Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based upon current expectations and beliefs of management and are subject to risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by these statements. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and similar expressions identify forward-looking statements. Forward-looking statements include, among other things, statements regarding our ability to attract and retain customers, obtain and expand market acceptance for our products and services, the information and expectations concerning our future financial performance and potential or expected competition and growth in our markets and markets in which we expect to compete, business strategy, projected plans and objectives, anticipated cost savings from restructurings, our ability to realize anticipated benefits of our acquisitions on a timely basis, our estimates with respect to future operating results, including, without limitation, earnings, cash flow and revenue and any statements of assumptions underlying the foregoing. These forward-looking statements are only predictions Risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements

include the limited number of potential customers, the highly competitive market for our products and services, technological changes and developments, potential delays in software development and technical difficulties that may be encountered in the development or use of our software, patent litigation, our ability to retain management and key personnel, and the other risks discussed under the subheading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30,2 009, as well as elsewhere in this report. The occurrence of the events described in "Risk Factors" could harm our business, results of operations and financial condition. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this section below and other risks identified from time to time in the Openwave's public statements and reports filed with the Securities and Exchange Commission.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009, which was filed with the Securities and Exchange Commission on September 9, 2009, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q.

Overview of Our Business and Products

Openwave Systems is one of the world's leading innovators of software applications and infrastructure designed to enable revenue-generating, personalized services, which converge the mobile and broadband experience across all devices. Openwave software enables mobile and broadband service providers to increase the value of their networks by accelerating time to market and reducing the cost and complexity associated with new service deployment. Our unique product portfolio provides a complete range of service management, messaging and location technologies.

Openwave's products are modular and based on open standards, providing our customers with the ability to mix and match the right products and technologies to create differentiated mobile services. Our technology and products are designed to work on diverse platforms regardless of the brand or the type of service that operators select to offer to their subscribers.

Our product portfolio includes offerings in the areas of server software which includes mobile infrastructure, converged messaging products for mobile and broadband service providers and location application products for mobile operators. Our professional services group works with our customers integrating and deploying all Openwave products. For financial information about our operating segment and geographic areas, see Note 4 to our condensed consolidated financial statements.

For further detail regarding our products, see our Annual Report on Form 10-K for our fiscal year ended June 30, 2009.

Overview of Financial Results During the Three Months Ended September 30, 2009

The following table represents a summary of our operating results from
continuing operations for our first quarter of fiscal 2010 compared with the
first quarter of fiscal 2009 (dollars in thousands):



                                                 Three Months Ended
                                                    September 30,           Percent
                                                 2009          2008         Change
                                                     (unaudited)
    Revenues                                   $ 49,842      $  51,045           -2 %
    Cost of revenues                             22,739         20,971            8 %

    Gross profit                                 27,103         30,074          -10 %
    Operating expenses                           28,922         35,579          -19 %

    Operating loss                               (1,819 )       (5,505 )        -67 %
    Interest and other income (expense), net     (1,209 )       (6,496 )        -81 %
    Income tax expense                              498            503           -1 %

    Net loss from continuing operations        $ (3,526 )    $ (12,504 )        -72 %

Revenues decreased slightly during the three months ended September 30, 2009 compared to the corresponding period of the prior year.

Operating expenses decreased $6.7 million during the three months ended September 30, 2009 compared with the corresponding period of the prior year. This decline can be attributed primarily to lower labor and restructuring costs, as discussed in further detail under Summary of Operating Results below.

Operating Environment During the Three Months Ended September 30, 2009

Although mobile data services revenues are growing, the average revenue per user, commonly referred to as ARPU, has remained flat over the last several years for many of Openwave's mobile operator customers. Many operators have moved to flat rate mobile data revenue plans to drive mobile data usage, and the upside is that data usage is on the rise, with many more users accessing the internet via mobile devices. This is in part due to new technologies, including Openwave's mobile internet services, which are designed to adapt content for the mobile device and improve the user experience. This increased usage poses new challenges for operators. Openwave Integra, our next generation mobile internet platform, is designed to accommodate capacity and to facilitate the management of these increasing data volumes. In the infrastructure market overall, however, we believe that we will see continued, but cautious, capital equipment spending levels by the operators. We believe that some of the products Openwave and our competitors sell will continue to be viewed by operators as cost centers that will maintain, but not grow, monthly ARPU. Other Openwave products and those of our competitors are being viewed as a source for driving revenue by increasing and catering to the needs of mobile internet subscribers.

During the quarter ended September 30, 2009, Openwave worked with mobile and broadband operators to enable the delivery of personalized content and communications. Selected customer and product highlights include:

Service Mediation (formerly known as Service Management)

• This quarter we closed two new Integra deals in the US, the first with a tier one operator to manage their mobile internet traffic. In addition to the Integra platform, this customer also purchased several of our service enablers, including Mobile Analytics, which enables real-time reporting and monitoring of data traffic; Accelerator, which increases data transfer rates while decreasing bandwidth consumption; Guardian, which protects mobile subscribers against viruses, security threats and unwanted content; Passport, which offers subscribers pay-as-you-go access and targeted promotions for mobile services; and OpenWeb which adapts content from standard websites into highly compressed, functional mobile phone-compliant Wireless Application Protocol 2, or WAP2, pages. We also closed a deal with another North American carrier that is replacing its Openwave Mobile Access Gateway with Integra to better manage its mobile internet traffic.

• Also in the quarter we closed a deal with a leading service provider in Malaysia that selected our traffic management solution for web compression, flash and video optimization and operational platform management. The solution is supported by Openwave Mobile Analytics for real-time reporting and monitoring of data traffic. These products are

• Frost and Sullivan, a leading industry analyst firm recognized Openwave's Accelerator product offering with its 2009 Award for Technology Innovation in the North American Mobile Data Services Market. Accelerator is core to our total traffic management solution, allowing an operator to predicatively increase data transfer rates over wireless data networks while decreasing bandwidth consumption-central to resolving the operator issues that come with unpredictable, often viral and mobile, internet data demand.

Messaging

• In our messaging product line, operators continued to demand our carrier grade infrastructure offerings and our front end communications dashboard. This quarter we signed a deal with Kansei Multimedia Services, the cable internet access provider for J:COM, the largest multi system operator in Japan, for a messaging bundle that includes our RichMail dashboard and Email Mx platform.

New Management Appointments

During the quarter ended September 30, 2009, Openwave strengthened its executive staff with the additions of John Giere as Senior Vice President of Products and Marketing and Heikki Makijarvi as Vice President of Business Development.

John Giere is a seasoned executive with nearly 20 years of experience in management, marketing and business development. Mr. Giere brings an impressive pedigree to Openwave, having worked at Alcatel Lucent and Ericsson during their respective times of significant growth and change. His role will be critical in defining how we package and sell our portfolio to new and existing customers, through channels and to new territories in emerging markets.

Heikki Makijarvi brings more than 25 years of experience in the telecommunications and networking industry with key companies including Nokia, Cisco and Accel Partners. Makijarvi will be responsible for creating new opportunities to leverage our platforms and tools, evaluating and managing strategic business opportunities, partnerships and alliances, particularly as we look to participate and bring value in the larger internet ecosystem.

Recent Corporate Developments

Recently we consolidated our engineering sites and offshore development centers. The reason for this consolidation is to drive greater operational efficiency, reduce costs and have greater oversight and collaboration in research and development process. We are closing our Broomfield, Colorado office and consolidating to two engineering hubs: our headquarters in Redwood City and our operations in Belfast, Northern Ireland. Our Broomfield office primarily focused on location product development, which will now be handled by our remaining corporate offices and offshore development partners. We will continue to deliver on the location releases we have committed to our valued location customers, and our location-enabling our portfolio is still core to our strategy. Our next-generation platforms will incorporate location data from a variety of sources. Net cost savings from the consolidation are expected to be minimal since we plan to re-invest the savings in research and development.

Critical Accounting Policies and Judgments

We believe that there are several accounting policies that are critical to understanding our business and prospects for our future performance, as these policies affect the reported amounts of revenue and other significant areas that involve management's judgment and estimates. These significant accounting policies are:

• Revenue recognition;

• Allowance for doubtful accounts;

• Impairment assessment of goodwill and identifiable intangible assets;

• Stock-based compensation;

• Restructuring-related assessments.

There were no significant changes in our critical accounting policies and estimates since our fiscal year end on June 30, 2009. For further discussion of our critical accounting policies and judgments, please refer to the Notes to our condensed consolidated financial statements included in this Form 10-Q and to our Management's Discussion and Analysis of Financial Condition and Results of Operations and audited consolidated financial statements and accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

Summary of Operating Results

Three Months Ended September 30, 2009 and 2008

Revenues

We generate three different types of revenues: license revenues are primarily associated with the licensing of our software products to communication service providers; maintenance and support revenues are derived from providing support services to communication service providers; and services revenues are primarily a result of providing deployment and integration consulting services to communication service providers. Service revenues may include a limited amount of packaged solution elements which may be comprised of our software licenses, professional services, third-party software and hardware.

The majority of our revenues have been from a limited number of customers and our sales are concentrated in a single industry segment. During the periods noted below we had two significant customers, as shown in the following table:

                                        % of Total Revenue
                                           September 30,
                                       2009            2008
                      Customer:
                      Sprint Nextel        40 %            26 %
                      AT&T                 10 %            13 %

We derived half of our revenues from sales to U.S. based customers during the first quarter of fiscal 2010, which itself primarily consists of sales to Sprint Nextel and AT&T. Although we intend to broaden our markets, there can be no assurance that this objective will be achieved.

The following table presents key revenue information (dollars in thousands):

                                         Three Months Ended
                                            September 30,           Percent
                                         2009           2008        Change
             Revenues:
             License                   $  10,425      $ 14,327          -27 %
             Maintenance and support      15,798        16,378           -4 %
             Services                     23,619        20,340           16 %

             Total Revenues            $  49,842      $ 51,045           -2 %

             Percent of revenues:
             License                          21 %          28 %
             Maintenance and support          32 %          32 %
             Services                         47 %          40 %

             Total Revenues                  100 %         100 %

License Revenues

License revenues decreased by 27% during the three months ended September 30, 2009 as compared with the corresponding period of the prior year. The decrease in license revenues is indicative of the variability in revenue recognition of current and prior bookings, and is primarily related to certain large projects that were completed in fiscal 2009, and thus there was no associated revenue on these projects during the first quarter of fiscal 2010.

Maintenance and Support Revenues

Maintenance and support revenues decreased by 4% for the three months ended September 30, 2009 compared with the corresponding period of the prior year. The decrease is mainly as a result of non-renewals in some cases.

Services Revenues

Services revenue increased by 16% for the three months ended September 30, 2009, as compared with the corresponding period of the prior year. The increase in the three months ended September 30, 2009, was primarily related to services revenue related to a new customization project for a large customer.

Other Key Revenue Metrics

The other key metrics we utilize for purposes of making operating decisions and assessing financial performance include bookings and backlog. Bookings comprise the aggregate value of all new arrangements executed during a period. We define backlog as the aggregate value of all existing arrangements less revenue recognized to date. For the first quarter of fiscal 2010, bookings were approximately $47.3 million, up $18.0 million, or 61%, from approximately $29.3 million for the first quarter of fiscal 2009. Bookings fluctuate from quarter to quarter and do not necessarily create an immediate corresponding impact to revenues. For example, bookings were $47.3 million, $49.1 million, and $37.6 million during the three months ended September 30, 2009, June 30, 2009 and March 31, 2009, respectively. Total revenues during the three months ended September 30, 2009, June 30, 2009 and March 31, 2009, were $49.8 million, $47.9 million, and $44.6 million, respectively. Backlog was approximately $192.5 million as of September 30, 2009, down from $225.7 million as of September 30, 2008. Bookings related to royalty or usage arrangements are recognized concurrently with the related revenue and therefore do not impact backlog. Revenue resulting from bookings is generally recognized over the subsequent 12 to 18 months, in accordance with our revenue recognition policy.

Cancellations of bookings from prior quarters, if any, are treated as a reduction in backlog.

Cost of Revenues

The following table presents cost of revenues in dollars, as well as gross
margin, by revenue type (dollars in thousands):



                                                  Three Months Ended
                                                     September 30,           Percent
                                                  2009           2008        Change
   Cost of revenues:
   License                                      $     639      $  2,266          -72 %
   Maintenance and support                          4,327         4,258            2 %
   Services                                        17,773        14,447           23 %

   Total Cost of Revenues                       $  22,739      $ 20,971            8 %


                                                  Three Months Ended
                                                     September 30,
                                                  2009           2008
   Gross margin per related revenue category:
   License                                             94 %          84 %
   Maintenance and support                             73 %          74 %
   Services                                            25 %          29 %
   Total Gross Margin                                  54 %          59 %

Cost of License Revenues

Cost of license revenues consists primarily of third-party license fees and amortization of developed technology and customer contract intangible assets related to our acquisitions.

Costs of license revenues decreased by 72% during the three months ended September 30, 2009, compared with the corresponding period of the prior year. Amortization of intangibles related to licenses decreased by $0.7 million from the corresponding period of the prior year due to certain assets becoming fully amortized. The remainder of the decline is related to the corresponding 30% decrease in license revenue during the same period, as well as a change in the product mix of third-party software products. This in turn improved our gross margin on license revenues.

Cost of Maintenance and Support Revenues

Cost of maintenance and support revenues consists of compensation and related overhead costs for personnel engaged in support services to communication service providers.

Cost of maintenance and support, as well as maintenance and support gross margins, remained consistent during the three months ended September 30, 2009, as compared with the corresponding period of the prior year.

Cost of Services Revenues

Cost of services revenues consist of compensation and independent consultant costs for personnel engaged in performing professional services, hardware purchased for resale, and related overhead.

Cost of services increased by 23% during the three months ended September 30, 2009, as compared with the corresponding period of the prior year. This increase relates to the increase in services revenue of 16%, as well as a change in the mix of services and hardware provided to customers.

Operating Expenses

Operating expenses decreased by 19% during the three months ended September 30, 2009, as compared with the corresponding period of the prior year.

The following table represents operating expenses for the three months ended September 30, 2009 and 2008, respectively (dollars in thousands):

                                                Three Months Ended
                                                   September 30,           Percent
                                                2009           2008        Change
      Operating expenses:
      Research and development                $   9,864      $ 12,286          -20 %
      Sales and marketing                        10,711        10,744            0 %
      General and administrative                  7,925        10,620          -25 %
      Restructuring and other related costs         422         1,903          -78 %
      Amortization of intangible assets              -             26         -100 %

      Total Operating Expenses                $  28,922      $ 35,579          -19 %

      Percent of Revenues:
      Research and development                       20 %          24 %
      Sales and marketing                            21 %          21 %
      General and administrative                     16 %          21 %

Research and Development Expenses

Research and development expenses consist principally of salary and benefit expenses for software developers, contracted development efforts, related facilities costs and expenses associated with computer equipment used in software development. We believe that investments in research and development, including recruiting and hiring of software developers, are critical to remain competitive in the marketplace and directly relate to continued development of new and enhanced products.

During the three months ended September 30, 2009, research and development costs decreased 20% as compared with the corresponding period in the prior year. This decrease is attributable to a decline in labor costs and headcount, primarily related to the reduction in workforce as part of the FY2009 Restructuring described in Note 10 of notes to the condensed consolidated financial statements. As of September 30, 2008 we had 184 employees engaged in research and development activities, versus 164 employees as of September 30, 2009.

Sales and Marketing Expenses

Sales and marketing expenses include salary and benefit expenses, sales commissions, travel expenses, and related facility costs for our sales and marketing personnel, and amortization of customer relationship intangibles. Sales and marketing expenses also include the costs of trade shows, public relations, promotional materials, redeployed professional service employees and other market development programs.

During the three months ended September 30, 2009, sales and marketing costs remained consistent, as compared with the corresponding period of the prior year.

General and Administrative Expenses

General and administrative expenses consist principally of salary and benefit expenses, travel expenses, and facility costs for our finance, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for doubtful accounts, and expenses associated with computer equipment and software used in administration of the business.

During the three months ended September 30, 2009, general and administrative costs decreased 25% compared with the corresponding period in the prior year. This decrease is primarily attributed to a reduction in salary and related expense of $1.3 million, as well as a decline in professional fees of $1.8 million due to legal costs related to certain non-recurring events in the prior year period.

Restructuring and Other Related Costs

Restructuring and other related costs for the three months ended September 30, 2009, decreased by 78% over the same period in the prior year. This decrease can be primarily attributed to restructuring charges of $0.9 million and $0.5 million related to facility exit costs and accelerated depreciation in the first quarter of fiscal 2009, with no such comparable charges in the most recently completed quarter.

Refer to Note 10 in the notes to the condensed consolidated financial statements for more information.

Amortization of Intangible Assets and Goodwill Impairment
. . .