Introduction

You should read the following discussion and analysis in conjunction with our
condensed consolidated financial statements and the related notes thereto
included in this Report on Form 10-Q and with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2011.
This report contains forward-looking statements including:

•         expectations and goals for revenues, gross margin, research and
          development expenses ("R&D"), selling, general, and administrative
          expenses ("SG&A") and profits;

• the impact of our restructuring events on future operating results;

• our projected liquidity;

• future operations and market conditions;

• industry trends or conditions and the business environment;

• future levels of inventory and backlog and new products introductions;

•         expected synergies and other expense savings and operational and
          administrative efficiencies, opportunities, timing, expense and effects
          of the acquisition of Continuous Computing;


•         financial performance, revenue growth, management changes or other
          attributes of Radisys following the acquisition; and

• other statements that are not historical facts.

All statements that relate to future events or to our future performance are forward-looking statements. In some cases, forward-looking statements can be identified by terms such as "may," "will," "should," "expect," "plans," "seeks," "anticipate," "believe," "estimate," "predict," "potential," "continue," "seek to continue," "consider", "intends," or other comparable terminology. These forward-looking statements are made pursuant to safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industries' actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

These factors include, among others, the Company's high degree of customer concentration, the Company's transition to one contract manufacturer and use of the single contract manufacturer for a significant portion of the production of our products, key employee attrition, the anticipated amount and timing of revenues from design wins due to the Company's customers' product development schedule, cancellations or delays, matters affecting the embedded system industry, including changes in industry standards, changes in customer requirements and new product introductions, currency exchange rate fluctuations, changes in tariff and trade policies and other risks associated with foreign operations, actions by regulatory authorities or other third parties, actions by Continuous Computing's former shareholders, costs and difficulties related to integration of acquired businesses, delays, costs and difficulties related to the transaction, market conditions, the Company's ability to successfully integrate the business and operations of Continuous Computing and higher than expected costs of integration, the Company's ability to successfully manage the transition from 10G to 40G ATCA product technologies, performance and customer acceptance of the Trillium line of products, the combined companies' financial results and performance, satisfaction of closing conditions, and other factors described in "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2011, as updated in the subsequent quarterly reports on Form 10-Q. Although forward-looking statements help provide additional information about us, investors should keep in mind that forward-looking statements are only predictions, at a point in time, and are inherently less reliable than historical information.

We do not guarantee future results, levels of activity, performance or achievements, and we do not assume responsibility for the accuracy and completeness of these statements. The forward-looking statements contained in this report are made and based on information as of the date of this report. We assume no obligation to update any of these statements based on information after the date of this report.

Unless required by context, or as otherwise indicated, "we," "us," "our" and similar terms, as well as references to the "Company" and "Radisys" refer to Radisys Corporation and include all of our consolidated subsidiaries.

Overview

Radisys Corporation is a leading provider of embedded wireless infrastructure solutions for telecom, aerospace, defense and public safety applications. Radisys' market-leading Advanced Telecommunications Computing Architecture
("ATCA"), Internet Protocol ("IP") Media Server, Computer-on-Module ("COM")
Express, Rackmount Server platforms and world-renowned Trillium software coupled with an expert professional services organization and market expertise enable Radisys customers to bring high-value products and services to market faster with lower investment and risk. Radisys solutions are used in a wide variety of 3G & 4G / Long-Term Evolution ("LTE") mobile network applications including:
Radio Access Networks ("RAN") solutions from femtocells to picocells and macrocells, wireless core network applications, Deep Packet Inspection ("DPI") and policy management, conferencing and media services including voice, video and data, as well as customized mobile network applications that support the aerospace, defense and public safety markets.

As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, in the first quarter of 2012 we changed our revenue reporting to align with how management began assessing revenues in 2012. Specifically, revenue will be disclosed in the following four product groups: ATCA Platforms, COM Express and Rackmount Server Products, Software-Solutions and Other Products. The total ATCA Platforms and Software-Solutions revenue represents the previously disclosed Next Generation Communications Networks revenue; COM Express and Rackmount Server revenue represents most of the previously disclosed Commercial Products revenue and Other Products revenue represents the previously disclosed Legacy Communications revenue as well as previously reported Commercial Products revenue that is not COM Express or Rackmount Server products. We have conformed prior period presentation to align our management's discussion and analysis with our new revenue reporting policy.

Second Quarter 2012 Summary

•         Revenues decreased $2.3 million to $77.6 million for the three months
          ended June 30, 2012 from $79.9 million for the three months ended
          June 30, 2011. The decrease was primarily the result of an expected
          decline in Other Products revenue as these hardware centric products
          trend towards end of life. This decline was offset by an increase in
          ATCA and Software-Solutions revenue due to the July 2011 acquisition of
          Continuous Computing Corporation ("Continuous Computing").



•         Our gross margin increased 4.6 percentage points in the three months
          ended June 30, 2012 to 34.4% from 29.8% of revenue in the three months
          ended June 30, 2011. The increase reflects favorable product mix
          towards our ATCA and Software-Solutions products and the impact of
          synergy cost savings resulting from the integration of Continuous
          Computing.



•         R&D expense increased $2.1 million to $11.7 million for the three
          months ended June 30, 2012 from $9.6 million for the three months ended
          June 30, 2011 due to the acquisition of Continuous Computing and
          increased product development costs associated with the development of
          our T-series 40G ATCA products. These increases were offset by a lower
          cost structure per employee resulting from the transition of R&D
          resources to lower cost geographies.



•         SG&A expense decreased $0.7 million to $10.2 million for the three
          months ended June 30, 2012 from $10.9 million for the three months
          ended June 30, 2011. The decrease is the result of a decrease in
          restructuring related expenses as well as the reversal of Long Term
          Incentive Plan ("LTIP") stock compensation expense. These decreases are
          offset by the increase in expenses related to the acquisition of
          Continuous Computing.



•         Cash and cash equivalents decreased $1.9 million to $45.9 million at
          June 30, 2012 from $47.8 million at December 31, 2011. The decrease in
          cash and cash equivalents was primarily due to capital expenditures
          associated with the build out of our international facilities, other
          integration related activities associated with the acquisition of
          Continuous Computing and the addition of 40G ATCA test equipment.

Comparison of the Three and Six Months Ended June 30, 2012 and 2011

Results of Operations

The following table sets forth certain operating data as a percentage of
revenues for the three and six months ended June 30, 2012 and 2011:
                                            For the Three Months Ended       For the Six Months Ended
                                                     June 30,                        June 30,
                                               2012             2011           2012            2011
Revenues                                      100.0  %          100.0  %      100.0  %         100.0  %
Cost of sales:
Cost of sales                                  62.5              68.7          64.3             69.8
Amortization of purchased technology            3.1               1.5           3.2              1.5
Total cost of sales                            65.6              70.2          67.5             71.3
Gross margin                                   34.4              29.8          32.5             28.7
Research and development                       15.1              12.1          15.8             12.1
Selling, general, and administrative           13.1              13.6          14.5             14.3
Intangible asset amortization                   1.7               0.2           1.7              0.3
Restructuring and acquisition-related
charges, net                                    1.4               3.1           1.7              1.6
Income (loss) from operations                   3.1               0.8          (1.2 )            0.4
Interest expense                               (0.6 )            (0.6 )        (0.6 )           (0.6 )
Interest income                                   -                 -             -                -
Other income (expense), net                     0.2                 -           0.2             (0.1 )
Income (loss) before income tax expense
(benefit)                                       2.7               0.2          (1.6 )           (0.3 )
Income tax expense (benefit)                    1.0                 -           0.7             (0.1 )

Revenues

The following table sets forth our revenues by market (in thousands) for the
three and six months ended June 30, 2012 and 2011:
                                       For the Three Months Ended                For the Six Months Ended
                                                June 30,                                 June 30,
                                      2012           2011       Change        2012          2011        Change
ATCA Platforms ("ATCA")          $   36,518       $ 22,891       59.5  %   $  74,181     $  50,460       47.0  %
COM Express and Rackmount Server     11,931         14,124      (15.5 )       24,103        27,041      (10.9 )
Software-Solutions                   16,102          9,925       62.2         28,162        13,533      108.1
Other Products                       13,033         32,916      (60.4 )       26,625        62,449      (57.4 )

Revenues in the ATCA product group increased $13.6 million and $23.7 million for the three and six months ended June 30, 2012 from the comparable periods in 2011. Increased deployment to customers in the Japanese market to alleviate network capacity constraints resulted in an increase to ATCA revenue of $4.9 million and $3.5 million for the three and six months ending June 30, 2012. In addition, the July 2011 acquisition of Continuous Computing contributed $14.0 million and $24.0 million to ATCA revenue for the three and six months ending June 30, 2012. This increase is offset by softening of demand from our existing customer base due to weakening telecom spending. We expect telecom spending to remain weak throughout the remainder of 2012; however, we expect 10-15% long-term revenue growth in our ATCA product group.

Revenues in the COM Express and Rackmount Server product group decreased $2.2 million and $2.9 million for the three and six months ended June 30, 2012 from the comparable periods in 2011. We expect revenues from the Rackmount Server

product line to decline in 2012; however, in 2011 we began reinvesting in this product line and expect revenue growth to resume in 2013.

Revenues in the Software-Solutions product group increased $6.2 million and $14.6 million for the three and six months ended June 30, 2012 from the comparable periods in 2011. The increase in revenue reflects the addition of Trillium products as a result of the acquisition of Continuous Computing which contributed $4.9 million and $9.5 million for the three and six months ended June 30, 2012. In addition, strong demand for our Media Server products resulting from timing of deployments by our largest customer resulted in an increase of $1.4 million and $5.6 million for the three and six months ended June 30, 2012 from the comparable periods in 2011. A decline in Software-Solutions revenues is expected during the second half of 2012 due to the timing of deployments with our largest customers; however, we expect 10-15% long-term revenue growth in our Software-Solutions product group.

Revenues in the Other Products product group decreased $19.9 million and $35.8 million for the three and six months ended June 30, 2012 from the comparable periods in 2011, as these hardware centric products trend towards end of life.

Revenue by Geography

The following tables outline overall revenue dollars and the percentage of
revenues, by geographic region, for the three and six months ended June 30, 2012
and 2011:
                                           For the Three Months Ended               For the Six Months Ended
                                                    June 30,                                June 30,
                                          2012           2011       Change       2012          2011        Change
North America                        $   26,391       $ 23,903      10.4  %   $  55,952     $  42,949      30.3  %
Europe, the Middle East and Africa
("EMEA")                                 12,371         16,340     (24.3 )       31,819        41,796     (23.9 )
Asia Pacific                             38,822         39,613      (2.0 )       65,300        68,738      (5.0 )

Total                                $   77,584       $ 79,856      (2.8 )%   $ 153,071     $ 153,483      (0.3 )%



                For the Three Months Ended       For the Six Months Ended
                         June 30,                        June 30,
                  2012             2011            2012             2011
North America       34.0 %           29.9 %          36.5 %           28.0 %
EMEA                15.9             20.5            20.8             27.2
Asia Pacific        50.1             49.6            42.7             44.8
Total              100.0 %          100.0 %         100.0 %          100.0 %

North America. Revenues from the North America region increased $2.5 million and $13.0 million for the three and six months ended June 30, 2012 from the comparable periods in 2011. ATCA products decreased $1.3 million and increased $7.3 million for the three and six months ended June 30, 2012 compared to the comparable periods of 2011 due to timing of deployments with our largest customers as shipments to these customers were heavily weighted towards the first quarter of 2012. In addition, Software-Solutions revenue for the three and six months ended June 30, 2012 increased $5.7 million and $9.3 million from the comparable periods in 2011 due to the addition of Trillium products and timing of deployments with our largest Media Server customers.

EMEA. Revenues from the EMEA region decreased $4.0 million and $10.0 million for the three and six months ended June 30, 2012 from the comparable periods in 2011. The decrease is attributable to continued softening demand from telecom providers due to economic uncertainty in Europe.

Asia Pacific. Revenues from the Asia Pacific region decreased $0.8 million and $3.4 million for the three and six months ended June 30, 2012 from the comparable periods in 2011. The decrease reflects a decline of $11.8 million and $17.9 million in Other Products revenue for the three and six months ended June 30, 2012 from the comparable periods in 2011 due to an expected decline in revenues as these hardware centric products trend towards end of life. This decrease was offset by increases in ATCA revenue of $13.8 million and $17.8 million for the three and six months ended June 30, 2012 from the comparable periods in 2011 as a result of deployments by our Japanese customers.

We currently expect continued fluctuations in the percentage of revenue from each geographic region. Additionally, we expect non-U.S. revenues to remain a significant portion of our revenues.

Gross Margin
                                         For the Three Months Ended              For the Six Months Ended
                                                  June 30,                               June 30,
                                        2012          2011       Change       2012          2011        Change
Cost of Sales                        $  48,542     $ 54,933     (11.6 )%   $  98,547     $ 107,167      (8.0 )%
Amortization of Purchased Technology     2,391        1,163     105.6          4,833         2,327     107.7
Total Cost of Sales                  $  50,933     $ 56,096      (9.2 )    $ 103,380     $ 109,494      (5.6 )
Gross Margin                              34.4 %       29.8 %    15.4  %        32.5 %        28.7 %    13.2  %

Gross margin as a percentage of revenues increased 4.6 and 3.8 percentage points for the three and six months ended June 30, 2012 from the comparable periods in 2011. Gross margin was favorably impacted as our higher margin ATCA and Software-Solutions products comprised a larger share of our revenues as compared to the comparable periods in 2011. For the three and six months ended June 30, 2012, gross margin for ATCA and Software-Solutions products was 48% and 44% as compared to gross margin for our Other Products of 12% and 15%. Gross margin on our ATCA and Software-Solutions products increased due to customer mix within ATCA products as our largest customer represented a smaller share of our total revenue and a greater share of Software-Solutions revenues.

Operating Expenses

The following table summarizes our operating expenses (in thousands) for the
three and six months ended June 30, 2012 and 2011:
                                         For the Three Months Ended                For the Six Months Ended
                                                  June 30,                                 June 30,
                                        2012           2011       Change        2012          2011       Change
Research and development           $   11,713       $  9,600       22.0  %   $  24,259     $ 18,607       30.4  %
Selling, general and
administrative                         10,173         10,875       (6.5 )       22,173       21,910        1.2
Intangible asset amortization           1,304            192      579.2          2,608          384      579.2
Restructuring and
acquisition-related charges, net        1,039          2,481      (58.1 )        2,483        2,521       (1.5 )
Total                              $   24,229       $ 23,148        4.7  %   $  51,523     $ 43,422       18.7  %

Research and Development

R&D expenses consist primarily of salary, bonuses and benefits for product development staff, and cost of design and development supplies and equipment, net of reimbursements for nonrecurring engineering services. R&D expenses increased $2.1 million and $5.7 million for the three and six months ended June 30, 2012 from the comparable periods in 2011, reflecting higher product development costs associated with the development of our T-series 40G ATCA product introductions and increased headcount. Total R&D headcount was 468 at June 30, 2012 and 235 at June 30, 2011, with the increase attributable to our acquisition of Continuous Computing. These increases were offset by a decreased cost structure per employee as we have transitioned additional R&D resources to lower cost geographies.

Selling, General, and Administrative

SG&A expenses consist primarily of salary, commissions, bonuses and benefits for sales, marketing, executive and administrative personnel, as well as professional services and costs of other general corporate activities. SG&A expenses decreased $0.7 million for the three months ended June 30, 2012 from the comparable periods in 2011. This decrease is due to the reversal of previously recognized LTIP stock compensation expense of $2.4 million, as discussed further under stock compensation expense, and offset by increased employee headcount which resulted in an increase to payroll, commissions and payroll-related expenses of $1.2 million and a $0.4 million increase in depreciation expense resulting from the Continuous Computing acquisition, introduction of our T-series 40G ATCA products, and the build out of international facilities. Total SG&A headcount was 213 at June 30, 2012 and 173 at June 30, 2011, with increases resulting from the acquisition of Continuous Computing.

SG&A expenses increased $0.3 million for the six months ended June 30, 2012. The increase in SG&A expenses reflects an increase in payroll, commissions, and payroll-related costs of $2.7 million and offset by the reversal of previously recognized LTIP stock compensation expense of $2.4 million.

Intangible Asset Amortization

Intangible asset amortization increased $1.1 million and $2.2 million for the three and six months ended June 30, 2012 from the comparable periods in 2011. Intangible asset amortization increased primarily due to the acquisition of Continuous Computing. We perform reviews for impairment of the purchased intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Restructuring and Acquisition-Related Charges, Net

Restructuring and acquisition-related charges, net include expenses associated with restructuring activities as well as integration, transaction and legal fees, and retention bonuses incurred in connection with our acquisition of Continuous Computing. We evaluate the adequacy of the accrued restructuring charges on a quarterly basis. As a result, we record reversals to the accrued restructuring in the period in which we determine that expected restructuring and other obligations are less than the amounts accrued.

The $1.4 million decrease in restructuring and acquisition-related charges, net for the three months ended June 30, 2012 is consistent with expectations as the majority of the expenses related to the acquisition of Continuous Computing were incurred in prior periods. For the six months ended June 30, 2012, restructuring and acquisition-related charges, net decreased by $38,000 from the comparable period in 2011.

Restructuring and acquisition-related charges, net for the three months ended June 30, 2012 include the following:
•$1.3 million - exit charge for certain North American facilities resulting from facilities rationalization;

•            $0.7 million - acquisition related charges largely associated with
             overlap of notified employees as we transition our R&D activities to
             lower cost geographies; and

•($1.3) million - decrease in fair value of Continuous Computing earnout liability.

Restructuring and acquisition-related charges, net for the six months ended June 30, 2012 include the following:

•            $1.3 million - acquisition related charges largely associated with
             overlap of notified employees as we transition our R&D activities to
             lower cost geographies;

•$1.3 million - exit charge for certain North American facilities resulting from facilities rationalization;
•$0.8 million - restructuring charges related to the Continuous Computing restructuring plan; and
•($1.0) million - decrease in fair value of Continuous Computing earnout liability.

Stock-based Compensation Expense

Included within cost of sales, R&D and SG&A are expenses associated with
stock-based compensation. Stock-based compensation expense consists of
amortization of stock-based compensation associated with unvested stock options,
restricted stock units and the employee stock purchase plan ("ESPP").

We incurred and recognized stock-based compensation expense as follows (in
thousands):

                                          For the Three Months Ended              For the Six Months Ended
                                                   June 30,                               June 30,
                                         2012          2011       Change        2012        2011       Change
Cost of sales                       $      (134 )    $   170     (178.8 )%   $   (205 )   $   355     (157.7 )%
Research and development                   (296 )        293     (201.0 )          31         606      (94.9 )
Selling, general and administrative      (1,076 )        273     (494.1 )        (410 )     1,176     (134.9 )
Total                               $    (1,506 )    $   736     (304.6 )%   $   (584 )   $ 2,137     (127.3 )%

Stock-based compensation expense for the three months ended June 30, 2012 . . .