<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

For the quarterly period ended                Commission file number: 0-15895
December 31, 1999
-----------------

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

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

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

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


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

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

The number of outstanding shares of the Registrant's common stock, par value
$.01 per share, was 69,635,600 on February 10, 2000.

<PAGE>

                                      INDEX
<TABLE>
<CAPTION>

                                                                                    PAGE
<S>                                                                               <C>
COVER PAGE                                                                           1

INDEX                                                                                2

PART I - FINANCIAL INFORMATION

         Item 1 - Financial Statements

                    Condensed Consolidated Balance Sheets                            3

                    Condensed Consolidated Statements of Operations                  4

                    Condensed Consolidated Statements of Cash Flows                  5

                    Notes to Condensed Consolidated Financial Statements             6-11

         Item 2 - Management's Discussion and Analysis of
                  Financial Condition and Results of Operations                     12-20

         Item 3 - Quantitative and Qualitative Disclosures About Market Risk        21

PART II - OTHER INFORMATION

         Item 4 - Submission of Matters to a Vote of Security Holders               22
         Item 5 - Other Information                                                 22
         Item 6 - Exhibits and Reports on Form 8-K                                  23


SIGNATURE                                                                           24
</TABLE>


                                       2 of 24
<PAGE>

                         PART I - FINANCIAL INFORMATION
                          ITEM I - FINANCIAL STATEMENTS

                          DIGITAL MICROWAVE CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                      December 31, 1999            March 31, 1999
                                                                  ---------------------------    ---------------------
                                                                           (Unaudited)
<S>                                                               <C>                            <C>
ASSETS

CURRENT ASSETS:

     Cash and cash equivalents                                              $       29,114          $       21,518
     Short-term investments                                                         35,342                   5,745
     Accounts receivable, net                                                       85,217                  60,253
     Inventories                                                                    48,038                  50,610
     Deferred tax asset                                                              2,554                   3,009
     Other current assets                                                            9,544                  12,827
                                                                            ---------------         ----------------
         TOTAL CURRENT ASSETS                                                      209,809                 153,962

PROPERTY AND EQUIPMENT, NET                                                         43,457                  43,025
OTHER ASSETS                                                                        12,755                   5,177
                                                                            ---------------         ----------------
         TOTAL ASSETS                                                       $      266,021          $      202,164
                                                                            ===============         ================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

     Current portion of long-term debt                                      $            -          $          725
     Current maturities of capital lease obligations                                   519                     862
     Accounts payable                                                               32,400                  25,116
     Income taxes payable                                                            1,541                   1,399
     Accrued liabilities                                                            30,141                  40,613
                                                                            ---------------         ----------------
         TOTAL CURRENT LIABILITIES                                                  64,601                  68,715

LONG-TERM LIABILITIES:

     Long-term debt, net of current portion                                              -                   1,896
     Capital lease obligations, net of current maturities                               20                     340
                                                                            ---------------         ----------------
         TOTAL LIABILITIES                                                          64,621                  70,951
                                                                            ---------------         ----------------

STOCKHOLDERS' EQUITY:

     Common stock and paid-in capital                                              317,489                 251,135
     Accumulated deficit                                                          (110,604)               (115,424)
     Accumulated other comprehensive loss                                           (5,485)                 (4,498)
                                                                            ---------------         ----------------
         TOTAL STOCKHOLDERS' EQUITY                                                201,400                 131,213
                                                                            ---------------         ----------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $      266,021          $      202,164
                                                                            ===============         ================
</TABLE>

       See accompanying Notes to Condensed Consolidated Financial Statements.


                                       3 of 24
<PAGE>

                          DIGITAL MICROWAVE CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                    (In thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                            Three Months Ended                      Nine Months Ended
                                                               December 31,                           December 31,
                                                        -------------------------                -------------------------
                                                        1999                 1998                1999                 1998
                                                        ----                 ----                ----                 ----
<S>                                                <C>                  <C>                 <C>                 <C>
NET SALES                                          $       77,435       $        58,278     $       211,915     $        176,774
Cost of sales                                              54,013                46,513             149,760              141,491
Inventory valuation charges                                     -                37,739                   -               37,739
                                                   ---------------      ---------------     ---------------     -----------------
GROSS PROFIT (LOSS)                                        23,422               (25,974)             62,155               (2,456)
                                                   ---------------      ---------------     ---------------     -----------------

OPERATING EXPENSES

     Research and development                               6,149                 5,231              18,253               18,118
     Selling, general and administrative                   13,382                12,611              37,128               43,881
     Merger and restructuring charges                           -                22,728                   -               29,941
                                                   ---------------      ---------------     ---------------     -----------------
TOTAL OPERATING EXPENSES                                   19,531                40,570              55,381               91,940
                                                   ---------------      ---------------     ---------------     -----------------

OPERATING INCOME (LOSS)                                     3,891               (66,544)              6,774              (94,396)

OTHER INCOME (EXPENSE):

     Interest expense                                        (256)                 (163)               (721)                (199)
     Other income (expense), net                              611                  (342)                (28)               1,047

                                                   ---------------      ---------------     ---------------     -----------------
INCOME (LOSS) BEFORE PROVISION
    FOR INCOME TAXES                                        4,246               (67,049)              6,025              (93,548)

Provision for income taxes                                    849                   425               1,205                  522
                                                   ---------------      ---------------     ---------------     -----------------
NET INCOME (LOSS)                                  $        3,397       $       (67,474)    $         4,820     $        (94,070)
                                                   ===============      ===============     ===============     =================

BASIC EARNINGS (LOSS) PER SHARE                    $         0.05       $         (1.09)    $          0.07     $          (1.53)
                                                   ===============      ===============     ===============     =================
DILUTED EARNINGS (LOSS) PER SHARE                  $         0.05       $         (1.09)    $          0.07     $          (1.53)
                                                   ===============      ================    ===============     =================


BASIC WEIGHTED AVERAGE SHARES OUTSTANDING                  66,316                61,713              64,391               61,519

Impact of diluted stock options and warrants                5,197                     -               5,048                    -
                                                   ---------------      ---------------     ---------------     -----------------

DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING                71,513                61,713              69,439               61,519
                                                   ===============      ===============     ===============     ================
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.

                                       4 of 24
<PAGE>

                          DIGITAL MICROWAVE CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                         Nine Months Ended
                                                                                           December 31,
                                                                            ------------------------------------------------
                                                                                  1999                       1998
                                                                            ---------------------      ---------------------
<S>                                                                         <C>                        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                            $         4,820            $       (94,070)
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
      Adjustment to conform year-end of pooled company                                     -                      1,804
      Depreciation and amortization                                                   14,356                     20,738
      Provision for uncollectable accounts                                               662                      4,282
      Provision for inventory reserves                                                 1,748                     17,853
      Provision for warranty reserves                                                  5,698                      6,257
      Changes in assets and liabilities
         Decrease (increase) in accounts receivable                                  (26,495)                    26,849
         Decrease (increase) in inventories                                              285                     (1,160)
         Decrease in other assets                                                      4,028                     10,723
         Increase (decrease) in accounts payable                                       7,620                    (16,262)
         Increase (decrease) in income tax payable                                       142                       (728)
         Increase (decrease) in other accrued liabilities                            (16,136)                     9,247
                                                                           ---------------------      ---------------------
NET CASH USED FOR OPERATING ACTIVITIES                                                (3,272)                   (14,467)
                                                                           ---------------------      ---------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of available-for-sale securities                                      (57,824)                   (13,457)
      Proceeds from available-for-sale securities                                     28,228                     18,084
      Proceeds from the sale of fixed assets and other assets                              -                      1,767
      Acquisition of  business, net of cash received                                       -                     (2,412)
      Investment in Ensemble Communications                                           (7,000)                         -
      Purchase of property and equipment                                             (15,747)                   (18,805)
                                                                           ---------------------      ---------------------
NET CASH USED FOR INVESTING ACTIVITIES                                               (52,343)                   (14,823)
                                                                           ---------------------      ---------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Borrowings from banks                                                                -                        410
      Repayment to banks                                                              (2,600)                         -
      Payment of capital lease obligations                                              (663)                    (1,144)
      Proceeds from sales of Common Stock                                             66,285                      1,077
                                                                           ---------------------      ---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                             63,022                        343
                                                                           ---------------------      ---------------------

Effect of exchange rate changes in cash                                                  189                       (585)

                                                                           ---------------------      ---------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   7,596                    (29,532)
Cash and cash equivalents at beginning of period                                      21,518                     46,904
                                                                           ---------------------      ---------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                 $          29,114          $          17,372
                                                                           ======================     =====================

SUPPLEMENTAL DATA
      Interest paid                                                        $             663           $            388
      Income taxes paid                                                    $             278           $          1,233
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.


                                       5 of 24
<PAGE>

                          DIGITAL MICROWAVE CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

BASIS OF PRESENTATION

       The condensed consolidated financial statements include the accounts of
       Digital Microwave Corporation and its wholly owned subsidiaries.
       Intercompany accounts and transactions have been eliminated. Certain
       prior years 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) which the Company considers
       necessary for a fair presentation of the results of operations for the
       interim periods covered and of the financial condition of the Company at
       the date of the interim balance sheet. The results for interim periods
       are not necessarily indicative of the results for the entire year. The
       condensed consolidated financial statements should be read in connection
       with the Digital Microwave Corporation financial statements included in
       the Company's annual report and Form 10-K for the fiscal year ended March
       31, 1999.

CASH AND CASH EQUIVALENTS

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

INVENTORIES

       Inventories are stated at the lower of cost (first-in, first-out) or
       market where cost includes material, labor and manufacturing overhead.
       Inventories consist of (in thousands):
<TABLE>
<CAPTION>
                                                   December 31, 1999                March 31, 1999
                                                   -----------------                --------------
                                                      (Unaudited)
<S>                                            <C>                              <C>
         Raw materials                         $                  22,633        $             25,616
         Work in process                                          12,377                       9,537
         Finished goods                                           13,028                      15,457
                                                     --------------------            ----------------
                                               $                  48,038        $             50,610
                                                     ====================            ================
</TABLE>

OTHER ASSETS

         Included in other assets are goodwill and other intangibles which are
         being amortized on a straight line basis over their useful lives
         ranging from 5 to 10 years, as well as minority investments accounted
         for using the cost method of accounting.


                                       6 of 24
<PAGE>

RESTRUCTURING COSTS

         Merger and restructuring charges of $29.9 million were recorded in
         Fiscal 1999, of which $7.2 million was recorded in the first quarter of
         Fiscal 1999 and consisted of $5.8 million related to the discontinuance
         of several internal information technology systems projects and $1.4
         million for severance and related costs associated with a reduction in
         the Company's workforce. Total Fiscal 1999 charges consisted of $2.7
         million for investment banker, legal, and accounting fees related to
         the Innova merger consummated in October 1998, $4.2 million for
         severance costs, $4.1 million for facility termination costs, a
         write-off of $5.8 million related to the discontinuance of several
         projects related to the implementation of software purchased for
         internal use, and a write-off of goodwill and certain assets related to
         the Company's subsidiary, Granger, Inc., totaling $13.1 million. The
         assets of Granger, Inc. were sold in March 1999. Approximately $12.2
         million of the $29.9 million in merger and restructuring charges was
         expected to be a cash outflow, of which $10.3 million has been paid as
         of December 31, 1999. The remaining amounts are expected to be paid
         before the end of Fiscal 2001, and consist of $0.5 million for
         severance costs, $1.0 million for facility termination costs, and $0.4
         million for purchased commitments of software.

CURRENCY TRANSLATION

         The functional currency of the Company's subsidiaries located in the
         United Kingdom and Latin America is the U.S. dollar. Accordingly, all
         of the monetary assets and liabilities of these subsidiaries are
         remeasured into U.S. dollars at the current exchange rate as of the
         applicable balance sheet date, and all non-monetary assets and
         liabilities are remeasured at historical rates. Sales and expenses are
         remeasured at the average exchange rate prevailing during the period.
         Gains and losses resulting from the remeasurement of the subsidiaries'
         financial statements are included in the Consolidated Statements of
         Operations. The Company's other international subsidiaries use their
         local currency as their functional currency. Assets and liabilities of
         these subsidiaries are translated at the exchange rates in effect at
         the balance sheet date, and income and expense accounts are translated
         at the average exchange rates during the year. The resulting
         translation adjustments are recorded directly to a separate component
         of stockholders' equity.

FINANCIAL INSTRUMENTS

         The Company enters into forward foreign exchange contracts to hedge
         some of its firm committed backlog and certain assets and liabilities
         denominated in foreign currencies. At December 31, 1999, the Company
         had forward foreign exchange contracts to exchange various foreign
         currencies for U.S. dollars in the gross amount of $44.3 million.
         Market value gains and losses on forward foreign exchange contracts are
         recognized as offsets to the exchange gains or losses on the hedged
         transactions.


                                       7 of 24
<PAGE>

NET INCOME (LOSS) PER SHARE

         The Financial Accounting Standards Board (the "FASB") issued Statement
         on Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
         Share." Under SFAS 128, basic earnings per share are computed by
         dividing net income by the weighted average number of common shares
         outstanding during the period. Diluted earnings per share are computed
         by dividing net income by the weighted average number of common shares
         and potentially dilutive securities outstanding during the period. Net
         loss per share is computed using only the weighted average number of
         common shares outstanding during the period, as the inclusion of
         potentially dilutive securities would be anti-dilutive.

MERGERS AND ACQUISITIONS

         In October 1998, stockholders approved the issuance of Common Stock of
         the Company pursuant to an agreement to merge with Innova Corporation
         ("Innova"), a Washington corporation, which designs, manufactures,
         markets, and supports digital microwave radio links for the worldwide
         telecommunications market. Under the terms of the agreement, the
         Company exchanged 1.05 shares of its Common Stock for each outstanding
         share of Innova stock, stock options, and warrants. The Company issued
         approximately 14.7 million shares to Innova shareholders upon
         consummation of the merger. The combination qualified as a tax-free
         reorganization accounted for as a pooling-of-interests transaction.
         Accordingly, the historical financial statements of the Company have
         been restated to reflect the results of Innova for all periods
         presented.

LITIGATION AND CONTINGENCIES

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

CONCENTRATION OF CREDIT RISK

         Trade receivables concentrated with certain customers primarily in the
         telecommunications industry and in certain geographic locations
         potentially subject the Company to concentration of credit risk. In
         addition to sales in Western Europe and North America, the Company
         actively markets and sells products in Asia, Eastern Europe, South
         America, the Middle East and Africa. The Company performs on-going
         credit evaluations of its customers' financial conditions and generally
         requires no collateral, although sales to Asia, Eastern Europe, South
         America, the Middle East and Africa are primarily paid through letters
         of credit. During Fiscal 1999, the Company wrote off two customer
         accounts which totaled $4.3 million. No significant customer accounts
         have been written off in Fiscal 2000.


                                       8 of 24
<PAGE>

COMPREHENSIVE INCOME

         In June 1997, the FASB issued Statement on Financial Accounting
         Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which
         establishes standards for reporting and display of comprehensive income
         and its components (revenue, expenses, gains and losses) in a full set
         of general-purpose financial statements. The following table reconciles
         comprehensive income under the provisions of SFAS 130 (in thousands)
         for:
<TABLE>
<CAPTION>
                                                          Three Months Ended                      Nine Months Ended
                                                              December 31,                           December 31,
                                                              ------------                           ------------
                                                       1999                 1998                 1999                 1998
                                                       ----                 ----                 ----                 ----
<S>                                              <C>                <C>                  <C>                   <C>
Net income (loss)                                $       3,397      $        (67,474)    $         4,820       $       (94,070)
     Other comprehensive
     income (loss)  net of tax:
      Unrealized currency gain (loss)                     (551)                1,294              (1,573)               (1,999)
      Unrealized holding gain (loss)
      on short-term investments                            858                    12                 586                   (46)
                                                 ---------------    -----------------    -----------------     ----------------
Comprehensive income (loss)                      $       3,704      $        (66,168)    $         3,833       $       (96,115)
                                                 ===============    =================    =================     ================
</TABLE>

NEW ACCOUNTING PRONOUNCEMENTS

         In February 1998, the American Institute of Certified Public
         Accountants issued Statement of Position (SOP) 98-1, "Accounting for
         the Costs of Computer Software Developed or Obtained for Internal Use,"
         which is effective for fiscal years beginning after December 15, 1998.
         This SOP requires capitalization of certain costs incurred in the
         development of internal-use software, including external direct
         material and service costs, employee payroll and payroll-related costs,
         and interest. The Company has adopted SOP 98-1 for the fiscal year
         ending March 31, 2000. The adoption did not have a material effect on
         the Company's financial statements.

         In June 1998, the FASB issued Financial Accounting Standards No. 133
         ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
         Activities," which establishes standards for the reporting and display
         of comprehensive income and its components in general purpose financial
         statements. SFAS 133 is effective for companies with fiscal years
         beginning after June 15, 2000. SFAS 133 requires the Company to
         recognize all derivatives on the balance sheet at fair value.
         Derivatives that are not hedges must be adjusted to fair value through
         income. If the derivative is a hedge, depending on the nature of the
         hedge, changes in the fair value of derivatives will either be offset
         against the change in fair value of the hedged assets, liabilities or
         firm commitments through earnings, or recognized in other comprehensive
         income until the hedged item is recognized in earnings. The Company
         believes that the adoption of this new pronouncement will not have a
         material effect on the Company's financial statements.


                                       9 of 24
<PAGE>

OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

         The Company is organized into two operating segments: Products and
         Services. The Chief Executive Officer has been identified as the Chief
         Operating Decision-Maker as defined by SFAS 131, "Disclosures about
         Segments of an Enterprise and Related Information." 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 SPECTRUM II, XP4, DXR,
         Altium and other digital microwave systems for digital transmission
         markets and designs, develops, and manufactures these products in
         Seattle, Washington; San Jose, California; and, Wellington, New
         Zealand. The Services operating segment includes, but is not limited
         to, installation, repair, network design, path surveys, integration,
         and other services.

         The following table sets forth revenues and operating profit (loss) by
         operating segments (in thousands) for:
<TABLE>
<CAPTION>
                                                   Three Months Ended                    Nine Months Ended
                                                      December 31,                          December 31,
                                                      ------------                          ------------
                                                1999                1998               1999                 1998
                                                ----                ----               ----                 ----
<S>                                        <C>                 <C>                <C>                  <C>
  Products:
       Revenues                            $       73,019      $      53,372      $      201,183       $      159,175
       Operating income (loss)                      4,176            (65,005)              7,656              (92,076)

  Services:
       Revenues                                     4,416              4,906              10,732               17,599
       Operating income (loss)                       (285)            (1,539)               (882)              (2,320)

  Total:
       Revenues                            $       77,435      $      58,278      $      211,915       $      176,774
       Operating income (loss)                      3,891            (66,544)              6,774              (94,396)
</TABLE>

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

<TABLE>
<CAPTION>
                                               Three Months Ended                     Nine Months Ended
                                                  December 31,                           December 31,
                                                  ------------                           ------------
                                           1999                  1998               1999                 1998
                                           ----                  ----               ----                 ----
<S>                                   <C>                   <C>                <C>                 <C>
  SPECTRUM II                         $        30,286       $       26,250     $        90,588     $         82,602
  XP4                                          16,039                7,954              41,187               23,835
  DXR                                          11,030               10,066              29,446               25,001
  Altium                                       12,499                  681              28,760                1,641
  Other Products                                3,165                8,421              11,202               26,096
                                      -----------------     ---------------    ----------------    -----------------
        Total Products                         73,019               53,372             201,183              159,175
        Total Services                          4,416                4,906              10,732               17,599
                                      -----------------     ---------------    ----------------    -----------------
  Total Revenue                       $        77,435       $       58,278     $       211,915     $        176,774
                                      =================     ===============    ================    =================
</TABLE>


                                      10 of 24
<PAGE>

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

<TABLE>
<CAPTION>
                                               Three Months Ended                     Nine Months Ended
                                                  December 31,                           December 31,
                                                  ------------                           ------------
                                           1999                  1998               1999                 1998
                                           ----                  ----               ----                 ----
<S>                                   <C>                   <C>                <C>                 <C>
  United States                       $        16,463       $        8,869     $        42,883     $         25,869
  Mexico                                       10,775                2,379              21,245                7,992
  Other Americas                                3,945                7,786              14,281               30,869
  Europe                                       22,592               17,737              57,532               64,988
  Africa                                        4,912                4,845              16,244               10,248
  China                                        12,084                7,052              33,767               11,999
  Other Asia/Pacific                            6,664                9,610              25,963               24,809
                                      -----------------     ---------------    ----------------    -----------------
  Total Revenue                       $        77,435       $       58,278     $       211,915     $        176,774
                                      =================     ===============    ================    =================
</TABLE>


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

<TABLE>
<CAPTION>
                                                    December 31, 1999              March 31, 1999
                                                    -----------------              --------------
<S>                                                 <C>                           <C>
  United States                                     $            29,490           $         28,043
  United Kingdom                                                  9,547                     11,621
  Other foreign countries                                         4,420                      3,361
                                                    --------------------          -----------------
  Total property and equipment, net                 $            43,457           $         43,025
                                                    ====================          =================
</TABLE>


                                       11 of 24
<PAGE>

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

The following table sets forth the percentage relationships of certain items
from the Company's Condensed Consolidated Statements of Operations as
percentages of net sales:
<TABLE>
<CAPTION>
                                                      Three Months Ended                  Nine Months Ended
                                                         December 31,                        December 31,
                                                         ------------                        ------------
                                                  1999                1998               1999               1998
                                                  ----                ----               ----               ----
<S>                                           <C>                 <C>                <C>                 <C>
Net sales                                        100.0   %           100.0   %          100.0   %           100.0   %
Cost of sales                                     69.8                79.8               70.7                80.0
Inventory valuation charges                          -                64.8                  -                21.4
                                              -------------      -------------      ---------------    ----------------
Gross profit (loss)                               30.2               (44.6)              29.3                (1.4)

Research & development                             7.9                 9.0                8.6                10.2
Selling, general &  administrative                17.3                21.6               17.5                24.8
Restructuring costs                                  -                39.0                  -                17.0
                                              -------------      -------------      ---------------    ----------------

Operating income (loss)                            5.0              (114.2)               3.2               (53.4)
Interest expense                                  (0.3)               (0.3)              (0.3)               (0.1)
Other income (expense), net                        0.8                (0.6)              (0.1)                0.6
                                              -------------      -------------      ---------------    ----------------

Income (loss) before provision for
  income taxes                                     5.5              (115.1)               2.8               (52.9)

Provision for income taxes                         1.1                 0.7                0.5                 0.3
                                              -------------      -------------      ---------------    ----------------

     Net income (loss)                             4.4   %          (115.8)  %            2.3   %           (53.2)  %
                                              =============      =============      ===============    ================
</TABLE>

NET SALES Net sales for the third quarter of Fiscal 2000 were $77.4 million,
compared to $58.3 million reported in the same quarter of Fiscal 1999. The
increase in net sales occurred across all of the Company's major product
families which includes Spectrum II, XP4, DXR and the recently introduced
Altium(TM) product lines. Net sales of the Altium product lines, which began
volume shipments in January 1999, increased to $12.5 million in the third
quarter of Fiscal 2000 from $0.7 million in the comparable third quarter of
Fiscal 1999. Net sales for other products, including older product lines that
have been phased out, amounted to $3.2 million in the third quarter of Fiscal
2000 compared to $8.4 million in the third quarter of Fiscal 1999. Service
revenue was $4.4 million in the third quarter of Fiscal 2000 compared to $4.9
million in the third quarter of Fiscal 1999.

The increase in net sale occurred also across all the Company's geographic
regions. Net sales increased in the Americas to $31.2 million in the third
quarter of Fiscal 2000 compared to $19.0 million in the third quarter of Fiscal
1999. Net sales to U.S. customers, included in the Americas region, amounted to
$16.5 million in the third quarter of Fiscal 2000 compared to $8.9 million in
the third quarter of Fiscal 1999. Net sales to customers in Mexico, which also
is included in the Americas region, amounted to $10.8 million in the third
quarter of Fiscal 2000 compared to $2.4


                                    12 of 24
<PAGE>

million in the third quarter of Fiscal 1999. Net sales to European customers
increased to $22.6 million in the third quarter of Fiscal 2000 compared to $17.7
million in the third quarter of Fiscal 1999. Net sales in the Asia/Pacific
region increased to $18.7 million in the third quarter of Fiscal 2000 compared
to $16.7 million in the same quarter of Fiscal 1999. Net sales to China,
included in the Asia/Pacific region, were $12.1 million in the third quarter of
Fiscal 2000 and $7.1 million in the comparable quarter of the prior year.

Net sales for the first nine months of Fiscal 2000 were $211.9 million, compared
to $176.8 million reported in the same period of Fiscal 1999. The increase in
net sales occurred across all of the Company's major product families. Net sales
of the Altium product lines increased to $28.8 million in the first nine months
of Fiscal 2000 from $1.6 million in the comparable first nine months of Fiscal
1999. Net sales for other products, including older product lines that have been
phased out, amounted to $11.2 million in the first nine months of Fiscal 2000
compared to $26.0 million in first nine months of Fiscal 1999. Service revenue
was $10.7 million for the first nine months of Fiscal 2000 compared to $17.6
million for the first nine months of Fiscal 1999.

The increase in net sales for the first nine months of Fiscal 2000 compared
to the same period last year occurred across all of the Company's geographic
regions, except for Europe. Sales to European customers decreased to $57.5
million in the first nine months of Fiscal 2000 compared to $65.0 million in
the first nine months of Fiscal 1999. Net sales increased in the Americas to
$78.4 million in the first nine months of Fiscal 2000 compared to $64.7
million in the first nine months of Fiscal 1999. Net sales to U.S. customers,
included in the Americas region, amounted to $42.9 million in the first nine
months of Fiscal 2000 compared to $25.9 million in the first nine months of
Fiscal 1999. Net sales to customers in Mexico, which also is included in the
Americas region, amounted to $21.2 million in the first nine months of Fiscal
2000 compared to $8.0 million in the first nine months of Fiscal 1999. Net
sales in the Asia/Pacific region increased to $59.7 million in the first nine
months of Fiscal 2000 compared to $36.8 million in the same period of Fiscal
1999. Net sales to China, included in the Asia/Pacific region, were $33.8
million in the first nine months of Fiscal 2000 and $12.0 million in the
comparable period of the prior year.

During the third quarter of Fiscal 2000, the Company received $104.3 million in
new orders shippable over the next twelve months, compared to $56.3 million in
the third quarter of Fiscal 1999, for an increase of 85%. During the first nine
months of Fiscal 2000, the Company received $243.3 million in new orders
shippable over the next twelve months, compared to $168.3 million in the first
nine months of Fiscal 1999, for an increase of 45%. The backlog at December 31,
1999 was $92.6 million, compared to $63.9 million at March 31, 1999.

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

GROSS PROFIT

Gross profit as a percentage of net sales for the third quarter of Fiscal 2000
was 30.2% compared to (44.6)% in the same quarter of Fiscal 1999. The Company's
gross margin in the third quarter of Fiscal 1999 was adversely affected by the
inventory valuation charges of $37.7 million as the following details. The
merger with Innova and planned introduction of new product lines accelerated the
obsolescence of the Company's Spectrum II(TM) product line, causing the


                                    13 of 24
<PAGE>

Company to record a $30.3 million reserve for excess and obsolescence. Also,
liabilities of $7.4 million were recognized to account for vendor cancellation
charges on purchase order commitments resulting from the reduction in the
Company's sales volume compared to the prior year. Cost of sales, excluding
inventory valuation charges, decreased to 69.8% in Fiscal 2000 compared to 79.8%
in the third quarter of Fiscal 1999. The decrease in cost of sales was primarily
the result of improved manufacturing capacity utilization and cost reductions
resulting from reductions in facilities and personnel in the second half of
Fiscal 1999. See page 7, "Notes to Condensed Consolidated Financial Statements -
Restructuring Costs."

Gross profit as a percentage of net sales for the first nine months of Fiscal
2000 was 29.3% compared to (1.4)% in the first nine months of Fiscal 1999. For
the first nine months of Fiscal 2000, cost of sales, excluding the inventory
valuation charges discussed above, decreased to 70.7% compared to 80.0% for the
same period in Fiscal 1999. The decrease in cost of sales was primarily the
result of improved manufacturing capacity utilization and cost reductions
resulting from reductions in facilities and personnel in the second half of
Fiscal 1999. See page 7, "Notes to Condensed Consolidated Financial Statements -
Restructuring Costs" and the discussion of inventory valuation charges in the
preceding paragraph.

RESEARCH AND DEVELOPMENT
In the third quarter of Fiscal 2000, research and development expenses increased
to $6.1 million, from $5.2 million in the third quarter of Fiscal 1999 as a
result of higher headcount to support new product rollouts. As a percentage of
net sales, research and development expenses decreased to 7.9% in the third
quarter of Fiscal 2000 compared to 9.0 % in the third quarter of Fiscal 1999 due
to an increase in net sales.

In the first nine months of Fiscal 2000, research and development expenses
increased slightly to $18.3 million from $18.1 million in the same period in
Fiscal 1999. As a percentage of net sales, research and development expenses
were 8.6% in the first nine months of Fiscal 2000 compared to 10.2% in the first
nine months of Fiscal 1999 due to an increase in net sales.

Research and development expenses in the first nine months of Fiscal 2000 were
primarily incurred for further development of the Altium product line. The
Company intends to continue its new product rollouts in order to maintain and
enhance its competitive position.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In the third quarter of Fiscal 2000, selling, general and administrative
expenses increased to $13.4 million from $12.6 million in the third quarter of
Fiscal 1999. The monetary increase in selling, general and administrative
expenses in the third quarter of Fiscal 2000 compared to the third quarter of
Fiscal 1999 was a result of higher trade show costs. As a percentage of net
sales, selling, general and administrative expenses decreased to 17.3% in the
third quarter of Fiscal 2000 compared to 21.6% in the comparable quarter of
Fiscal 1999 due to an increase in net sales.

In the first nine months of Fiscal 2000, selling, general and administrative
expenses decreased to $37.1 million from $43.9 million in the first nine months
of Fiscal 1999. As a percentage of net sales, selling, general and
administrative expenses decreased to 17.5% in the first nine months of Fiscal
2000 from 24.8% in the comparable period of Fiscal 1999 due to an increase in
net sales.

The decrease in selling, general and administrative expenses in absolute dollars
and as a percentage of net sales for the first nine months of Fiscal 2000
compared to the comparable


                                    14 of 24
<PAGE>

period of Fiscal 1999 was attributable to workforce reductions and other cost
initiatives taken in the first and third quarters of Fiscal 1999,which was
offset to some extent by the increase in these expenses in the third quarter of
Fiscal 2000 as discussed above. See page 7, " Notes to Condensed Consolidated
Financial Statements - Restructuring Costs."

MERGER AND RESTRUCTURING EXPENSES
Merger and restructuring charges of $22.7 million were recorded in the third
quarter of Fiscal 1999. These charges included $2.7 million for merger costs
consisting primarily of fees for the investment banker, legal and accounting
services related to the Innova merger, $2.8 million for severance costs, $4.1
million for facility termination costs, and an impairment loss of $13.1 million
resulting from the reduction of the carrying value of goodwill and other assets
related to Granger Inc., a subsidiary of the Company. See page 7, "Notes to
Condensed Consolidated Financial Statements - Restructuring Cost."

Additionally, in the first quarter of Fiscal 1999, restructuring costs of $7.2
million were recorded. These charges consisted of a write off of $5.8 million
related to the discontinuance of several internal information technology ("IT")
systems projects and $1.4 million for severance and related costs associated
with a reduction in the Company's workforce. See page 7, " Notes to Condensed
Consolidated Financial Statements - Restructuring Costs."

OTHER INCOME (EXPENSE)
The increase in interest expense in the third quarter of Fiscal 2000 of $0.1
million was primarily attributable to higher debt balances as compared to the
same quarter of the prior year. Other income (expense), net changed to $0.6
million income in the third quarter of Fiscal 2000 from a $0.3 million expense
in the third quarter of Fiscal 1999 primarily due to the cost of foreign
exchange contracts, foreign exchange gains and losses as well as $0.6 million of
interest income in the third quarter of Fiscal 2000 compared to $0.3 million in
the third quarter of Fiscal 1999.

The increase in interest expense in the first nine months of Fiscal 2000 of $0.5
million was primarily attributable to higher debt balances as compared to the
same period of the prior year. Other income (expense), net changed to
essentially a break even in the first nine months of Fiscal 2000 from $1.0
million income in the first nine months of Fiscal 1999 primarily due to the cost
of foreign exchange contracts, foreign exchange gains and losses as well as $1.2
million of interest income in the first nine months of Fiscal 2000 compared to
$1.1 million in the first nine months of Fiscal 1999.

PROVISION FOR INCOME TAXES
In the first nine months of Fiscal 2000, the Company recorded a provision for
income taxes at less than the statutory rate primarily due to the anticipated
utilization of net operating loss carry forwards in Fiscal 2000. The Company did
not record a tax benefit in the first nine months of Fiscal 1999, as it could
not be certain of profitability in future periods.



LIQUIDITY AND CAPITAL RESOURCES

Net cash used for operating activities in the first nine months of Fiscal 2000
was $3.3 million, compared to net cash used for operating activities of $14.5
million in the first nine months of


                                    15 of 24
<PAGE>

Fiscal 1999. The improvement in cash used for operations was primarily the
result of a substantial net loss for the first nine months of Fiscal 1999
compared to net income for the first nine months of Fiscal 2000. Accounts
receivable increased $26.5 million in the first nine months of Fiscal 2000 due
to an increase in sales volume and the timing of shipments as 52% of the
Company's Fiscal 2000 third quarter shipments occurred in the last month of the
period compared to 45% in the same period a year ago.

Purchases of property and equipment decreased to $15.7 million in the first nine
months of Fiscal 2000 from $18.8 million in the first nine months of Fiscal
1999. The Fiscal 1999 activity was mostly attributable to test equipment
purchases at the Company's Seattle manufacturing location and payments on the
Company's new service and repair facility in the United Kingdom. During the
third quarter of Fiscal 2000, the Company invested $7.0 million for a minority
interest in Ensemble Communications, a supplier of broadband wireless access
equipment. The Company also placed in escrow an additional $3.0 million for a
possible subsequent investment in August 2000. This subsequent investment is at
the option and sole discretion of Ensemble Communications.

On October 1, 1999 the Securities and Exchange Commission declared the Company's
Registration Statement on Form S-3 effective. Under the Registration Statement,
the Company may sell up to $100 million in debt securities, common stock, debt
warrants and common stock warrants. During the third quarter Fiscal 2000, the
Company used its shelf registration statement to sell 3,450,000 shares of its
common stock and received proceeds of $55.1 million, net of costs of $0.1
million. The Company will use the net proceeds for general corporate purposes,
including working capital and strategic investments and acquisitions.
Additionally, the Company received $11.2 million from the exercise of employee
stock options and warrants in the first nine months of Fiscal 2000 compared to
$1.0 million in the first nine months of Fiscal 1999.

In December 1999, the Company elected not to renew its $40.0 million asset-based
borrowing facility with a U.S. lender and repaid $2.6 million outstanding under
the facility.

At December 31, 1999, the Company's principal sources of liquidity consisted of
$64.5 million in cash and cash equivalents and short-term investments. The
Company also retains the ability to sell up to an additional $44.8 million in
debt securities, common stock, debt warrants and common stock warrants under its
shelf registration discussed above. However, there can be no assurance that the
Company will be able to sell these securities on commercially reasonable terms
or at all.

The Company believes that it has the financial resources needed to meet its
business requirements for the foreseeable future.


                                    16 of 24
<PAGE>

YEAR 2000 READINESS

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

The Company had taken steps to ensure that its products and computer programs
would continue to operate on and after January 1, 2000. The Company formed a
project team consisting of staff from Manufacturing, Customer Service, Finance,
Human Resources, Sales, Marketing, Legal, Engineering, and Information
Technology (IT) departments, led by a project manager. A five-phase solution
process had been established consisting of (1) awareness, (2) assessment, (3)
renovation, (4) validation, and (5) implementation. The Company had completed
this five-phase process with respect to its Year 2000 issues. The Company's Year
2000 project team identified its manufacturing IT system as its highest priority
and had implemented Year 2000 upgrades to its manufacturing systems. The
Company's network operating systems were also Year 2000-ready. The Company's
personal computers had been evaluated and upgrades were installed to correct
noncompliance. Some older personal computers were replaced or taken out of
service. The Company has experienced no Year 2000 problems with any of its
manufacturing or informational systems as a result of the Year 2000 changeover.

The Company had completed an assessment of all of its products. It was
determined that most of its hardware products would not be affected by the Year
2000 issue because no internal clock exists in these products. Year 2000
readiness testing was conducted on its newer products, including the Altium
product line and network software products. Some older network software products
were not Year 2000-ready and the Company developed an upgrade plan for customers
who are using this software. There could be no assurance that customers would
properly upgrade their software and we cannot predict the resulting impact on
customers' networks if they are not upgraded. There were no customer outages or
equipment failures as a result of the Year 2000 changeover.

The Company mailed letters to its primary suppliers and subcontractors to
determine whether they were developing plans to address processing transactions
in the Year 2000 and to monitor their progress toward Year 2000 capability. All
critical vendors contacted had responded, and the Year 2000 team had visited the
critical vendors to ensure that processes were actually in place as represented.
The Company has not experienced any supply problems because of Year 2000
noncompliance with any of its vendors.

The Company spent approximately $0.8 million investigating and remedying issues
related to Year 2000 readiness involving internal operations, including
purchases of software test tools, software upgrades, and upgrading a security
system related to Year 2000 readiness. In addition, the Company estimates that
$0.5 million of internal personnel costs were incurred to support the Company's
Year 2000 readiness plan.


                                    17 of 24
<PAGE>

The Company had developed a contingency plan to operate in the event that any
critical systems were noncompliant on January 1, 2000. This contingency plan
included, but was not limited to: 1) transitioning to alternate suppliers, 2)
responding to customers faced with Year 2000 issues, 3) operating in a manual
mode, i.e., without computer systems, 3) using generators to maintain
communications, and 4) identifying alternative data processing service
providers. None of the contingency plans were required with the Year 2000
changeover.

As a result of the Year 2000 changeover, the Company knows of no trend or event
that could have a material adverse effect on the Company's business, financial
condition and results of operation. The Company will continue to monitor its
manufacturing processes and transactional based software for potential embedded
Year 2000 problems and maintain its alternate suppliers list.

EUROPEAN MONETARY UNION

In January 1999, a new currency called the "euro" was introduced in certain
Economic and Monetary Union ("EMU") countries. During 2002, all EMU countries
are expected to be operating with the euro as their single currency. Uncertainty
exists as to the effect the euro currency will have on the marketplace.
Additionally, all of the rules and regulations have not yet been defined and
finalized by the European Commission with regard to the euro currency. However,
the Company has assessed the effect the euro formation will have on its internal
systems and the sale of its products. The Company's European sales and operating
transactions are based primarily in U.S. dollars or U.K. pounds sterling,
neither of which are subject to the euro conversion. While the Company does have
some sales denominated in the European Currency Unit, this currency is
successfully being converted in the market to the new European Monetary Unit at
parity. In addition, the Company upgraded its internal computer systems to
convert the European currency to the euro. The cost of upgrading the Company's
systems in connection with the euro conversion was not material and no material
adverse effect on the Company's business, financial condition, and results of
operations is expected due to the upgrade.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK
It is the Company's policy not to enter into derivative financial instruments
except for hedging of foreign currency exposures. The Company hedges certain
portions of its exposure to foreign currency fluctuations through the use of
forward foreign exchange contracts. The Company enters into forward foreign
exchange contracts for purposes other than trading; however, the Company does
not engage in any foreign currency speculation. Forward foreign exchange
contracts represent agreements to buy or sell a specified amount of foreign
currency at a specified price in the future. These contracts generally have
maturities that do not exceed one month. At December 31, 1999, the Company had
forward foreign exchange contracts to exchange various foreign currencies for
U.S. dollars in the aggregate amount of $44.3 million, primarily in New Zealand
dollars, British pounds, and euros. Gains and losses associated with currency
rate changes on forward foreign exchange contracts are recorded currently in
income as they offset corresponding gains and losses on the foreign
currency-denominated assets and liabilities being hedged. Therefore, the
carrying value of forward foreign exchange contracts approximates their fair
value. The Company believes that the credit risk with respect to its


                                    18 of 24
<PAGE>

forward foreign exchange contracts is minimal because the Company enters into
contracts with major financial institutions. Market risk with respect to forward
foreign exchange contracts is offset by the corresponding exposure related to
the underlying assets and liabilities.

FOREIGN CURRENCY RATE RISK
Although nearly all of the Company's sales and expenses are denominated in U.S.
dollars, the Company has experienced some foreign exchange gains and losses to
date, and expects to incur additional gains and losses in Fiscal 2000. The
Company did engage in foreign currency hedging activities during the quarter
ended December 31, 1999, as explained above, and intends to continue doing so as
needed.

FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS

The statements in this Form 10-Q concerning the Company's future products,
expenses, revenues, gross margins, liquidity and cash needs, as well as the
Company's plans and strategies, contain forward-looking statements concerning
the Company's future operations and financial results within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. These
forward-looking statements are based on current expectations and the Company
assumes no obligation to update this information. Numerous factors, such as
economic and competitive conditions, timing and volume of incoming orders,
shipment volumes, product margins, and foreign exchange rates, could cause
actual results to differ materially from those described in these statements,
and prospective investors and stockholders should carefully consider the factors
set forth in the Company's Registration Statement on Form S-3, effective October
1, 1999, and those set forth below in evaluating these forward-looking
statements.

Sales of the Company's products are concentrated in a small number of customers.
For the first nine months of Fiscal 2000 ended December 31, 1999, the top three
customers accounted for 38% of the net sales. As of December 31, 1999, three of
the Company's customers accounted for 39% of the backlog. The worldwide
telecommunications industry is dominated by a small number of large
corporations, and the Company expects that a significant portion of its future
product sales will continue to be concentrated in a limited number of customers.
The loss of any existing customer, a significant reduction in the level of sales
to any existing customer, or the failure of the Company to gain additional
customers could harm the Company's business, financial condition and results of
operations. In addition, a substantial portion of shipments may occur near the
end of each quarter. Accordingly, the Company's results are difficult to predict
and delays in product delivery or closing of a sale can cause revenues and net
income to fluctuate significantly from anticipated levels and from quarter to
quarter.

Wireless infrastructure suppliers are experiencing, and will likely continue to
experience, intense price pressure which has resulted, and is expected to
continue to result, in downward pricing pressure on the Company's products. As a
result, the Company has experienced, and expects to continue to experience,
declining average sales prices for its products. The Company's ability to
maintain its gross profit margins is dependent upon its ability to continue to
introduce new products and product enhancements. Any inability of the Company to
respond to increased price competition would harm the Company's business,
financial condition and results of operations.

The markets for the Company's products are extremely competitive, and the
Company expects that competition will increase. The Company considers its
primary competitors to be L. M.


                                    19 of 24
<PAGE>

Ericsson, Alcatel, Siemens AG, P-COM, Inc. and the Microwave Communications
Division of Harris Corporation. In addition, other existing competitors
presently include SIAE, Sagem, Lucent, NEC, Nokia, ATI, a subsidiary of World
Access, and Northern Telecom. Many of these companies have more extensive
engineering, manufacturing, and marketing capabilities and significantly greater
financial, technical, and personnel resources than the Company. The Company
believes that its ability to compete successfully will depend on a number of
factors, both within and outside its control, including price, quality,
availability, customer service and support, breadth of product line, product
performance and features, rapid time-to-market delivery capabilities,
reliability, timing of new product introductions by the Company, its customers
and its competitors, and the ability of its customers to obtain financing.

The Company expects that international sales will continue to account for the
majority of its net product sales for the foreseeable future. As a result, the
Company is subject to the risks of doing business internationally, including
unexpected changes in regulatory requirements, fluctuations in foreign currency
exchange rates, imposition of tariffs and other barriers and restrictions, the
burdens of complying with a variety of foreign laws, and general economic and
geopolitical conditions, including inflation and trade relationships. In
addition, recent worldwide economic events, particularly in Latin America and
Asia, including depreciation of currencies, failures of financial institutions,
stock market declines, and reduction in planned capital investment at key
enterprises, may cause the Company's international revenues to decrease. There
can be no assurance that currency fluctuations, changes in the rate of inflation
or any of the factors mentioned above will not harm the Company's business,
financial condition and results of operations.

The Company's manufacturing operations are highly dependent upon the delivery of
materials by outside suppliers in a timely manner. In addition, the Company
depends in part upon subcontractors to assemble major components and subsystems
used in its products in a timely and satisfactory manner. While the Company
enters into long-term or volume purchase agreements with a few of its suppliers,
no assurance can be given that materials, components, and subsystems will be
available in the quantities required by the Company, if at all. The inability of
the Company to develop alternative sources of supply quickly and on a
cost-effective basis could materially impair the Company's ability to
manufacture and deliver its products in a timely manner which could harm the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will not experience material supply problems or
component or subsystem delays in the future.

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


                                    20 of 24
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a description of the Company's market risks, see page 18, "Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Quantitative and Qualitative Disclosures About Market Risk."


                                    21 of 24
<PAGE>

PART II - OTHER INFORMATION

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

         None

ITEM 5 - OTHER INFORMATION

         None

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

 (a)     Exhibits

         For a list of exhibits to this Form 10-Q, see the exhibit index located
on page 23.

(b)      Reports on Form 8-K

         The Company filed the following Form 8-K's during the quarter ended
December 31, 1999:

         1) On November 17, 1999, the Company filed a report on Form 8-K,
            pursuant to a Registration Statement on Form S-3 and in
            connection with the public offering of 3,450,000 shares of the
            Company's common stock, to report that it had entered into an
            underwriting agreement with CIBC World Markets Corp., dated
            November 16, 1999 and to file a copy of such agreement and a
            press release related to such offering; and

         2) On November 19, 1999, the Company filed a report on Form 8-K,
            pursuant to a Registration Statement on Form S-3 and in connection
            with the public offering of 3,450,000 shares of common stock, to
            report the Company's consummation of the sale and issuance of such
            shares on November 19, 1999 and to file a press release related
            thereto.


                                    22 of 24
<PAGE>

                                  EXHIBIT INDEX

Exhibit
Number     Description
-------    -----------

27.1       Financial Data Schedule for the quarter ended December 31, 1999.


                                    23 of 24
<PAGE>

                                    SIGNATURE

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


DIGITAL MICROWAVE CORPORATION

Date:    February 14, 2000            By    /s/   Carl A. Thomsen
      -------------------------       -----------------------------------------
                                                 Carl A. Thomsen
                                      Senior Vice President, Chief Financial
                                              Officer and Secretary

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