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Earnings reports

Zhone Reports Q3

OAKLAND, Calif. -- Zhone Technologies, Inc. (NASDAQ:ZHNE), a global provider of advanced communications equipment and a leader in VoIP, IPTV, and Ethernet over both copper and fiber access lines, today reported its results for the third quarter ended September 30, 2006.

Revenue for the third quarter of 2006 was $43.1 million compared with $54.2 million for the second quarter of 2006 and $40.6 million for the third quarter of 2005. Net loss for the third quarter of 2006, calculated in accordance with generally accepted accounting principles (“GAAP”), was $121.0 million or $0.81 per share compared with a net loss of $13.1 million or $0.09 per share for the second quarter of 2006, and a net loss of $11.3 million or $0.10 per share for the third quarter of 2005. The third quarter 2006 results included a $113.7 million charge for impairment of goodwill and intangible assets. This non-cash impairment charge was calculated in accordance with GAAP and is expected to be non-recurring. The second quarter 2006 results included a $7.2 million inventory write-off related to Zhone’s legacy business. The results for 2006 also included incremental non-cash employee stock-based compensation expense associated with the implementation of SFAS 123R. Pro forma earnings before stock-based compensation, interest, taxes, impairment, depreciation and amortization (EBITDA) was a $5.1 million loss for the third quarter of 2006, compared to pro forma EBITDA loss of $10.1 million for the second quarter of 2006 and pro forma EBITDA earnings of $27,000 for the third quarter of 2005.

“The decline in third quarter revenues was disappointing; however, we expect to rebound over the next few quarters,” said Mory Ejabat, Chairman and Chief Executive Officer of Zhone. “We do not view the current quarter as indicative of any negative long-term trend as seasonal issues in our international market will return to normal and buying patterns of our largest customers resolve themselves. Nonetheless, we have taken steps to streamline our business and improve operational execution with expectations of achieving profitability.”

Zhone Technologies Inc. (Nasdaq: ZHNE)

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