Polycom (PLCM) 8-K Polycom Reports Third Quarter 2008 Earnings

Exhibit 99.1

Investor Contact:	Michael R. Kourey, CFO
	Polycom, Inc.
	925-924-5742
	mkourey@polycom.com
Press Contact:	Caroline Japic
	Polycom, Inc.
	408-474-2265
	caroline.japic@polycom.com

POLYCOM REPORTS THIRD QUARTER 2008 EARNINGS

Revenue Growth of 15 Percent Year-over-Year to a Record $275.8 Million;

Operating Cash Flow of $40.4 Million

PLEASANTON, Calif. – Oct. 15, 2008 – Polycom, Inc. (NASDAQ: PLCM), the global leader in telepresence, video and voice communications solutions, today reported its earnings for the third quarter ended Sept. 30, 2008.

Third quarter 2008 consolidated net revenues were $275.8 million, compared to $240.0 million for the third quarter of 2007. Non-GAAP net income for the third quarter of 2008 was $31.7 million, or 37 cents per diluted share. This compares to Non-GAAP net income of $32.8 million, or 35 cents per diluted share, for the third quarter of 2007. GAAP net income for the third quarter of 2008 was $17.9 million, or 21 cents per diluted share, compared to $19.8 million, or 21 cents per diluted share, for the same period last year.

For the nine months ended Sept. 30, 2008, net revenues were $806.3 million, compared to $666.6 million for the first nine months of 2007. Non-GAAP net income for the period was $95.2 million, or $1.08 per diluted share, compared to $90.3 million, or 95 cents per diluted share, for the first nine months of 2007. GAAP net income for the nine months ended Sept. 30, 2008 was $50.0 million, or 57 cents per diluted share, compared to GAAP net income of $40.1 million, or 42 cents per diluted share, for the same period last year.

The reconciliation between GAAP net income and Non-GAAP net income is provided in the tables at the end of this release.

On a product line basis, consolidated net revenues for the third quarter of 2008 were comprised of:

• 65 percent video solutions, or $178.1 million (52 percent video communications, or $144.2 million, and 12 percent network systems, or $33.9 million); and

• 35 percent voice communications, or $97.7 million.

This compares to the third quarter of 2007, in which consolidated net revenues were comprised of:

• 61 percent video solutions, or $146.4 million (47 percent video communications, or $113.7 million, and 14 percent network systems, or $32.6 million); and

• 39 percent voice communications, or $93.7 million.

“Polycom collaboration solutions are delivering rapid ROI for our customers,” said Robert Hagerty, Polycom’s chairman and CEO. “Everyday, our customers identify new ways in which to deploy our solutions that streamline their business processes, significantly reducing travel costs while at the same time increasing productivity. Also, during the third quarter, we noted that business trends exhibited particular strength in Asia, Latin America, and US Federal sales.”

“From a product perspective, our network systems business returned to growth, both sequentially and year-over-year. The launch of our new RMX 1000™ HD Videoconferencing Media Server contributed to the growth in this product area. This innovative HD solution is optimized for small and medium enterprises, complementing our fast-growing RMX 2000™ product line. Extending Polycom’s customer solution further, we also announced our new Converged Management Application (CMA™), an enterprise-wide visual communication solution that seamlessly integrates video network management and desktop video into a customer’s unified collaboration environment. Polycom’s CMA product will begin shipping this month, which we expect to further drive our network systems adoption in Q4,” Hagerty concluded.

“We generated 2 percent sequential revenue growth in Q3 with record revenues of $275.8 million,” said Michael Kourey, Polycom’s senior vice president, finance and administration, and CFO. “In the third quarter, Polycom delivered a 170 basis point sequential improvement in gross margins while reducing inventories by $2.2 million from Q2 levels. Driven by these operating results, Polycom generated $40.4 million in positive operating cash flow—yielding a quarter-ending cash and investments balance of $287.4 million and no debt.”

About Polycom

Polycom, Inc. (Nasdaq: PLCM) is the global leader in telepresence, video, and voice solutions and a visionary in communications that empower people to connect and collaborate everywhere. Please visitwww.polycom.com for more information.

This release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 regarding future events, future demand for our products, and the future performance of the Company, including statements regarding the future results that Polycom solutions deliver for customers, the drivers for improvements in our margins and the impact of new product launches on future results. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the impact of competition on our product sales and for our customers and partners, potential fluctuations in results and future growth rates, the market acceptance of Polycom’s products and changing market demands, including demands for differing technologies or product and services offerings, possible delays in the development, availability and shipment of new products, risks associated with general economic conditions, including current negative macroeconomic indicators in the United States and globally, increasing costs and differing uses of capital, changes in key personnel, and the impact of global conflicts such as those in the Middle East that may adversely impact our business. Many of these risks and uncertainties are discussed in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements.

As has been noted on the Company’s web site since Oct. 8, 2008, Polycom will hold a conference call today, Oct. 15, 2008, at 5:00 p.m. EDT/2:00 p.m. PT to discuss its third quarter earnings. Robert Hagerty, chairman, president and CEO, and Michael Kourey, chief financial officer, will host the conference call. You may participate by viewing the webcast atwww.polycom.com or, for callers in the US and Canada, by calling 800.909.4804; and for callers outside of the US and Canada, by calling 212.231.2901, with the passcode being Polycom. A replay of the call will also be available atwww.polycom.com or, for callers in the US and Canada, at 800.633.8284; and for callers outside of the US and Canada, at 402.977.9140. The access number for the replay is 21395974. A replay of the call will also be maintained on our website for twelve months atwww.polycom.com under Investor Relations – Earnings Calls-Archives.

Polycom reserves the right to modify future product plans at any time. Products and/or related specifications referenced in this press release are not guaranteed and will be delivered on a when and if available basis.

Polycom and the Polycom logo are registered trademarks and CMA, RMX 1000, and RMX 2000 are trademarks of Polycom in the U.S. and various countries.^©2008, Polycom, Inc. All rights reserved.

POLYCOM, INC.

Non-GAAP Condensed Consolidated Statements of Operations

Excluding Stock-based compensation expense, Effect of stock-based compensation expense on warranty rates, Impact to cost of sales from purchase accounting adjustments to inventory, Acquisition-related costs, Purchased in-process research and development costs, Amortization and impairment of purchased intangibles, Restructuring costs, Litigation reserves and payments, Gain (loss) on strategic investments, and Income tax effect of the preceding adjustments

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30, 2008			September 30, 2007		September 30, 2008			September 30, 2007
Revenues:
Product revenues	$	235,397		$	206,979	$	691,693		$	578,353
Service revenues		40,379			33,068		114,584			88,264
Total revenues		275,776			240,047		806,277			666,617
Cost of revenues:
Cost of product revenues		91,085			80,130		270,536			217,791
Cost of service revenues		18,653			15,507		54,770			41,950
Total cost of revenues		109,738			95,637		325,306			259,741
Gross profit		166,038			144,410		480,971			406,876
Operating expenses:
Sales and marketing		78,614			58,097		221,813			165,273
Research and development		31,756			32,643		97,394			93,905
General and administrative		13,399			12,477		38,819			37,172
Total operating expenses		123,769			103,217		358,026			296,350
Operating income		42,269			41,193		122,945			110,526
Interest income, net		1,569			4,197		6,758			14,787
Other income (expense), net		(2,258	)		185		(2,265	)		(349	)
Income before provision for income taxes		41,580			45,575		127,438			124,964
Provision for income taxes		9,833			12,761		32,242			34,624
Non-GAAP net income	$	31,747		$	32,814	$	95,196		$	90,340
Basic net income per share	$	0.38		$	0.36	$	1.10		$	0.99
Diluted net income per share	$	0.37		$	0.35	$	1.08		$	0.95
Weighted average shares outstanding for basic net income per share		84,278			91,148		86,387			91,224
Weighted average shares outstanding for diluted net income per share		86,194			94,561		88,215			95,014

Use of Non-GAAP Financial Information

To supplement our consolidated financial statements presented on a GAAP basis, Polycom uses non-GAAP measures of operating results, net income and income per share, which are adjusted to exclude certain costs, expenses, gains and losses we believe appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of Polycom's underlying operational results and trends and our marketplace performance. For example, the non-GAAP results are an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or diluted net income per share prepared in accordance with generally accepted accounting principles in the United States.

POLYCOM, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30, 2008			September 30, 2007		September 30, 2008			September 30, 2007
Revenues:
Product revenues	$	235,397		$	206,979	$	691,693		$	578,353
Service revenues		40,379			33,068		114,584			88,264
Total revenues		275,776			240,047		806,277			666,617
Cost of revenues:
Cost of product revenues		95,249			84,465		283,383			230,374
Cost of service revenues		19,509			16,457		57,527			44,383
Total cost of revenues		114,758			100,922		340,910			274,757
Gross profit		161,018			139,125		465,367			391,860
Operating expenses:
Sales and marketing		81,562			61,510		231,465			174,437
Research and development		34,456			36,006		105,891			102,939
General and administrative		16,101			15,663		46,023			44,881
Acquisition-related costs		—			423		162			3,140
Purchased in-process research and development		—			—		—			9,400
Amortization of purchased intangibles		1,775			2,416		5,412			6,223
Restructuring costs		4,382			—		8,836			213
Litigation reserves and payments		—			—		7,401			—
Total operating expenses		138,276			116,018		405,190			341,233
Operating income		22,742			23,107		60,177			50,627
Interest income, net		1,569			4,197		6,758			14,787
Loss on strategic investments		—			—		—			(7,400	)
Other income (expense), net		(2,258	)		185		(2,265	)		(349	)
Income before provision for income taxes		22,053			27,489		64,670			57,665
Provision for income taxes		4,111			7,697		14,680			17,585
Net income	$	17,942		$	19,792	$	49,990		$	40,080
Basic net income per share	$	0.21		$	0.22	$	0.58		$	0.44
Diluted net income per share	$	0.21		$	0.21	$	0.57		$	0.42
Weighted average shares outstanding for basic net income per share		84,278			91,148		86,387			91,224
Weighted average shares outstanding for diluted net income per share		86,194			94,561		88,215			95,014

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30, 2008									Nine Months Ended September 30, 2008
	GAAP			Excluded			Non-GAAP			GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	235,397		$	—		$	235,397		$	691,693		$	—		$	691,693
Service revenues		40,379			—			40,379			114,584			—			114,584
Total revenues		275,776			—			275,776			806,277			—			806,277
Cost of revenues:
Cost of product revenues		95,249			4,164	(a)		91,085			283,383			12,847	(c)		270,536
Cost of service revenues		19,509			856	(b)		18,653			57,527			2,757	(b)		54,770
Total cost of revenues		114,758			5,020			109,738			340,910			15,604			325,306
Gross profit		161,018			(5,020	)		166,038			465,367			(15,604	)		480,971
Operating expenses:
Sales and marketing		81,562			2,948	(b)		78,614			231,465			9,652	(b)		221,813
Research and development		34,456			2,700	(b)		31,756			105,891			8,497	(b)		97,394
General and administrative		16,101			2,702	(b)		13,399			46,023			7,204	(b)		38,819
Acquisition-related costs		—			—			—			162			162			—
Amortization of purchased intangibles		1,775			1,775			—			5,412			5,412			—
Restructuring costs		4,382			4,382			—			8,836			8,836			—
Litigation reserves and payments		—			—			—			7,401			7,401			—
Total operating expenses		138,276			14,507			123,769			405,190			47,164			358,026
Operating income		22,742			(19,527	)		42,269			60,177			(62,768	)		122,945
Interest income, net		1,569			—			1,569			6,758			—			6,758
Gain (loss) on strategic investments		—			—			—			—			—			—
Other expense, net		(2,258	)		—			(2,258	)		(2,265	)		—			(2,265	)
Income before provision for income taxes		22,053			(19,527	)		41,580			64,670			(62,768	)		127,438
Provision for income taxes		4,111			(5,722	)		9,833			14,680			(17,562	)		32,242
Net income	$	17,942		$	(13,805	)	$	31,747		$	49,990		$	(45,206	)	$	95,196
Basic net income per share	$	0.21		$	(0.17	)	$	0.38		$	0.58		$	(0.52	)	$	1.10
Diluted net income per share	$	0.21		$	(0.16	)	$	0.37		$	0.57		$	(0.51	)	$	1.08
Weighted average shares outstanding for basic net income per share		84,278						84,278			86,387						86,387
Weighted average shares outstanding for diluted net income per share		86,194						86,194			88,215						88,215

(a) Excluded amount includes $3,419 related to the amortization of purchased intangibles for core and existing technologies, $652 for stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period and $93 related to the effect of stock-based compensation on warranty expense rates.

(b) Excluded amount represents stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period.

(c) Excluded amount includes $10,360 related to the amortization of purchased intangibles for core and existing technologies, $2,102 for stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period and $385 related to the effect of stock-based compensation on warranty expense rates.

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30, 2007							Nine Months Ended September 30, 2007
	GAAP		Excluded			Non-GAAP		GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	206,979	$	—		$	206,979	$	578,353		$	—		$	578,353
Service revenues		33,068		—			33,068		88,264			—			88,264
Total revenues		240,047		—			240,047		666,617			—			666,617
Cost of revenues:
Cost of product revenues		84,465		4,335	(a)		80,130		230,374			12,583	(c)		217,791
Cost of service revenues		16,457		950	(b)		15,507		44,383			2,433	(b)		41,950
Total cost of revenues		100,922		5,285			95,637		274,757			15,016			259,741
Gross profit		139,125		(5,285	)		144,410		391,860			(15,016	)		406,876
Operating expenses:
Sales and marketing		61,510		3,413	(b)		58,097		174,437			9,164	(b)		165,273
Research and development		36,006		3,363	(b)		32,643		102,939			9,034	(b)		93,905
General and administrative		15,663		3,186	(b)		12,477		44,881			7,709	(b)		37,172
Acquisition-related costs		423		423			—		3,140			3,140			—
Purchased in-process research and development		—		—			—		9,400			9,400			—
Amortization of purchased intangibles		2,416		2,416			—		6,223			6,223			—
Restructuring costs		—		—			—		213			213			—
Total operating expenses		116,018		12,801			103,217		341,233			44,883			296,350
Operating income		23,107		(18,086	)		41,193		50,627			(59,899	)		110,526
Interest income, net		4,197		—			4,197		14,787			—			14,787
Loss on strategic investments		—		—			—		(7,400	)		(7,400	)		—
Other income (expense), net		185		—			185		(349	)		—			(349	)
Income before provision for income taxes		27,489		(18,086	)		45,575		57,665			(67,299	)		124,964
Provision for income taxes		7,697		(5,064	)		12,761		17,585			(17,039	)		34,624
Net income	$	19,792	$	(13,022	)	$	32,814	$	40,080		$	(50,260	)	$	90,340
Basic net income per share	$	0.22	$	(0.14	)	$	0.36	$	0.44		$	(0.55	)	$	0.99
Diluted net income per share	$	0.21	$	(0.14	)	$	0.35	$	0.42		$	(0.53	)	$	0.95
Weighted average shares outstanding for basic net income per share		91,148					91,148		91,224						91,224
Weighted average shares outstanding for diluted net income per share		94,561					94,561		95,014						95,014

(a) Excluded amount includes $3,349 related to the amortization of purchased intangibles for core and existing technologies, $725 for stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period and $261 related to the effect of stock-based compensation on warranty expense rates.

(b) Excluded amount represents stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period.

(c) Excluded amount includes $7,518 related to the amortization of purchased intangibles for core and existing technologies, $1,941 for stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period, $661 related to the effect of stock-based compensation on warranty expense rates and $2,464 related to purchase accounting adjustments made to inventory.

POLYCOM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	September 30, 2008		December 31, 2007
ASSETS
Current assets
Cash and cash equivalents	$	159,517	$	279,560
Investments		121,710		62,663
Trade receivables, net		133,342		138,133
Inventories		92,138		71,106
Deferred taxes		29,375		43,295
Prepaid expenses and other current assets		33,504		23,104
Total current assets		569,586		617,861
Property and equipment, net		73,099		57,610
Long-term investments		6,219		32,340
Goodwill		500,097		504,955
Purchased intangibles, net		70,505		86,423
Deferred taxes		18,240		8,062
Other assets		17,576		14,687
Total assets	$	1,255,322	$	1,321,938
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	66,867	$	75,802
Accrued payroll and related liabilities		29,166		29,518
Taxes payable		170		3,790
Deferred revenue		69,290		59,130
Other accrued liabilities		58,488		48,814
Total current liabilities		223,981		217,054
Non-current liabilities
Deferred revenue		40,359		27,853
Taxes payable		32,400		34,899
Deferred taxes		2,744		4,709
Other long-term liabilities		14,543		13,429
Total liabilities		314,027		297,944
Stockholders’ equity		941,295		1,023,994
Total liabilities and stockholders’ equity	$	1,255,322	$	1,321,938

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30, 2008			September 30, 2007
Cash flows from operating activities:
Net income	$	49,990		$	40,080
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,620			18,205
Amortization of purchased intangibles		15,779			13,726
Provision for doubtful accounts		570			(33	)
Provision for excess and obsolete inventories		2,510			50
Non-cash stock based compensation		30,212			30,281
Excess tax benefits from stock-based compensation		(4,487	)		(14,190	)
Loss on strategic investments		—			7,400
Purchase of in-process research and development		—			9,400
Write down of investments other than temporarily impaired		921			—
Loss on disposals of property and equipment		102			56
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		4,395			(24,051	)
Inventories		(23,542	)		(2,264	)
Deferred taxes		1,447			4,394
Prepaid expenses and other assets		(9,131	)		(3,029	)
Accounts payable		(8,935	)		(1,551	)
Taxes payable		(1,278	)		6,566
Other accrued liabilities		36,995			8,704
Net cash provided by operating activities		116,168			93,744
Cash flows from investing activities:
Purchase of property and equipment		(35,287	)		(23,131	)
Purchases of investments		(313,695	)		(286,492	)
Proceeds from sale and maturity of investments		278,888			421,624
Net cash paid in purchase acquisitions		—			(275,619	)
Net cash used in investing activities		(70,094	)		(163,618	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		51,854			63,152
Repurchase of common stock		(222,458	)		(75,849	)
Excess tax benefits from stock-based compensation		4,487			14,190
Net cash provided by (used in) financing activities		(166,117	)		1,493
Net decrease in cash and cash equivalents		(120,043	)		(68,381	)
Cash and cash equivalents, beginning of period		279,560			316,368
Cash and cash equivalents, end of period	$	159,517		$	247,987