Echelon 8-K Echelon Reports Second Quarter Results

Exhibit 99.1

550 Meridian Avenue

San Jose, CA 95126

Phone: +1-408-938-5200

Fax: +1-408-790-3800

lonworks@echelon.com

www.echelon.com

News Information	For Immediate Release
Press Contact		Investor Relations Contact
Steve Nguyen	Tina Wilmott	Chris Stanfield
Echelon Corporation	McQUERTER	Echelon Corporation
+1-408-938-5272	+1-858-450-0030 x140	+1-408-938-5243
qnguyen@echelon.com	twilmott@mcquerter.com	stanfield@echelon.com

Echelon Reports Second Quarter Results

SAN JOSE, CA – July 15, 2003 – Echelon Corporation (NASDAQ:ELON) today announced financial results for the quarter ended June 30, 2003.

Revenues for the quarter ended June 30, 2003 were $31.3 million, equivalent to revenues of $31.3 million for the same period in 2002. GAAP net loss for the quarter ended June 30, 2003 was $6.3 million or $0.16 cents per share, based on a weighted average of 39,954,000 common shares outstanding, compared to GAAP net income of $5.1 million or $0.12 cents per share, based on a fully diluted weighted average of 40,818,000 common shares outstanding for the same period in 2002. Revenues for the six-month period ended June 30, 2003 were $63.9 million, an increase of 8.5% over revenues of $58.9 million for the same period in 2002. GAAP net loss for the six-month period ended June 30, 2003 was $2.1 million, or $0.05 per share based on a weighted average of 39,875,000 common shares outstanding, compared to GAAP net income of $7.8 million, or $0.19 per share, based on a fully diluted weighted average of 40,812,000 common shares outstanding for the same period in 2002.

Included in operating expenses for both the quarter and six-month period ended June 30, 2003, are in-process research and development, intangible asset amortization, and other costs

Echelon Reports Second Quarter Results Page 2 of 9

totaling approximately $10.1 million associated with the acquisition of certain assets of Metering Technology Corporation. Excluding these and similar charges associated with acquisitions completed in prior periods, non-GAAP net income for the quarter ended June 30, 2003 was $3.1 million, or $0.08 per share, compared to non-GAAP net income of $5.2 million, or $0.13 per share for the same period in 2002. Non-GAAP net income for the six-month period ended June 30, 2003 was $7.7 million, or $0.19 per share, compared to non-GAAP net income of $8.3 million, or $0.20 per share for the same period in 2002. All non-GAAP information in this release is reconciled in the “Non-GAAP Consolidated Condensed Statements of Operations” table below.

Gross margin for the quarter ended June 30, 2003 was 53.0%, compared with 52.5% for the same period in 2002. Gross margin for the six-month period ended June 30, 2003 was 51.8%, the same as for the same period in 2002. Total operating expenses for the quarter ended June 30, 2003 were $23.9 million, compared to $11.9 million for the same period in 2002. Total operating expenses for the six-month period ended June 30, 2003 were $36.6 million, compared to $24.1 million for the same period in 2002.

“While I would like to have more revenue growth, given that we still see few signs of economic recovery around the world, especially in Japan and Germany, two of our larger markets, and given that we will recognize Enel-related revenue of about $2.7 million in the third quarter rather than the second, as described below, I feel that our results this quarter are quite good. I am also extremely pleased with the consistent strides we have made in executing our long-term strategy,” said M. Kenneth Oshman, Echelon’s chairman and chief executive officer.

“In late June we announced a very important strategic alliance with Samsung under which Samsung will adopt our PL 3120^® and PL 3150^® Power Line Smart Transceivers and the LONWORKS^® platform for its HOME VITA home and consumer products. When we announced our power line smart transceiver products in January, we said that we believed that they would open new markets for intelligent everyday devices and further propel our growth; we believe our agreement with Samsung is a very important design win for these products and a tangible step in opening the new markets and achieving the growth that we foresee.

And, yesterday, we announced a trial agreement with Continuon Nethbeheer, a leading Dutch utility grid operator and a subsidiary of the Dutch utility Nuon, under which we will

Echelon Reports Second Quarter Results Page 3 of 9

together deploy our Networked Energy Services (NES) system in an end-to-end trial system. We have said for some time that we see a large and important growth opportunity in the electric utility industry with our NES system. While there is still much work ahead of us before this trial can result in a rollout to all of Continuon’s 2.7 million served customers, yesterday’s announcement is the first visible and very important step in tapping the enormous opportunity that we see in this market,” continued Mr. Oshman.

In addition to the announcements discussed above, Echelon’s second quarter of 2003, as previously announced, was highlighted by a number of important events.

Echelon announced, and has since resolved, a dispute with Enel S.p.A. of Italy over pricing of the power line transceivers used in Enel’s metering project. The dispute was resolved in early July without the need for arbitration. Enel has been invoiced $2.7 million of the $3 million total for the additional units. Echelon expects that the full $3 million of revenue will be recognized for accounting purposes in the third quarter of 2003.

Echelon announced the appointment of Anders Axelsson as Senior Vice-President of Sales and Marketing. Mr. Axelsson joins Echelon from Honeywell-Measurex, ABB, and Snap Appliances and brings extensive executive management, sales and marketing experience.

The LONWORKS platform and Echelon were recognized with a NOVA Award from the Construction Innovation Forum in May. The NOVA Award is the construction industry’s “Nobel Prize” awarded only to those companies that have provided the industry with significant innovations that have improved the quality and reduced the costs of construction. Mr. Edwin Hill, the International President of the International Brotherhood of Electrical Workers (IBEW) said that, “Innovations like LONWORKS control network technology will ensure that our industry is ready to meet tomorrow’s construction demands with confidence.” The IBEW is the world’s largest electrical union.

Echelon announced that it was elected as a Steering Committee member of the UPnP Forum. The Steering Committee defines the future technology focus and guiding principles of the Forum. The UPnP Forum includes 575 companies in consumer electronics, computer networking, and mobile products whose members design and publish device descriptions

Echelon Reports Second Quarter Results Page 4 of 9

designed to allow data, multimedia, and control devices to connect transparently in home and corporate environments using open, Internet-based communication standards.

Echelon began shipments for the PL 3120 Power Line Smart Transceiver. Power line smart transceivers offer a very low-cost, high performance, and proven network communications solution for manufacturers in the home appliance, metering, and other businesses.

For those interested in further discussion regarding this release, Echelon’s management will participate in a conference call today at 2:00 pm PDT. To access the conference call, dial 1-800-388-8975 (callers outside the US please use +1-973-694-2225); however, due to a limited number of available phone lines, the company asks that only those persons without Web access call this number. The call will be available live today, and for playback on the Investor Relations section of Echelon’s web site (www.echelon.com) through July 22, 2003.

Use of Non-GAAP Financial Information

Echelon provides non-GAAP net income and non-GAAP net income per share data as additional information for its operating results. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. Echelon believes that this presentation of non-GAAP net income and non-GAAP net income per share provides useful information relating to its financial condition and results of operations, which provides management and investors with a more complete understanding of Echelon’s past performance and certain additional financial and business trends. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting principles.

About Echelon Corporation

Echelon Corporation is the creator of the LONWORKS platform, the world’s most widely used standard for connecting everyday devices such as appliances, thermostats, air conditioners, electric meters, and lighting systems to each other and to the Internet. Echelon’s hardware and software products enable manufacturers and integrators to create smart devices and systems that lower cost, increase convenience, improve service, and enhance productivity, quality, and safety.

Echelon Reports Second Quarter Results Page 5 of 9

Thousands of companies have developed and installed more than 30 million LONWORKS based devices into homes, buildings, factories, trains, and other systems worldwide.

The protocol underlying LONWORKS networks and the signaling used by Echelon’s power line and free topology transceivers have been adopted as standards by the American National Standards Institute (ANSI). Echelon is a founding member of the LONMARK^® Interoperability Association, an open industry forum of hundreds of leading manufacturers, integrators, and users dedicated to promoting the use of interoperable LONWORKS devices. More information about LONMARK interoperability is available at http://www.lonmark.org. Further information regarding Echelon can be found at http://www.echelon.com.

###

Echelon, LONWORKS, LONMARK, 3120, 3150, the LONMARK logo, and the Echelon logo are trademarks of Echelon Corporation registered in the United States and other countries. Other marks belong to their respective holders.

This press release may contain statements relating to future plans, events or performance. Such statements may involve risks and uncertainties, including risks associated with uncertainties pertaining to the risks that the R&D activities or subsequent product deployment activities with Enel are not successful, do not meet their target dates, do not expand or gain momentum, or are terminated, or that the contemplated transactions are challenged by third parties, and risks associated with the timing of receipt by us of payments under our project with Enel; risks that our development projects with other parties are not successful; risks relating to our strategic alliance with Samsung and the extent, if any, to which that alliance will open new markets for our project; risks associated with our trial with Continuon, our ability to achieve milestones under that agreement, and the extent, if any, to which the trial could lead to additional deployments; risks relating to the development of markets for Echelon’s products and services and the ability of those products and services to perform as designed and meet customer and consumer expectations; risks related to the timing and amount of revenues, if any, derived from the Panoramix software platform; risks related to our acquisition of certain assets of MTC, , and the effect of the acquisition on Echelon’s expenses and operating results this quarter and in future periods; and other risks identified in Echelon’s SEC filings. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Echelon undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

The financial statements that follow should be read in conjunction with the notes set forth in Echelon’s Form 10-Q when filed with the Securities and Exchange Commission; and with our 2002 annual report on Form 10-K, which was filed with the Securities and Exchange Commission in March 2003.

Echelon Reports Second Quarter Results Page 6 of 9

ECHELON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	June 30, 2003		December 31, 2002
ASSETS
Current Assets:
Cash, cash equivalents and short-term investments	$	133,162	$	134,489
Accounts receivable, net		28,824		22,930
Inventories		5,661		7,991
Other current assets		2,900		3,217
Total current assets		170,547		168,627
Property and equipment, net		17,358		16,677
Other long-term assets		21,872		22,188
	$	209,777	$	207,492
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	7,460	$	5,993
Accrued liabilities		3,455		3,773
Current portion of deferred revenues		3,990		2,541
Total current liabilities		14,905		12,307
Deferred rent		296		167
Total stockholders’ equity		194,576		195,018
	$	209,777	$	207,492

Echelon Reports Second Quarter Results Page 7 of 9

ECHELON CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2003			2002		2003			2002
Revenues:
Product	$	30,979		$	30,860	$	63,372		$	58,086
Service		277			458		522			817
Total revenues		31,256			31,318		63,894			58,903
Cost of revenues:
Cost of product		14,034			14,111		29,442			26,946
Cost of service		656			780		1,342			1,451
Total cost of revenues		14,690			14,891		30,784			28,397
Gross profit		16,566			16,427		33,110			30,506
Operating expenses:
Product development		16,186			5,376		21,281			10,996
Sales and marketing		4,633			4,293		9,303			8,579
General and administrative		3,125			2,226		6,061			4,478
Total operating expenses		23,944			11,895		36,645			24,053
Income (loss) from operations		(7,378	)		4,532		(3,535	)		6,453
Interest and other income, net		542			1,011		1,283			2,011
Income (loss) before provision for income taxes		(6,836	)		5,543		(2,252	)		8,464
Income tax expense (benefit)		(547	)		443		(180	)		677
Net income (loss)	$	(6,289	)	$	5,100	$	(2,072	)	$	7,787
Net income (loss) per share:
Basic	$	(0.16	)	$	0.13	$	(0.05	)	$	0.20
Diluted	$	(0.16	)	$	0.12	$	(0.05	)	$	0.19
Shares used in computing net income (loss) per share:
Basic		39,954			39,443		39,875			39,243
Diluted		39,954			40,818		39,875			40,812

Echelon Reports Second Quarter Results Page 8 of 9

ECHELON CORPORATION

NON-GAAP CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

Excluding adjustments itemized below

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002			2003			2002
Revenues	$	31,256		$	31,318		$	63,894		$	58,903
Cost of revenues		14,690			14,891			30,784			28,397
Gross profit		16,566			16,427			33,110			30,506
Operating Expenses:
Product development		6,038			5,289			11,036			10,434
Sales and marketing		4,633			4,293			9,303			8,579
General and administrative		3,078			2,226			5,731			4,478
Total operating expenses		13,749			11,808			26,070			23,491
Non-GAAP income from operations		2,817			4,619			7,040			7,015
Interest and other income, net		542			1,011			1,283			2,011
Non-GAAP income before taxes		3,359			5,630			8,323			9,026
Income tax expense		269			450			666			722
Non-GAAP net income	$	3,090		$	5,180		$	7,657		$	8,304
Non-GAAP net income per share:
Diluted	$	0.08		$	0.13		$	0.19		$	0.20
Shares used in computing net income per share:
Diluted		40,813			40,818			40,568			40,812
An itemized reconciliation between net earnings on a GAAP basis and non-GAAP basis is as follows:
GAAP net income (loss)	$	(6,289	)	$	5,100		$	(2,072	)	$	7,787
In-process research and development		9,808			—			9,808			400
Amortization of purchased intangible assets		340			87			437			162
Third party acquisition related costs		47			—			330			—
Total non-GAAP adjustments to earnings from operations		10,195			87			10,575			562
Income tax effect of reconciling items		(816	)		(7	)		(846	)		(45	)
Non-GAAP net income	$	3,090		$	5,180		$	7,657		$	8,304

Echelon Reports Second Quarter Results Page 9 of 9

ECHELON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2003			2002
Cash flows provided by (used in) operating activities:
Net income (loss)	$	(2,072	)	$	7,787
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization		2,584			1,964
In-process research and development		9,808			400
Provision for doubtful accounts		6			20
Deferred compensation expense		—			31
Change in operating assets and liabilities:
Accounts receivable		(5,900	)		2,420
Inventories		2,330			(114	)
Other current assets		317			(205	)
Accounts payable		1,467			871
Accrued liabilities		(318	)		358
Deferred revenues		1,449			126
Deferred rent		129			63
Net cash provided by operating activities		9,800			13,721
Cash flows used in investing activities:
Purchase of available-for-sale short-term investments		(77,012	)		(34,832	)
Proceeds from maturities and sales of available-for-sale short-term investments		66,828			30,585
Unrealized gains (losses) on securities		(171	)		(226	)
Purchase of assets of Metering Technology Corporation		(11,000	)		—
Purchase of BeAtHome.com, Inc.		—			(5,812	)
Purchase of restricted investments		(376	)		(10,526	)
Change in other long-term assets		1,118			101
Capital expenditures		(2,499	)		(1,561	)
Net cash used in investing activities		(23,112	)		(22,271	)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock.		1,585			2,719
Net cash provided by financing activities		1,585			2,719
Effect of exchange rates on cash:		216			453
Net decrease in cash and cash equivalents		(11,511	)		(5,378	)
Cash and cash equivalents:
Beginning of period		34,941			23,232
End of period	$	23,430		$	17,854