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 %>
28 Crosby Drive
Bedford, MA 01730
(617) 270-8300
http://www.shiva.com/

UNION CITY, CA (March 31, 1997)/FOOLWIRE/ --- Shiva Corporation held a conference call this morning related to three press releases they issued late Sunday night. They announced a formalization of their mutually exclusive strategic relationship with Nortel. They announced that they do not expect to meet analyst expectations for revenue or earnings in the fourth quarter. Third, they announced that their Sr. Vice President and CFO, Cynthia Deysher, has resigned from the company to pursue personal interests.

CAUSES OF EXPECTED Q1 REVENUE/EARNINGS SHORTFALL. They don't expect to meet expectations for revenue or earnings this quarter. They cited three major causes for the expected shortfall. First, estimated sales to end users of LanRover remote access products show a decline or projected decline from fourth quarter to first quarter, largely as a result, they believe, of increased price competition in this segment. Second, end user sales estimates for the LanRover Access Switch concentrator also declined from the fourth quarter of 1996 to the first quarter of 1997 based on the best estimates they have to-date, due in part to large site deployments at several accounts such as Deutsche Telekom, for which revenue has not yet been recognized. Both LanRover and LanRover Access switch markets, they believe, are also being affected by customer confusion around the emergence of 56K modem technology. Third, the company has shipped less product into selected channels in support of its previously stated goal to further reduce channel inventories during the first quarter.

IBM AND DEUTSCHE TELEKOM. They had a fine quarter with IBM and their sell-through data with IBM indicates that they had a strong quarter. Deutsche Telekom is very substantial business -- a multi-million dollar order. They are not recognizing revenue simply because there is a custom software component which has an acceptance period which is defined in the contract. That software is in excellent shape, is on the customer premise and is in the testing phase prior to acceptance. It is going very well they believe and they anticipate being able to recognize the full amount of that revenue in the future.

CORRECTING NORTH AMERICAN CHANNEL INVENTORY. They think that the place where they had the most inventory in LanRovers was in North America and those channels also had lots of other product. There's a subtlety that is not in the number that they would speak to here which is that over the course of the last two years, Shiva has introduced a number of different products, some of which have been very successful and others not. So they had two pieces of channel inventory reduction to do. One is reducing the level of LanRover inventory which is good moveable inventory that will sell through and the other is getting some other product SKUs out of the market and they have worked with some of their selected channels too, against some of their regular stock rotation privileges to work down some of those more problematic SKUs. So, they think their channels will feel a lot better coming out of this quarter, particularly in North America, that they have both less inventory of all SKUs and a better mix of SKUs that will move through steadily.

FINANCIAL ACTIONS IN RESPONSE. They have taken and will take a number of financial actions in response to these events. Substantial inventory writedowns of internal inventory, particularly v.34 modem cards for the Access Switch, will be taken. In addition, they are taking the effect of price reduction actions that will fully bear fruit in the second quarter. Third, they have taken a decision to more robustly fund promotional and marketing activities in the second quarter, particularly in support of the LanRover fixed port server business.

MORE FINANCIAL DETAILS TO COME. Without giving effect to these actions, first quarter revenue would likely have declined 15-25% from the fourth quarter of 1996. After giving effect to these actions, which will result in several non-recurring charges, they expect to incur a substantial loss in the first quarter. Shiva anticipates expense abatement for the first quarter from the Nortel deal for the SPG group and R&D. The anticipated revenue and earnings shortfalls for Q1 take that expense abatement into account. Excluding non-recurring charges they expect there will still be an operating loss. They will report their actual results in their regularly scheduled quarterly earnings announcement on April 17th. They understand that it is difficult to provide guidance without ranges and detailed numbers. This is the first day of the new quarter and they have not had time to fully digest the end of the quarter. However, because they were in a situation where they needed to disclose their Nortel contract, a very positive event for the company, they felt it was prudent and proper to provide information on both topics at the same time.

NORTEL AGREEMENT. The Nortel announcement is a significant announcement for Shiva and ties into their core strategy. They have signed a marketing and distribution agreement with Nortel focused on the carrier and service provider markets. This is a significant expansion of their current strategic relationship. There are several components of this new three-year mutually exclusive agreement which is effective beginning in Q1 of this year.

FUNDING & ROYALTIES. Nortel will fund Shiva's service provider group, a worldwide business unit comprising technical, sales, and support people, which is dedicated to developing and marketing remote access equipment to carriers and service providers worldwide. Nortel will provide Shiva minimum quarterly royalty payments throughout 1997. Beginning in 1998, these payments will continue on a percentage of revenue basis. Nortel will provide payments for the right to manufacture for each hardware design platform. Finally, Nortel will pay for support and R&D related to the carrier and service provider markets.

ADVANTAGES OF THE DEAL. This agreement allows Shiva to leverage Nortel's experience and relationships in the carrier and service provider market as well as its resources to gain early market knowledge in this nascent market which is on a fast growth curve. By working with Nortel to enhance their focus on this market, Shiva can remain focused on maintaining and growing their already strong position in the enterprise market for access concentrators and fixed port servers. The relationship with Nortel will bring them scale not only in marketing and distribution, however. This also gives them access to a range of technology which has the ability to bring to market the best end-to-end solution available for carriers today and into the future. This agreement allows Nortel to leverage Shiva's years of in-market technology expertise and market understanding in dial-in access. In addition, the royalty nature of the agreement will enable a price competitiveness for Nortel that will enable it to compete more effectively against its competitors and deliver competitive products to market quickly.

THE SPG GROUP. Shiva established their service provider group in November 1996 to foster and support their relationship with Nortel. It has now been fully staffed for the first wave of implementation. With this agreement, the SPG group will work very closely with Nortel's public carrier networks as well as the multimedia networks and other Nortel divisions and partners. The agreement funds about two dozen positions in Shiva's SPG in the first quarter. This is now fully staffed with experienced Shiva personnel. This will grow approximately 50% in the second quarter and additionally in the future.

SHIVA MANAGEMENT CHANGES. Leading this group is Chris Cook who has been appointed to Director of Public Service Provider Group. He joined Shiva 10 months ago from Cisco/Stratacom. He had been at Stratacom for a number of years where he was General Manager of the Carrier Systems Group. During his tenure at Stratacom, Chris focused on implementing several strategic initiatives at some of the largest carriers of the world and gained a deep understanding of this market at all levels -- from the technology and features requirements to service and support needs. They are delighted to have him heading up this strategic effort. Jean-Pierre Boespflug, who was running this effort from Europe, has now moved to Massachusetts and has been promoted to Senior Vice President of R&D. Jean-Pierre was a founding member of Bridge Communications, served as their director of hardware engineering and then went on to important roles at Cisco and Wellfleet.

TECHNOLOGY & PRODUCTS INVOLVED. With regard to products and technology, the core of their relationship with Nortel is the Rapport Dialup Switch which was delivered to market in June 1996. This product has become a pivotal component of Nortel's Internet Thruway. The Internet Thruway is the industry's first high-performance, end-to-end solution to help public carriers more efficiently handle the impact of the increasing volume of Internet and telecommuting data traffic. Internet Thruway is composed of the Rapport Dialup Switch, the Nortel Access Node, and the Magellan Passport Switch.

FIRST ANNOUNCED IMPLEMENTATION. In January 1997, Nortel announced the first major implementation of its Internet Thruway with Southwestern Bell Corporation. They are also pleased that several other RBOCs (regional Bell operating companies) are conducting testing and trials with the Internet Thruway. They believe this combination of technology from the initial data bypass through the access concentration equipment and on to frame relay ATM and Sonet transmission equipment is unique in the marketplace today. They have had good continued progress in getting the Southwestern Bell network into production and there has been some additional deployment into additional cities during the quarter. In combination, SPG and Nortel have received several additional selections around the world as the access equipment provider during the quarter.

COMPETING TECHNOLOGY FROM LUCENT AND CISCO. Lucent has announced it is providing a congestion control solution at Ameritech and Cisco has offered an IDSL solution that works with the TDM muxes, both of which look like they are more aggressively priced. When asked how the Internet Thruway will do against those two solutions, Shiva management responded that they have not seen the most recent information on the Lucent solution. They have seen some confusion in the marketplace over what role Ascend and Newbridge were going to play in that solution. The biggest thing they are aware of now is that the Lucent solution, they believe, is a Lucent-only (Lucent switch only) solution and that is a difficulty at the RBOC level because there are virtually no RBOCs that are all one switch type.

IDSL FROM CISCO AND PRICING. They think IDSL is a very interesting comment on what Shiva really has in Internet Thruway because they don't believe IDSL will scale anywhere near what has to be done to really handle this data bypass application. There is a lot of scrambling around the positioning on data bypass to try to make sure there is an alternative to the Thruway and they think that's because they have the best end-to-end solution available today by far. From a pricing standpoint, they can't comment on Nortel's pricing strategies. They believe they have differentiated solution and clearly some of the actions they are taking this quarter are to make sure that Shiva's part of that solution can be very competitively priced.

RESPONSE TO ASCEND/CASCADE MERGER. With regard to today's merger and others, Shiva is aware and has been aware that scale is important as the marketplace moves more and more to a huge role for carriers which is where they think it is moving inexorably as remote networking becomes more and more strategic, mission-critical, and costly it makes more sense for people who have a hundred years of experience in managing large public networks to play a part here. Clearly selling to those industries long term makes scale very important. They think the Ascend/Cascade merger signals two things. One, the increased need for scale. They are sure Ascend and Cascade are thinking about having to compete with the likes of Cisco and Nortel. And, second, that there is a perceived need for end-to-end technology here. This is going away from being a box business and is turning into a systems business and a systems business means more about end-to-end software design and architecture, more about installed base and relationship selling, and more about customer service and support.

SCALE IS WHY THEY PARTNERED WITH NORTEL. This is the reason Shiva went after Nortel as a partner, it is a company that did somewhere in the $12-14 billion business range last year in frame relay and ATM-type products did $640 million of sales last year with a 50% growth rate. Nortel is a company that has an unusual set of relationships worldwide and they think a unique position worldwide. What they have tried to do by not only aligning with Nortel but taking a fairly radical posture in driving a pretty innovative relationship based on royalties, hardware design rights payments, and a tight integration of a field sales and service force, giving them a mutually exclusive relationship in most of the world's geographies. That combination brings them a lot of the advantages of scale that they need, they think, and they do believe that they need them to participate at that class of installation.

PRICING PRESSURE SEEN IN THE FIXED PORT SERVER MARKET FROM US ROBOTICS. On the fixed port server business, Shiva began to see increased price competitiveness principally from US Robotics as long ago as three quarters. In addition to that price activity which was more telling and to which they should have responded more directly and the two factors interact -- price and marketing budget. They saw US Robotics begin a massive advertising campaign and also very substantial direct mail campaigns. The direct mail actually targeted Shiva as early as Q2 of 1996 with a price-oriented message. So they had the combination of price action and promotional action. That has brought US Robotics to a position that is substantially under Shiva's price. Shiva believes they have differentiated product and a superior product and they still sell a lot of that product. In fact, ironically their projections show that their sell-through in the first quarter, while down from Q4, is still quite substantial when compared to earlier periods, but they are priced too high.

NEED TO CUT PRICES AND INCREASE MARKETING. So, substantial price cuts are required and, in addition, Shiva has to get back into the advertising and promotion business. They have been holding marketing expenditures way too flat relative to the growth of their business in an attempt to try to get to that operating income goal that they laid out for the Street for such a long time. They have got to run the business now to maintain share in that fixed port server business where they have a strong brand and a great product. So there will be pricing and promotional actions there and substantial price impact that will take place when they introduce functional subsetting in the second quarter. The magnitude of that cut, they haven't disclosed yet, but it will be very substantial and where they are targeting is to come in with a standard pack of features and hardware that will make this competitive with US Robotics as the target reference price in the market and then be able to sell additional software features in bundles to the marketplace which is the way that both Cisco and Ascend are marketing their software.

PRICING PRESSURE ON THE ACCESS SWITCH LINE. On the access switch line, there has been some good research from Del Oro and others that show the progress of the per port price in the concentrator business and it differs by market segment and by the scale of the deal. Enterprise business is least price sensitive, carriers are medium price sensitive, and ISPs are most price sensitive. Shiva has seen steady declines. They are projecting further declines in the year. That is partly because they, like other vendors are experiencing good cost reductions with each new wave of technology at the component level. There are other costs, unfortunately, like costs that come from the transitions from one wave of chips to the other. So, for example, 56K chips will cost Shiva less than v.34 chips but they have to deal with several waves of chip technology as the chips get cooler and consume less power. So there will be several waves of transition over the next years as people really get to the 56K standard and the coolest, lowest power chips available which will probably take a number of quarters in the marketplace. In the Access Switch business, they think they are, with Nortel and the royalty agreement and their cost reductions, able to make substantial price cuts and still maintain margins similar to those of their competitors.

* 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.