8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 26, 2006

RADISYS CORPORATION

(Exact name of registrant as specified in its charter)

Oregon	0-26844	93-0945232
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

5445 NE Dawson Creek Drive Hillsboro, Oregon	97124
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (503) 615-1100

No Change
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

TABLE OF CONTENTS

EXHIBIT 99.1

EXHIBIT 99.2

Item 2.02. Results of Operations and Financial Condition.

     The information in this Item 2.02 and the Exhibits attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or any proxy statement or report or other document we may file with the SEC, regardless of any general incorporation language in any such filing, except as shall be expressly set forth by specific reference in such filing.

     On October 26, 2006, RadiSys Corporation (the “Company”) issued a press release announcing its results for the fiscal quarter ended September 30, 2006. A copy of this press release is attached hereto as Exhibit 99.1. Additionally, on October 26, 2006, the Company held a conference call discussing its results for the second fiscal quarter ended September 30, 2006. A copy of the text of this conference call is attached hereto as Exhibit 99.2.

     In addition to disclosing financial results calculated in accordance with GAAP, the historical and forward-looking financial results in the Company’s earnings release and the content of the conference call contain non-GAAP financial measures that exclude the effects of (a) Convedia acquisition-related expenses including an in-process research and development (“IPR&D”) charge, amortization of acquired intangible assets, amortization of deferred compensation, integration expenses and purchase accounting adjustments, (b) stock-based compensation expense recognized as a result of the Company’s adoption of FAS 123R, (c) restructuring charges (reversals), (d) insurance gains, and (e) gains related to class action litigation. The Company believes that the presentation of results excluding these items will provide meaningful supplemental information to investors that are indicative of the Company’s core operating results. A reconciliation of non-GAAP information to GAAP information is included in Exhibits 99.1 and 99.2. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP, and reconciliations between GAAP and non-GAAP financial measures included herein should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures by other companies.

     The press release and the content of the conference call contain forward-looking statements, including statements about estimates of revenues from new business, the Company’s business strategy, the integration and performance of Convedia Corporation, and the Company’s guidance for the fourth quarter, particularly with respect to anticipated revenues and loss per share. Actual results could differ materially from the outlook, guidance and expectations in these forward- looking statements as a result of a number of risk factors, including, (a) the amount of stock-based compensation expense, (b) the anticipated amount and timing of revenues from new business, (c) that we may not be able to successfully integrate operations, technologies, products or personnel from the acquisition of Convedia Corporation, (d) that we may not realize the benefits we are seeking from the acquisition of Convedia Corporation and such acquisition may be more costly or less profitable than anticipated and may adversely affect the price of our stock, and (e) the factors listed in RadiSys’ SEC reports, including those listed under “Risk Factors” in RadiSys’ Annual Report on Form 10-K for the year ended December 31, 2005, and in the RadiSys Quarterly Reports on Form 10-Q filed with the SEC each fiscal quarter, and other filings with the SEC, copies of which may be obtained by contacting the Company at 503-615-1100 or from the Company’s investor relations web site at http://investor.radisys.com/. Although forward-looking statements help provide additional information about RadiSys, investors should keep in mind that forward-looking statements are inherently less reliable than historical information. All information in the press release and the content of the conference call is as of October 26, 2006. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

The following exhibits are furnished with this report on Form 8-K:

Exhibit
Number	Description
99.1	Press Release, dated October 26, 2006
99.2	Text of conference call held October 26, 2006

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RADISYS CORPORATION
Date: November 1, 2006	By: Name:	/s/ Brian Bronson Brian Bronson
	Title:	Vice President of Finance and Business Development

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press Release, dated October 26, 2006
99.2	Text of conference call held October 26, 2006

EX-99.1

Exhibit 99.1

NEWS RELEASE

For more information, contact:

Julia Harper
Chief Financial Officer
1-503-615-1250
julia.harper@radisys.com

Brian Bronson
VP of Finance and Business Development
1-503-615-1281
brian.bronson@radisys.com

RADISYS ANNOUNCES THIRD QUARTER RESULTS -REVENUE OF $81.4 MILLION, UP 9% YEAR OVER YEAR

HILLSBORO, OR — October 26, 2006 — RadiSysÒ Corporation (Nasdaq: RSYS), a leading global provider of advanced embedded solutions, reported revenues of $81.4 million for the quarter ended September 30, 2006. As a result of acquisition related expenses, the third quarter GAAP loss was $13.3 million or $0.62 per share. Non-GAAP net income for the third quarter was $4.6 million or $0.18 per diluted share. Non-GAAP net income excludes the effect of Convedia-related acquisition expenses and stock-based compensation expense. Non-GAAP results include a loss before taxes of $0.2 million or $0.01 per diluted share for one month of Convedia results and exclude $0.5 million or $0.02 per diluted share of interest income forfeited on the cash used for the acquisition. These items, along with a favorable tax rate change of $0.04 per diluted share were not included in the Company’s previously issued third quarter guidance.

Commenting on the results for the quarter, Scott Grout, President and CEO stated, “Our third quarter financial results were in line with our expectations and while we currently project double digit annual revenue growth for the full year over 2005, we do expect to see a significant revenue decrease in the fourth quarter as our quarterly demand from a large wireless customer continues to be volatile although up in total over 2005. We expect this decrease to be partially offset by an increase in our other markets. We continue to make excellent progress on closing future business with our new products. We were awarded new business in both our Promentum and Procelerant product lines in applications that include IPTV, XML routing servers and medical imaging. Our cumulative design wins, since the first quarter of 2005, are now estimated to range from $550 to $650 million. These design wins include projected business with over 50 new customers in a wide range of compelling new applications. The cumulative design win estimates are based on projected revenues in the first three years of our customers’ deployment. Given the nature of these customer programs, the amount and timing of meaningful deployments cannot be certain, but we do expect to see growth in deployments starting towards the end of 2007 and into 2008. About two thirds of the cumulative design wins are from our Promentum ATCA product line and about one third is from our Procelerant product line and other new products. I continue to be very pleased with our design win performance and the overall market acceptance of our products.”

The Company announced earlier this month the expansion of their market leading ATCA and AMC family of products with the introduction of two new products based on the latest OCTEON processors from Cavium Networks. The new ATCA and AMC solutions provide high density Gigabit Ethernet interfaces with sophisticated dataplane hardware acceleration. These products will help equipment manufacturers reduce research and development costs while accelerating the introduction of high performance products such as Radio Network Controllers, Session Border Controllers, Media Gateways, Edge Routers and Security Gateways. The Company’s new AMC-7211 product provides power efficient, packet and security processing for customers requiring AMC modules for their ATCA and uTCA platforms.

On September 1, 2006, the Company announced that it had completed the acquisition of Convedia Corporation, the leading provider of media processing platforms to communications equipment providers. Commenting on the acquisition, Scott Grout said, “Integration efforts are well underway, and I am very pleased with our progress. Integration is proceeding to plan, and we believe we are successfully laying the foundation for strong unified business operations. As stated earlier, we view this acquisition as a meaningful strategic accelerator for RadiSys that will expand our platform business as well as broaden our base of products and core technologies. Convedia’s clear market leadership in IP media processing in the emerging IMS and VoIP markets together with our leadership in ATCA will help to create a broader and more compelling portfolio of customer solutions for an expanded addressable market. Media server revenue growth over the next couple of quarters will be largely dependent on TEM’s moving from current generation, TDM media processing platforms, to IP-enabled IMS infrastructure, particularly in China as 3G licenses are awarded and 3G networks are rolled out. We currently expect the acquisition to become accretive on a non-GAAP basis, excluding the effect of Convedia-related acquisition expenses and stock-based compensation expense, in the second half of 2007.”

In addition, the Company announced today, in a separate press release, the appointment of Julia A. Harper to a new role of Vice President, Corporate Operations and the appointment of Brian Bronson to Chief Financial Officer of the Company.

Fourth Quarter 2006 Outlook

The following statements are based on current expectations as of the date of this press release. These statements are forward-looking, and actual results may differ materially. The Company assumes no obligation to update these statements.

Commenting on the outlook, Scott Grout stated, “We expect revenues in the fourth quarter to be between $57 and $63 million. The projected decrease in fourth quarter revenue is due to recent reductions in requested deliveries from a large wireless customer. We believe these reductions are driven by their efforts to significantly reduce inventory levels, including buffer inventories that were used to support a successful RoHS conversion, as well as lowered demand projections for systems into which we supply content. We do not believe there is a fundamental change in our wireless business and currently project revenues to return to higher levels in 2007, although they will continue to vary quarterly. While I am disappointed in the expected sequential decline, the mid-point of our revenue guidance for the fourth quarter will bring us to annual GAAP revenue for 2006 of $292 million versus $260 million in 2005. This represents revenue growth of 12% year over year for the Company. As you recall, at the beginning of the year, our expectation was to deliver modest revenue growth for 2006 over 2005 and while our quarterly revenues have varied, we do expect to deliver double-digit growth for the year which is better than our expectations at the beginning of the year. We currently expect fourth quarter GAAP results to be a loss in the range of $0.33 to $0.28 per share, and we expect our non-GAAP results to be a loss in the range of $0.09 to $0.04 per share. Our non-GAAP expected results exclude a loss of approximately $0.24 per share primarily attributable to the impact of Convedia-related acquisition expenses and stock-based compensation expense.”

In closing, Mr. Grout stated, “While I’m disappointed with the projections for the fourth quarter, I’m pleased with the expected results for the full year and excited by our continued meaningful design win traction that we believe will fuel growth going forward. We believe that the market acceptance and enthusiasm around our new products remains strong and that our solutions are enabling our customers to bring better products to market faster and at a lower total cost.”

Conference Call and Web-cast Information

RadiSys will host a conference call on Thursday, October 26, 2006 at 5:00 p.m. ET to discuss the third quarter 2006 results and review the financial and business outlook for the fourth quarter of 2006.

To participate in the live conference call, dial (888) 333-0027 (U.S., toll-free) or (706) 634-4990 (international) and reference conference ID#8359888. The conference call will also be simultaneously webcast on the RadiSys investor relations website at http://investor.radisys.com/.

A replay of the conference call will be available two hours after the call is complete by phone at (800) 642-1687 (U.S., toll-free) and (706) 645-9291 (international) with conference ID#8359888 or over the internet at http://investor.radisys.com/. The replay will be available until Thursday, November 9, 2006.

Forward-Looking Statements

This press release contains forward-looking statements, including statements about estimates of revenues from new business, the Company’s business strategy, the integration and performance of Convedia Corporation, and the Company’s guidance for the fourth quarter, particularly with respect to anticipated revenues and loss per share. Actual results could differ materially from the outlook, guidance and expectations in these forward-looking statements as a result of a number of risk factors, including, (a) the amount of stock-based compensation expense, (b) the anticipated amount and timing of revenues from new business, (c) that we may not be able to successfully integrate operations, technologies, products or personnel from the acquisition of Convedia Corporation, (d) that we may not realize the benefits we are seeking from the acquisition of Convedia Corporation and such acquisition may be more costly or less profitable than anticipated and may adversely affect the price of our stock, and (e) the factors listed in RadiSys’ SEC reports, including those listed under “Risk Factors” in RadiSys’ Annual Report on Form 10-K for the year ended December 31, 2005, and in the RadiSys Quarterly Reports on Form 10-Q filed with the SEC each fiscal quarter, and other filings with the SEC, copies of which may be obtained by contacting the Company at 503-615-1100 or from the Company’s investor relations web site at http://investor.radisys.com/. Although forward-looking statements help provide additional information about RadiSys, investors should keep in mind that forward-looking statements

are inherently less reliable than historical information. All information in this press release is as of October 26, 2006. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

Use of Non-GAAP Financial Measures

In addition to disclosing financial results calculated in accordance with GAAP, the historical and forward-looking financial results in the Company’s earnings release contain non-GAAP financial measures that exclude the effects of (a) Convedia acquisition-related expenses including an in-process R&D charge, amortization of acquired intangible assets, amortization of deferred compensation, integration expenses and purchase accounting adjustments, (b) stock-based compensation expense recognized as a result of the Company’s adoption of FAS 123R, (c) restructuring charges (reversals), (d) insurance gains, and (e) gains related to class action litigation. The Company believes that the presentation of results excluding these items will provide meaningful supplemental information to investors that are indicative of the Company’s core operating results. A reconciliation of non-GAAP information to GAAP information is included in the tables below. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP, and reconciliations between GAAP and non-GAAP financial measures included in this earnings release should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures by other companies.

About RadiSys

RadiSys (Nasdaq: RSYS) is a leading provider of advanced embedded solutions for the communications networking and commercial systems markets. Through intimate customer collaboration and combining innovative technologies and industry leading architecture, RadiSys helps OEMs, systems integrators and solution providers bring better products to market faster and more economically. RadiSys products include embedded boards, application enabling platforms and turn-key systems, which are used in today’s complex computing, processing and network intensive applications. For more information, visit http://www.radisys.com, write to info@radisys.com, or call 800-950-0044 or 503-615-1100. Editors seeking more information may contact Lyn Pangares at RadiSys Corporation at 503-615-1220 or lyn.pangares@radisys.com.

-end- RadiSys^® is a registered trademark.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Revenues	$	81,430		$	74,856		$	231,780		$	198,329
Cost of sales		60,744			53,141			169,767			138,673
Gross margin		20,686			21,715			62,013			59,656
Research and development		10,381			7,390			30,222			22,213
Selling, general, and administrative		10,414			7,613			28,103			22,575
Intangible assets amortization		1,508			513			1,969			1,539
In-process research and development charge		14,000			—			14,000			—
Restructuring and other charges (reversals)		—			(127	)		(174	)		1,001
Income (loss) from operations		(15,617	)		6,326			(12,107	)		12,328
Interest expense		(432	)		(527	)		(1,301	)		(1,596	)
Interest income		2,630			1,750			7,501			4,320
Other (expense) income, net		(32	)		(147	)		443			(613	)
Income (loss) before income tax provision		(13,451	)		7,402			(5,464	)		14,439
Income tax provision (benefit)		(121	)		1,480			2,081			3,366
Net income (loss)	$	(13,330	)	$	5,922		$	(7,545	)	$	11,073
Net income (loss) per share:
Basic	$	(0.62	)	$	0.29		$	(0.36	)	$	0.55
Diluted (I)	$	(0.62	)	$	0.25		$	(0.36	)	$	0.48
Weighted average shares outstanding:
Basic		21,336			20,266			21,019			20,012
Diluted (I)		21,336			25,030			21,019			24,702

(I) For the three and nine months ended September 30, 2005, the weighted average shares outstanding diluted calculation includes shares underlying our 1.375% convertible senior notes; as a result, the diluted earnings per share calculation excludes the interest expense for our 1.375% convertible senior notes, net of tax benefit. The interest expense, net of tax benefit, excluded from the diluted net income per share calculation amounted to $242 thousand and $727 thousand for the three and nine months ended September 30, 2005, respectively. For the three and nine months ended September 30, 2006 interest on the convertible senior notes and related shares were excluded from the calculation as the effect would be anti-dilutive.

CONSOLIDATED BALANCE SHEETS
(In thousands)

	September 30,		December 31,
	2006		2005
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	36,912	$	90,055
Short-term investments, net		105,100		135,800
Accounts receivable, net		53,905		39,055
Other receivables		2,149		3,886
Inventories, net		21,329		21,629
Other current assets		4,717		2,426
Assets held for sale		2,105		—
Deferred tax assets		7,399		7,399
Total current assets		233,616		300,250
Property and equipment, net		12,716		13,576
Goodwill		67,415		27,463
Intangible assets, net		47,391		2,159
Long-term investments, net		9,996		—
Long-term deferred tax assets		20,279		21,634
Other assets		4,638		3,629
Total assets	$	396,051	$	368,711
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	53,280	$	36,903
Accrued wages and bonuses		5,276		4,829
Accrued interest payable		532		224
Accrued restructuring		16		856
Convertible subordinated notes, net		2,407		—
Other accrued liabilities		11,242		8,279
Total current liabilities		72,753		51,091
Long-term liabilities:
Convertible senior notes, net		97,379		97,279
Convertible subordinated notes, net		—		2,498
Total long-term liabilities		97,379		99,777
Total liabilities		170,132		150,868
Shareholders’ equity :
Preferred stock — $.01 par value, 10,000 shares authorized; none issued or outstanding		—		—
Common stock — no par value, 100,000 shares authorized; 21,699 and 20,703 shares issued and outstanding at September 30, 2006 and December 31, 2005		209,235		193,839
Retained earnings		12,730		20,275
Accumulated other comprehensive income:
Cumulative translation adjustments		3,954		3,729
Total shareholders’ equity		225,919		217,843
Total liabilities and shareholders’ equity	$	396,051	$	368,711

Above is prepared in accordance with GAAP.

Additional supplemental information:

RECONCILIATION OF GAAP to NON-GAAP NET INCOME (LOSS)
(In thousands, unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
GAAP net income (loss)	$	(13,330	)	$	5,922		$	(7,545	)	$	11,073
Convedia acquisition-related expenses:
(a) In-process research and development charge		14,000			—			14,000			—
(b) Amortization of acquired intangible assets		1,375			—			1,375			—
(c) Amortization of deferred compensation:
Cost of sales		8			—			8			—
Research and development		53			—			53			—
Selling, general and administrative		95			—			95			—
Total amort. of deferred compensation		156			—			156			—
(d) Integration expenses:
Research and development		9			—			9			—
Selling, general and administrative		146			—			146			—
Total integration expenses		155			—			155			—
(e) Purchase accounting adjustments:
Revenue		90			—			90			—
Cost of sales		875			—			875			—
Selling, general and administrative		33			—			33			—
Total purchase accounting adjustments		998			—			998			—
Total Convedia acquisition-related exp.		16,684			—			16,684			—
(f) Stock-based compensation:
Cost of sales		224			—			640			—
Research and development		452			—			1,203			—
Selling, general and administrative		1,098			—			2,622			—
Total stock-based compensation		1,774			—			4,465			—
(g) Restructuring and other charges (reversals)		—			(127	)		(174	)		1,001
(h) Insurance gain		—			—			(362	)		—
(i) Income tax effect of reconciling items		(527	)		25			(1,050	)		(277	)
Non-GAAP net income	$	4,601		$	5,820		$	12,018		$	11,797

The non-GAAP consolidated statements of operations below are adjusted for the items listed above:

NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Revenues (e)	$	81,520		$	74,856		$	231,870		$	198,329
Cost of sales (c) (e) (f)		59,637			53,141			168,244			138,673
Non-GAAP gross margin		21,883			21,715			63,626			59,656
Research and development (c) (d) (f)		9,867			7,390			28,957			22,213
Selling, general, and administrative (c) (d) (e) (f)		9,042			7,613			25,207			22,575
Intangible assets amortization (b)		133			513			594			1,539
Non-GAAP income from operations (a) (g)		2,841			6,199			8,868			13,329
Interest expense		(432	)		(527	)		(1,301	)		(1,596	)
Interest income		2,630			1,750			7,501			4,320
Other (expense) income, net (h)		(32	)		(147	)		81			(613	)
Non-GAAP income before income tax provision		5,007			7,275			15,149			15,440
Income tax provision (i)		406			1,455			3,131			3,643
Non-GAAP net income	$	4,601		$	5,820		$	12,018		$	11,797
Non-GAAP net income per share:
Basic	$	0.22		$	0.29		$	0.57		$	0.59
Diluted (I)	$	0.18		$	0.24		$	0.49		$	0.51
Weighted average shares outstanding used to compute non-GAAP net income per share:
Basic		21,336			20,266			21,019			20,012
Diluted		26,389			25,030			25,997			24,702

(I) The weighted average shares outstanding diluted calculation includes shares underlying our 1.375% convertible senior notes; as a result, the diluted earnings per share calculation excludes the interest expense for our 1.375% convertible senior notes, net of tax benefit. The interest expense, net of tax benefit excluded from the net income per share – diluted calculation amounted to $243 thousand and $242 thousand for the three months ended September 30, 2006 and 2005, respectively, and $731 thousand and $727 thousand for the nine months ended September 30, 2006 and 2005, respectively.

RECONCILIATION OF GAAP TO NON-GAAP LINE ITEMS AS A PERCENT OF REVENUE
AND EFFECTIVE TAX RATE FOR THE QUARTER ENDED SEPTEMBER 30, 2006
(unaudited)

							Selling, General			Income
				Research and			and			(loss) from			Effective
	Gross Margin			Development			Administrative			Operations			Tax Rate
GAAP		25.4	%		12.7	%		12.8	%		(19.2	)%		(0.9	)%
In-process research and development charge (a)		—			—			—			17.2			6.8
Amortization of acquired intangible assets (b)		—			—			—			1.7			0.7
Amortization of deferred compensation (c)		—			—			(0.2	)		0.2			0.1
Integration expenses (d)		—			—			(0.2	)		0.2			0.1
Purchase accounting adjustments (e)		1.2			—			—			1.2			0.5
Stock-based compensation (f)		0.2			(0.6	)		(1.3	)		2.2			0.8
Non-GAAP		26.8	%		12.1	%		11.1	%		3.5	%		8.1	%

RECONCILIATION OF GAAP TO NON-GAAPGUIDANCE
NET LOSS PER SHARE
(unaudited)

	Estimates for the Quarter Ended
	December 31, 2006
	Low End			High End
GAAP net loss per share (assumes tax rate of 31%)	($	0.33	)	($	0.28	)
Amortization of acquired intangible assets	$	0.12		$	0.12
Amortization of deferred compensation	$	0.01		$	0.01
Integration expenses	$	0.02		$	0.02
Purchase accounting adjustments	$	0.03		$	0.03
Stock-based compensation	$	0.07		$	0.07
Gain related to supplier class action litigation settlement	($	0.01	)	($	0.01	)
Non-GAAP net loss per share (assumes tax rate of 22%)	($	0.09	)	($	0.04	)

EX-99.2

                                                                    EXHIBIT 99.2

                               RADISYS CORPORATION
                          THIRD QUARTER CONFERENCE CALL

                                OCTOBER 26, 2006
                                   4:00 PM CT

Operator:         Good afternoon. My name is Brook and I will be your conference
                  operator today. At this time, I would like to welcome everyone
                  to RadiSys Q3 Earnings Release Conference Call.

                  All lines have been placed on mute to prevent any background
                  noise. After the speakers' remarks, there will be a question
                  and answer session. If you would like to ask a question during
                  this time, simply press `*" then the number 1 on your
                  telephone keypad. If you would like to withdraw your question,
                  press the pound key.

                  Thank you. I would now like to turn the call over to Mr. Scott
                  Grout, President and CEO. Please go ahead sir.

Scott Grout:      Thank you, Brook. Good afternoon and thank you for
                  participating in our third quarter conference call. In this
                  call we will review our financial and strategic results for
                  the third quarter of 2006 as well as our outlook for the
                  fourth quarter and then open the call for questions.
                  Participating in the call today are Julia Harper, our Chief
                  Financial Officer, Brian Bronson, our VP of Finance and
                  Business Development, and myself Scott Grout, President and
                  CEO. Before we get started I'd like to turn the call over to
                  Julia for a caution about forward-looking statements.

Julia Harper:     Thanks, Scott. Any statements in this call regarding future
                  expectations for the business of RadiSys constitute
                  forward-looking statements that involve a number of risks and
                  uncertainties. We caution you not to place undue reliance on
                  these statements. Factors that could cause actual results to
                  differ materially from those in the forward-looking statements
                  are discussed in our earnings release today, which may be
                  found on our web site at www. radisys.com, and in our SEC
                  filings, including our 2005 Annual Report on Form 10-K and our
                  Quarterly Reports on Form 10-Q. All information provided in
                  this call is as of October 26, 2006. RadiSys undertakes no
                  duty to update any forward-looking statement to conform the
                  statement to actual results or changes in the Company's
                  expectations.

                  In addition, we will be referring to certain non-GAAP
                  financial measures during this call that exclude the effects
                  of stock-based compensation and Convedia acquisition related
                  costs such as the write off of in-process R&D, intangible
                  amortization, purchase price accounting adjustments,
                  amortization of deferred compensation and integration
                  expenses. For a reconciliation of our non-GAAP financial
                  measures, please refer to our earnings release issued today,
                  which is available in the investor relations section of our
                  website at www.radisys.com.

                  Now, I'll turn the call back over to Scott.

Scott Grout:      Thank you, Julia.

                  Our GAAP revenue for the third quarter was $81.4 million,
                  which represents approximately 9% growth over the same period
                  last year. As a result of our recent acquisition of Convedia,
                  we recorded a GAAP net loss in the third quarter of $13.3
                  million or $0.62 per share. On a non-GAAP basis, we recorded
                  net income in the third quarter of $4.6 million or $0.18 per
                  diluted share. Excluding the impact of Convedia, to allow for
                  an apples-to-apples comparison, our third quarter non-GAAP
                  results were in line with our guidance provided in July.

                  While we currently project a double digit annual revenue
                  growth rate over 2005, we do expect to see a significant
                  revenue decrease in the fourth quarter. This is due to
                  continued quarterly volatility in demand from one of our large
                  wireless customers, although we do expect demand



                  from this customer to be up in total over 2005. We expect this
                  decrease to be partially offset by increases in our other
                  markets.

                  Turning to our traction with new products, we continue to make
                  excellent progress on closing future business with our new
                  products. We were awarded new business in both our Promentum
                  and Procelerant product lines in applications that include
                  IPTV, XML routing servers and medical imaging over the last
                  quarter. Our current view of cumulative design wins since the
                  first quarter of 2005 are now estimated to range from $550 to
                  $650 million. These design wins include projected business
                  with over 50 new customers in a wide range of compelling new
                  applications. The value of these design wins are based on
                  projected revenues in the first three years of our customers'
                  deployment. Given the nature of these customer programs, the
                  amount and timing of meaningful deployments cannot be certain,
                  but we do expect to see growth in deployments starting towards
                  the end of 2007 and into 2008. About two thirds of the
                  cumulative design wins are from our Promentum ATCA product
                  line and about one third are from our Procelerant and other
                  new products. I continue to be very pleased with our design
                  win performance and the overall market acceptance of our
                  products.

                  We announced earlier this month the expansion of our ATCA and
                  AMC product lines by adding two new products based on the
                  latest processors from Cavium Networks. These new ATCA and AMC
                  solutions provide high density Gigabit Ethernet interfaces
                  with sophisticated dataplane acceleration. These products will
                  help equipment manufacturers reduce development costs while
                  accelerating the introduction of high performance network
                  elements such as Radio Network Controllers, Session Border
                  Controllers, Media Gateways and Security Gateways. Our new AMC
                  7211 provides power efficient, packet and security processing
                  for customers requiring AMC modules for their ATCA and micro
                  TCA platforms.

                  Per our announcement on September 1st, we completed the
                  acquisition of Convedia, the leading provider of media
                  processing platforms to the communications market. Integration
                  efforts are well underway, and I am very pleased with our
                  progress. Integration is proceeding to plan and we are
                  successfully laying the foundation for strong unified business
                  operations. As stated earlier, we view this acquisition as a
                  meaningful strategic accelerator for RadiSys that will expand
                  our platform solutions business as well as broaden our base of
                  new products and technologies. Convedia's clear market
                  leadership in IP media processing for the emerging IMS and
                  VoIP markets together with our leadership in ATCA gives us a
                  broader and more compelling portfolio of solutions and a
                  larger total addressable market. Media server revenue growth
                  over the next couple of quarters will be largely dependent on
                  customers moving from current generation, TDM media
                  processing, to IP-enabled IMS infrastructure. In particular
                  for China as 3G licenses are awarded and 3G networks and IMS
                  are rolled out. We currently expect the acquisition to become
                  accretive on a non-GAAP basis in the second half of 2007,
                  excluding the effect of Convedia-related acquisition expenses
                  and stock-based compensation expense.

                  Returning to our third quarter results, our revenues by market
                  were derived as follows:

                  75%, or $61.3 million of third quarter revenues were from our
                  Communications Networking market. This market includes
                  wireless infrastructure, IP networking and messaging and other
                  networking infrastructure. Wireless networks represented 43%
                  of total revenues for the quarter and have grown year-to-date
                  by 41% over the first three quarters of 2005. IP Networking
                  and messaging was 21% of total revenues for the quarter. Our
                  new media server products are included in the IP networking
                  and messaging market.

                  25%, or $20.2 million, of third quarter revenues were from our
                  Commercial Systems market which in total grew 19% over the
                  same period last year. This market includes medical imaging
                  and diagnostic systems, test and measurement equipment,
                  transaction terminals, and semiconductor and manufacturing
                  capital equipment. Medical systems represented 11% of total
                  revenues for the quarter and have grown year-to-date by 24%
                  over the first three quarters of 2005.



                  Our top five customers for the quarter were Avaya, Comverse,
                  Nokia, Nortel and Philips Medical. Collectively, our top five
                  customers represented about 69% of our revenue for the
                  quarter. Nokia represented 43% of third quarter revenues
                  across a number of diverse wireless programs. From a
                  geographic perspective, approximately 52% of our revenue was
                  from Europe, 32% from North America, and 16% from Asia
                  Pacific. Asia Pacific revenues as a percent of total revenues
                  decreased sequentially due to one of our large multi-national
                  wireless customers taking a lower percentage of product
                  deliveries in Asia in the third quarter.

                  I also want to provide an update on our manufacturing plans.
                  As we mentioned on our call in July we are disengaging from
                  our manufacturing partner in Monterey, Mexico. Our plan is to
                  be fully transitioned out of that plant by the end of the year
                  and move our higher volume products to Foxconn, our
                  manufacturing partner in China. As most of you know, the
                  majority of our revenue is currently outsourced to Foxconn and
                  our partnership with them is going very well. Our remaining
                  lower volume products will be moving back to our facility in
                  Hillsboro for the near-term. In addition, our manufacturing
                  partner in Charlotte, North Carolina has decided to close this
                  facility where some of our legacy products are currently
                  manufactured. We are working on a plan to transfer production
                  from this facility to other sites. Our manufacturing strategy
                  remains to outsource our higher volume products.

                  Finally, today we announced two organizational changes
                  intended to strengthen our focus and performance on process
                  and operations. Effective after the filing of our third
                  quarter 10-Q, Julia Harper will be assuming a new role within
                  the Company as Vice President of Corporate Operations. At the
                  same time, Brian Bronson, currently our Vice President of
                  Finance and Business Development will succeed Julia and become
                  the Company's Chief Financial Officer. We expect these changes
                  to take place the week of November 6, 2006.

                  Julia, our company's Chief Financial Officer since 2001, will
                  become the Vice President of Corporate Operations and will be
                  responsible for the design and implementation of an efficient
                  and cost-effective global operations capability that supports
                  the Company's core strategies. In this role, Julia will
                  oversee manufacturing operations, IT, systems and facilities
                  to design and implement a comprehensive operations capability
                  that gives RadiSys a competitive advantage in the market. This
                  is a key new role at RadiSys intended to accelerate our
                  progress in implementing a cohesive operating capability that
                  supports the company's core strategies of providing market
                  leading new products and platforms, on a global basis, at
                  highly competitive levels of cost, quality and service. Keith
                  Lambert, Vice President of Manufacturing Operations, will
                  report to Julia in her new role.

                  We have significant new opportunities opening in front of us
                  and we require a flexible and competitive operations
                  capability to seize these opportunities. We've made good
                  progress over the past few years on outsourcing and now
                  require even greater focus on the end-to-end design of our
                  global operations. Julia's strong financial and operational
                  background is extremely well suited to direct our
                  manufacturing and IT leadership teams to drive towards
                  world-class capability for RadiSys that fully supports our
                  strategies.

                  At the same time I'm happy to announce Brian Bronson,
                  currently our Vice President of Finance and Business
                  Development, will succeed Julia and become our Chief Financial
                  Officer. Brian joined RadiSys in 1999 and has been an officer
                  of the Company since 2000. Prior to his current role, Brian
                  held the position of Treasurer and Chief Accounting Officer
                  for the Company. Before joining RadiSys, Brian held a number
                  of financial management roles at Tektronix, Inc. where he was
                  responsible for investor relations, finance and accounting
                  functions for both domestic and international operations.
                  Prior to Tektronix, Brian practiced as a Certified Public
                  Accountant with the accounting firm Deloitte and Touche. Brian
                  holds a bachelors degree in Business Administration and
                  Communications from Oregon State University.

                  With over 13 years practicing in finance, including seven
                  years of superb financial leadership at RadiSys, I have the
                  highest confidence in Brian's capabilities and in-depth
                  financial expertise. Brian has also built very effective
                  relationships with our investors, external



                  advisors and, importantly, the RadiSys management team. With
                  Brian's financial background, knowledge of RadiSys and proven
                  ability to work with key constituencies he will make an
                  excellent CFO for RadiSys.

                  With that, I'd now like to turn the call over to Julia, who
                  will give you some additional information about our third
                  quarter financial results.

Julia Harper:     Thanks, Scott. As Scott mentioned previously, our GAAP revenue
                  for the third quarter totaled $81.4 million. Our GAAP net loss
                  for the quarter was $13.3 million, or $0.62 per share.
                  Non-GAAP net income was $4.6 million or $0.18 per diluted
                  share. As detailed in the non-GAAP reconciliation in our press
                  release, non-GAAP net income excludes the effect of
                  Convedia-related acquisition expenses and stock-based
                  compensation expense. Convedia-related acquisition expenses
                  for the third quarter include five major items:

                  The first item is a write-off of in-process R&D of $14
                  million. This is a one-time charge that will not be repeated
                  in our ongoing financial statements.

                  The second item is the amortization of acquired intangible
                  assets of $1.4 million. This will increase to an expected full
                  quarter level of $4.1 million going forward into 2007.

                  The third item is amortization of deferred compensation of
                  $156 thousand related to stock compensation. This deferred
                  compensation is tied to Convedia's employee option
                  acceleration at the time of closing, and will continue on as
                  an expense for the next eleven months at $156 thousand per
                  month or $469 thousand per quarter. This quarterly expense
                  will be spread between cost of goods sold, R&D expense and
                  SG&A expense as follows: $25 thousand to COGS, $160 thousand
                  to R&D and $284 thousand to SG&A expense.

                  The fourth item is integration expense of $155 thousand
                  included primarily in the SG&A expense line. We expect to
                  incur about $500 thousand of integration related expenses in
                  the fourth quarter as we ramp our integration efforts.

                  And the fifth and final item is $1 million in purchase
                  accounting adjustments for fair value accounting treatment of
                  Convedia assets. These adjustments relate primarily to the
                  write up of Convedia's inventory to market value and to the
                  valuation of backlog amortized to cost of goods sold. We
                  expect these purchase accounting adjustments to total
                  approximately $850 thousand in the fourth quarter.

                  Stock-based compensation expense in the third quarter was $1.8
                  million, of which $224 thousand was booked to cost of goods
                  sold, $452 thousand to R&D, and $1.1 million to SG&A expense.
                  Stock-based compensation expense is expected to be $2.1
                  million in the fourth quarter, of which $250 thousand will be
                  recorded in cost of sales, $540 thousand in R&D, and $1.3
                  million in SG&A expense. The increase of $300 thousand from
                  the third quarter is due primarily to the addition of a full
                  quarter of stock based compensation expense for Convedia
                  employees. As we have stated previously, our stock
                  compensation projections can vary depending on variables like
                  number of grants issued, stock price and interest rate
                  volatility.

                  As Scott mentioned earlier on the call, our non-GAAP diluted
                  earnings per share of $0.18 for the third quarter includes
                  Convedia's net loss before taxes of $210 thousand and excludes
                  forgone interest income of approximately $500 thousand or
                  $0.02 per diluted share before taxes. In addition, our
                  non-GAAP tax rate decreased to 8% from our prior estimate of
                  28%, resulting in a favorable earnings impact of $0.04 per
                  share. Adjusting for these items, our third quarter non-GAAP
                  results are in line with our earnings guidance provided on our
                  July call.

                  Our GAAP gross margin percentage for the third quarter was
                  25.4% and our non-GAAP gross margin rate was 26.8%. We had
                  expected a gross margin of around 27% for the quarter. The
                  positive gross margin rate impact related to Convedia was more
                  than offset by unfavorable changes in product mix during the
                  quarter. We currently expect our GAAP gross



                  margin percent for the fourth quarter to be around 27%, which
                  is reduced by $1 million or 1.5 points for about $750 thousand
                  of purchase accounting adjustments and $250 thousand of stock
                  compensation expense. The expected fourth quarter purchase
                  accounting adjustments include the sale of inventory that was
                  marked up to fair value at close along with adjustments for
                  deferred revenue and amortization of backlog. We expect our
                  fourth quarter non-GAAP gross margin percent to improve from
                  the prior quarter by about a point and a half - to 28.5%, as
                  we expect to have a more favorable product mix and will record
                  a full quarter of shipments for our higher-margin media server
                  products. (A reconciliation of non-GAAP information to GAAP
                  information is included on page 15 of this Exhibit 99.2.)

                  GAAP R&D and SG&A expenses totaled $20.8 million in the third
                  quarter, which is up approximately $600 thousand from the
                  second quarter. Non-GAAP R&D and SG&A expenses totaled $18.9
                  million, down just slightly from $19.0 million in the prior
                  quarter. GAAP R&D expense was $10.4 million or 12.7% of sales
                  including stock-based compensation and deferred compensation
                  expense of around $500 thousand, and is down slightly from
                  $10.7 million or 12.7% of sales in the prior quarter. Non-GAAP
                  R&D expense was $9.9 million or 12.1% of sales, which was down
                  about $500 thousand from the prior quarter due to lower
                  incentive compensation and project-related expenses. GAAP SG&A
                  spending was up $930 thousand from the prior quarter and up as
                  a percentage of sales from 11.2% to 12.8%. The increase is due
                  to the addition of expenses associated with our media server
                  business. We are currently expecting fourth quarter GAAP R&D
                  and SG&A expenses to be up by about $2.5 million from the
                  third quarter as we will have a full quarter of operating
                  expenses for the media server business, increased acquisition
                  related costs of approximately $700 thousand and increased
                  stock compensation of approximately $300 thousand.

                  Our legacy intangible amortization excluding Convedia related
                  intangibles was $134 thousand in the third quarter and we
                  expect it to continue at this level through next year.

                  Our GAAP non-operating income for the third quarter was $2.2
                  million, which is down from $2.7 million in the second
                  quarter. The decrease of $500 thousand is due to the
                  previously mentioned forgone interest income related to the
                  purchase of Convedia. We expect GAAP non-operating income to
                  be about $1.6 million in the fourth quarter, including a
                  one-time gain of $400 thousand for a supplier related class
                  action litigation settlement.

                  Our third quarter GAAP tax rate was just under 1% and our
                  non-GAAP tax rate was 8%. Our non-GAAP tax rate was lower than
                  the previously expected 28% due to reduced full-year income
                  projection reduction. We estimate our fourth quarter GAAP tax
                  rate to be 31% and our non-GAAP tax rate to be 22%; however
                  this can vary depending on our revenue and earnings mix in the
                  fourth quarter.

                  Our basic weighted average shares, used to calculate our GAAP
                  loss per share, increased to 21.3 million in the third quarter
                  from 21.0 million in the second quarter. Our fully diluted
                  shares increased to 26.4 million in the third quarter from
                  26.0 million in second quarter. The increase in overall
                  weighted average shares this quarter is attributable to the
                  issuance of shares for stock option exercises and ESPP
                  purchases by our employees. We expect our basic share count to
                  be around 21.6 million in the fourth quarter.

                  Moving to the balance sheet, our total cash and investments
                  decreased by $91 million to $152 million at the end of the
                  third quarter, as we incurred cash outlays of $106 million
                  related to the Convedia acquisition. Excluding the Convedia
                  acquisition, we generated $10.7 million in cash for the
                  quarter. Net cash, which we define as cash and investments
                  less our convertible debt at face value, was $50 million at
                  the end of Q3.

                  Our trade receivables decreased by $3.6 million to $53.9
                  million on a revenue decrease of $3.1 million. Day sales
                  outstanding for the third quarter was down by 2 days to 60
                  days and we expect a DSO in the mid-60's in the fourth
                  quarter.



                  Our net inventory balance increased $5.7 million from the
                  prior quarter to $21.3 million in the third quarter for two
                  main reasons. We increased finished goods buffers to allow for
                  better responsiveness for key customers, and we added
                  inventory as a result of the acquisition of Convedia.
                  Inventory turns were 11.4, which is down from 15.6 turns in
                  the prior quarter. We expect to see inventory increase by as
                  much as $10 million in the fourth quarter as we purchase
                  additional inventory to manage the production transfers out of
                  the Monterey, Mexico and Charlotte, North Carolina plants. A
                  portion of this increase will be temporary but some of it will
                  be required on an ongoing basis to support the production we
                  are bringing back to Hillsboro.

                  Capital expenditures were $1.3 million and depreciation
                  expense was $1.2 million in the third quarter. We expect them
                  to stay at approximately this same level in the fourth
                  quarter.

                  Our cash cycle time decreased to 12 days from 16 days in the
                  prior quarter. This is mostly due to an increase in days to
                  pay related to late timing of some significant inventory
                  receipts and some acquisition related payables. We expect cash
                  cycle time to increase into the low 20's in the near term.
                  Based on our projected operating results for the fourth
                  quarter, anticipated inventory increases, and the reduction of
                  acquisition related accounts payable, we expect fourth quarter
                  cash and investments to decrease from the third quarter by
                  between $5 and $10 million.

                  Before I turn the call back over to Scott, I want to say that
                  I am very excited about my new role with the company. I have
                  really enjoyed very much my tenure in the CFO position and it
                  has been a pleasure working with all of you. We are fortunate
                  to have an excellent successor in Brian Bronson and I know
                  that I am leaving you in excellent hands with him. With that
                  I'll turn it back over to Scott to talk about the outlook for
                  Q4.

Scott Grout:      Regarding our outlook for the fourth quarter, please note that
                  this is our view as of today, and it is a forward-looking
                  statement subject to risks and uncertainties as discussed
                  previously and in our press release made available earlier
                  today.

                  We expect revenues in the fourth quarter to be between $57 and
                  $63 million. The projected decrease in the fourth quarter
                  revenue is due to recent reductions in requested deliveries
                  from a large wireless customer. These reductions are driven by
                  their efforts to significantly reduce inventory levels,
                  including buffer inventories that were used to support a
                  successful RoHS conversion, as well as lowered demand
                  projections for systems into which we supply content. We do
                  not believe there is a fundamental change in our wireless
                  business and currently project revenues to return to higher
                  levels in 2007, although they will likely continue to vary
                  quarterly. While I am disappointed in the expected sequential
                  decline, the mid-point of our revenue guidance for the fourth
                  quarter will bring us to annual GAAP revenue of $292 million
                  for 2006 versus $260 million in 2005. This represents
                  year-over-year revenue growth of 12% for the company. As you
                  recall, at the beginning of this year, our expectation was to
                  deliver modest revenue growth for 2006 and while our quarterly
                  revenues have varied, we do expect to deliver double-digit
                  growth for the year, which is better than our expectations at
                  the beginning of the year.

                  We currently expect fourth quarter GAAP results to be a loss
                  in the range of $0.28 to $0.33 per share and we expect our
                  non-GAAP results to be a loss in the range of $0.04 to $0.09
                  per share. Our non-GAAP results exclude a loss of
                  approximately $0.24 per share primarily attributable to the
                  impact of Convedia-related acquisition expenses and
                  stock-based compensation expense. Our press release issued
                  today includes a reconciliation of fourth quarter guidance
                  GAAP loss per share to non-GAAP loss per share.

                  While I am disappointed with the projections for the fourth
                  quarter, I'm pleased with the expected results for the full
                  year and excited by our continued meaningful design win
                  traction that we believe will fuel growth going forward. We
                  believe that the market acceptance and enthusiasm around our
                  new products remains strong and that our solutions are
                  enabling our customers to bring better products to market,
                  faster and at a lower total cost.



                  With that Brook, I believe we are ready to open the call up
                  for Q&A.

Operator:         At this time, I would like to remind everyone if you would
                  like to ask a question, please press "*" then the number 1 on
                  your telephone keypad. We'll pause for just a moment to
                  compile the Q&A roster.

                  Your first question comes from David Duley with Merriman.

David Duley:      Could you just touch base a little bit on what kind of market
                  growth you might expect in 2007 now that we've lowered the bar
                  pretty dramatically for the fourth quarter? Can we grow double
                  digits in 2007?

Scott Grout:      We're not prepared to talk about 2007 yet. Clearly the results
                  for Q4 were driven by a customer making some pretty
                  significant adjustments. As I had mentioned, we expect for
                  their demand to return to more normal levels in `07. So this
                  is something that is happening in the fourth quarter and we're
                  not concluding that it causes difficulties going forward.

                  But again, we're not ready to say what '07 looks like yet.

David Duley:      Regarding this particular customer, this is the second time
                  this year that they have caused a major hiccup in your
                  results. I thought there were programs put in place to keep
                  this kind of event from catching you by surprise. I'm just
                  wondering why this is coming up suddenly, as a surprise.

Scott Grout:      So we're working closely with the customer to get a better
                  handle on demand-forecast, inventory levels and how we
                  appropriately manage the overall supply chain.

                  I think this year we clearly had an extraordinary event for
                  the whole industry around RoHS and RoHS conversion. It went
                  very well across-the-board and it went very well for this
                  customer. So when they find themselves in a position of
                  concluding their preparations for that we can back those out.

                  So there were some events that occurred this year that are not
                  going to be repeat events going forward. That being said, we
                  need to continue to work hard to improve our engagement in
                  understanding their processes.

David Duley:      Because in Q1 this happened and there were a bunch of
                  processes put in place to keep it from happening again, and
                  here it is happening again. I don't understand why it caught
                  you by surprise. I was just wondering if you can give us a
                  little bit more detail about some of the things that you put
                  in place that didn't work to monitor this situation or what
                  your going to do differently.

Scott Grout:      Well, again, I would point to fact that there have been
                  improvements made and there have been some one-time events
                  that the process is not well equipped to capture. If you
                  recall, in Q4 last year, we also experienced a similar
                  phenomenon as in Q4 this year; but, on the flip side of that,
                  in Q2 and Q3 we saw pretty significant strength.

                  I am not at all satisfied with our ability to get the right
                  kind of visibility into this and while we have made
                  improvements, there's going to be significant focus on making
                  further improvements going forward.

David Duley:      With all of this volatility and particularly this customer -
                  do you really understand what your core business run rate is
                  here? It seems like one-time events take the number down and
                  one-time events, like this RoHS thing, take them up. Is there
                  any way to gauge what the ongoing levels of business are at
                  this customer?

Scott Grout:      I actually think we have a reasonably good sense of what the
                  core ongoing business is with them, i.e., what they are
                  shipping out the door. It's the forecasting process and
                  changes to inventory strategies that make it a little bit
                  volatile. I do believe, though, that we've got a good sense of
                  their core business and our core business with them.



Julie Harper:     If you just take all four quarters, assuming our projection
                  for Q4 is right, it averages out to somewhere between $25-30
                  million a quarter. I think you can say on average, we believe
                  that this is a normalized run rate - if you adjust for these
                  inventory hiccups.

Scott Grout:      And for the year it came in about where we expected - or even
                  a little bit better than we expected at the beginning of the
                  year. So I clearly understand the pain and anguish this causes
                  us, them, investors, etc., and we are committed to working
                  hard to make processes better going forward.

David Duley:      I'd like to talk about one other thing. I notice you talk
                  about the design funnel now. And there's two things I've
                  noticed, 1) it's a range and historically you haven't given a
                  range and 2) when you talk about when it's going to ramp, the
                  words "towards the end of '07" are used rather than mid to
                  late '07. I was wondering if you might be able to comment on
                  that.

Scott Grout:      On both items, we decided this quarter to use a range - the
                  numbers are getting big enough and again, we're pretty happy
                  about it. We scrub it really well and keep it up to date. But
                  because the number is becoming big enough, we thought it was
                  appropriate to bracket and put a range around it. Thinking
                  about it from a mid-point perspective is a good way to think
                  about it. But there is definitely upside and there is
                  definitely some downside to it. So we wanted to put the range
                  in there.

                  With respect to timing, our customer development programs are
                  going well, and as we get closer to actual deployment, we get
                  a little bit better resolution on our opinion of when we think
                  revenues are actually going to begin to ramp. And now coming
                  closer to that, our best view is towards the end of '07.

Operator:         Your next question comes from Matt Petkun with DA Davidson.

Matt Petkun:      A couple of questions. First, just one really quick thing,
                  Scott, I missed what you said the contribution was from IP
                  networking and messaging as a percentage of total revenue.

Julia Harper:     21%.

Matt Petkun:      Where will we see the Convedia revenues when they start coming
                  in?

Julia Harper:     They're in that bucket.

Matt Petkun:      The other question goes back to the design win funnel or
                  pipeline. It's been a year now since you first started
                  breaking out this metric, and I think a year ago you said that
                  you had about $200 million over the first three years of
                  deployment. How much of that $200 million has been recognized
                  in revenue already? I assume it's a very small portion?

Julia Harper:     Yes, a very small number.

Matt Petkun:      Are you willing to even state what that number is?

Scott Grout:      No. It is a small number. When we provide this number, we will
                  continue to back out actual revenues realized against it.

Matt Petkun:      So there are two years left of that initial portion of the
                  funnel. How is that looking? With those initial customers,
                  what have you learned about timing in general for Next
                  Generation products in deployment?

Scott Grout:      So just one point of clarification and it's difficult to
                  describe this. The cumulative amount is for the first three
                  years of customer deployment. So that wouldn't be '06, '07 and
                  '08. Some programs might be '08, '09 and '10. So it's the
                  first three years of our customers' deployment.



                  Overall, it's going well. Commitment to ATCA remains very
                  strong. The funnel of new business opportunities is good. Our
                  customers are investing and spending significant dollars,
                  taking our products and turning it into products for
                  themselves. I do expect a pretty classical rollout of it.
                  Rollout taking 18 to 24 months for them to get the first
                  product out there, put it in the field, make sure that they
                  shake the bugs out and then begin to ramp into deployment. So
                  it's coming in about what we would expect for the first
                  generation. I am hopeful that when they use ATCA for the
                  second time, the third time, the fourth time, that cycle can
                  be reduced.

                  Overall I'm pleased with the commitment of the market place,
                  our customers and the progress that they're making.

Matt Petkun:      Any meaningful changes from the competitive front in terms of
                  marketing these products? And what that might mean for gross
                  margin as the funnel continues to expand?

Scott Grout:      With our addition of Convedia and the media server products
                  and, now, taking media server software and putting it onto
                  ATCA, that gives us a broader set of products and technologies
                  and therefore a stronger competitive position.

                  If you look at our ATCA against our competitors' ATCA, we do
                  have a lead today in 10 Gig and dataplane and we're holding
                  onto that reasonably well. But over time, our competitors will
                  catch up. So that competitive position is a little bit
                  stronger with the addition of media processing and our media
                  server business. We're enjoying a pretty strong position right
                  now in the market place.

Operator:         Your next question comes from Sid Nargundkar with Cowen &
                  Company.

Sid Nargundkar:   I was just wondering if you could also provide the wireless
                  segment breakout for the quarter.

Julia Harper:     43%.

Sid Nargundkar:   I was also wondering what the Q4 gross margin guidance would
                  be without the Convedia impact to compare to historical
                  results.

Julia Harper:     We're not going to breakout the Convedia impact, but we do
                  believe our organic gross margin is up for the quarter.

Sid Nargundkar:   Do you still have the same kind of outlook for the gross
                  margin on that large pipeline? You may have mentioned gross
                  margin in the thirties before, is that still what you're
                  looking for?

Julia Harper:     That hasn't changed.

Operator:         Your next question comes from Ted Jackson with Cantor
                  Fitzgerald.

Ted Jackson:      First of all, Julia, Brian, congratulations on your
                  promotions.

Julia Harper:     Thank you Ted.

Brian Bronson:    Thank you Ted.

Ted Jackson:      I have a few questions for you. The first one would be going
                  into the guidance for the fourth quarter. A little bit
                  different of a twist relative to the initial line of
                  questioning.

                  When you had the struggle with the fourth quarter last year,
                  that customer had been kind enough to work with you to go
                  through their inventory situation and gave you a very good
                  look-see into what they had, where they had it, when it was
                  going to be sold through and it was very beneficial for you in
                  terms of managing your business in the first half of this
                  year. The question is, given the deja vu nature of this, is
                  there any chance that you'll get a similar look underneath the
                  skirt?



Scott Grout:      Definitely. So we'll get a very good view of current plans,
                  and their revisions to targets. So at the risk of being
                  repetitive, we had RoHS coming in as a new item, and some
                  pretty aggressive targets being set out that are different
                  than the rest of the year.

Ted Jackson:      I've actually talked to some other people who supply within
                  that organization, and they've been making some commentary
                  that would lead me to believe that they're having some similar
                  issues, but they've laid the blame more on the pending merger
                  with Siemens, and I'm curious, do you believe that has any
                  impact in terms of your fourth quarter guidance?

Scott Grout:      It's inappropriate for us to speculate on that.

Ted Jackson:      The next question would be on the movement of some of the
                  manufacturing from Mexico and North Carolina. And given the
                  efforts that the Company went through in terms of reorganizing
                  its manufacturing processes and how RadiSys managed through
                  that, given some of the hiccups and difficulties behind it,
                  what do you see as the financial impacts on inventory and
                  obsolescence relative to the move back to Oregon?

                  Is there a chance you're going to keep it there permanently?
                  If you could spend a little time talking more specifically on
                  how you see that impacting your business model if you have to
                  bring some of this manufacturing back in house.

Julia Harper:     So we've got quite a bit of that baked in for Q4. We're not
                  expecting to have any significant inventory issues, but we
                  probably have been more conservative in how we're estimating
                  that in Q4 in terms of some potential impact, because there is
                  always a little bit when you do these things. Obviously, we
                  are going to be spending some cash as we bring some inventory
                  in here both from Mexico and from Charlotte, part of that is
                  just going to be a temporary impact, but it will definitely
                  impact cash flow for a quarter or two. Then, for the most
                  part, that will bleed back down quite a bit to a more normal
                  run rate level that we need to keep on hand to support the
                  small portion of production that we're going to keep here at
                  Hillsboro.

                  The short answer is, longer term there is not a significant
                  impact to us, but in the near term, I think the biggest impact
                  has to do with inventory and cash flow.

Ted Jackson:      Are you comfortable that you have the capacity and the
                  facilities to handle this? Certainly you put a fair amount of
                  effort into lightening the load.

Julia Harper:     Yes. But certainly for the stuff coming back from Mexico,
                  we're in good shape. The one that we're still working on, in
                  terms of what our plan is going to be, is what's coming back
                  from Charlotte. That one is more of a question mark as to
                  whether it would come back here or we would be doing something
                  different with that. I do think we have the capacity to handle
                  it here, if we made that decision, I just don't know if we're
                  going to make that decision yet.

Ted Jackson:      Next question on the ATCA front - to the level that you all
                  would feel comfortable or willing to talk, could you give us a
                  sense in terms of what portion of your revenue is coming from
                  ATCA either in the most recent quarter or even just
                  year-to-date?

Scott Grout:      So today it still remains a pretty small percentage of
                  revenue. We are shipping quite a few systems to many different
                  customers but on a development basis, one or two systems at a
                  time to support their development program, but there is really
                  no meaningful revenue coming from ATCA at this point.

Ted Jackson:      I think that last year your aggregate in ATCA revenue was
                  maybe around $2 million. Even though it's insignificant in
                  terms of your aggregate Company and total revenues, have you
                  seen a significant uptick in the design activity?

Scott Grout:      On a percentage basis, definitely. But again, as a share of
                  total revenue we are not.

Ted Jackson:      Then my last question is in reference to the Convedia
                  acquisition. To the level you'd be able to comment on it,
                  could you give some color in terms of how Convedia's
                  performance was



                  vis-a-vis their plan, not including the impact of RadiSys'
                  purchase of Convedia, in the just-completed quarter and to the
                  level, even if it's just qualitatively kind of what you're
                  looking at.

Scott Grout:      I'll touch the qualitative piece first and then circle back.
                  As you would hope, I spent the first three or four weeks after
                  the deal closed on the road with Convedia's customers in Asia
                  and North America and Europe and I have to say in total I was
                  very pleased with the position they have with customers. Lot's
                  of value for the product. A lot of respect for the team. Like
                  the kind of service and support that Convedia is providing. I
                  like the programs that they're engineered into very well. So
                  in terms of sitting face-to-face with many of their customers,
                  I like what I saw. In terms of the overall team, a very strong
                  team. R&D is great, technical support is great. The
                  integration has gone really well with them. A really important
                  criterion is cultural match, we expected that to be good and
                  it's proving out to be pretty good.

                  In terms of specific financial performance, we won't be
                  reporting specific financial performance. The main reason is
                  this, the media server market or Convedia is still in a small
                  and developing market and all of their competitors do not
                  disclose financial information, and it is competitively very
                  disadvantageous for us to be going out there disclosing the
                  size of their business and what they're doing. But I can tell
                  you qualitatively they're already adding to RadiSys and our
                  expectation is that grows over time.

Ted Jackson:      Can you just tell me whether or not per calendar third quarter
                  if they've made their budgets and if you're expecting to see
                  growth out of their business if you looked at it as a whole?
                  Can you tell me whether or not you expect to see their
                  business grow in Q4 relative to Q3?

Scott Grout:      I'm probably just not going to go there.

Ted Jackson:      Well that was my last question.

Scott Grout:      So don't read anything into it. I just don't want to get into
                  that pattern.

Ted Jackson:      So you don't want me to go out and tell everyone that Convedia
                  missed and is going to zero?

Operator:         Your next question comes from George Melas with Lord Abbot.

George Melas:     Can you talk a little bit about the reaction of your customers
                  to the Convedia acquisition and whether you were actually
                  going back to some of them, especially your historical design
                  wins, to indicate that RadiSys has a broader product/solutions
                  offering right now? Maybe it's not fully integrated at this
                  point, but RadiSys hopes to get there. Is that something that
                  you're doing or am I just barking up the wrong tree?

Scott Grout:      Definitely that is something we're doing. So there are a
                  number of areas of benefit that we expect to get by combining
                  the two companies together. One of the most significant of
                  which is they've got great customers that we don't sell to
                  today that we want to and we've got great customers that they
                  don't sell to today that they want to. So a significant amount
                  of the integration effort is really cross-training our sales
                  team, getting our sales people up and able to sell their
                  product and vice versa. So that is a meaningful area of
                  synergy and benefit that we expect to see. That being said,
                  when we looked at the business model for the combined two
                  companies, we didn't count on or assume a lot of that
                  particular synergy, but we want that as upside.

                  So we sell to a very similar kind of customers, very similar
                  kind of model between an ATCA system and a media server
                  system, and now we can do packet processing and media
                  processing and computation, IO, etc. So I know it's a
                  long-winded answer, but you hit the nail on the head in terms
                  of very critical area of benefit.

George Melas:     Okay. Is the design work of your customers too far along to
                  actually integrate the Convedia product or is that not the
                  case?



Scott Grout:      So not really the case. I think for deals that we have closed,
                  now circling back and saying we can help you with your media
                  server processing requirements is definitely an opportunity.
                  Although we don't talk about this, we do talk about closed
                  design wins or the funnel of new business opportunities and it
                  is still extremely strong. So there is a whole bunch of new
                  business out there for us to compete for and you can include
                  media processing in that.

George Melas:     Then a quick question on the guidance for the fourth quarter,
                  specifically, the revenue guidance. If you exclude that one
                  very big customer, are we talking about up-guidance or down? I
                  don't know if you can say that and I can find out what it is.
                  Where were they in their fourth quarter of '05 compared to the
                  fourth quarter of '06? Excluding that major customer, are we
                  talking about a sort of flat revenue number?

Scott Grout:      Obliquely, yes, the rest of customers are up in total.

Operator:         Your next question comes from Manish Vora with Monness,
                  Crespi, Hardt & Co., Inc..

Manish Vora:      Just another question on the fourth quarter margin, the number
                  I think you said was 28.5%, is that correct?

Julia Harper:     That's non-GAAP, yes.

Manish Vora:      I'm just trying to get an understanding that if the business
                  and the wireless customer that we're seeing the decline in Q4,
                  tended to have lower margins overall, lower than the corporate
                  average margins, then I was expecting that margin to be higher
                  given the decline in revenues.

Julia Harper:     I think that would be a fair conclusion for you to draw.

Manish Vora:      So then the 28.5% margin, is that reflecting these
                  manufacturing issues weighing on the margin a little bit in
                  Q4?

Julia Harper:     Yes, it is. (A reconciliation of non-GAAP information to GAAP
                  information is included on page 15 of this Exhibit 99.2.)

Manish Vora:      Is there anything else? For other businesses, we're seeing
                  pipeline declines or ASP issues.

Julia Harper:     No. Not really. I say the other stuff is pretty much
                  steady-as-you-go.

Operator:         Your next question comes from Joan Tong with Sidoti & Company.

Joan Tong:        A couple of questions here. When you discussed the movement in
                  the manufacturing facilities, you mentioned that you don't
                  expect any significant upticks in gross margin given that
                  you're moving stuff to China and out from your Mexico facility
                  and that this is going to take a couple of quarters for you to
                  ramp, should we expect to see the gross margins back to maybe
                  a 30% to 32% level? Is that what you're trying to say? I'm
                  trying to get a better understanding of what's going on there.

Julia Harper:     I think the question that was asked was would we see further
                  declines to our margin as a result of the incremental costs
                  associated with this. I said that we really didn't expect to,
                  but that we did expect to have a near term impact in terms of
                  inventory levels and cash flow.

Joan Tong:        So do we expect, going forward, gross margins would extend
                  from the low point that we saw in this quarter?

Julia Harper:     We hope that there's upward pressure on our gross margins. It
                  varies a lot depending on product mix, and so it's really hard
                  for me to sign up for something when we have as limited a
                  visibility window as we do and just don't know what our mix is
                  going to be in any given quarter.



Joan Tong:        In terms of '07, I understand that you don't want to give out
                  guidance at this point, but in terms of the market, when you
                  are looking at the environment out there, are we seeing that
                  we are looking at the same type of year-over-year growth as we
                  experienced from'05 to '06 for '06 to '07? Are you looking for
                  maybe a high single digit or a low double digit rate? Or are
                  we pretty much looking for pretty much the same level? Any
                  qualitative comments that you can talk to?

Julia Harper:     We're not really ready to talk about what we see in '07 in
                  terms of how it might compare to '06. But I would say that
                  we're not seeing anything that I would describe as scary in
                  terms of things going backwards on us.

Joan Tong:        But what kind of comfort level do you have? You said that your
                  revenue is going to go back up to a higher level, helped by
                  the wireless factor. Is it going to go back up? What kind of
                  assumptions do you have there and how comfortable are you with
                  this type of statement?

Julia Harper:     I'm very comfortable that it will go back up. I'm not very
                  comfortable about how much I think it will go back up.

Joan Tong:        Is the visibility still three months out? Do you have any
                  visibility beyond three months?

Julia Harper:     It's really 60-90 days, and beyond that, I really think our
                  customers don't have very good visibility.

Operator:         Your next question comes from David Duley with Merriman.

David Duley:      Last time you guided towards a roughly $60 million midpoint
                  quarter, which happens to be the last time you had problems
                  with this particular customer. You did $62 million in the
                  fourth quarter of 2005 and you had cash EPS at $0.12. Now
                  there's a big difference between the guidance now and the
                  results back then. I was wondering if you might be able to
                  compare those two quarters, since they're same level of
                  revenue and let us understand how the EPS went from one number
                  to another.

Julia Harper:     Well, so the obvious answers to that are we've probably got
                  quite a bit of media server business expense in there and that
                  is incremental over what we had last year. We've also been
                  growing our organic expenses, primarily R&D, to higher levels
                  this year and that's going to be quite a bit higher than it
                  was in the fourth quarter of last year. I don't know off the
                  top of my head how the margin rate compares, but there could
                  be margin rate differences in there, as well. And then the
                  last item is obviously we've got a lot less cash in the bank
                  that we're earning non-operating income on and so that's going
                  to create a difference for you on the bottom line as well.

David Duley:      I got your revenue guidance and I heard you say for fourth
                  quarter the gross margins would be 28.5%. Could you fill in
                  the pieces of the income statement for us again on the GAAP
                  basis, including the SG&A and R&D expenses? Because you were
                  going back and forth between non-GAAP and GAAP and I just want
                  to make sure I have the right numbers.

Julia Harper:     So you want SG&A and R&D estimates for Q4?

David Duley:      Yes.

Julia Harper:     For GAAP or non-GAAP?

David Duley:      Why don't you give the non-GAAP numbers first.

Julia Harper:     In total, we're expecting them to be up about $2.5 million on
                  a GAAP basis.

David Duley:      From what was reported this quarter?

Julia Harper:     Yes.



David Duley:      And then the non-GAAP number? Because that's the number that
                  you're trying to steer us towards with this loss of $0.09 to
                  $0.04 is the non-GAAP, so I just need to make sure I have
                  those pieces of the puzzle right.

Brian Bronson:    You're talking about up $1.5 million sequentially. (A
                  reconciliation of non-GAAP information to GAAP information is
                  included on page 15 of this Exhibit 99.2.)

Julia Harper:     Which is mainly the impact from a full quarter of Convedia.

David Duley:      Then the R&D numbers? Was that total SG&A that you gave me or
                  total operating expenses?

Julia Harper:     That was total operating expenses.

David Duley:      Did you give guidance for interest income?

Julia Harper:     We did not.

David Duley:      Is there a guess there?

Julia Harper:     It's probably going to be between a $1.5 million and $1.8
                  million.

Operator:         Your next question comes from Matt Petkun with DA Davidson.

Matt Petkun:      As a follow up to Dave's questions, as you looked at this
                  funnel and the requirements of serving, say, 50 customers
                  versus 5 customers that make up approximately 69% (or maybe it
                  was even lower than that) but a high percentage of your
                  business, what needs to happen in SG&A between now and, say,
                  18 months from now in terms of service and support for these
                  customers and how far are you along that path?

Scott Grout:      The first comment that I would make is the big benefit that
                  we're looking for is R&D to drive this much revenue and should
                  be quite a bit more efficient. In terms of SG&A infrastructure
                  to be able to support this, the sales side I actually feel
                  pretty good about today. So I wouldn't expect as we grow
                  revenues to have a meaningful increase in sales nor marketing.

                  Julia, if you want to comment a little on the G&A side. I
                  would expect those up a little bit.

Julia Harper:     Maybe a little bit, although, we've got infrastructure in
                  place that's pretty solid. I think the biggest variable is
                  going to be on the service side, and there may be some
                  additional service infrastructure that we need to put in place
                  to be able to service these full systems that we're going to
                  be deploying into the market place in a big way.

Matt Petkun:      When you look at this market, at some point can you envision
                  that service component actually carrying some sort of fee from
                  your customers? Or is it way too far away for this?

Julia Harper:     No. I definitely think it should carry fees. So there will be
                  incremental expense, but there should be incremental revenue,
                  as well.

Scott Grout:      As you get into more sophisticated platform solutions, there
                  will be meaningful opportunity for revenue behind that as
                  well.

Matt Petkun:      Listening to the questions on the call, there's a lot of
                  watching what your large customers, existing customers, are
                  doing today and then waiting for the large funnel to unfold
                  over the next couple of years. Can you tell us what else is
                  going on within your existing customer base, maybe more
                  specifically on the wire line and maybe enterprise side,
                  outside of wireless and how those markets look for the next
                  couple of quarters?

Scott Grout:      So a couple of comments, we've been talking an awful lot about
                  our Promentum products, which are ATCA but we also have our
                  Procelerant COM-E or our commercial products that



                  are doing very well. So a meaningful amount of design wins
                  there. That turns to revenue a little bit faster as we're
                  actually driving revenues.

                  Commercial overall has grown pretty nicely from '05 to '06. I
                  don't want to comment on '07, but that looks to continue
                  pretty nicely for us. Medical has grown very well. So for
                  about the last year and a half or two years, that's been a
                  strategic area of focus for us. So that's grown nicely for us.

                  On the wire line side, ATCA addresses that through things like
                  VoIP, soft switches and broadly includes IPTV in there. Where
                  we've historically had pretty little penetration into the wire
                  line side of communication, we're seeing pretty fair
                  penetration with ATCA into that business.

                  The last market would be enterprise. So our current run rate
                  enterprise business continues to do pretty well. I would say
                  that we've probably deemphasized that a little bit more over
                  the last year or two, but with bringing Convedia in, they've
                  got opportunity to bring media server or media processing
                  capability into enterprise. So there I don't expect it to be
                  dramatically up or a dramatically down.

                  So commercial is net growing nicely, medical growing nicely,
                  our exposure to wire line growing pretty well and enterprise,
                  potentially new exposure with media server.

Operator:         At this time there are no further questions. Mr. Grout, are
                  there any closing remarks?

Scott Grout:      So I wanted to thank everybody for participation on the call
                  and ongoing support of RadiSys. Thank you very much.

Operator:         Thank you. This concludes the RadiSys Q3 Earnings Release
                  Conference Call.

                                       END

The conference call contained certain statements that may be considered to
have non-GAAP financial information as contemplated by SEC Regulation G, Rule
100.

Reconciliations for certain of these non-GAAP financial measures are included
in our earnings release included as Exhibit 99.1 to this Current Report on Form
8-K.

We are also providing the following additional tables, which reconcile the
non-GAAP financial information to the corresponding GAAP-based measures.

       RECONCILIATION OF ESTIMATED GAAP TO ESTIMATED NON-GAAP GROSS MARGIN
    AS A PERCENT OF ESTIMATED REVENUE FOR THE QUARTER ENDING DECEMBER 31, 2006
                                   (UNAUDITED)



                                           GROSS MARGIN
                                           ------------
                                        
GAAP                                            27.0%
                                             =======
    Purchase accounting adjustments              1.1
    Stock-based compensation                     0.4
                                             -------
Non-GAAP                                        28.5%
                                             =======





RECONCILIATION OF ESTIMATED GAAP TO ESTIMATED NON-GAAP INCREASE IN SG&A AND R&D
                EXPENSES FOR THE QUARTER ENDED DECEMBER 31. 2006
                            (IN MILLIONS, UNAUDITED)


                                                              ESTIMATE FOR THE
                                                             THREE MONTHS ENDING
                                                                DECEMBER 31,
                                                                    2006
                                                             -------------------
                                                          
GAAP increase in estimated SG&A and R&D expenses                $      2.5
                                                                ==========
  Increase in Convedia acquisition-related expenses:
    Increase in amortization of deferred compensation                 (0.3)
    Increase in Integration expenses                                  (0.4)
                                                                ----------
       Total increase in Convedia acquisition-related exp.            (0.7)
                                                                ----------
    Increase in stock-based compensation                              (0.3)
                                                                ----------
Non-GAAP increase in estimated SG&A and R&D expenses            $      1.5
                                                                ==========