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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

|                                                  |  |                                
|------------------------------------------------- |  | -------------------------------
|For the quarterly period ended
September 30, 2002 |  | Commission file number: 0-15895

STRATEX NETWORKS, INC.
(Exact name of registrant specified in its charter)

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

Registrants former name:    DMC Stratex Networks, Inc.

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 82,649,828 on November 11, 2002.





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TABLE OF CONTENTS



|                                                                        |                                                                                                |                                                      |  |  |  |  |  | 
|----------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                                         
|                                                                        | ITEM I  FINANCIAL STATEMENTS                                                                 
|                                                                        |                                                                                                | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                                                        |                                                                                                | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                                        |                                                                                                | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                                        |                                                                                                | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                                        | ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                        |                                                                                                | Factors That May Affect Future Financial Results    
|                                                                        | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            
|                                                                        | ITEM 4. CONTROLS AND PROCEDURES                                                               
|PART II  OTHER INFORMATION                                            
|                                                                        | ITEM 1  LEGAL PROCEEDINGS                                                                    
|                                                                        | ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                                                              
|CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|EXHIBIT INDEX                                                          
|EXHIBIT 3.2                                                            
|EXHIBIT 4.2                                                            
|EXHIBIT 99.1                                                           
|EXHIBIT 99.2                                                           



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INDEX

|                               |  |          |                                                                                       |  |                                                      |       |  |       |  |      |  | 
|------------------------------ |  | -------- | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------- | ----- |  | ----- |  | ---- |  | 
|                               |  |          |                                                                                       |  |                                                      |       |  |       |  | PAGE
|                               |  |          |                                                                                       |  |                                                      |       |  |       |  |     
|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 |       |  | 6-16  | 
|                               |  | Item 2  | Management's
Discussion and Analysis of Financial Condition and Results of Operations |  |                                                      | 17-27 | 
|                               |  |          |                                                                                       |  | Factors That May Affect Future Financial Results     |       |  | 28-36 | 
|                               |  | Item 3  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                      | 37    | 
|                               |  | Item 4  | Controls and Procedures                                                               |  |                                                      | 37    | 
|PART II  OTHER INFORMATION    |  |          |                                                                                      
|                               |  | Item 1  | Legal Proceedings                                                                     |  |                                                      | 38    | 
|                               |  | Item 6  | Exhibits and Reports on Form 8-K                                                      |  |                                                      | 38    | 
|SIGNATURE                      |  | 39       |                                                                                      
|CERTIFICATIONS                 |  | 40-43    |                                                                                      

2



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PART I  FINANCIAL INFORMATION







ITEM I  FINANCIAL STATEMENTS


STRATEX NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

|                                                |                                                                                                                                                                                |                                            |        |               |         |           |        |          |         | 
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | ------------- | ------- | --------- | ------ | -------- | ------- | 
|                                                |                                                                                                                                                                                |                                            |        | September 30, |         | March 31,
|                                                |                                                                                                                                                                                |                                            |        | 2002          |         | 2002     
|                                                |                                                                                                                                                                                |                                            |        |               |         |          
|ASSETS                                          |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|Current assets:                                 |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|                                                | Cash and cash equivalents                                                                                                                                                      |                                            | $      | 26,876        |         |           | $      | 35,888   |        
|                                                | Short-term investments                                                                                                                                                         |                                            |        | 56,319        |         |           |        | 49,786   |        
|                                                | Accounts receivable, net                                                                                                                                                       |                                            |        | 46,262        |         |           |        | 42,953   |        
|                                                | Inventories                                                                                                                                                                    |                                            |        | 20,637        |         |           |        | 31,094   |        
|                                                | Other current assets                                                                                                                                                           |                                            |        | 16,459        |         |           |        | 10,775   |        
|                                                |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|                                                |                                                                                                                                                                                | Total current assets                       |        |               | 166,553 |           |        |          | 170,496 | 
|Property and equipment, net                     |                                                                                                                                                                                |                                            | 35,353 |               |         |           | 41,694 |         
|Other assets                                    |                                                                                                                                                                                |                                            | 408    |               |         |           | 1,927  |         
|                                                |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|                                                |                                                                                                                                                                                | Total assets                               |        | $             | 202,314 |           |        | $        | 214,117 | 
|                                                |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|LIABILITIES AND STOCKHOLDERS EQUITY            |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|Current liabilities:                            |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|                                                | Accounts payable                                                                                                                                                               |                                            | $      | 26,047        |         |           | $      | 20,579   |        
|                                                | Income taxes payable                                                                                                                                                           |                                            |        | 459           |         |           |        |         |        
|                                                | Accrued liabilities                                                                                                                                                            |                                            |        | 26,300        |         |           |        | 19,406   |        
|                                                |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|                                                |                                                                                                                                                                                | Total current liabilities                  |        |               | 52,806  |           |        |          | 39,985  | 
|Restructuring and other long  term liabilities |                                                                                                                                                                                |                                            | 12,171 |               |         |           | 6,675  |         
|                                                |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|Total liabilities                               |                                                                                                                                                                                |                                            | 64,977 |               |         |           | 46,660 |         
|Commitments and contingencies                   |                                                                                                                                                                                |                                            |       |               |         |           |       |         
|Stockholders equity:                           |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|                                                | Preferred stock, $.01 par value; 5,000,000
shares authorized; none outstanding                                                                                                 |                                            |        |              |         |           |        |         |        
|                                                | Common stock, $.01 par value; 150,000,000
shares authorized; 82,543,977 and 82,314,377
shares as of September 30, 2002 and March 31, 2002
respectively, issued and outstanding |                                            |        | 825           |         |           |        | 823      |        
|                                                | Additional paid-in-capital                                                                                                                                                     |                                            |        | 456,689       |         |           |        | 456,087  |        
|                                                | Accumulated deficit                                                                                                                                                            |                                            |        | (306,435      | )       |           |        | (279,156 | )      
|                                                | Accumulated other comprehensive loss                                                                                                                                           |                                            |        | (13,742       | )       |           |        | (10,297  | )      
|                                                |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|                                                |                                                                                                                                                                                | Total stockholders equity                 |        |               | 137,337 |           |        |          | 167,457 | 
|                                                |                                                                                                                                                                                |                                            |        |               |         |           |        |         
|                                                |                                                                                                                                                                                | Total liabilities and stockholders equity |        | $             | 202,314 |           |        | $        | 214,117 | 
|                                                |                                                                                                                                                                                |                                            |        |               |         |           |        |         

See accompanying Notes to Condensed Consolidated Financial Statements.

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STRATEX NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

|                                                      |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |        |  
|----------------------------------------------------- | ---------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------ | - | - | -------- | ------ | -
|                                                      |                                                |   | Three Months Ended |        | Six Months Ended
|                                                      |                                                |   | September 30,      |        | September 30,   
|                                                      |                                                |   |                    |        |                 
|                                                      |                                                |   | 2002               |        | 2001             |   | 2002    |        | 2001
|                                                      |                                                |   |                    |        |                  |   |         |        |     
|Net sales                                             |                                                | $ | 52,560             |        |                  | $ | 60,898  |        |      | $ | 101,879 |        |   | $ | 137,582  |       
|Cost of sales                                         |                                                |   | 40,194             |        |                  |   | 49,134  |        |      |   | 80,070  |        |   |   | 105,671  |       
|Inventory valuation charges (benefit)                 |                                                |   | (368               | )      |                  |   | 39,360  |        |      |   | (1,475  | )      |   |   | 63,304   |       
|                                                      |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       
|Gross profit (loss)                                   |                                                |   | 12,734             |        |                  |   | (27,596 | )      |      |   | 23,284  |        |   |   | (31,393  | )     
|                                                      |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       
|Operating Expenses                                    |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       
|                                                      | Research and development                       |   |                    | 3,460  |                  |   |         | 4,774  |      |   |         | 7,082  |   |   |          | 10,693 |  
|                                                      | Selling, general and administrative            |   |                    | 13,179 |                  |   |         | 14,968 |      |   |         | 27,776 |   |   |          | 30,686 |  
|                                                      | Restructuring and asset valuation
charges      |   |                    |       |                  |   |         | 8,500  |      |   |         | 14,173 |   |   |          | 19,501 |  
|                                                      |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       
|Total operating expenses                              |                                                |   | 16,639             |        |                  |   | 28,242  |        |      |   | 49,031  |        |   |   | 60,880   |       
|                                                      |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       
|Operating loss                                        |                                                |   | (3,905             | )      |                  |   | (55,838 | )      |      |   | (25,747 | )      |   |   | (92,273  | )     
|Other income (expense):                               |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       
|                                                      | Interest income                                |   |                    | 465    |                  |   |         | 791    |      |   |         | 884    |   |   |          | 1,339  |  
|                                                      | Interest expense                               |   |                    | (175   | )                |   |         | (30    | )    |   |         | (317   | ) |   |          | (52    | )
|                                                      | Other income (expense), net                    |   |                    | (408   | )                |   |         | (488   | )    |   |         | (763   | ) |   |          | (1,687 | )
|                                                      | Other than temporary impairment of
investments |   |                    | (246   | )                |   |         |       |      |   |         | (392   | ) |   |          | (8,339 | )
|                                                      |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       
|Loss before provision
for income taxes                |                                                |   | (4,269             | )      |                  |   | (55,565 | )      |      |   | (26,335 | )      |   |   | (101,012 | )     
|Provision for income taxes                            |                                                |   | 146                |        |                  |   | 922     |        |      |   | 943     |        |   |   | 1,544    |       
|                                                      |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       
|Net loss                                              |                                                | $ | (4,415             | )      |                  | $ | (56,487 | )      |      | $ | (27,278 | )      |   | $ | (102,556 | )     
|                                                      |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       
|Basic and diluted loss per share                      |                                                | $ | (0.05              | )      |                  | $ | (0.72   | )      |      | $ | (0.33   | )      |   | $ | (1.35    | )     
|                                                      |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       
|Basic and diluted weighted average
shares outstanding |                                                |   | 82,500             |        |                  |   | 78,477  |        |      |   | 82,438  |        |   |   | 76,209   |       
|                                                      |                                                |   |                    |        |                  |   |         |        |      |   |         |        |   |   |          |       

See accompanying Notes to Condensed Consolidated Financial Statements.

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STRATEX NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

|                                                                             |                                                         |                                                              |         |                  |        |      |          |         |         |  
|---------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------------ | ------- | ---------------- | ------ | ---- | -------- | ------- | ------- | -
|                                                                             |                                                         |                                                              |         | Six Months Ended
|                                                                             |                                                         |                                                              |         | September 30,   
|                                                                             |                                                         |                                                              |         |                 
|                                                                             |                                                         |                                                              |         | 2002             |        | 2001
|                                                                             |                                                         |                                                              |         |                  |        |     
|Cash flows from operating activities:                                        |                                                         |                                                              |         |                  |        |      |          |        
|Net loss                                                                     |                                                         | $                                                            | (27,278 | )                |        | $    | (102,556 | )      
|Adjustments to reconcile net loss to net cash used for operating activities: |                                                         |                                                              |         |                  |        |      |          |        
|                                                                             | Depreciation and amortization                           |                                                              |         | 5,811            |        |      |          | 9,704   |        
|                                                                             | Provision for uncollectible accounts                    |                                                              |         | 95               |        |      |          | 5,805   |        
|                                                                             | Inventory valuation charges and provision for inventory |                                                              |         | (1,147           | )      |      |          | 64,365  |        
|                                                                             | Non-cash restructuring expenses                         |                                                              |         | 1,784            |        |      |          | 2,105   |        
|                                                                             | Permanent impairment of investment losses               |                                                              |         | 392              |        |      |          | 8,339   |        
|                                                                             | Changes in assets and liabilities                       |                                                              |         |                  |        |      |          |         |        
|                                                                             |                                                         | Decrease (increase) in accounts receivable                   |         |                  | (4,443 | )    |          |         | 29,249  |  
|                                                                             |                                                         | Decrease (increase) in inventories                           |         |                  | 9,063  |      |          |         | (40,829 | )
|                                                                             |                                                         | Increase in deferred tax assets                              |         |                  |       |      |          |         | (594    | )
|                                                                             |                                                         | Decrease (increase) in other current assets and other assets |         |                  | (3,580 | )    |          |         | 1,857   |  
|                                                                             |                                                         | Increase (decrease) in accounts payable                      |         |                  | 5,584  |      |          |         | (13,051 | )
|                                                                             |                                                         | Increase in income tax payable                               |         |                  | 471    |      |          |         | 658     |  
|                                                                             |                                                         | Increase in other accrued liabilities                        |         |                  | 1,884  |      |          |         | 2,276   |  
|                                                                             |                                                         | Increase in provision for warranty reserves                  |         |                  | 5,220  |      |          |         | 5,114   |  
|                                                                             |                                                         | Increase in long term liabilities                            |         |                  | 5,496  |      |          |         |        |  
|                                                                             |                                                         |                                                              |         |                  |        |      |          |        
|Net cash used for operating activities                                       |                                                         |                                                              | (648    | )                |        |      | (27,558  | )      
|                                                                             |                                                         |                                                              |         |                  |        |      |          |        
|Cash flows from investing activities:                                        |                                                         |                                                              |         |                  |        |      |          |        
|                                                                             | Purchase of short-term investments                      |                                                              |         | (160,981         | )      |      |          | (75,731 | )      
|                                                                             | Proceeds from sale of short term investments            |                                                              |         | 154,449          |        |      |          | 55,868  |        
|                                                                             | Purchase of property and equipment                      |                                                              |         | (2,782           | )      |      |          | (5,072  | )      
|                                                                             |                                                         |                                                              |         |                  |        |      |          |        
|Net cash used for investing activities                                       |                                                         |                                                              | (9,314  | )                |        |      | (24,935  | )      
|                                                                             |                                                         |                                                              |         |                  |        |      |          |        
|Cash flows from financing activities:                                        |                                                         |                                                              |         |                  |        |      |          |        
|                                                                             | Short-term borrowings                                   |                                                              |         |                 |        |      |          | 1,430   |        
|                                                                             | Proceeds from sales of common stock                     |                                                              |         | 603              |        |      |          | 72,298  |        
|                                                                             |                                                         |                                                              |         |                  |        |      |          |        
|Net cash provided by financing activities                                    |                                                         |                                                              | 603     |                  |        |      | 73,728   |        
|                                                                             |                                                         |                                                              |         |                  |        |      |          |        
|Effect of exchange rate changes on cash                                      |                                                         |                                                              | 347     |                  |        |      | 1,345    |        
|                                                                             |                                                         |                                                              |         |                  |        |      |          |        
|Net increase (decrease) in cash and cash equivalents                         |                                                         |                                                              | (9,012  | )                |        |      | 22,580   |        
|Cash and cash equivalents at beginning of period                             |                                                         |                                                              | 35,888  |                  |        |      | 25,963   |        
|                                                                             |                                                         |                                                              |         |                  |        |      |          |        
|Cash and cash equivalents at end of period                                   |                                                         | $                                                            | 26,876  |                  |        | $    | 48,543   |        
|                                                                             |                                                         |                                                              |         |                  |        |      |          |        
|SUPPLEMENTAL DATA                                                            |                                                         |                                                              |         |                  |        |      |          |        
|                                                                             | Interest paid                                           |                                                              | $       | 5                |        |      | $        | 214     |        
|                                                                             | Income taxes paid                                       |                                                              | $       | 707              |        |      | $        | 716     |        

See accompanying Notes to Condensed Consolidated Financial Statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION



| |  |  | The condensed consolidated financial statements include the accounts of
Stratex Networks, Inc. and its wholly-owned subsidiaries (the Company).
Intercompany accounts and transactions have been eliminated. Certain prior
year amounts have been reclassified to conform to current year
presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | While the financial information furnished is unaudited, the financial
statements included in this report reflect all adjustments (consisting only
of normal recurring adjustments) that 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 Companys
financial statements included in its annual report and Form 10-K for the
fiscal year ended March 31, 2002, filed with the Securities and Exchange
Commission on May 15, 2002.

CASH AND CASH EQUIVALENTS



| |  |  | For purposes of the consolidated statement of cash flows, we consider all
highly liquid debt instruments purchased with a remaining maturity of three
months or less to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We have, as of September 30, 2002, $1.6 million in standby letters of
credit outstanding with several financial institutions to support bid and
performance bonds issued to various customers. In connection with the
issuance of these letters of credit, we have, as of September 30, 2002,
restricted $0.8 million of cash as collateral for these specific
obligations. In addition, as of September 30, 2002, we had outstanding
forward foreign exchange contracts in the aggregate amount of $19.8
million, for which restricted cash of $0.8 million was held as collateral
by one of the financial institutions utilized to hedge our foreign currency
risk exposure.

SHORT- TERM INVESTMENTS



| |  |  | We invest our excess cash in high-quality and easily marketable instruments
to ensure that cash is readily available for use in our current operations.
Accordingly, all of our marketable securities are classified as
available-for-sale in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115. All investments are
reported at fair market value with the related unrealized holding gains and
losses reported as a component of accumulated other comprehensive loss.
Unrealized holding losses on the portfolio as of September 30, 2002 were
insignificant. At September 30, 2002, our available-for-sale securities
had contractual maturities ranging from 1 day to 343 days, with a weighted
average maturity of 87 days.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | There were no impairment losses on our short-term investments in marketable
securities in the first half of fiscal 2003. There were impairment losses
of approximately $8.3 million during the first half of fiscal 2002. Of this
$8.3 million loss, $0.9 million was on our short-                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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| |  |  | term investments in
marketable securities and the remaining $7.4 million was on our equity
investments, which are discussed in the Other Assets footnote below.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

INVENTORIES



| |  |  | Inventories are stated at the lower of cost (first-in, first-out) or
market, where cost includes material, labor and manufacturing overhead. We
maintain an inventory reserve to record inventory at the lower of cost or
market value. This reserve is calculated by comparing on hand quantities
against backlog and forecasted revenues. Inventories, net of reserves,
consist of (in thousands):
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                |  |               |        |           |  |   |        | 
|--------------- |  | ------------- | ------ | --------- |  | - | ------ | 
|                |  | September 30, |        | March 31,
|                |  | 2002          |        | 2002     
|                |  |               |        |          
|Raw materials   |  | $             | 11,555 |           |  | $ | 19,346 | 
|Work in process |  |               | 5,590  |           |  |   | 5,527  | 
|Finished goods  |  |               | 3,492  |           |  |   | 6,221  | 
|                |  |               |        |           |  |   |        | 
|                |  | $             | 20,637 |           |  | $ | 31,094 | 
|                |  |               |        |           |  |   |        | 



| |  |  | In the first half of fiscal 2003, we realized a $1.5 million benefit due
to the sale of inventory that had been fully reserved in periods prior to
the six months ending September 30, 2002.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OTHER CURRENT ASSETS



| |  |  | Other current assets included the following (in thousands):
| |  |  | -----------------------------------------------------------

|                         |  |               |        |           |  |   |        | 
|------------------------ |  | ------------- | ------ | --------- |  | - | ------ | 
|                         |  | September 30, |        | March 31,
|                         |  | 2002          |        | 2002     
|                         |  |               |        |          
|Component receivable     |  | $             | 4,596  |           |  | $ | 2,836  | 
|Miscellaneous receivable |  |               | 5,326  |           |  |   | 2,134  | 
|Prepaid expenses         |  |               | 2,540  |           |  |   | 2,443  | 
|Prepaid Insurance        |  |               | 1,784  |           |  |   | 361    | 
|Tax refund               |  |               | 1,631  |           |  |   | 2,561  | 
|Other                    |  |               | 582    |           |  |   | 440    | 
|                         |  |               |        |           |  |   |        | 
|                         |  | $             | 16,459 |           |  | $ | 10,775 | 
|                         |  |               |        |           |  |   |        | 

OTHER ASSETS



| |  |  | Included in other assets are equity investments and long-term deposits
for premises leased by us. The equity investments were purchased for the
promotion of business and strategic objectives. Equity investments
represent voting interest of less than 20% and are accounted for under
the cost method because the Company is not able to exercise significant
influence over the investee. Equity investments in marketable securities
are classified as available-for-sale in accordance with the provisions
of Statement of Financial Accounting Standards (SFAS) No. 115 and
reported at fair value with
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | unrealized gains and losses recorded in
accumulated other comprehensive income (loss). Equity investments in
non-marketable securities are recorded at cost. We continually review
these equity investments to evaluate whether conditions have occurred
that would suggest an impairment of carrying value. Impairment losses of
$0.4 million were recorded
in the first half of fiscal 2003 on our equity investments in marketable
securities, included in other assets. There were impairment losses of
approximately $8.3 million during the first half of fiscal 2002. Of this
$8.3 million loss, $0.9 million was on our short-term investments in
marketable securities, which are discussed in the Short-Term
Investments footnote above. The remaining $7.4 million loss was on our
equity investments, which consisted of a $3.3 million loss on our equity
investments in marketable equity securities and a $4.1 million loss on
our equity investments in non-marketable securities. We determined that
the recorded value for these certain investments exceeded their fair
value and that these losses were other than temporary in nature.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ACCRUED LIABILITIES



| |  |  | Accrued liabilities included the following (in thousands):
| |  |  | ----------------------------------------------------------

|                             |  |               |        |           |  |   |        | 
|---------------------------- |  | ------------- | ------ | --------- |  | - | ------ | 
|                             |  | September 30, |        | March 31,
|                             |  | 2002          |        | 2002     
|                             |  |               |        |          
|Customer deposits            |  | $             | 1,093  |           |  | $ | 1,804  | 
|Accrued payroll and benefits |  |               | 2,100  |           |  |   | 2,461  | 
|Accrued commissions          |  |               | 3,335  |           |  |   | 2,533  | 
|Accrued warranty             |  |               | 5,753  |           |  |   | 4,674  | 
|Accrued restructuring        |  |               | 7,043  |           |  |   | 3,534  | 
|Accrued deferred income      |  |               | 4,325  |           |  |   | 652    | 
|Other                        |  |               | 2,651  |           |  |   | 3,748  | 
|                             |  |               |        |           |  |   |        | 
|                             |  | $             | 26,300 |           |  | $ | 19,406 | 
|                             |  |               |        |           |  |   |        | 



| |  |  | In accordance with SAB 101, if the revenue recognition criteria are not
met (as described in the revenue recognition footnote below), revenue is
deferred until certain services have been performed. With a few of our
customers we have collected the amounts due according to payment terms;
however, the revenue is deferred due to the reasons described above. The
increase in accrued deferred income is due to these amounts collected
from customers while the corresponding revenue is currently deferred.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CURRENCY TRANSLATION



| |  |  | The functional currency of the Companys subsidiaries located in the
United Kingdom and New Zealand is the U.S. dollar. Accordingly, all of
the monetary assets and liabilities of these subsidiaries are remeasured
into U.S. dollars at the current exchange rate as of the applicable
balance sheet date, and all non-monetary assets and liabilities are
remeasured at historical 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 in the consolidated statements of operations.
The Companys other international subsidiaries use their local currency
as
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | their functional currency. Assets and liabilities of these
subsidiaries are translated at the current exchange rates in effect at
the balance sheet date, and income and expense accounts are translated at
the average exchange rates during the period. The resulting translation
adjustments are included in accumulated other comprehensive loss in the
accompanying financial statements.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

DERIVATIVE FINANCIAL INSTRUMENTS



| |  |  | In accordance with Financial Accounting Standard No. 133 Accounting for
Derivative Instruments and Hedging Activities (FAS 133), all
derivatives are recorded on the balance sheet at fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Derivatives are employed to eliminate, reduce, or transfer selected
foreign currency risks that can be identified and quantified with
confidence. Our policy is to hedge forecasted and actual foreign
currency risk with forward contracts that expire within twelve months.
Specifically, we hedge foreign currency risks relating to firmly
committed backlog, open purchase orders and non-functional currency
monetary assets and liabilities. Derivatives hedging non-functional
currency monetary assets and liabilities are recorded on the balance
sheet at fair value and changes in fair value are recognized currently in
earnings.                                                                                                                                                                                                                                                                                                                               
|
| |  |  | Additionally, we hedge forecasted non-U.S. dollar sales and non-U.S.
dollar purchases. In accordance with FAS 133, hedges of anticipated
transactions are designated and documented at inception as cash flow
hedges and are evaluated for effectiveness, excluding time value, at
least quarterly. We record effective changes in the fair value of these
cash flow hedges in accumulated other comprehensive income (OCI) until
the revenue is recognized or the related purchases are recognized in cost
of sales, at which time the changes are reclassified to revenue and cost
of sales, respectively. All amounts accumulated in OCI at quarter end
will be reclassified to earnings within the next 12 months. A gain of
$0.1 million was recognized in other income and expense in the first half
of fiscal 2003 related to the exclusion of time value from effectiveness
testing and ineffectiveness resulting from forecasted transactions that
did not occur.
|
| |  |  | The following table summarizes the activity in OCI, with regard to the
changes in fair value of derivative instruments, for the first half of
fiscal 2003 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                        |  |                    |      |  
|--------------------------------------- |  | ------------------ | ---- | -
|                                        |  | Six Months Ended  
|                                        |  | September 30, 2002
|                                        |  | Gains/(Losses)    
|                                        |  |                   
|Beginning balance as on April 1, 2002   |  | $                  | 142  |  
|Net changes                             |  |                    | (29  | )
|Reclassifications to revenue            |  |                    | (297 | )
|Reclassifications to cost of sales      |  |                    |     |  
|                                        |  |                    |      |  
|Ending balance as of September 30, 2002 |  | $                  | (184 | )
|                                        |  |                    |      |  

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CONCENTRATION OF CREDIT RISK



| |  |  | Financial instruments that potentially subject us to concentrations
of credit risk consist principally of temporary cash investments and
trade receivables. We have cash investment policies that limit the
amount of credit exposure to any one financial institution and
restrict placement of investments to financial institutions evaluated
as
highly creditworthy. Investments, under our policy, must have a
rating of A1 or P1 for short-term paper and a rating of A or better
for long-term notes or bonds. Accounts receivable concentrated with
certain customers primarily in the telecommunications industry and in
certain geographic locations may subject us to concentration of
credit risk. Three customers accounted for approximately 13%, 12%,
and 10% of net sales for the second quarter of fiscal 2003,
respectively. Three customers accounted for approximately 15%, 10%,
and 10% of net sales for the second quarter of fiscal 2002,
respectively. For the first half of fiscal 2003, one customer
accounted for 14% of net sales. For the first half of fiscal 2002
one customer accounted for 11% of net sales. One customer accounted
for approximately 21% of the total accounts receivable balance at the
end of the first half of fiscal 2003. No other customer accounted for
more than 10% of the total accounts receivable balance at the end of
the first half of fiscal 2003. In the first half of fiscal 2002 two
customers accounted for approximately 15% and 11%, respectively of
the total accounts receivable balance. We actively market and sell
products in Africa, Asia, Europe, the Middle East and the Americas.
We perform on-going credit evaluations of our customers financial
conditions and generally require no collateral, although sales to
Asia, Eastern Europe and the Middle East are primarily paid through
letters of credit.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

REVENUE RECOGNITION



| |  |  | We recognize revenue pursuant to Staff Accounting Bulletin No. 101 (SAB
101) Revenue Recognition in Financial Statements. Accordingly, revenue
is recognized when all four of the following criteria are met: (i)
persuasive evidence that the arrangement exists; (ii) delivery of the
products and/or services has occurred; (iii) the selling price is fixed
or determinable; and (iv) collectibility is reasonably assured.                                                                                                                                                                                                                                                                                                                        
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In accordance with SAB 101, revenues from product sales are generally
recognized when title and risk of loss passes to the customer, except
when product sales are combined with significant post-shipment
installation services. Under this exception, revenue is deferred until
such services have been performed. Service and repair revenue, is
recognized when the related services and repairs are delivered.                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | At the time revenue is recognized, we establish an accrual for estimated
warranty expenses associated with our sales, recorded as a component of
cost of revenue. Our standard warranty is generally for a period of 27
months from the date of sale and our warranty accrual represents the best
estimate of the amounts necessary to settle future and existing claims on
products sold as of the balance sheet date. While we believe that our
warranty accrual is adequate and that the judgment applied is
appropriate, such amounts estimated to be due and payable could differ
materially from what will actually transpire in the future. If our actual
warranty costs are greater than the accrual, cost of revenues will
increase accordingly.

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NET EARNINGS (LOSS) PER SHARE



| |  |  | Basic earnings (loss) per share (EPS) excludes dilution and is computed
by dividing net income (loss) attributable to common shareholders by the
weighted average number of common shares outstanding for the period
excluding the weighted average common shares subject to repurchase.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (common stock options
and warrants using the treasury stock method) were exercised into common
stock. Potential common shares in the diluted EPS computation are
excluded in net loss periods, as their effect would be antidilutive.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 should not have a material adverse effect on the business,
financial position, and results of operations of the Company. In
addition, suppliers have made claims against us and we have reasonably
estimated and provided for these claims. If settlement of these claims
results in amounts greater than our accruals, there could be additional
liabilities required upon ultimate resolution of these claims.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

RESTRUCTURING CHARGES



| |  |  | During fiscal 2002, the industry experienced a severe downturn in the
global economy which impacted our revenues significantly. In response to
this downturn, we announced several restructuring programs in fiscal 2002
to focus on profit contribution by reducing expenses and improving
operational efficiency. These restructuring programs included
consolidation of our U.S. manufacturing operations by relocating our
Seattle, Washington operations to our San Jose, California facility, a
worldwide reduction in workforce and a consolidation of additional excess
facilities. In the first half of fiscal 2003, we continued to see
slowdown in the economy and tightening in the capital market. As we did
not expect any significant recovery in the economy in the near future, we
took additional steps in the first quarter of fiscal 2003 to reduce costs
and to improve asset management. As part of this program, we entered into
an agreement to outsource our San Jose manufacturing operations to
Microelectronics Technology Inc. (MTI), our manufacturing partner in
Taiwan. As a result of changes associated with this agreement, as well as
other reductions in operating expenses and facilities, we recorded
restructuring charges of $14.2 million in the first quarter of fiscal
2003. This restructuring charge consisted of $2.8 million for employee
severance and benefits, $8.2 million for vacated building lease
obligations, $0.6 million for legal costs, $3.3 million for transition
costs related to outsourcing of our manufacturing operations as mentioned
above and $1.8 million as a write off of manufacturing equipment. These
restructuring costs were reduced by $2.5 million, which represented the
amount reimbursable from MTI for the costs relating to the transfer of
certain of our manufacturing assets to MTI in accordance with our joint
agreement.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Under the terms of our agreement with Microelectronics Technology Inc.
(MTI) for transfer of our manufacturing operations to MTI in Taiwan, MTI
is assuming assembly,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

11



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| |  |  | integration and testing of our Altium product
family, as well as assembly and testing of
the Outdoor Unit portion of our XP4 product. The agreement also provides
for continuing cooperation between the companies for future products now
being developed. Under terms of the agreement, MTI is acquiring certain
of our manufacturing assets related to the production of the Altium and
XP4 product lines, we are providing assistance in the transition of the
operation. In addition, we are consigning certain inventory associated
with these products to MTI and MTI is purchasing such inventory, as it is
utilized in manufacturing. We are retaining product design and R&D
functions for these products. We expect to complete the transition of
affected manufacturing operations and transfer all of these assets to MTI
by the end of calendar year 2002 and record a note receivable from MTI
for the assets with total value of approximately $4.0 million, including
interest, which MTI has agreed to pay in equal quarterly installments
over a period of three years. The transaction includes a five-year supply
agreement between the two companies. As a result of the agreement, MTI
will be our primary manufacturer of the Outdoor Unit portion of Altium
products and of the XP4 products. Sales of our Altium and XP4 products
for the first half of fiscal 2003, account for 61% of total revenues for
that period.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | During the second quarter of fiscal 2003, we did not record any
additional restructuring charges; however, we sold $1.4 million of
manufacturing equipment to MTI with no net gain or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | The severance and benefit charges of $2.8 million taken in the first
quarter of fiscal 2003 were for a reduction in workforce of approximately
153 employees, with reductions affecting primarily the manufacturing
operations area due to the outsourcing of our San Jose, California
manufacturing operations. As of June 30, 2002 all affected employees had
been notified. As of September 30, 2002, approximately 105 employees have
been terminated. We anticipate that the remaining affected employees will
be terminated by December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | During fiscal 2002, we recorded restructuring and receivable valuation
charges of $24.6 million. This consisted of $8.4 million for employee
severance and benefits, $11.2 million for facility-related and other
costs (including $8.6 million for vacated building lease obligations,
$2.1 million for the loss on impairment of equipment, $0.1 million for
legal costs and $0.4 million for the write off of goodwill) and $5.0
million for uncollectible accounts receivable. There were cumulative cash
payments and non-cash expenses against this provision of $7.7 million and
$7.5 million, respectively, resulting in an ending provision balance at
March 31, 2002 of $9.4 million. The cash payments were related primarily
to workforce reduction payments and the non-cash expenses were related
primarily to equipment and receivable valuation charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | The vacated building lease obligations of $8.2 million and $8.6 million
recorded in first quarter of fiscal 2003 and in fiscal 2002,
respectively, included payments required under lease contracts, less
estimated sublease income after the property was abandoned. To determine
the lease loss, certain assumptions were made related to (1) the time
period over which the building will remain vacant, (2) sublease terms,
(3) sublease rates and (4) an estimate of brokerage fees. Should
operating lease rental rates continue to decline in the current market or
should it take longer than expected to find a suitable tenant to sublease
the Seattle, WA, San Jose, CA and Coventry, United Kingdom facilities,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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| |  |  | adjustments to the facilities lease loss reserve will be made in future
periods, if necessary, based upon actual events and circumstances.                                                                        
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The following table summarizes the balance of the restructuring accrual as
of September 30, 2002 and the type and amount of restructuring costs
utilized during the first six months of fiscal 2003 (in millions):

|                                 |  |              |      |            |  |       |      |   |  |   |      |  
|-------------------------------- |  | ------------ | ---- | ---------- |  | ----- | ---- | - |  | - | ---- | -
|                                 |  | Severance    |      | Facilities |  |       |      |  
|                                 |  | and Benefits |      | and Other  |  | Total
|                                 |  |              |      |            |  |      
|Balance as of April 1, 2002      |  | $            | 2.3  |            |  | $     | 7.1  |   |  | $ | 9.4  |  
|Provision                        |  |              | 2.8  |            |  |       | 11.4 |   |  |   | 14.2 |  
|Cash payments                    |  |              | (2.2 | )          |  |       | (3.7 | ) |  |   | (5.9 | )
|Non-cash expenses                |  |              |     |            |  |       | (1.8 | ) |  |   | (1.8 | )
|Reimbursable transition costs    |  |              |     |            |  |       | 2.5  |   |  |   | 2.5  |  
|                                 |  |              |      |            |  |       |      |   |  |   |      |  
|Balance as of September 30, 2002 |  | $            | 2.9  |            |  | $     | 15.5 |   |  | $ | 18.4 |  
|                                 |  |              |      |            |  |       |      |   |  |   |      |  



| |  |  | The remaining accrual balance as of September 30, 2002 of $18.4 million is
expected to be paid out in cash. We expect $3.5 million of the remaining
cash restructuring charges to be paid out in fiscal 2003, additional
severance and benefit costs of approximately $0.3 million we anticipate
will be paid out in fiscal 2004, and vacated building lease obligations of
$14.0 million and $0.6 million are expected to be paid out over the next
nine years and sixteen years, respectively.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We expect additional restructuring charges in the third quarter of fiscal
2003 of approximately $5.0 to $7.0 million primarily related to lease
commitments for vacated space and fixed asset write offs.                                                                                                                                                                                                                                                                                       

COMPREHENSIVE INCOME



| |  |  | The following table reconciles net loss to comprehensive loss (in
thousands):
| |  |  | -----------------------------------------------------------------------------

|                   |                                               |                                               |        |    |                    |   |                  |     |      |   |         |     |        |   |          |       |        |   | 
|------------------ | --------------------------------------------- | --------------------------------------------- | ------ | -- | ------------------ | - | ---------------- | --- | ---- | - | ------- | --- | ------ | - | -------- | ----- | ------ | - | 
|                   |                                               |                                               |        |    | Three Months Ended |   | Six Months Ended
|                   |                                               |                                               |        |    | September 30,      |   | September 30,   
|                   |                                               |                                               |        |    |                    |   |                 
|                   |                                               |                                               |        |    | 2002               |   | 2001             |     | 2002 |   | 2001   
|                   |                                               |                                               |        |    |                    |   |                  |     |      |   |        
|Net loss           |                                               | $                                             | (4,415 | )  |                    | $ | (56,487          | )   |      | $ | (27,278 | )   |        | $ | (102,556 | )    
|                   |                                               | Other comprehensive income
(loss) net of tax: |        |    |                    |   |                  |     |      |   |         |     |        |   |          |       |        |  
|                   |                                               | Unrealized currency loss                      |        |    | (1,424             | ) |                  |     | (983 | ) |         |     | (3,632 | ) |          |       | (1,904 | )
|                   | Unrealized holding gain (loss)
on investments |                                               |        | 19 |                    |   |                  | (59 | )    |   |         | 186 |        |   |          | 2,629 |       
|                   |                                               |                                               |        |    |                    |   |                  |     |      |   |         |     |        |   |          |      
|Comprehensive loss |                                               | $                                             | (5,820 | )  |                    | $ | (57,529          | )   |      | $ | (30,724 | )   |        | $ | (101,831 | )    
|                   |                                               |                                               |        |    |                    |   |                  |     |      |   |         |     |        |   |          |      

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NEW ACCOUNTING PRONOUNCEMENTS



| |  |  | In June 2001, the FASB issued FASB Statement No. 143 (FAS 143),
Accounting for Asset Retirement Obligations. FAS 143 requires that the
fair value of a liability for an asset retirement obligation be
recognized in the period which it is incurred if a reasonable estimate of
fair value can be made. Companies are required to adopt FAS 143 for
fiscal years beginning after June 15, 2002, but early adoption is
encouraged. We are in the process of determining what impact, if any,
this standard will have on our financial position and results of
operations, although we do not anticipate that the adoption of this
standard will have a material impact on our financial position or results
of operations.                                                                                                                                                                           
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We have adopted SFAS No. 144 Accounting for the Impairment or Disposal
of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121 by requiring
that one accounting model be used for long-lived assets to be disposed of
by sale, whether previously held and used or newly acquired and by
broadening the presentation of discontinued operations to include more
disposal transactions. The adoption of SFAS No. 144 does not have a
material impact on our financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | In June 2002, the FASB issued SFAS 146,  Accounting for Costs Associated
with Exit or Disposal Activities, which addresses accounting for
restructuring and similar costs. SFAS 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force Issue No. 94-3. The
Company will adopt the provisions of SFAS 146 for restructuring
activities initiated after December 31, 2002. SFAS 146 requires that
the liability for costs associated with an exit or disposal activity be
recognized when the liability is incurred. Under Issue 94-3, a liability
for an exit cost was recognized at the date of the Companys commitment
to an exit plan. SFAS 146 also establishes that the liability should
initially be measured and recorded at fair value. Accordingly, SFAS 146
may affect the timing of recognizing future restructuring costs as well
as the amounts recognized.

OPERATING SEGMENT AND GEOGRAPHIC INFORMATION



| |  |  | The Company is organized into two operating segments: products and
services. Service revenue includes repair revenue. The Companys Chief
Executive Officer has been identified as the Chief Operating
Decision-Maker as defined by Statement of Financial Accounting Standards
No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information. Resources are allocated to each of these segments
using information on their revenues and operating profits before interest
and taxes.                                                                                                                                                                                                                                                                      
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Products operating segment includes the SPECTRUM II, XP4, Altium, and
DXR digital microwave systems for digital transmission markets. We design
and develop these products in New Zealand and California. We manufacture
the DXR product in New Zealand. Prior to June 30, 2002, we manufactured
the XP4 and Altium family of products in San Jose, California. In June
2002, we entered into an agreement with Microelectronics Technology, Inc
(MTI) in Taiwan for outsourcing of our XP-4 and Altium products
manufacturing operations to MTI. We expect to complete the transition of
manufacturing operations by the end of calendar year 2002. The Services
operating segment includes, but is not limited to, installation, repair,
spare parts, network design, path surveys,

14



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| |  |  | integration, and other
revenues. We maintain regional service centers in Scotland and the
Philippines.                                                                                                                                                                                                                                                                                                               
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We do not identify or allocate assets or depreciation by operating
segment, nor does the CEO evaluate these groups on these criteria.
Operating segments generally do not sell products to each other, and
accordingly, there are no significant inter-segment revenues to be
reported. We do not allocate interest and taxes to operating segments.
The accounting policies for each reporting segment are the same.
|
| |  |  | The following table sets forth net revenues and operating income (loss)
by operating segments (in thousands):                                                                                                                                                                                                                                                                                                        

|          |                  |  |                    |        |                  |  |      |         |      |  |   |         |   |  |   |         |  
|--------- | ---------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|          |                  |  | Three Months Ended |        | Six Months Ended
|          |                  |  | September 30,      |        | September 30,   
|          |                  |  |                    |        |                 
|          |                  |  | 2002               |        | 2001             |  | 2002 |         | 2001
|          |                  |  |                    |        |                  |  |      |         |     
|Products: |                  |  |                    |        |                  |  |      |         |      |  |   |         |   |  |   |        
|          | Revenues         |  | $                  | 44,467 |                  |  | $    | 54,248  |      |  | $ | 86,838  |   |  | $ | 124,273 |  
|          | Operating loss   |  |                    | (6,142 | )                |  |      | (56,755 | )    |  |   | (29,136 | ) |  |   | (94,088 | )
|Services: |                  |  |                    |        |                  |  |      |         |      |  |   |         |   |  |   |        
|          | Revenues         |  |                    | 8,093  |                  |  |      | 6,650   |      |  |   | 15,041  |   |  |   | 13,309  |  
|          | Operating income |  |                    | 2,237  |                  |  |      | 917     |      |  |   | 3,389   |   |  |   | 1,815   |  
|Total:    |                  |  |                    |        |                  |  |      |         |      |  |   |         |   |  |   |        
|          | Revenues         |  | $                  | 52,560 |                  |  | $    | 60,898  |      |  | $ | 101,879 |   |  | $ | 137,582 |  
|          | Operating loss   |  |                    | (3,905 | )                |  |      | (55,838 | )    |  |   | (25,747 | ) |  |   | (92,273 | )



| |  |  | The following table sets forth net revenues from unaffiliated customers
by product (in thousands):
| |  |  | --------------------------------------------------------------------------------------------------

|               |                |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |         | 
|-------------- | -------------- | - | ------------------ | ------ | ---------------- | - | ------ | ------ | ---- | - | ------- | ------ |  | - | ------- | ------- | 
|               |                |   | Three Months Ended |        | Six Months Ended
|               |                |   | September 30,      |        | September 30,   
|               |                |   |                    |        |                 
|               |                |   | 2002               |        | 2001             |   | 2002   |        | 2001
|               |                |   |                    |        |                  |   |        |        |     
|Altium         |                | $ | 12,989             |        |                  | $ | 15,837 |        |      | $ | 19,541  |        |  | $ | 35,472  |        
|DXR            |                |   | 8,309              |        |                  |   | 8,174  |        |      |   | 21,782  |        |  |   | 16,442  |        
|SPECTRUM II    |                |   | 273                |        |                  |   | 9,504  |        |      |   | 2,383   |        |  |   | 28,886  |        
|XP4            |                |   | 22,607             |        |                  |   | 20,348 |        |      |   | 42,564  |        |  |   | 42,766  |        
|Other Products |                |   | 289                |        |                  |   | 385    |        |      |   | 568     |        |  |   | 707     |        
|               |                |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |        
|               | Total Products |   |                    | 44,467 |                  |   |        | 54,248 |      |   |         | 86,838 |  |   |         | 124,273 | 
|               | Total Services |   |                    | 8,093  |                  |   |        | 6,650  |      |   |         | 15,041 |  |   |         | 13,309  | 
|               |                |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |        
|Total Revenues |                | $ | 52,560             |        |                  | $ | 60,898 |        |      | $ | 101,879 |        |  | $ | 137,582 |        
|               |                |   |                    |        |                  |   |        |        |      |   |         |        |  |   |         |        

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The following table sets forth revenues from unaffiliated customers by
geographic region (in thousands) for:

|                   |  |                    |        |                  |  |      |        |      |  |   |         |  |  |   |         | 
|------------------ |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------- |  |  | - | ------- | 
|                   |  | Three Months Ended |        | Six Months Ended
|                   |  | September 30,      |        | September 30,   
|                   |  |                    |        |                 
|                   |  | 2002               |        | 2001             |  | 2002 |        | 2001
|                   |  |                    |        |                  |  |      |        |     
|Europe             |  | $                  | 8,222  |                  |  | $    | 11,956 |      |  | $ | 22,643  |  |  | $ | 32,913  | 
|Nigeria            |  |                    | 6,081  |                  |  |      | 8,192  |      |  |   | 10,119  |  |  |   | 8,286   | 
|Brazil             |  |                    | 577    |                  |  |      | 10,071 |      |  |   | 3,019   |  |  |   | 15,843  | 
|China              |  |                    | 4,127  |                  |  |      | 5,983  |      |  |   | 4,379   |  |  |   | 25,897  | 
|Middle East/Africa |  |                    | 7,726  |                  |  |      | 4,849  |      |  |   | 10,289  |  |  |   | 12,519  | 
|Thailand           |  |                    | 6,882  |                  |  |      |       |      |  |   | 16,696  |  |  |   |        | 
|Mexico             |  |                    | 1,174  |                  |  |      | 2,636  |      |  |   | 3,669   |  |  |   | 6,932   | 
|United States      |  |                    | 3,299  |                  |  |      | 4,678  |      |  |   | 4,391   |  |  |   | 10,466  | 
|Other Americas     |  |                    | 936    |                  |  |      | 4,397  |      |  |   | 2,684   |  |  |   | 10,490  | 
|Other Asia/Pacific |  |                    | 13,536 |                  |  |      | 8,136  |      |  |   | 23,990  |  |  |   | 14,236  | 
|                   |  |                    |        |                  |  |      |        |      |  |   |         |  |  |   |         | 
|Total Revenue      |  | $                  | 52,560 |                  |  | $    | 60,898 |      |  | $ | 101,879 |  |  | $ | 137,582 | 
|                   |  |                    |        |                  |  |      |        |      |  |   |         |  |  |   |         | 

Long-lived assets by country consisting of net property and equipment was as
follows (in thousands):

|                                  |  |                    |        |                |  |   |        | 
|--------------------------------- |  | ------------------ | ------ | -------------- |  | - | ------ | 
|                                  |  | September 30, 2002 |        | March 31, 2002
|                                  |  |                    |        |               
|United States                     |  | $                  | 14,080 |                |  | $ | 19,872 | 
|United Kingdom                    |  |                    | 14,255 |                |  |   | 15,732 | 
|Other foreign countries           |  |                    | 7,018  |                |  |   | 6,090  | 
|                                  |  |                    |        |                |  |   |        | 
|Total property and equipment, net |  | $                  | 35,353 |                |  | $ | 41,694 | 
|                                  |  |                    |        |                |  |   |        | 

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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The discussions in this Quarterly Report should be read in conjunction with our
accompanying Financial Statements and the related notes thereto. This Quarterly
Report on Form 10-Q contains forward-looking statements within the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act of 1934, as amended. All statements included or incorporated by
reference in this Quarterly Report, other than statements that are purely
historical are forward-looking statements. Words such as anticipates,
expects, intends, plans, believes, seeks, estimates and similar
expressions also identify forward looking statements. The forward looking
statements in this Quarterly Report are not guarantees of future performance
and are subject to risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward looking
statements and include, without limitation, statements regarding:



| |  | Our belief that the transition of our manufacturing operations to
Microelectronics Technology Inc. (MTI) will help us lower fixed costs and
improve our gross margins;                                                                                                                                                                                                                           
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Our expectation that the remaining affected employees from our reduction
in workforce will be terminated by December 31, 2002;                                                                                                                                                                                                                                                                   
| 
| |  | Our expectation to adjust facilities lease loss reserve in future
periods, if necessary, based upon actual events and circumstances;                                                                                                                                                                                                                                                             
| 
| |  | Our plan to pay out in cash the remaining accrual balance as of September
30, 2002 of $18.4 million;                                                                                                                                                                                                                                                                                             
| 
| |  | Our expectation that $3.5 million of the remaining cash restructuring
charges will be paid out in fiscal 2003, additional severance and benefit
costs of approximately $0.3 million we anticipate will be paid out in
fiscal 2004, and vacated building lease obligations of $14.0 million and
$0.6 million are expected to be paid out over the next nine years and
sixteen years, respectively;
| 
| |  | Our anticipation of additional restructuring charges in the third quarter
of fiscal 2003 of approximately $5.0 to $7.0 million primarily related to
lease commitments for vacated space and some fixed asset write offs                                                                                                                                                                          
| 
| |  | Our anticipation that the adoption of FASB Statement No. 143 (FAS 143),
Accounting for Asset Retirement Obligations will not have a material
impact on our financial position or results of operations;                                                                                                                                                                                        
| 
| |  | Our expectation to have completed the transition of our manufacturing
operations to MTI by the end of calendar year 2002 and to have recorded a
note receivable from MTI with a total value of $4.0 million, including
interest;                                                                                                                                                                 
| 
| |  | Our expectation that gross profit, as a percentage of sales, will
increase slightly in the third quarter of fiscal 2003 as compared to the
second quarter of fiscal 2003 due to reduced manufacturing costs as a
result of the outsourcing program, subject to meeting revenue
expectations;                                                                                                     
| 
| |  | Our anticipation of savings of approximately $1.0 to $1.5 million per
quarter in connection with this transition;                                                                                                                                                                                                                                                                                
| 
| |  | Our estimation that under certain circumstances the facilities lease
losses for our facilities in Seattle, Washington; San Jose, California
and Coventry, United Kingdom could increase by an additional $14.3
million;                                                                                                                                                                          

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| |  | Our belief that we have the financial resources needed to meet our
business requirements for at least the next 12 months;                                                                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Our expectation that we will not experience material exchange rate gains
and losses from unhedged foreign currency exposures;                                                                                                                          
| 
| |  | Our expectation that competition will increase;                                                                                                                                                                                                        
| 
| |  | The possibility that we may restructure our activities to more
strategically realign our resources in response to changes in our
industry and market conditions;                                                                                       
| 
| |  | Our expectation that international sales will continue to account for the
majority of our net product sales for the foreseeable future.                                                                                                                
| 
| |  | The settlement of estimated supplier cancellation claims may result in
additional charges upon ultimate resolution of these claims;                                                                                                                    
| 
| |  | Our expectation to maintain our cash and short-term investments at or
near the current level during the third quarter of fiscal 2003; and                                                                                                              
| 
| |  | Our discussions with several lenders about establishing a $20-25 million
credit facility to provide additional liquidity to support our working
capital requirements, although utilization of this facility is not
anticipated over the next 12 months.

All forward looking statements included in this document are made as of the
date hereof, based on information available to us as of the date hereof, and we
assume no obligation to update any forward looking statement or statements. The
reader should also consult the cautionary statements and risk factors listed in
this Quarterly Report and those listed from time to time in our Reports on
Forms 10-Q, 8-K, and our most recent Annual Report on Form 10-K for the year
ended March 31, 2002, including those contained in the section, Factors That
May Affect Future Financial Results, beginning on page 28 in this Quarterly
Report, in evaluating these forward-looking statements.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies since March 31,
2002. For a description of our critical accounting policies, see our Annual
Report on Form 10-K for the year ended March 31, 2002.

18



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##### Table of Contents



Results of Operations

The following table sets forth the percentage relationships of certain items
from the Companys condensed consolidated statements of operations as
percentages of net sales:

|                                          |          |  |                    |      |                  |  |       |       |      |  |       |       |    |  |       |       |   
|----------------------------------------- | -------- |  | ------------------ | ---- | ---------------- |  | ----- | ----- | ---- |  | ----- | ----- | -- |  | ----- | ----- | --
|                                          |          |  | Three Months Ended |      | Six Months Ended
|                                          |          |  | September 30,      |      | September 30,   
|                                          |          |  |                    |      |                 
|                                          |          |  | 2002               |      | 2001             |  | 2002  |       | 2001
|                                          |          |  |                    |      |                  |  |       |       |     
|Net sales                                 |          |  | 100.0              | %    |                  |  | 100.0 | %     |      |  | 100.0 | %     |    |  | 100.0 | %    
|Cost of sales                             |          |  | 75.9               |      |                  |  | 80.7  |       |      |  | 78.6  |       |    |  | 76.8  |      
|Inventory valuation charges               |          |  | (0.1               | )    |                  |  | 64.6  |       |      |  | (1.5  | )     |    |  | 46.0  |      
|                                          |          |  |                    |      |                  |  |       |       |      |  |       |       |    |  |       |      
|Gross profit (loss)                       |          |  | 24.2               |      |                  |  | (45.3 | )     |      |  | 22.9  |       |    |  | (22.8 | )    
|Research and development                  |          |  | 6.6                |      |                  |  | 7.8   |       |      |  | 6.9   |       |    |  | 7.8   |      
|Selling, general and administrative       |          |  | 25.0               |      |                  |  | 24.6  |       |      |  | 27.4  |       |    |  | 22.3  |      
|Restructuring and asset valuation
charges |          |  |                   |      |                  |  | 14.0  |       |      |  | 13.9  |       |    |  | 14.2  |      
|                                          |          |  |                    |      |                  |  |       |       |      |  |       |       |    |  |       |      
|Operating loss                            |          |  | (7.5               | )    |                  |  | (91.7 | )     |      |  | (25.3 | )     |    |  | (67.1 | )    
|Interest income                           |          |  | 0.9                |      |                  |  | 1.3   |       |      |  | 0.9   |       |    |  | 1.0   |      
|Interest expense                          |          |  | (0.3               | )    |                  |  | 0.1   |       |      |  | (0.3  | )     |    |  |      |      
|Other income (expense), net               |          |  | (0.8               | )    |                  |  | (0.8  | )     |      |  | (0.8  | )     |    |  | (1.2  | )    
|Impairment of investments                 |          |  | (0.5               | )    |                  |  |      |       |      |  | (0.4  | )     |    |  | (6.1  | )    
|                                          |          |  |                    |      |                  |  |       |       |      |  |       |       |    |  |       |      
|Loss before provision for income
taxes    |          |  | (8.2               | )    |                  |  | (91.3 | )     |      |  | (25.9 | )     |    |  | (73.4 | )    
|Provision for income taxes                |          |  | 0.3                |      |                  |  | 1.5   |       |      |  | 0.9   |       |    |  | 1.1   |      
|                                          |          |  |                    |      |                  |  |       |       |      |  |       |       |    |  |       |      
|                                          | Net loss |  |                    | (8.5 | )%               |  |       | (92.8 | )%   |  |       | (26.8 | )% |  |       | (74.5 | )%
|                                          |          |  |                    |      |                  |  |       |       |      |  |       |       |    |  |       |      

Net Sales

In the second quarter of fiscal 2003, while we continued to see limited capital
expenditures by industry participants, we have seen some growth in our business
in certain regions. Net sales for the second quarter of fiscal 2003 decreased
to $52.6 million, compared to $60.9 million reported in the second quarter of
fiscal 2002. Revenues from our DXR and XP4 product lines increased slightly
while sales for our Altium and Spectrum II product lines decreased. Our XP4
product line net sales increased to $22.6 million in the second quarter of
fiscal 2003 from $20.3 million in the comparable quarter of fiscal 2002. Our
Altium product line net sales decreased to $13.0 million in the second quarter
of fiscal 2003, from $15.8 million in the comparable quarter of fiscal 2002.
Net sales of our Spectrum II product line decreased to $0.3 million in the
second quarter of fiscal 2003 from $9.5 million in the comparable quarter of
fiscal 2002, due to the product reaching its planned end of life.

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Net sales to Brazil decreased to $0.6 million in the second quarter of fiscal
2003 from $10.1 million in the second quarter of fiscal 2002, due to decreased
sales to one customer in Brazil. Net sales in the Other Americas region
decreased to $0.9 million in the second quarter of fiscal 2003, compared to
$4.4 million in the second quarter of fiscal 2002 primarily due to a decrease
in capital expenditures by our customers in that region. Net sales in Nigeria
decreased to $6.1 million in the second quarter of fiscal 2003 as compared to
$8.2 million in the second quarter of fiscal 2002, primarily due to the
completion of several projects in that region. Net sales in the Middle
East/Africa region increased to $7.7 million in the second quarter of fiscal
2003 from $4.8 million in the second quarter of fiscal 2002, primarily due to
increased sales to various customers. Net sales in the Asia/Pacific region
increased to $13.5 million in the second quarter of fiscal 2003 from $8.1
million in the second quarter of fiscal 2002 due primarily to increased sales
to two customers in that region. Net sales to Thailand increased to $6.9
million in the second quarter of fiscal 2003 from zero in the second quarter of
fiscal 2002 due to several major projects in that location. Service revenue
was $8.1 million in the second quarter of fiscal 2003, compared to $6.7 million
in the second quarter of fiscal 2002. Though overall product revenue in the
second quarter of fiscal 2003 declined as compared to the second quarter of
fiscal 2002, service revenue increased. This is primarily due to an increase in
service contracts and projects as a result of our increased efforts to position
ourselves as a complete solutions provider in the market.

Net sales for the first half of fiscal 2003 were $101.9 million, compared to
$137.6 million reported in the first half of fiscal 2002 due to ongoing
restrictions over capital spending in the telecommunications and mobile
cellular market. The decrease in net sales was primarily due to decreased
sales of our Altium and Spectrum II product lines, because of the reasons
mentioned above. We experienced a decline in net sales in Europe, North
America and Latin America due to a continued slowdown in the telecommunications
industry and weak economic conditions. However this decline was partially
offset by increases in sales in the Asia/Pacific region, Thailand and in
Nigeria. Net sales to U.S. customers decreased to $4.4 million in the first
half of fiscal 2003, compared to $10.5 million in the first half of fiscal
2002, due to the reasons described above. Net sales to Brazil decreased
significantly to $3.0 million from $15.8 million in the first half of fiscal
2002 due to decreased sales to one customer. Net sales in Europe decreased to
$22.6 million in the first half of fiscal 2003 from $32.9 million in the first
half of fiscal 2002, due to ongoing restrictions of capital spending. Net
sales to China decreased significantly to $4.4 million in the first half of
fiscal 2003, from $25.9 million in the first half of fiscal 2002, primarily due
to lower sales to customers in China, who are continuing to utilize existing
inventory on hand to meet the demands in that region. Net sales in the Other
Asia/Pacific region increased significantly to $24.0 million in the first half
of Fiscal 2003, from $14.2 million in the first half of fiscal 2002 primarily
due to increased sales to two customers in that region. Net sales to Thailand
increased significantly to $16.7 million in the first half of fiscal 2003 from
zero in the first half of fiscal 2002 due to several major projects in that
location.

Three customers accounted for 13%, 12%, and 10% of net sales for the second
quarter of fiscal 2003, respectively and three customers accounted for 16%, 13%
and 11% respectively, of our backlog as of September 30, 2002. For the first
half of fiscal 2003, one customer accounted for 14% of net sales, no other
customer accounted for more than 10% of our net sales for the period. For the
second quarter of fiscal 2002, three customers accounted for 15%, 10%, and 10%
of net sales for that quarter. For the first half of fiscal 2002 one customer
accounted for 11% of net sales.

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During the second quarter of fiscal 2003, we received $46.7 million in new
orders shippable over the next 12 months, compared to $61.1 million in the
second quarter of fiscal 2002, representing a decrease of 24%. During the
first half of Fiscal 2003 we received $100.0 million in new orders shippable
over the next 12 months, compared to $142.2 million in first half of Fiscal
2002, representing a decrease of 30%. The backlog at September 30, 2002 was
$86.3 million, compared to $94.1 million at March 31, 2002. We review our
backlog on an ongoing basis and make adjustments to it as required. Orders in
our 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 Profit

Gross profit as a percentage of net sales was 24.1%, before inventory valuation
benefit, in the second quarter of fiscal 2003, compared to a gross profit of
19.3%, before inventory valuation charges, in the second quarter of fiscal
2002. The inventory valuation benefit in the second quarter of fiscal 2003 of
$0.4 million was due to the sale of some of our excess inventories, which were
reserved as inventory valuation charges in the periods prior to fiscal 2003.
The inventory valuation charges of $39.3 million taken in the second quarter of
fiscal 2002 were to reserve for excess inventory. Excess inventory was
calculated by comparing backlog and our order forecast to the inventory
quantities on hand to determine the amount of excess inventory at that time.
The increase in gross margin in the second quarter of fiscal 2003, as compared
to the second quarter of fiscal 2002, was primarily due to lower manufacturing
expenses, which resulted in an increase in gross profit of approximately 7%.
This saving was partially offset by a negative pricing impact of approximately
2%. We expect gross profit, as a percentage of sales, to increase slightly in
the third quarter of fiscal 2003 as compared to the second quarter of fiscal
2003 due to reduced manufacturing costs as a result of the outsourcing program,
subject to meeting revenue expectations.

Gross profit as a percentage of net sales, before inventory valuation benefit,
was 21.4% in the first half of fiscal 2003 compared to a gross profit of 23.2%,
before inventory valuation charges, in the first half of fiscal 2002. The
inventory valuation benefit in the first half of fiscal 2003 of $1.5 million
was due to the sale of inventories, which were reserved in the periods prior to
fiscal 2003. The inventory valuation charges of $63.3 million taken in the
first half of fiscal 2002 were to reserve for excess inventory. For the first
half of fiscal 2003, as compared to the first half of fiscal 2002, lower
manufacturing spending had a positive impact on gross profit of approximately
5%, as a percentage of net sales. However, this savings was offset by the
decrease in net sales volume during the first half of fiscal 2003 compared the
first half of fiscal 2002. Pricing had a negative impact on gross profit of
approximately 2% for the first half of fiscal 2003 as compared to the first
half of fiscal 2002.

Research and Development

In the second quarter of fiscal 2003, research and development expenses
decreased to $3.5 million from $4.8 million in the second quarter of fiscal
2002. This decrease was primarily due to the consolidation and relocation of
our Seattle, Washington research and development operations to our San Jose,
California facility in June 2001. As a percentage of net sales, research and
development expenses decreased to 6.6% in the second quarter of fiscal 2003
from 7.8% in the second quarter of fiscal 2002.

21



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In the first half of fiscal 2003, research and development expenses decreased
to $7.1 million from $10.7 million in the first half of fiscal 2002 due to the
reasons mentioned above. As a percentage of net sales, research and
development expenses decreased to 6.9% in the first half of fiscal 2003,
compared to 7.8% in the first half of fiscal 2002.

Selling, General and Administrative

In the second quarter of fiscal 2003, selling, general and administrative
expenses decreased to $13.2 million from $15.0 million in the second quarter of
fiscal 2002. This decrease was a result of a reduction in workforce and other
cost reduction measures that were taken in fiscal 2002 and the first quarter
of fiscal 2003. As a percentage of net sales, selling, general and
administrative expenses increased to 25.1% in the second quarter of fiscal
2003, compared to 24.6% in second quarter of fiscal 2002, primarily because the
rate of the decrease in net sales exceeded the rate of the decrease of selling,
general and administrative expenses. We expect our selling, general and
administrative expenses will continue to decrease in the third quarter of
fiscal 2003, compared to the second quarter of fiscal 2003, as a result of
ongoing cost reduction measures.

Selling, general and administrative expenses in the first half of fiscal 2003
decreased to $27.8 million compared to $30.7 million in the first half of
fiscal 2002, primarily due to the reasons mentioned above. As a percentage of
net sales, selling, general and administrative expenses increased to 27.4% in
the first half of fiscal 2003, compared to 22.3% in the first half of fiscal
2002 primarily due to a decrease in net sales as explained above.

Restructuring Charges

During fiscal 2002, the industry experienced a severe downturn in the global
economy, which impacted our revenues significantly. In response to this
downturn, we announced several restructuring programs in fiscal 2002 to focus
on profit contribution by reducing expenses and improving operational
efficiency. These restructuring programs included consolidation of our U.S.
manufacturing operations by relocating our Seattle, Washington operations to
our San Jose, California facility, a worldwide reduction in workforce and a
consolidation of additional excess facilities. In the first half of fiscal
2003, we continued to see a slowdown in the economy and tightening in the
capital market. As we do not expect any significant recovery in the economy in
the near future, we took steps in the first quarter of fiscal 2003 to reduce
costs and to improve asset management. As part of this program, we entered into
an agreement to outsource our San Jose, California manufacturing operations to
Microelectronics Technology Inc. (MTI), our manufacturing partner in Taiwan.
We believe this transition of manufacturing operations will help us lower fixed
costs and improve gross margins. We anticipate savings of approximately $1.0 to
$1.5 million per quarter; however, other factors may adversely affect our
ability to achieve this level of savings (see factors that may affect financial
results). As a result of changes in our manufacturing operations associated
with the agreement with MTI, as well as other reductions in operating expenses
and facilities, we recorded restructuring charges of $14.2 million in the first
quarter of fiscal 2003. These restructuring charges consisted of $2.8 million
for employee severance and benefits, $8.2 million for vacated building lease
obligations, $0.6 million for legal costs, $3.3 million for transition costs
related to outsourcing of our manufacturing operations as mentioned above and
$1.8 million as a write off of manufacturing equipment. These restructuring
costs were reduced by $2.5 million, which represented the amount reimbursable
from MTI to us for the costs relating to the transfer of certain of our
manufacturing assets to MTI in accordance with our joint agreement.

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Under the terms of our agreement with Microelectronics Technology Inc. (MTI)
for transfer of our manufacturing operations to MTI in Taiwan, MTI is assuming
assembly, integration and testing of our Altium product family, as well as
assembly and testing of the Outdoor Unit portion of our XP4 product. The
agreement also provides for continuing cooperation between the companies for
future products now being developed. Under terms of the agreement, MTI is
acquiring certain of our manufacturing assets related to the production of the
Altium and XP4 product lines, and we are providing assistance in the transition
of the operation. In addition, we are consigning certain inventory associated
with these products to MTI and MTI is purchasing such inventory, as it is
utilized in manufacturing. We are retaining product design and R&D functions
for these products. We expect to complete the transition of affected
manufacturing operations and transfer all of these assets to MTI by the end of
calendar year 2002 and record a note receivable from MTI for the assets with a
total value of approximately $4.0 million, including interest, which MTI has
agreed to pay in equal quarterly installments over a period of three years. The
transaction includes a five-year supply agreement between the two companies.
As a result of the agreement, MTI will be our primary manufacturer of the
Outdoor Unit portion of Altium products and of the XP4 products. Sales of our
Altium and XP4 products for the first half of fiscal 2003, account for 61% of
total revenues for that period. During the second quarter of fiscal 2003, we
did not record any additional restructuring charges; however, we sold $1.4
million of equipment to MTI at no net gain or loss.

The severance and benefit charges of $2.8 million taken in the first quarter of
fiscal 2003 were for a reduction in workforce by approximately 153 employees,
with reductions affecting primarily the manufacturing area due to the
outsourcing of our San Jose, California manufacturing operations. As of June
30, 2002 all affected employees had been notified. As of September 30, 2002,
approximately 105 employees have been terminated. We anticipate that the
remaining affected employees will be terminated by December 31, 2002.

During fiscal 2002, we had recorded restructuring and receivable valuation
charges of $24.6 million. These charges consisted of $8.4 million for employee
severance and benefits, $11.2 million for facility-related and other costs
(including $8.6 million for vacated building lease obligations, $2.1 million
for the loss on impairment of equipment, $0.1 million for legal costs and $0.4
million for the write off of goodwill) and $5.0 million for uncollectible
accounts receivable. There were cumulative cash payments and non-cash expenses
against this provision of $7.7 million and $7.5 million, respectively,
resulting in an ending provision balance at March 31, 2002 of $9.4 million. The
cash payments related were primarily to workforce reduction payments and the
non-cash expenses were related primarily to equipment and receivable valuation
charges.

The vacated building lease obligations of $8.2 million and $8.6 million
recorded in first quarter of fiscal 2003 and in fiscal 2002, respectively,
included payments required under lease contracts, less estimated sublease
income after the property was abandoned. To determine the lease loss, certain
assumptions were made related to (1) the time period over which the building
will remain vacant, (2) sublease terms, (3) sublease rates and (4) an estimate
of brokerage fees. Should operating lease rental rates continue to decline in
the current market or should it take longer than expected to find a suitable
tenant to sublease the Seattle, WA, San Jose, CA and Coventry, United Kingdom
facilities, adjustments to the facilities lease loss reserve will be made in
future periods, if necessary, based upon the actual events and circumstances.
We have estimated that under certain circumstances the facilities lease losses
could increase by an additional $14.3 million.

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The following table summarizes the balance of the restructuring accrual as of
September 30, 2002 and the type and amount of restructuring costs utilized
during the first six months of fiscal 2003 (in millions):

|                                 |  |              |      |            |  |       |      |   |  |   |      |  
|-------------------------------- |  | ------------ | ---- | ---------- |  | ----- | ---- | - |  | - | ---- | -
|                                 |  | Severance    |      | Facilities |  |       |      |  
|                                 |  | and Benefits |      | and Other  |  | Total
|                                 |  |              |      |            |  |      
|Balance as of April 1, 2002      |  | $            | 2.3  |            |  | $     | 7.1  |   |  | $ | 9.4  |  
|Provision                        |  |              | 2.8  |            |  |       | 11.4 |   |  |   | 14.2 |  
|Cash payments                    |  |              | (2.2 | )          |  |       | (3.7 | ) |  |   | (5.9 | )
|Non-cash expenses                |  |              |     |            |  |       | (1.8 | ) |  |   | (1.8 | )
|Reimbursable transition costs    |  |              |     |            |  |       | 2.5  |   |  |   | 2.5  |  
|                                 |  |              |      |            |  |       |      |   |  |   |      |  
|Balance as of September 30, 2002 |  | $            | 2.9  |            |  | $     | 15.5 |   |  | $ | 18.4 |  
|                                 |  |              |      |            |  |       |      |   |  |   |      |  

The remaining accrual balance as of September 30, 2002 of $18.4 million is
expected to be paid out in cash. We expect $3.5 million of the remaining cash
restructuring charges to be paid out in fiscal 2003, additional severance and
benefit costs of approximately $0.3 million we anticipate will be paid out in
fiscal 2004, and vacated building lease obligations of $14.0 million and $0.6
million are expected to be paid out over the next nine years and sixteen years,
respectively.

We expect additional restructuring charges in the third quarter of fiscal 2003
of approximately $5.0 to $7.0 million primarily related to lease commitments
for vacated space and some fixed asset write offs.

Other Income (Expense)

Interest income was $0.5 million in the second quarter of fiscal 2003 compared
to $0.8 million in the second quarter of fiscal 2002. The decrease was
primarily due to lower interest rates in the second quarter of fiscal 2003 as
compared to the second quarter of fiscal 2002. Other expense was $0.4 million
in the second quarter of fiscal 2003 compared to $0.5 million in the second
quarter of fiscal 2002. The decrease was primarily due to a decrease in foreign
exchange losses.

During the second quarter of fiscal 2003, we recorded $0.2 million as an
impairment loss on our equity investments in marketable securities. During the
second quarter of fiscal 2002, we did not record any impairment losses. The
Company determined that the recorded value for these certain investments
exceeded their fair value and that these losses were other than temporary in
nature.

In the first half of fiscal 2003, interest income decreased to $0.9 million
from $1.3 million in the first half of fiscal 2002 primarily due to lower
interest rates in the first half of fiscal 2003 compared to the first half of
fiscal 2002. During the first half of fiscal 2003, we recorded $0.4 million as
impairment loss on our equity investments in marketable securities. During the
first half of fiscal 2002, we recorded $8.3 million as impairment loss. This
loss consisted of $4.1 million related to our minority investments in
non-marketable securities and a $4.2 million loss from investments in
marketable securities. We determined that the carrying value for these certain
investments exceeded their fair value and that these losses were other than
temporary in nature.

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Provision for Income Taxes

In the second quarter of fiscal 2003 and fiscal 2002, we provided for income
taxes to cover foreign subsidiaries that have generated taxable income, while
recording no provision or benefit from U.S. operations due to the net loss for
the period.

Liquidity And Capital Resources

Net cash used for operating activities in the first half of fiscal 2003 was
$0.6 million, compared to net cash used of $27.6 million in the first half of
fiscal 2002. The decrease in cash used for operating activities was primarily
due to a decrease in inventory of $9.1 million during the first half of fiscal
2003 as compared to an increase of $40.8 million in the first half of fiscal
2002. Other current assets increased by $3.6 million during the first half of
fiscal 2003 primarily due to an increase in miscellaneous receivables. Amounts
reimbursable from MTI for the costs related to the transfer of inventory, and
the sale of equipment, were recorded as miscellaneous receivables. Other
accrued liabilities and long term liabilities increased due to restructuring
costs accrued in the first quarter of fiscal 2003, partially offset by payments
made toward prior period restructuring costs.

Purchases of property and equipment were $2.8 million in the first half of
fiscal 2003 compared to $5.1 million in the first half of fiscal 2002. The
planned decrease in capital expenditures was made in response to the economic
slowdown.

Proceeds from the sale of our common stock, in the first half of fiscal 2003 of
$0.6 million were derived from the exercise of employee stock options and the
employee stock purchase plan.

For the first half of fiscal 2002 cash provided by financing activities was
mainly from proceeds from the sale of our common stock. On August 10, 2001, we
raised approximately $70.9 million from the sale of 7,927,851 shares of our
common stock in a an offering registered with the Securities and Exchange
Commission pursuant to our shelf Registration Statement on Form S-3 (File No.
333-50820), which became effective on December 7, 2000. The remaining proceeds
from the sale of common stock were derived from the exercise of employee stock
options and the employee stock purchase plan.

Although we have reasonably estimated supplier cancellation claims, settlement
of these claims may result in additional charges upon ultimate resolution of
these claims.

At September 30, 2002, our principal sources of liquidity consisted of $83.2
million in cash and cash equivalents and short-term investments. We expect to
maintain our cash and short-term investments at or near the current level
during the third quarter of fiscal 2003. Our cash requirements for fiscal 2003
are primarily to fund operations, research and development, capital
expenditures and restructuring activities.

We have entered into discussions with several lenders about establishing a
$20-25 million credit facility. The purpose of this credit facility would be
to provide additional liquidity to support our working capital requirements,
although utilization of this facility is not anticipated over the next 12
months.

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Commercial commitments

We have, as of September 30, 2002, $1.6 million in standby letters of credit
outstanding with several financial institutions to support bid and performance
bonds issued to various customers. In connection with the issuance of these
letters of credit, we have, as of September 30, 2002, restricted $0.8 million
of cash as collateral for these specific obligations. In addition, as of
September 30, 2002, we had outstanding forward foreign exchange contracts in
the aggregate amount of $19.8 million, for which restricted cash of $0.8
million was held as collateral by one of the financial institutions utilized to
hedge our foreign currency risk exposure.

Contractual obligations

The following table provides information related to our contractual
obligations:

Payments due (in thousands):

|                                   |  |                        |        |      |  |      |       |      |  |      |       |        |  |             |       |  |  |   |       |  |  |        |        |       |  |   |        | 
|---------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ------ |  | ----------- | ----- |  |  | - | ----- |  |  | ------ | ------ | ----- |  | - | ------ | 
|                                   |  | Years ending March 31,
|                                   |  |                       
|                                   |  |                        |        |      |  |      |       |      |  |      |       |        |  |             |       |  |  |   |       |  |  | 2008 & |        | Total
|                                   |  | 2003                   |        | 2004 |  | 2005 |       | 2006 |  | 2007 |       | beyond |  | Obligations
|                                   |  |                        |        |      |  |      |       |      |  |      |       |        |  |            
|Operating leases (a)               |  | $                      | 2,802  |      |  | $    | 5,451 |      |  | $    | 5,373 |        |  | $           | 5,494 |  |  | $ | 5,646 |  |  | $      | 24,379 |       |  | $ | 49,145 | 
|Unconditional purchase
obligations |  | $                      | 26,240 |      |  |      |      |      |  |      |      |        |  |             |      |  |  |   |      |  |  |        |       |       |  | $ | 26,240 | 



| | (a) |  | Contractual cash obligations include $14,637 of lease obligations
that have been included in the restructuring accrual.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------

Restructuring payments

We accrued $17.1 million in restructuring charges during fiscal 2002 and $12.4
million in the first quarter of fiscal 2003 for cash outlays. Of this total
accrual of $29.5 million, $11.1 million was paid as of September 30, 2002. The
remaining cash to be paid out, as of September 30, 2002, is $18.4 million. We
expect $3.5 million of the remaining accrued cash restructuring charges to be
paid out in fiscal 2003, additional severance and benefits costs of
approximately $0.3 million we anticipate will be paid out in fiscal 2004 and
vacated building lease obligations of $14.0 million and $0.6 million are
expected to be paid out over the next nine years and sixteen years,
respectively.

Depending on the growth of our business, we may require additional financing
which may not be available to us in the required time frame on commercially
reasonable terms, if at all. However, we believe that we have the financial
resources needed to meet our business requirements for at least the next 12
months.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk:

Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We do not use derivative financial
instruments in our investment portfolio. We invest in high-credit quality
issues and, by policy, limit the amount of credit exposure to any one
issuer and country. The portfolio includes only marketable securities with
active secondary or resale markets to ensure portfolio liquidity. The
portfolio is also diversified by

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tenor to ensure that funds are readily
available as needed to meet our liquidity needs. This
policy minimizes the requirement to sell securities in order to meet
liquidity needs and therefore the potential effect of changing market rates
on the value of securities sold.

The table below presents principal amounts and related weighted average
interest rates by year of maturity for our investment portfolio.

|                                            |  |                      |        |      |  |   |        |  
|------------------------------------------- |  | -------------------- | ------ | ---- |  | - | ------ | -
|                                            |  | Years Ended March 31
|                                            |  |                     
|(In thousands)                              |  | 2003                 |        | 2004
|                                            |  |                      |        |     
|Cash equivalents and
short-term investments |  | $                    | 53,387 |      |  | $ | 10,869 |  
|Weighted average
interest rate              |  |                      | 2.10   | %    |  |   | 2.13   | %

The primary objective of our short-term investment activities is to preserve
principal while at the same time maximize yields, without significantly
increasing risk. Our short-term investments are for fixed interest rates;
therefore, changes in interest rates will not generate a gain or loss on these
investments unless they are sold prior to maturity. Actual gains and losses
due to the sale of our investments prior to maturity have been immaterial. The
average days to maturity for investments held at the end of the second quarter
of fiscal 2003 was 87 days and had an average yield of 2.11% per annum.

As of September 30, 2002, unrealized losses on investments were insignificant.
The investments have been recorded at fair value on our balance sheet. During
the first half of fiscal 2003, we recorded a permanent impairment for certain
investments of $0.4 million.

Exchange Rate Risk:

We routinely use forward foreign exchange contracts to hedge our net exposures,
by currency, related to the monetary assets and liabilities of our operations
denominated in non-functional currencies. In addition, we enter into forward
foreign exchange contracts to establish with certainty the U.S. dollar amount
of anticipated transactions denominated in a foreign currency. The primary
business objective of this hedging program is to minimize the gains and losses
resulting from exchange rate changes. At September 30, 2002 we held forward
contracts in the aggregate amount of $19.8 million primarily in British pounds
and the euro. The amount of unrealized losses on these contracts at September
30, 2002 was immaterial.

Given our exposure to various transactions in foreign currencies, a change in
foreign exchange rates would result in exchange gains and losses. As these
exposures are generally covered by forward contracts, these exchange gains and
losses would be offset by exchange gains and losses on the contracts designated
as hedges against such exposures. We do not expect material exchange rate gains
and losses from unhedged foreign currency exposures.

We do not enter into foreign currency transactions for trading or speculative
purposes. We attempt to limit our exposure to credit risk by executing foreign
contracts with high-quality financial institutions. A discussion of our
accounting policies for derivative financial instruments is included in the
notes to the consolidated financial statements.

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Factors That May Affect Future Financial Results

The statements contained in this Quarterly Report on Form 10-Q concerning our
future products, expenses, revenues, gross margins, liquidity and cash needs,
as well as our plans and strategies, contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange
Act of 1934, as amended. All statements, trend analyses and other information
contained herein about the markets for our services and products and trends in
revenue, as well as other statements identified by the use of forward-looking
terminology, including anticipate, believe,
plan, estimate,
expect, goal and intend, or the negative of these terms or other
similar expressions, constitute forward-looking statements. These
forward-looking statements are based on current expectations, and we assume no
obligation to update this information. Numerous factors, including the risk
factors discussed below, 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 these factors set forth below and elsewhere in evaluating these
forward-looking statements.

Competition could harm our ability to maintain or improve our position in the
market and could decrease our revenues.

The wireless interconnection and access business is a specialized segment
of the wireless telecommunications industry and is extremely competitive. We
expect that competition will increase. Many of our competitors have more
extensive engineering, manufacturing and marketing capabilities and
significantly greater financial, technical, and personnel resources than us. In
addition, some of our competitors may have greater name recognition, broader
product lines, a larger installed base of products and longer-standing customer
relationships. Our existing and potential competitors include established and
emerging companies, such as Alcatel, Ceragon Networks, L.M. Ericsson, Microwave
Communications Division of Harris Corporation, NEC, Nera, Nokia, P-COM, Inc.,
Sagem AS, SIAE and Siemens AG, as well as several private companies currently
in the startup stage. Some of our competitors have product lines that compete
with ours, and are also original equipment manufacturers (OEMs) through which
we market and sell our products. Some of our largest customers could internally
develop the capability to manufacture products similar to those manufactured by
us and, as a result, their demand for our products and services may decrease.

In addition, we compete for acquisition and expansion opportunities with
many entities that have substantially greater resources than us. Furthermore,
any acquisition we complete may encourage certain of our competitors to enter
into additional business combinations, to accelerate product development, or to
engage in aggressive price reductions or other competitive practices, thereby
creating even more powerful or aggressive competitors.

We believe that our ability to compete successfully will depend on a
number of factors both within and outside our control, including price,
quality, availability, customer service and support, breadth of product line,
product performance and features, rapid time-to-market delivery capabilities,
reliability, timing of new product introductions by us, our customers and our
competitors, and the ability of our customers to obtain financing. We cannot
assure you that we

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will have the financial resources, technical expertise, or
marketing, sales, distribution, and customer service and support capabilities
to compete successfully.

If we fail to maintain our relationships with original equipment manufacturers,
our distribution channels could be harmed, which could cause our revenues to
decrease.

We have relationships with OEM base station suppliers and in selected
countries we also market our products through independent agents and
distributors. These relationships increase our ability to pursue the limited
number of major contract awards each year. In addition, these relationships are
intended to provide our customers with easier access to financing and to
integrated systems providers with a variety of equipment and service
capabilities. We may not be able to continue to maintain and develop these
relationships or, if these relationships are developed, they may not be
successful. Our inability to establish or maintain these distribution
relationships could restrict our ability to market our products and thereby
result in significant revenue shortfalls. If these revenue shortfalls occur,
our business, financial condition and results of operations may be harmed.

Our industry is volatile and subject to frequent changes, and we may not be
able to respond effectively or in a timely manner to these changes.

We participate in a highly volatile industry that is characterized by
vigorous competition for market share and rapid technological development.
These factors could result in aggressive pricing practices and growing
competition both from start-up companies and from well-capitalized
telecommunication systems providers, which, in turn, could decrease our
revenues. In response to changes in our industry and market conditions, we may
restructure our activities to more strategically realign our resources. This
includes assessing whether we should consider disposing of, or otherwise
exiting, businesses and reviewing the recoverability of our tangible and
intangible assets. Any decision to limit investment in our tangible and
intangible assets or to dispose of or otherwise exit, businesses may result in
the recording of accrued liabilities for special charges, such as workforce
reduction costs. In June 2002, we entered into an agreement with
Microelectronics Technology Inc. (MTI) to outsource our San Jose manufacturing
operations to MTI. As a result of changes associated with this agreement, as
well as other reductions in operating expenses and facilities, we reduced our
worldwide headcount by approximately 20% and recorded restructuring charges of
$14.2 million in the first quarter of fiscal 2003. Additionally, accounting
estimates with respect to the useful life and ultimate recoverability of our
carrying basis of assets could change as a result of such assessments and
decisions, and could harm our results of operations.

Because of the severe economic downturn in the world economy, and bankruptcies
and financial difficulties in the competitive local exchange carrier business,
the demand for our products and services may decrease.

Due to the rapid and increasingly severe economic downturn in the United
States, as well as the global tightening of the capital markets for
telecommunications and mobile cellular projects during calendar 2001 and the
first nine months of calendar 2002, our business opportunities have decreased
in the United States, Europe and other countries and geographic regions where
we conduct business. To the extent that the economic downturn and the global
tightening of the capital markets continue, the demand for our products and
services may decrease further in these countries and geographical regions. In
addition, the terrorist attack of

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September 11, 2001, the subsequent military
response by the United States the proposed U.S. military in Iraq, and future
events occurring in response to, or in connection with, the September 11,
attack and action in Iraq have negatively impacted, and may continue to
negatively impact, the economy in general. This could result in our customers
delaying or canceling the purchase of
our products, which would have a significant negative impact on our
revenues. Due in part to the economic downturn, we undertook a worldwide
reduction in work force of approximately 35% and closed our Seattle, Washington
facility in fiscal 2002. In first quarter of fiscal 2003 we entered into an
agreement with Microelectronics Technology Inc. (MTI) to outsource our
manufacturing operations to MTI. As a result of changes associated with this
agreement, we reduced our headcount by approximately 20% with the reduction
affecting various locations.

Consolidation within the telecommunications industry and among suppliers could
decrease our revenues.

The telecommunications industry has experienced significant consolidation
among its participants, and we expect this trend to continue. Some operators in
this industry have experienced financial difficulty and have filed, or may
file, for bankruptcy protection or be acquired by other operators. Other
operators may merge and one or more of our competitors may supply products to
such companies that have merged or will merge. This consolidation could result
in purchasing decision delays by the merged companies and decrease
opportunities for us to supply our products to the merged companies. We may
also see similar consolidation among suppliers, which may further decrease our
opportunity to market and sell our products.

Our average sales prices are declining, which is decreasing our gross profit
margins.

Currently, manufacturers of digital microwave telecommunications equipment
are experiencing, and are likely to continue to experience, on-going price
pressure. This price pressure has resulted in, and is expected to continue to
result in, downward pricing pressure on our products. As a result, we have
experienced, and expect to continue to experience, declining average sales
prices for our products. Our future profitability is dependent upon our ability
to improve manufacturing efficiencies, reduce costs of materials used in our
products, and to continue to introduce new products and product enhancements.
Our inability to respond to increased price competition will harm our business,
financial condition and results of operations. Since our customers frequently
negotiate supply arrangements far in advance of delivery dates, we must often
commit to price reductions for our products before we are aware of how, or if,
cost reductions can be obtained. As a result, current or future price reduction
commitments could, and any inability by us to respond to increased price
competition would, harm our business, financial condition and results of
operations.

Because a significant amount of our revenues comes from a few customers, the
termination of any of these customer relationships may harm our business.

Sales of our products are concentrated in a small number of customers. For
the quarter ended September 30, 2002, three customers accounted for 13%, 12%
and 10% of our net sales, respectively. In addition, three customers accounted
for 16%, 13%, and 11% of our backlog as of September 30, 2002, respectively.
For the first half of Fiscal 2003, one customer accounted for 14% of the net
sales. The worldwide telecommunications industry is dominated by a small
number of large corporations, and we expect that a significant portion of our
future product sales will continue to be concentrated in a limited number of
customers. In addition, our customers

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typically are not contractually obligated
to purchase any quantity of products in any particular period, and product
sales to major customers have varied widely from period to period. In addition,
as a result of the global tightening of the capital markets for the
telecommunications and mobile cellular projects in calendar year 2001 and the
first nine months of calendar 2002, the demand for our products and services
has decreased and may continue to decrease. The loss of
any existing customer, a significant reduction in the level of sales to
any existing customer, or our inability to gain additional customers could
result in further declines in our revenues. If these revenue declines occur,
our business, financial condition, and results of operations would be harmed.

Due to our significant volume of international sales, we are susceptible to a
number of political, economic and geographic risks that could harm our business
if they occur.

We are highly dependent on sales to customers outside the United States.
During fiscal 2000, 2001, and 2002, sales to international customers accounted
for 79%, 69% and 92% of our net sales, respectively. Sales to international
customers for the first half of fiscal 2003 accounted for 96% of our net sales.
A significant portion of these international sales is in lesser developed
countries and we expect that international sales will continue to account for
the majority of our net product sales for the foreseeable future. As a result,
the occurrence of any international, political, economic or geographic event
that adversely affects our business could result in significant revenue
shortfalls. These revenue shortfalls could cause our business, financial
condition and results of operations to be harmed. Some of the risks and
challenges of doing business internationally include:



| |  |  | unexpected changes in regulatory requirements;                                            
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | fluctuations in foreign currency exchange rates;                                          
|
| |  |  | imposition of tariffs and other barriers and restrictions;                                
|
| |  |  | management and operation of an enterprise spread over various countries;                  
|
| |  |  | burden of complying with a variety of foreign laws;                                       
|
| |  |  | general economic and geopolitical conditions, including
inflation and trade relationships;
|
| |  |  | war and acts of terrorism; and                                                            
|
| |  |  | currency exchange controls.                                                               

The inability of our subcontractors to perform, or our key suppliers to
manufacture and deliver our products, could cause our products to be produced
in an untimely or unsatisfactory manner.

Our manufacturing operations, which have been substantially subcontracted,
are highly dependent upon the delivery of materials by outside suppliers in a
timely manner. Also, we depend in part upon subcontractors to assemble major
components and subsystems used in our products in a timely and satisfactory
manner. In June 2002, we entered into a five year manufacturing and supply
agreement with Microelectronics Technology Inc. (MTI). Under the

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terms of our
agreement with MTI, MTI will assume assembly, integration and testing of our
Altium product family, as well as assembly and testing of the Outdoor Unit
(ODU) portion of the XP4 product. Sales of our Altium and XP4 products for the
second quarter of fiscal 2003, accounted for 68% of total revenues for that
quarter. We do not generally enter into long-term or volume purchase agreements
with any of our suppliers, and we cannot assure you that such materials,
components and subsystems will be available to us at such time and in
quantities we require, if at all. In addition, due to the rapid and increasingly severe
economic downturn, our suppliers have experienced and are continuing to
experience various financial difficulties, which may impact their ability to
supply the materials, components and subsystems that we require. Our inability
to develop alternative sources of supply quickly and on a cost-effective basis
could materially impair our ability to manufacture and deliver our products to
our customers in a timely manner. We cannot assure you that we will not
experience material supply problems or component or subsystem delays in the
future. Also, the subcontractors may not be able to maintain the quality of our
products, which might result in a large number of product returns by customers
and could harm our business, financial condition and results of operation.

Additional risks associated with the outsourcing of our manufacturing
operations to MTI in Taiwan could include, among other things: (i) political
risks due to political issues between Taiwan and The Peoples Republic of
China, (ii) risk of natural disasters in Taiwan, which is subject to
earthquakes and typhoons, (iii) economic and regulatory developments and (iv)
other events leading to the disruption of manufacturing operations.

The global tightening of capital markets for the telecommunications and mobile
cellular projects may result in inventory which we cannot sell or be required
to sell at distressed prices.

Many of our current and potential customers require significant capital
funding to finance their telecommunications and mobile cellular projects, which
include the purchase of our products and services. Due to the current
tightening of capital markets worldwide, available funding for these projects
has been and may continue to be unavailable to some customers and thereby slow
or halt the purchase of our products and services. This reduction in demand
has resulted in excess inventories on hand, and could result in additional
excess inventories in the future. In fiscal 2002, we recorded inventory
valuation charges of $102.7 million for excess inventory and supplier
commitments resulting from the reduction in our sales volume compared to the
prior fiscal year. In the first half of fiscal 2003, we recorded an inventory
valuation benefit of $1.5 million, which represented a benefit from the sale of
previously reserved inventories. However, if funding continues to be
unavailable to our customers or their customers, we may be forced to take
additional reserves for excess inventory. We cannot assure you that we will be
successful in matching our inventory purchases with anticipated shipment
volumes. As a result, we may fail to control the amount of inventory on hand
and may be forced to take unanticipated additional reserves. Such additional
inventory reserves, if required, would decrease our profits.

If we fail to manage our internal development or successfully integrate
acquired businesses, we may not effectively manage our growth and our business
may be harmed.

Future growth of our operations depends, in part, on our ability to
introduce new products and develop enhancements to existing products to meet
the emerging trends in our industry. We have pursued, and will continue to
pursue, growth opportunities through internal development, minority investments
and acquisitions of complementary businesses and technologies. We are unable to
predict whether and when any prospective acquisition candidate will become
available

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or the likelihood that any acquisition will be completed and
successfully integrated. Once integrated, acquired businesses may not achieve
comparable levels of revenues, profitability or productivity as our existing
business or otherwise perform as expected. Also, acquisitions may involve
difficulties in the retention of personnel, diversion of managements
attention, risks of our customers and the customers of acquired businesses
deferring purchase decisions as they evaluate the impact of the acquisition,
unexpected legal liabilities, and tax and accounting issues. Our failure to manage growth effectively could harm our business,
financial condition and results of operations.

The unpredictability of our quarter-to-quarter results may harm the trading
price of our common stock.

Our quarterly operating results may vary significantly in the future for a
variety of reasons, many of which are outside of our control, and any of which
may harm our business. These factors include:



| |  |  | volume and timing of product orders received and delivered during the
quarter;                           
| | - |  | ---------------------------------------------------------------------------------------------------------
|
| |  |  | our ability and the ability of our key suppliers to respond
to changes made by customers in their orders;
|
| |  |  | timing of new product introductions by us or our competitors;                                            
|
| |  |  | changes in the mix of products sold by us;                                                               
|
| |  |  | cost and availability of components and subsystems;                                                      
|
| |  |  | downward pricing pressure on our products;                                                               
|
| |  |  | adoption of new technologies and industry standards;                                                     
|
| |  |  | competitive factors, including pricing, availability and
demand for competing products;                  
|
| |  |  | ability of our customers to obtain financing to enable their
purchase of our products;                   
|
| |  |  | fluctuations in foreign currency exchange rates;                                                         
|
| |  |  | regulatory developments; and                                                                             
|
| |  |  | general economic conditions in the United States and internationally.                                    

Our quarterly 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. In addition, we may increase spending in
response to competition or to pursue new market opportunities. Accordingly, we
cannot assure you that we will be able to sustain profitability in the future,
particularly on a quarter-to-quarter basis.

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Because of intense competition for highly skilled personnel, we may not be able
to recruit and retain qualified personnel.

Due to the specialized nature of our business, our future performance is
highly dependent upon the continued services of our key engineering personnel
and executive officers, including Charles D. Kissner, who currently serves as
our Chairman of the Board and Chief Executive Officer. The loss of any key
personnel could harm our business. Our prospects depend upon our
ability to attract and retain qualified engineering, manufacturing,
marketing, sales and management personnel for our operations. Competition for
personnel is intense and we may not be successful in attracting or retaining
qualified personnel. The failure of any key employee to perform in his or her
current position or our inability to attract and retain qualified personnel
could harm our business and deter our ability to expand our business.

If we are unable to protect our intellectual property rights adequately, we may
be deprived of legal recourse against those who misappropriate our intellectual
property.

Our ability to compete will depend, in part, on our ability to obtain and
enforce intellectual property protection for our technology in the United
States and internationally. We currently rely upon a combination of trade
secrets, trademark, patents and contractual rights to protect our intellectual
property. In addition, we enter into confidentiality and invention assignment
agreements with our employees, and enter into non-disclosure agreements with
our suppliers and appropriate customers so as to limit access to and disclosure
of our proprietary information. We cannot assure you that any steps taken by us
will be adequate to deter misappropriation or impede independent third party
development of similar technologies. In the event that such intellectual
property arrangements are insufficient, our business, financial condition and
results of operations could be harmed. Moreover, we have significant operations
in the United Kingdom and New Zealand, and our business is highly dependent on
sales to customers outside the United States. We cannot assure you that the
protection provided to our intellectual property by the laws and courts of
foreign nations will be substantially similar to the remedies available under
United States law. Furthermore, we cannot assure you that third parties will
not assert infringement claims against us based on foreign intellectual
property rights and laws that are different from those established in the
United States.

Defending against intellectual property infringement claims could be expensive
and could disrupt our business.

The wireless telecommunications industry is characterized by vigorous
protection and pursuit of intellectual property rights, which has resulted in
often protracted and expensive litigation. We may in the future be notified
that we are infringing certain patent or other intellectual property rights of
others. Such litigation or claims could result in substantial costs and
diversion of resources. In the event of an adverse result of any such
litigation, we could be required to pay substantial damages, cease the
licensing of allegedly infringing technology or the sale of allegedly
infringing products and expend significant resources to develop non-infringing
technology or to obtain licenses for the infringing technology. We cannot
assure you that we would be successful in developing such non-infringing
technology or that any license for the infringing technology would be available
to us on commercially reasonable terms, if at all.

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If sufficient radio frequency spectrum is not allocated for use by our
products, and we fail to obtain regulatory approval for our products, our
ability to market our products may be restricted.

Radio communications are subject to regulation by United States and
foreign laws and international treaties. Generally, our products must conform
to a variety of United States and international requirements established to
avoid interference among users of transmission frequencies and to permit
interconnection of telecommunications equipment. Any delays in compliance with
respect to our future products could delay the introduction of such
productions.

In addition, both in the United States and internationally, we are
affected by the allocation and auction of the radio frequency spectrum by
governmental authorities. Such governmental authorities may not allocate
sufficient radio frequency spectrum for use by our products or we may not be
successful in obtaining regulatory approval for our products from these
authorities. Historically, in many developed countries, the unavailability of
frequency spectrum has inhibited the growth of wireless telecommunications
networks. In addition, to operate in a jurisdiction, we must obtain regulatory
approval for our products. Each jurisdiction in which we market our products
has its own regulations governing radio communications. Products that support
emerging wireless telecommunications services can be marketed in a jurisdiction
only if permitted by suitable frequency allocations, auctions and regulations,
and the process of establishing new regulations is complex and lengthy. If we
are unable to obtain sufficient allocation of radio frequency spectrum by the
appropriate governmental authority or obtain the proper regulatory approval for
our products, our business, financial condition and results of operations may
be harmed.

If we fail to develop products that meet our customers technical
specifications on a timely basis, our business may be harmed.

The existing and potential market for our products and technology are
characterized by ever-increasing performance requirements, evolving industry
standards, rapid technological changes and product obsolescence. These
characteristics lead to frequent new products and technology introductions and
enhancements, shorter product life cycles and changes in customer demands. We
cannot assure you that we will be successful in developing or marketing any of
our products currently being developed. Moreover, we cannot assure you that we
will not experience difficulties that could further delay or prevent the
successful development, introduction and sale of future products, or that these
products will adequately meet the requirements of the marketplace and achieve
market acceptance.

We may not successfully adapt to regulatory changes in our industry, which
could significantly impact the operation of our business.

The regulatory environment in which we operate is subject to change.
Regulatory changes, which are affected by political, economic and technical
factors, could significantly impact our operations by restricting development
efforts by us and our customers, making current products and systems in the
industry obsolete or increasing the opportunity for additional competition. Any
such regulatory changes could harm our business, financial condition and
results of operations. It may be necessary or advisable in the future to modify
our products to operate in compliance with such regulations. Such modifications
could be extremely expensive and time-consuming to complete.

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Our stock price may be volatile, which may lead to losses by investors.

Announcements of developments related to our business, announcements by
competitors, quarterly fluctuations in our financial results and general
conditions in the telecommunications industry in which we compete, or the
economies of the countries in which we do business and other factors could
cause the price of our common stock to fluctuate, perhaps substantially. In
addition, in recent years the stock market has experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. These factors and fluctuations could lower the market price
of our common stock.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a description of our market risks, see page 26, Item 2  Managements
Discussion and Analysis of Financial Condition and Results of Operations -
Quantitative and Qualitative Disclosures About Market Risk.




ITEM 4. CONTROLS AND PROCEDURES

The Chief Executive Officer and Chief Financial Officer have conducted an
evaluation of the effectiveness of disclosure controls and procedures pursuant
to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the disclosure controls and
procedures are effective in ensuring that all material information required to
be filed in this quarterly report has been made known to them in a timely
fashion. There have been no significant changes in internal controls, or in
other factors that could significantly affect internal controls, subsequent to
the date the Chief Executive Officer or Chief Financial Officer completed their
evaluation.

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PART II  OTHER INFORMATION




ITEM 1  LEGAL PROCEEDINGS



| |  |  | There are no material existing or pending legal proceedings against us.
We are, however, subject to legal proceedings and claims that arise in
the normal course of our business.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------
|   
|    |  | For a list of exhibits to this Quarterly Report on Form 10-Q, see the
exhibit index located on page 44.
|   
|(b) |  | Filing on August 19, 2002 (Regulation FD Disclosure  Section 906
Certification)                       

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SIGNATURE

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

|                        |  |                        |  |                                                                                                                                       
|----------------------- |  | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|                        |  | STRATEX NETWORKS, INC.
|                       
|Date: November 14, 2002 |  | By                     |  | /s/ Carl A. Thomsen                                                                                                                   
|                        |  |                        |  |                                                                                                                                       
|                        |  |                        |  | Carl A. Thomsen
Senior Vice President, Chief Financial Officer and Secretary
(Duly Authorized Officer and Principal Financial Officer)

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STRATEX NETWORKS, INC.




CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002


I, Charles D. Kissner, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Stratex Networks,
Inc. (the registrant);                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
required evaluation as of the Evaluation Date;                                                                                                               



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |  |  |    |  |                                                        
|----------------------- |  |  |  | -- |  | -------------------------------------------------------
|Date: November 14, 2002 |  |  |  | By |  | /s/ Charles D. Kissner                                 
|                        |  |  |  |    |  |                                                        
|                        |  |  |  |    |  | Charles D. Kissner
Chairman and Chief Executive Officer

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STRATEX NETWORKS, INC.
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Carl A. Thomsen, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Stratex Networks,
Inc. (the registrant);                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
required evaluation as of the Evaluation Date;                                                                                                               



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |     |  |                                        
|----------------------- |  | --- |  | ---------------------------------------
|Date: November 14, 2002 |  | By: |  | /s/ Carl A. Thomsen                    
|                        |  |     |  |                                        
|                        |  |     |  | Carl A. Thomsen
Chief Financial Officer

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EXHIBIT INDEX

|               |  |                                                                                                                                                                                                                                                                                                                                                             
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                 
|               |  |                                                                                                                                                                                                                                                                                                                                                             
|2.1            |  | Certificate of Ownership and Merger merging DMC Stratex
Networks, Inc. into Digital Microwave Corporation
(incorporated by reference to Exhibit 2.1 to the companys
Quarterly Report of Form 10-Q filed on August 11, 2000)                                                                                                                                
|3.1            |  | Certificate of Amendment to the Restated Certificate of
Incorporation, amended as of August 8, 2000 (incorporated by
reference to Exhibit 3.1 to the companys Quarterly Report on
Form 10-Q filed on August 11, 2000)                                                                                                                                      
|3.2            |  | Certificate of Amendment to the Restated Certificate of
Incorporation, amended as of September 9, 2002.                                                                                                                                                                                                                                                     
|3.3            |  | Amended and Restated Bylaws, dated as of October 17, 2001
(incorporated by reference to Exhibit 3.2 to the companys
Quarterly Report on Form 10-Q filed on November 13, 2001)                                                                                                                                                                              
|4.1            |  | Reference is made to Exhibits 3.1, 3.2 and 3.3.                                                                                                                                                                                                                                                                                                             
|4.2            |  | Specimen certificate for shares of Stratex Networks, Inc. common stock                                                                                                                                                                                                                                                                                      
|10.1*          |  | Manufacture and Supply Agreement, dated as of June 30, 2002,
by and between DMC Stratex Networks, Inc. and Microelectronics
Technology, Inc. (incorporated by reference to Exhibit 10.1 to
the companys Quarterly Report on Form 10-Q filed on August
14, 2002, in addition, confidential treatment of certain
portions of this exhibit has been requested)
|99.1           |  | Certification of Charles D. Kissner, Chief Executive Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                    
|99.2           |  | Certification of Carl A. Thomsen, Chief Financial Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                       



---

|* |  | Confidential treatment requested and the redacted material has been separately filed
with the Securities and Exchange Commission.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------

44