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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 | Commission file number: 0-15895 | 
|June 30, 2003                  |                                 | 
|                               |                                 | 

STRATEX NETWORKS, INC.




(Exact name of registrant specified in its charter)


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

|                                         |  |           
|---------------------------------------- |  | ----------
|120 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     [  ]

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2).   Yes   [X]        No     [  ]

The number of outstanding shares of the Registrants common stock, par value
$.01 per share, was 82,969,043 on August 06, 2003.





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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                     
|EXHIBIT INDEX                 
|EXHIBIT 10.1                  
|EXHIBIT 31.1                  
|EXHIBIT 31.2                  
|EXHIBIT 32.1                  
|EXHIBIT 32.2                  



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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                                  |    |      | 6-18  | 
|                               | Item 2 - | Managements Discussion and Analysis of
Financial Condition and Results of Operations |    |      | 19-29 | 
|                               |          | Factors That May Affect Future Financial Results                                      |    |      | 30-38 | 
|                               | Item 3 - | Quantitative and Qualitative Disclosures About Market Risk                            |    |      | 39    | 
|                               | Item 4 - | Controls and Procedures                                                               |    |      | 39    | 
|PART II - OTHER INFORMATION    |          |                                                                                       |    |     
|                               | Item 1 - | Legal Proceedings                                                                     |    |      | 40    | 
|                               | Item 6 - | Exhibits and Reports on Form 8-K                                                      |    |      | 40    | 
|SIGNATURE                      |          |                                                                                       | 41 |     
|EXHIBIT INDEX                  |          |                                                                                       | 42 |     

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PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS




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

|                                       |                                      |                                            |        |               |         |                |        |          |         | 
|-------------------------------------- | ------------------------------------ | ------------------------------------------ | ------ | ------------- | ------- | -------------- | ------ | -------- | ------- | 
|                                       |                                      |                                            |        | June 30, 2003 |         | March 31, 2003
|                                       |                                      |                                            |        |               |         |               
|ASSETS                                 |                                      |                                            |        |               |         |                |        |         
|Current assets:                        |                                      |                                            |        |               |         |                |        |         
|                                       | Cash and cash equivalents            |                                            | $      | 30,984        |         |                | $      | 34,036   |        
|                                       | Short-term investments               |                                            |        | 53,835        |         |                |        | 56,146   |        
|                                       | Accounts receivable, net             |                                            |        | 25,633        |         |                |        | 31,072   |        
|                                       | Inventories                          |                                            |        | 21,502        |         |                |        | 20,307   |        
|                                       | Deferred tax asset                   |                                            |        | 1,861         |         |                |        | 1,743    |        
|                                       | Other current assets                 |                                            |        | 11,505        |         |                |        | 12,289   |        
|                                       |                                      |                                            |        |               |         |                |        |         
|                                       |                                      | Total current assets                       |        |               | 145,320 |                |        |          | 155,593 | 
|Property and equipment, net            |                                      |                                            | 28,763 |               |         |                | 28,836 |         
|Other assets                           |                                      |                                            | 361    |               |         |                | 356    |         
|                                       |                                      |                                            |        |               |         |                |        |         
|                                       |                                      | Total assets                               |        | $             | 174,444 |                |        | $        | 184,785 | 
|                                       |                                      |                                            |        |               |         |                |        |         
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                      |                                            |        |               |         |                |        |         
|Current liabilities:                   |                                      |                                            |        |               |         |                |        |         
|                                       | Accounts payable                     |                                            | $      | 20,626        |         |                | $      | 23,095   |        
|                                       | Accrued liabilities                  |                                            |        | 24,763        |         |                |        | 29,745   |        
|                                       |                                      |                                            |        |               |         |                |        |         
|                                       |                                      | Total current liabilities                  |        |               | 45,389  |                |        |          | 52,840  | 
|Long  term liabilities                |                                      |                                            | 18,173 |               |         |                | 19,145 |         
|                                       |                                      |                                            |        |               |         |                |        |         
|                                       |                                      | Total liabilities                          |        |               | 63,562  |                |        |          | 71,985  | 
|Commitments and contingencies (Note 4) |                                      |                                            |       |               |         |                |       |         
|Stockholders equity:                  |                                      |                                            |        |               |         |                |        |         
|                                       | Common stock and paid-in capital     |                                            |        | 458,169       |         |                |        | 457,974  |        
|                                       | Accumulated deficit                  |                                            |        | (334,087      | )       |                |        | (330,711 | )      
|                                       | Accumulated other comprehensive loss |                                            |        | (13,200       | )       |                |        | (14,463  | )      
|                                       |                                      |                                            |        |               |         |                |        |         
|                                       |                                      | Total stockholders equity                 |        |               | 110,882 |                |        |          | 112,800 | 
|                                       |                                      |                                            |        |               |         |                |        |         
|                                       |                                      | Total liabilities and stockholders equity |        | $             | 174,444 |                |        | $        | 184,785 | 
|                                       |                                      |                                            |        |               |         |                |        |         

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
|                                                      |  |                                            |        | June 30,          
|                                                      |  |                                            |        |                   
|                                                      |  |                                            |        | 2003               |       | 2002
|                                                      |  |                                            |        |                    |       |     
|Net sales                                             |  | $                                          | 35,967 |                    |       | $    | 49,319  |  
|Cost of sales                                         |  |                                            | 28,621 |                    |       |      | 39,876  |  
|Inventory valuation benefit                           |  |                                            |       |                    |       |      | (1,107  | )
|                                                      |  |                                            |        |                    |       |      |         |  
|Gross profit                                          |  |                                            | 7,346  |                    |       |      | 10,550  |  
|                                                      |  |                                            |        |                    |       |      |         |  
|Operating expenses                                    |  |                                            |        |                    |       |      |         |  
|                                                      |  | Selling, general and administrative        |        |                    | 6,956 |      |         |   | 14,596 |  
|                                                      |  | Research and development                   |        |                    | 3,886 |      |         |   | 3,622  |  
|                                                      |  | Restructuring costs                        |        |                    |      |      |         |   | 14,173 |  
|                                                      |  |                                            |        |                    |       |      |         |  
|Total operating expenses                              |  |                                            | 10,842 |                    |       |      | 32,391  |  
|                                                      |  |                                            |        |                    |       |      |         |  
|Operating loss                                        |  |                                            | (3,496 | )                  |       |      | (21,841 | )
|Other income (expense):                               |  |                                            |        |                    |       |      |         |  
|                                                      |  | Interest income                            |        |                    | 262   |      |         |   | 418    |  
|                                                      |  | Other expenses, net                        |        |                    | (210  | )    |         |   | (497   | )
|                                                      |  | Write down of investments and other assets |        |                    |      |      |         |   | (146   | )
|                                                      |  |                                            |        |                    |       |      |         |  
|Loss before provision
for income taxes                |  |                                            | (3,444 | )                  |       |      | (22,066 | )
|Provision (benefit) for income taxes                  |  |                                            | (69    | )                  |       |      | 797     |  
|                                                      |  |                                            |        |                    |       |      |         |  
|Net loss                                              |  | $                                          | (3,375 | )                  |       | $    | (22,863 | )
|                                                      |  |                                            |        |                    |       |      |         |  
|Basic and diluted loss per share                      |  | $                                          | (0.04  | )                  |       | $    | (0.28   | )
|                                                      |  |                                            |        |                    |       |      |         |  
|Basic and diluted weighted average shares outstanding |  |                                            | 82,810 |                    |       |      | 82,380  |  
|                                                      |  |                                            |        |                    |       |      |         |  

See accompanying Notes to Condensed Consolidated Financial Statements.

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

|                                                                             |                                                                               |                       |        |                    |        |      |         |         |        |  
|---------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | --------------------- | ------ | ------------------ | ------ | ---- | ------- | ------- | ------ | -
|                                                                             |                                                                               |                       |        | Three Months Ended
|                                                                             |                                                                               |                       |        | June 30,          
|                                                                             |                                                                               |                       |        |                   
|                                                                             |                                                                               |                       |        | 2003               |        | 2002
|                                                                             |                                                                               |                       |        |                    |        |     
|Cash flows from operating activities:                                        |                                                                               |                       |        |                    |        |      |         |        
|Net loss                                                                     |                                                                               | $                     | (3,375 | )                  |        | $    | (22,863 | )      
|Adjustments to reconcile net loss to net cash used for
operating activities: |                                                                               |                       |        |                    |        |      |         |        
|                                                                             | Depreciation and amortization                                                 |                       |        | 2,038              |        |      |         | 3,613   |       
|                                                                             | Loss on disposal of property and equipment                                    |                       |        | 38                 |        |      |         | 51      |       
|                                                                             | Provision for uncollectible accounts                                          |                       |        | 74                 |        |      |         | 99      |       
|                                                                             | Inventory valuation charges and provision for
inventory and warranty reserves |                       |        | 1,820              |        |      |         | 1,432   |       
|                                                                             | Non-cash restructuring charges                                                |                       |        |                   |        |      |         | 1,784   |       
|                                                                             | Write down of investments                                                     |                       |        |                   |        |      |         | 146     |       
|                                                                             | Changes in assets and liabilities                                             |                       |        |                    |        |      |         |         |       
|                                                                             |                                                                               | Accounts receivable   |        |                    | 5,731  |      |         |         | (5,437 | )
|                                                                             |                                                                               | Inventories           |        |                    | (831   | )    |         |         | 5,139  |  
|                                                                             |                                                                               | Other assets          |        |                    | 1,477  |      |         |         | (2,245 | )
|                                                                             |                                                                               | Accounts payable      |        |                    | (2,538 | )    |         |         | 3,814  |  
|                                                                             |                                                                               | Income taxes payable  |        |                    | (588   | )    |         |         | 911    |  
|                                                                             |                                                                               | Accrued liabilities   |        |                    | (7,088 | )    |         |         | 4,013  |  
|                                                                             |                                                                               | Long-term liabilities |        |                    | (972   | )    |         |         | 6,036  |  
|                                                                             |                                                                               |                       |        |                    |        |      |         |        
|Net cash used for operating activities                                       |                                                                               |                       | (4,214 | )                  |        |      | (3,507  | )      
|                                                                             |                                                                               |                       |        |                    |        |      |         |        
|Cash flows from investing activities:                                        |                                                                               |                       |        |                    |        |      |         |        
|                                                                             | Purchase of short-term investments                                            |                       |        | (89,458            | )      |      |         | (67,712 | )     
|                                                                             | Proceeds from sale of short-term investments                                  |                       |        | 91,768             |        |      |         | 64,277  |       
|                                                                             | Purchase of property and equipment                                            |                       |        | (1,542             | )      |      |         | (1,246  | )     
|                                                                             |                                                                               |                       |        |                    |        |      |         |        
|Net cash provided by (used for) investing activities                         |                                                                               |                       | 768    |                    |        |      | (4,681  | )      
|                                                                             |                                                                               |                       |        |                    |        |      |         |        
|Cash flows from financing activities:                                        |                                                                               |                       |        |                    |        |      |         |        
|                                                                             | Proceeds from sales of common stock                                           |                       |        | 195                |        |      |         | 354     |       
|Effect of exchange rate changes on cash                                      |                                                                               |                       | 199    |                    |        |      | (128    | )      
|                                                                             |                                                                               |                       |        |                    |        |      |         |        
|Net decrease in cash and cash equivalents                                    |                                                                               |                       | (3,052 | )                  |        |      | (7,962  | )      
|Cash and cash equivalents at beginning of period                             |                                                                               |                       | 34,036 |                    |        |      | 35,888  |        
|                                                                             |                                                                               |                       |        |                    |        |      |         |        
|Cash and cash equivalents at end of period                                   |                                                                               | $                     | 30,984 |                    |        | $    | 27,926  |        
|                                                                             |                                                                               |                       |        |                    |        |      |         |        
|SUPPLEMENTAL DATA                                                            |                                                                               |                       |        |                    |        |      |         |        
|                                                                             | Interest paid                                                                 |                       | $      | 48                 |        |      | $       | 3       |       
|                                                                             | Income taxes paid                                                             |                       | $      | 2                  |        |      | $       | 18      |       

See accompanying Notes to Condensed Consolidated Financial Statements

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, 2003,
filed with the Securities and Exchange Commission on May 19, 2003.

CASH AND CASH EQUIVALENTS

The Company generally considers all highly liquid debt instruments purchased
with a remaining maturity of three months or less to be cash equivalents.
Auction rate preferred securities are considered as short term investments
based on historical practice of rolling over such investments at the interest
rate reset dates. Cash and cash equivalents consisted of cash, money market
funds, and short-term securities as of June 30, 2003 and March 31, 2003.

As of June 30, 2003, the Company had $2.2 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, as of June 30, 2003, the Company has restricted $0.4 million
of cash, which is included in cash and cash equivalents in the accompanying
consolidated balance sheet, as collateral for these specific obligations, which
generally expire within one year. Also, as of June 30, 2003, the Company had
outstanding forward foreign exchange contracts in the aggregate amount of $24.2
million, for which restricted cash of $0.2 million was held as collateral by
one of the financial institutions utilized to hedge the Companys foreign
currency risk exposure. This restricted cash of $0.2 million is included in
cash and cash equivalents in the accompanying consolidated balance sheet.

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

SHORT- TERM INVESTMENTS

The Company invests its excess cash in high-quality marketable instruments to
ensure that cash is readily available for use in its current operations.
Accordingly, all of the 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 June 30, 2003 were insignificant. At
June 30, 2003, the available-for-sale securities had contractual maturities
ranging from 1 month to 24 months, with a weighted average maturity of 6
months.

There were no impairment losses on the Companys short-term investments in
marketable securities in the first quarter of fiscal 2004. There were
impairment losses of approximately $0.1 million during the first quarter of
fiscal 2003 on the Companys 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.
Inventories consist of (in thousands):

|                |  |               |        |      |  |           |        | 
|--------------- |  | ------------- | ------ | ---- |  | --------- | ------ | 
|                |  |               |        |      |  | March 31,
|                |  | June 30, 2003 |        | 2003
|                |  |               |        |     
|Raw materials   |  | $             | 13,916 |      |  | $         | 13,100 | 
|Work in process |  |               | 4,015  |      |  |           | 4,267  | 
|Finished goods  |  |               | 3,571  |      |  |           | 2,940  | 
|                |  |               |        |      |  |           |        | 
|                |  | $             | 21,502 |      |  | $         | 20,307 | 
|                |  |               |        |      |  |           |        | 

In the first quarter of fiscal 2003, the Company realized a $1.1 million
benefit due to the sale of excess inventory, which had been fully reserved in
periods prior to the quarter ending June 30, 2002. There was no benefit
recorded in the first quarter of fiscal 2004 from the sale of excess
inventories that had been reserved in prior periods.

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

OTHER CURRENT ASSETS

Other current assets included the following (in thousands):

|                           |  |               |        |                |  |   |        | 
|-------------------------- |  | ------------- | ------ | -------------- |  | - | ------ | 
|                           |  | June 30, 2003 |        | March 31, 2003
|Receivables from suppliers |  | $             | 4,597  |                |  | $ | 5,722  | 
|Non-trade receivables      |  |               | 1,924  |                |  |   | 2,370  | 
|Prepaid expenses           |  |               | 3,025  |                |  |   | 2,436  | 
|Prepaid insurance          |  |               | 298    |                |  |   | 737    | 
|Tax refund                 |  |               | 1,419  |                |  |   | 787    | 
|Other                      |  |               | 242    |                |  |   | 237    | 
|                           |  |               |        |                |  |   |        | 
|                           |  | $             | 11,505 |                |  | $ | 12,289 | 
|                           |  |               |        |                |  |   |        | 

Non-trade receivables as of June 30, 2003 and March 31, 2003 respectively
included $1.3 million and $1.6 million due from Microelectronics Technology,
Inc. from the sale of manufacturing assets to them related to an outsourcing
agreement executed in June 2002.

OTHER ASSETS

Included in other assets as of June 30, 2003 are long-term deposits for
premises leased by the Company. As of June 30, 2002 other assets also included
equity investments. The equity investments were purchased for the promotion of
business and strategic objectives and represented voting interest of less than
20%. Impairment losses of $0.1 million were recorded in the first quarter of
fiscal 2003 on the Companys equity investments in marketable securities. 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. No impairment loss was recorded during the first quarter of fiscal
2004.

ACCRUED LIABILITIES

Accrued liabilities included the following (in thousands):

|                                   |  |               |        |                |  |   |        | 
|---------------------------------- |  | ------------- | ------ | -------------- |  | - | ------ | 
|                                   |  | June 30, 2003 |        | March 31, 2003
|                                   |  |               |        |               
|Customer deposits                  |  | $             | 1,099  |                |  | $ | 1,100  | 
|Accrued payroll and benefits       |  |               | 1,838  |                |  |   | 1,782  | 
|Accrued commissions                |  |               | 1,282  |                |  |   | 1,959  | 
|Accrued warranty                   |  |               | 4,139  |                |  |   | 4,219  | 
|Accrued restructuring              |  |               | 5,584  |                |  |   | 6,346  | 
|Accrual for contingent liabilities |  |               | 3,950  |                |  |   | 7,500  | 
|Other                              |  |               | 6,871  |                |  |   | 6,839  | 
|                                   |  |               |        |                |  |   |        | 
|                                   |  | $             | 24,763 |                |  | $ | 29,745 | 
|                                   |  |               |        |                |  |   |        | 

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Accrued contingent liability was $4.0 million at June 30, 2003 as compared to
$7.5 million at March 31, 2003. The $7.5 million accrual at March 31, 2003 was
for claims made by counsel for unsecured creditors in the bankruptcy
proceedings of the Companys prior CLEC customers. The Company reduced this
accrual by $3.5 million due to the favorable settlement of one of the above
mentioned claims. Accrued restructuring was $5.6 million as of June 30, 2003
compared to $6.3 million as of March 31, 2003. (See Note 5).

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
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 SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities (SFAS 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. The Companys policy is
to hedge forecasted and actual foreign currency risk with forward contracts
that expire within twelve months.
Specifically, the Company hedges 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, the Company hedges forecasted non-U.S. dollar sales and non-U.S.
dollar purchases. In accordance with SFAS 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.
The Company records 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 the end of the quarter will be reclassified
to earnings within the next 12 months.

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes the activity in OCI, with regard to the changes
in fair value of derivative instruments, for the first quarter of fiscal 2004
(in thousands):

|                                   |  |                    |     |  
|---------------------------------- |  | ------------------ | --- | -
|                                   |  | Three Months Ended
|                                   |  | June 30, 2003     
|                                   |  | (Gain)/ Loss      
|                                   |  |                   
|Beginning balance on April 1, 2003 |  | $                  | (56 | )
|Net changes                        |  |                    | 23  |  
|Reclassifications to revenue       |  |                    | 43  |  
|                                   |  |                    |     |  
|Ending balance on June 30, 2003    |  | $                  | 10  |  
|                                   |  |                    |     |  

An insignificant amount of loss was recognized in other income and expense in
the first quarter of fiscal 2004 related to the exclusion of time value from
effectiveness testing and ineffectiveness resulting from forecasted
transactions that did not occur. In the first quarter of fiscal 2003, a gain of
$0.1 million was recognized in other income and expense related to the
exclusion of time value from effectiveness testing and ineffectiveness
resulting from forecasted transactions that did not occur.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade receivables. The Company has 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, with a short-term bond rating of A/A2 or better or
a long-term bond rating of A or better. Accounts receivable concentrated
with certain customers primarily in the telecommunications industry and in
certain geographic locations may subject the Company to concentration of
credit risk. Two customers accounted for approximately 12% and 10% of net
sales for the first quarter of fiscal 2004. One customer accounted for
approximately 17% of net sales for the first quarter of fiscal 2003. Two
customers accounted for approximately 21% and 15% of the total accounts
receivable balance at June 30, 2003. Two customers each
accounted for approximately 16% and one customer accounted for
approximately 14% of the total accounts receivable balance of
March 31, 2003. The Company actively markets and sells products in Africa, Asia,
Europe, the Middle East and the Americas. The Company performs on-going
credit evaluations of its customers financial conditions and generally
requires no collateral, although sales to Asia, Eastern Europe and the
Middle East are primarily paid through letters of credit.

REVENUE RECOGNITION

The Company recognizes 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.

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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. Installation service revenue is recognized when the related
services are performed.

At the time revenue is recognized, the Company establishes an accrual for
estimated warranty expenses associated with its sales, recorded as a component
of cost of revenue. The Companys standard warranty is generally for a period
of 27 months from the date of sale if the customer uses the Company or its
approved installers to install the products, otherwise it is 15 months from the
date of sale. The Companys 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. Warranty accrual is made based on forecasted returns
and average cost of repair. Forecasted returns are based on trend of historical
returns. While the Company believes that its 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.

LOSS PER SHARE

Basic earnings (loss) per share are computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding during the
period. Diluted earnings per share are computed by dividing net loss by the
weighted average number of shares of common stock and potentially dilutive
securities outstanding during the period. Net loss per share is computed using
only the weighted average number of shares of common stock outstanding during
the period, as the inclusion of potentially dilutive securities would be
anti-dilutive.

STOCK-BASED COMPENSATION

The Company accounts for its employee stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees. Accordingly, no compensation is recognized for
employee stock options granted with exercise prices greater than or equal to
the fair value of the underlying common stock at date of grant. If the exercise
price is less than the market value at the date of grant, the difference is
recognized as deferred compensation expense, which is amortized over the
vesting period of the options.

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

In accordance with the disclosure requirements of SFAS No. 123, as amended by
SFAS No.148, if the Company had elected to recognize compensation cost based on
the fair market value of the options granted at grant date as prescribed,
income and earnings per share would have been reduced to the pro forma amounts
indicated in the table below.

|                                                                                                                     |  |                                 |        |      |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- |  | - | ------- | -
|                                                                                                                     |  | Three months ended June 30,    
|                                                                                                                     |  |                                
|                                                                                                                     |  | 2003                            |        | 2002
|                                                                                                                     |  |                                 |        |     
|                                                                                                                     |  | (in thousands, except per share
|                                                                                                                     |  | amounts)                       
|Net loss  as reported                                                                                               |  | $                               | (3,375 | )    |  | $ | (22,863 | )
|Less: Stock-based compensation expense
determined under fair value method for all
awards, net of related tax effects |  |                                 | (2,781 | )    |  |   | (3,664  | )
|                                                                                                                     |  |                                 |        |      |  |   |         |  
|Net loss  pro forma                                                                                                 |  | $                               | (6,156 | )    |  | $ | (26,527 | )
|                                                                                                                     |  |                                 |        |      |  |   |         |  
|Basic and diluted loss per share  as
reported                                                                       |  |                                 | (0.04  | )    |  |   | (0.28   | )
|Basic and diluted loss per share  pro forma                                                                         |  |                                 | (0.07  | )    |  |   | (0.32   | )

For purposes of pro forma disclosure under SFAS No. 123, the estimated fair
value of the options is assumed to be amortized to expense over the options
vesting period, using the multiple option method. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:

|                                        |  |                             |       |           |  |  |       |  
|--------------------------------------- |  | --------------------------- | ----- | --------- |  |  | ----- | -
|                                        |  | Three months ended June 30,
|                                        |  |                            
|                                        |  | 2003                        |       | 2002     
|                                        |  |                             |       |          
|Expected dividend yield                 |  |                             | 0.00  | %         |  |  | 0.00  | %
|Expected stock volatility               |  |                             | 96.06 | %         |  |  | 96.03 | %
|Risk-free interest rate                 |  |                             | 2.74  | %         |  |  | 3.51  | %
|Expected life of options from vest date |  | 1.7 years                   |       | 1.7 years
|Forfeiture rate                         |  | Actual                      |       | Actual   

The weighted average fair value of stock options granted during the period was
$1.79 and $1.39 for the quarters ended June 30, 2003 and June 30, 2002,
respectively.

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

COMPREHENSIVE INCOME

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

|                                   |                                               |   |                    |       |      |   |         |        |  
|---------------------------------- | --------------------------------------------- | - | ------------------ | ----- | ---- | - | ------- | ------ | -
|                                   |                                               |   | Three Months Ended
|                                   |                                               |   | June 30,          
|                                   |                                               |   |                   
|                                   |                                               |   | 2003               |       | 2002
|                                   |                                               |   |                    |       |     
|Net loss                           |                                               | $ | (3,375             | )     |      | $ | (22,863 | )     
|Other comprehensive income (loss): |                                               |   |                    |       |      |   |         |       
|                                   | Unrealized currency translation gain/(loss)   |   |                    | 1,311 |      |   |         | (2,208 | )
|                                   | Unrealized holding gain (loss) on
investments |   |                    | (48   | )    |   |         | 167    |  
|                                   |                                               |   |                    |       |      |   |         |       
|Comprehensive loss                 |                                               | $ | (2,112             | )     |      | $ | (24,904 | )     
|                                   |                                               |   |                    |       |      |   |         |       

NEW ACCOUNTING PRONOUNCEMENTS

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure (SFAS 148). SFAS 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation (SFAS 123). Although it
does not require the use of the fair value method of accounting for stock-based
employee compensation, it does provide alternative methods of transition. It
also amends the disclosure provisions of SFAS 123 and Accounting Principles
Board (APB) No. 28, Interim Financial Reporting (APB 28), to require
disclosure in the summary of significant accounting policies of the effects of
an entitys accounting policy with respect to stock-based employee compensation
on reported net income and earnings per share in annual and interim financial
statements. SFAS 148s amendment of the transition and annual disclosure
requirements is effective for fiscal years ending after December 15, 2002. The
amendment of disclosure requirements of APB 28 is effective for interim periods
beginning after December 15, 2002. The Company does not plan to adopt the fair
value based method of accounting for stock-based employee compensation. As a
result, adoption of SFAS 148 will only require expanded disclosure to include
the effect of stock-based compensation in the Companys interim reporting.

In December 2002, the Emerging Issues Task Force (EITF) issued EITF 00-21,
Revenue Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21
addresses certain aspects of the accounting by a vendor for arrangements under
which it will perform multiple revenue-generating activities. In some
arrangements, the different revenue-generating activities (deliverables) are
sufficiently separable, and there exists sufficient evidence of their fair
values to separately account for some or all of the deliverables. In other
arrangements, some or all of the deliverables are not independently functional,
or there is not sufficient evidence of their fair values to account for them
separately. EITF 00-21 addresses when and, if so, how an arrangement involving
multiple deliverables should be divided into separate units of accounting. This
EITF Issue does not change otherwise applicable revenue recognition criteria.
This EITF Issue is applicable for the Company after June 2003 and could have an
impact on revenue recognition of future sales transactions. The Company is
currently assessing the impact, if any, on its future revenue recognition.

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (SFAS 149). SFAS 149 amends
and clarifies accounting
for derivative instruments, including certain derivative instruments embedded
in other contracts, and hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003.The Company does not expect the
adoption of SFAS 149 to have a material impact on its operating results or
financial condition.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS 150).
SFAS 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or as an asset in some circumstances). Many of
those instruments were previously classified as equity. The Statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company is in the process of determining the
impact of the adoption of SFAS 150 on its future financial position and results
of operations.

NOTE 2. BANK LINE OF CREDIT

The Company has a $22.5 million revolving credit facility with a bank. The
credit facility expires in January 2004 and has one-year renewable terms and an
interest rate of either the banks prime rate or LIBOR plus 2%. The Company,
based on its current business plan, does not expect to utilize the facility in
fiscal 2004.

NOTE 3. EMPLOYEE STOCK OPTION EXCHANGE PROGRAM

On June 23, 2003, the Company filed a Schedule TO with the Securities and
Exchange Commission in connection with its Option Exchange Program pursuant to
which eligible employees will have the opportunity to make a one-time election
to exchange certain outstanding grants of stock options with exercise prices
above $6.00 per share, for a predetermined smaller number of new stock options
with a new vesting schedule. The new stock options will be granted at the fair
market value on the day of new grant, which will be at least six months plus
one day after the exchange options are cancelled. This Option Exchange Program
was approved by the shareholders on July 15, 2003. On July 25, 2003, in
accordance with the Option Exchange Program, the Company accepted and cancelled
options to purchase 2,135,100 shares of its common stock and issued a promise
to grant approximately 1,045,928 new options to participating employees. The
new stock options will be granted on January 29, 2004. No financial or
accounting impact to the Companys financial position, results of operation or
cash flow for the three months ended June 30, 2003 was associated with this
transaction.

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4. 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. See Note 1 Accrued liabilities for the
accruals made by the Company for contingent liability.

NOTE 5. RESTRUCTURING CHARGES

The Company did not record any restructuring charges in the first quarter of
fiscal 2004.

In fiscal 2003, the Company entered into an agreement for outsourcing its San
Jose, California manufacturing operations to Microelectronics Technology Inc.
(MTI), the Companys manufacturing partner in Taiwan. As a result of changes
associated with this agreement, as well as other reductions in workforce and
consolidation of additional excess facilities, the Company recorded
restructuring charges of $28.2 million in fiscal 2003. These restructuring
charges consisted of $3.8 million for employee severance and benefits, $19.0
million for vacated building lease obligations, $0.6 million for legal costs,
$3.3 million for transition costs related to outsourcing of the Companys
manufacturing operations as mentioned above and $4.0 million as a write off of
manufacturing equipment in its San Jose, California location, related to the
transfer of certain manufacturing operations to MTI. 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 the Companys
manufacturing assets to them in accordance with the joint agreement with MTI.
The severance and benefit charges of $3.8 million taken in fiscal 2003 were for
a reduction in workforce by 176 employees, with reductions affecting primarily
the manufacturing operations area due to the outsourcing of the Companys San
Jose, California manufacturing operations. As of June 30, 2003 all affected
employees had been terminated.

During fiscal 2002, the Company announced several restructuring programs to
reduce expenses and improve operational efficiency. These restructuring
programs included consolidation of the Companys U.S. manufacturing operations
by relocating its Seattle, Washington operations to its San Jose, California
facility, a worldwide reduction in workforce and a consolidation of additional
excess facilities. Due to this action, the Company recorded restructuring
charges of $19.6 million during fiscal 2002. These consisted of $8.4 million
for employee severance and benefits and $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).

The vacated building lease obligations of $19.0 million and $8.6 million
recorded in fiscal 2003 and in fiscal 2002, respectively, included payments
required under lease contracts, less estimated sublease income after the
property has been 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. The lease loss represents managements estimate of time to sublease and
actual sublease rates.

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes the balance of the restructuring accrual as of
June 30, 2003 and the type and amount of restructuring costs utilized during
the first quarter of fiscal 2004 (in millions):

|                            |                   |   |              |      |            |   |       |      |   |   |      |      |  
|--------------------------- | ----------------- | - | ------------ | ---- | ---------- | - | ----- | ---- | - | - | ---- | ---- | -
|                            |                   |   | Severance    |      | Facilities |   |       |      |  
|                            |                   |   | and Benefits |      | and Other  |   | Total
|                            |                   |   |              |      |            |   |      
|Balance as of April 1, 2003 |                   | $ | 1.5          |      |            | $ | 22.7  |      |   | $ | 24.2 |     
|                            | Provision         |   |              |     |            |   |       |     |   |   |      |     |  
|                            | Cash payments     |   |              | (0.7 | )          |   |       | (1.1 | ) |   |      | (1.8 | )
|                            |                   |   |              |      |            |   |       |      |   |   |      |     
|Balance as of June 30, 2003 |                   | $ | 0.8          |      |            | $ | 21.6  |      |   | $ | 22.4 |     
|                            |                   |   |              |      |            |   |       |      |   |   |      |     
|                            | Current portion   |   | $            | 0.8  |            |   | $     | 4.8  |   |   | $    | 5.6  |  
|                            | Long-term portion |   | $            |     |            |   | $     | 16.8 |   |   | $    | 16.8 |  

The remaining accrual balance of $22.4 as of June 30, 2003 is expected to be
paid out in cash. The Company expects $3.9 million of the remaining accrual
balance ($0.8 million of severance and benefits, $0.2 million of legal costs
and $2.9 million of vacated building lease obligations) to be paid out in
fiscal 2004 and vacated building lease obligations of $18.5 million to be paid
out during fiscal 2005 through fiscal 2012.

NOTE 6. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

SFAS No. 131 Disclosures about Segments of an Enterprise and Related
Information (SFAS 131) establishes annual and interim reporting standards
for an enterprises operating segments and related disclosures about products,
geographic information, and major customers. Operating segment information for
the first quarter of fiscal 2004 and 2003 is presented in accordance with SFAS
131.

The Company is organized into two operating segments: Products and Services.
The Chief Executive Officer (CEO) has been identified as the Chief Operating
Decision-Maker as defined by SFAS 131. Resources are allocated to each of these
groups using information on their revenues and operating profits before
interest and taxes.

The Products operating segment includes the XP4, Altium®, DXR® and
Spectrum II digital microwave systems for digital transmission markets. The
Company designs, develops, markets and sells these products in Wellington, New
Zealand and San Jose, California. Prior to June 30, 2002, the Company
manufactured the XP4 and Altium family of products in San Jose, California. In
June 2002, the Company entered into an agreement with MTI in Taiwan for
outsourcing of its XP4 and Altium products manufacturing operations. The
Company manages the manufacturing of the DXR product family from Wellington,
New Zealand, where most manufacturing takes place, except for a portion of the
DXR product family that is outsourced. The Services operating segment includes,
but is not limited to, installation, repair, spare parts, network design, path
surveys, integration, and other revenues. The Company maintains regional
service centers in Lanarkshire, Scotland and Clark Field, Pampanga,
Philippines.

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company does not identify or allocate assets or depreciation by operating
segment, nor does the CEO evaluate these groups on these criteria. Total
depreciation expense of $2.0 million and $3.6 million for first quarter of
fiscal 2004 and 2003, respectively, has been included in the
product operating segment. Operating segments generally do not sell products to
each other, and accordingly, there are no significant inter-segment revenues to
be reported. The Company does 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
|                      |                  |  | June 30,          
|                      |                  |  |                   
|                      |                  |  | 2003               |        | 2002
|                      |                  |  |                    |        |     
|Products:             |                  |  |                    |        |      |  |   |        
|                      | Net revenues     |  | $                  | 28,577 |      |  | $ | 42,371  |  
|                      | Operating loss   |  |                    | (4,994 | )    |  |   | (22,993 | )
|Services and Repairs: |                  |  |                    |        |      |  |   |        
|                      | Net revenues     |  |                    | 7,390  |      |  |   | 6,948   |  
|                      | Operating income |  |                    | 1,498  |      |  |   | 1,152   |  
|Total:                |                  |  |                    |        |      |  |   |        
|                      | Net revenues     |  | $                  | 35,967 |      |  | $ | 49,319  |  
|                      | Operating loss   |  |                    | (3,496 | )    |  |   | (21,841 | )

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

|               |                          |   |                    |        |      |   |        |        | 
|-------------- | ------------------------ | - | ------------------ | ------ | ---- | - | ------ | ------ | 
|               |                          |   | Three Months Ended
|               |                          |   | June 30,          
|               |                          |   |                   
|               |                          |   | 2003               |        | 2002
|               |                          |   |                    |        |     
|SPECTRUM II    |                          | $ | 29                 |        |      | $ | 2,110  |       
|XP4            |                          |   | 12,130             |        |      |   | 19,957 |       
|DXR            |                          |   | 6,118              |        |      |   | 13,473 |       
|Altium         |                          |   | 9,893              |        |      |   | 6,552  |       
|Other products |                          |   | 407                |        |      |   | 279    |       
|               |                          |   |                    |        |      |   |        |       
|               | Total products           |   |                    | 28,577 |      |   |        | 42,371 | 
|               | Total services & repairs |   |                    | 7,390  |      |   |        | 6,948  | 
|               |                          |   |                    |        |      |   |        |       
|Total revenue  |                          | $ | 35,967             |        |      | $ | 49,319 |       
|               |                          |   |                    |        |      |   |        |       

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STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

|                   |  |                    |        |      |  |   |        | 
|------------------ |  | ------------------ | ------ | ---- |  | - | ------ | 
|                   |  | Three Months Ended
|                   |  | June 30,          
|                   |  |                   
|                   |  | 2003               |        | 2002
|                   |  |                    |        |     
|Europe             |  | $                  | 8,605  |      |  | $ | 14,421 | 
|Middle East        |  |                    | 2,700  |      |  |   | 2,386  | 
|Russia             |  |                    | 3,717  |      |  |   | 225    | 
|Mexico             |  |                    | 2,524  |      |  |   | 2,495  | 
|India              |  |                    | 2,017  |      |  |   | 6,437  | 
|Thailand           |  |                    | 4      |      |  |   | 9,814  | 
|Nigeria            |  |                    | 3,930  |      |  |   | 2,508  | 
|Other Africas      |  |                    | 2,793  |      |  |   | 1,482  | 
|Other Americas     |  |                    | 3,328  |      |  |   | 5,282  | 
|Other Asia/Pacific |  |                    | 6,349  |      |  |   | 4,269  | 
|                   |  |                    |        |      |  |   |        | 
|Total revenue      |  | $                  | 35,967 |      |  | $ | 49,319 | 
|                   |  |                    |        |      |  |   |        | 

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

|                                  |  |               |        |                |  |   |        | 
|--------------------------------- |  | ------------- | ------ | -------------- |  | - | ------ | 
|                                  |  | June 30, 2003 |        | March 31, 2003
|                                  |  |               |        |               
|United States                     |  | $             | 8,337  |                |  | $ | 8,822  | 
|United Kingdom                    |  |               | 13,111 |                |  |   | 13,230 | 
|Other foreign countries           |  |               | 7,315  |                |  |   | 6,784  | 
|                                  |  |               |        |                |  |   |        | 
|Total property and equipment, net |  | $             | 28,763 |                |  | $ | 28,836 | 
|                                  |  |               |        |                |  |   |        | 

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

The discussions in this Quarterly Report on Form 10-Q 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 on Form 10-Q 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 plan to pay out in cash the remaining restructuring accrual balance as of June 30, 2003 of $22.4 million;                                                                                                                                          
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Our expectation that $3.9 million of the remaining cash restructuring charges will be paid out in fiscal 2004 (including
$0.8 million for severance and benefits, $0.2 million of legal costs and $2.9 million for vacated building lease
obligations);
| 
| |  | Our anticipation that further vacated building lease obligations of $18.5 million will be paid out during fiscal 2005
through fiscal 2012;                                                                                                             
| 
| |  | Our belief that the legal proceedings and claims that arise in the normal course of our business will not have a material
adverse effect on our business, financial position, and results of operations;                                               
| 
| |  | Our expectation that our selling, general and administrative expenses will continue to decrease in fiscal 2004 in absolute
dollars as a result of ongoing cost reduction measures in fiscal 2004;                                                      
| 
| |  | Our expectation that gross profit percentage will decline in the remaining quarters of fiscal 2004 due to competitive
pricing pressures.                                                                                                               
| 
| |  | 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;                                                                                                                
| 
| |  | Our belief that we maintain adequate reserves to cover exposure for doubtful accounts;                                                                                                                                                                 
| 
| |  | Our plan not to currently utilize our revolving credit facility in fiscal 2004;                                                                                                                                                                        
| 
| |  | Our expectation that one of our foreign subsidiaries will be profitable by the end of fiscal year 2004;                                                                                                                                                
| 
| |  | Our intent to release our new product called Eclipse near the end of calendar 2003;                                                                                                                                                                   
| 
| |  | Our belief that our ability to compete successfully will depend on a number of factors both within and outside our control;                                                                                                                            
| 
| |  | Our plan to continue to pursue, growth opportunities through internal development, minority investments and acquisitions of
complementary businesses and technologies;                                                                                 

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



| |  | Our expectation that we will continue to experience declining average sales prices for our products;                                                                                  
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Our plan to remain focused on our efforts for next generation products and incremental improvements to the existing product
lines; and                                                
| 
| |  | Our belief that we have made the appropriate reserve to account for the contingency for our being a named defendant in a
preference claim matter pursuant to the U.S. Bankruptcy Code.

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, 2003, including those contained in the section, Factors That
May Affect Future Financial Results, beginning on page 30 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,
2003. For a description of our critical accounting policies, see our Annual
Report on Form 10-K for the year ended March 31, 2003.

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

Results of Operations

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

|                                           |          |  |                    |      |      |  |       |       |   
|------------------------------------------ | -------- |  | ------------------ | ---- | ---- |  | ----- | ----- | --
|                                           |          |  | Three Months Ended
|                                           |          |  | June 30,          
|                                           |          |  |                   
|                                           |          |  | 2003               |      | 2002
|                                           |          |  |                    |      |     
|Net sales                                  |          |  | 100.0              | %    |      |  | 100.0 | %    
|Cost of sales                              |          |  | 79.6               |      |      |  | 80.8  |      
|Inventory valuation benefit                |          |  |                   |      |      |  | (2.2  | )    
|                                           |          |  |                    |      |      |  |       |      
|Gross profit                               |          |  | 20.4               |      |      |  | 21.4  |      
|Selling, general and administrative        |          |  | 19.3               |      |      |  | 29.6  |      
|Research and development                   |          |  | 10.8               |      |      |  | 7.3   |      
|Restructuring costs                        |          |  |                   |      |      |  | 28.8  |      
|                                           |          |  |                    |      |      |  |       |      
|Operating loss                             |          |  | (9.7               | )    |      |  | (44.3 | )    
|Interest income                            |          |  | 0.7                |      |      |  | 0.8   |      
|Other expense, net                         |          |  | (0.6               | )    |      |  | (1.0  | )    
|Write down of investments and other
assets |          |  |                   |      |      |  | (0.3  | )    
|                                           |          |  |                    |      |      |  |       |      
|Loss before provision for income taxes     |          |  | (9.6               | )    |      |  | (44.8 | )    
|Provision (benefit) for income taxes       |          |  | (0.2               | )    |      |  | 1.6   |      
|                                           |          |  |                    |      |      |  |       |      
|                                           | Net loss |  |                    | (9.4 | )%   |  |       | (46.4 | )%
|                                           |          |  |                    |      |      |  |       |      

Net Sales

Net sales for the first quarter of fiscal 2004 decreased to $36.0 million,
compared to $49.3 million reported in the first quarter of fiscal 2003. We
believe that this decrease was primarily due to limited capital expenditures by
industry participants because of the ongoing unfavorable global economic
conditions and reduced pricing due to competitive pressures. Our XP4 product
line net sales decreased to $12.1 million in the first quarter of fiscal 2004
from $19.9 million in the first quarter of fiscal 2003. Net sales of our
Altium product line increased to $9.9 million in the first quarter of fiscal
2004 from $6.6 million in the comparable quarter of fiscal 2003. Net sales of
our Spectrum II product was insignificant in the first quarter of fiscal 2004
primarily due to the product reaching its planned end of life and being
replaced by our XP4 product line. Net sales of our Spectrum II product in the
first quarter of fiscal 2003 were $2.1 million. Our DXR product line net sales
decreased to $6.1 million in the first quarter of fiscal 2004, from $13.5
million in the first quarter of fiscal 2003. Net sales of our DXR product line
were higher in the first quarter of fiscal 2003 as compared to the first
quarter of fiscal 2004 primarily because of recognition of revenue during the
first quarter of fiscal 2003 on several large network projects in

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

Thailand,
which were completed in fiscal 2003. Service and repair revenue was $7.4
million in the first quarter of fiscal 2004, compared to $6.9 million in the
first quarter of fiscal 2003.
Though product revenue in the first quarter of fiscal 2004 declined
significantly as compared to the first quarter of fiscal 2003, service and
repair revenue increased slightly. This is primarily due to an increase in
annual maintenance contracts as a result of our increased efforts to position
ourselves as a complete solutions provider in the market.

We experienced a significant decline in net sales in Europe. We believe that
the decrease was due to a reduction in capital expenditures by major industry
participants in that region. Net sales to Europe decreased to $8.6 million in
the first quarter of fiscal 2004 from $14.4 million in the first quarter of
fiscal 2003. Net sales to Russia increased significantly to $3.7 million in the
first quarter of fiscal 2004, from $0.2 million in the first quarter of fiscal
2003, primarily due to securing one new customer in that region. Net sales to
Thailand decreased significantly to less than $0.1 million in the first quarter
of fiscal 2004 from $9.8 million in the first quarter of fiscal 2003 primarily
due to the completion of several projects in Thailand in fiscal 2003. Net sales
to India decreased significantly to $2.0 million in the first quarter of fiscal
2004, from $6.4 million in the first quarter of fiscal 2003 due to completion
of several projects in India in fiscal 2003. Net sales to Nigeria increased to
$3.9 million in the first quarter of fiscal 2004 from $2.5 million in the first
quarter of fiscal 2003.

Two customers accounted for approximately 12% and 10% of our net sales for the
first quarter of fiscal 2004. No other customer accounted for 10% or more of
our net sales for the period. For the first quarter of fiscal 2003, one of our
customers accounted for 17% of net sales for that quarter and no other customer
accounted for 10% or more of our net sales for that quarter.

During the first quarter of fiscal 2004, we received $41.8 million in new
orders shippable over the next 12 months, compared to $53.3 million in the
first quarter of fiscal 2003. The backlog at June 30, 2003 was $41.3 million,
compared to $98.0 million at June 30, 2002 and $50.1 million at March 31, 2003.
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.

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

Gross Profit

Gross profit as a percentage of net sales was 20.4% in the first quarter of
fiscal 2004 as compared to a gross profit percentage of 21.4% in the first
quarter of fiscal 2003. Our gross profit percentage in the first quarter of
fiscal 2003, excluding inventory valuation benefit of $1.1 million, which
represented benefit from sale of some of our excess inventories which were
reserved as inventory valuation charges in the periods prior to the quarter
ended June 30, 2002, was 19.1%. This increase in gross profit of 1.3%
(excluding the inventory valuation benefit) was primarily due to lower
manufacturing costs which resulted in an increase in gross profit of
approximately 4% and a favorable mix impact of 2%. This increase was partially
offset by a negative pricing impact of approximately 5%. Though there was a
slight increase in gross profit percentage in the first quarter of fiscal 2004
as compared to the first quarter of fiscal 2003, we expect the gross profit
percentage to decline in the remaining quarters of fiscal 2004 due to
competitive pricing pressures.

Research and Development

In the first quarter of fiscal 2004, research and development expenses
increased slightly to $3.9 million from $3.6 million in the first quarter of
fiscal 2003. This increase was primarily due to purchase of material for our
new product Eclipse, which is scheduled to be released before the end of
the calendar year 2003. As a percentage of net sales, research and development
expenses increased to 10.8% in first quarter of fiscal 2004 from 7.3% in first
quarter of fiscal 2003 primarily due to the decrease in sales. We plan to
remain focused on our efforts for next generation products and incremental
improvements to the existing product lines.

Selling, General and Administrative

In the first quarter of fiscal 2004, selling, general and administrative
expenses decreased to $7.0 million from $14.6 million in the first quarter of
fiscal 2003. This decrease was due to a $4.1 million decrease resulting from
decreased sales, reductions in workforce, consolidation of our excess facility
in California, lower third party agent commissions from sales of our products
and other cost reduction measures that were taken in fiscal 2003 and 2002. In
addition, selling, general and administrative expenses decreased by $3.5
million due to reduction of reserves due to a favorable settlement of a legal
claim that was reserved in the periods prior to the quarter ending June 30,
2003.

As a percentage of net sales, selling, general and administrative expenses were
29.2% (gross of $3.5 million benefit), in the first quarter of fiscal 2004,
compared to 29.6% in the first quarter of fiscal 2003. We expect our selling,
general and administrative expenses will continue to decrease in fiscal 2004 in
absolute dollars as a result of ongoing cost reduction measures in fiscal 2004.

Restructuring Charges

We did not record any restructuring charges in the first quarter of fiscal
2004.

In fiscal 2003, we entered into an agreement for outsourcing our San Jose,
California 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 workforce and consolidation
of additional excess facilities, we recorded restructuring charges of $28.2
million in fiscal 2003. These restructuring charges consisted of $3.8 million
for employee severance and benefits, $19.0 million for vacated building lease

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

obligations, $0.6 million for legal costs, $3.3 million for transition costs
related to outsourcing of our manufacturing operations as mentioned above and
$4.0 million as a write off of manufacturing equipment in our San Jose,
California location, related to the transfer of certain manufacturing
operations to MTI. 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 them in accordance with
the outsourcing agreement with MTI. The severance and benefit charges of $3.8
million taken in fiscal 2003 were for a reduction in workforce by 176
employees, with reductions affecting primarily the manufacturing operations
area due to the outsourcing of our San Jose, California manufacturing
operations. As of June 30, 2003 all affected employees had been terminated.

During fiscal 2002, we announced several restructuring programs to reduce
expenses and improve 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. Due to this action, we recorded restructuring charges of $19.6
million during fiscal 2002. These consisted of $8.4 million for employee
severance and benefits and $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).

The vacated building lease obligations of $19.0 million and $8.6 million
recorded in fiscal 2003 and in fiscal 2002, respectively, included payments
required under lease contracts, less estimated sublease income after the
property has been 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. The lease loss represents managements estimate of time to sublease and
actual sublease rates.

The following table summarizes the balance of the restructuring accrual as of
June 30, 2003 and the type and amount of restructuring costs utilized during
the first quarter of fiscal 2004 (in millions):

|                            |                   |   |              |      |            |   |       |      |   |   |      |      |  
|--------------------------- | ----------------- | - | ------------ | ---- | ---------- | - | ----- | ---- | - | - | ---- | ---- | -
|                            |                   |   | Severance    |      | Facilities |   |       |      |  
|                            |                   |   | and Benefits |      | and Other  |   | Total
|                            |                   |   |              |      |            |   |      
|Balance as of April 1, 2003 |                   | $ | 1.5          |      |            | $ | 22.7  |      |   | $ | 24.2 |     
|                            | Provision         |   |              |     |            |   |       |     |   |   |      |     |  
|                            | Cash payments     |   |              | (0.7 | )          |   |       | (1.1 | ) |   |      | (1.8 | )
|                            |                   |   |              |      |            |   |       |      |   |   |      |     
|Balance as of June 30, 2003 |                   | $ | 0.8          |      |            | $ | 21.6  |      |   | $ | 22.4 |     
|                            |                   |   |              |      |            |   |       |      |   |   |      |     
|                            | Current portion   |   | $            | 0.8  |            |   | $     | 4.8  |   |   | $    | 5.6  |  
|                            | Long-term portion |   | $            |     |            |   | $     | 16.8 |   |   | $    | 16.8 |  

The remaining accrual balance of $22.4 as of June 30, 2003 is expected to be
paid out in cash. We expect $3.9 million of the remaining accrual balance ($0.8
million of severance and benefits, $0.2 million of legal costs and $2.9 million
of vacated building lease obligations) to be paid out in fiscal 2004 and
vacated building lease obligations of $18.5 million to be paid out during
fiscal 2005 through fiscal 2012.

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

Other Income (Expense)

Interest income was $0.3 million in the first quarter of fiscal 2004 compared
to $0.4 million in the first quarter of fiscal 2003. The decrease was
primarily due to lower interest rates in the first quarter of fiscal 2004 as
compared to the first quarter of fiscal 2003. Other expense was $0.2 million in
first quarter of fiscal 2004 as compared to $0.5 million in the first quarter
of fiscal 2003. The decrease was primarily due to a decrease in foreign
exchange losses and decrease in letter of credit discounting fees.

Write down of investments and other assets

During the first quarter of fiscal 2004 we did not record any impairment loss
on our equity investments in marketable securities. During the first quarter of
fiscal 2003, we recorded an impairment loss of $0.1 million. 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.

Provision (benefit) for Income Taxes

In the first quarter of fiscal 2003, 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.
In the first quarter of fiscal 2004, we recorded a $0.1 million tax benefit due
to losses in a foreign subsidiary that we expect will be profitable by the end
of the fiscal year 2004.

Employee Stock Option exchange program

On June 23, 2003, we filed a Schedule TO with the Securities and Exchange
Commission in connection with our Option Exchange Program pursuant to which
eligible employees will have the opportunity to make a one-time election to
exchange certain outstanding grants of stock options with exercise prices above
$6.00 per share, for a predetermined smaller number of new stock options with
a new vesting schedule. The new stock options will be granted at the fair
market value on the day of new grant, which will be at least six months plus
one day after the exchange options are cancelled. This Option Exchange Program
was approved by the shareholders on July 15, 2003. On July 25, 2003, in
accordance with the Option Exchange Program we accepted and cancelled options
to purchase 2,135,100 shares of our common stock and issued a promise to grant
approximately 1,045,928 new options to participating employees. The new stock
options will be granted on January 29, 2004. No financial or accounting impact
to our financial position, results of operation or cash flow for the three
months ended June 30, 2003 was associated with this transaction. We initiated
this program in order to increase the motivational and retention value of our
stock option program and to decrease the potentially dilutive effect of the
large number of options held by employees that have exercise prices
substantially above the current market price of our common stock.

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

Liquidity And Capital Resources

Net cash used by operating activities in the first quarter of fiscal 2004 was
$4.2 million, compared to $3.5 million in the first quarter of fiscal 2003. The
amount used in operating activities was due to net losses, as adjusted to
exclude non-cash charges and benefits and changes in working capital
requirements, including significant decreases in accrued liabilities, long term
liabilities and accounts payable.

Accounts payable decreased by $2.5 million compared to an increase of $3.8
million in the first quarter of fiscal 2003, due to a lower volume of
purchases. Other accrued liabilities decreased due to payment of restructuring
costs that were accrued prior to the first quarter of fiscal 2004 and to the
reversal of $3.5 million of our accrual of $7.5 million, which was made in
fiscal 2003 for contingent liabilities arising due to the bankruptcy preference
payment claims made against us by our prior CLEC customers in the course of
their bankruptcy proceedings. We reversed $3.5 million of this accrual in the
first quarter of fiscal 2004 due to the favorable settlement of one of the
claims. Long-term liabilities decreased primarily due to the payment of
restructuring costs that were accrued prior to the first quarter of fiscal
2004.

Accounts receivable decreased by $5.7 million during the first quarter of
fiscal 2004 as compared to an increase of $5.4 million in the first quarter of
fiscal 2003. Accounts receivable decreased in the first quarter of fiscal 2004
primarily due to lower revenues. Inventories increased by $0.8 million in the
first quarter of fiscal 2004 as compared to a decrease in inventory of $5.1
million in the first quarter of fiscal 2003, due to the deferral of a shipment
that was planned to be made
to one of our customers during the first quarter of fiscal 2004. The shipment
to this customer was deferred because their letter of credit was not issued.

Purchases of property and equipment were $1.5 million in the first quarter of
fiscal 2004 compared to $1.2 million in the first quarter of fiscal 2003.

Proceeds from the sale of common stock were derived from the exercise of
employee stock options and the employee stock purchase plan.

At June 30, 2003, our principal sources of liquidity consisted of $84.8 million
in cash and cash equivalents and short-term investments. Our cash requirements
for fiscal 2004 are primarily to fund operations, research and development,
capital expenditures and restructuring activities.

Commercial commitments

Through several financial institutions, we have issued $2.2 million of letters
of credit to various customers for bid and performance bonds. In connection
with the issuance of these letters of credit, we have restricted $0.4 million
of cash as collateral to meet these specific obligations. These letters of
credit generally expire within one year. We have restricted an additional $0.2
million of cash as collateral to cover outstanding foreign exchange contracts
made with one of the financial institutions utilized to hedge our foreign
currency risk exposure.

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

Contractual obligations

The following table provides information related to our contractual
obligations:

Payments due (in thousands):

|                                   |  |                        |        |      |  |      |       |      |  |      |       |        |  |             |       |  |  |   |       |  |  |        |        |       |  |   |        | 
|---------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ------ |  | ----------- | ----- |  |  | - | ----- |  |  | ------ | ------ | ----- |  | - | ------ | 
|                                   |  | Years ending March 31,
|                                   |  |                       
|                                   |  |                        |        |      |  |      |       |      |  |      |       |        |  |             |       |  |  |   |       |  |  | 2009 & |        | Total
|                                   |  | 2004                   |        | 2005 |  | 2006 |       | 2007 |  | 2008 |       | beyond |  | Obligations
|                                   |  |                        |        |      |  |      |       |      |  |      |       |        |  |            
|Operating leases (a)               |  | $                      | 4,634  |      |  | $    | 5,549 |      |  | $    | 5,497 |        |  | $           | 5,503 |  |  | $ | 5,677 |  |  | $      | 18,346 |       |  | $ | 45,206 | 
|Unconditional
purchase
obligations |  | $                      | 24,937 |      |  |      |       |      |  |      |       |        |  |             |       |  |  |   |       |  |  |        |        |       |  | $ | 24,937 | 



| | (a) |  | Contractual cash obligations include $21.4 million of lease
obligations that have been included in restructuring charges.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------

Restructuring payments

The accrued liability for restructuring payments of $22.4 million as of June
30, 2003, is expected to be paid out in cash. We expect $3.9 million of this
accrual balance ($0.8 million of severance and benefits, $0.2 million of legal
costs and $2.9 million of vacated building lease obligations) to be paid out in
fiscal 2004 and vacated building lease obligations of $18.5 million to be paid
out during fiscal 2005 through fiscal 2012.

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. In addition to our cash balances, we have a $22.5 million line of
credit with a major bank.

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



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 maturity 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)      
|                                                |  | 2004                 |        | 2005 |  | 2006
|                                                |  |                      |        |      |  |     
|Cash equivalents and short-term investments (a) |  | $                    | 57,580 |      |  | $    | 10,755 |   |  | $ | 3,991 |  
|Weighted average interest rate                  |  |                      | 1.34   | %    |  |      | 1.45   | % |  |   | 1.28  | %

(a)  Does not include non-interest bearing cash balance of $12.5 million

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 first quarter of
fiscal 2004 was 13 months and had an average yield of 1.35% per annum.

As of June 30, 2003, unrealized losses on investments were insignificant. The
investments have been recorded at fair value on our balance sheet. During the
first quarter of fiscal 2003, we recorded a permanent impairment for certain
equity investments of $0.1 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 future firm commitments denominated in a foreign currency. The primary
business objective of this hedging program is to minimize the gains and losses

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

resulting from exchange rate changes. At June 30, 2003 we held forward
contracts in the
aggregate amount of $24.2 million primarily in British pounds and the Euro. The
amount of unrealized loss on these contracts at June 30, 2003 was $0.4 million.

Given our foreign exchange position, a change in foreign exchange rates upon
which these foreign exchange contracts are based would result in exchange gains
and losses. In all material aspects, these exchange gains and losses would be
offset by exchange gains and losses on the underlying net monetary exposures
and firm commitments for which the contracts are designated as hedges. 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 condensed consolidated financial statements.

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




Factors That May Affect Future Financial Results

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 we
have. 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, Sagem AS, SIAE and Siemens AG, as well as several private
companies currently in the start-up stage. Some of our competitors have
product lines that compete with ours, and are also OEMs through whom 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 we have.
Furthermore, any acquisition we contemplate and subsequently 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, the ability of our customers to obtain financing, and uncertainty
of regional socio- and geopolitical factors. We cannot assure you that we 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,
or OEMs, 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

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

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. 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 of many telecommunications companies and mobile
cellular providers, the demand for our products and services may continue to
decrease.

Due to the continued economic downturn in the world economy, as well as
the global tightening of the capital markets for telecommunications and mobile
cellular projects, our business opportunities have decreased in Europe, China,
India, Thailand and the Americas. 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 geographic
regions. The continuing decline in financial condition of CLECs, including
those currently involved in bankruptcy proceedings, may continue to have a
negative impact on our financial results. In the fourth quarter of fiscal 2003
we received demand letters from the bankruptcy estate trustees of CLEC prior
customers who had previously declared bankruptcy. The bankruptcy trustees for
these companies are claiming that we received preference payments, as defined
in the United States Bankruptcy Code, totaling $10.8 million. We recorded an
amount of $7.5 million in the fourth quarter of fiscal year 2003 for these
outstanding claims. In the first quarter of fiscal 2004 we reduced our accrual
by $3.5 million because we reached a favorable settlement on one of the claims.
We intend to vigorously defend ourselves against any other claim. We believe
the balance of $4.0 million is appropriate for the settlement of the
outstanding claims. Repayment in excess of the amounts reserved could have a
negative impact on our results of operations.

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

In addition, the terrorist attack of September 11, 2001, the subsequent
military response by the United States, the aftermath of the U.S. war against
Iraq, and the general socio- and geopolitical conditions in the Middle East,
have negatively impacted, and may continue to
negatively impact, the economy in general. This could impact our current
and future business in the Middle East and could result in our customers
delaying or canceling the purchase of our products, which would have a
significant negative impact on our revenues.

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. 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.

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. Two
customers accounted for approximately 12% and 10% of our net sales for the
first quarter of fiscal 2004. One customer accounted for approximately 17% of
net sales for the first quarter of fiscal 2003. Two customers accounted for
approximately 21% and 15% of the total accounts receivable balance at June 30,
2003. Two customers accounted for approximately 19% and 17% of the total
accounts receivable balance at June 30, 2002. Two customers accounted for
approximately 11% and 10% of net sales for fiscal 2003. 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

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

customers 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 ongoing global tightening of the capital markets for the telecommunications
and mobile cellular projects, 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 2002 and 2003, sales to international customers accounted for 92%
and 95% of our net sales, respectively. In fiscal 2002 and 2003, sales to the
Middle East/Africa region accounted for approximately 11% and 21% of our net
sales, respectively. Sales to international customers in the first quarter of
fiscal 2004 were 95% of our net sales for that period. Also, significant
portions of our international sales are in lesser developed countries. 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;                                                                          
|
| |  |  | currency exchange controls;                                                                         
|
| |  |  | unforeseen changes in export regulations; and                                                       
|
| |  |  | the current severe acute respiratory syndrome and its effect
on our suppliers and customers in Asia.

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

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. We have significant operations in San Jose California, the
United Kingdom, New Zealand and outsourcing arrangements in Asia. Also, we
depend in part upon subcontractors to assemble major components and subsystems
used in our products in a timely and satisfactory manner. 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,
our 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 operations.

Additional risks associated with the outsourcing of our manufacturing
operations to Microelectronics Technology, Inc. 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) the possible effects of the current severe respiratory
syndrome (SARS) health problem and (v) 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 excess inventory, which we cannot sell or be
required to sell at distressed prices, and may result in longer credit terms to
our customers.

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 on going
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. If funding continues to be unavailable to
our customers or their customers, we may be forced to take additional reserves
for excess inventory. In addition, we may have to extend more and longer
credit terms to our customers, which could negatively impact our cash and
possibly result in higher bad debt expense. 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.

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

In addition, in order to maintain competitiveness in an environment of
restrictive third party financing, we may have to offer customer financing that
is recorded on our balance sheet. This may result in deferred revenue
recognition and additional credit risk.

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 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 to 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;                  

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



| |  |  | war and acts of terrorism;                                                                                                                                                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | ability of our customers to obtain financing to enable their
purchase of our products;                                                                                            
|
| |  |  | fluctuations in foreign currency exchange rates;                                                                                                                                  
|
| |  |  | regulatory developments;                                                                                                                                                          
|
| |  |  | general economic conditions worldwide;                                                                                                                                            
|
| |  |  | claims or litigation related to the continuing decline in
financial conditions of CLECs including but not limited to those
CLECs currently involved in bankruptcy proceedings; and
|
| |  |  | the current severe acute respiratory syndrome (SARS) and its
effect on our suppliers and customers in Asia.                                                                       

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.

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, trademarks, 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

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

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. We have significant operations in the
United Kingdom and New Zealand, and outsourcing arrangements in Asia. 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
protection and 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 upon 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.

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 products.

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

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

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 markets 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.

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 28, 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

a.     Evaluation of disclosure controls and procedures. As of the end of the
period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information required to be included in this report.

b.     Changes in internal control over financial reporting. There has been no
significant change in our internal control over financial reporting that
occurred during our most recent fiscal quarter that has materially affected or
is reasonably likely to materially affect our internal control over financial
reporting.

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PART II - OTHER INFORMATION




ITEM 1- LEGAL PROCEEDINGS



| |  |  | We are currently a named defendant in a preference claim matter pursuant
to the U.S. Bankruptcy Code. We believe that we have made the appropriate
reserve to account for this contingency in the previous fiscal quarter.
We are vigorously defending this matter but as with any litigation make
no representation or prediction with respect to the outcome of the
litigation. In addition, we are 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 42.                                                                                                                
|
| | (b) |  | Reports on Form 8-K                                                                                                                                                                                                    
|
| |     |  | On April 29, 2003, we filed a current report on Form 8-K regarding a
press release announcing our financial results for the fourth quarter of
fiscal year 2003, which ended on March 31, 2003.                         
|
| |     |  | On July 03, 2003, we filed a current report on Form 8-K regarding a press
release announcing our preliminary revenue and earnings expectations for
the first quarter of fiscal year 2004, which ended on June 30, 2003.
|
| |     |  | On July 23, 2003, we filed a current report on Form 8-K regarding a press
release announcing our financial results for the first quarter of fiscal
year 2004, which ended on June 30, 2003.                            

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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: August 13, 2003 |  | 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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EXHIBIT INDEX

|               |  |                                                                                                                                                       
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                           
|10.1           |  | Loan Modification Agreement entered into as of June 18,
2003, by and between Stratex Networks, Inc. (the
Borrower) and Silicon Valley Bank (Bank).
|               |  |                                                                                                                                                       
|31.1           |  | Certification of Charles D. Kissner, Chief Executive
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.                              
|               |  |                                                                                                                                                       
|31.2           |  | Certification of Carl A. Thomsen, Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                 
|               |  |                                                                                                                                                       
|32.1           |  | Certification of Charles D. Kissner, Chief Executive
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.                              
|               |  |                                                                                                                                                       
|32.2           |  | Certification of Carl A. Thomsen, Chief Financial Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                 

42