FOOL CONFERENCE CALL SYNOPSIS*
By Dale Wettlaufer (MF Raleigh)

US ROBOTICS (Nasaq: USRX)
8100 N. McCormick Blvd.
Skokie, IL 60076-2999
847-982-5010
http://www.usr.com

WASHINGTON, DC, January 22, 1997 / FOOLWIRE/ -- U.S. Robotics Corporation reported on January 21, 1997 record revenues of $645.4 million and record net earnings of $69.0 million ($.72 per share on 96.3 million weighted averages shares outstanding) for its fiscal first quarter ended December 29, 1996. "It was another strong quarter for US Robotics. Once again, we set records for revenues and profits."

Revenues for the first quarter of fiscal 1997 increased 77% over the $364.8 million recorded for the corresponding quarter of the previous year. Net earnings for the first quarter of fiscal 1997 increased 66% from the $41.6 million recorded for the first quarter of fiscal 1996. Net earnings per share for the quarter were $.72, based on 96.3 million weighted average shares outstanding, compared to $.45 on 92.9 million weighted average shares outstanding for the first quarter of the prior year.

The company attributed the growth in revenues to continuing strong demand for its products in all of the markets it serves worldwide, noting that increased unit sales of its PC-related products were the primary reason for the higher revenues and earnings. Unit sales of the company's PC-related products, which include desktop modems, PC card modems and the Pilot connected organizer, in the first quarter were up 80%, while average selling prices for these products were unchanged compared to the corresponding period in 1996.

U.S. Robotics President and Chief Operating Officer John McCartney said last night: "This was a very challenging quarter for US Robotics -- probably our most challenging as a public company. We were very cautious in our statements regarding December quarter prospects. We faced a major product and technology transition, substantial confusion among consumers regarding standards, numerous smokescreens introduced by competitors, and continuing ferocious competition. We also executed a realignment of our labor force with an associated high degree of media coverage. Despite these concerns, we maintained our commitment to large investments in aggressive R&D schedules and hiring, expansion of our product portfolio, building our international sales, marketing, and support capabilities, and aggressively funding our launch of x2. In the face of these challenges, we were still able to deliver record sales and earnings at the level of general investor expectations. I believe these achievements are significant and reflect the strength and competitiveness of our company."

Gross margins increased to 42.8% in the current quarter compared to 41.8% for the corresponding period in 1996. This increase was due primarily to reductions in the manufactured cost of the company's products, partially offset by changes in the mix of products sold in each of the periods. Operating expenses were $165.0 million or 25.6% of sales in the quarter compared to $88.9 million or 24.3% of sales in the corresponding period of 1996. The increase was related primarily to increased selling and marketing costs.

Revenues for the first quarter of fiscal 1997 increased by $34.0 million, or 6% over the $611.4 million reported for the fourth quarter of fiscal 1996. Net earnings for the first quarter increased 411% to $69.0 million from the $13.5 million posted for the preceding quarter. Net earnings per share increased $.58 over the previous quarter's $.14 per share on 95.7 million weighted averages shares outstanding. Included in the fourth quarter results was an acquisition related non-recurring charge of $54.0 million. Excluding the non-recurring charge, net earnings for the fourth quarter of fiscal 1996 were $67.5 million or $.71 per share.

Revenues from sales of the company's desktop and PC card modem products increased slightly as a percentage of total revenues during the quarter. The change in the percentage of total revenues attributable to the sale of systems products was primarily due to lower shipments to a single large customer in the December quarter compared to the September quarter. Total international sales for the quarter were $193.5 million, or 30% of total sales, up from 25% for the fourth quarter of fiscal 1996.

Sales of modem products to end users by the company's distribution channel partners increased significantly during the first quarter, continuing an established trend. Shipments of Sportster products by the company to its distributors were extremely strong during the last two weeks of December. This was due to the fulfillment of replenishment orders received from these customers at the close of the holiday selling season. At the end of the December quarter, Sportster inventory levels held by North American distribution channel customers, as measured in weeks of sales, were essentially unchanged from those at the end of the September quarter.

DISCUSSION OF x2

Substantial marketing expenditures also were made in connection with the introduction of the company's new x2 technology (56Kbps). x2 is a key breakthrough in modem technology that enables Internet and other network downstream connections at speeds nearly twice as fast as those currently available over standard telephone lines. "US Robotics is uniquely positioned to deliver and capitalize on breakthroughs like x2. We're able to do this because, in contrast to many of our competitors, we control our underlying core technology. Because of our flexible software-based modem architecture, we have the unique capability via software upgrade the x2 technology to every Total Control chassis ever shipped."

"With well over one million Total Control analog ports in our installed base, x2 can be rolled our to all systems customers, who can then make new highs-speed analog service quickly available to their customers all around the world. Almost 200 ISPs have committed to deploying x2 technology in their network. These provides have over 16 million subscribers today. We believe that widespread adoption of 56K capability by both service providers and end-users will occur faster than any previous analog modem speed change. We base our view on the fact that a major problem facing internet users today is the length of time required to download information from the net to the user's PC. Moreover, internet users' satisfaction is a central issue for service providers in the acquisition and retention of their subscriber base."

"Based on public comments by our competitors, we have a significant time-to-market advantage. We intend to aggressively exploit this advantage with engineering, sales, and marketing efforts. Our best engineering resources are dedicated to this project and have been working around-the-clock to keep the project on schedule." The project is on schedule and the company will have client products ready to ship within the next few weeks with Total Control hub software upgrade code available for broad installation in February.

"We recently announced the pricing for native x2 desktop modems to our channel partners. The suggested retail prices for internal, external, and voice/fax x2 desktop modems will be $199, $219, and $239, respectively. This is a $60 per-unit increase from the price of similar x2 upgradable 33.6 product available today. Upgrade pricing for those retail customers who purchased upgradable product will be $60 per unit. Pricing for Total Control systems customers will be negotiated on a case-by-case basis."

"Our goal is to take any x2 customer to standards regardless of what it ultimately becomes and regardless of when it becomes available. The so-called standards debate, fueled by competitors' self-interest and an overly pessimistic press, is really not an issue. There are no barriers to adoption of our x2 technology.

MARKET AND PRODUCT POSITIONING

"We remain committed to increasing our market share position... we continue to make progress in the desktop modem market. In the past six months, at the top eight retailers of computer products in North America, we have grown from an average of 45% share of category to 55% share. The modem business is an extremely good business for us -- we expect it to remain strong for several years to come. We're the worldwide market and technology leader in this industry and we intend to expand that position."

The company is well-positioned to deliver products incorporating xDSL technologies and expects 1997 to be a year of testing and trials of xDSL solutions and it is participating in telco RFPs and requests for information. We will deliver our first low-cost central office and client products during the March quarter. In the June quarter, we will introduce the Total Control access line concentrator -- the D-SLAM for the central office. While there will not be meaningful revenue generated in this area until at least 1998, leveraging our existing strengths, this is a natural market for use to pursue.

OUTLOOK

"Demand continues to be strong for our expanding portfolio of information access products, including Total Control Enterprise Network Hubs, Sportster modems, Megahertz PC cards and Pilot connected organizers. In addition, the coming availability of our x2 56 Kbps technology is expected to have a widespread impact on Internet users by enabling them to have a more satisfying online experience." Mr. McCartney added that the company expects demand for all of its product lines to continue to grow substantially during the remainder of the 1997 fiscal year as world-wide requirements for highly integrated, cost-effective, end-to-end information access solutions increase.

Mr. McCartney stated that revenue growth in the second quarter of 1997 will depend to a large extent on the timing of its Internet and online service provider customers making available x2 (56Kbps) service and the resultant consumer and corporate demand for x2 enabled products. While gross margin increased 0.9% during the December quarter, he reiterated that the company expects gross margins for 1997 to remain consistent with the approximately 41%-42% achieved during recent quarters.

FINANCIAL COMMENTS

Increased revenues from PC-related products, including desktops, PC card modems, and the Pilot connected organizer, were the primary reason for the increase in total revenues from the September. Contributing to the increase in PC-related revenues were higher unit shipments of branded and OEM modem products, Pilot organizers, and a higher average selling price for Sportster products. The higher ASP was primarily due to the run-out of 14.4K products in the September quarter and initial shipments of X2 beta units late in December. Overall, ASP for branded and OEM desktop and PC card modems was unchanged from the September quarter.

On product revenue mix, PC-related mix increased slightly in the quarter due to the purchasing patterns of a large systems customer (of the 7 point shift toward systems experienced in the September quarter, 4 points shifted back toward PCs). Over the long run, the company expects systems revenues to increase as a percentage of overall revenues.

Year-to-year, unit sales of PC-related products were up 80% while ASPs were essentially unchanged. International sales totaled $193.5 million, or 30% of revenues, a substantial increase from the 25% of total net sales achieved in the September quarter. In the long-run, the company expects revenues to be split 50/50 between domestic and international customers.

"The largest component of operating expenses was selling & marketing expense. These expenses amounted to $100.8 million, or 15.6% of net sales for the quarter, compared to $92.7 million, or 15.2% of net sales for the September quarter. The increase in these expenses, in absolute dollars and as a percentage of sales, in part reflects continuing investments to build the company's sales force with particular emphasis on expanding sales of network systems products worldwide."

Total operating expenses for the first quarter were $165.0 million or 25.6% of net sales. As a percentage of net sales, these expenses increased slightly from 24.3% in the preceding quarter. The primary reasons were increased employee-related costs stemming from a 6% rise in the number of employees in sales, marketing and research and development during the quarter as well as increases in spending related to marketing and advertising programs due to the company's x2 launch. The company continued to make substantial investments in building its worldwide sales force, expanding it approximately 5% over and above the 20% increase in the September quarter.

The balance sheet remains in good shape. The company generated $100 million cash from operations, excluding working capital items. Accounts/Receivable increased due in part due to longer collection periods associated with greater international sales as well as a greater amount of quarterly revenue bookings being recorded in the third month of the quarter. A "surge of shipments" to systems customers late in the quarter back-end weighted sales to a greater extent compared to other quarters, as well. Q2 revenue mix will be dependent upon x2 systems shipments to major customers and could be back-end weighted again. The company expects to return to a more normal shipping pattern during H2 1997.

Consistent with the trend reported last quarter, inventory turns increased from 6.8 to 8.7 times. North American Sportster channel inventory levels fell by over 45% between Thanksgiving and Christmas before being replenished very late in the quarter to normal levels. In total, channel inventory levels of desktop products, measure in weeks of sales, are essentially unchanged from last quarter.

During the quarter, the company completed the acquisition of distributors in Japan, Sweden, and Australia, giving it platforms for extending its focus and penetration in these markets.

The company expects revenues for the fiscal year to be in-line with current consensus estimates and that the major impact from the x2 product introduction will occur in the second half.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.