Bay Networks Releases Third Quarter Results.

SANTA CLARA, Calif.--(BUSINESS WIRE)--April 15, 1997--Bay Networks, Inc. (NYSE:BAY) today announced the results of its third fiscal quarter ending March 31, 1997, reporting revenue of $512.9 million. During the quarter the company engaged in several efforts to realign its business structure to better focus on customers. These efforts resulted in restructuring and severance charges of $32.2 million, or $.10 per share impact, related to reductions in workforce and consolidation of certain facilities. Net income from ongoing operations was $20.7 million, or $.10 per share. After giving effect for the one-time charges, the company reported net income of $.3 million, or breakeven on a per share basis.

Although the first calendar quarter of the year can reflect typical seasonal softness, the company saw increases in its switching and remote access businesses as organizations continued to contend with the growth in Internet and Intranet usage. In addition, spending control measures were implemented, enabling the company to show a sequential decrease in operating expenses, excluding restructuring/severance charges, to $222.9 million for the quarter. The company's cash position also strengthened during the quarter to close at $662.8 million, up approximately $43 million.

"We continue to make good progress on efforts to get our business back on track," said Dave House, Chairman, President and CEO of Bay Networks. "We have seen improving fundamentals in sales, marketing and product development. Also, we have achieved operating and productivity improvements resulting from a strong focus on the basics," added Dave House. "At the same time, we have expanded our customer installed base by over 2.6 million nodes to approximately 39 million nodes worldwide."

Third Quarter Highlights

In the third fiscal quarter, Bay Networks enhanced its broad product offering with the introduction of new internetworking solutions and a significant strategic partnership announcement. In March, the company announced breakthrough technology with the introduction of a new product category -- routing switches. Based on Bay Networks' unique distributed switching architecture, this new technology combines the scalability and flexibility of routers with the speed, latency and ease-of-use of layer 2 switches to deliver wire-speed IP/IPX forwarding. The first product to incorporate this new technology is Bay Networks Switch Node(TM), which provides wire-speed switching and low latencies at both layer 2 (L2) and layer 3 (L3), while forwarding approximately 1 million packets per second (pps).

Extending its remote access leadership position, Bay Networks in February announced a secure, end-to-end carrier-class remote access concentrator solution that supports up to 2,880 simultaneous dial-in analog and digital users per eight foot telco cabinet. Designed for the Bay Networks 5000 Multi-Service Access Switch (MSX(TM)), the new high-performance Model 5399 Remote Access Concentrator Module delivers industry-leading dial access density with security, call management and integrated Digital Signal Processing (DSP) modem technology at an aggressive price point.

Also during the quarter, the company announced a global resale and co-development initiative with Ericsson Telecom AB, a worldwide leader in the mobile, public and enterprise communications markets. As part of the agreement, Ericsson will resell Bay Networks' full data communications product lines to its worldwide customer base. In addition, the companies will begin a cooperative development effort for broadband network and management solutions for integrated voice, data, Internet access and video solutions. This key alliance with Ericsson strengthens Bay Networks' commitment to provide Internet access and network solutions to both service providers and end-users.

As a leading worldwide provider of internetworking solutions, Bay Networks, Inc. (NYSE:BAY) helps people to access critical information resources -- at the desktop, the corporate enterprise or the public Internet. Bay Networks products -- including LAN and ATM switches, routers, hubs, remote and Internet access solutions, and network management applications -- meet the connectivity needs of corporate enterprises, service providers and telecommunications carriers. Headquartered in Santa Clara, California, Bay Networks markets and supports its products around the world, providing 7x24 coverage. For further information, visit Bay Networks at: http://www.baynetworks.com or call 1-800-8BAYNET.

This release, other than historical financial information, may consist of forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. For instance, factors which could cause results to differ from future events include the rate of adoption of new technology, competitive pricing actions and marketing programs, among others. Readers are referred to the documents filed by Bay Networks with the S.E.C., specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors which could cause actual results to differ from those contained in the forward-looking statements. -0-

Bay Networks, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)

                      Three Months Ended       Nine Months Ended
                           March 31,                March 31,
                        1997       1996         1997         1996

Revenue              $512,893    $521,715    $1,550,084    $1,521,089
Cost of sales         260,231     242,287       795,022       696,710
 Gross profit         252,662     279,428       755,062       824,379
Operating expenses:
 Research and
  development          73,290      54,159       196,813       157,618
 Selling and
   marketing          129,518     118,565       409,248       324,305
 General and
  administrative       20,110      16,508        66,115        52,492
 Merger related
  expenses               --        (5,944)         --          10,231
 In-process research
  and development        --        39,713       208,186        39,713
 Restructuring/severance
  charges              32,188         --         32,188          --
 Total operating
   expenses           255,106     223,001       912,550       584,359
Income (loss) from
  operations           (2,444)     56,427      (157,488)      240,020
Net interest income
  and other             2,845       7,115        14,154        23,562
Income (loss) before
 provision for
  income taxes            401      63,542      (143,334)      263,582
Provision for income
  taxes                   146      34,355        23,670       112,401
Net income (loss)     $   255    $ 29,187     $(167,004)     $151,181

Net income (loss)
  per share           $   --     $   0.15     $   (0.87)     $   0.76
Weighted average
 common shares
  and equivalents     203,079     200,244       192,894       199,033



Condensed Consolidated Balance Sheets
(In thousands)
                                  March 31,           June 30,
                                    1997                1996
Assets
Cash, cash equivalents
  & short-term investments     $   528,419         $   434,157
Accounts receivable, net           295,503             320,892
Inventories                        145,210             239,725
Deferred income taxes              102,630              74,320
Other current assets                75,098              48,615
   Total current assets          1,146,860           1,117,709
Investments                        134,356             154,064
Property and equipment, net        252,483             211,674
Other assets                        83,709              23,088
   Total assets              $   1,617,408       $   1,506,535

Liabilities and Stockholders' Equity
Accounts payable
 and accrued expenses          $   295,717         $   250,246
Accrued income taxes                   595               4,818
Deferred revenue                    64,458              46,629
   Total current liabilities       360,770             301,693
Long-term debt                     109,995             110,147
Stockholders' equity             1,146,643           1,094,695
   Total liabilities and
     stockholders' equity    $   1,617,408       $   1,506,535
-0-

Note to Editors: Bay Networks is a registered trademark and MSX and Switch Node are trademarks of Bay Networks, Inc. Other brand and product names are registered trademarks or trademarks of their respective holders.

CONTACT: Bay Networks

Lisa Allocca, 508/916-4350 (Public Relations)

[e-mail]

or

Linda Fellows, 408/495-1964 (Investor Relations)

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