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 product introductions;

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

Third Quarter 2012 Summary

•         Revenues decreased $34.2 million to $63.7 million for the three months
          ended September 30, 2012 from $97.9 million for the three months ended
          September 30, 2011. The decrease was the result of continued softening
          in the broader telecom market affecting demand for our ATCA products as
          well as an expected decline in revenue from Other Products as these
          hardware centric products trend towards end of life.



•         Our gross margin decreased 0.9 percentage points in the three months
          ended September 30, 2012 to 27.7% from 28.6% of revenue in the three
          months ended September 30, 2011. This decrease was the result of an
          unfavorable product mix within our ATCA product group as compared to
          the three months ended September 30, 2011 and offset by the impact of
          cost synergies resulting from the integration of Continuous Computing
          and our continued focus on controlling manufacturing spend.



•         During the three months ended September 30, 2012, the Company
          determined that sufficient indicators of potential impairment existed
          to require an interim goodwill impairment assessment. These indicators
          included the recent trading values of the Company's common stock
          coupled with overall telecommunication market conditions. As a result,
          we recorded a goodwill impairment charge of $29.7 million, representing
          all of our goodwill.



•         R&D expense decreased $1.1 million to $11.8 million for the three
          months ended September 30, 2012 from $13.0 million for the three months
          ended September 30, 2011 as a result of synergies realized from the
          acquisition of Continuous Computing.



•         SG&A expense decreased $3.8 million to $11.8 million for the three
          months ended September 30, 2012 from $15.6 million for the three months
          ended September 30, 2011. The decrease was the result of a reduction in
          headcount and overhead expenses resulting from restructuring activities
          associated with our acquisition of Continuous Computing. Additionally,
          decreased sales as compared to the three months ending September 30,
          2011 resulted in lower commission expense.



•         Cash and cash equivalents decreased $15.9 million to $31.8 million at
          September 30, 2012 from $47.8 million at December 31, 2011. The
          decrease in cash and cash equivalents was due to the repurchase of
          $10.1 million of our 2013 senior convertible notes, capital
          expenditures associated with the build out of our international
          facilities, continued integration-related activities associated with
          the acquisition of Continuous Computing and the addition of 40G ATCA
          test equipment.

Comparison of the Three and Nine Months Ended September 30, 2012 and 2011

Results of Operations

The following table sets forth certain operating data as a percentage of
revenues for the three and nine months ended September 30, 2012 and 2011:
                                              Three Months Ended            Nine Months Ended
                                                 September 30,                September 30,
                                              2012           2011           2012          2011
Revenues                                     100.0  %        100.0  %      100.0  %       100.0  %
Cost of sales:
Cost of sales                                 68.6            68.1          65.6           69.2
Amortization of purchased technology           3.7             3.3           3.3            2.2
Total cost of sales                           72.3            71.4          68.9           71.4
Gross margin                                  27.7            28.6          31.1           28.6
Research and development                      18.6            13.2          16.7           12.6
Selling, general, and administrative          18.5            15.9          15.7           14.9
Intangible asset amortization                  2.0             1.3           1.8            0.6
Impairment of goodwill                        46.7               -          13.7              -
Restructuring and acquisition-related
charges, net                                  (4.2 )           5.9          (0.1 )          3.3
Gain on the liquidation of a foreign
subsidiary                                       -            (2.1 )           -           (0.8 )
Loss from operations                         (53.9 )          (5.6 )       (16.7 )         (2.0 )
Interest expense                              (0.6 )          (0.4 )        (0.5 )         (0.5 )
Other income (expense), net                      -             0.3           0.1            0.1
Loss before income tax expense (benefit)     (54.5 )          (5.7 )       (17.1 )         (2.4 )
Income tax expense (benefit)                   0.6           (11.3 )         0.7           (4.4 )

Revenues

The following table sets forth our revenues by product group for the three and
nine months ended September 30, 2012 and 2011 (in thousands):
                                         Three Months Ended                      Nine Months Ended
                                            September 30,                          September 30,
                                    2012         2011       Change        2012          2011        Change
ATCA Platforms ("ATCA")          $ 27,687     $ 44,928      (38.4 )%   $ 101,869     $  95,198        7.0  %
COM Express and Rackmount Server   13,861       16,846      (17.7 )       37,963        43,947      (13.6 )
Software-Solutions                 11,584        9,055       27.9         39,746        22,588       76.0
Other Products                     10,593       27,047      (60.8 )       37,218        89,626      (58.5 )
Total revenues                   $ 63,725     $ 97,876      (34.9 )%   $ 216,796     $ 251,359      (13.8 )%

Revenues in the ATCA product group decreased $17.2 million for the three months ended September 30, 2012 from the comparable periods in 2011. This decrease is the result of softening demand from our existing customer base due to softening in the macro telecom spending environment and timing of deployments within our customer base.

Revenues in the ATCA product group increased $6.7 million for the nine months ended September 30, 2012 from the comparable periods in 2011. Deployments to customers in the Japanese market to alleviate network capacity constraints resulted in an increase to ATCA revenue of $15.5 million for the nine months ended September 30, 2012 from the comparable period in 2011. In addition, we experienced broad-based strength throughout our Tier 2 and Tier 3 customers as compared to the nine months ended September 30, 2011 which is largely attributable to our acquisition of Continuous Computing. These

increases were offset by softening of demand throughout the balance of our remaining customer base due to the macro telecom spending environment and timing of customer deployments by our largest customers as revenues from our top five ATCA customers decreased $9.1 million for the nine months ended September 30, 2012 from the comparable period in 2011. Given the uncertainty in the macro telecom spending environment, it is difficult to determine when a rebound in the market may occur; however, we do not expect any material change in macro telecom spending through the remainder of 2012 and potentially into the first half of 2013. We continue to expect 10-15% long-term revenue growth in our ATCA product group as our recent design wins ramp to customer deployment.

Revenues in the COM Express and Rackmount Server product group decreased $3.0 million and $6.0 million for the three and nine months ended September 30, 2012 from the comparable periods in 2011. We expect revenues from the Rackmount Server product line to continue 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 $2.5 million and $17.2 million for the three and nine months ended September 30, 2012 from the comparable periods in 2011. The increase from the comparable periods in 2011 is due to robust demand for our existing media server product (targeted at the audio conferencing market) in 2012 leading to an increase in deployments throughout our customer base over the comparable periods of 2011. In addition, Trillium products, which as a result of the Continuous Computing acquisition were not a component of our revenue profile until the third quarter of 2011, also lead to an increase in revenues for the nine months ended September 30, 2012 over the comparable period. However, during 2012 our customers have experienced delays in small cell deployments containing our Trillium products resulting in lower revenues than our internal expectations. Flat or declining revenues from levels experienced for the three months ended September 30, 2012 are expected during the fourth quarter of 2012 given the timing of deployments with our largest customers; however, we continue to expect 10-15% long-term revenue growth in our Software-Solutions product group given the increasing demand for our media server product, including our ATCA-based MPX-12000 media server which is aimed at addressing video and voice-over-LTE optimization in wireless networks, and the expectation of small cell deployments by our customers.

Revenues in the Other Products product group decreased $16.5 million and $52.4 million as expected for the three and nine months ended September 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 nine months ended
September 30, 2012 and 2011 (in thousands):
                                         Three Months Ended                      Nine Months Ended
                                            September 30,                          September 30,
                                    2012         2011       Change        2012          2011        Change
North America                    $ 22,036     $ 30,188      (27.0 )%   $  77,987     $  73,137        6.6  %
Europe, the Middle East and
Africa ("EMEA")                    15,277       21,337      (28.4 )       47,096        63,133      (25.4 )
Asia Pacific                       26,412       46,351      (43.0 )       91,713       115,089      (20.3 )
Total                            $ 63,725     $ 97,876      (34.9 )%   $ 216,796     $ 251,359      (13.8 )%



                Three Months Ended      Nine Months Ended
                  September 30,           September 30,
                2012         2011        2012        2011
North America   34.6%        30.8%      36.0%       29.1%
EMEA            24.0         21.8        21.7        25.1
Asia Pacific    41.4         47.4        42.3        45.8
Total          100.0%       100.0%      100.0%      100.0%

North America. Revenues from the North America region decreased $8.2 million for the three months ended September 30, 2012 from the comparable period in 2011. This decrease was expected due to the timing of deployments with our largest customers as shipments to these customers were heavily weighted towards the first quarter of 2012.

Revenues from North America increased $4.9 million for the nine months ended September 30, 2012 from the comparable periods in 2011. Revenues from Software-Solutions increased $11.6 million over the comparable periods of 2011 resulting from our acquisition of Continuous Computing and increased deployments by our media server customers. These increases were offset by decreased revenues from ATCA of $2.0 million and Other Products of $4.0 million.

EMEA. Revenues from the EMEA region decreased $6.1 million and $16.0 million for the three and nine months ended September 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 $19.9 million and $23.4 million for the three and nine months ended September 30, 2012 from the comparable periods in 2011. The decrease reflects a decline of $8.5 million and $28.5 million in Other Products revenue for the three and nine months ended September 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.

ATCA revenue for the Asia Pacific region decreased $8.2 million and increased $9.8 million for the three and nine months ended September 30, 2012 from the comparable periods in 2011. Strong deployments by our Japanese customers were offset by softening in the macro telecom spending environment and timing of deployments within the remainder of our customer base.

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

Gross Margin

The following table summarizes our cost of sales and gross margin for the three
and nine months ended September 30, 2012 and 2011 (in thousands):
                                             Three Months Ended                    Nine Months Ended
                                               September 30,                         September 30,
                                        2012         2011       Change       2012          2011        Change
Cost of Sales                        $ 43,687     $ 66,610     (34.4 )%   $ 142,234     $ 173,777     (18.2 )%
Amortization of Purchased Technology    2,390        3,283     (27.2 )        7,223         5,610      28.8
Total Cost of Sales                  $ 46,077     $ 69,893     (34.1 )    $ 149,457     $ 179,387     (16.7 )
Gross Margin                             27.7 %       28.6 %    (3.1 )%        31.1 %        28.6 %     8.7  %

Gross margin as a percentage of revenues decreased 0.9 percentage points for the three months ended September 30, 2012 from the comparable period in 2011 due to unfavorable product mix within our hardware product groups.

Gross margin as a percentage of revenues increased 2.5 percentage points for the nine months ended September 30, 2012 from the comparable periods in 2011. Year to date gross margin was favorably impacted as our higher margin ATCA and Software-Solutions products comprised 65% of our revenues as compared to 47% during the comparable period in 2011.

Operating Expenses

The following table summarizes our operating expenses for the three and nine
months ended September 30, 2012 and 2011 (in thousands):
                                           Three Months Ended                     Nine Months Ended
                                              September 30,                         September 30,
                                      2012         2011       Change        2012          2011       Change
Research and development           $ 11,845     $ 12,955       (8.6 )%   $  36,104     $ 31,562       14.4  %
Selling, general and
administrative                       11,793       15,610      (24.5 )       33,966       37,520       (9.5 )
Intangible asset amortization         1,303        1,234        5.6          3,911        1,618      141.7
Impairment of goodwill               29,748            -      100.0         29,748            -      100.0
Restructuring and
acquisition-related charges, net     (2,717 )      5,758     (147.2 )         (234 )      8,279     (102.8 )
Gain on the liquidation of a
foreign subsidiary                        -       (2,081 )   (100.0 )            -       (2,081 )    (100.0)
Total                              $ 51,972     $ 33,476       55.3  %   $ 103,495     $ 76,898       34.6  %

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 decreased $1.1 million for the three months ended September 30, 2012 from the comparable period in 2011, as a result of synergies associated with our acquisition of Continuous Computing.

R&D expenses increased $4.5 million for the nine months ended September 30, 2012 from the comparable periods in 2011 as our acquisition of Continuous Computing resulted in increased expenses during the first half of 2012 over the comparable period of 2011. In addition, we experienced higher product development costs associated with the development of our T-series 40G ATCA product introductions. R&D headcount increased slightly to 440 at September 30, 2012 from 435 at September 30, 2011.

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 $3.8 million and $3.6 million for the three and nine months ended September 30, 2012 from the comparable periods in 2011. The decrease is the result of restructuring activities associated with our acquisition of Continuous Computing which resulted in a decrease in payroll, commissions, and related expenses of $2.6 million and $0.8 million for the three and nine months ended September 30, 2012 from the comparable periods of 2011. These decreases were offset by an increase in legal expenses of $1.0 million and $1.1 million associated with collection efforts on unlicensed software use. For the nine months ended September 30, 2012, SG&A expense also decreased due to the reversal of stock compensation expense associated with our Long-Term Incentive Plan ("LTIP") of $2.4 million, as discussed further under stock compensation expense. SG&A headcount decreased to 204 at September 30, 2012 from 244 at September 30, 2011 with decreases resulting from the restructuring associated with the acquisition of Continuous Computing.

Intangible Asset Amortization

Intangible asset amortization increased $0.1 million and $2.3 million for the three and nine months ended September 30, 2012 from the comparable periods in 2011. The increase in amortization is the result of our 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. In connection with the impairment of goodwill recorded during the third quarter of 2012, we also analyzed our long-lived assets for impairment and concluded there was no impairment of our long-lived assets at September 30, 2012.

Impairment of Goodwill

We completed an impairment analysis of goodwill pursuant to ASC 350-20-35 during the second quarter of 2012 as we determined that a triggering event occurred during the second quarter that required analysis of both our goodwill and long-lived assets for impairment. We concluded at that time that we satisfied the first step of the two-step impairment test set forth in ASC

350-20-35 and therefore no impairment of goodwill was recorded. However, during the third quarter of 2012, we observed additional impairment indicators, including a further deterioration in the market in which we operate and a decrease in our market capitalization. Accordingly, in connection with the preparation of our third quarter financial statements, we completed an interim goodwill impairment test and recorded a goodwill impairment charge of $29.7 million, representing all of our goodwill. 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, retention bonuses, and contingent consideration adjustments incurred in connection with acquisitions. We evaluate the adequacy of the accrued restructuring charges on a quarterly basis. As a result, we record reversals to . . .