 101, Revenue
  Recognition in Financial Statements. Specifically, Foundry recognizes
  revenue when persuasive evidence of an arrangement exists, delivery has occurred,
  the sales price is fixed or determinable and collectibility is reasonably assured.

Product
  Revenues.Revenue
  is generally recorded at the time of shipment when title and risk of loss pass
  to the customer, unless Foundry has future obligations for installation or has
  to obtain customer acceptance, in which case revenue is not recorded until such
  obligations have been satisfied or customer acceptance has been received. For
  example, revenue is not recognized when undelivered products or services are
  essential to the functionality of delivered products. At the time revenue is
  recognized, Foundry establishes an accrual for estimated warranty expenses associated
  with its sales, recorded as a component of cost of revenues. Foundrys
  standard warranty period extends 12 months from the date of sale and the warranty
  accrual represents the best estimate of the amount necessary to settle future
  and existing claims on products sold as of the balance sheet date. Foundry also
  provides a reserve for estimated customer returns based on historical returns
  and our return policy. Sales to Foundrys resellers do not provide for
  rights of return and the contracts with Foundrys original equipment manufacturers
  do not provide for rights of return except in the event Foundrys products
  do not meet specifications or there has been an epidemic failure, as defined
  in the agreements.

Service Revenues.Service revenues consisted primarily of revenue from customer support services and, to a lesser extent, installation and training
services. Foundrys suite of customer support programs provides customers with access to technical assistance, software updates and upgrades, hardware repair and replacement parts. Support services are offered under renewable, annual fee-based
arrangements or as part of multiple element arrangements. When support services are sold under multiple element arrangements, the Company allocates revenue to each element based upon its relative fair value and recognizes the revenue for each
element when the revenue recognition criteria have been met for

8

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each element. Fair value is
  generally determined based on the price charged when the element is sold separately.
  Revenue from support services is deferred and recognized ratably over the coverage
  period, generally one to five years.Revenue from training
  and installation services accounted for less than 1% of total revenue in the
  three and six months ended June 30, 2003 and 2002.

Segment
  Reporting

Operating
  segments are defined as components of an enterprise about which separate financial
  information is available that is evaluated regularly by the chief operating
  decision maker, or decision making group, in deciding how to allocate resources
  and in assessing performance. Foundry is organized and operates as one operating
  segment, the design, development, manufacturing and marketing of high performance
  Gigabit Ethernet switches, switching routers, server load balancing and transparent
  caching switches.

Foundry sells to various countries in North and South America, Europe, Asia, and Australia. Foundrys foreign offices conduct sales, marketing and support activities. Foundrys export
sales represented 31% and 30% of revenues for the three months ended June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002, export sales represented 31% and 38%, respectively. Sales to any individual country outside
of the United States represent less than 10% of revenues for the three and six months ended June 30, 2003 and 2002.

For
  the three months ended June 30, 2003 and 2002, one customer accounted for 13%
  and 11% of revenues, respectively. For the six months ended June 30, 2003, one
  customer accounted for 17% of revenues while no customer accounted for 10% or
  more of revenues for the same period in 2002. Sales to the U.S. government represented
  approximately 28% and 29% of our revenues during the three and six months
  ended June 30, 2003, respectively. During 2002, sales to the U.S. government
  represented less than 20% of our revenues.

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, less shares subject to repurchase. Diluted EPS has
been calculated assuming the conversion of all potentially dilutive common stock equivalents. Weighted average dilutive potential common stock includes the dilutive impact of in-the-money stock options, which is calculated 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 hypothetically received from the exercise
of all in-the-money stock options are assumed to be used by the Company to repurchase shares.
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 shares for the respective period and, therefore, their inclusion would have been anti-dilutive. For the three months ended June 30, 2003 and 2002, anti-dilutive shares were 2.7 million and 17.5 million
shares, respectively. For the six months ended June 30, 2003 and 2002, anti-dilutive shares were 7.8 million and 17.8 million shares, respectively.

|                                                            | Three
      Months Ended
      June 30,     |         | Six
      Months Ended
      June 30,
|----------------------------------------------------------- | ------------------------------------------- | ------- | -------------------------------------
|                                                            |                                             |         |                                      
|                                                            | 2003                                        |         | 2002                                 
|                                                            |                                             |         |                                      
|                                                            | (in
      thousands, except per share data)
|Net income                                                  | $                                           | 16,794  |                                      
|                                                            |                                             |         |                                      
|Basic:                                                      |                                             |         |                                      
|Weighted
      average shares outstanding                   |                                             | 123,353 |                                      
|Less:
      Weighted average shares subject to repurchase   |                                             |        |                                      
|                                                            |                                             |         |                                      
|Weighted
      average shares used in computing basic EPS   |                                             | 123,353 |                                      
|                                                            |                                             |         |                                      
|Basic EPS                                                   | $                                           | 0.14    |                                      
|                                                            |                                             |         |                                      
|Diluted:                                                    |                                             |         |                                      
|Weighted
      average shares outstanding                   |                                             | 123,353 |                                      
|Add:
      Weighted average dilutive potential common stock |                                             | 9,256   |                                      
|                                                            |                                             |         |                                      
|Weighted
      average shares used in computing diluted EPS |                                             | 132,609 |                                      
|                                                            |                                             |         |                                      
|Diluted EPS                                                 | $                                           | 0.13    |                                      
|                                                            |                                             |         |                                      

9

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Recent
  Accounting Pronouncements

Consolidation
  of Variable Interest Entities

In
  January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, Consolidation
  of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46).
  FIN 46 requires certain variable interest entities (VIEs) to be
  consolidated by the primary beneficiary of the entity if the equity investors
  in the entity do not have the characteristics of a controlling financial interest
  or do not have sufficient equity at risk for the entity to finance its activities
  without additional subordinated financial support from other parties. For arrangements
  entered into after January 31, 2003, FIN 46 is effective immediately. For VIEs
  created or acquired prior to February 1, 2003, the provisions of FIN 46 must
  be applied for the first interim or annual period beginning after June 15, 2003.
  Foundry does not expect the adoption of FIN 46 to have a material impact on
  its operating results or financial condition.

Guarantors
  Accounting and Disclosure Requirements for Guarantees

In
  November 2002, the FASB issued Interpretation No. 45, Guarantors
  Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
  of Indebtedness of Others (FIN 45). FIN 45 elaborates on the
  existing disclosure requirements for most guarantees, including loan guarantees
  such as standby letters of credit. It also clarifies that at the time a company
  issues a guarantee, the company must recognize an initial liability for the
  fair market value of the obligations it assumes under that guarantee. In addition,
  FIN 45 requires disclosures about the guarantees that an entity has issued, including
  a rollforward of the entitys product warranty liabilities in its interim
  and annual financial statements. The initial recognition and measurement provisions
  of FIN 45 apply on a prospective basis to guarantees issued or modified after
  December 31, 2002. The disclosure requirements are effective for financial statements
  or interim or annual periods ending after December 15, 2002 and are applicable
  to Foundrys product warranty liability (see Note 3 below to the Condensed
  Consolidated Financial Statements). Foundrys adoption of FIN 45 did not
  have a material impact on its results of operations and financial position.

Revenue
  Arrangements with Multiple Deliverables

In November 2002, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables (EITF 00-21). EITF 00-21provides guidance on the accounting for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. Under EITF 00-21, revenue arrangements with multiple
deliverables should be divided into separate units of accounting if the deliverables meet certain criteria, including whether the fair value of the delivered items can be determined and whether there is evidence of fair value of the undelivered
items. In addition, the consideration should be allocated among the separate units of accounting based on their fair values, and the applicable revenue recognition criteria should be considered separately for each of the separate units of
accounting. EITF 00-21 is effective for revenue arrangements we enter in fiscal periods beginning after June 15, 2003. Foundry is currently evaluating the effect that the adoption of EITF 00-21 will have on its results of operations and financial
condition.

Accounting
  for Stock-Based Compensation

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure (SFAS 148) that amends SFAS 123 to provide alternative methods
of transition for a voluntary change to SFAS 123s fair value method of accounting for stock-based compensation arrangements. SFAS 148 also amends the disclosure provisions of SFAS 123 to require more prominent disclosures in both annual and
interim financial statements about the effects of an entitys accounting policy with respect to stock-based compensation on reported net income and earnings per share. SFAS 148s amendment of the transition and annual disclosure
requirements of SFAS 123 are effective for fiscal years ending after December 15, 2002. As permitted by SFAS 123, Foundry has elected to continue 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, Foundry only recognizes compensation expense when options are granted with an exercise price below fair market value at the date
of grant. Any resulting compensation expense is recognized ratably over the vesting period. Since Foundry has not elected to change to the fair value method of accounting and, therefore does not record compensation expense for stock-based employee
compensation, the transition provisions of SFAS 148 had no impact on our financial position, results of operations, or cash flows.

10

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We currently grant stock options under several stock option plans that allow for the granting of non-qualified and incentive stock options to employees, directors and consultants of Foundry.
Stock options generally vest in increments over four years from the date of grant and have a term of 10 years. We also have an employee stock purchase plan that allows eligible employees to purchase common stock at 85% of the lower of the fair
market value of the common stock at the beginning of each offering period or at the end of each purchase period through payroll deductions which may not exceed 20% of an employees compensation.

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

|                                                                           | Three
      Months Ended
      June 30,     |        | Six
      Months Ended
      June 30,
|-------------------------------------------------------------------------- | ------------------------------------------- | ------ | -------------------------------------
|                                                                           |                                             |        |                                      
|                                                                           | 2003                                        |        | 2002                                 
|                                                                           |                                             |        |                                      
|                                                                           | (in
      thousands, except per share data)
|Net income
      as reported                                               | $                                           | 16,794 |                                      
|Add: Total
      stock-based compensation expense included in reported net |                                             |        |                                      
|income,
      net of tax effect                                            |                                             | 47     |                                      
|Deduct: Total
      stock-based compensation expense determined under fair |                                             |        |                                      
|value
      method for all awards, net of related tax effect               |                                             | (7,517 | )                                    
|                                                                           |                                             |        |                                      
|Pro forma
      net income (loss)                                          | $                                           | 9,324  |                                      
|                                                                           |                                             |        |                                      
|Basic net
      income (loss) per share:                                   |                                             |        |                                      
|As
      reported                                                          | $                                           | 0.14   |                                      
|Pro
      forma                                                            | $                                           | 0.08   |                                      
|Diluted net
      income (loss) per share:                                 |                                             |        |                                      
|As
      reported                                                          | $                                           | 0.13   |                                      
|Pro
      forma                                                            | $                                           | 0.07   |                                      

Foundry estimates the fair value of its stock options using the Black-Scholes option
valuation model, which is the most commonly used model by companies for purposes of disclosure pursuant to SFAS 123, as amended by SFAS 148. 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 the expected stock price volatility. Because Foundrys employee stock options have characteristics significantly
different from those of traded shares, and because the changes in the assumptions can materially affect the fair value estimates, in managements opinion, the Black-Scholes
model does not provide a reliable measure of the fair value of the options. The following weighted-average assumptions were used to estimate the fair value of employee stock
options granted during the three and six-month periods ended:

|                                      | Three
      Months
      Ended June 30, |   | Six
      Months
      Ended June 30,
|------------------------------------- | --------------------------------------- | - | -------------------------------------
|                                      |                                         |   |                                      
|                                      | 2003                                    |   | 2002                                 
|                                      |                                         |   |                                      
|Average risk
      free interest rate | 1.85                                    | % |                                      
|Average expected
      life of option | 4.0
      years                         |   | 3.8
      years                      
|Dividend
      yield                  | 0                                       | % |                                      
|Volatility
      of common stock      | 63                                      | % |                                      

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
  June 30, 2003 and 2002 were insignificant and comprised only of foreign currency
  translation adjustments.

11

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3.
  COMMITMENTS AND CONTINGENCIES:

Product
  Warranty

We
  provide all customers with a standard 1 year hardware and 90-day software warranty.
  Customers can upgrade the standard warranty and extend the warranty for 1-5
  years by purchasing any of Foundrys customer support programs. At the
  time revenue is recognized, Foundry establishes an accrual for estimated warranty
  expenses associated with its sales, recorded as a component of cost of revenues.
  The warranty accrual represents the best estimate of the amount necessary to
  settle future and existing claims on products sold as of the balance sheet date.
  The Company periodically assesses the adequacy of its recorded warranty liabilities
  and adjusts the amounts as necessary.

Changes
  in the Companys product warranty liability during the period are as follows:

|Balance,
      December 31, 2002                                                                     | $ | 2,305 |  
|---------------------------------------------------------------------------------------------------- | - | ----- | -
|Liabilities
      accrued for warranties issued during the period                                    |   | 1,421 |  
|Warranty
      claims settled during the period                                                      |   | (737  | )
|Changes in
      liability for pre-existing warranties during the period (including changes
      in |   |       |  
|estimate)                                                                                            |   | (949  | )
|                                                                                                     |   |      
|Balance,
      June 30, 2003                                                                         | $ | 2,040 |  
|                                                                                                     |   |      

Deferred
  Support Revenue

Foundry
  offers renewable support arrangements, including extended warranty contracts,
  to its customers that range generally from 1-5 years. Foundry has not separated
  the extended warranty revenues from the routine maintenance service revenues,
  as it is not practical to do so. The change in the Companys deferred support
  revenue balance in relation to these arrangements was as follows for the six
  months ended June 30, 2003;

|Deferred
      support revenue at December 31, 2002 | $       | 20,234 | 
|--------------------------------------------------- | ------- | ------ | 
|New support
      arrangements                      |         | 31,560 | 
|Recognition
      of support revenue                | (22,010 | )     
|                                                    |         |       
|Ending balance
      at June 30, 2003               | $       | 29,784 | 
|                                                    |         |       

In the ordinary course of business, the Company enters into contractual arrangements under which Foundry may agree to indemnify the counterparty 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. In addition, Foundry has entered into standard indemnification agreements with each of its directors and officers to indemnify those individuals against claims and losses that might be incurred by
those directors and officers as a result of their service to Foundry. No amounts are reflected within the condensed consolidated financial statements as of June 30, 2003 related to these indemnifications.

Purchase Commitments with Contract Manufacturers

The Company uses contract manufacturers to assemble and test our products. In order to reduce manufacturing lead times and ensure adequate inventories, the Companys agreements with some
of these contract manufacturers allow them to procure long lead-time component inventory on the Companys behalf based upon a rolling production forecast provided by Foundry with lead times of up to 6 months. Foundry may be contractually
obligated to purchase long lead-time component inventory procured by certain contract manufacturers in accordance with the forecast, unless Foundry gives notice of order cancellation at least 90 days prior to the delivery date. As of June 30, 2003,
the Company was potentially committed to purchase approximately $32.4 million of such inventory.

Litigation

In December 2000, several similar shareholder class action lawsuits were filed against Foundry and certain of its officers in the United States Court for the Northern District of California,
following Foundrys announcement of its anticipated financial results for the fourth quarter ended December 31, 2000. The lawsuits were subsequently consolidated by the Court, under the caption In re Foundry Networks, Inc.
Securities Litigation,

12

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Master File No. C-00-4823-MMC, lead plaintiffs were selected as required by law and such plaintiffs 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 Foundrys common stock during the period from September 7, 2000 to December 19, 2000. On October 26, 2001, the Court granted the Companys motion to dismiss the consolidated amended complaint
without prejudice and with leave to amend. On December 13, 2001, attorneys for lead plaintiffs filed a second amended complaint. On June 6, 2002, the Court granted the Companys motion to dismiss the second amended complaint, but again without
prejudice and with leave to amend. On July 8, 2002 attorneys for lead plaintiffs filed a third amended complaint. On August 5, 2002, the Company filed a motion to dismiss that complaint. On February 14, 2003, the Court dismissed the third amended
complaint, once again, without prejudice and with leave to amend. On March 17, 2003, attorneys for lead plaintiffs filed a fourth amended complaint. On April 7, 2003, the Company filed a motion to dismiss the plaintiffs fourth amended
complaint. A hearing on the motion took place on June 13, 2003. The Courts ruling on that motion is currently pending. While the Courts ruling has been pending,
lead plaintiffs filed a motion requesting leave to amend their fourth amended complaint and supplement their opposition to the Companys pending motion to dismiss. The Court granted plaintiffs request. On July 29, 2003, the Company filed
an opposition to the plaintiffs supplemented complaint and in further support of its motion to dismiss. The Courts decision on both the motion to dismiss and the supplemental complaint is now pending. The Company believes the lawsuit is without merit and intends to defend itself 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 Foundry common stock alleging
violations of federal securities laws. The case was designated asIn 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 the Companys common stock from September 27, 1999 through December 6, 2000. The operative amended complaint names as defendants, the Company and three of its officers (the Foundry Defendants), including its Chief
Executive Officer and Chief Financial Officer; and investment banking firms that served as underwriters for the Companys 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 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 the 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. No specific damages are claimed. 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 the Company. 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 the Company 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 the remaining Foundry individual
defendants on the basis that those defendants allegedly sold the Companys 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. The Company has decided to accept 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 the Company may have against the
underwriters. The settlement 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 Foundry in the United States District Court for the District of Massachusetts alleging that certain of the Companys products infringe several
of Nortels patents and seeking injunctive relief as well as unspecified damages. Nortel has also brought suit, on the same or similar patents, against a number of other networking companies. Foundry has analyzed the validity of Nortels
claims and believes that Nortels suit is without merit. Foundry is committed to vigorously defending itself against these claims. On October 9, 2002, the Company filed a lawsuit against Nortel in the United States District Court, Northern
District of California alleging that certain of Nortels products infringe a Foundry patent as well as allegations concerning breach of contract. The Company is seeking injunctive relief as well as damages.

In May 2003, Lucent Technologies Inc. (Lucent) filed a lawsuit against Foundry in the United States District Court for the District of Delaware alleging that certain of the Companys products infringe
several of Lucents patents, and

13

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seeking injunctive relief as well as unspecified damages. Lucent has also brought suit on the same patents (and one other patent) against one of Foundrys competitors. Foundry has analyzed the
validity of Lucents claims and believes that Lucents suit is without merit. Foundry is committed to vigorously defending itself against these claims.

From
  time to time the Company is 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 the
  Company in the form of letters, lawsuits and other forms of communication. Irrespective
  of the merits of the Companys position, litigation is always an expensive
  and uncertain proposition. In accordance with SFAS No. 5, Accounting for
  Contingencies, (SFAS 5) the Company records a liability when it is both
  probable that a liability has been incurred and the amount of the loss can be
  reasonably estimated. Any such provision would be adjusted to reflect the impact
  of ongoing negotiations, settlements, rulings, advice of legal counsel, and
  other information and events pertaining to a particular case. To date, the Company
  has not recorded such provisions in accordance with SFAS 5. In the event of
  a determination adverse to the Company, the Company could incur substantial
  monetary liability, and be required to change its business practices. However,
  the Company believes that it has valid defenses with respect to the legal matters
  pending against it. Any unfavorable determination could have a material adverse
  effect on the Companys financial position, results of operations, or cash
  flows.

4. INCOME TAXES:

Foundry
  recorded an income tax provision of $16.3 million and $2.2 million for the six
  months ended June 30, 2003 and 2002, respectively. The effective tax rate for
  the six months ended June 30, 2003 was 35% compared to 30% for the same period
  in 2002. These rates reflect the federal statutory and state tax rates, offset
  by research and development tax credits, export sales incentives, and tax-exempt
  interest income.

The
  Companys 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, the Company
  receives an income tax benefit calculated as the difference between the fair
  market value of the stock issued at the time of the exercise and the option
  price, tax effected. These benefits were credited directly to stockholders
  equity and amounted to $6.5 million and $0.4 million for the six months ended
  June 30, 2003 and 2002, respectively.

Management
  believes that the Company will likely generate sufficient taxable income in
  the future to realize the tax benefits arising from its existing deferred tax
  assets. Therefore, no valuation allowance was required as of June 30, 2003.

6. STOCKHOLDERS EQUITY:

Stock Option Exchange Program

On
  August 21, 2002, Foundry filed a Tender Offer Statement on Schedule TO with
  the Securities and Exchange Commission related to a voluntary stock option exchange
  program for its employees. Foundrys executive officers and directors were
  not eligible to participate in this program. Under the exchange program, employees
  were given the opportunity to voluntarily cancel unexercised vested and unvested
  stock options previously granted to them in exchange for a stock option grant
  equal to 0.5 times the number of tendered options on or about March 21, 2003.
  However, participants who elected to exchange any options were also required
  to exchange any other options granted to him or her in the previous six months.
  On September 20, 2002, the Company accepted for exchange options to purchase
  5,744,500 shares of Foundry common stock. The cancelled options were exchanged
  for 2,757,100 replacement stock options on March 24, 2003 at an exercise price
  of $7.76 per share. In order to receive the replacement stock option grant,
  an employee was required to remain employed with Foundry or one of its subsidiaries
  until March 24, 2003. The replacement options vest on a three-year schedule
  with a six month cliff, meaning 1/6th of the new option shares will vest six
  months from March 24, 2003, and the remaining shares will vest 1/36th per month
  for the remaining 30 months. The stock option exchange program did not result
  in stock compensation expense or variable accounting for replacement awards.

14

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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 financial statements and related
  notes appearing elsewhere in this Form 10-Q. This discussion and analysis contains
  forward-looking statements that involve risks, uncertainties and assumptions.
  The 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 Market Price of 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. The Company undertakes 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 the Company files from time to time with
  the SEC. All public reports filed by the Company with the SEC are available
  free of charge on the Companys website at www.foundrynetworks.com 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 Ethernet Layer 2 and Layer 3 switches,
  metro routers and Internet traffic management products for healthcare, financial
  services, universities, entertainment, government, technology enterprises, as
  well as metro and Internet service providers. Our product suite includes the
  FastIron family of Layer 2/3 enterprise switches, the BigIron family of Layer
  3 backbone switches, the EdgeIron family of Layer 2 wiring closet switches,
  the NetIron family of metro routers, and the ServerIron Layer 4-7 traffic management
  switches. In 2002, we introduced a series of new products that incorporate our
  JetCore ASIC chipset. JetCore represents the third major ASIC development
  from Foundry in a four year span. JetCore compliments our IronCore ASIC
  by providing bandwidth management on-demand, advanced Layer 2 and 3 features,
  enhanced quality of service (QoS), jumbo frames, and new network management
  features and functions. The JetCore ASIC also integrates sFlow, an Internet
  Engineering Task Force (IETF) draft standard for network traffic monitoring
  and accounting. JetCore is backward compatible to IronCore. Foundrys products
  support a wide array of interfaces such as 10/100 Ethernet, 1 Gigabit Ethernet
  (copper and fiber), 10 Gigabit Ethernet, Packet over SONET and ATM so that our
  customers can leverage their existing infrastructures. By providing high levels
  of performance and intelligence capabilities at competitive price points, we
  provide comprehensive solutions to address the enterprise and service provider
  markets.

In 2003, we introduced a new Terabit capacity architecture. Foundrys Terathon ASIC chipset represents our fourth generation ASIC architecture and will be incorporated into our
BigIron MG8 backbone switch and NetIron 40G metro router, which we expect to ship in the second half of 2003. These two new products will be capable of delivering wire-speed performance, sophisticated Layer 2/3 switching and routing
capabilities, ultra high reliability and Gigabit Ethernet and 10-Gigabit Ethernet density.

Foundry
  completed its second quarter of 2003 with $95.7 million in revenues and net
  income of $16.8 million, compared to $91.1 million in revenues and net income of $13.4 million
  in the first quarter of 2003. During the second quarter of 2003, Foundrys
  cash and short-term investments increased $60.0 million, from $351.3 million
  at March 31, 2003 to $411.3 million at June 30, 2003. Despite the weak economic
  environment, Foundry has continued to deliver on its business model, which centers
  on the introduction of industry leading products and careful expense control.
  Our execution on this model allowed the Company to improve its financial results
  on a quarter-over-quarter basis throughout 2002 and the first two quarters of
  2003, increasing revenue, and improving gross margins and income from operations.
  Although the outlook for the overall economy and the information technology
  environment continues to be difficult to predict,Foundry remains focused
  on its long-term strategy of maintaining profitability and positive cash flows
  by focusing on innovation, competitively pricing our products and prudent financial
  management. Management remains committed to improving the Companys financial
  performance; however, there is no certainty we will be able to maintain or further
  improve our results.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States 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

15

---



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. Actual results
  may differ from these estimates under different assumptions or conditions. Management
  believes the critical accounting policies as disclosed in our Annual Report
  on Form 10-K for the year ended December 31, 2002, as amended on June 5, 2003,
  affect its more significant judgments and estimates used in the preparation
  of its condensed consolidated financial statements. Management has discussed
  the development, selection, and disclosure of these estimates with the Audit
  Committee of Foundrys Board of Directors. There have been no material
  changes to our critical accounting policies and estimates during the three months
  ended June 30, 2003.

Results of Operations

Net Revenues

The following table shows product and service net revenues for the three and six months ended June 30, 2003 and 2002 (in thousands):

|                         | Three
      Months Ended June 30, |        | Six
      Months Ended June 30,
|------------------------ | --------------------------------- | ------ | -------------------------------
|                         |                                   |        |                                
|                         | 2003                              |        | %
      of
      Revenues      
|                         |                                   |        |                                
|Net revenues:            |                                   |        |                                
|Product                  | $                                 | 83,444 |                                
|Service                  |                                   | 12,268 |                                
|                         |                                   |        |                                
|Total net
      revenues | $                                 | 95,712 |                                
|                         |                                   |        |                                

Product
  revenues were $83.4 million and $65.7 million in the second quarter ended June
  30, 2003 and 2002, respectively, representing an increase of 27%. For the six
  months ended June 30, 2003 and 2002, product revenues were $164.5 million
  and $120.4 million, respectively, an increase of 37%. The increases were due
  to strong customer acceptance of our next generation JetCore ASIC technology
  that was introduced in early 2002 and which has contributed to increased sales
  momentum each quarter. Also, in June 2002, we broadened our product portfolio
  by adding a new family of fixed configuration switches for enterprise customers,
  Foundrys FastIron Edge Switch. Sales of our FastIron switches have
  increased significantly since their introduction and contributed to the increase
  in revenue in 2003. Revenue from our FastIron switches increased 70% for the
  quarter ended June 30, 2003 and increased 95% for the six months ended June
  30, 2003, as compared to the same periods in 2002. Our sales to the U.S. government
  also increased significantly in 2003, representing approximately 28% and 29%
  of our revenues during the three and six months ended June 30, 2003,
  respectively. During 2002, sales to the U.S. government represented less than
  20% of our revenues. If the U.S government reduces budgetary spending
  or if we are unable to win government contract awards, our revenues and financial
  results may be harmed.

Service
  revenues consist primarily of revenue from customer support services, and to
  a lesser extent, from providing installation and training services. Service
  revenues were $12.3 million and $9.3 million, accounting for 13% and 12% of
  total revenues for the second quarter of 2003 and 2002, respectively. For the
  six months ended June 30, 2003, service revenues were $22.4 million and $17.0
  million or 12% of total revenues, respectively. The increases in absolute dollars
  were due to increased technical support service initiations associated with
  product sales and support renewals as a result of our growing customer base.
  Customer support service arrangements range from 1-5 years, but the majority
  are for a one-year period. Revenues from support services are recognized ratably
  over the service period. Service revenue will typically experience some variability
  over time due to various factors such as the timing of technical support service
  contract initiations and renewals. A total of $29.8 million and $20.2 million
  of support revenue was deferred on the accompanying balance sheets as of June
  30, 2003 and December 31, 2002, respectively. As we continue to grow our customer
  base and product revenues, we expect that our deferred support revenue will increase as well.

For the three months ended June 30, 2003 and 2002, one customer accounted for 13% and 11% of our revenues, respectively. For the six months ended June 30, 2003, one customer accounted for 17%
of our revenues while no customer accounted for 10% or more of our revenues for the same period in 2002. Sales to customers outside of the United States accounted for 31% and 30% of revenues for the three months ended June 30, 2003 and 2002,
respectively. For the six months ended June 30, 2003 and 2002, export sales decreased to 31% from 38%,

16

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respectively. The decrease in export sales as a percentage of revenues was primarily due to a year-over-year revenue growth of 36% that was fueled primarily by stronger sales to the U.S. government.

Gross
  Margins

The following table shows gross margins for product and service revenues and the related gross margin percentages for the three and six months ended June 30, 2003 and 2002 (in thousands):

|                          | Three
      Months Ended June 30, |        | Six
      Months Ended June 30,
|------------------------- | --------------------------------- | ------ | -------------------------------
|                          |                                   |        |                                
|                          | 2003                              |        | Gross
      Margin %           
|                          |                                   |        |                                
|Gross margins:            |                                   |        |                                
|Product                   | $                                 | 51,016 |                                
|Service                   |                                   | 10,072 |                                
|                          |                                   |        |                                
|Total gross
      margins | $                                 | 61,088 |                                
|                          |                                   |        |                                

Our
  cost of product revenues consists primarily of material, labor, manufacturing
  overhead, freight, warranty costs, and the provision for inventory. Product
  gross margins were $51.0 million and $31.7 million for the three months ended
  June 30, 2003 and 2002 or 61% and 48% of product revenues, respectively, and
  $96.6 million and $58.0 million for the six months ended June 30, 2003 and 2002
  or 59% and 48% of product revenues, respectively. The increases in product gross
  margin as a percentage of product revenues in 2003 were primarily due to lower
  material costs from our suppliers and other manufacturing cost efficiencies
  associated with increased sales volume, offset by increased inventory provisions
  of $4.4 million and $1.4 million for the three months ended June 30, 2003 and
  2002, respectively, and $5.7 million and $3.9 million for the six months ended
  June 30, 2003 and 2002. The increases in inventory provisions during 2003 were
  due to increases in the provision for inventory used for demonstration, advance
  replacement, and depot purposes to accommodate the needs of our growing customer base. As a result of increased demonstration, advance replacement, and depot inventories, we provided increased inventory provisions to adequately cover potential obsolescence. Also, during 2003, Foundry improved its discount
  management and generated higher sales of our high-end products which carry higher
  gross margins. To a lesser extent, product margins improved slightly as a result
  of a benefit to cost of product revenue of $1.0 million and $1.3 million for
  the three and six months ended June 30, 2003 related to products sold that
  were previously written off, and an accrued warranty reduction of $0.7 million
  in the second quarter of 2003 due to lower than expected warranty costs incurred.

Our
  cost of service revenues consists primarily of costs of providing services under
  customer support arrangements. These costs include service material costs, labor,
  and manufacturing overhead. Service gross margins were $10.1 million and $7.9
  million or 82% and 85% of service revenue for the three months ended June 30,
  2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002,
  service gross margins were $18.1 million and $14.1 million or 81% and 83%, respectively.
  Service gross margin will typically experience some variability over time due
  to the timing of technical support service initiations and renewals and additional
  investments to our customer support infrastructure.

Our
  gross margins have sequentially improved in each quarter since the first quarter
  of 2002 as our revenues increased each quarter. However, the rate of gross margin
  improvement has been and may be adversely affected by heightened price competition,
  component shortages, increases in material or labor costs, excess, obsolete,
  and impaired inventory charges, changes in channels of distribution, customer,
  product and geographic mix, or an increase in product costs. 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.

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

The following table shows research and development, sales and marketing, and general and administrative expenses for the three and six months ended June 30, 2003 and 2002 (in thousands):

|                                 | Three
      Months Ended June 30, |  | Six
      Months Ended June 30,
|-------------------------------- | --------------------------------- |  | -------------------------------
|                                 |                                   |  |                                
|                                 | 2003                              |  | %
      of
      Revenues      
|                                 |                                   |  |                                
|Research
      and Development   | $10,045                           |  | 10                             
|Sales and Marketing              | 23,415                            |  | 24                             
|General
      and Administrative | 2,948                             |  | 3                              

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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 the depreciation of
  equipment related to research and development activities. Research and development
  expenses were $10.0 million and $8.9 million for the three months ended June
  30, 2003 and 2002 or 10% and 12% of revenues, respectively. For the six months
  ended June 30, 2003 and 2002, research and development expenses were $20.0 million
  and $17.4 million or 11% and 13% of revenues, respectively. The increases in
  absolute dollars were due to a 10% increase in the average headcount from the
  first six months of 2002 to the first six months of 2003. We also incurred increased
  prototype expenses during 2003 related to the development of our fourth generation
  TerathonASIC chipset. We believe continued investment in product enhancements and new
  product development are critical to attaining our strategic objectives, and
  as a result, we expect research and development expenses to increase in absolute
  dollars.

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 $23.4 million and $22.6 million for the three
  months ended June 30, 2003 and 2002 or 24% and 30% of revenues, respectively.
  For the six months ended June 30, 2003 and 2002, sales and marketing expenses
  were $43.4 million and $43.2 million or 23% and 31% of revenues, respectively.
  The slight increases in absolute dollars were due to increased advertising expenses
  incurred during the first half of 2003. We believe that continued investment
  in sales and marketing is critical to our success and expect these expenses
  to increase in absolute dollars during the remainder 2003 as we initiate additional
  sales and marketing programs to support our products.

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
  $2.9 million and $3.4 million for the three months ended June 30, 2003 and 2002
  or 3% and 5% of revenues, respectively. The decrease in absolute dollars was
  due to a $0.6 million reduction in the provision for doubtful accounts in the
  three months ended June 30, 2003, compared to no provision recorded in the same
  period last year. The $0.6 million reduction in the provision for bad debts
  was a result of improved credit quality of our customers and successful collection
  efforts. For the six months ended June 30, 2003 and 2002, general and administrative
  expenses were $6.9 million and $6.4 million or 4% and 5% of revenues, respectively.
  The increase was due to higher legal expenses of $1.0 million associated with
  legal matters discussed in Note 3 Commitments and Contingencies, offset by the
  $0.6 million recovery of bad debt expense in the first half of 2003. We expect
  general and administrative expenses will increase slightly for the remainder
  of 2003.

Amortization of deferred stock compensation

In connection with the grant of stock options to employees and a director, we
  recorded deferred stock compensation in the aggregate amount of $17.3 million
  in 1999, and $0.3 million in 2000, representing the difference between the exercise
  price and the deemed fair market value of our common stock on the date these
  stock options were granted. We recorded no additional deferred stock compensation
  in 2003, 2002, or 2001. Deferred stock compensation is reflected within stockholders
  equity and is being amortized to operations over the respective vesting period
  of the options. We recorded amortization of deferred stock compensation expense
  of approximately $72,000 and $306,000 for the three months and $194,000 and
  $688,000 for the six months ended June 30, 2003 and 2002, respectively. At June
  30, 2003, we had approximately $37,000 of deferred stock compensation, which
  will be fully amortized during the remainder of 2003.

Interest income

Interest income is earned on funds we keep on deposit in interest bearing money market and short-term investment accounts. Foundry had interest income of $1.2 million and $1.3 million for the
three months ended June 30, 2003 and 2002, respectively, and $2.3 million and $2.8 million for the six months ended June 30, 2003 and 2002, respectively. The decreases were due to lower interest rates during 2003 as compared to interest rates during

18

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2002, despite an increase
  in the average invested balance. See Item 3 Quantitative and Qualitative
  Disclosures about Market Risk for a description of our investment policy.

Income taxes

We recorded income tax provisions of $9.0 million and $1.7 million for
  the three months ended June 30, 2003 and 2002, and $16.3 million and $2.2 million
  for the six months ended June 30, 2003 and 2002, respectively. The increases
  in the tax provision were due to significantly higher net income generated in
  the first half of 2003. The effective tax rates for the periods ended June 30,
  2003 and 2002 were 35% and 30%, respectively. These tax rates reflect the federal
  statutory and state tax rates, offset by research and development tax credits,
  export sales incentives, and tax-exempt interest income.

Liquidity
  and Capital Resources

At
  June 30, 2003, Foundry had cash and cash equivalents and short-term investments
  totaling $411.3 million as compared to $326.5 million at December 31, 2002,
  an increase of $84.8 million.

Cash
  provided by operating activities was $64.9 million and $23.8 million for the
  six months ended June 30, 2003 and 2002, respectively. The increase was primarily
  a result of significantly higher net income of $30.2 million generated in the
  first half of 2003 as compared to $5.1 million for the same period in 2002.
  The increase in cash provided by operating activities for the first six months
  of 2003 was also due to an increase in deferred support revenue of $8.7 million,
  an increase in income tax payable of $4.7 million compared to the same period
  last year, and a tax benefit in 2003 of $6.5 million from stock option exercises.
  This compares to a tax benefit of $0.4 million from stock option exercises for
  the same period in 2002.

Cash
  utilized in investing activities for the six months ended June 30, 2003 was
  $49.7 million, of which $47.0 million resulted from the net purchase of short-term
  investments and $2.7 million from the purchase of fixed assets. This compares to cash
  utilized in investing activities of $12.0 million for the same period in 2002,
  of which $9.5 million was utilized in the net purchase of short-term investments
  and $2.5 million for the purchase of fixed assets. During the first half of
  2003, the Company shifted significantly more cash from money market accounts
  and cash equivalents to short-term investments as compared to the same period
  in 2002 in order to improve its return on investments. See Item 3 Quantitative
  and Qualitative Disclosures about Market Risk for a description of our
  investment policy.

Financing
  activities generated $22.6 million of cash for the six months ended June 30,
  2003, as compared to $2.9 million for the same period in 2002. Cash provided
  by financing activities for both periods consisted of proceeds from the issuance
  of common stock to employees from stock option exercises and the employee stock
  purchase plan. The increase in 2003 was due to employees exercising their stock
  options in larger numbers during the first half of 2003, particularly in the
  second quarter of 2003, than in 2002.

The following table summarizes our contractual obligations at June 30, 2003 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 |        | Greater
      Than 3 Years
|---------------------------------------------------------- | ----- | ------ | ---------------------------- |  | --------------- | ------ | --------------------------
|                                                           |      
|Operating
      office leases                              | $     | 17,755 |                              |  | $               | 4,627  |                           
|Purchase
      commitments with our contract manufacturers |       | 32,450 |                              |  |                 | 32,450 |                           
|                                                           |       |        |                              |  |                 |        |                           
|Total
      contractual cash obligations                   | $     | 50,205 |                              |  | $               | 37,077 |                           
|                                                           |       |        |                              |  |                 |        |                           

Although
  it is difficult for us to predict future liquidity requirements with certainty,
  we believe that our existing cash balances and anticipated funds from operations,
  will satisfy our cash requirements for at least the next 12 months. 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, when market conditions improve and if 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 require additional capital.

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

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

Our
  quarterly revenue and operating results have and 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, the current political turmoil in many parts of the world, including
  terrorist and military actions, may continue to weaken the global economy. If
  the economic conditions in the United States and globally do not improve, or
  if we experience a worsening in the global economic slowdown, we may experience
  material negative effects on our business, operating results and financial condition.
  Although we experienced improved sales, gross margins, and profitability on
  a quarter-over-quarter basis throughout 2002 and in the first six months of
  2003 despite the continued weak economic and capital spending environment, there
  is no certainty we will be able to maintain or further improve results or ascertain
  the extent and length of the economic slowdown.

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 revenue and operating results are difficult to predict, especially
  in recent periods, and may fluctuate significantly from quarter to quarter.
  Delays in generating or recognizing forecasted revenue could cause our quarterly
  operating results to be below the expectations of public market analysts or
  investors, which could cause the price of our common stock to fall. In addition,
  demand for our products may fluctuate as a result of seasonality, particularly
  in Europe.

We
  may experience a delay in generating or recognizing revenue for a number of
  reasons. Unfulfilled orders at the beginning of each quarter typically do not
  equal expected revenue for that quarter and 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,
  the failure to ship products by the end of a quarter may negatively affect our
  operating results. Our reseller agreements typically provide that the reseller
  may delay scheduled delivery dates without penalty. Further, our customer purchase
  orders and reseller agreements sometimes provide that the customer or reseller
  may cancel orders within specified time frames without significant penalty.

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 flat,
  decrease or grow. As a consequence, operating results for a particular quarter
  are extremely difficult to predict.

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

Sales
  to our ten largest customers accounted for 49% and 37% of revenues for the six
  months ended June 30, 2003 and 2002, respectively. The loss of continued orders
  from our more significant customers, such as 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.

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

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

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

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
  the 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,
  Riverstone 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 to enterprises and ISPs. 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, and we must 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 revenue and profitability could suffer.

We
  must continue to introduce new products with superior performance 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, we need to introduce new products in a timely manner that
  offer substantially greater performance and support a greater number of users
  per device, all at lower price points to remain competitive. 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 products that the market will
  accept. After a product is developed, we must be able to forecast sales volumes
  and quickly manufacture a sufficient mix of products and 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, 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,

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increased expenses and lower
  quarterly revenue than anticipated. During the development of our products,
  we have also experienced delays in the prototyping of our ASICs, which in turn
  has led to delays in product introductions.

Our
  ability to increase our revenue depends on expanding our direct sales operation
  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 operation 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 operation
  and reseller distribution channels may not be successfully implemented and the
  cost of any expansion may exceed the revenue generated.

The
  United States government is an increasingly important customer, but there is
  no guarantee of future contract awards.

As part of the changing economic environment, the United States government has become an increasingly important customer for the networking industry and Foundry in particular. The process of
becoming a qualified government vendor takes considerable time and effort, and the timing of contract awards is hard to predict. 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 decreased capital expenditures in certain areas. Our failure to win any significant contract award may have a material
adverse effect on our financial results as we increase our dependence on U.S. government sales.

Hewlett-Packard
  is our most significant OEM. Our business could be harmed if our relationship
  with Hewlett-Packard is terminated.

Hewlett-Packard (HP), currently our most significant OEM, accounted for 6% of revenues for the three and six months ended June 30, 2003 and 2002, respectively. If HP chooses to
reduce or terminate its OEM relationship with Foundry, our revenue and ability to market and sell our products to certain prospective customers may be harmed.

Some
  of our customers depend on the growth of the Internet for all or substantially
  all of their revenue. If the Internet does not expand as expected, our business
  will be adversely affected.

A
  portion of our business and revenue depends on the use of the Internet and on
  the deployment of our products by customers that depend on the growth of the
  Internet. Spending on Internet infrastructure has decreased significantly, which
  has had a material adverse effect on our business. To the extent that the economic
  slowdown and reduction in capital spending continue to adversely affect spending
  on Internet infrastructure or if the Internet does not expand as a widespread
  communications medium and commercial marketplace, the growth of the market for
  Internet infrastructure equipment may not continue and the demand for our products
  could be harmed.

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 has decreased in the past and may continue to decrease in response to competitive pressures, increased

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sales discounts, new product
  introductions by our competitors or other factors. Both we and our competitors
  sometimes 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 provision for 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 the end user than on sales through resellers
  or our OEMs. As a result, any significant shift in revenue through resellers
  or 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
  may not be able to maintain profitability.

We generated net income of $30.2 million for the six months ended June 30, 2003 on revenues of $186.9 million, and $22.5 million for the year ended December 31, 2002 on revenues of $300.7
million. As of June 30, 2003, we had retained earnings of $146.3 million. In the future, we may incur increased costs and expenses related to sales and marketing, including expansion of our direct sales operation and distribution channels, product
development, customer support, expansion of our corporate infrastructure, and facilities expansion. We base our operating expenses on anticipated revenue trends and a high percentage of our expenses are fixed in the short term. As a result, any
significant shortfall in revenue relative to our expectations could cause a significant decline in our quarterly operating results. In order to be profitable, we must generate and sustain substantially higher revenue while maintaining reasonable
cost and expense levels. We may not be able to sustain or increase profitability on a quarterly or annual basis in the future.

We
  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 upon our ability to identify,
  attract and retain highly skilled managerial, engineering, sales and marketing,
  finance and manufacturing personnel. In spite of 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 engineers. 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, the
  Company has historically used stock options to motivate and retain its employees.
  Some of the proposals currently under consideration by the accounting profession
  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 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 upon the continued contributions
  of our key management, engineering, sales and marketing, finance and manufacturing
  personnel, many of whom would be difficult to replace. In particular, we believe
  that our future success depends on Bobby R. Johnson, Jr., President, Chief Executive
  Officer and Chairman of the Board. We do not have employment contracts or key
  person life insurance covering 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 resellers to

23

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sell our products internationally
  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,
  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 several sources; if these
  components are not available, our revenues may be harmed.

We
  purchase several key components used in our products from several sources and
  depend on supply from these sources to meet our needs. The inability of any
  supplier to provide us with adequate supplies 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.

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.

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

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forecasts or if we do not
  manage inventory effectively, we may have either excess or inadequate 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 upon a rolling
  production forecast provided by Foundry with lead times of up to 6 months. Foundry
  may be contractually obligated to the purchase of long lead-time component inventory
  procured by our contract manufacturers in accordance with the forecast, unless
  Foundry gives notice of order cancellation at least 90 days prior to the delivery
  date. If actual demand of our products is below the projections, we may have
  excess inventory as a result of our purchase commitments of long lead-time components
  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 miss 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, the length of our sales cycle in these situations can be as long
  as 12 months and may vary substantially from customer to customer. While our
  customers are evaluating our products and before they may place an order with
  us, we may incur substantial sales and marketing expenses and expend significant
  management effort. Consequently, if sales forecasted from a specific customer
  for a particular quarter are not realized in that quarter, we may not meet our
  revenue expectations.

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

Our
  success and ability to compete are substantially dependent upon our internally
  developed technology and knowhow. Our proprietary technology includes our ASICs,
  our IronCore and JetCore hardware architecture, our IronWare 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 where 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 patent 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 proprietary rights with respect to our existing or future products.

In March 2001, Nortel filed
  a lawsuit against Foundry in the United States District Court for the District
  of Massachusetts alleging that certain of the companys products infringe
  several of Nortels patents and seeking injunctive relief as well as unspecified
  damages. Nortel has also brought suit, on the same or similar patents, against
  a number of other networking companies. Foundry has analyzed the validity of
  Nortels claims and believes that Nortels suit is without merit.
  Foundry is committed to vigorously defending itself against these claims. On
  October 9, 2002, the Company filed a lawsuit against Nortel in the United States
  District Court, Northern District of California alleging that certain of Nortels
  products infringe a Foundry patent as well as allegations concerning breach
  of contract. The Company is seeking injunctive relief as well as damages. In
  May 2003, Lucent filed a lawsuit against Foundry in the United
  States District Court for the District of Delaware alleging that certain of
  the Companys products infringe several of Lucents patents, and seeking
  injunctive relief as well as unspecified damages. Lucent has also brought suit
  on the same patents (and one other patent) against one of Foundrys competitors.
  Foundry has analyzed the validity of Lucents claims
  and believes that Lucents suit is without merit. Foundry is committed
  to vigorously defending itself against these claims. Irrespective
  of the merits of the Companys 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 establishing licensing programs. Some of these companies have contacted Foundry
regarding a license. Foundry carefully reviews any license requests, but is unwilling to license technology it does not require for its product portfolio. However, any asserted license demand can require considerable effort to review and respond.
Moreover, a denial by us of 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 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 impact widespread
  market acceptance of our products.

Our
  success depends in part on both the adoption of industry standards for new technologies
  in our market and our products compliance with industry standards. Many
  technological developments occur prior to the adoption of the related industry
  standard. The absence 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 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

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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 upon 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 our systems and processes, our business may be harmed.

Our
  ability to successfully implement our business plan requires an effective planning
  and management process. Our current or planned personnel systems, procedures
  and controls may not be adequate to support our future operations. We need to
  continue to improve existing and implement new operational and financial systems,
  procedures and controls. 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 we currently sell to, there is 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 revenue 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 Foundry focuses on internal product development and growth, we may learn of acquisition prospects that would complement our existing business or enhance our technological capabilities
as part of our business strategy. Future acquisitions by us could result in large and immediate write-offs, the incurrence of debt and

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contingent liabilities or
  amortization expenses related to goodwill and other intangible assets, any of
  which could negatively affect our results of operations. Furthermore, acquisitions
  involve numerous risks and uncertainties, including:

- difficulties in the assimilation
    of products, operations, personnel and technologies of the acquired companies;
- diversion of managements
    attention from other business concerns;
- risks of entering geographic
    and business markets in which we have no or limited prior experience; and
- potential loss of key employees
    of acquired organizations.

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

We
  may need to raise capital, but the availability of additional financing is uncertain.

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

Our
  stock price has been volatile historically, which may make it more difficult
  to resell 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 stock option grants as compensation expense on our
  income statement, our profitability may be reduced significantly.

There is an ongoing debate among regulators and companies regarding the expensing of stock options. The current methodology for expensing such stock options is based on, among other things, the
historical volatility of the underlying stock. As noted above, our stock price has been historically volatile. Therefore, the adoption of an accounting standard requiring companies to expense stock options would negatively impact our profitability
and may adversely impact 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. The Financial Accounting Standards Board recently indicated that they will require stock-based
employee compensation to be recorded as a charge to earnings pursuant to a standard FASB is currently

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deliberating, which FASB believes
  will become effective in 2004. We will continue to monitor FASBs progress
  on the issuance of this standard.

Management
  beneficially owns approximately 12.9% of our stock; their interests could conflict
  with yours; significant sales of stock held by them and Foundrys employees
  could have a negative effect on Foundrys stock price.

Foundrys
  directors and executive officers beneficially own approximately 12.9% of our
  outstanding common stock as of June 30, 2003. 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 Foundrys employees, directors
  and executive officers, or the prospect of these sales, could adversely affect
  the market price of Foundrys 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 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 business interruption 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.

Foundrys
  investments are made in accordance with an investment policy approved by the
  Board of Directors. The primary objective of the Companys investment activities
  is to preserve capital while maximizing yields without significantly increasing
  risk. Our exposure to market risk for changes in interest rates relates primarily
  to our investment portfolio. We do not use derivative financial instruments
  in our investment portfolio. We place our investments with high credit quality
  issuers and, by policy, limit the amount of credit exposure to any one issuer
  or fund. A hypothetical 100 basis point decline or increase in short-term interest
  rates would reduce or increase the annualized earnings on our $411.3 million
  of cash equivalents and short-term investments at June 30, 2003 by approximately
  $4.1 million. Our investment portfolio as of June 30, 2003 includes only marketable
  securities with original maturities of less than one year and with secondary
  or resale markets to ensure portfolio liquidity. Recently, Foundrys Board
  of Directors amended the Companys investment policy to allow for investments
  with original maturities of up to two years.

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We
  have no investments denominated in foreign country currencies and therefore
  are not subject to foreign currency risk on such investments. Due to the nature
  of our short-term investments, we have concluded that there is no material market
  risk exposure. Therefore, no quantitative tabular disclosures are required.

Currently,
  all of our sales and expenses are denominated in U.S. dollars, with the exception
  of Canadas operations denominated in Canadian 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.

Item
  4. Controls and Procedures

Foundry
  evaluated the design and operation of its 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 Foundrys
  principal executive officer and principal financial officer as of the end of
  the period covered by this Quarterly Report on Form 10-Q. The principal executive
  officer and principal financial officer have concluded, based on their review,
  that Foundrys disclosure controls and procedures, including those of its
  consolidated subsidiaries, are effective to ensure that information required
  to be disclosed by Foundry in reports that it files 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 Foundrys internal controls during the registrants most
  recent quarter that have materially affected, or are reasonably likely to materially
  affect, the registrants internal controls over financial reporting.

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PART II
   OTHER INFORMATION

Item 1. Legal Proceedings.

In December 2000, several similar shareholder class action lawsuits were filed against Foundry and certain of its officers in the United States Court for the Northern District of California,
following Foundrys announcement of its anticipated financial results for the fourth quarter ended December 31, 2000. The lawsuits were subsequently consolidated by the Court, under the caption In re Foundry Networks, Inc.
Securities Litigation, Master File No. C-00-4823-MMC, lead plaintiffs were selected as required by law and such plaintiffs 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 Foundrys common stock during the period from September 7, 2000 to December 19, 2000. On October 26, 2001, the Court granted the Companys motion to dismiss the consolidated amended complaint
without prejudice and with leave to amend. On December 13, 2001, attorneys for lead plaintiffs filed a second amended complaint. On June 6, 2002, the Court granted the Companys motion to dismiss the second amended complaint, but again without
prejudice and with leave to amend. On July 8, 2002 attorneys for lead plaintiffs filed a third amended complaint. On August 5, 2002, the Company filed a motion to dismiss that complaint. On February 14, 2003, the Court dismissed the third amended
complaint, once again, without prejudice and with leave to amend. On March 17, 2003, attorneys for lead plaintiffs filed a fourth amended complaint. On April 7, 2003, the Company filed a motion to dismiss the plaintiffs fourth amended
complaint. A hearing on the motion took place on June 13, 2003. The Courts ruling on that motion is currently pending. While the Courts ruling has been pending,
lead plaintiffs filed a motion requesting leave to amend their fourth amended complaint and supplement their opposition to the Companys pending motion to dismiss. The Court granted plaintiffs request. On July 29, 2003, the Company filed
an opposition to the plaintiffs supplemented complaint and in further support of its motion to dismiss. The Courts decision on both the motion to dismiss and the supplemental complaint is now pending.The Company believes the lawsuit is without merit and intends to defend itself 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 Foundry
  common stock alleging violations of federal securities laws. The case was designated
  asIn 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 the Companys common stock from September 27,
  1999 through December 6, 2000. The operative amended complaint names as defendants,
  the Company and three of its officers (the Foundry Defendants),
  including its Chief Executive Officer and Chief Financial Officer; and investment
  banking firms that served as underwriters for the Companys 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
  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 the 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. No specific damages are claimed. 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
  the Company. 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 the Company 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 the remaining Foundry
  individual defendants on the basis that those defendants allegedly sold the
  Companys 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.
  The Company has decided to accept 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 the Company may have against the underwriters. The settlement
  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.

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In March 2001, Nortel filed a lawsuit against Foundry in the United States District Court for the District of Massachusetts alleging that certain of the Companys products infringe several
of Nortels patents and seeking injunctive relief as well as unspecified damages. Nortel has also brought suit, on the same or similar patents, against a number of other networking companies. Foundry has analyzed the validity of Nortels
claims and believes that Nortels suit is without merit. Foundry is committed to vigorously defending itself against these claims. On October 9, 2002, the Company filed a lawsuit against Nortel in the United States District Court, Northern
District of California alleging that certain of Nortels products infringe a Foundry patent as well as allegations concerning breach of contract. The Company is seeking injunctive relief as well as damages.

In
  May 2003, Lucent filed a lawsuit against Foundry in the United States District
  Court for the District of Delaware alleging that certain of the Companys
  products infringe several of Lucents patents, and seeking injunctive relief
  as well as unspecified damages. Lucent has also brought suit on the same patents
  (and one other patent) against one of Foundrys competitors.
  Foundry has analyzed the validity of Lucents claims and believes that
  Lucents suit is without merit. Foundry is committed to vigorously defending
  itself against these claims.

From
  time to time the Company is 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 the
  Company in the form of letters, lawsuits and other forms of communication. Irrespective
  of the merits of the Companys position, litigation is always an expensive
  and uncertain proposition. In accordance with SFAS No. 5, Accounting for
  Contingencies, (SFAS 5) the Company records a liability when it is both
  probable that a liability has been incurred and the amount of the loss can be
  reasonably estimated. Any such provision would be adjusted to reflect the impact
  of ongoing negotiations, settlements, rulings, advice of legal counsel, and
  other information and events pertaining to a particular case. To date, the Company
  has not recorded such provisions in accordance with SFAS 5. In the event of
  a determination adverse to the Company, the Company could incur substantial
  monetary liability, and be required to change its business practices. However,
  the Company believes that it has valid defenses with respect to the legal matters
  pending against it. Any unfavorable determination could have a material adverse
  effect on the Companys 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.

On June 12, 2003, the Company held its Annual Meeting of Stockholders. At the meeting, the stockholders reelected as the Companys directors Bobby R. Johnson, Jr. (with 83,578,046
affirmative votes, 14,416,486 abstaining, and no votes withheld), Andrew K. Ludwick (with 97,003,495 affirmative votes, 991,037 abstaining, and no votes withheld), Alfred J. Amoroso (with 96,723,349 affirmative votes, 1,271,183 abstaining and no
votes withheld), C. Nicholas Keating, Jr. (with 96,721,207 affirmative votes, 1,273,325 abstaining and no votes withheld) and J. Steven Young (with 97,567,710 affirmative votes, 426,822 abstaining and no votes withheld). The stockholders also
ratified the appointment of Ernst & Young LLP as Foundry's independent auditors for the fiscal year ending December 31, 2003 with 96,714,077 affirmative votes, 1,263,459 opposing votes and 16,996 abstaining.

Item 5. Other Information.None

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 andRestated Certificate of Incorporation filed as Exhibit 3.2 to Registrants
      Registration Statementon 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 Reporton
      Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by
      reference.)

32

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|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)
|(2)
|(3)
|(4)
|(5)
|(6)

33

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(b)
  Reports on Form 8-K.The
  Registrant furnished two Reports on Form 8-K dated April 15, 2003 and April
  23, 2003 to report an event under Item 12, announcing the issuance of press
  releases to announce our earnings for the quarter ended March 31, 2003.

34

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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:                                            
| |                                                
| |                                                
| |                                                

Date:
  August 14, 2003

35

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