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Echelon Corporation Announces Second Quarter 2000 Revenues Increase 29% from Prior Year

(Sunnyvale, CA - July 20, 2000) - Echelon Corporation (NASDAQ: ELON) today announced financial results for the quarter ended June 30, 2000.

Revenues for the quarter ended June 30, 2000 were $12.7 million, an increase of 29% over revenues of $9.8 million for the same period in 1999. Net loss for the quarter ended June 30, 2000 was $508,000, or $0.01 per share, based on a weighted average of 34,507,000 common shares outstanding, compared to a net loss of $744,000, or $0.02 per share, based on a weighted average of 32,826,000 common shares outstanding in the second quarter of 1999.

Revenues for the six-month period ended June 30, 2000 were $24.1 million, an increase of 30% over revenues of $18.6 million for the same period one year ago. Net loss for the six-month period ended June 30, 2000 was $1.2 million, or $0.03 per share, based on a weighted average of 34,079,000 common shares outstanding, compared to a net loss of $2.3 million, or $0.07 per share, based on a weighted average of 32,733,000 common shares outstanding for the same period in 1999.

Gross margin for the quarter ended June 30, 2000 was 61.1%, compared with 59.2% for the same period in 1999. Gross margin for the six-month period ended June 30, 2000 was 59.8%, compared with 58.6% for the same period in 1999. Total operating expenses for the quarter ended June 30, 2000 were $8.5 million, compared to $6.8 million for the same period in 1999. Total operating expenses for this quarter include approximately $400,000 of non-recurring expenses, largely relating to costs incurred in completing the R&D Agreement with Enel SpA and, to a far lesser extent, costs related to the move to our interim site in Sunnyvale.

"We're very pleased with the results of the second quarter," said M. Kenneth Oshman, Echelon's chairman, president and chief executive officer. "Not only did we see strong results from our 'traditional' market segments, but also this quarter marked what we see as a turning point in the home networking market. This quarter we announced a landmark agreement with Enel SpA, the world's largest publicly traded utility, that validates our long-held view that Internet connectivity and value-added services will drive LonWorks� networks into the home. And while the magnitude of the project is large - with the intent to network more than 27 million homes over a three-year period - we believe that this is but the emergence of the home market. We have already seen an increased level of activity in the market that we expect to lead to accelerated adoption of LonWorks networks among device manufacturers, utilities, and service providers around the world."

The second quarter was notable in many ways. As announced in Echelon's press releases during the second quarter of 2000, the following are some highlights from this quarter's significant events:

Under the terms of the R&D agreement with Enel SpA, Echelon's PLT-22 Power Line Transceiver and various other products will be the basis of Enel's Contatore Elettronico project's networking infrastructure. Echelon expects rollout to take three years, beginning in the second quarter of 2001. Enel also agreed to purchase three million shares of newly-issued Echelon common stock and will assume a seat on Echelon's Board of Directors. The stock transaction, which is subject to approval under U.S. antitrust legislation and certain other conditions, is expected to close during the third quarter of this year.

In May, Echelon entered into an alliance with Sun Microsystems to integrate Echelon's LonWorks networking services with JavaT technology-based services for residential gateways, based on the Open Services Gateway Initiative. This initiative is an industry collaboration to develop a standard means for deploying services across broadband gateways in the home and other locations. Sun will integrate Echelon's technology into its Java Embedded Server (JES). JES is targeted at home gateways, gaming consoles, set-top-boxes, and other gateway devices. As part of the agreement, Echelon will integrate JES into a future version of its i.LONT 1000 Internet Server.