<PAGE>


                          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     Commission file number:  0-15895
June 30, 1998 
-------------


                           DIGITAL MICROWAVE CORPORATION
                           -----------------------------
                (Exact name of registrant specified in its charter)
                                          
           Delaware                                       77-0016028      
-------------------------------                           ----------
 (State or other jurisdiction                            (IRS employer
of incorporation or organization)                     identification number)

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

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


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

               Yes    X            No  
                     ---              ---

The number of outstanding shares of  the Registrant's common stock, par value
$.01 per share, was 46,689,392 on July 31, 1998.


<PAGE>

                                       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            6-10

     Item 2 - Management's Discussion and Analysis of  
              Financial Condition and Results of Operations               11-16

PART II - OTHER INFORMATION
     
     Item 5 - Other Information                                           18
     Item 6 - Exhibits and Reports on Form 8-K                            18-19


SIGNATURE                                                                 20

                                       2


<PAGE>

                           PART I - FINANCIAL INFORMATION
                           ITEM I - FINANCIAL STATEMENTS

                           DIGITAL MICROWAVE CORPORATION
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                      (In thousands, except per share amounts)
                                          
<TABLE>
<CAPTION>

                                                    6/30/98        03/31/98
                                                    -------        --------
                                                  (Unaudited)
<S>                                               <C>              <C>
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                       $14,764      $  25,130
     Short-term investments                            6,637         15,220
     Accounts receivable, net                         60,303         74,897
     Inventories                                      65,981         60,981
     Deferred tax asset                                6,321          6,685
     Other current assets                              8,819          8,896
                                                     -------       --------
          Total current assets                       162,825        191,809

PROPERTY AND EQUIPMENT, NET                           32,906         32,528
OTHER ASSETS                                          15,352         16,063
                                                     -------       --------
          Total assets                             $ 211,083       $240,400
                                                   ---------       --------
                                                   ---------       --------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Current maturities of capital
      lease obligations                           $      128     $      238
     Accounts payable                                 27,002         33,793
     Income taxes payable                                736          1,298
     Accrued liabilities                              20,542         26,373
                                                      ------         ------
          Total current liabilities                   48,408         61,702

LONG-TERM LIABILITIES:
     Capital lease obligations, net of
      current maturities                                 185            204
                                                      ------         ------
          Total liabilities                           48,593         61,906

STOCKHOLDERS' EQUITY                                                       
     Common Stock and paid-in capital                159,346        159,173
     Accumulated other comprehensive income           (3,829)        (1,615)    
     Retained earnings                                 6,973         20,936
                                                     -------        -------
          Total stockholders' equity                 162,490        178,494
     
     Total liabilities and stockholders' equity    $ 211,083       $240,400
                                                     -------        -------
                                                     -------        -------

See accompanying Notes to Condensed Consolidated Financial Statements.

</TABLE>

                                       3

<PAGE>


                           DIGITAL MICROWAVE CORPORATION
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share amounts)
                                    (Unaudited)
                                                                           
<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                              June 30, 
                                                         ------------------
                                                        1998           1997
                                                        ----           ----
<S>                                                     <C>            <C>
Net sales                                            $53,003       $ 64,558
Cost of sales                                         41,660         41,346
                                                      ------         ------
Gross profit                                          11,343         23,212
                                                      ------         ------
Operating expenses:
     Research and development                          4,975          4,299
     Selling, general and administrative              13,996         12,907
     Restructuring costs                               7,212              -
                                                      ------         ------
     Total operating expenses                         26,183         17,206
                                                      ------         ------
Operating (loss) income                              (14,840)         6,006

Other income (expense):
Interest income                                          424            629
Interest expense                                         (27)          (203)
Other expense, net                                       508             60
                                                         ---           ----
Income (loss) before provision for income taxes      (13,935)         6,492

Provision for income taxes                                27            682
                                                       -----            ---
Net income (loss)                                 $  (13,962)      $  5,810
                                                  -----------      --------
                                                  -----------      --------
Basic earnings (loss) per share                   $    (0.30)       $  0.14
                                                  -----------      --------
                                                  -----------      --------
Diluted earnings (loss) per share                 $   (0.30)       $  0.13
                                                  ----------       --------
                                                  ----------       --------
Basic weighted average shares outstanding             46,682         42,763

Dilutive stock options                                     -          1,992
                                                   ---------        -------
Diluted weighted average shares outstanding          46,682          44,755
                                                   ---------        -------
                                                   ---------        -------
</TABLE>


See accompanying Notes to Condensed Consolidated Financial Statements.

                                       4


<PAGE>

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

                                                             Three Months Ended
                                                                  June 30,
                                                                  --------
 
<S>                                                           <C>            <C>
                                                              1998           1997
                                                              ----           ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                         $ (13,962)       $ 5,810
     Adjustments to reconcile net income (loss)
      to net cash used in operating activities:
     
     Depreciation and amortization                            3,289          2,203
     Provision for valuation reserves                         4,909            883
     Provision for warranty reserves                          1,975            606
     Changes in assets and liabilities, net of
      effect of acquisition:
          Decrease (increase) in accounts receivable         12,617         (2,921)
          Increase in inventories                            (9,404)        (5,323)
          Decrease (increase) in deferred tax asset             238           (777)  
          Increase in other current assets                   (1,310)           (80)
          Increase (decrease) in accounts payable            (6,297)           848
          Increase (decrease) in income tax payable            (565)           816  
          Decrease in other accrued liabilities              (7,264)       (10,131)
                                                            -------        -------
NET CASH USED IN OPERATING ACTIVITIES                       (15,774)        (8,066)
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of available-for-sale securities              (6,132)          (991)
     Proceeds from available-for-sale securities             14,625          3,823
     Acquisition of businesses, net of cash acquired              -        (11,883)
     Investment in Granger Associates Ltd.                        -         (4,000)
     Proceeds from the sale of  investments                     461              -
     Purchases of property and equipment                     (5,883)        (3,523)
                                                             ------        -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES           3,071        (16,574)
CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayments to bank                                           -         (6,849)
     Payment of capital lease obligations                      (130)          (247)
     Payment of assumed acquisition debt                          -         (3,286)
     Sale of common stock                                       171         26,009
                                                            -------         ------
NET CASH PROVIDED BY FINANCING ACTIVITIES                        41         15,627
Effect of exchange rate changes on cash                       2,296            364
                                                            -------         ------
NET DECREASE IN CASH AND CASH EQUIVALENTS                   (10,366)        (8,649)
Cash and cash equivalents at beginning of year               25,130         39,908
                                                            -------         ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                  $14,764        $31,259
                                                            -------        -------
                                                            -------        -------
SUPPLEMENTAL DATA
     Interest paid                                          $    27        $   204
     Income taxes paid                                      $   565        $   464
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.

                                       5

<PAGE>


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

BASIS OF PRESENTATION

     The condensed consolidated financial statements include the accounts of
     Digital Microwave Corporation and its wholly owned subsidiaries. 
     Intercompany accounts and transactions have been eliminated.
     
     While the financial information furnished is unaudited, the financial
     statements included in this report reflect all adjustments (consisting only
     of normal recurring adjustments) which the Company considers necessary for
     a fair presentation of the results of operations for the interim periods
     covered and of the financial condition of the Company at the date of the
     interim balance sheet.  The results for interim periods are not necessarily
     indicative of the results for the entire year.  The condensed consolidated
     financial statements should be read in connection with the Digital
     Microwave Corporation financial statements included in the Company's annual
     report and Form 10-K for the Fiscal year ended March 31, 1998.
      
CASH AND CASH EQUIVALENTS

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

INVENTORIES

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

<TABLE>
<CAPTION>

                                               (In thousands)
                                         June 30, 1998      March 31, 1998
                                         -------------      --------------
                                         (Unaudited)
     <S>                                 <C>                <C>
     Raw materials                          $  27,292          $  23,524
     Work in process                           15,761             18,545
     Finished goods                            22,928             18,912
                                            ---------          ---------
                                            $  65,981          $  60,981
                                            ---------          ---------
                                            ---------          ---------
</TABLE>

OTHER ASSETS

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

                                        6

<PAGE>


RESTRUCTURING COSTS

     The restructuring costs of $7.2 million consist of a $5.8 million write-off
     related to the discontinuance of internal information technology systems
     projects and a write-off of $1.4 million related to severance and other
     related costs associated with a reduction in the Company's workforce.
          
CURRENCY TRANSLATION

     The functional currency of the Company's subsidiaries located in the United
     Kingdom and Latin America 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 their functional currency.  Assets
     and liabilities of these subsidiaries are translated at the exchange rates
     in effect at the balance sheet date, and income and expense accounts are
     translated at the average exchange rates during the year.  The resulting
     translation adjustments are recorded directly to a separate component of
     stockholders' equity.

FINANCIAL INSTRUMENTS

     The Company enters into forward foreign exchange contracts to hedge some of
     its firm committed backlog and certain assets and liabilities denominated
     in foreign currencies.  At June 30, 1998, the Company had forward foreign
     exchange contracts to exchange various foreign currencies for U.S. dollars
     in the gross amount of $17.6 million.  Market value gains and losses on
     forward foreign exchange contracts are recognized as offsets to the
     exchange gains or losses on the hedged transactions.

NET INCOME PER SHARE

     In February 1997, the Financial Accounting Standards Board (the "FASB")
     issued Statement on Financial Accounting Standards No. 128 ("SFAS 128"),
     "Earnings per Share," which became effective on December 15, 1997.   As a
     result, the Company's reported earnings per share, after adjustment for the
     November 1997 stock split, were restated for all prior periods presented. 

     Under SFAS 128, basic earnings per share are computed by dividing net
     income by the weighted average number of common shares outstanding during
     the period.   Diluted earnings per share are computed by dividing net
     

                                        7

<PAGE>


     income by the weighted average number of common shares and dilutive stock
     options outstanding during the period. Net loss per share is computed using
     only the weighted average number of common shares outstanding during the
     period, as the inclusion of common equivalent shares would be 
     anti-dilutive.

MERGERS AND ACQUISITIONS 
          
In May 1997, the Company acquired all of the outstanding shares of Granger,
Inc., a U.S. manufacturer of wireless products and provider of installation
services. The purchase price of Granger, Inc., including the assumption of debt
and the purchase of certain product rights, totaled $14.7 million.  A portion of
the purchase price was allocated to the net assets acquired based on their
estimated fair values.  The fair value of the tangible assets acquired and
liabilities assumed was $5.8 million and $1.9 million, respectively. The
purchase price in excess of the net assets acquired of $10.8 million is recorded
as goodwill on the accompanying balance sheet and is being amortized over 10
years. The acquisition has been accounted for using the purchase method of
accounting.  Accordingly, the accompanying financial statements include the
results of Granger, Inc. since the date of acquisition.  No pro forma financial
statements for the periods presented have been provided as the pro forma amounts
are not  materially different from the amounts as presented. 

In addition, concurrent with the acquisition of Granger, Inc., the Company made
a minority investment in Granger Associates, Ltd., a privately held company
based in the United Kingdom, for $4.0 million. This minority investment has been
accounted for using the cost method of accounting.  In April 1998, the Company
sold approximately 10% of this investment for $460,000, net of selling costs.  

In March 1998, the Company's stockholders approved the issuance of Common Stock
of the Company pursuant to an agreement to merge with MAS Technology Limited
("MAS Technology"), a New Zealand company, which designs, manufactures, markets
and supports digital microwave radio links for the worldwide telecommunications
market.  Under the terms of the agreement, the Company exchanged 1.2 shares of
its Common Stock for each outstanding share of MAS Technology stock and stock
options. The Company issued approximately 8.4 million shares to MAS Technology
share and option holders. The combination qualified as a tax-free reorganization
accounted for as a pooling-of-interests transaction. Accordingly, the historical
financial statements of the Company have been restated to reflect the results of
MAS Technology for all periods presented.

The following table shows the reconciliation of the historical results of the
Company to the results presented in the accompanying Statements of Operations
for the quarter ended June 30, 1997.

                                       8


<PAGE>
<TABLE>
<CAPTION>

<S>            <C>                           <C>
Revenue:       Digital Microwave             $56,733
               MAS Technology                  9,564
               Intercompany sales            (1,739)
                                             -------
                  Total                      $64,558
                                              ------

Net Income:    Digital Microwave              $5,785
               MAS Technology                    (4)
               Intercompany profit
                eliminations                      29
                                              ------
                  Total                       $5,810
                                               -----
</TABLE>

LITIGATION AND CONTINGENCIES
          
     The Company is subject to legal proceedings and claims that arise in
     the normal course of its business.  In the opinion of management,
     these proceedings will not have a material adverse effect on the
     financial position and results of operations of the Company.
          
CONCENTRATION OF CREDIT RISK
          
     Trade receivables concentrated with certain customers primarily
     in the telecommunications industry and in certain geographic
     locations potentially subject the Company to concentration of
     credit risk.  In addition to sales in Western Europe and North
     America, the Company actively markets and sells products in Asia,
     Eastern Europe, South America, the Middle East and Africa.  The
     Company performs on-going credit evaluations of its customers'
     financial conditions and generally requires no collateral,
     although sales to Asia, Eastern Europe, South America, the Middle
     East and Africa are primarily paid through letters of credit.
          
     The Company will continue to be affected, for the foreseeable future,
     by the unstable economies in Asia.  Further, it is not possible to
     determine the future effect a continuation of the economic crisis may
     have on the Company's liquidity and earnings.  Related effects will be
     reported in the financial statements as they become known and
     estimable.
          
CREDIT ARRANGEMENTS
          
     During June and July 1998, the Company amended its agreement with
     a major U.S. bank to increase the unsecured credit facility from
     $20 million to $25 million, extend the expiration date of the
     agreement to September 30, 1998, and to change certain other
     terms of the agreement.
          
SUBSEQUENT EVENT
     
     On July 22, 1998, the Company signed a definitive agreement to
     merge with Innova Corporation, a Washington corporation which
     designs, manufactures, markets and supports millimeter wave
     radios for use as low-to-medium

                                       9

<PAGE>


     capacity wireless communication links in developed and developing
     telecommunications markets. Subject to the conditions described below,
     under the terms of the agreement, the Company will exchange 1.05 shares
     of its Common Stock for each outstanding share of common stock of Innova.
     In addition, the Company will exchange stock options and warrants
     using the same ratio. The Company expects to issue approximately
     18.5 million shares to Innova shareholders, option and warrant
     holders.  Based upon the capitalization of Digital Microwave and
     Innova as of July 22, 1998, Innova shareholders will own
     approximately 27% of the Company's outstanding Common Stock
     following consummation of the proposed merger, assuming no
     exercise of outstanding options to acquire the Common Stock of
     Digital Microwave or the common stock of Innova.  The merger is
     intended to qualify as a tax-free reorganization and will be
     accounted for as a pooling-of-interests transaction.   This
     transaction, which has been approved by the  Board of Directors
     of each company, is expected to close within approximately 90
     days subject to regulatory review, approval by each company's
     stockholders and other customary closing conditions.  There can
     be no assurance, however, that the proposed merger will be
     consummated by the Company.
   
   
COMPREHENSIVE INCOME
          
     In June 1997, the FASB issued Statement on Financial Accounting
     Standards No. 130 ("SFAS 130"),  "Reporting Comprehensive
     Income," which establishes standards for reporting and display of
     comprehensive income and its components (revenue, expenses, gains
     and losses) in a full set of general-purpose financial
     statements.  The following table reconciles comprehensive income
     under the provisions of SFAS 130 for the three months ended June
     30, 1998 and 1997.

<TABLE>
<CAPTION>

                                       For the Three Months Ended
                                               June 30,
                                               --------
                                           1998         1997
                                           ----         ----
<S>                               <C>               <C>
     Net income (loss)                 $ (13,962)     $ 5,810
     Other comprehensive loss,
      net of tax
        Unrealized currency loss          (2,213)        (224)
        Unrealized holding gain on
         short investments                      -           74
                                         --------       ------
     Comprehensive income (loss)       $ (16,175)      $ 5,660
                                         --------       ------
                                         --------       ------
</TABLE>

NEW ACCOUNTING PRONOUNCEMENTS
          
     In June 1998, the FASB issued Statement on Financial Accounting
     Standards No. 133 ("SFAS 133") "Accounting for Derivative and
     Similar Financial Instruments and for Hedging Activities" which
     requires companies to value derivative financial instruments,
     including those used for hedging 

                                       10

<PAGE>

     foreign currency exposures, at current market value with the impact of any
     changes in market value being charged against earnings.  The Company must
     adopt SFAS 133 in the first quarter of the fiscal year ended March 31,
     2000.  The Company has not determined the effect that SFAS 133 will have on
     its financial statements.
               
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND
         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:

<TABLE>
<CAPTION>

                                                    Three Months Ended
                                                         June 30,
                                                         --------

<S>                                                  <C>          <C>
                                                     1998         1997
                                                     ----         ----
Net sales                                            100.0%       100.0%
Cost of sales                                         78.6         64.0
                                                      ----         ----
Gross profit                                          21.4         36.0

Research & development                                 9.4          6.7
Selling, general & administrative                     26.4         20.0
Restructuring costs                                   13.6            -
                                                      ----         ----

Operating income (loss)                              (28.0)         9.3

Other income, net                                      1.7          0.8
                                                       ---          ---

Income (loss) before provision for income taxes      (26.3)        10.1

Provision for income taxes                               -          1.1
                                                      ----          ---

      Net income                                     (26.3)%        9.0%
                                                     -------        ----
                                                     -------        ----
</TABLE>

Net sales for the first quarter of Fiscal 1999 were $53.0 million, compared to
$64.6 million reported in the same quarter of Fiscal 1998.  The decrease in net
sales was primarily due to a slowdown in demand for the Company's products in
Asia, which began with the downturn in Asian economies.  However, such decrease
in the Company's net sales has been accelerated by the heightened pricing and
competitive pressures of the telecommunications market in other regions of the
world.   As a result, revenues from Asia and Europe in the first quarter of
Fiscal 1999 significantly decreased from the comparable period of the prior
year.

                                       11

<PAGE>

During the first quarter of Fiscal 1999, the Company received $48.5 million in
new orders shippable over the next twelve months, compared to $83.2 million in
the first quarter of Fiscal 1998.  Twelve month backlog at June 30, 1998 was
$71.2 million, compared to $83.2 million at March 31, 1998.

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

Gross profit as a percentage of net sales for the first quarter of Fiscal 1999
was 21.4% compared to 36.0% in the same quarter of Fiscal 1998.  The decline in
gross profit was primarily the result of the under-utilization of the Company's
manufacturing capacity due to the Company's lower sales volume, lower average
selling prices and higher provision for inventory reserves.  The Company reduced
its workforce at the end of the first quarter of Fiscal 1999 as it expects sales
volumes to remain lower for at least the next six months and  competitive
pricing pressure on the Company's products to continue.  In addition, the
Company expects continued decreased sales in Asia for the foreseeable future due
to the continuing economic and political instability there. SEE "FACTORS THAT
MAY AFFECT FUTURE FINANCIAL RESULTS."

Research and development expenses increased by $0.7 million, from $4.3 
million in the first quarter of Fiscal 1998 to $5.0 million in the same 
period in Fiscal 1999.  As a percentage of net sales, research and 
development expenses were 9.4% in the first quarter of Fiscal 1999 compared 
to 6.7% in the first quarter of Fiscal 1998.  Such increase was due primarily 
to the 17.9% decrease in net sales over the comparable period.  The increase 
in research and development expenses in absolute dollars was primarily 
attributable to the Company's development of its new Altium-TM- high-capacity 
wireless product platform. The Company believes research and development 
expenses will be lower in the second quarter of Fiscal 1999 due to the 
Company's workforce reduction as described above. However, the Company 
remains committed  to continuing its new product rollouts in order to 
maintain and enhance its competitive position.

Selling, general and administrative expenses increased to $14.0 million in the
first quarter of Fiscal 1999 from $12.9 million in the first quarter of Fiscal
1998.  As a percentage of net sales, selling, general and administrative
expenses were 26.4% in the first quarter of Fiscal 1999 compared to 20.0% in the
comparable quarter of Fiscal 1998.  The increase in selling, general and
administrative expenses in absolute dollars was mostly attributable to an
increased provision for bad debts related to uncollectable accounts receivable 

The restructuring costs of $7.2 million in the first quarter of Fiscal 1999
consist of a write off of $5.8 million related to the discontinuance of several
internal information technology ("IT") systems projects and $1.4 million for
severance and related costs associated with a reduction in the Company's
workforce.  At June 30, 1998, the remaining restructuring reserve was comprised
primarily of $1.2 million for the discontinuance of IT systems projects and $1.4
million for severance and related costs.  In the fourth quarter of Fiscal 1998,
the Company 

                                       12

<PAGE>


recorded merger and restructuring expenses of $14.6 million, which primarily 
included payments to the Company's investment bankers of $3.4 million for 
brokering the Company's merger with MAS Technology, legal and accounting fees 
of $0.9 million, asset valuation reserves for inventory, receivables and 
warranty totaling $7.1 million, as well as various other costs of $3.2 
million, which included office closures and contract terminations.  In 
addition, as of June 30, 1998, the remaining restructuring reserve related to 
the Company's merger with MAS Technology was comprised principally of  $6.2 
million for asset valuation reserves, and $0.3 million for other 
restructuring costs.

Interest  income decreased to $0.4 million in the first quarter of Fiscal 1999
compared to $0.6 million in the similar quarter of Fiscal 1998.  This decrease
was due primarily to lower average cash balances.  The decrease in interest
expense in the first quarter of Fiscal 1999  was primarily attributable to lower
debt balances as compared to the same quarter of the prior year.   Other income
increased by $0.4 million in the first quarter of Fiscal 1999 due primarily to
foreign exchange gains.

The Company did not record a tax benefit in the first quarter of Fiscal 1999 as
it cannot be certain of profitability in Fiscal 1999.  In the first quarter of
Fiscal 1998, the Company recorded a provision for income taxes at an effective
rate of 11%.  This was less than the statutory rate primarily due to the
utilization of net operating loss carry forwards and the deferred tax asset
originated from warranty and asset valuation reserves. 

FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS

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

Sales of the Company's products are concentrated in a small number of customers.
For the first quarter of Fiscal 1999, the top three customers accounted for 17%
of the net sales.  As of June 30, 1998, three of the Company's customers
accounted for 23% of the backlog.  The worldwide telecommunications industry is
dominated by a small number of large corporations, and the Company expects that
a significant portion of its future product sales will continue to be
concentrated in a limited number of customers.  The loss of any existing
customer, a significant reduction in the level of sales to any existing
customer, or the failure of the Company to gain additional customers could have
a material adverse effect on the Company's business, financial condition and
results of operations.  In addition, a substantial portion of shipments may
occur near the end of each quarter.  Accordingly, the Company's results are

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<PAGE>

difficult to predict and delays in product delivery or closing of a sale can
cause revenues and net income to fluctuate significantly from anticipated levels
and from quarter to quarter.

Manufacturers of digital microwave telecommunications equipment are
experiencing, and are likely to continue to experience, intense price pressure
which has resulted, and is expected to continue to result, in downward pricing
pressure on the Company's products.  As a result, the Company has experienced,
and expects to continue to experience, declining average sales prices for its
products.  The Company's ability to maintain its gross profit margins is
dependent upon its ability to continue to improve manufacturing efficiencies,
reduce material costs of products, and to continue to introduce new products and
product enhancements.   Any inability of the Company to respond to increased
price competition would have a material adverse effect on the Company's
business, financial condition and results of operations.

The markets for the Company's products are extremely competitive, and the
Company expects that competition will increase.  The Company's existing and
potential competitors include established and emerging companies, such as, L.M.
Ericsson, Northern Telecom, Siemens AG, Farinon Division of Harris Corporation,
P-COM, Alcatel, Nokia, NERA, NEC, and SIAE, many of which have more extensive
engineering, manufacturing, and marketing capabilities and significantly greater
financial, technical, and personnel resources than the Company.  The Company
believes that its ability to compete successfully will depend on a number of
factors, both within and outside its control, including price, quality,
availability, customer service and support, breadth of product line, product
performance and features, rapid delivery, reliability, timing of new product
introductions by the Company, its customers and its competitors, and the ability
of its customers to obtain financing.

The Company expects that international sales will continue to account for the
majority of its net product sales for the foreseeable future.  As a result, the
Company is subject to the risks of doing business internationally, including
unexpected changes in regulatory requirements, fluctuations in foreign currency
exchange rates, such as recently experienced in Asia, imposition of tariffs and
other barriers and restrictions, the burdens of complying with a variety of
foreign laws, and general economic and geopolitical conditions, including
inflation and trade relationships.  In addition, recent events in Asia,
including depreciation of certain Asian currencies, failures of financial
institutions, stock market declines, and reduction in planned capital investment
as key enterprises, may continue to adversely impact the Company's revenues in
Asian markets.  There can be no assurance that currency fluctuations, changes in
the rate of inflation or any of the aforementioned factors will not continue to
have a material adverse effect on the Company's business, financial condition
and results of operations. 

The Company's manufacturing operations are highly dependent upon the delivery of
materials by outside suppliers in a timely manner.  In addition, the Company
depends in part upon subcontractors to assemble major components and subsystems
used in its products in a timely and satisfactory manner.  The Company does not
generally enter into long-term or volume purchase agreements with any of these
suppliers, and no assurance can be given that such materials, components, and
subsystems will be available in the quantities required by the Company, if at
all.  The inability of the Company to develop alternative sources of supply
quickly and on a cost-effective basis could materially impair the Company's
ability to manufacture and deliver its products in a timely manner.  There can
be no assurance that the 

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<PAGE>

Company will not experience material supply problems or component or 
subsystem delays in the future.

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

The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches.  The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000.  Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.  The Year 2000 problem is pervasive and complex as virtually
every company's computer operation will be affected in some way.  The Company's
computer programs, which process its operational and financial transactions,
were designed and developed without considering the impact of the upcoming
change in century.  In addition, some of the Company's products being shipped
today are not Year 2000 compliant.  If not corrected, the Company's computer
programs and products could fail or create erroneous results by or at the Year
2000.

The Company is taking steps to ensure its products and computer programs will
continue to operate on and after January 1, 2000.  The Company has formed a
project team consisting of staff from Manufacturing, Customer Service, Finance,
Human Resources, Sales, Marketing, Legal, Engineering and Information Technology
departments and is lead by a project manager.   A five phase solution process
has been established consisting of (1) awareness, (2) assessment, (3)
renovation, (4) validation, and (5) implementation.  This team is currently in
the second phase which includes evaluating both the Company's products and
information technology ("IT") systems at greatest risk and identifying
alternative solutions to correcting the Year 2000 problem.  The Company
estimates that it will complete this five phase process for all of its
significant systems by December 31, 1998.   The Company's Year 2000 project team
has identified its manufacturing IT system as its highest priority and plans to
install an upgrade to the Company's current manufacturing system supplied by the
vendor of that system.  The Company has not yet evaluated its non-IT systems. 
Non-IT systems include systems or hardware containing embedded technology such
as microcontrollers.  The Company believes that it will expend $0.5 million
investigating and remedying issues related to Year 2000 compliance involving
internal operations.  However, if systems material to the Company's operations
have not been made Year 2000 compliant by the completion of the project, the
Year 2000 issue could have a material adverse effect on the Company's financial
statements.  The Company has not yet developed a contingency plan to operate in
the event that any noncompliant critical systems are not remedied by January 1,
2000.  The Company expects to develop such a contingency plan by December 31,
1998.


                                       15

<PAGE>

The Company is contacting its primary suppliers and subcontractors to determine
that they are developing plans to address processing transactions in the Year
2000 and to monitor their progress toward Year 2000 capability.  The responses
received by the Company to date have indicated that steps are currently being
implemented to address this concern.  

Based on the steps being taken to address this issue and the progress to date,
the Company's management believes that the Year 2000 compliance expenses will
not have a material adverse effect on the Company's earnings.  However, there
can be no assurance that Year 2000 problems will not occur with respect to the
Company's computer systems.  Furthermore, the Year 2000 problem may impact other
entities with which the Company transacts business, and the Company cannot
predict the effect of the Year 2000 problem on such entities or the resulting
effect on the Company.  As a result, if preventative and/or corrective actions
by the Company or those the Company does business with are not made in a timely
manner, the Year 2000 issue could have a material adverse effect on the
Company's business, financial condition and results of operations.  


Beginning in January 1999, a new currency called the "euro" is scheduled to be
introduced in certain Economic and Monetary Union ("EMU") countries.  During
2002, all EMU countries are expected to be operating with the euro as their
single currency.  Uncertainty exists as to the effect the euro currency will
have on the marketplace.  Additionally, all of the final rules and regulations
have not yet been defined and finalized by the European Commission with regard
to the euro currency.  The Company has assessed the effect the euro formation
will have on its internal systems and the sale of its products.  Most of the
Company's European sales and operating transactions are based primarily in U.S.
dollars or U.K. pounds sterling, neither of which are subject to the euro
conversion.  In addition, the Company plans to upgrade its internal computer
systems in early 1999 to convert the European currency to euro.  The Company's
management believes that the cost of upgrading the Company's systems in
connection with the euro conversion will not be material and that such
conversion will not have a material adverse effect on the Company's business,
financial condition and results of operations.  

LIQUIDITY AND CAPITAL RESOURCES

Net cash used for operating activities in the first quarter of Fiscal 1999 was
$15.8 million, compared to net cash used for operating activities of $8.1
million in the first quarter of Fiscal 1998. The decline in cash provided from
operations was primarily the result of the net loss for the quarter.  In
addition, inventories increased as actual sales were less than forecasted 
sales. Accounts payable and other accrued liabilities decreased during the first
quarter of Fiscal 1999 due to payments for merger costs, bonuses, and profit
sharing accrued at March 31, 1998, the end of Fiscal 1998 and reduced inventory
purchases.  Accounts receivable decreased due to higher collections and lower
sales during the first quarter of Fiscal 1999 as compared to the first quarter
of Fiscal 1998. 

To partially offset the cash used by operations, the Company received over 
$8.0 million in net proceeds from the sale of its short-term investments 
during the first quarter of Fiscal 1999. 

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<PAGE>

Purchases of property and equipment increased by $2.4 million in the first
quarter of Fiscal 1999 compared to the first quarter of Fiscal 1998 and was
mostly attributable to continued progress payments on the Company's new
manufacturing facility in the United Kingdom. In the first quarter of Fiscal
1998, the Company completed the acquisition of Granger, Inc. for total
consideration of $14.7 million and purchased a minority interest in Granger
Associates, Ltd., a UK company, for $4.0 million. 

In the first quarter of Fiscal 1998, MAS Technology, a subsidiary of the
Company, sold approximately  $25.0 million of ordinary shares in a public
offering.  A portion of these proceeds were used to pay off MAS Technology's
outstanding debt of approximately $5.0 million.  In addition, Digital Microwave
Corporation paid off its outstanding debt of $2.0 million in the first quarter
of Fiscal 1998, excluding lease obligations.

During June and July 1998, the Company amended its agreement with a major U.S.
bank to increase the unsecured credit facility from $20.0 million to $25.0
million, extend the expiration date of the agreement to September 30, 1998, and
to change certain terms of the agreement.  
 
At June 30, 1998, the Company's principal sources of liquidity consisted of 
$20.2 million in cash and cash equivalents and short-term investments and the 
$25.0 million revolving bank credit facility. The Company's credit facility 
agreement requires the Company to meet certain financial covenants, including 
various liquidity and debt ratios, tangible net worth and profitability 
requirements.  As of June 30, 1998, the Company was in compliance with these 
covenants, as amended.  The Company is currently negotiating an increase in 
and extension of this credit facility.  The Company's management believes 
that the Company will receive an increase in and extension of its credit 
facility; however, there can be no assurance that this will occur.

The Company believes that it will be necessary to borrow against its credit 
facility to meet both its working capital and capital expenditure 
requirements through Fiscal 1999.  In addition, the Company may require 
additional financing from other sources; however, there can be no assurance 
that the Company will be able to obtain such additional financing in the 
required time frame on commercially reasonable terms, or at all. Management 
has implemented plans to reduce the Company's cash requirements through a 
combination of reductions in working capital, equipment purchases and 
operating expenditures.  Management believes that such plans combined with 
existing cash balances and other sources of liquidity will enable the Company 
to meet its cash requirements through Fiscal 1999.  However, there can be no 
assurance that the Company will be able to implement these plans or that it 
will be able to do so without a material adverse effect on the Company's 
business, financial results or results of operations.


                                      17
<PAGE>

PART II - OTHER INFORMATION

ITEM 5 - OTHER INFORMATION

Effective as of June 29, 1998, the Securities and Exchange Commission has
amended Rule 14a-4 of the Securities and Exchange Act of 1934, as amended (the
"Act"), so that any stockholder proposal submitted with respect to Digital
Microwave Corporation's 1999 Annual Meeting of Stockholders, which proposal is
submitted outside the requirements of Rule 14a-8 under the Act, will be
considered untimely for purposes of Rule 14a-4 and 14a-5 if notice thereof is
received by Digital Microwave Corporation after May 29, 1999.  
     
     
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
          
(a)  Exhibits
     
     For a list of exhibits to this Form 10-Q, see the exhibit index
     located on page 18.
     
(b)  Reports on Form 8-K  

     The Company filed a report on Form 8-K on April 3, 1998, relating to
     the Company's completion of the merger with MAS Technology Limited, a
     New Zealand Company, on March 24, 1998.

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<PAGE>

                                    EXHIBIT INDEX

EXHIBIT              
NUMBER    DESCRIPTION


10.1*     Product Purchase Agreement dated as of June 1, 1998, by and between
          Digital Microwave Corporation and Solectron Corporation.

10.2      First Amendment to Credit Agreement dated as of June 1, 1998, by and
          between Digital Microwave Corporation and Bank of America National
          Trust and Savings Association. 

10.3      Second Amendment to Credit Agreement dated as of July 22, 1998,
          effective as of June 30, 1998, by and between Digital Microwave
          Corporation and Bank of America National Trust and Savings
          Association.

27.1      Financial Data Schedule for the quarter ended June 30, 1998.

27.2      Restated Financial Data Schedule for the quarter ended June 30, 1997.


*  Confidential treatment of certain portions of this exhibit has been
requested.

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<PAGE>

                                      SIGNATURE

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



                                   DIGITAL MICROWAVE CORPORATION





Date:    August 14, 1998            By    /s/  Carl A. Thomsen
         ---------------              ------------------------
                                           Carl A. Thomsen
                                      Vice President, Chief Financial
                                      Officer and Secretary   


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