FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Shiva Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHVA)") else Response.Write("(Nasdaq: SHVA)") end if %>
63 Third Avenue
Northwest Park
Burlington, MA 01803
(617) 270-8300
http://www.shiva.com/

UNION CITY, CA. (February 3, 1997)/FOOLWIRE/ --- Shiva Corporation released fourth quarter and year end results for 1996 after the market close on January 23rd. The company pre-announced results in a separate conference call on January 7th (1/09/97: Shiva Pre-Q4 Conference Call). Revenues for the quarter totalled $48.2 million, 16% less than revenue in Q3 and 32% greater than revenue in Q4 last year. This revenue level is within the range of estimated Q4 revenue reported in the January 7th announcement. Fiscal 1996 revenue totalled $200.1 million, 69% greater than 1995 revenue of $118.6 million. Their Q4 earnings per share is $0.05, which is also within the range outlined in the January 7th call. In 1996, earnings per share is $0.60 excluding merger expenses related to the Q2 AirSoft acquisition and $0.54 per share including the merger expenses. Weighted average shares for the quarter is 31.3 million.

EXPENSES. Their gross profit in Q4 is 57.2%, down from 58.4% in Q3. Operating expenses increased this quarter as a percentage of sales primarily due to a lower revenue base. Operating expenses increased $1.5 million to 54% of sales from 42% in Q3. Their investment in R&D increased to 14% from 10.5% in Q3 on an absolute dollar increase of $600,000. SG&A increased $900,000 from 32% of sales in Q3 to 40% of sales in Q4. Software capitalization in Q4 was $342,000 with an amortization of $240,000. Their employee population remained relatively flat from Q3 at 670 people worldwide.

INCOME. Operating income in Q4 was $1.8 million or 3.7% of revenue compared to $9 million or 15.8% of revenue last quarter. 1996 operating income before merger expenses of $24.7 million or 12% of sales was 150% greater than 1995 operating income of $10 million or 8% of sales. Net income in Q4 was $1.5 million compared to net income of $6 million last quarter. 1996 net income before merger expenses was $18.8 million, an increase of 122% from $8.5 million in 1995. Total non-operating income this quarter was $560,000. Their tax rate in Q4 was 36%. Going forward they expect their tax rate to approximate 38% throughout 1997.

GUIDANCE FOR FINANCIAL MODELS. They are not proposing any change currently to their operating model. Although their current Q4 performance is not within the model range, both their Q3 performance and their 1997 plans are consistent with the operating model they have shared in the past. They hope to be able to return to this operating model by mid-1997. The current operating model has a range for gross margins of 57-59%, R&D is 9-10%, SG&A is 31-33%, and operating profit is 15-17%. In terms of modifying the outlook for the calendar year, they think most people have adjusted their models to be lower than the guidance the company gave them, principally on the revenue front. As they said in the January 7th conference call, their own internal plan calls for them to be performing at or around where Street estimates were which was $1.06. They think most people have adjusted their models down to a lower revenue target, similar operating model, but down in the range of $0.75-0.85 per share. They think people will feel more comfortable with the type of internal plan they have as the quarters roll out.

NORTEL MAY IMPACT BUSINESS MODEL. As discussed on January 7th, the proposed new Nortel arrangement may have an impact on their business model. They are currently negotiating with Nortel a definitive agreement that contemplates a royalty arrangement and joint cost sharing. As such it should have lower revenues than their current business arrangement, but better operating margin percentages. Because they are in the middle of negotiating the Nortel definitive agreement, they are not going to be able to give any more guidance on the particular agreement at this time.

BALANCE SHEET ITEMS. On the balance sheet, as they had projected earlier, their days sales outstanding decreased during the quarter to 75 days from 78 days in Q3. The DSO is largely a function of the linearity of their quarters. They have had greater than 50% of their shipments in the third month of the quarter. They hope to make more radical shipments in Q1. They would like to make progress moving their DSO down. They would like to be somewhere between 70 and 74 days. Cash balances increased approximately $12 million to $107 million, principally as a result of positive cash flow from operations. Depreciation was $2.2 million and capital expenditures were $5.2 million. Inventory turns were 4.6 times from 6.7 times in Q3 reflecting increased inventory balances as a result of shipments lower than planned. Stockholder equity is now $157 million.

SALES BREAKDOWN. Book-to-bill in Q4 was greater than 1. Sales of remote access products this quarter were $42.4 million, 20% less than last quarter and 47% greater than remote access product sales in last year's Q4. For the year, sales of remote access products were $174.1 million, 107% greater than 1995. Remote access product sales were 88% of total revenue. Their other non-remote-access product business was 8% of revenue. Service and other revenues contributed the remaining 4% of total revenue.

SALES BREAKDOWN BY PRODUCT. As discussed on January 7th, Shiva will be disclosing the breakout of LanRover and LanRover Access Switch revenue for the first time beginning with fiscal 1997. For 1996, this information is as follows: FY 1996 LanRover revenue was $90 million or 45% of total revenue, FY 1996 LanRover Access Switch revenue was $59 million or 30% of annual revenue.

CHANNEL CONTRIBUTIONS. On a channel basis, their OEM channels made up 20% of revenue, down from 28% in Q3, principally as a result of lower IBM revenues. Nortel was an over-10% customer for Shiva in 1996. The premium VAR channel represented 36% of total revenue which is down slightly from Q3's percentage of 37%. Distribution accounted for 28% of revenue, up from 25% of revenue in Q3. Service revenue came in at 4%. The remaining 12% is split between their direct education channel, client revenues, and royalties and licenses.

GEOGRAPHIC CONTRIBUTIONS. International revenue was 42% of total revenue, up from 30% in Q3. They experienced particularly strong sales growth in both Europe and Asia Pacific.

LANROVER FAMILY. The Access Switch did enjoy sales growth in their non-OEM channels in Q4. Their OEM channel was not a growth quarter as a result of lower orders than expected from IBM. They had continued acceptance of LanRover Access Switch in large telcos, including Southwestern Bell through Nortel and an international telco award announced recently in Deutsche Telekom. They think these are very important awards particularly because of scale. Southwestern Bell will certainly constitute the largest Internet deployment among an RBOC (Regional Bell Operating Company) that takes traffic off of the voice network. Deutsche Telekom already has over a million Internet customers and very aggressive plans as the third largest carrier to push into the Internet. Shiva continued to sell successfully to regional ISPs. They announced a number of these including FlashNet, UltraNet, Canada On-line, Surf South, Cyberdrive, Edgenet, and the CIA.net. They won the largest Shiva ISP order to-date in the quarter. It was a competitive replacement and one that was based on reliability, performance, and price. They were recently selected to begin a major trial for an Asia/Pacific ISP with completion scheduled for Q1.

ENTERPRISE MARKET. Interest from the enterprise market worldwide continues for the Access Switch. Companies which standardized in Q4 include Fannie Mae, Bear Sterns, Chubb Insurance, West Publishing, McGraw-Hill, and Burlington Air. They continued to see follow-on business in existing installations including Phillip-Morris, ITT Hartford, IDS Financial, and John Deere. Other wins in the quarter included AT&T Wireless, Lucent Technology for some internal use, USAir, CIBC, Sony Corp., Kaiser Permanente, Lockheed Martin, and Arthur Anderson. The Access Switch business continues to show very strong sell-through growth and a lot of confidence in the growth of the product line.

FIXED PORT MARKET. The traditional LanRover in the fixed port market was not a growth product category for them in Q4. They believe their experience here is consistent with the forecasts from current market analysts. Shiva does have new products planned for this category mid-year to continue to respond to increasing competition and price sensitivity in this end of their market. They did have a number of wins in the quarter including Wisconsin Power and Light, Bethlehem Steel, Department of Housing and Urban Development, and Sedgewick. As they see new customers and existing customers adopt the Access Switch, they are seeing enterprise customers adopt LanRovers for the edges of their networks. Also, they have strong sales of the LanRover in markets outside North America.

POWERBURST INTRODUCTION. The third important product event this quarter was the introduction of PowerBurst, a product which they acquired in the acquisition of AirSoft. PowerBurst accelerates access for applications which use the file system found in operating systems such as Windows. The PowerBurst agent has been embedded in their operating system called ShivOS. This was launched December 26th as part of the ShivOS 4.5 release for the Access Switch. This first release supports the Novell IPX protocol with clients running Windows 3 and Windows 95. An IP protocol solution that supports Windows NT TCP/IP protocol will be available in Q2. Shiva benchmark tests have shown that, on average, PowerBurst doubles the performance of many popular file system based applications such as MS Mail, cc: Mail, and MS Access. Some of Shiva's beta customers reported a 400% increase in application performance. These type of performance changes translate into increased end-user productivity and significantly reduce telephone line charges. The product has received warm reviews in Informationweek and Comsweek articles. From their press release they are already receiving significant interest over the Web for purchase of PowerBurst. ShivOS 4.5 will ship for the LanRover classic, the modemless model, and the LanRover Plus lines in the second week in February. For Q1, they are running a PowerBurst LanRover promotion whereby people who buy a LanRover get PowerBurst for free. They hope this will help LanRover core product sell-through in the quarter.

PARTNERSHIPS - NORTEL. As announced, Southwestern Bell became the first public carrier worldwide to deploy Nortel's Internet Thruway Solution. This was the major RBOC trial Shiva had been referring to during Q3 and Q4. This solution includes the LanRover Access Switch marketed under the OEM label. By the end of the deployment which will continue throughout 1997, services will be operating in the following 12 metropolitan areas: Dallas/Ft. Worth, Houston, Austin, San Antonio, St. Louis, Kansas City, Oklahoma City, Tulsa, Topeka, Little Rock, and Wichita. Nortel's Internet Thruway products will help head off the Internet data congestion concern for Southwestern Bell by taking their Internet calls off the voice network, delivering them to the Internet service provider over a frame relay or ATM connection. Internet subscribers served by this solution can enjoy higher throughput and a higher grade of service because they do not have to compete with voice callers for access during peak traffic hours. Internet service providers benefit through improved connection speeds and access to business lines, flexible bandwidth, and significantly reduced capital investment. This is a very strategic win in Shiva's opinion. This will certainly be the first RBOC to make a major deployment of Internet service which does not cause congestion in the voice network. To point out the significance of this Shiva urged people to consider recent experiences with online service providers who have shifted to flat-rate pricing. If you dig into what is blocking deployment of more capacity for many of these providers, it is not the availability of switching equipment, it is in fact the availability of business lines from Regional Bell Operating Companies. The reason that business lines are difficult to provide is that they can only be provided today by congesting the voice network by putting additional line cards into central office voice switches. Shiva believes that Southwestern Bell will be in an advantaged position to reduce this congestion and to provide additional capacity to Internet and online service providers ahead of any other RBOC. They believe this will give Shiva an advantage since they believe the shift to flat-rate will continue to move the burden of economic cost from the consumer to the service provider.

OTHER RBOC OPPORTUNITIES. Testing has begun now at 3 other RBOCs with the Internet Thruway application. They feel quite confident that this is going to get significant look from all RBOCs given that they now have a significant production reference site. They also recently have won orders from Malaysia Telecom and Japan Telecom through the Nortel relationship. They are very positive about the new Nortel relationship and believe that it will improve their ability to capture this market through a dedicated team of Shiva personnel coupled with Nortel expertise, products, and relationships.

IBM. IBM continues to be an important business partner for Shiva. While the level of business in Q4 was lower than previous quarters, they have every expectation of continued positive sales prospects in 1997 through IBM. They have firm orders for IBM on their books already for shipment in the first quarter and have, in fact, already shipped some product to IBM this quarter. In addition, IBM is migrating their platforms to Shiva's latest firmware release 4.5 and they are interested in future LanRover platforms.

ANNEXTER. Shiva has won, with Annexter a very prestigious award against some tough competition. Advanced Video Communications is the technical arm of the World Economic Forum which is composed of CEOs from some of the world's largest companies and heads of state and leaders from governments around the world. In Q4 Shiva rolled out with Annexter a pilot program for member CEOs of the World Economic Forum video conference over a LAN-to-LAN ISBN link utilizing Shiva's LanRover Plus and Access Switch central switches. The major implementation begins in Q1 and continues throughout 1997. The kickoff meeting will be the Annual Congress of the World Economic forum in Switzerland. Their strategic partners in making this application work include Intel, Toshiba, Arthur Anderson, and Dell Computers. Annexter in Europe also made a significant commitment to Shiva in Q4 further deepening their worldwide relationship.

CHANNELS. In the premium VAR area they have streamlined their focus in the premium VAR community to their highest potential partners. They recently hosted a several-day conference with these premium VARs to further strengthen these relationships and have migrated their other VAR partners to the two-tier distribution channel, in particular Ingram.

INTERNATIONAL. They continued to show good growth in their international markets in the fourth quarter. Their LanRover family of products continued to sell through very well in these markets. Account wins in Q4 included Telecom Indonesia with a LanRover deployment through three major cities in Indonesia with further deployment throughout 1997. The French Health Ministry was a large European project for them in the Q4 timeframe. Infini, the French ISP, continued to expand their deployment in Q4 into Holland and Belgium. Heineken Lager standardized on Shiva and will be rolling out products worldwide. The Access Switch received regulatory approvals in two important Asia/Pacific markets in q4 -- Japan and Australia. Q1 will therefore represent new opportunities for Access Switch growth in these recently opened markets for Shiva. In Japan, they signed SoftBank as a key distribution partner. SoftBank is the owner of Comdex and they believe it will play a key role for them in their continuing growth in Japan. Their service provider group in Europe added 16 new service providers during the quarter with particular strength in Germany and France selling a mix of Access Switch, Access Port, and LanRovers. Some large new customer wins include Swiss PPP and Telecom Finland.

PRODUCT AWARDS. Shiva products continue to receive numerous industry awards in the fourth quarter. Most notably, LanRover won PC Magazine's best product of the year for the third year in a row in remote access signifying Shiva's commitment to the highest quality and features standards for their remote access products. The LanRover/E Plus was recognized by LanTimes as its Best of Times product in remote access. Also during the quarter, Network Computing made Shiva's PowerBurst its Editor's Choice in the remote-node caching category. In 1996 Shiva's products including the LanRover, Access Switch, and AccessPort garnered 18 significant industry awards worldwide.

SUMMARY. While they are disappointed by the financial results of the fourth quarter, they feel that, as a company they made good progress in 1996 growing revenues 69% to $200 million and increasing remote access revenue by 107% to $174 million. Operating income and net income more than doubled when excluding merger expenses. They also launched an important new product line, the LanRover Access Switch which has moved them into an exciting new category, access concentration and has opened the door to major new markets in telco and ISP sectors. They have achieved very rapid growth of acceptance in telecommunications carriers worldwide. They believe this represents recognition of the positioning they have given people many times -- that their product line offers outstanding capacity and performance, that it embodies a rich and robust firmware base, and that it connects to the most widely distributed client software in the marketplace.

FOCUS FOR THIS YEAR. They are going, this year, to increase their focus on this access concentrator category. They are planning to realign their resources around the different market segments which have an appetite for their products -- the enterprise market, the small to medium ISPs, the small and medium business segments, and the telco markets. Shiva will focus their sales, marketing, and R&D teams around these marketplaces. In addition, they will continue to develop programs that improve on the position of LanRover. This is a maturing, but still growing market and they continue to plan to harvest it and maximize their profitability in that segment. As they disclosed before, they have a new platform under development that they believe will be aggressively costed and fully featured that they plan to introduce at mid-year.

* 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.