UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-Q

(Mark One)

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

For the
  quarterly period ended March 31, 2003

OR

||_| | TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934
|--- | --------------------------------------------------------------------------------------------------------

For the
  transition period from _______________ to _______________

Commission
  file number 000-26689

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

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

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

(408)
  586-1700(Registrants telephone number, including area code)

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

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

Yes  
  |X|      No   |_|

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 May 12, 2003, there
  were 123,134,382 shares of the registrants common stock outstanding, par value
  $0.0001.

---

FOUNDRY
  NETWORKS, INC. TABLE OF CONTENTS



|               |                                                                                             | Page
|-------------- | ------------------------------------------------------------------------------------------- | ----
|               |                                                                                             |     
|PART
      I   | FINANCIAL
      INFORMATION                                                                 |     
|               |                                                                                             |     
|Item
      1.  | Financial
      Statements (Unaudited):                                                     |     
|               |                                                                                             |     
|               | Condensed
      Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002      |     
|               |                                                                                             |     
|               | Condensed
      Consolidated Statements of Income for the Three Months Ended                |     
|               | March
      31, 2003 and 2002                                                               |     
|               |                                                                                             |     
|               | Condensed
      Consolidated Statements of Cash Flows for the Three Months Ended            |     
|               | March
      31, 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
      inSecurities 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 |                                                                                            

---

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

|                                                                                                                                                                                                | March
      31, |   |  | December
      31, |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | - |  | ------------------ | -
|                                                                                                                                                                                                |                
|                                                                                                                                                                                                | 2003            |   |  | 2002               |  
|                                                                                                                                                                                                |                
|                                                                                                                                                                                                | (unaudited)     |   |  | (1)                |  
|ASSETS                                                                                                                                                                                          |                 |   |  |                    |  
|Current
      assets:                                                                                                                                                                           |                 |   |  |                    |  
|Cash
      and cash equivalents                                                                                                                                                                 | $172,710        |   |  | $187,719           |  
|Short-term
      investments                                                                                                                                                                    | 178,605         |   |  | 138,734            |  
|Accounts
      receivable, net of allowances for doubtful accounts of $5,382 and $5,833
      and sales returns of $1,724 and $1,584 atMarch
      31, 2003 and December 31, 2002, respectively | 65,086          |   |  | 51,896             |  
|Inventories                                                                                                                                                                                     | 27,774          |   |  | 33,479             |  
|Deferred
      tax assets                                                                                                                                                                       | 28,564          |   |  | 28,560             |  
|Prepaid
      expenses and other current assets                                                                                                                                                 | 3,692           |   |  | 3,591              |  
|                                                                                                                                                                                                |                
|Total
      current assets                                                                                                                                                                      | 476,431         |   |  | 443,979            |  
|                                                                                                                                                                                                |                
|                                                                                                                                                                                                |                 |   |  |                    |  
|                                                                                                                                                                                                |                 |   |  |                    |  
|Property
      and equipment:                                                                                                                                                                   | 19,278          |   |  | 18,184             |  
|Less:
      Accumulated depreciation                                                                                                                                                            | (13,045         | ) |  | (11,804            | )
|                                                                                                                                                                                                |                
|Net
      property and equipment                                                                                                                                                                | 6,233           |   |  | 6,380              |  
|                                                                                                                                                                                                |                
|Other
      long-term assets                                                                                                                                                                    | 1,188           |   |  | 1,176              |  
|                                                                                                                                                                                                |                
|Total
      assets                                                                                                                                                                              | $483,852        |   |  | $451,535           |  
|                                                                                                                                                                                                |                
|                                                                                                                                                                                                |                 |   |  |                    |  
|LIABILITIES
      AND STOCKHOLDERS EQUITY                                                                                                                                                      |                 |   |  |                    |  
|Current
      liabilities:                                                                                                                                                                      |                 |   |  |                    |  
|Accounts
      payable                                                                                                                                                                          | $13,680         |   |  | $11,684            |  
|Accrued
      payroll and related expenses                                                                                                                                                      | 10,478          |   |  | 11,748             |  
|Warranty
      accrual                                                                                                                                                                          | 2,793           |   |  | 2,305              |  
|Other
      accrued expenses                                                                                                                                                                    | 4,490           |   |  | 3,597              |  
|Income
      taxes payable                                                                                                                                                                      | 10,282          |   |  | 3,868              |  
|Deferred
      support revenue                                                                                                                                                                  | 25,907          |   |  | 20,234             |  
|                                                                                                                                                                                                |                
|Total
      current liabilities                                                                                                                                                                 | 67,630          |   |  | 53,436             |  
|                                                                                                                                                                                                |                
|Commitments
      and contingencies (Note 4)                                                                                                                                                    |                 |   |  |                    |  
|Stockholders
      equity:                                                                                                                                                                     |                 |   |  |                    |  
|Preferred
      stock, $0.0001 par value:                                                                                                                                                       |                 |   |  |                    |  
|Authorized5,000
      shares at March 31, 2003 and December 31, 2002 ; None issued and outstanding
      as of March 31, 2003and
      December 31, 2002                                       |                |   |  |                   |  
|Common
      stock, $0.0001 par value:                                                                                                                                                          |                 |   |  |                    |  
|Authorized300,000
      shares at March 31, 2003 and December 31, 2002:Issued
      and outstanding122,048 and 121,329 shares at March 31, 2003 and December
      31, 2002, respectively     | 12              |   |  | 12                 |  
|Additional
      paid-in capital                                                                                                                                                                | 287,138         |   |  | 282,699            |  
|Note
      receivable from stockholder                                                                                                                                                          | (480            | ) |  | (480               | )
|Deferred
      stock compensation                                                                                                                                                               | (109            | ) |  | (231               | )
|Accumulated
      other comprehensive income                                                                                                                                                    | 177             |   |  | 55                 |  
|Retained
      earnings                                                                                                                                                                         | 129,484         |   |  | 116,044            |  
|                                                                                                                                                                                                |                
|Total
      stockholders equity                                                                                                                                                                | 416,222         |   |  | 398,099            |  
|                                                                                                                                                                                                |                
|Total
      liabilities and stockholders equity                                                                                                                                                | $483,852        |   |  | $451,535           |  
|                                                                                                                                                                                                |                

(1) Derived from audited consolidated financial statements.

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

1

---

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

|                                                                             | Three
      Months Ended March 31,
|---------------------------------------------------------------------------- | ----------------------------------
|                                                                             |                                   
|                                                                             | 2003                              
|                                                                             |                                   
|Net revenues:                                                                |                                   
|Product                                                                      | $81,013                           
|Service                                                                      | 10,125                            
|                                                                             |                                   
|Total
      net revenues                                                     | 91,138                            
|Cost of
      revenues:                                                      |                                   
|Product                                                                      | 35,442                            
|Service                                                                      | 2,061                             
|                                                                             |                                   
|Total
      cost of revenues                                                 | 37,503                            
|                                                                             |                                   
|Gross
      margin                                                           | 53,635                            
|Operating
      expenses:                                                    |                                   
|Research
      and development                                               | 9,921                             
|Sales
      and marketing                                                    | 19,981                            
|General
      and administrative                                             | 3,999                             
|Amortization
      of deferred stock compensation                            | 122                               
|                                                                             |                                   
|Total
      operating expenses                                               | 34,023                            
|                                                                             |                                   
|Income
      from operations                                                 | 19,612                            
|Interest
      income                                                        | 1,065                             
|                                                                             |                                   
|Income
      before provision for income taxes                               | 20,677                            
|Provision
      for income taxes                                             | 7,237                             
|                                                                             |                                   
|Net income                                                                   | $13,440                           
|                                                                             |                                   
|Basic net
      income per share                                             | $0.11                             
|Weighted
      average shares used in computing basic net income per share   | 121,501                           
|                                                                             |                                   
|Diluted
      net income per share                                           | $0.11                             
|Weighted
      average shares used in computing diluted net income per share | 126,740                           

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

2

---

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

|                                                                                        | Three
      Months Ended March 31,
|--------------------------------------------------------------------------------------- | ----------------------------------
|                                                                                        |                                   
|                                                                                        | 2003                              
|                                                                                        |                                   
|CASH
      FLOWS FROM OPERATING ACTIVITIES:                                             |                                   
|Net income                                                                              | $13,440                           
|Adjustments
      to reconcile net income to net cash provided by operating activities: |                                   
|Depreciation                                                                            | 1,241                             
|Amortization
      of deferred stock compensation                                       | 122                               
|Recovery
      of allowance for doubtful accounts                                       | -                                 
|Inventory
      provision                                                               | 1,268                             
|Tax benefit
      from stock option exercises                                           | 612                               
|Change
      in operating assets and liabilities:                                       |                                   
|Accounts
      receivable                                                               | (13,190                           
|Inventories                                                                             | 4,438                             
|Prepaid
      expenses and other assets                                                 | (118                              
|Accounts
      payable                                                                  | 1,996                             
|Accrued
      payroll and related expenses                                              | (1,270                            
|Other
      accrued expenses                                                            | 1,381                             
|Income
      taxes payable                                                              | 6,414                             
|Deferred
      support revenue                                                          | 5,673                             
|                                                                                        |                                   
|Net
      cash provided by operating activities                                         | 22,007                            
|                                                                                        |                                   
|CASH
      FLOWS FROM INVESTING ACTIVITIES:                                             |                                   
|Purchases
      of short-term investments                                               | (95,422                           
|Maturities
      of short-term investments                                              | 55,551                            
|Purchases
      of property and equipment                                               | (1,094                            
|                                                                                        |                                   
|Net
      cash (used) provided by investing activities                                  | (40,965                           
|                                                                                        |                                   
|CASH
      FLOWS FROM FINANCING ACTIVITY:                                               |                                   
|Proceeds
      from issuance of common stock                                            | 3,827                             
|                                                                                        |                                   
|Net
      cash provided by financing activity                                           | 3,827                             
|                                                                                        |                                   
|(DECREASE)
      INCREASE IN CASH AND CASH EQUIVALENTS                                  | (15,131                           
|Effect
      of exchange rate changes on cash                                           | 122                               
|CASH AND
      CASH EQUIVALENTS, BEGINNING OF PERIOD                                    | 187,719                           
|                                                                                        |                                   
|CASH AND
      CASH EQUIVALENTS, END OF PERIOD                                          | $172,710                          
|                                                                                        |                                   

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

3

---

FOUNDRY
  NETWORKS, INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information
  for the three months ended March 31, 2003 and 2002 is unaudited)

1.
  DESCRIPTION OF BUSINESS:

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 enterprises, educational
  institutions, government agencies, web-hosting companies, application service
  providers (ASPs), electronic banking and finance service providers, and Internet
  service providers (ISPs). Our product suite includes the NetIron family of Metro
  routers, FastIron family of Ethernet edge switches, EdgeIron Layer 2 Ethernet
  switches, BigIron family of Gigabit Ethernet core switches and ServerIron family
  of Ethernet Layer 4-7 Internet traffic management switches.

2.
  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. These financial statements and notes should be
  read in conjunction with the Companys audited consolidated financial statements
  and notes thereto included in Foundrys Annual Report on Form 10-K filed
  with the SEC.

The
  unaudited condensed consolidated financial statements included herein reflect
  all adjustments which are, in the opinion of management, necessary for a fair
  presentation of financial position, results of operations and cash flows for
  the periods presented. These adjustments are of a normal, recurring nature.
  The results of operations for the three months ended March 31, 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 March 31, 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.

Cash
  Equivalents and Short-Term Investments

4

---

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.

Foundry
  accounts for its investments under the provisions of Statement of Financial
  Accounting Standards (SFAS) No. 115, Accounting for Certain Investments
  in Debt and Equity Securities. 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):

|                                            | March
      31, 2003    | 
|------------------------------------------- | ----------------------- | 
|                                            |                         | 
|                                            | Amortized
      Cost    | 
|                                            |                         | 
|Money
      market funds                    | $8,619                  | 
|Corporate
      debt securities             | 44,000                  | 
|Commercial
      paper                      | 97,851                  | 
|Government
      securities                 | 166,913                 | 
|                                            |                         | 
|                                            | $317,383                | 
|                                            |                         | 
|                                            |                         | 
|Included
      in cash and cash equivalents | $138,778                | 
|Included
      in short-term investments    | 178,605                 | 
|                                            |                         | 
|                                            | $317,383                | 
|                                            |                         | 
|                                            |                         | 
|                                            |                         | 
|                                            | December
      31, 2002 | 
|                                            |                         | 
|                                            | Amortized
      Cost    | 
|                                            |                         | 
|Money
      market funds                    | $393                    | 
|Commercial
      paper                      | 5,000                   | 
|Commercial
      paper                      | 91,869                  | 
|Government
      securities                 | 149,415                 | 
|                                            |                         | 
|                                            | 246,677                 | 
|                                            |                         | 
|                                            |                         | 
|Included
      in cash and cash equivalents | $107,943                | 
|Included
      in short-term investments    | 138,734                 | 
|                                            |                         | 
|                                            | $246,677                | 
|                                            |                         | 

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):

|                      | March
      31, |  | December
      31,
|--------------------- | --------------- |  | ------------------
|                      |                
|                      | **2003**        |  | **2002**          
|                      |                
|Purchased
      parts | $7,758          |  | $12,470           
|Work-in-process       | 15,845          |  | 17,191            
|Finished
      goods  | 4,171           |  | 3,818             
|                      |                
|                      | $27,774         |  | $33,479           
|                      |                

The
  networking industry is characterized by rapid technological change, frequent
  new product introductions, changes in customer requirements, and evolving industry
  standards. Our inventory purchases and commitments are made in order to build
  inventory to meet future shipment schedules based on forecasted demand for our
  products. We perform a detailed assessment of inventory each period, which includes
  a review of, among other factors, demand requirements, product life

5

---

cycle and development plans,
  component cost trends, product pricing and quality issues. Based on this analysis,
  we record adjustments to inventory for excess, obsolescence or impairment, when
  appropriate, to reduce inventory to net realizable value. Provisions for inventory
  in the amounts of $1.3 million and $2.5 million were recorded for the three
  months ended March 31, 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 almost exclusively 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. We typically sell 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 passes 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. Our 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 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 months ended March 31, 2003 and 2002.

Segment
  Reporting

SFAS
  No. 131, Disclosures About Segments of an Enterprise and Related Information
  established standards for disclosures about operating segments, products and
  services, geographic areas and major customers. Foundry is organized and operates
  as one operating segment, the design, development, manufacturing and marketing
  of high performance

6

---

Gigabit Ethernet switches,
  switching routers, server load balancing and transparent caching switches. Management
  uses one measurement for evaluating profitability and does not disaggregate
  its business for internal reporting.

For
  the three months ended March 31, 2003 and 2002, two customers accounted for
  greater than 10% of our net revenue. One customer, a federal government integrator,
  accounted for 20% of revenues in the first quarter of 2003 and one customer,
  a reseller in Japan, accounted for 15% in the first quarter of 2002.

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 46% of revenues for the three
  months ended March 31, 2003 and 2002, respectively. No individual country outside
  of the United States accounted for greater than 10% of revenue for the three
  months ended March 31, 2003 while one country, Japan, accounted for 15% of revenues
  for the three months ended March 31, 2002.

Computation
  of Per Share Amounts

Basic
  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. 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 March 31, 2003 and 2002, anti-dilutive shares were
  8.7 million and 18.2 million shares, respectively.

|                                                            | Three
      Months Ended March 31,         
|----------------------------------------------------------- | -------------------------------------------
|                                                            |                                            
|                                                            | 2003                                       
|                                                            |                                            
|                                                            | (In
      thousands, except per share data)
|Net income                                                  | $13,440                                    
|Basic:                                                      |                                            
|Weighted
      average shares outstanding                   | 121,533                                    
|Less:
      Weighted average shares subject to repurchase   | (32                                        
|                                                            |                                            
|Weighted
      average shares used in computing basic EPS   | 121,501                                    
|                                                            |                                            
|Basic EPS                                                   | $0.11                                      
|                                                            |                                            
|Diluted:                                                    |                                            
|Weighted
      average shares outstanding                   | 121,501                                    
|Add:
      Weighted average dilutive potential shares       | 5,239                                      
|                                                            |                                            
|Weighted
      average shares used in computing diluted EPS | 126,740                                    
|                                                            |                                            
|Diluted
      EPS                                           | $0.11                                      
|                                                            |                                            

Stock-Based
  Compensation

SFAS
  No. 123, Accounting for Stock-Based Compensation (SFAS 123) permits
  the use of either a fair value method or the intrinsic value method defined
  in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
  to Employees (APB Opinion 25) to account for stock-based compensation
  arrangements. Companies that elect to employ the intrinsic value method provided
  for in APB Opinion 25 are required to disclose the pro forma net income (loss)
  that would have resulted from the use of the fair value method provided for
  under SFAS 123. As permitted by SFAS 123, Foundry has elected to determine the
  value of stock-based compensation arrangements under the intrinsic value based
  method of APB Opinion 25. 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. The following table sets forth pro forma information
  as if compensation expense had been determined using the fair value method under
  SFAS 123. The fair value of these options was estimated using a Black-Scholes
  option-pricing model.

7

---

|                                                                                                                                              | **Three
      Months Ended March 31,**           
|--------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------
|                                                                                                                                              |                                                  
|                                                                                                                                              | 2003                                             
|                                                                                                                                              |                                                  
|                                                                                                                                              | (In
      thousands, except per share
      data)
|Net income
      as reported                                                                                                                  | $13,440                                          
|Add: Total
      stock-based compensation expense included in reported net income, net of
      tax effect                                    | 79                                               
|Deduct:
      Total stock-based compensation expense determined under fair value method
      for all awards, net
      of related tax effect | $7,492                                           
|                                                                                                                                              |                                                  
|Pro forma
      net income (loss)                                                                                                             | $6,027                                           
|                                                                                                                                              |                                                  
|Basic
      net income (loss) per share:                                                                                                      |                                                  
|As
      reported                                                                                                                             | $0.11                                            
|Pro
      forma                                                                                                                               | $0.05                                            
|Diluted
      net income (loss) per share:                                                                                                    |                                                  
|As
      reported                                                                                                                             | $0.11                                            
|Pro
      forma                                                                                                                               | $0.05                                            

Pursuant
  to the provisions of SFAS No. 123, the estimated compensation expense associated
  with the Companys option grants was determined on the grant date using
  the Black-Scholes model. The Black-Scholes option pricing 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 changes in the subjective
  input assumptions can materially affect the fair value estimate, in managements
  opinion, the existing models do not necessarily provide a reliable single 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-month periods ended:

|                                      | **Stock
      Option Plans** |  | **Employee
      Stock Purchase
      Plan**
|------------------------------------- | ---------------------------- |  | --------------------------------------------
|                                      |                             
|                                      | March 31,
      2003         |  | March 31,
      2002                        
|                                      |                             
|Average
      risk free interest rate | 2.07%                        |  | 3.50%                                       
|Average
      expected life of option | 3.7 years                    |  | 3.4 years                                   
|Dividend
      yield                  | 0%                           |  | 0%                                          
|Volatility
      of common stock      | 70%                          |  | 75%                                         

Recent
  Accounting Pronouncements

Amendment
  of SFAS 133 on Derivative Instruments and Hedging Activities

In
  April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
  Instruments and Hedging Activities (SFAS 149). SFAS 149 amends and clarifies
  financial accounting and reporting for derivative instruments, including certain
  derivative instruments embedded in other contacts, and for hedging activities
  under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
  (SFAS 133). SFAS 149 also amends SFAS 133 for decisions made (1) as part of
  the Derivatives Implementation Group process that effectively required amendments
  to SFAS 133, (2) in connection with other FASB projects dealing with financial
  instruments, and (3) in connection with implementation issues raised in relation
  to the application of the definition of a derivative. SFAS 149 is effective
  for contracts entered into or modified after June 30, 2003 and for hedging relationships
  designated after June 30, 2003. Provisions of SFAS 149 will be applied prospectively.
  Foundry does not expect the adoption of SFAS 149 to have a material impact on
  its operating results or financial condition.

Consolidation
  of Variable Interest Entities

In
  January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
  of Variable Interest Entities (FIN 46). FIN 46 requires that if an entity
  has a controlling financial interest in a variable interest entity, the assets,
  liabilities, and results of activities of the variable interest entity should
  be included in the consolidated financial statements of the entity. For arrangements
  entered into after January 31, 2003, FIN 46 is effective immediately. For arrangements
  entered into prior to January 31, 2003, FIN 46 is effective for the first interim
  or annual period beginning after June 15, 2003. The Company believes it does
  not have any transactions which would be applicable to FIN 46.

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 and APB Opinion No.
  28, Interim Financial Reporting, to require disclosure in the

8

---

summary of significant accounting
  policies of the effects of an entitys accounting policy with respect to
  stock-based compensation on reported net income and earnings per share in annual
  and interim financial statements. SFAS 148s amendment of the transition
  and annual disclosure requirements of SFAS 123 are effective for fiscal years
  ending after December 15, 2002. The interim disclosure provisions are effective
  for financial reports containing financial statements for interim periods beginning
  after December 15, 2002. 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.
  The required interim disclosures are included in Note 2 to the Condensed Consolidated
  Financial Statements.

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 and must
  disclose that information 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 4 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 EITF reached a consensus on Issue No. 00-21, Revenue
  Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides
  guidance on how to account for arrangements that involve the delivery or performance
  of multiple products, services and/or rights to use assets. The provisions of
  EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal
  periods beginning after June 15, 2003. Foundry is currently evaluating the effect
  that the adoption of EITF Issue No. 00-21 will have on its results of operations
  and financial condition.

Accounting
  for Costs Associated with Exit or Disposal Activities

In
  July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
  with Exit or Disposal Activities. SFAS No. 146 requires that a liability
  for costs associated with an exit or disposal activity be recognized and measured
  initially at fair value only when the liability is incurred. SFAS 146 is effective
  for exit or disposal activities that are initiated after December 31, 2002.
  Foundrys adoption of SFAS 146 is not expected to have a significant impact
  on its operating results and financial condition.

3.
  COMPREHENSIVE INCOME

Comprehensive
  income is defined in SFAS No. 130, Reporting Comprehensive Income,
  as the changes in equity of an enterprise except those resulting from stockholder
  transactions. Components of comprehensive income for the three months ended
  March 31, 2003 and 2002 were insignificant and comprised only of foreign currency
  translation adjustments.

4.
  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:

9

---



|Balance,
      December 31, 2002                                  | $2,305
|----------------------------------------------------------------- | ------
|Liabilities
      accrued for warranties issued during the period | 1,082 
|Warranty
      claims settled during the period                   | (594) 
|                                                                  |       
|Balance,
      March 31, 2003                                     | $2,793
|                                                                  |       

The
  Company has standard indemnification clauses contained within certain customer
  contracts which state that the Company indemnifies the parties to whom it sells
  its products with respect to the Company's product infringing upon any patents,
  trademarks, copyrights, or trade secrets, as well as against bodily injury or
  damage to real or tangible personal property caused by a defective Company product.
  As of March 31, 2003, there have been no known events or circumstances that
  have resulted in an indemnification related liability to the Company.

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 March 31, 2003, the Company was potentially committed
  to purchase approximately $32.7 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 in December
  2000 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 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
  (FAC). On April 7, 2003, the Company
  filed a motion to dismiss the plaintiffs FAC. A hearing on the motion has been scheduled for June 13, 2003. 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 is now
  designated as In re Foundry Networks, Inc. Initial Public Offering Securities
  Litigation, No. 01-CV-10640 (SAS) (S.D.N.Y.), related to In re Initial
  Public Offering Securities Litigation, No. 21 MC 92 (SAS) (S.D.N.Y.). The
  case is brought purportedly on behalf of all persons who purchased the Companys
  common stock from September 27, 1999 through December 6, 2000. The Company and
  its officers were served with the complaint, only after the maximum 120 days
  for service allowed under the Federal Rules of Civil Procedure had elapsed.
  On or about April 19, 2002, plaintiffs electronically served an amended complaint.
  The amended complaint names as defendants, the Company, three of its officers,
  and investment banking firms that served as underwriters for the Companys
  initial public offering in September 1999. The amended complaint alleges 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 prospectus incorporated
  in the registration statement for the offering failed to disclose, among other
  things, that (i) the underwriters had solicited and received excessive and undisclosed
  commissions from certain investors in exchange for which the underwriters allocated
  to those investors material portions of the shares of the Companys stock
  sold in the initial public offering, and (ii) the underwriters had entered into
  agreements with customers whereby the underwriters agreed to allocate shares
  of the Companys stock sold in the initial public offering to those customers
  in exchange for which the customers agreed to purchase additional shares of
  the Companys stock in the aftermarket at pre-determined prices. The amended
  complaint also alleges that false analyst

10

---

reports were issued following
  the IPO. No specific damages are claimed. We are aware that similar allegations
  have been made in lawsuits relating to more than 300 other initial public offerings
  conducted in 1999 and 2000. Those cases have been consolidated for pretrial
  purposes before the Honorable Judge Shira A. Scheindlin. Motions to dismiss
  the case were filed on behalf of all the defendants in all of the cases. On
  February 19, 2003, Judge Scheindlin issued a ruling on the motions. 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 court
  denied the motion to dismiss the claims against the Company alleged under the
  Securities Act of 1933. The same ruling was made in all but 10 of the other
  cases. The Court dismissed the claims alleged under the Securities Exchange
  Act of 1934, Section 10(b), against the Company and one of the individual defendants
  and dismissed all of the controlling person claims alleged under
  that Act against all of the Foundry Networks individual defendants. The Court
  denied the motion to dismiss the Section 10(b) claims against the remaining
  Foundry Networks individual defendants on the basis that those defendants sold
  the Companys stock during the class period alleged in the complaint and
  that those allegations were 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.

Management
  believes that the remaining allegations in the above referenced class action
  lawsuits against the Company and its officers are without merit and management
  intends to contest them vigorously. The litigation process is inherently uncertain.
  If the outcome of the litigation is adverse to the Company and if, in addition,
  the Company is required to pay significant monetary damages in excess of available
  insurance, its business could be significantly harmed.

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.

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.

5.
  INCOME TAXES:

Foundry
  recorded an income tax provision for the three months ended March 31, 2003 of
  $7.2 million as compared to $0.5 million for the same period in 2002. The effective
  tax rates for the three months ended March 31, 2003 and 2002 was 35% and 32%,
  respectively. 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 $0.6 million and $0.4
  million for the three months ended March 31, 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 March 31, 2003.

6.
  STOCKHOLDERS EQUITY:

11

---

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.

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 Securities and Exchange Commission (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 enterprises, educational
  institutions, government agencies, web-hosting companies, application service
  providers (ASPs), electronic banking and finance service providers, and Internet
  service providers (ISPs). 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. Throughout
  2002, we introduced a series of new products that incorporate the 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 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
  rapidly growing enterprise and service provider markets.

Foundry
  completed its first quarter of 2003 with $91.1 million of revenues and net income
  of $13.4 million. 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 in the first quarter of 2003, increasing revenue, and improving
  gross margins and income from operations. 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
  results.

12

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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 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, affect its more significant
  judgments and estimates used in the preparation of its condensed consolidated
  financial statements. These and other significant accounting policies are more
  fully described in Note 2 to the Condensed Consolidated Financial Statements
  included in this Quarterly Report on Form 10-Q. 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
  March 31, 2003.

Results
  of Operations

Net
  Revenues

The
  following table shows product and service net revenues for the three months
  ended March 31, 2003 and 2002 (in thousands):

|                         | Three
      Months Ended March 31,
|------------------------ | ----------------------------------
|                         |                                   
|                         | 2003                              
|                         |                                   
|Net revenues:            |                                   
|Product                  | $                                 
|Service                  |                                   
|                         |                                   
|Total net
      revenues | $                                 
|                         |                                   

Product
  net revenues were $81.0 million and $54.7 million in the first quarter of 2003
  and 2002, respectively, representing an increase of 48%. The increase was 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,
  the FastIron Edge Switch. Sales of our FastIron switches have increased significantly
  since their introduction and contributed to the increase in revenue in the first
  quarter of 2003, as compared to the same period in 2002. Our sales to the U.S. government
  were particularly robust in the first quarter of 2003, representing approximately
  30% of our product revenues. Historically, sales to the U.S. government have
  represented less than 20% of our product 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
  net revenues were $10.1 million and $7.7 million, accounting for 11% and 12%
  of total revenues for the first quarter of 2003 and 2002, respectively. The
  increase in absolute dollars was due to increased technical support service
  initiations and renewals associated with product sales. 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.
  A total of $25.9 million and $20.2 million of support revenue was deferred on
  the accompanying balance sheets as of March 31, 2003 and December 31, 2002,
  respectively. Deferred support revenue increased $5.7 million due to the initiation
  of support renewals for 2003.

For
  the three months ended March 31, 2003 and 2002, two customers accounted for
  greater than 10% of our revenues. One customer, a U.S. government integrator,
  accounted for 20% of our revenues in the first quarter of 2003. In the first
  quarter of 2002, one customer, a reseller in Japan, accounted for 15% of our
  revenues. Sales to customers outside of the United States decreased as a percentage
  of revenues, accounting for 31% and 46% for the three months ended March 31,
  2003 and 2002, respectively. The decrease as a percentage of revenues was primarily
  due to a period-over-period revenue growth of 46% that was fueled primarily
  by stronger sales to the U.S. government. To a lesser extent, the decrease in
  export sales as a percentage of revenues was due to stagnant economic conditions
  in Asia, particularly Japan. Japan accounted for 10% of revenues for the three
  months ended March 31, 2003, compared to 15% for the same period in 2002.

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Gross
  Margins

The
  following table shows gross margins for product and service revenues and the
  related gross margin percentages for the three months ended March 31, 2003 and
  2002 (in thousands):

|                          | Three
      Months Ended March 31,
|------------------------- | ----------------------------------
|                          |                                   
|                          | 2003                              
|                          |                                   
|Gross margins:            |                                   
|Product                   | $45,571                           
|Service                   | 8,064                             
|                          |                                   
|Total gross
      margins | $53,635                           
|                          |                                   

Our
  cost of product revenues consists primarily of material, labor, manufacturing
  overhead, freight, warranty costs, and the provision for inventory. Product
  gross margins were $45.6 million and $26.4 million for the three months ended
  March 31, 2003 and 2002 or 56% and 48% of product revenues, respectively. The
  increase in product gross margin as a percentage of product revenues in the
  first quarter of 2003 was primarily due to lower material costs, increased sales
  of some of our high-end products which carry higher gross margins, and manufacturing
  efficiencies resulting from increased sales volume. The improvement in gross
  margins was attributed, to a lesser extent, to lower inventory provisions. Inventory
  provisions decreased from $2.5 million in the first quarter of 2002 to $1.3
  million in the first quarter of 2003.

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 remained unchanged at 80%
  for the three months ended March 31, 2003 and 2002. 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 months ended March 31, 2003 and 2002
  (in thousands):

|                                 | Three
      Months Ended March 31,
|-------------------------------- | ----------------------------------
|                                 |                                   
|                                 | 2003                              
|                                 |                                   
|Research
      and Development   | $9,921                            
|Sales and
      Marketing        | $19,981                           
|General
      and Administrative | $3,999                            

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 property
  and equipment related to research and development activities. Research and development
  expenses were $9.9 million and $8.5 million for the three months ended March
  31, 2003 and 2002 or 11% and 14% of revenues, respectively. The 16% increase
  in absolute dollars was due to a 12% increase in the average headcount from
  the first quarter of 2002 to the first quarter of 2003 and increased prototype
  expenses associated with the development of our next generation platform. We
  believe continued investment in product enhancements and new product development
  is critical to attaining our strategic objectives, and as a result, we expect
  research and development expenses to continue to increase in absolute dollars.

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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 $20.0 million and $20.6 million for the three
  months ended March 31, 2003 and 2002 or 22% and 33% of revenues, respectively.
  The slight decrease in absolute dollars was due to lower advertising expenses
  incurred in the first quarter of 2003. We believe that continued investment
  in sales and marketing is critical to our success and expect these expenses
  to slightly increase in absolute dollars in 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
  $4.0 million and $3.0 million for the three months ended March 31, 2003 and
  2002 or 4% and 5% of revenues, respectively. The $1.0 million increase was due
  to a $0.2 million recovery of bad debt expense in the first quarter of 2002,
  compared to no bad debt provisions recorded in the first quarter of 2003, and
  increases in a variety of other general expenses including legal expenses associated
  with legal matters discussed in Note 4 Commitments and Contingencies. We expect
  general and administrative expenses will increase slightly in 2003, compared
  to 2002.

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 $122,000 and $382,000 for the three months ended March 31,
  2002 and 2002, respectively. At March 31, 2003, we had approximately $109,000
  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 $1.1 million
  and $1.5 million for the three months ended March 31, 2003 and 2002, respectively.
  Interest income decreased due to lower interest rates during the first quarter
  of 2003 as compared to interest rates during the first quarter of 2002. See
  Item 7A Quantitative and Qualitative Disclosures about Market Risk
  for a description of our investment policy.

Income
  taxes

We have recorded an income tax provision for the three months ended March 31,
  2003 of $7.2 million as compared to $0.5 million for the same period in 2002.
  The increase in the tax provision was due to significantly higher net income
  of $13.4 million generated in the first quarter of 2003 compared to $1.0 million
  in the first quarter of 2002. The effective tax rates for the three months ended
  March 31, 2003 and 2002 was 35% and 32%, 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
  March 31, 2003, Foundry had cash and cash equivalents and short-term investments
  totaling $351.3 million as compared to $326.5 million at December 31, 2002,
  an increase of $24.8 million.

Cash
  provided by operating activities was $22.0 million and $6.7 million for the
  three months ended March 31, 2003 and 2002, respectively. The increase was primarily
  a result of significantly higher net income of $13.4 million generated in the
  first quarter of 2003 as compared to $1.0 million for the same period in 2002.
  The increase in cash provided by operating activities was also due to a decrease
  in inventory and increases in income tax payable and deferred support revenue,
  offset by a significant increase in accounts receivable in the first quarter
  of 2003.

Cash
  utilized in investing activities of $41.0 million was primarily from the net
  purchase of short-term investments of $39.9 million for the three months ended
  March 31, 2003. This compares to cash provided from net maturities of short-term
  investments of $5.3 million for the same period in 2002. During the first quarter
  of 2003, the Company shifted significantly more cash from money market to short-term
  investments as compared to the same period in 2002 in order to improve its return
  on investments. See Item 7A Quantitative and Qualitative Disclosures about
  Market Risk for a description of our investment policy.

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Financing
  activities generated $3.8 million of cash for the three months ended March 31,
  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 through stock option exercises and the employee
  stock purchase plan.

The
  following table summarizes our contractual obligations at March 31, 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                              | $18,588 |  |                              | $4,653  |                 |  |                           
|Purchase
      commitments with our contract manufacturers | 32,715  |  |                              | 32,715  |                 |  |                           
|                                                           |         |  |                              |         |                 |  |                           
|Total
      contractual cash obligations                   | $51,303 |  |                              | $37,368 |                 |  |                           
|                                                           |         |  |                              |         |                 |  |                           

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, geopolitical turmoil, and the SARs epidemic
  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 and the SARs epidemic, 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 quarter 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. 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 55% of revenues for the three months
  ended March 31, 2003 and 37% for the year ended December 31, 2002. The loss
  of continued orders from our more significant customers 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

• 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

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business. Although our largest
  customers may vary from period to period, we anticipate that our operating results
  for any given period will continue to depend on large orders from a small number
  of customers.

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, and Enterasys Networks. 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
  may not be able to maintain profitability.

We
  generated net income of $13.4 million for the quarter ended March 31, 2003 on
  revenues of $91.1 million and $22.5 million for the year ended December 31,
  2002 on revenues of $300.7 million. As of March 31, 2003, we had retained earnings
  of $129.5 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.

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.

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

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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. 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, 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.

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.

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 5% of revenues
  for the three months ended March 31, 2003 and for the year ended December 31,
  2002. 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.

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.

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 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

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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
  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 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.

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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 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

21

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marketing expenses and expend
  significant management effort. Consequently, if sales forecasted from a specific
  customer for a particular quarter are not realized in that quarter, we may not
  meet our revenue expectations.

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

Our
  success depends in part on both the adoption of industry standards for new technologies
  in our market and our products compliance with industry standards. Many
  technological developments occur prior to the adoption of the related industry
  standard. The absence of an industry standard related to a specific technology
  may prevent market acceptance of products using the technology. 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, we may develop products that do not comply with a later-adopted industry
  standard, which could hurt our ability to sell these products. If the industry
  evolves to new standards, we may not be able to successfully design and manufacture
  new products in a timely fashion that meet these new standards. Even after industry
  standards are adopted, the future success of our products depends 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
  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.

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. 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

22

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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, certain companies often attempt 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 any technology it does not
  require for its product portfolio. 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.

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 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;

23

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- 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.

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.

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. 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 they are currently
  deliberating, which they believe will become effective on January 1, 2004. We
  will continue to monitor their progress on the issuance of this standard.

Management
  beneficially owns approximately 14% 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.

24

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Foundrys
  directors and executive officers beneficially own approximately 14% of our outstanding
  common stock as of March 31, 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, or power shortages.

Our
  operations are susceptible to outages due to fire, floods, power loss, power
  shortages, telecommunications failures, break-ins and similar events. In addition,
  our headquarters and contract manufacturers are located in Northern California,
  an area susceptible to earthquakes. In recent years, the western United States
  (and California in particular) has experienced episodes of diminished electrical
  power supply. As a result of these episodes, our contractors facilities
  and certain of our operations or facilities may be subject to rolling
  blackouts or other unscheduled interruptions of electrical power. As a
  result of this energy crisis, these contractors may be unable to manufacture
  sufficient quantities of our products or they may increase their service fees.
  In addition, since Silicon Valley is an important industrial area for the United
  States, we may be subject to 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 generally 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 $351.3
  million of cash equivalents and short-term investments at March 31, 2003 by
  approximately $3.5 million. Our investment portfolio as of March 31, 2003 includes
  only marketable securities with original maturities of less than one year and
  with secondary or resale markets to ensure portfolio liquidity.

We
  have no investments denominated in foreign country currencies and therefore
  are not subject to foreign currency risk on such investments. 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

25

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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 timely 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, within the 90-day
  period prior to the filing of 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 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
  or other factors that could significantly affect these controls subsequent to
  the date of their evaluation.

26

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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 in December
  2000 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 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
  (FAC). On April 7, 2003, the Company
  filed a motion to dismiss the plaintiffs FAC. A hearing on the motion has been scheduled for June 13, 2003. 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 is now
  designated as In re Foundry Networks, Inc. Initial Public Offering Securities
  Litigation, No. 01-CV-10640 (SAS) (S.D.N.Y.), related to In re Initial
  Public Offering Securities Litigation, No. 21 MC 92 (SAS) (S.D.N.Y.). The
  case is brought purportedly on behalf of all persons who purchased the Companys
  common stock from September 27, 1999 through December 6, 2000. The Company and
  its officers were served with the complaint, only after the maximum 120 days
  for service allowed under the Federal Rules of Civil Procedure had elapsed.
  On or about April 19, 2002, plaintiffs electronically served an amended complaint.
  The amended complaint names as defendants, the Company, three of its officers,
  and investment banking firms that served as underwriters for the Companys
  initial public offering in September 1999. The amended complaint alleges 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 prospectus incorporated
  in the registration statement for the offering failed to disclose, among other
  things, that (i) the underwriters had solicited and received excessive and undisclosed
  commissions from certain investors in exchange for which the underwriters allocated
  to those investors material portions of the shares of the Companys stock
  sold in the initial public offering, and (ii) the underwriters had entered into
  agreements with customers whereby the underwriters agreed to allocate shares
  of the Companys stock sold in the initial public offering to those customers
  in exchange for which the customers agreed to purchase additional shares of
  the Companys stock in the aftermarket at pre-determined prices. The amended
  complaint also alleges that false analyst reports were issued following the
  IPO. No specific damages are claimed. We are aware that similar allegations
  have been made in lawsuits relating to more than 300 other initial public offerings
  conducted in 1999 and 2000. Those cases have been consolidated for pretrial
  purposes before the Honorable Judge Shira A. Scheindlin. Motions to dismiss
  the case were filed on behalf of all the defendants in all of the cases. On
  February 19, 2003, Judge Scheindlin issued a ruling on the motions. 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 court
  denied the motion to dismiss the claims against the Company alleged under the
  Securities Act of 1933. The same ruling was made in all but 10 of the other
  cases. The Court dismissed the claims alleged under the Securities Exchange
  Act of 1934, Section 10(b), against the Company and one of the individual defendants
  and dismissed all of the controlling person claims alleged under
  that Act against all of the Foundry Networks individual defendants. The Court
  denied the motion to dismiss the Section 10(b) claims against the remaining
  Foundry Networks individual defendants on the basis that those defendants sold
  the Companys stock during the class period alleged in the complaint and
  that those allegations were 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.

Management
  believes that the remaining allegations in the above referenced class action
  lawsuits against the Company and its officers are without merit and management
  intends to contest them vigorously. The litigation process is inherently uncertain.
  If the outcome of the litigation is adverse to the Company and if, in addition,
  the Company is required to pay significant monetary damages in excess of available
  insurance, its business could be significantly harmed.

27

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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.

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 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.None

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
      and Restated Certificate of Incorporation filed as Exhibit 3.2 to Registrants
      Registration Statement on Form S-1 (Commission File No. 333-82577) and incorporated
      herein by reference; Certificate of Amendment to the foregoing filed as
      Exhibit 3.1 to Registrants Quarterly Report on Form 10-Q for the quarter
      ended June 30, 2000 and incorporated herein by reference.)
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|3.2    |  | Amended and
      Restated Bylaws of Foundry Networks, Inc. (Filed as Exhibit 3.2 to Registrants
      Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 and
      incorporated herein by reference.)                                                                                                                                                                                                                                                                             
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.1   |  | 1996 Stock
      Plan. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.2   |  | 1999 Employee
      Stock Purchase Plan. (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.3   |  | 1999 Directors
      Stock Option Plan. (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.5   |  | OEM Purchase
      Agreement dated January 6, 1999 between Foundry Networks, Inc. and Hewlett-Packard
      Company, Workgroup Networks Division. (4)                                                                                                                                                                                                                                                                                                                                                   
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.6   |  | Reseller Agreement
      dated July 1, 1997 between Foundry Networks, Inc. and Mitsui & Co.,
      Ltd. (4)                                                                                                                                                                                                                                                                                                                                                                                             
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.7   |  | 2000 Non-Executive
      Stock Option Plan. (5)                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.11  |  | Lease agreement
      dated September 28, 1999, between Foundry Networks, Inc., and Legacy Partners
      Commercial Inc., for offices located at 2100 Gold Street, San Jose, CA 95002.
      (6)                                                                                                                                                                                                                                                                                                       
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|99.1   |  | Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                      

|    |                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Copy of original 1996
      Stock Plan incorporated herein by reference to the exhibit filed with the
      Companys Registration Statement on Form S-1 (Commission File No. 333-82577).
      Copy of 1996 Stock Plan reflecting the

28

---

|    | amendments approved
      at the 2000 Annual Meeting of Stockholders incorporated by reference to
      the Companys Definitive Proxy Statement for such meeting (Commission
      File No. 000-26689). Copy of 1996 Stock Plan reflecting the amendments for
      approval at the 2002 Annual Meeting of Stockholders incorporated by reference
      to the Companys Definitive Proxy Statement for such meeting (Commission
      File No. 000-26689).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(2) | Incorporated herein
      by reference to the exhibit filed with the Companys Registration Statement
      on Form S-1 (Commission File No. 333-82577).                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | Incorporated herein
      by reference to the exhibit filed with the Companys Registration Statement
      on Form S-1 (Commission File No. 333-82577). Copy of Directors Plan
      reflecting the amendment for approval at the 2002 Annual Meeting of Stockholders
      incorporated by reference to the Companys Definitive Proxy Statement
      for such meeting (Commission File No. 000-26689).                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(4) | Incorporated herein
      by reference to the exhibit filed with the Companys Registration Statement
      on Form S-1 (Commission File No. 333-82577); Confidential treatment has
      been granted by the Securities and Exchange Commission with respect to this
      exhibit.                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(5) | Incorporated herein
      by reference to the exhibit filed with the Companys Registration Statement
      on Form S-8 filed on October 25, 2000 (Commission File No. 333-48560).                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(6) | Incorporated herein
      by reference to the exhibit filed with the Companys Form 10-Q for
      the quarter ended September 30, 1999 (Commission File No. 000-26689).                                                                                                                                                                                                                                                                                    

(b) Reports on Form
  8-K. None.

29

---

SIGNATURES

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

|    | Foundry
        Networks, Inc.
        (Registrant)
|--- | ---------------------------------------------------
|By: | /s/
         TIMOTHY D. HEFFNER                    
|    |                                                    
|    |                                                    

Date: May 14, 2003

30

---



CERTIFICATIONS

|I,
      Bobby R. Johnson, Jr., certify that:
|---------------------------------------------
|1.                                           
|2.                                           
|3.                                           
|4.                                           

| | a) | designed such disclosure controls and procedures to ensure that material
      information relating to the registrant, including its consolidated subsidiaries,
      is made known to us by others within those entities, particularly during
      the period in which this quarterly report is being prepared;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | evaluated the effectiveness of the registrants disclosure controls
      and procedures as of a date within 90 days prior to the filing date of this
      quarterly report (the Evaluation Date); and                                                                                                        
| | c) | presented in this quarterly report our conclusions about the effectiveness
      of the disclosure controls and procedures based on our evaluations as of
      the Evaluation Date;                                                                                                                             

|5. | The
      registrants other certifying officers and I have disclosed, based
      on our most recent evaluation, to the registrants auditors and the
      audit committee of registrants board of directors (or persons performing
      the equivalent functions):
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all significant deficiencies in the design or operation of internal controls
      which could adversely affect the registrants ability to record, process,
      summarize and report financial data and have identified for the registrants
      auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | any fraud, whether or not material, that involves management or other employees
      who have a significant role in the registrants internal controls;
      and                                                                                                                                              

|6.                                                                                                                                       | The registrants
      other certifying officers and I have indicated in this quarterly report
      whether there were significant changes in internal controls or in other
      factors that could significantly affect internal controls subsequent to
      the date of our most recent evaluation, including any corrective actions
      with regard to significant deficiencies and material weaknesses.
|---------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date:
      May 14, 2003/s/ Bobby R. Johnson, Jr.
              Bobby R. Johnson, Jr.Chief Executive Officer
              and President

31

---



CERTIFICATIONS

|I,
      Timothy D. Heffner, certify that:
|------------------------------------------
|1.                                        
|2.                                        
|3.                                        
|4.                                        

| | a) | designed
      such disclosure controls and procedures to ensure that material information
      relating to the registrant, including its consolidated subsidiaries, is
      made known to us by others within those entities, particularly during the
      period in which this quarterly report is being prepared;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | evaluated
      the effectiveness of the registrants disclosure controls and procedures
      as of a date within 90 days prior to the filing date of this quarterly report
      (the Evaluation Date); and                                                                                                        
| | c) | presented
      in this quarterly report our conclusions about the effectiveness of the
      disclosure controls and procedures based on our evaluations as of the Evaluation
      Date;                                                                                                                             

|5. | The
      registrants other certifying officers and I have disclosed, based
      on our most recent evaluation, to the registrants auditors and the
      audit committee of registrants board of directors (or persons performing
      the equivalent functions):
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all significant deficiencies in the design or operation of internal controls
      which could adversely affect the registrants ability to record, process,
      summarize and report financial data and have identified for the registrants
      auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | any fraud, whether or not material, that involves management or other employees
      who have a significant role in the registrants internal controls;
      and                                                                                                                                              

|6.                                                                                                                                                                            | The registrants
      other certifying officers and I have indicated in this quarterly report
      whether there were significant changes in internal controls or in other
      factors that could significantly affect internal controls subsequent to
      the date of our most recent evaluation, including any corrective actions
      with regard to significant deficiencies and material weaknesses.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date:
      May 14, 2003/s/ Timothy D. Heffner
             Timothy D. Heffner
             Vice President, Finance and Administration,
              Chief Financial Officer

32

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