<PAGE>


                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                       
                                   FORM 10-Q
                                       
              QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended:               Commission file number:   0-15895
DECEMBER 31, 1997              



                        DIGITAL MICROWAVE CORPORATION
             (Exact name of registrant specified in its charter)


         Delaware                                           77-0016028
--------------------------------                 ------------------------------
 (State or other jurisdiction                             (IRS employer
of incorporation or organization)                    identification number)


        170 Rose Orchard Way
           San Jose, CA                                     95134
-----------------------------------------        ------------------------------
(Address of Principal Executive Offices)                  (Zip Code)

     Registrant's telephone number, including area code: (408) 943-0777


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                               Yes   X       No 
                                   -----        -----

The number of outstanding shares of the Registrant's Common Stock, par value
$.01 per share, was 38,144,994 on January 30, 1998.


                                                                   Page 1 of 17


<PAGE>


                                     INDEX

<TABLE>
<CAPTION>
                                                                       PAGE
<S>                                                                    <C>

COVER PAGE                                                                1

INDEX                                                                     2

PART I - FINANCIAL INFORMATION

         Item 1  Financial Statements
                 Condensed Consolidated Balance Sheets                    3
                 Condensed Consolidated Statements of Operations          4
                 Condensed Consolidated Statements of Cash Flows          5
                 Notes to Condensed Consolidated Financial Statements    6-9

         Item 2  Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                     9-14


PART II - OTHER INFORMATION

         Item 4  Submission of Matters to a Vote of Security Holders      15

         Item 6  Exhibits and Reports on Form 8-K                       15 & 17

SIGNATURE                                                                 16

</TABLE>

                                                                   Page 2 of 17



<PAGE>


                        PART I - FINANCIAL INFORMATION
                         ITEM I - FINANCIAL STATEMENTS

                         DIGITAL MICROWAVE CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (In thousands)

<TABLE>
<CAPTION>

ASSETS                                                     12/31/97        03/31/97
                                                          ----------      ---------
                                                          (Unaudited)
<S>                                                       <C>             <C>
CURRENT ASSETS:
  Cash and cash equivalents                                $ 15,128        $ 40,367
  Short-term investments                                     15,555          17,947
  Accounts receivable, net                                   65,459          44,623
  Inventories                                                51,717          45,900
  Other current assets                                        7,435           3,643
                                                           --------        --------
    Total current assets                                    155,294         152,480

PROPERTY AND EQUIPMENT, NET                                  22,128          17,726
OTHER ASSETS                                                 15,553             --
                                                           --------        --------
  Total assets                                             $192,975        $170,206
                                                           --------        --------
                                                           --------        --------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Line of credit                                            $    --         $ 2,016
  Current maturities of capital lease obligations               427             681
  Accounts payable                                           23,979          22,890
  Income taxes payable                                        1,318           1,649
  Accrued liabilities                                        21,363          25,284
                                                           --------        --------
    Total current liabilities                                47,087          52,520

LONG-TERM LIABILITIES:
  Capital lease obligations, net of current maturities          156             158
                                                           --------        --------
    Total liabilities                                        47,243          52,678

STOCKHOLDERS' EQUITY
  Common stock and paid-in capital                          127,754         121,676
  Other stockholders' equity                                     (5)            (63)
  Retained earnings (accumulated deficit)                    17,983          (4,085)
                                                           --------        --------
    Total stockholders' equity                              145,732         117,528

  Total liabilities and stockholders' equity               $192,975        $170,206
                                                           --------        --------
                                                           --------        --------
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.



                                                                   Page 3 of 17



<PAGE>


                         DIGITAL MICROWAVE CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In thousands, except per share amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>

                                         Three Months Ended            Nine Months Ended
                                            December 31,                 December 31,
                                         -------------------          -------------------
                                         1997           1996          1997           1996
                                         ----           ----          ----           ----
<S>                                    <C>            <C>           <C>            <C>    

Net sales                              $71,950        $47,760       $195,790       $126,092
Cost of sales                           45,675         31,862        126,298         84,547
                                       -------        -------       --------       --------
Gross profit                            26,275         15,898         69,492         41,545
                                       -------        -------       --------       --------

Operating Expenses:
  Research and development               3,968          2,505         11,159          7,433
  Selling, general and
    administrative                      12,141          9,076         33,811         25,705
                                       -------        -------       --------       --------
  Total operating expenses              16,109         11,581         44,970         33,138
                                       -------        -------       --------       --------
Operating income                        10,166          4,317         24,522          8,407

Other income (expense)
Interest and other income (expense)       (295)           305            242            401
Interest expense                           (23)          (263)          (245)          (844)
                                       -------        -------       --------       --------

Income before provision
  for income taxes                       9,848          4,359         24,519          7,964
Provision for income taxes                 985            436          2,452            796
                                       -------        -------       --------       --------
Net income                              $8,863         $3,923        $22,067         $7,168
                                       -------        -------       --------       --------
                                       -------        -------       --------       --------
Basic earnings per share               $  0.23        $  0.12        $  0.59        $  0.22
                                       -------        -------       --------       --------
                                       -------        -------       --------       --------
Diluted earnings per share             $  0.22        $  0.11        $  0.56        $  0.22
                                       -------        -------       --------       --------
                                       -------        -------       --------       --------
Basic weighted average
shares outstanding                      38,009         32,194         37,634         31,941
                                       -------        -------       --------       --------
                                       -------        -------       --------       --------
Diluted weighted average
shares outstanding                      39,841         34,119         39,615         33,275
                                       -------        -------       --------       --------
                                       -------        -------       --------       --------

</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.


                                                                   Page 4 of 17



<PAGE>


                         DIGITAL MICROWAVE CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                           Nine Months Ended
                                                              December 31,
                                                           -----------------
                                                           1997         1996
                                                           ----         ----
<S>                                                       <C>          <C>
Cash flows from operating activities:
Net income                                                $22,067       $7,168
  Adjustments to reconcile net income
  to net cash (used for) provided by operating activities:

  Depreciation and amortization                             6,987        4,200
  Provision for valuation reserves                          7,361        4,587
  Provision for warranty reserves                           3,511        1,505
  Changes in assets and liabilities:
    Increase in accounts receivable                       (20,234)      (5,248)
    Increase in inventories                               (11,238)     (11,955)
    (Increase) decrease in other current assets            (3,692)         109
    Increase in accounts payable                              591          984
    Decrease in income taxes payable                         (351)          --
    (Decrease) increase in other accrued liabilities       (7,762)       6,291
                                                          -------      -------
Net cash (used for) provided by operating activities       (2,760)       7,641
                                                          -------      -------
Cash flows from investing activities:
  Purchases of available-for-sale securities               (8,481)          --
  Proceeds from sales of available-for-sale securities     10,873           --
  Purchase of Granger, Inc., net of cash acquired         (11,491)          --
  Investment in Granger Associates, Ltd.                   (4,000)          --
  Purchases of property and equipment                     (10,062)      (4,116)
                                                          -------      -------
Net cash used for investing activities                    (23,161)      (4,116)
Cash flows from financing activities:
  Repayments to bank                                       (2,016)      (6,362)
  Payment of capital lease obligations                       (877)        (787)
  Payment of assumed Granger, Inc. debt                    (3,286)          --
  Sale of common stock                                      6,077        2,514
                                                          -------      -------
Net cash used for financing activities                       (102)      (4,635)
                                                          -------      -------
    Effect of exchange rate changes on cash                   784          139
                                                          -------      -------
Net decrease in cash and cash equivalents                 (25,239)        (971)
Cash and cash equivalents at beginning of period           40,367        9,018
                                                          -------      -------
Cash and cash equivalents at end of period                $15,128       $8,047
                                                          -------      -------
                                                          -------      -------
SUPPLEMENTAL DATA
Interest paid                                                 254          774
Income taxes paid                                           3,340           --

</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.


                                                                   Page 5 of 17



<PAGE>


                         DIGITAL MICROWAVE CORPORATION
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


BASIS OF PRESENTATION

  The condensed consolidated financial statements include the accounts of
  Digital Microwave Corporation and its wholly owned subsidiaries.
  Intercompany accounts and transactions have been eliminated.
  
  While the financial information furnished is unaudited, the financial
  statements included in this report reflect all adjustments (consisting only
  of normal recurring adjustments) which the Company considers necessary for a
  fair presentation of the results of operations for the interim periods
  covered and of the financial condition of the Company at the date of the
  interim balance sheet.  The results for interim periods are not necessarily
  indicative of the results for the entire year.  The condensed consolidated
  financial statements should be read in connection with the Digital Microwave
  Corporation financial statements included in the Company's annual report and
  Form 10-K for the year ended March 31, 1997.
   
CASH AND CASH EQUIVALENTS

  For purposes of the condensed consolidated statements of cash flows, the
  Company considers all highly liquid debt instruments with an original
  maturity of three months or less from the date of purchase to be cash
  equivalents.
   
INVENTORIES

  Inventories are stated at the lower of cost (first-in, first-out) or market
  where cost includes material, labor and manufacturing overhead. Inventories
  consist of:

<TABLE>
<CAPTION>
                                                           (In thousands)
                                            December 31, 1997     March 31, 1997
                                            -----------------     --------------
                                                  (Unaudited)
<S>                                                 <C>               <C>
     Raw materials                                     18,873         $  16,594
     Work in process                                   16,621            15,122
     Finished goods                                    16,223            14,184
                                                    ---------         ---------
                                                    $  51,717         $  45,900
                                                    ---------         ---------
                                                    ---------         ---------

</TABLE>

OTHER ASSETS

Included in other assets are goodwill and other intangibles which are being
amortized on a straight line basis over their useful lives ranging from 5 to 10
years.


                                                                   Page 6 of 17


<PAGE>


CURRENCY TRANSLATION

  In April 1997, the Company changed the functional currency of its
  subsidiaries from the U.S. dollar to the local currency of each subsidiary
  except for its Latin American subsidiaries.  Accordingly, all the assets and
  liabilities of these subsidiaries, except for the Latin American
  subsidiaries, are remeasured into U.S. dollars at current exchange rates.
  Sales and expenses are remeasured at the average exchange rate prevailing
  during the period.  Gains and losses resulting from the remeasurement of the
  subsidiaries' financial statements are included as a component of
  stockholders' equity, except for the Latin American subsidiaries which are
  included in the Consolidated Statement of Operations.

FINANCIAL INSTRUMENTS

  In April 1997, the Company began entering into forward foreign exchange
  contracts to hedge some of its backlog, as well as certain assets and
  liabilities denominated in foreign currencies.  At December 31, 1997, the
  Company had forward foreign exchange contracts to exchange various foreign
  currencies for U.S. dollars in the gross amount of $32.2 million.  Market
  value gains and losses on forward foreign exchange contracts are recognized
  as offsets to the exchange gains or losses on the hedged transactions.

NET INCOME PER SHARE

  Stockholders approved a two-for-one stock split paid in the form of a stock
  dividend in November 1997.  Accordingly, all share and earnings per share
  data for all periods presented have been retroactively adjusted to reflect
  the stock split.
 
  In February 1997, the Financial Accounting Standards Board issued Statement
  on Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share,"
  effective December 15, 1997.  As a result, the Company's reported earnings
  per share after adjustment for the November 1997 stock split for the three
  and nine months ended December 31, 1996 were restated.  Under the new
  requirements, primary earnings per share have been replaced with basic
  earnings per share and fully diluted earnings per share were replaced with
  diluted earnings per share.
 
  Under SFAS 128, basic earnings per share is computed by dividing net income
  by the weighted average number of common shares outstanding during the
  period.  Diluted earnings per share is computed by dividing net income by
  the weighted average number of common shares and dilutive stock options
  outstanding during the period.


                                                                   Page 7 of 17


<PAGE>


PURCHASE OF GRANGER, INC AND INVESTMENT IN GRANGER ASSOCIATES

  On May 14, 1997, the Company acquired all of the outstanding shares of
  Granger, Inc., a U.S. manufacturer of wireless products and provider of
  installation services.  The purchase price of Granger, Inc. and the
  purchase of certain rights, totaled $14.7 million.  In May 1997, the
  Company paid $3.3 million of Granger, Inc. debt assumed in the
  acquisition.  The purchase price and repayment of debt was funded with
  existing cash.  The acquisition has been accounted for using the purchase
  method of accounting.  Accordingly, the results of the operations of
  Granger, Inc. have been combined with those of the Company since the date
  of  the acquisition.  In addition, a portion of the purchase price was
  allocated to the net assets acquired based on their estimated fair values.
  The fair value of tangible assets acquired and liabilities assumed was $5.8
  million and $1.9 million, respectively.
 
  Concurrent with the acquisition of Granger, Inc., the Company made a
  minority investment in Granger Associates, Ltd., a privately held company
  based in the United Kingdom, for $4.0 million.  This minority investment
  has been accounted for using the cost method of accounting.

LITIGATION AND CONTINGENCIES

  The Company is subject to legal proceedings and claims that arise in the
  normal course of its business.  In the opinion of management, these
  proceedings will not have a material adverse effect on the financial
  position and results of operations of the Company.

CONCENTRATION OF CREDIT RISK

  Trade receivables concentrated with certain customers primarily in the
  telecommunications industry and in certain geographic locations, such as
  Asia, potentially subject the Company to concentration of credit risk.  At
  January 31, 1998, trade receivables from Asian Customers totaled
  approximately $25 million with approximately $15 million on letters of
  credit.  In addition to sales in Western Europe and North America, the
  Company actively markets and sells products in Asia, Eastern Europe, South
  America, the Middle East and Africa.  The Company performs on-going credit
  evaluations of its customers' financial conditions and generally requires
  no collateral.

  The Company will continue to be affected, for the foreseeable future, by
  the unstable economies in the Asia Pacific region.  Further, it is not
  possible to determine the future effect a continuation of the economic
  crisis may have on the Company's liquidity and earnings.  Related effects
  will be reported in the financial statements as they become known and
  estimable.


                                                                   Page 8 of 17


<PAGE>



PROPOSED MERGER WITH MAS TECHNOLOGY
 
  On December 22, 1997, the Company signed a definitive agreement to merge with
  MAS Technology, Limited, a New Zealand company ("MAS") which designs,
  manufactures, markets and supports digital microwave radio links for the
  worldwide telecommunications market.  Under the terms of the agreement, the
  Company will exchange 1.2 shares of its Common Stock for each outstanding
  share of MAS stock and stock options. The Company expects to issue
  approximately 8.6 million shares to MAS share and option holders.  Based upon
  the capitalization of Digital Microwave and MAS as of December 31, 1997, MAS
  shareholders will own approximately 17.7% of the outstanding Digital
  Microwave Common Stock following consummation of the reorganization, assuming
  no exercise of outstanding options to acquire Digital Microwave or MAS stock
  options.  The combination is intended to qualify as a tax-free reorganization
  accounted for as a pooling-of-interests transaction.  Each company has
  scheduled a stockholders' meeting for March 23, 1998 to approve the
  combination.  There can be no assurance that the proposed merger will be
  consummated by the Company.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

The following table sets forth items from the Condensed Consolidated Statements
of Operations as percentages of net sales:

<TABLE>
<CAPTION>

                                     Three Months Ended       Nine Months Ended
                                         December 31             December 31
                                     ------------------       -----------------
                                     1997          1996       1997         1996
                                     ----          ----       ----         ----
<S>                                 <C>           <C>       <C>           <C>
Net sales                           100.0%        100.0%    100.0%        100.0%
Cost of sales                        63.5          66.7      64.5          67.1
                                    -----         -----     -----         -----
Gross profit                         36.5          33.3      35.5          32.9


Research & development                5.5           5.2       5.7           5.9
Selling, general & administrative    16.9          19.0      17.3          20.3
                                    -----         -----     -----         -----

Operating income                     14.1           9.1      12.5           6.7
Other expense, net                   (0.4)           --        --          (0.4)
                                    -----         -----     -----         -----
Income before provision
   for income taxes                  13.7           9.1      12.5           6.3

Provision for income taxes            1.4           0.9       1.2           0.6
                                    -----         -----     -----         -----

       Net income                    12.3%          8.2%     11.3%          5.7%
                                    -----         -----     -----         -----
                                    -----         -----     -----         -----

</TABLE>


                                                                   Page 9 of 17


<PAGE>


Net sales for the third quarter of fiscal year 1998 were $72.0 million, 
compared to $47.8 million reported in the same quarter of fiscal year 1997. 
Net sales for the first nine months of fiscal 1998 were $195.8 million, 
compared to net sales of $126.1 million for the similar period in fiscal 
1997. The increase in net sales in the first nine months of fiscal 1998 as 
compared to the first nine months of fiscal 1997 was due to higher Spectrum 
II-TM- sales in all major geographic areas.

During the third quarter of fiscal 1998, the Company received $74.2 million 
in new orders shippable over the next twelve months, compared to $48.6 
million in the second quarter of fiscal 1997. Backlog at December 31, 1997 
was $103.5 million, unchanged from the prior quarter.

The Company includes in its backlog purchase orders with respect to which a 
delivery schedule has been specified for product shipment within one year. 
Orders in the Company's current backlog are subject to changes in delivery 
schedules or to cancellation at the option of the purchaser without 
significant penalty.  Accordingly, although useful for scheduling production, 
backlog as of any particular date may not be a reliable measure of sales for 
any future period.

Gross profits in the third quarter and first nine months of fiscal 1998 were 
3% higher compared to the same periods in fiscal 1997 primarily due to 
improved manufacturing yields and efficiency, lower component material costs 
and a lower mix of older products which have lower margins. In addition, net 
sales for the first nine months of fiscal 1998 of SPECTRUM II-TM- increased 
to $124.5 million or 143% from $51.2 million for the similar period of fiscal 
1997, while net sales for the M-Series product line decreased from $25.9 
million to $9.1 million for the same periods.  The Company has seen its gross 
profit continue to improve; however, there can be no assurance that the 
Company will be able to maintain its gross profit at current levels.  Of 
particular concern is the unstable economic environment in Asia and the 
related currency devaluation of most Asian countries, as well as the intense 
competitive price pressure of the telecommunications market, which could 
result in downward pricing pressure on the Company's products.  See "Factors 
That May Affect Future Financial Results."

Research and development expenses increased by $1.5 million, from $2.5 
million in the third quarter of fiscal 1997 to $4.0 million in the same 
period in fiscal 1998.  For the first nine months of fiscal 1998, research 
and development expenses of $11.2 million were $3.8 million higher than the 
$7.4 million reported in the comparable period of fiscal 1997. The increase 
in research and development expenses was primarily attributable to the 
Company's development of its new Altium-TM- high-capacity wireless platform. 
The Company will continue to invest in the development of new products and 
features in order to maintain and enhance its competitive position and 
expects research and development spending to continue to increase in fiscal 
1998.

Selling, general and administrative expenses of $12.1 million in the third
quarter of fiscal 1998 increased by $3.0 million as compared to $9.1 million in
the third quarter of 


                                                                  Page 10 of 17


<PAGE>


fiscal 1997.  For the first nine months of fiscal 1998, selling, general and 
administrative expenses increased by $8.1 million to $33.8 million from $25.7 
million in the similar period of fiscal 1997.  The increase was mostly 
attributable to an increase in personnel and related travel expense, as well 
as increased sales office costs, as the Company continued to increase its 
sales and worldwide support capability. In addition, goodwill amortization 
related to the acquisition of Granger, Inc. on May 14, 1997, as well as the 
selling and administrative expenses of Granger, Inc., partially contributed 
to the increase.  There also was an increase in sales commission and bonus 
expense in the first nine months of fiscal 1998 compared to the similar 
period of fiscal 1997 due to the increased sales and improved profitability 
of the Company during that period.

Interest and other income (expense) was a loss of $295,000 in the third 
quarter of fiscal 1998 compared to income of $305,000 in the similar quarter 
of fiscal 1997.  This decrease in interest and other income is attributable 
to foreign exchange losses and bank fees related to customer letters of 
credit primarily related to Asia sales.  For the first nine months of fiscal 
1998, interest and other income, net was $242,000 compared to $401,000 in the 
same period of fiscal 1997.  This decrease was primarily due to higher losses 
related to foreign currency exchange rate fluctuations and bank fees for 
customer letters of credit, but partially offset by higher interest income of 
$1.3 million on higher average cash balances as compared to the similar 
period of fiscal 1997. Interest expense in the third quarter of fiscal 1998 
decreased to $23,000 from $263,000 in the third quarter of fiscal 1997.  For 
the first nine months of fiscal 1998, interest expense was $245,000 compared 
to $844,000 in the comparable period in fiscal 1997.  The decrease in 
interest expense for both periods was primarily attributable to the Company's 
lower debt balances during the comparable periods.

The Company recorded an income tax provision in the third quarter and first 
nine months of both fiscal years 1998 and 1997 at an effective rate of 10%. 
This was less than the statutory rate primarily due to the utilization of net 
operating loss carry forwards and the deferred tax asset originated from 
warranty and asset valuation reserves.  The Company expects, assuming 
continued operating profitability, that the effective tax rate will reflect a 
benefit in future periods as the Company continues to utilize its deferred 
tax asset.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

The statements in this Form 10-Q concerning the Company's expenses, revenue, 
liquidity and cash needs contain forward-looking statements concerning the 
Company's future operations and financial results within the meaning of 27A 
of the Securities Act and section 21E of the Exchange Act.  These 
forward-looking statements are based on current expectations and the Company 
assumes no obligation to update this information.  Numerous factors, such as 
economic and competitive conditions, timing and volume of incoming orders, 
shipment volumes, product margins, and foreign exchange rates, could cause 
actual results to differ materially from those described in these statements, 
and prospective investors and stockholders should carefully consider 


                                                                  Page 11 of 17


<PAGE>


the factors set forth below in evaluating these forward-looking statements.

Sales of the Company's products are concentrated in a small number of 
customers.  For the third quarter and first nine months of fiscal 1998, the 
top three customers accounted for 25% and 21% of net sales, respectively.   
As of December 31, 1997, three of the Company's customers accounted for 19% 
of total backlog. The worldwide telecommunications industry is dominated by a 
small number of large corporations, and the Company expects that a 
significant portion of its future product sales will continue to be 
concentrated in a limited number of customers. The loss of any existing 
customer, a significant reduction in the level of sales to any existing 
customer, or the failure of the Company to gain additional customers could 
have a material adverse effect on the Company's business, financial condition 
and results of operations.  In addition, a substantial portion of shipments 
may occur near the end of each quarter.  Accordingly, the Company's results 
are difficult to predict and delays in product delivery or closing of a sale 
can cause revenues and net income to fluctuate significantly from anticipated 
levels and from quarter to quarter.

The markets for the Company's products are extremely competitive and the 
Company expects that competition will increase. The Company's existing and 
potential competitors include established and emerging companies, such as 
California Microwave Corporation, L.M. Ericsson, Siemens AG, Farinon Division 
of Harris Corporation, P-COM, Alcatel, Innova, Nokia, NERA, NEC, and SIAE, 
many of which may have more extensive engineering, manufacturing, and 
marketing capabilities and substantially greater financial, technical, and 
personnel resources than the Company.  The Company believes that its ability 
to compete successfully will depend on a number of factors both within and 
outside its control, including price, quality, availability, product 
performance and features, timing of new product introductions by the Company, 
its customers and its competitors, the ability of its customers to obtain 
financing, and customer service and technical support. The Company continues 
to experience customer demands for shorter delivery cycles.  The Company 
increased its inventory levels in order to respond to this demand, which in 
turn, may increase the risk of obsolescence of its inventories.

The Company expects that international sales will continue to account for the 
majority of its net product sales for the foreseeable future.  As a result, 
the Company is subject to the risks of doing business internationally, 
including unexpected changes in regulatory requirements, fluctuations in 
foreign currency exchange rates as recently experienced in Asia, imposition 
of tariffs and other barriers and restrictions, the burdens of complying with 
a variety of foreign laws and general economic and geopolitical conditions, 
including inflation and trade relationships.  The Company will continue to be 
affected, for the foreseeable future, by the unstable economies in the Asia 
Pacific region. Further, it is not possible to determine the future effect a 
continuation of the economic crisis may have on the Company's liquidity and 
earnings.  Related effects will be reported in the financial statements as 
they become known and estimable.


                                                                  Page 12 of 17


<PAGE>

Manufacturers of digital microwave telecommunications equipment are 
experiencing, and are likely to continue to experience, intense price 
pressure, which has resulted, and is expected to continue to result, in 
downward pricing pressure on the Company's products.  As a result, the 
Company has experienced, and expects to continue to experience, declining 
average sales prices for its products.  The Company's future profitability is 
dependent upon its ability to reduce costs, improve manufacturing 
efficiencies and introduce new products and product enhancements.

The Company's manufacturing operations are highly dependent upon the delivery 
of materials by outside suppliers in a timely manner. In addition, the 
Company depends in part upon subcontractors to assemble major components and 
subsystems used in its products in a timely and satisfactory manner.  From 
time to time the Company has experienced delivery delays from key suppliers, 
which impacted sales.  There can be no assurance that the Company will not 
experience material supply problems or component or subsystem delays in the 
future.

The Company has pursued, and will continue to pursue, growth opportunities 
through internal development and acquisitions of complementary business and 
technologies.  Acquisitions may involve difficulties in the retention of 
personnel, diversion of management's attention, unexpected legal liabilities, 
and tax and accounting issues.  There can be no assurance that the Company 
will be able to successfully identify suitable acquisition candidates, 
complete acquisitions, integrate acquired businesses into its operations, or 
expand into new markets.  Once integrated, acquired businesses may not 
achieve comparable levels of revenues, profitability, or productivity as the 
existing business of the Company, or otherwise perform as expected.

The Company's failure to manage its growth effectively and implement new 
computer systems could have a material adverse impact on the Company's 
business, financial condition and results of operations.  The year 2000 issue 
exists because the Company's current computer programs, which process its 
operational and financial transactions, use only two digits to identify a 
year in the date fields.  Such programs were designed and developed without 
considering the impact of the upcoming change in the century.  If not 
corrected, these computer programs could fail or create erroneous results by 
or at the year 2000.  The Company has purchased new computer programs to 
address this issue and intends to implement these applications during fiscal 
year 1999. There can be no assurances that the Company will not experience 
serious unanticipated negative consequences and material costs caused by 
addressing this issue.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used for operating activities in the first nine months of fiscal 
1998 was $2.8 million, compared to $7.6 million provided by operating 
activities in the similar period of fiscal 1997.  The use of cash in the 
first nine months of fiscal 1998 was primarily due to the increased level of 
accounts receivable and inventories and reduction of accrued 


                                                                  Page 13 of 17


<PAGE>


liabilities.  Accounts receivable increased primarily due to the higher sales 
activity.  Inventory turnover improved during the first nine months of fiscal 
1998 compared to the similar period of fiscal 1997, however, inventories 
increased as measured in dollars primarily as a result of the higher sales 
volume. Other accrued liabilities decreased primarily due to a decrease in 
customer deposits and the payments of annual profit sharing and bonus 
payments.

In May 1997, the Company completed the acquisition of Granger, Inc. for total 
consideration of $14.7 million and purchased a minority interest in Granger 
Associates, Ltd., a UK company, for $4.0 million.  At December 31, 1997, 
other assets included the minority interest mentioned above and the excess of 
cost over net assets acquired (goodwill), net of accumulated amortization of 
$10.8 million related to the acquisition of Granger, Inc.  Other changes to 
cash from investing activities during the first nine months of fiscal 1998 
included the sale of some short-term investments to fund operations, and an 
increase in property plant and equipment of $10.1 million primarily due to 
purchases of additional test equipment as a result of the higher sales volume 
and purchases of equipment for the increased headcount.  The Company expects 
the investment in plant and equipment to increase over the next year as it 
invests in a new manufacturing facility in Scotland and new computer 
applications for its internal processes.

At December 31, 1997, the Company's principal sources of liquidity consisted 
of $30.7 million in cash and cash equivalents and short-term investments and 
a revolving bank credit facility that provides up to $20.0 million in credit, 
of which $18.6 million was available.  This credit facility expires in June 
1998. The Company has requested and received approval to increase this 
facility to an aggregate of $25 million subject to satisfactory completion of 
required documentation.

The Company's line of credit requires the Company to meet certain financial 
covenants, including minimum liquidity, tangible net worth and profitability 
requirements.  As of December 31, 1997, the Company was in compliance with 
the covenants.

The Company believes that the liquidity provided by existing cash balances, 
anticipated future cash flows from operations, and the Company's existing 
borrowing arrangements will be sufficient to meet both working capital and 
capital expenditure requirements for the next six months.


                                                                  Page 14 of 17


<PAGE>


ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)  The Company held a Special Meeting of Stockholders on November 5, 1997.

(b)  At the Special Meeting of Stockholders, the following matters were voted
     upon:

     1.     A proposal to amend Article IV of the Restated Certificate of
        Incorporation of the Company to (i) increase the total number of 
        shares that the Company has authority to issue to 65,000,000 shares 
        from 35,000,000 shares, (ii) increase the number of shares of Common 
        Stock authorized for issuance by the Company to 60,000,000 from 
        30,000,000 shares, and (iii) remove references to Series A and 
        Series B Preferred Stock.

<TABLE>     
                  <S>                      <C>
                  Affirmative votes:       16,309,180
                  Negative votes:              81,088
                  Abstain:                     47,544
                  Non-votes:                  383,802
</TABLE>
     
     2.      A proposal to amend Article IV of the Restated Certificate of
        Incorporation of the Company to effect a two-for-one stock split of the
        Company's Common Stock.

<TABLE>     
                  <S>                      <C>
                  Affirmative votes:       16,776,446
                  Negative votes:              12,800
                  Abstain:                     32,368
                  Non-votes:                        0
</TABLE>


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits.

     For a list of exhibits to this Form 10-Q, see exhibit index located on
     page 17.

(b)  Reports on Form 8-K.

     The Company did not file any reports on Form 8-K for the three-month 
     period ended December 31, 1997.



                                                                  Page 15 of 17


<PAGE>


                             SIGNATURE




Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                              DIGITAL MICROWAVE CORPORATION


Date: February 12, 1998       By /s/  Carl A. Thomsen
                                 -----------------------
                                 Vice President, Chief Financial Officer and 
                                 Secretary




                                                                  Page 16 of 17


<PAGE>


                              EXHIBIT INDEX



                               DESCRIPTION


3.1       Amendment to Restated Certificate of Incorporation, dated as of 
          November 5, 1997

3.2       Amendment to Bylaws, dated as of May 13, 1997

11.1      Statement Re: Computation of per share earnings

27.1      Financial data schedule



                                                                  Page 17 of 17