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Westell Technologies Mid Quarter Update

OSWEGO, Ill., Nov. 22 /PRNewswire/ -- (Nasdaq: WSTL) -- As the broadband digital access market continues to create opportunity for our DSL systems, a number of forces are coming into focus which make an update of Westell's activities and plans appropriate. Many new applications are developing which require high speed access for the Internet, work-at-home, LAN extension, video conferencing, distance learning and tele-medicine, among others. This is creating a revolutionary change for the telephone companies from a voice networking to a data networking environment. It is producing significant challenges and changes in the landscape of the carriers themselves. Four of the eight US operating companies (Bell Atlantic, NYNEX, PacBell, and SBC) are finalizing mergers. BT and MCI are also merging, and many foreign PTT's are in the midst of privatization activities. Reform legislation has passed in the US, and the rules for local loop competition and unbundling are being clarified. Internet Service Providers (ISP's) are growing rapidly (soon to be 5,000 in the US alone). Interexchange Carriers (IXC's), competitive local access carriers (CLEC's), cable companies, power companies and wireless providers are all developing, finalizing or implementing strategies to access end-user customers.

This change from the computer age to the information age has created both discontinuities as well as unprecedented business opportunities. Fortunately, Westell is well positioned to play a significant role in the development of this new market. Recognition of our leadership position in broadband transport systems has enabled us to form important alliances that position us well for long-term success. Recently, we announced a powerful global alliance with Nortel, and we are negotiating another similar alliance. We are also progressing in joint planning for commercial deployment in 1997 with a set of customers who see themselves as the visionary, first-to-market leaders in the race to provide broadband access. The exact timing of each carrier's market deployment is difficult to predict; however, since the scope of the transition from an analog, voice-based local access network to a digital, data-networking environment is unprecedented in the telecommnications industry.

The Company's Digital Subscriber Line Access Multiplexer (DSLAM or Supervision(TM)), scheduled to begin beta trials this month, is significant in the deployment of broadband access into the local loop due to its ability to consolidate local access interfaces, reduce the amount of equipment and cabling required, thereby saving access costs while reducing equipment space and potential points of failure in the network. When coupled with the Westell Access Vision(TM) Network Management software, this system solution can be managed via graphical user interface from a central management center. This product could enable anyone with local access to an office building (i.e. CLEC's, IXC's, etc.) to provision broadband copper access from a central telecommunications room to the office suites over the existing copper infrastructure within that building.

The sheer significance of these changes creates both opportunity and uncertainty as to the exact timing and nature of the migration. There will be unplanned effects on Westell as this transition occurs. Specifically, Q3 FY97 ADSL revenues will be less than we anticipated due to the upcoming Q4 introduction of our new FlexCap(R) Rate Adaptive (RADSL) system. The new RADSL platform offers rate adaptivity, symmetric (SDSL) or asymmetric (ADSL) operation at downstream rates of up to 2 mbs and back channel speeds up to 1 mbs on extended Carrier Serving Area local loop distances. It is software downloadable and upgradeable and also remotely reconfigurable through the Access Vision(TM) Network Management system. This new fourth generation Westell Flexcap(R) system is more highly integrated, requires less power and we expect will be the first fully commercially scaleable product at a sub $1,000 cost per home served. Customers are excited about the dramatic performance and price advantages of this system. However, the JPC decision announced in early October and the January introduction of the RADSL system have reduced the available market in the current quarter for the current FlexCap(R) 1.5 mbs fixed rate system, as customers are willing to wait a short time to receive the manifold benefits of the new generation. The normal evaluation of the new RADSL system by our customers, coupled with the production ramp up will impact total shipments in the March fiscal quarter as well.

Recent partnership announcements with Nortel and Sourcecom and the very important Access Multiplexer Beta trials beginning this month involving 13 customers in 9 countries will necessitate continuing and even increasing expenditures for product and market development. The already significant levels of investment we are choosing to make in these areas will increase sequentially for the foreseeable future.

Our base business in the December quarter is likely to be flat with the prior year quarter and sequentially down somewhat from a near record September quarter. This is due to the typical year-end spending patterns of our customers. Those who have excess authorizations available and those who have exhausted their authorizations usually balance each other. This year we are experiencing more of the latter than the former. We do anticipate sequential improvement in base business in our March fiscal quarter, and our cost reduction efforts should begin to be reflected in that quarter as well.

The combinations of factors noted above indicate that Q3 FY97 Westell revenues will be in the $17 million range, and losses will be in the range of $0.10-$0.12 per share, which will be below analysts' current expectations. We expect to see sequential revenue growth in the final FY97 quarter and a corresponding reduction in losses.

An additional exposure created by these transitions, which is being carefully monitored, is the potential for FlexCap(R) Phase III piece part inventories that support the current ADSL generation to become obsolete by the new RADSL product family. It could become necessary to write off obsolete inventories presently on hand or committed to be purchased. In a worse case scenario, this could result in a one-time charge in the range of $0.07-$0.09 per share. However, we are actively pursuing various options to mitigate this potential write-off.

We believe that Westell continues to be positioned for long-term success. We have the right people with the right vision working on the right products with the right partners. We are confident we will continue to play a leadership role as this market develops. We believe the potential for reward has never been greater for those who share the same vision as we do.

Westell, headquartered in Oswego, Illinois, is a holding company that operates through its primary subsidiaries, including Westell, Inc., Westell International, Conference Plus, Inc., and Westell Europe.

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: The statements quoted in this release about cost reduction measures, the realization of revenue from investments in research and market development and the growth of DSL product revenues are not historical facts and are forward-looking statements. These forward-looking statements and other factors such as those listed on page 2 of Westell's Form 10-Q for the period ended September 30, 1996, involve risks and uncertainties. These risks include, but are not limited to, product demand and market acceptance risks, the impact of competitive products and technologies, competitive pricing pressures, product development, commercialization and technological delays or difficulties, the effect of economic conditions and trade, legal, social and economic risks.

SOURCE Westell Technologies
 -0- 11/22/96


/CONTACT: Stephen Hawrysz, Chief Financial Officer, of Westell Technologies, 630-820-1919/

(WSTL)

CO: Westell Technologies ST: Illinois IN: TLS SU:

JS-CS -- CLF004 -- 5678 11/22/96 08:31 EST http://www.prnewswire.com
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