<PAGE>

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

                               -----------------

                                   FORM 10-Q

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

               For the quarterly period ended September 30, 2001

                                      OR

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

                  For the transition period from          to

                       Commission file number 000-26689

                               -----------------

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

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

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

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

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

                                      N/A

                               -----------------

   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 [_]

   As of November 2, 2001, there were 119,297,368 shares of the registrant's
common stock outstanding, par value $0.0001.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>

                                     INDEX

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<C>      <S>                                                                             <C>

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements:

         Condensed Consolidated Balance Sheets as of September 30, 2001 and
         December 31, 2000..............................................................   3

         Condensed Consolidated Statements of Income for the Three and Nine Months Ended
         September 30, 2001 and 2000....................................................   4

         Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
         September 30, 2001 and 2000....................................................   5

         Notes to Condensed Consolidated Financial Statements...........................   6

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of
         Operations.....................................................................  12

         Risk Factors That May Affect Future Results and Market Price of Stock..........  16

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.....................  26

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings..............................................................  27

Item 2.  Changes in Securities and Use of Proceeds......................................  27

Item 3.  Defaults Upon Senior Securities................................................  27

Item 4.  Submission of Matters to a Vote of Security Holders............................  27

Item 5.  Other Information..............................................................  27

Item 6.  Exhibits and Reports on Form 8-K...............................................  28

SIGNATURES..............................................................................  29
</TABLE>

                                      2

<PAGE>

                         PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

                            FOUNDRY NETWORKS, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                          September 30, December 31,
                                                                              2001          2000
                                                                          ------------- ------------
                                                                           (unaudited)      (1)
<S>                                                                       <C>           <C>
                               ASSETS
Current assets:
   Cash and cash equivalents.............................................   $130,677      $168,429
   Short-term investments................................................    153,303        83,816
   Accounts receivable, net..............................................     53,111        64,573
   Inventories...........................................................     54,609        51,593
   Deferred tax assets...................................................     14,083        13,715
   Prepaid expenses and other current assets.............................      5,363        10,693
                                                                            --------      --------
       Total current assets..............................................    411,146       392,819
   Property and equipment, net...........................................      6,054         4,866
   Other assets..........................................................      4,568           781
                                                                            --------      --------
                                                                            $421,768      $398,466
                                                                            ========      ========

                LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable......................................................   $ 12,412      $ 20,432
   Accrued payroll and related expenses..................................      9,730        11,130
   Warranty accrual......................................................      2,999         2,841
   Other accrued expenses................................................      5,697         5,642
   Deferred support revenue..............................................     14,477        13,405
                                                                            --------      --------
       Total current liabilities.........................................     45,315        53,450
                                                                            --------      --------
Stockholders' equity:
   Common stock and additional paid-in capital:
       Issued and outstanding--120,561,846 and 118,076,155 shares at
         September 30, 2001 and December 31, 2000, respectively..........    277,721       263,184
   Note receivable from stockholder......................................     (3,270)       (3,270)
   Deferred stock compensation...........................................     (2,196)       (5,580)
   Cumulative translation adjustment.....................................        (11)           61
   Retained earnings.....................................................    104,209        90,621
                                                                            --------      --------
       Total stockholders' equity........................................    376,453       345,016
                                                                            --------      --------
                                                                            $421,768      $398,466
                                                                            ========      ========
</TABLE>
--------
(1) Derived from audited consolidated financial statements.

    See accompanying notes to condensed consolidated financial statements.

                                      3

<PAGE>

                            FOUNDRY NETWORKS, INC.

            CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                 Three Months Ended Nine Months Ended
                                                                   September 30,      September 30,
                                                                 ------------------ -----------------
                                                                   2001      2000     2001     2000
                                                                 --------  -------- -------- --------
<S>                                                              <C>       <C>      <C>      <C>
Revenue, net.................................................... $ 74,654  $113,241 $245,774 $272,045
Cost of revenue.................................................   37,152    39,538  117,358   94,853
                                                                 --------  -------- -------- --------
       Gross profit.............................................   37,502    73,703  128,416  177,192
Operating expenses:
   Research and development.....................................    8,436     9,194   24,587   19,528
   Sales and marketing..........................................   22,130    19,566   70,213   44,687
   General and administrative...................................    5,290     2,977   16,332    6,865
   Amortization of deferred stock compensation..................      592     1,382    2,560    4,915
                                                                 --------  -------- -------- --------
       Total operating expenses.................................   36,448    33,119  113,692   75,995
                                                                 --------  -------- -------- --------
Income from operations..........................................    1,054    40,584   14,724  101,197
Interest and other income.......................................    2,023     3,283    7,192    8,023
                                                                 --------  -------- -------- --------
Income before provision for income taxes........................    3,077    43,867   21,916  109,220
Provision for income taxes......................................    1,169    16,641    8,328   41,454
                                                                 --------  -------- -------- --------
       Net income............................................... $  1,908  $ 27,226 $ 13,588 $ 67,766
                                                                 ========  ======== ======== ========
Basic net income per share...................................... $   0.02  $   0.24 $   0.12 $   0.62
                                                                 ========  ======== ======== ========
Weighted average shares used in computing basic net income per
  share.........................................................  118,376   112,199  117,033  108,777
                                                                 ========  ======== ======== ========
Diluted net income per share.................................... $   0.02  $   0.21 $   0.11 $   0.53
                                                                 ========  ======== ======== ========
Weighted average shares used in computing diluted net income per
  share.........................................................  126,077   126,885  125,617  127,045
                                                                 ========  ======== ======== ========
</TABLE>


    See accompanying notes to condensed consolidated financial statements.

                                      4

<PAGE>

                            FOUNDRY NETWORKS, INC.

          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                        Nine Months Ended
                                                                                          September 30,
                                                                                      --------------------
                                                                                        2001       2000
                                                                                      ---------  ---------
<S>                                                                                   <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income........................................................................ $  13,588  $  67,766
   Adjustments to reconcile net income to net cash provided by operating activities:
       Depreciation..................................................................     2,744        882
       Amortization of deferred stock compensation...................................     2,560      4,915
       Provision for allowance for doubtful accounts.................................     2,494      1,545
       Provision for excess and obsolete inventories.................................    10,630      2,948
       Tax benefit from stock option exercises.......................................     3,792     17,024
   Change in operating assets and liabilities:
       Accounts receivable...........................................................     8,968    (51,784)
       Inventories...................................................................   (13,646)   (21,461)
       Other assets..................................................................     3,675     (4,213)
       Accounts payable..............................................................    (8,020)    23,687
       Accrued payroll and related benefits..........................................    (1,400)     6,435
       Income taxes payable..........................................................        --      6,680
       Other accrued liabilities.....................................................       213      3,030
       Deferred revenue..............................................................     1,072      7,610
                                                                                      ---------  ---------
          Net cash provided by operating activities..................................    26,670     65,064
                                                                                      ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment...............................................    (3,932)    (3,026)
   Maturities of short-term investments..............................................   218,756     88,037
   Purchases of short-term investments...............................................  (288,243)  (127,708)
   Purchase of minority investment...................................................    (2,500)        --
                                                                                      ---------  ---------
          Net cash used in investing activities......................................   (75,919)   (42,697)
                                                                                      ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITY:
   Proceeds from issuances of common stock...........................................    11,569      7,412
                                                                                      ---------  ---------
          Net cash provided by financing activity....................................    11,569      7,412
                                                                                      ---------  ---------
       Effect of exchange rate changes on cash.......................................       (72)        --
                                                                                      ---------  ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.....................................   (37,752)    29,779
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................................   168,429    120,378
                                                                                      ---------  ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................. $ 130,677  $ 150,157
                                                                                      =========  =========
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                      5

<PAGE>

                            FOUNDRY NETWORKS, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information for the three and nine months ended September 30, 2001 and 2000 is
                                  unaudited)

1. 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 have been condensed or omitted
pursuant to such rules and regulations. The condensed consolidated balance
sheet as of December 31, 2000 has been derived from the audited financial
statements as of that date, but does not include all disclosures required by
generally accepted accounting principles. 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 and nine months ended September 30,
2001 are not necessarily indicative of the results that may be expected for
future quarters or for the year ending December 31, 2001.

2. SIGNIFICANT ACCOUNTING POLICIES:

  Principles of Consolidation and Basis of Presentation

   The Company's condensed consolidated financial statements reflect the
operations of the Company and its wholly-owned subsidiaries in the United
States, Barbados, France, Canada, Germany, the Netherlands, United Kingdom,
Singapore, Japan, Brazil, and Italy. 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 separate component of stockholders'
equity.

  Use of Estimates in Preparation of Financial Statements

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the period
reported. Actual results could differ from those estimates. Estimates are used
in accounting for, but not limited to, the accounting for excess and obsolete
inventories, product warranty, allowances for doubtful accounts, sales returns,
income taxes, and depreciation. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the consolidated
financial statements in the period they are determined.

  Cash, Cash Equivalents and Short-Term Investments

   Foundry considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash and cash equivalents consist
of commercial paper, government debt securities and cash deposited in checking
and money market accounts.

                                      6

<PAGE>

                            FOUNDRY NETWORKS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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. As of September
30, 2001 and December 31, 2000, Foundry's short-term investments, which were
stated at amortized cost and classified as held-to-maturity, consisted of
commercial paper, corporate and investment grade U.S. debt securities.

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

<TABLE>
<CAPTION>
                                                                   September 30, 2001
                                                       ------------------------------------------
                                                                   Gross      Gross
                                                       Amortized Unrealized Unrealized Estimated
                                                         Cost      Gains      Losses   Fair Value
                                                       --------- ---------- ---------- ----------
<S>                                                    <C>       <C>        <C>        <C>
Money market funds.................................... $ 90,300     $ --       $ --     $ 90,300
Commercial paper......................................   62,471       --         --       62,471
Government securities.................................  127,334      134        (10)     127,458
Corporate debt securities.............................    2,600       --         --        2,600
                                                       --------     ----       ----     --------
                                                       $282,705     $134       $(10)    $282,829
                                                       ========     ====       ====     ========
Included in cash and cash equivalents................. $129,402     $ --       $ --     $129,402
Included in short-term investments....................  153,303      134        (10)     153,427
                                                       --------     ----       ----     --------
                                                       $282,705     $134       $(10)    $282,829
                                                       ========     ====       ====     ========
<CAPTION>

                                                                   December 31, 2000
                                                       ------------------------------------------
                                                                   Gross      Gross
                                                       Amortized Unrealized Unrealized Estimated
                                                         Cost      Gains      Losses   Fair Value
                                                       --------- ---------- ---------- ----------
<S>                                                    <C>       <C>        <C>        <C>
Money market funds.................................... $  9,844     $ --       $ --     $  9,844
Commercial paper......................................   91,779       --        (19)      91,760
Government securities.................................   97,648       28         --       97,676
Corporate debt securities.............................    3,080       --         --        3,080
                                                       --------     ----       ----     --------
                                                       $202,351     $ 28       $(19)    $202,360
                                                       ========     ====       ====     ========
Included in cash and cash equivalents................. $118,535     $ --       $ (6)    $118,529
Included in short-term investments....................   83,816       28        (13)      83,831
                                                       --------     ----       ----     --------
                                                       $202,351     $ 28       $(19)    $202,360
                                                       ========     ====       ====     ========
</TABLE>

  Inventories

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

<TABLE>
<CAPTION>
                                                                      September 30, December 31,
                                                                          2001          2000
                                                                      ------------- ------------
<S>                                                                   <C>           <C>
Purchased parts......................................................    $40,906      $31,975
Work-in-process......................................................      8,481       16,935
Finished goods.......................................................      5,222        2,683
                                                                         -------      -------
                                                                         $54,609      $51,593
                                                                         =======      =======
</TABLE>


                                      7

<PAGE>

                            FOUNDRY NETWORKS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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 credit quality 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
potential doubtful accounts when deemed necessary.

   Foundry purchases several key components used in the manufacture of products
from single or limited sources and depends on supply from these sources to meet
its needs. In addition, Foundry depends on 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.

  Minority Investment

   Foundry has a $2.5 million minority investment in a development stage
private company, who is also a customer. Foundry's interest in the company is
significantly less than 20% and, as such, Foundry does not have the ability to
exercise significant influence. Accordingly, this investment is carried at
cost. If this investment declined in fair value on an other than temporary
basis, Foundry would record an adjustment to the carrying value. To date, no
such impairment has been recognized. This investment is included in other
long-term assets in the accompanying condensed consolidated balance sheet as of
September 30, 2001.

  Revenue Recognition

   Foundry's revenue recognition policy follows SEC Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition in Financial Statements." Specifically,
Foundry recognizes product revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable and
collectibility is probable. In general, this results in revenue being recorded
at the time of shipment, unless we have future obligations for installation or
have to obtain customer acceptance, in which case revenue is deferred until
such obligations have been satisfied or customer acceptance has been received.
Revenue from customer support services is deferred and recognized on a
straight-line basis over the contractual period, generally one year. At
shipment date, Foundry establishes an accrual for estimated warranty expenses
associated with its sales. Foundry's standard warranty period extends 12 months
from the date of sale. 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.

   For the three and nine months ended September 30, 2001, no customers
individually accounted for greater than 10% of our net revenue. For the third
quarter ended September 30, 2001, revenue from customer support contracts
comprised approximately 10% of our net revenue.

   Foundry sells to various countries in North and South America, Europe, Asia,
Australia and the Middle East through its foreign sales offices and
subsidiaries. Foreign operations consist of sales, marketing and support
activities. Foundry's export sales represented 33% for the quarter ended
September 30, 2001 compared to 28% for the same period in 2000. For the nine
months ended September 30, 2001 and 2000, sales to customers outside of the
U.S. accounted for 34% and 24% of net revenue, respectively. Sales to
individual countries outside of the United States represent less than 10% of
revenue.

                                      8

<PAGE>

                            FOUNDRY NETWORKS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Segment Reporting

   In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 was adopted by Foundry in 1997. SFAS No. 131 establishes 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 Gigabit Ethernet switches, Internet routers, and server load
balancing and transparent caching switches. Management uses one measurement for
evaluating profitability and does not disaggregate its business for internal
reporting.

  Computation of Per Share Amounts

   Basic net income per common share and diluted net income per common share
are presented in conformity with SFAS No. 128, "Earnings Per Share" for all
periods presented. In accordance with SFAS No. 128, basic net income per common
share has been calculated using the weighted-average number of shares of common
stock outstanding during the period, less shares subject to repurchase. For the
three and nine months ended September 30, 2001 and 2000, diluted net income per
common share has been calculated assuming the conversion of all dilutive
potential common stock. The common equivalent shares which were anti-dilutive
and therefore, excluded from the diluted earnings per share computation for the
three and nine months ended September 30, 2001 were 11.0 million and 11.2
million shares, respectively. Anti-dilutive shares for the three and nine
months ended September 30, 2000 were 3.4 million and 6.2 million, respectively.

<TABLE>
<CAPTION>
                                                   Three Months Ended   Nine Months Ended
                                                      September 30,       September 30,
                                                   ------------------  ------------------
                                                     2001      2000      2001      2000
                                                   --------  --------  --------  --------
                                                    (in thousands, except per share data)
<S>                                                <C>       <C>       <C>       <C>
Net income........................................ $  1,908  $ 27,226  $ 13,588  $ 67,766
                                                   ========  ========  ========  ========
Basic:
   Weighted average shares of common stock
     outstanding..................................  120,062   116,867   119,284   115,786
   Less: Weighted average shares subject to
     repurchase...................................   (1,686)   (4,668)   (2,251)   (7,009)
                                                   --------  --------  --------  --------
   Weighted average shares used in computing
     basic net income per common share............  118,376   112,199   117,033   108,777
                                                   ========  ========  ========  ========
Basic net income per common share................. $   0.02  $   0.24  $   0.12  $   0.62
                                                   ========  ========  ========  ========
Diluted:
   Weighted average shares of common stock
     outstanding..................................  120,062   116,867   119,285   115,786
   Add: Weighted average dilutive potential
     common stock.................................    6,015    10,018     6,332    11,259
                                                   --------  --------  --------  --------
   Weighted average shares used in computing
     diluted net income per common share..........  126,077   126,885   125,617   127,045
                                                   ========  ========  ========  ========
Diluted net income per common share............... $   0.02  $   0.21  $   0.11  $   0.53
                                                   ========  ========  ========  ========
</TABLE>

  Stock-Based Compensation

   In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This accounting standard permits the use of either a fair value
based method or the 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. Foundry has elected to determine the
value of stock-based compensation arrangements under the provisions of APB
Opinion 25, and accordingly, recognizes no compensation expense for stock
option grants with an exercise price equal to the fair value of the shares at
the date of grant.

                                      9

<PAGE>

                            FOUNDRY NETWORKS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Recent Accounting Pronouncements

   In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 provides new
guidance on the accounting for a business combination at the date a business
combination is completed. Specifically, it requires use of the purchase method
of accounting for all business combinations initiated after June 30, 2001,
thereby eliminating use of the pooling-of-interests method. SFAS No. 142
establishes new guidance on how to account for goodwill and intangible assets
after a business combination is completed. Among other things, it requires that
goodwill and certain other intangible assets with indefinite lives no longer be
amortized and will be tested for impairment at least annually and written down
only when impaired. The Company will follow the requirements of SFAS No. 141
for any future business acquisitions. The adoption of SFAS No. 142 will not
have a material impact on the Company's financial position, results of
operations, or cash flows.

   In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121 by
requiring that one accounting model be used for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired and by
broadening the presentation of discontinued operations to include more disposal
transactions. The Statement will be effective for fiscal years beginning after
December 15, 2001. The adoption of SFAS No. 144 will not have a material impact
on the Company's financial position or results of operations.

   In April 2001, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 00-25, "Vendor Income Statement Characterization of Consideration
Paid to a Reseller of the Vendor's Products." This issue concluded that certain
consumer and trade sales promotion expenses are presumed to be a reduction of
the selling prices of the vendor's products and therefore, should be
characterized as a reduction of revenue when recognized in the vendor's income
statement. The provisions of this pronouncement are required to be applied
starting with fiscal years beginning after December 15, 2001. The Company will
adopt this pronouncement on January 1, 2002. The adoption of EITF 00-25 will
not have a material impact on operating income, net income, or earnings per
share.

3. COMPREHENSIVE INCOME

   Foundry adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998. SFAS
No. 130 establishes standards for reporting and presentation of comprehensive
income. This standard defines comprehensive income as the changes in equity of
an enterprise except those resulting from stockholder transactions. Other
components of comprehensive income for the three and nine months ended
September 30, 2001 and 2000 were immaterial and comprised only of foreign
currency translation adjustments.

4. INCOME TAXES

   The tax benefits associated with the exercise of non-qualified stock
options, the disqualifying disposition of stock acquired with incentive stock
options, and the disqualifying disposition of stock acquired under the employee
stock purchase plan reduced taxes currently payable by $3.8 million and $17.0
million for the nine months ended September 30, 2001 and 2000, respectively.
Such benefits are credited to additional paid-in capital on the accompanying
condensed consolidated balance sheets.

5. 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

                                      10

<PAGE>

                            FOUNDRY NETWORKS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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, lead plaintiffs were selected as required by law and
they 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 to amend and refile within 30 days. The Company believes the lawsuit
is without merit and intends to continue to defend it vigorously.

   From time to time the Company is subject to legal proceeding 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. 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. 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 the Company, the
Company could incur substantial monetary liability, and be required to change
its business practices. Either of these could have a material adverse effect on
the Company's financial position, results of operations, or cash flows.

6. SUBSEQUENT EVENT

   On October 30, 2001, Foundry completed a repurchase of approximately $15.0
million, or 1,522,000 shares of its common stock through open market
transactions pursuant to a repurchase program announced in January 2001.
Pursuant to this program, the Company may repurchase up to a total of 5,000,000
shares of its common stock from time to time until January 2002. The Company
has no current intention to repurchase additional shares.

                                      11

<PAGE>

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.

Overview

   Foundry designs, develops, manufactures and markets a comprehensive,
end-to-end suite of high performance Internet routers, Gigabit Ethernet Layer 2
and Layer 3 switches, 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. Our product suite includes the
NetIron family of Internet core routers, FastIron family of Gigabit Ethernet
edge switches, BigIron family of Gigabit core switches and ServerIron family of
Gigabit Ethernet intelligent network service switches for server farms. In June
2001, we introduced the JetCore ASIC chipset family which consists of different
ASICs that provide various combinations of 10/100 or Gigabit Ethernet ports to
deliver advanced switching and routing functionalities. Purpose-built to meet
the feature, performance and scalability needs of the emerging high-bandwidth
enterprise, Metro and Internet infrastructures, Foundry's JetCore chipset will
be the foundation of Foundry's next-generation switching and routing platforms
as well as the future revisions of Foundry's NetIron Internet routers and
BigIron Layer 3 Gigabit Ethernet switches. In June 2001, we shipped the
FastIron 4802, our first Layer 2/3 switch built with JetCore ASICs for the
enterprise wiring closet and Metro access markets. JetCore ASICs will be
incorporated into all of our next generation product lines by the end of fiscal
2001.

   We derive our revenue substantially from sales of our stackable and
chassis-based products, including fees for customer support services related to
our products. Foundry's revenue recognition policy follows Securities and
Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements." Specifically, Foundry recognizes product revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the sales
price is fixed or determinable and collectibility is probable. In general, this
results in revenue being recorded at the time of shipment, unless we have
future obligations for installation or have to obtain customer acceptance, in
which case revenue is deferred until such obligations have been satisfied or
customer acceptance has been received. Revenue from customer support services
is deferred and recognized on a straight-line basis over the contractual
period, generally one year. At shipment date, Foundry establishes an accrual
for estimated warranty expenses associated with its sales. Foundry's standard
warranty period extends 12 months from the date of sale. 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.

   Our cost of revenue consists primarily of material, labor, manufacturing
overhead, provision for excess and obsolete inventories and warranty costs. We
market and sell our products primarily through a direct sales and marketing
organization and, to a lesser extent, through resellers and through our OEM/Co-
branding relationships with Hewlett-Packard, Lucent Technologies and UTstarcom.
We have sales representatives in the United States, Singapore, Italy, Canada,
France, United Kingdom, Sweden, China, Mexico, Brazil, Netherlands, Germany,
Australia, New Zealand, Dubai, Hong Kong, South Korea, Japan, and Taiwan. We
have made significant

                                      12

<PAGE>

investments to expand our international operations and expect international
revenue to increase as a percentage of total revenue. For the nine months ended
September 30, 2001, sales to customers outside of the U.S. accounted for 34% of
our net revenue compared with 24% for the same period in 2000.

   We generated net income of $88.1 million for the year ended December 31,
2000 and $13.6 million for the nine months ended September 30, 2001. As of
September 30, 2001, we had retained earnings of $104.2 million. Although we
have been profitable for 11 consecutive quarters since the first quarter of
fiscal 1999, our ability to remain profitable depends on our ability to
generate and sustain substantially higher revenue while maintaining reasonable
cost and expense levels. The current unfavorable economic and market conditions
have had a material adverse effect on some of our existing and prospective
customers, with a number of such customers going out of business or
substantially reducing their network expansion plans. As a result, these
conditions have had a material adverse effect on our business and operating
results and may cause our results to fluctuate from quarter to quarter. The
uncertainty of the United States economy and the terrorist attacks of September
11, 2001 have further impaired the Company's ability to project its revenue in
the near future and may reduce the Company's future revenue and profitability.
Additionally, due to a number of factors which are discussed in more detail
below, our selling prices and gross margins have and may continue to decrease
as a result of macro-economic factors and our efforts to compete aggressively,
reduce our inventory levels and maintain sales levels.

  Results of Operations

   The following table sets forth selected items from our statements of income
as a percentage of revenue for the periods indicated (unaudited):

<TABLE>
<CAPTION>
                                                             Three Months     Nine Months
                                                                 Ended           Ended
                                                             September 30,   September 30,
                                                            -------------   -------------
                                                            2001    2000    2001    2000
                                                            -----   -----   -----   -----
<S>                                                         <C>     <C>     <C>     <C>
Revenue, net............................................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue............................................  49.7    34.9    47.8    34.9
                                                            -----   -----   -----   -----
       Gross profit........................................  50.3    65.1    52.2    65.1
                                                            -----   -----   -----   -----
Operating expenses:
   Research and development................................  11.3     8.1    10.0     7.2
   Sales and marketing.....................................  29.6    17.4    28.6    16.4
   General and administrative..............................   7.1     2.6     6.6     2.5
   Amortization of deferred stock compensation.............   0.8     1.2     1.0     1.8
                                                            -----   -----   -----   -----
       Total operating expenses............................  48.8    29.3    46.2    27.9
                                                            -----   -----   -----   -----
Income from operations.....................................   1.5    35.8     6.0    37.2
Interest and other income..................................   2.7     2.9     2.9     2.9
                                                            -----   -----   -----   -----
Income before provision for income taxes...................   4.2    38.7     8.9    40.1
Provision for income taxes.................................  (1.6)  (14.7)   (3.4)  (15.2)
                                                            -----   -----   -----   -----
Net income.................................................   2.6 %  24.0 %   5.5 %  24.9 %
                                                            =====   =====   =====   =====
</TABLE>

   Net revenue. Net revenue decreased 34.1% from $113.2 million for the third
quarter 2000 to $74.7 million for the third quarter 2001 and decreased $26.3
million, or 9.7%, from $272.0 million for the nine months ended September 30,
2000 to $245.8 million for the nine months ended September 30, 2001 as a result
of worsened economic conditions which significantly reduced general demand for
networking products in 2001. Our revenue also decreased as a result of the
terrorist attacks of September 11, 2001 which intensified the economic slowdown
and caused some of our customers to reduce, cancel or reschedule orders for our
products. As a result of the heightened economic uncertainty, we are
experiencing increased difficulty in predicting future sales and may not meet
revenue expectations for future periods. Historical growth rates of revenue may
not be indicative of future results.

                                      13

<PAGE>

   For the three and nine months ended September 30, 2001, no customers
accounted for greater than 10% of our net revenue. Sales to customers outside
of the United States accounted for approximately 33% and 34% of our net revenue
for the three and nine months ended September 30, 2001, respectively. No
individual country accounted for 10% or more of total revenue during these
periods.

   For the quarter ended September 30, 2001, revenue from customer support
contracts accounted for approximately 10% of our net revenue.

   Gross profit. Gross profit decreased $36.2 million from $73.7 million for
third quarter 2000 to $37.5 million for third quarter 2001 and from $177.2
million for the nine months ended September 30, 2000 to $128.4 million for the
nine months ended September 30, 2001. As a percentage of revenue, gross profit
decreased from 65% for the third quarter of 2000 to 50% for the third quarter
of 2001 and decreased from 65% for the nine months ended September 30, 2000 to
52% for the nine months ended September 30, 2001. The percentage decreases were
due to a combination of lower average selling prices, fluctuations in the
product mix and lower volume efficiencies combined with additional provisions
for excess and obsolete inventories totaling $10.6 million during the nine
months ended September 30, 2001.

   Research and development. Research and development expenses consist
primarily of salaries and related personnel expenses, prototype expenses
related to the development of our ASICs, software development and testing
costs, and the depreciation of property and equipment related to research and
development activities. Research and development expenses decreased $800,000
from $9.2 million for the third quarter of 2000 to $8.4 million for the third
quarter of 2001 as a result of the development of our next generation JetCore
ASICs during the third quarter of 2000. Research and development expenses
increased from $19.5 million for the nine months ended September 30, 2000 to
$24.6 million for the nine months ended September 30, 2001 due to the hiring of
additional engineering personnel from 75 at September 30, 2000 to 126 at
September 30, 2001 and expenses associated with the development of our new
product offerings and expenses associated with enhancements to existing product
lines. Research and development costs are expensed as incurred. We believe
continued investment in product enhancements and new product development is
critical to attaining our strategic objectives, and as a result, we expect
research and development expenses to continue to increase in absolute dollars.

   Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions and related expenses for personnel engaged in marketing,
sales and customer support functions, as well as trade shows, advertising,
promotional expenses and the cost of facilities. Sales and marketing expenses
increased from $19.6 million for third quarter 2000 to $22.1 million for third
quarter 2001 and from $44.7 million for the nine months ended September 30,
2000 to $70.2 million for the nine months ended September 30, 2001. The
increases were primarily due to an increase in our sales and marketing
personnel, increased advertising, trade show and promotional expenses
associated with the introduction of new products and general corporate
branding. We expect sales and marketing expenses will remain relatively flat in
the near term due to the uncertainty of customers' spending patterns in the
current economic environment.

   General and administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, finance and
administrative personnel, provisions for doubtful accounts receivable,
facilities expenses and other general corporate expenses. General and
administrative expenses increased from $3.0 million for third quarter 2000 to
$5.3 million for third quarter 2001 and from $6.9 million for the nine months
ended September 30, 2000 to $16.3 million for the nine months ended September
30, 2001. The increases were due to the addition of personnel, an increase in
the provision for doubtful accounts receivable and increases in related
facilities expenses, professional fees, information technology and other
general corporate expenses. We expect general and administrative expenses will
not change significantly in the near term.

   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

                                      14

<PAGE>

$300,000 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. This amount is reflected within stockholders' equity and
is being amortized to operations over the respective vesting periods. We
recorded amortization of deferred stock compensation expense of approximately
$4.9 million and $2.6 million for the nine-month periods ended September 30,
2000 and 2001, respectively. The amount of deferred stock compensation expense
to be recorded in future periods could decrease if options for which accrued
but unvested compensation has been recorded are forfeited. Approximately
$824,000 of compensation expense to be recognized in future periods was
cancelled during the nine months ended September 30, 2001 as a result of
employee terminations. At September 30, 2001, we had approximately $2.2 million
remaining to be amortized over the corresponding vesting period of each
respective option, generally four years.

   Interest and other income. Interest and other income is primarily the result
of the interest earned on our short-term investments and cash held in interest
bearing accounts. Interest and other income decreased from $3.3 million in
third quarter 2000 to $2.0 million in third quarter 2001. The decrease was due
to lower short-term interest rates in third quarter 2001 as a result of Federal
interest rate cuts during 2001. Interest and other income decreased from $8.0
million for the nine months ended September 30, 2000 to $7.2 million for the
nine months ended September 30, 2001 due to the Company maintaining higher
investment balances on average during the first half of 2000 compared to 2001.

   Income taxes. We have recorded an income tax provision for the nine months
ended September 30, 2001 of $8.3 million as compared to $41.5 million for the
same period in 2000. The effective tax rates for the nine months ended
September 30, 2001 and 2000 were 38.0% based upon the estimated annualized tax
rates.

Liquidity and Capital Resources

   At September 30, 2001 Foundry had cash and cash equivalents and short-term
investments totaling $284.0 million as compared to $252.2 million at December
31, 2000, an increase of $31.8 million. The increase was primarily due to the
Company's continued profitability for the eleventh consecutive quarter. For the
nine months ended September 30, 2001, Foundry generated cash of $26.7 million
from operations, $11.6 million from the issuances of common stock offset by
$6.4 million used for the purchase of fixed assets and a minority investment.
Cash provided by operations decreased from $65.1 million to $26.7 million for
the nine months ended September 30, 2000 and 2001, respectively, primarily due
to significantly lower than anticipated net income. Net income decreased from
$67.8 million for the nine months ended September 30, 2000 to $13.6 million for
the nine months ended September 30, 2001 as a result of lower than anticipated
revenues due to an overall decline in the U.S. economy and in particular,
reduced capital spending by our customer base.

   As of September 30, 2001, we did not have any material commitments for
capital expenditures. However, we expect to incur capital expenditures as we
expand our operations. Although we do not have any current plans or commitments
to do so, from time to time, we may also consider the acquisition of, or
evaluate investments in, products and businesses complementary to our business.
Any acquisition or investment may require additional capital. On October 30,
2001, we repurchased approximately 1.5 million shares of our common stock for
approximately $15.0 million.

   We believe that our cash and short-term investment balances at September 30,
2001 will enable us to meet our working capital requirements for at least the
next 12 months. However, there can be no assurance that we will not require
additional financing within this time frame or that such additional funding, if
needed, will be available on acceptable terms.

                                      15

<PAGE>

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

Although we have been profitable for 11 consecutive quarters since first
quarter 1999, we may not be able to maintain profitability in the future.

   We generated net income of $13.6 million for the nine months ended September
30, 2001 and $88.1 million for the year ended December 31, 2000. As of
September 30, 2001, we had retained earnings of $104.2 million. 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. Although we
have been profitable for the last 11 consecutive quarters, our ability to
remain profitable depends on our ability to generate and sustain substantially
higher revenue while maintaining reasonable cost and expense levels. We may not
be able to sustain or increase profitability on a quarterly or annual basis in
the future.

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

   Our quarterly revenue and operating results are difficult to predict,
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.
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.

   Our quarterly revenue and operating results will also 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. In recent quarters, our operating results have been adversely
affected as a result of recent unfavorable economic conditions and reduced
capital spending, particularly in the United States. 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 continue to experience
material adverse impacts on our business, operating results, and financial
condition. Furthermore, the recent terrorist attacks in New York and Washington
D.C. on September 11, 2001 have disrupted commerce throughout the world and
have intensified the uncertainty of the U.S. economy. The continued threat of
terrorism and heightened security and military action in response to this
threat may cause further disruption to the economy. To the extent that such
disruptions result in delays or cancellations of customer orders, the
manufacture or shipment of our products, our business and results of operations
could be materially and adversely affected.

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

   For the three and nine months ended September 30, 2001 and the year ended
December 31, 2000, no customers accounted for greater than 10% of our net
revenue. This may not necessarily be indicative of future customer
concentrations. Although our customer base has become less concentrated, the
loss of continued orders from our more significant customers could cause our
revenue and profitability to suffer.

                                      16

<PAGE>

   While our financial performance may depend on large, recurring orders from
certain customers and resellers, we do not have binding commitments from any of
them. For example:

   .   our reseller agreements generally do not require minimum purchases;

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

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

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

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

Financial results for any particular period will not predict results for future
periods.

   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 should not rely on the results for any
period as an indication of future performance. In the future, our revenue may
grow at a slower rate or not at all and on a quarter-to-quarter basis may be
significantly lower than our historical quarterly growth rate. As a
consequence, operating results for a particular quarter are extremely difficult
to predict. We expect that our operating expenses will increase if we expand
our sales and marketing operations and as we continue to develop new products.
Further, we are subject to employer payroll taxes when our employees exercise
their non-qualified stock options. The employer payroll taxes are assessed on
each employee's gain, which is the difference between the price of our common
stock on the date of exercise and the exercise price. During a particular
period, these payroll taxes could be material depending on the number of stock
options exercised and the fair market value of our common stock during such
period. These employer payroll taxes would be recorded as a charge to
operations in the period such options are exercised based on actual gains
realized by employees. In addition to the net proceeds we would receive upon
the exercise of stock options, we would receive tax deductions for gains
realized by employees on the exercise of non-qualified stock options for which
the benefit is recorded as additional paid-in capital. However, because we are
unable to predict our future stock price and the number of optionees who may
exercise during any particular period, we cannot predict what, if any, expense
will be recorded in a future period and the impact on our future financial
results.

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

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

   We also compete with other large public companies, such as Nortel Networks
and Enterasys Networks as well as other smaller public and private companies
such as Juniper Networks and Extreme 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 offer, or bring to market earlier, products that are superior to
ours in terms of features, quality, pricing or other factors.

                                      17

<PAGE>

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

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

   If we are unable to effectively expand, train and retain our domestic sales
and support staff or establish and cultivate relationships with our indirect
distribution channels, our ability to grow and increase revenue could be harmed
or if our resellers are not successful in their sales efforts, sales of our
products may decrease and our operating results would 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 expand
our direct sales operation and customer service staff to support new and
existing customers. The timing and extent of any such expansion is 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.

   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 current life cycle of our products is typically 18 to 24
months. In June 2001, we introduced JetCore, our third generation of ASICs
which will be incorporated within our existing product lines by the end of
fiscal 2001. The introduction of new products or product enhancements may
replace or shorten the life cycle of our existing products and may cause
customers to defer purchasing our existing products. This could harm our
operating results by decreasing sales, increasing our inventory levels of older
products and exposing us to greater risk of product obsolescence. 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 continued 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 substantial portion of our business and revenue depends on the continued
growth 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
increased significantly over the past several years based upon the growth of
the Internet. There can be no assurance that spending on Internet
infrastructure will continue at these historical rates. As a result of the
recent economic decline, 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 continue to expand as a widespread communications medium and commercial
marketplace, the growth of the market for Internet infrastructure equipment may
not continue and the demand for our products could be harmed.

                                      18

<PAGE>

Our revenue may be adversely affected by a reduction in outside financing made
available to our emerging company customers.

   Our customer base includes emerging enterprise, telecommunications and
Internet companies who rely on venture capital firms and other similar
financing sources to fund their operations and growth. Due to the slowdown of
the economy and other factors, many of these customers have and may experience
cash flow problems and are finding it increasingly difficult to obtain
financing on attractive terms, if at all. Some of these companies have been
unable to raise adequate capital and have reduced or ceased their purchases of
our products and some have been unable to pay or have delayed payment for
products they had previously purchased. The inability of some of our existing
and prospective customers to pay us for our products may adversely affect the
timing of revenue recognition and such reductions in spending or payment
defaults by this segment of our customer base have had and may have an adverse
effect on our operating results and stock price.

Our gross margin 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 rapid 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 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, with
the recent disruption in the technology sector coupled with more broad
macro-economic factors, both we and our competitors may pursue more aggressive
pricing strategies in an effort to maintain sales levels. Such intense pricing
competition could cause our gross margins to decline and may adversely affect
our business, operating results, or financial condition.

   Our gross margins may be further 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 excess and obsolete
inventories. Additionally, our gross margins may be affected by fluctuations in
manufacturing volumes, component costs, the mix of product configurations sold
and the mix of distribution channels through which our products are sold. 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, gross margin 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 is intense, especially in the San
Francisco Bay Area, and we have experienced 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. 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

                                      19

<PAGE>

Executive Officer and Chairman of the Board. We do not have employment
contracts or key person life insurance covering any of our personnel.

Our expansion in international markets will involve 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 Pan Dacom and Total Network Solutions in
Europe, Mitsui in Japan, Shanghai Gentek, GTI and UTStarcom in China and
Samsung in Korea. Although we expect international revenue to increase as a
percentage of our total revenue, the failure of our resellers to sell our
products internationally would limit our ability to sustain and grow our
revenue. In particular, our revenue from Japan depends on Mitsui's ability to
sell our products and on the strength of the Japanese economy which has been
weak in recent years.

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

   .   potential recessions in economies outside the United States;

   .   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; and

   .   unexpected changes in regulatory requirements.

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

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

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

   We currently purchase several key components used in our products from
single or limited sources and depend on supply from these sources to meet our
needs. Our principal suppliers of key components include Celestica, Texas
Instruments, Sanmina, Finisar, Hewlett-Packard, Intel, Fujitsu, Samsung and QCS
Limited. 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 single- or limited-sourced materials and
components can be as long as six months, vary significantly and depend on
factors

                                      20

<PAGE>

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 currently subcontract substantially all of our manufacturing to two
companies located in San Jose, California. Celestica assembles and tests our
printed circuit boards, and Sanmina Corporation assembles and tests our
backplane products. We do not have long-term contracts with either of these
manufacturers. We have experienced delays in product shipments from our
contract manufacturers, which in turn delayed product shipments to our
customers. We may in the future experience similar delays or other problems,
such as inferior quality and insufficient quantity of product, any of which
could harm our business and operating results. We intend to regularly introduce
new products and product enhancements, which will require us to rapidly achieve
volume production by coordinating our efforts with 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 either of our
contract manufacturers, or the ability to obtain raw materials, could cause a
delay in our ability to fulfill orders.

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

   Some of our products have a relatively high sales price, and often represent
a significant and strategic decision by a customer. The decision by customers
to purchase our products is often based on their internal budgets and
procedures involving rigorous evaluation, testing, implementation and
acceptance of new technologies. As a result, the length of our sales cycle in
these situations can be as long as 12 months and may vary substantially from
customer to customer. While our customers are evaluating our products and
before they may place an order with us, we may incur substantial sales and
marketing expenses and expend significant management effort. Consequently, if
sales forecasted from a specific customer for a particular quarter are not
realized in that quarter, we may not meet our revenue expectations.

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

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

                                      21

<PAGE>

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 manage our growth effectively, our business will be harmed.

   We experienced rapid growth which placed, and continues to place, a
significant strain on our resources. Our revenue increased significantly from
fiscal 1999 to 2000, and our headcount increased from 222 employees in 1999 to
572 in 2000 to 600 at September 30, 2001. Our management team has relatively
limited experience managing rapidly growing companies. As a result, we may make
mistakes in operating our business, such as inaccurately forecasting our sales,
which may result in unanticipated fluctuations in our operating results. To
accommodate anticipated growth, we must:

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

   .   hire, train and manage additional qualified personnel; and

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

   Our current or planned personnel systems, procedures and controls may not be
adequate to support our future operations. During the second quarter of 2001,
we completed the implementation of an Enterprise Resource Planning system to
meet the needs associated with the growth of our operations. As our
international operations grow, we will need to expand our support and
communications infrastructure overseas as well. 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 legal foreign and international standards
required for their sale, which will 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 with recommendations of the International
Telecommunication Union. Although 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 certificates, we
would not be able to sell our products where these standards or regulations
apply, which may prevent us from sustaining our revenue or maintaining
profitability.


                                      22

<PAGE>

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

   Although Foundry continues to focus on internal product development and
growth, we may review 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;

   .   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 more 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.

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

   Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. We do not own any patents
although we do 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 may not
have taken all the actions necessary or desirable to adequately protect our
intellectual property rights.

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

                                      23

<PAGE>

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

   Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, some companies in the networking
markets have extensive patent portfolios with respect to networking technology.
As a result of the existence of a large number 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 infringe patent rights of others.

   From time to time third parties have asserted exclusive patent, copyright,
trademark and other intellectual property 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 fiscal 2000, we received letters from both IBM and
Nortel alleging that certain of our products that operate on industry standards
may infringe one or more of their patents. 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. We are currently analyzing the validity of these claims. Regardless of
the merit of these claims, our investigation could be time-consuming, result in
costly litigation and diversion of technical management personnel, or require
us to develop non-infringing technology or enter into royalty or license
agreements. If there is a successful claim of infringement by any third party,
or if we fail to develop non-infringing technology or license the proprietary
rights, our business could be harmed.

Our stock price has been volatile historically, which may make it more
difficult for you to resell shares when you want at prices you find attractive.

   The trading price of our common stock has been and may continue to be
subject to wide fluctuations. During the year ended December 31, 2000, the
closing sale prices of our common stock on the Nasdaq Stock Market (taking into
consideration any stock splits) ranged from $13.00 to $207.56. During the nine
months ended September 30, 2001, the closing sale prices of our common stock
ranged from $5.80 to $23.50. 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 and media
properties 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.

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 class action lawsuits pending against us
as indicated in 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.

                                      24

<PAGE>

Management beneficially owns approximately 24.3% of our stock; their interests
could conflict with yours; significant sales of stock held by them could have a
negative effect on Foundry's stock price.

   Foundry's directors and executive officers beneficially own approximately
24.3% of our outstanding common stock as of September 30, 2001. 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. Such concentration of ownership may also
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 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, 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 months, the western
United States (and California in particular) has experienced repeated 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. 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.

                                      25

<PAGE>

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. With the exception of
a high-risk $2.5 million minority investment made in a development stage
private company, who is also our customer, in February 2001, our investment
portfolio includes only marketable securities with original maturities of less
than one year and with active secondary or resale markets to ensure portfolio
liquidity.

   We have no investments denominated in foreign country currencies and
therefore are not subject to foreign currency risk on such investments. 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, and, as a result, we have not experienced
significant foreign exchange gains and losses to date. We do not currently
enter into forward exchange contracts to hedge exposures denominated in foreign
currencies or any other derivative financial instruments for trading or
speculative purposes. However, in the event our exposure to foreign currency
risk increases, we may choose to hedge those exposures.

                                      26

<PAGE>

                          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,
lead plaintiffs were selected as required by law and they 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 to amend and refile within
30 days. The Company believes the lawsuit is without merit and intends to
continue to defend it vigorously.

   From time to time the Company is subject to legal proceeding 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. 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. 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 the Company, the
Company could incur substantial monetary liability, and be required to change
its business practices. Either of these 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.

   On October 30, 2001, Foundry completed a repurchase of approximately $15.0
million, or 1,522,000 shares of its common stock through open market
transactions pursuant to a repurchase program announced in January 2001.
Pursuant to this program, the Company may repurchase up to a total of 5,000,000
shares of its common stock from time to time until January 2002. The Company
has no current intention to repurchase additional shares.

                                      27

<PAGE>

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

   (a) Exhibits

<TABLE>
<CAPTION>
Number Description
------ -----------
<C>    <S>
  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*

 10.2  1999 Employee Stock Purchase Plan**

 10.3  1999 Directors' Stock Option Plan**

 10.4  OEM Purchase Agreement dated January 6, 1999 between Foundry Networks, Inc. and Hewlett-
       Packard Company, Workgroup Networks Division.***

 10.5  Reseller Agreement dated July 1, 1997 between Foundry Networks, Inc. and Mitsui & Co., Ltd.***

 10.6  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.****

 10.7  2000 Non-Executive Stock Option Plan*****
</TABLE>
--------
    * Copy of original 1996 Stock Plan incorporated herein by reference to the
      exhibit filed with the Company's Registration Statement on Form S-1
      (Commission File No. 333-82577). Copy of 1996 Stock Plan reflecting the
      amendments approved at the 2000 Annual Meeting of Stockholders
      incorporated by reference to the Company's Definitive Proxy Statement for
      such meeting (Commission File No. 000-26689).

   ** Incorporated herein by reference to the exhibit filed with the Company's
      Registration Statement on Form S-1 (Commission File No. 333-82577).

  *** 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.

 **** 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).

***** 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).

   (b) Reports on Form 8-K.

   None.

                                      28

<PAGE>

                                  SIGNATURES

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

                                          Foundry Networks, Inc.
                                          (Registrant)

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

Date: November 8, 2001


                                      29