Bay Networks Reports Record Revenue for First Quarter Fiscal 1998.

SANTA CLARA, Calif.--(BUSINESS WIRE)--Oct. 14, 1997--Bay Networks Inc. (NYSE:BAY) today reported results for its first fiscal quarter ended Sept. 27, 1997.

The company reported record level revenue of $601.3 million, an increase of 15.0% from the corresponding quarter of the prior year. Net income for the first quarter was $41.3 million, or $0.19 per share; these results include a charge of $7.4 million to recognize in-process research and development in connection with the December 1996 acquisition of NetICs Inc. This additional consideration was based on revenue milestones achieved during the first quarter. Excluding this charge, net income and earnings per share in the first quarter would have been $48.7 million and $0.22, respectively. Net income for the first quarter of fiscal 1997 was $5.6 million, or $0.03 per share.

"These results validate our Adaptive Networking strategy of providing IP-turbocharged networks that are invisible to the user, worry-free for the network manager and strategic to the organizations they serve," said Dave House, Chairman, President and CEO of Bay Networks. "We are pleased with the 11% sequential quarterly revenue growth in a period which historically is seasonally weak. Our revenue results reflect healthy demand for Bay Networks products around the world. In particular, our BayStack 350 Autosense(TM) switch family of products grew significantly during the quarter.

"We made good progress in improving our profitability. A more favorable product mix and lower product costs resulted in sequential improvement in gross margin; we also continued to make headway in reducing our operating expense-to-revenue ratio. Looking forward, we believe focus in these two areas, along with continued effort by Bay management to grow revenues, will enable us to generate further improvement in our financial performance."

About Bay Networks Inc.

Bay Networks Inc. is a leader in the worldwide networking market, providing a complete line of products that serve corporate enterprises, service providers and telecommunications carriers. The company offers frame and ATM switches, routers, shared media, remote and Internet access solutions, IP services and network management applications, all integrated by Bay Networks' Adaptive Networking strategy. With headquarters in Santa Clara, Bay Networks markets its products and services around the world, providing 7x24 support coverage. For additional information visit the company's World Wide Web site at http://www.baynetworks.com or call 800/8-BAYNET.

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, the scope and timeliness of new product offerings, and competitive pricing actions, 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-

Note to Editors: Bay Networks is a registered trademark and BayStack and BayStack 350 Autosense are trademarks of Bay Networks Inc. -0-

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

                                                   Three Months Ended
                                                        Sept. 30,
                                                   1997           1996

Revenue                                         $  601,280  $  522,654
Cost of sales                                      294,888     249,915
Gross profit                                       306,392     272,739
Operating expenses:
Research and development                            80,927      54,954
Sales and marketing                                135,890     128,215
General and administrative                          24,409      19,575
In-process research and development                  7,392      42,648
Total operating expenses                           248,618     245,392
Income from operations                              57,774      27,347
Net interest income and other                        8,655       6,025
Income before provision for income taxes            66,429      33,372
Provision for income taxes                          25,099      27,747
Net income                                      $   41,330  $    5,625
Net income per share                            $     0.19  $     0.03
Weighted average common shares and equivalents     220,600     196,345

                            Bay Networks Inc.
                 Condensed Consolidated Balance Sheets
                             (In thousands)

                                                  Sept. 30,   June 30,
                                                    1997        1997
Assets
Cash, cash equivalents & short-term investments $  826,636  $  635,142
Accounts receivable, net                           250,183     277,860
Inventories                                        144,096     144,468
Deferred income taxes                              127,726     121,596
Other current assets                                42,383      69,351
Total current assets                             1,391,024   1,248,417
Investments                                        138,124     146,367
Property and equipment, net                        237,225     241,069
Goodwill                                           107,907     113,811
Other assets                                        26,125      16,382
Total assets                                    $1,900,405  $1,766,046

Liabilities and Stockholders' Equity
Accounts payable and accrued expenses           $  321,509  $  318,862
Accrued income taxes                                36,866      39,269
Deferred revenue                                    66,939      62,678
Total current liabilities                          425,314     420,809
Long-term debt                                     110,744     109,995
Stockholders' equity                             1,364,347   1,235,242
Total liabilities and stockholders' equity      $1,900,405  $1,766,046

CONTACT: Bay Networks Inc.

Jane Risser, 408/495-2928 (Investor Relations)

[e-mail]

Mike Deshaies, 408/495-3292 (Corporate Communications)

[e-mail]