##### Table of Contents



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
December 31, 2002 |  | Commission file number: 0-15895

STRATEX NETWORKS, INC.




(Exact name of registrant specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 77-0016028                          
|                                                               |  |                                     
|(State or other
jurisdiction
of incorporation or organization) |  | (IRS employer identification number)
|                                                               |  |                                     
|170 Rose Orchard Way
San Jose, CA                              |  | 95134                               
|                                                               |  |                                     
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          
|                                                               |  |                                     
|Registrants telephone number, including area code:            |  | (408) 943-0777                      

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

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



| |              
| | -------------
| | Yes

x   No
o

The number of outstanding shares of the Registrants common stock, par value
$.01 per share, was 82,776,027 on February 7, 2002.





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TABLE OF CONTENTS



|                               |                                                                                                                     |                                                      |  |  |  |  |  | 
|------------------------------ | ------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|INDEX                         
|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 99.1                  
|EXHIBIT 99.2                  



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INDEX

|                            |                                |                                                                                                |                                                      |   |       |       | 
|--------------------------- | ------------------------------ | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------- | - | ----- | ----- | 
|                            |                                |                                                                                                |                                                      |   | PAGE 
|                            | COVER PAGE                     |                                                                                                |                                                      | 1 |      
|                            | INDEX                          |                                                                                                |                                                      | 2 |      
|                            | PART I  FINANCIAL INFORMATION |                                                                                                |                                                      |   |      
|                            |                                | Item 1 - Financial Statements                                                                  |                                                      |   |       |      
|                            |                                |                                                                                                | Condensed Consolidated Balance Sheets                |   |       | 3     | 
|                            |                                |                                                                                                | Condensed Consolidated Statements of Operations      |   |       | 4     | 
|                            |                                |                                                                                                | Condensed Consolidated Statements of Cash Flows      |   |       | 5     | 
|                            |                                |                                                                                                | Notes to Condensed Consolidated Financial Statements |   |       | 6-17  | 
|                            |                                | Item 2 - Managements Discussion and Analysis of
Financial Condition and Results of Operations |                                                      |   | 18-28 |      
|                            |                                |                                                                                                | Factors That May Affect Future Financial Results     |   |       | 29-37 | 
|                            |                                | Item 3 - Quantitative and Qualitative Disclosures About Market Risk                            |                                                      |   | 38    |      
|                            |                                | Item 4 - Controls and Procedures                                                               |                                                      |   | 38    |      
|PART II  OTHER INFORMATION |                                |                                                                                                |                                                      |  
|                            |                                | Item 1 - Legal Proceedings                                                                     |                                                      |   | 39    |      
|                            |                                | Item 6 - Exhibits and Reports on Form 8-K                                                      |                                                      |   | 39    |      
|SIGNATURE                   |                                |                                                                                                | 40                                                   |  
|CERTIFICATIONS              |                                |                                                                                                | 41-44                                                |  

2



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PART I  FINANCIAL INFORMATION
ITEM I  FINANCIAL STATEMENTS




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

|                                                |                                                                                                                                                             |                                            |        |                   |         |                |        |          |         | 
|----------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------------- | ------- | -------------- | ------ | -------- | ------- | 
|                                                |                                                                                                                                                             |                                            |        | December 31, 2002 |         | March 31, 2002
|                                                |                                                                                                                                                             |                                            |        |                   |         |               
|ASSETS                                          |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|Current assets:                                 |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|                                                | Cash and cash equivalents                                                                                                                                   |                                            | $      | 27,405            |         |                | $      | 35,888   |        
|                                                | Short-term investments                                                                                                                                      |                                            |        | 62,827            |         |                |        | 49,786   |        
|                                                | Accounts receivable, net                                                                                                                                    |                                            |        | 32,446            |         |                |        | 42,953   |        
|                                                | Inventories, net                                                                                                                                            |                                            |        | 17,477            |         |                |        | 31,094   |        
|                                                | Other current assets                                                                                                                                        |                                            |        | 13,258            |         |                |        | 10,775   |        
|                                                |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|                                                |                                                                                                                                                             | Total current assets                       |        |                   | 153,413 |                |        |          | 170,496 | 
|Property and equipment, net                     |                                                                                                                                                             |                                            | 30,273 |                   |         |                | 41,694 |         
|Other assets                                    |                                                                                                                                                             |                                            | 362    |                   |         |                | 1,927  |         
|                                                |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|                                                |                                                                                                                                                             | Total assets                               |        | $                 | 184,048 |                |        | $        | 214,117 | 
|                                                |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|LIABILITIES AND STOCKHOLDERS EQUITY            |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|Current liabilities:                            |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|                                                | Accounts payable                                                                                                                                            |                                            | $      | 18,326            |         |                | $      | 20,579   |        
|                                                | Income taxes payable                                                                                                                                        |                                            |        | 669               |         |                |        |         |        
|                                                | Accrued liabilities                                                                                                                                         |                                            |        | 24,413            |         |                |        | 19,406   |        
|                                                |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|                                                |                                                                                                                                                             | Total current liabilities                  |        |                   | 43,408  |                |        |          | 39,985  | 
|Restructuring and other long  term liabilities |                                                                                                                                                             |                                            | 19,771 |                   |         |                | 6,675  |         
|                                                |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|Total liabilities                               |                                                                                                                                                             |                                            | 63,179 |                   |         |                | 46,660 |         
|Stockholders equity:                           |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|                                                | Preferred stock, $.01 par value; 5,000,000
shares authorized; none outstanding                                                                              |                                            |        |                  |         |                |        |         |        
|                                                | Common stock, $.01 par value; 150,000,000
shares authorized; 82,649,702 and 82,314,377
shares issued and outstanding, in fiscal 2003
and 2002, respectively |                                            |        | 826               |         |                |        | 823      |        
|                                                | Additional paid-in-capital                                                                                                                                  |                                            |        | 456,946           |         |                |        | 456,087  |        
|                                                | Accumulated deficit                                                                                                                                         |                                            |        | (322,598          | )       |                |        | (279,156 | )      
|                                                | Accumulated other comprehensive loss                                                                                                                        |                                            |        | (14,305           | )       |                |        | (10,297  | )      
|                                                |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|                                                |                                                                                                                                                             | Total stockholders equity                 |        |                   | 120,869 |                |        |          | 167,457 | 
|                                                |                                                                                                                                                             |                                            |        |                   |         |                |        |         
|                                                |                                                                                                                                                             | Total liabilities and stockholders equity |        | $                 | 184,048 |                |        | $        | 214,117 | 
|                                                |                                                                                                                                                             |                                            |        |                   |         |                |        |         

See accompanying Notes to Condensed Consolidated Financial Statements.

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

|                                                      |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |        |  
|----------------------------------------------------- | ---------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ------- | ------ | ---- | - | ------- | ------ | - | - | -------- | ------ | -
|                                                      |                                                |   | Three Months Ended |        | Nine Months Ended
|                                                      |                                                |   | December 31,       |        | December 31,     
|                                                      |                                                |   |                    |        |                  
|                                                      |                                                |   | 2002               |        | 2001              |   | 2002    |        | 2001
|                                                      |                                                |   |                    |        |                   |   |         |        |     
|Net sales                                             |                                                | $ | 49,265             |        |                   | $ | 45,170  |        |      | $ | 151,144 |        |   | $ | 182,752  |       
|Cost of sales                                         |                                                |   | 36,008             |        |                   |   | 40,066  |        |      |   | 116,079 |        |   |   | 145,737  |       
|Inventory valuation charges (benefit)                 |                                                |   | (597               | )      |                   |   | 39,427  |        |      |   | (2,073  | )      |   |   | 102,731  |       
|                                                      |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       
|Gross profit (loss)                                   |                                                |   | 13,854             |        |                   |   | (34,323 | )      |      |   | 37,138  |        |   |   | (65,716  | )     
|                                                      |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       
|Operating Expenses                                    |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       
|                                                      | Research and development                       |   |                    | 3,351  |                   |   |         | 4,130  |      |   |         | 10,433 |   |   |          | 14,824 |  
|                                                      | Selling, general and administrative            |   |                    | 12,418 |                   |   |         | 13,667 |      |   |         | 40,194 |   |   |          | 44,354 |  
|                                                      | Restructuring and asset valuation
charges      |   |                    | 13,189 |                   |   |         | 5,089  |      |   |         | 27,362 |   |   |          | 24,589 |  
|                                                      |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       
|Total operating expenses                              |                                                |   | 28,958             |        |                   |   | 22,886  |        |      |   | 77,989  |        |   |   | 83,767   |       
|                                                      |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       
|Operating loss                                        |                                                |   | (15,104            | )      |                   |   | (57,209 | )      |      |   | (40,851 | )      |   |   | (149,483 | )     
|Other income (expense):                               |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       
|                                                      | Interest income                                |   |                    | 480    |                   |   |         | 708    |      |   |         | 1,364  |   |   |          | 2,047  |  
|                                                      | Interest expense                               |   |                    | (337   | )                 |   |         | (9     | )    |   |         | (654   | ) |   |          | (61    | )
|                                                      | Other income (expense), net                    |   |                    | (787   | )                 |   |         | (202   | )    |   |         | (1,550 | ) |   |          | (1,889 | )
|                                                      | Other than temporary impairment of
investments |   |                    | (20    | )                 |   |         | (505   | )    |   |         | (412   | ) |   |          | (8,844 | )
|                                                      |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       
|Loss before provision
for income taxes                |                                                |   | (15,768            | )      |                   |   | (57,217 | )      |      |   | (42,103 | )      |   |   | (158,230 | )     
|Provision for income taxes                            |                                                |   | 396                |        |                   |   | 211     |        |      |   | 1,339   |        |   |   | 1,755    |       
|                                                      |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       
|Net loss                                              |                                                | $ | (16,164            | )      |                   | $ | (57,428 | )      |      | $ | (43,442 | )      |   | $ | (159,985 | )     
|                                                      |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       
|Basic and diluted loss per share                      |                                                | $ | (0.20              | )      |                   | $ | (0.70   | )      |      | $ | (0.53   | )      |   | $ | (1.98    | )     
|                                                      |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       
|Basic and diluted weighted average
shares outstanding |                                                |   | 82,615             |        |                   |   | 82,084  |        |      |   | 82,496  |        |   |   | 80,934   |       
|                                                      |                                                |   |                    |        |                   |   |         |        |      |   |         |        |   |   |          |       

See accompanying Notes to Condensed Consolidated Financial Statements.

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

|                                                                                           |                                                                            |                                                   |         |                   |        |      |          |          |         |  
|------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------- | ------------------------------------------------- | ------- | ----------------- | ------ | ---- | -------- | -------- | ------- | -
|                                                                                           |                                                                            |                                                   |         | Nine Months Ended
|                                                                                           |                                                                            |                                                   |         | December 31,     
|                                                                                           |                                                                            |                                                   |         |                  
|                                                                                           |                                                                            |                                                   |         | 2002              |        | 2001
|                                                                                           |                                                                            |                                                   |         |                   |        |     
|Cash flows from operating activities:                                                      |                                                                            |                                                   |         |                   |        |      |          |         
|Net loss                                                                                   |                                                                            | $                                                 | (43,442 | )                 |        | $    | (159,985 | )       
|Adjustments to reconcile net loss to net cash provided by (used for) operating
activities: |                                                                            |                                                   |         |                   |        |      |          |         
|                                                                                           | Depreciation and amortization                                              |                                                   |         | 8,402             |        |      |          | 14,804   |        
|                                                                                           | Provision for uncollectible accounts                                       |                                                   |         | 98                |        |      |          | 6,370    |        
|                                                                                           | Inventory valuation charges (benefit) and provision for inventory reserves |                                                   |         | (1,745            | )      |      |          | 103,988  |        
|                                                                                           | Non-cash restructuring expenses                                            |                                                   |         | 3,965             |        |      |          | 2,105    |        
|                                                                                           | Loss on disposal of property and equipment                                 |                                                   |         |                  |        |      |          | 517      |        
|                                                                                           | Other than temporary impairment of investments                             |                                                   |         | 412               |        |      |          | 8,844    |        
|                                                                                           | Changes in assets and liabilities                                          |                                                  
|                                                                                           |                                                                            | Decrease in accounts receivable                   |         |                   | 8,952  |      |          |          | 53,166  |  
|                                                                                           |                                                                            | Decrease (increase) in inventories                |         |                   | 12,584 |      |          |          | (39,800 | )
|                                                                                           |                                                                            | Increase (decrease) in deferred tax assets        |         |                   |       |      |          |          | (114    | )
|                                                                                           |                                                                            | Decrease in other current assets and other assets |         |                   | 385    |      |          |          | 8,888   |  
|                                                                                           |                                                                            | Decrease in accounts payable                      |         |                   | (2,248 | )    |          |          | (31,034 | )
|                                                                                           |                                                                            | Increase in income tax payable                    |         |                   | 664    |      |          |          | 314     |  
|                                                                                           |                                                                            | Increase (decrease) in other accrued liabilities  |         |                   | (2,458 | )    |          |          | 1,970   |  
|                                                                                           |                                                                            | Increase in warranty reserves                     |         |                   | 7,650  |      |          |          | 7,714   |  
|                                                                                           |                                                                            | Increase in long term liabilities                 |         |                   | 13,097 |      |          |          |        |  
|                                                                                           |                                                                            |                                                   |         |                   |        |      |          |         
|Net cash provided by (used for) operating activities                                       |                                                                            |                                                   | 6,316   |                   |        |      | (22,253  | )       
|                                                                                           |                                                                            |                                                   |         |                   |        |      |          |         
|Cash flows from investing activities:                                                      |                                                                            |                                                   |         |                   |        |      |          |         
|                                                                                           | Purchase of short-term investments                                         |                                                   |         | (239,677          | )      |      |          | (103,875 | )      
|                                                                                           | Proceeds from sale of short term investments                               |                                                   |         | 226,532           |        |      |          | 77,522   |        
|                                                                                           | Purchase of property and equipment                                         |                                                   |         | (3,372            | )      |      |          | (10,638  | )      
|                                                                                           |                                                                            |                                                   |         |                   |        |      |          |         
|Net cash used for investing activities                                                     |                                                                            |                                                   | (16,517 | )                 |        |      | (36,991  | )       
|                                                                                           |                                                                            |                                                   |         |                   |        |      |          |         
|Cash flows from financing activities:                                                      |                                                                            |                                                   |         |                   |        |      |          |         
|                                                                                           | Proceeds from sales of common stock                                        |                                                   |         | 862               |        |      |          | 73,018   |        
|                                                                                           |                                                                            |                                                   |         |                   |        |      |          |         
|Net cash provided by financing activities                                                  |                                                                            |                                                   | 862     |                   |        |      | 73,018   |         
|                                                                                           |                                                                            |                                                   |         |                   |        |      |          |         
|Effect of exchange rate changes on cash                                                    |                                                                            |                                                   | 856     |                   |        |      | 950      |         
|                                                                                           |                                                                            |                                                   |         |                   |        |      |          |         
|Net increase (decrease) in cash and cash equivalents                                       |                                                                            |                                                   | (8,483  | )                 |        |      | 14,724   |         
|Cash and cash equivalents at beginning of period                                           |                                                                            |                                                   | 35,888  |                   |        |      | 25,963   |         
|                                                                                           |                                                                            |                                                   |         |                   |        |      |          |         
|Cash and cash equivalents at end of period                                                 |                                                                            | $                                                 | 27,405  |                   |        | $    | 40,687   |         
|                                                                                           |                                                                            |                                                   |         |                   |        |      |          |         
|SUPPLEMENTAL DATA                                                                          |                                                                            |                                                   |         |                   |        |      |          |         
|                                                                                           | Interest paid                                                              |                                                   | $       | 538               |        |      | $        | 138      |        
|                                                                                           | Income taxes paid                                                          |                                                   | $       | 721               |        |      | $        | 961      |        

See accompanying Notes to Condensed Consolidated Financial Statements.

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BASIS OF PRESENTATION



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The condensed consolidated financial statements include the accounts of
Stratex Networks, Inc. and its wholly-owned subsidiaries (the Company).
Intercompany accounts and transactions have been eliminated. Certain prior
year amounts have been reclassified to conform to current year
presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | While the financial information furnished is unaudited, the financial
statements included in this report reflect all adjustments (consisting only
of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the results of operations for the interim periods
covered and of the financial condition of the Company at the date of the
interim balance sheet. The results for interim periods are not necessarily
indicative of the results for the entire year. The condensed consolidated
financial statements should be read in connection with the Companys
financial statements included in its annual report and Form 10-K for the
fiscal year ended March 31, 2002, filed with the Securities and Exchange
Commission on May 15, 2002.

CASH AND CASH EQUIVALENTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For purposes of the consolidated statement of cash flows, we consider all
highly liquid debt instruments purchased with a remaining maturity of three
months or less to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | As of December 31, 2002, we had $1.6 million in standby letters of credit
outstanding with several financial institutions to support bid and
performance bonds issued to various customers. In connection with the
issuance of these letters of credit, we held $0.7 million of cash as
collateral for these specific obligations as of December 31, 2002. Also, as
of December 31, 2002, we had outstanding forward foreign exchange contracts
in the aggregate amount of $17.5 million, for which restricted cash of $0.7
million was held as collateral by one of the financial institutions
utilized to hedge our foreign currency risk exposure.

SHORT- TERM INVESTMENTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We invest our excess cash in high-quality and easily marketable
instruments. All of our marketable securities are classified as
available-for-sale in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS 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 December 31, 2002 were
insignificant. At December 31, 2002, our available-for-sale securities had
contractual maturities ranging from 1 day to 284 days, with a weighted
average maturity of 51 days.
|
| | There were impairment losses of approximately $0.4 million during the first
nine months of fiscal 2003; all of these losses were on our equity
investments, which are discussed in the Other Assets footnote below.
There were impairment losses of approximately $8.8 million during the first
nine months of fiscal 2002. Of this $8.8 million loss, $0.9 million                                                                                                                                                                                                                                                                                                                                                                                                  

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| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | was on our short-term investments in marketable securities and the
remaining $7.9 million was on our equity investments, which are discussed
in the Other Assets footnote below.

INVENTORIES



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

|                |  |                   |        |                |  |   |        | 
|--------------- |  | ----------------- | ------ | -------------- |  | - | ------ | 
|                |  | December 31, 2002 |        | March 31, 2002
|                |  |                   |        |               
|Raw materials   |  | $                 | 11,820 |                |  | $ | 19,346 | 
|Work in process |  |                   | 2,904  |                |  |   | 5,527  | 
|                |  |                   |        |                |  |   |        | 
|                |  | $                 | 17,477 |                |  | $ | 31,094 | 
|                |  |                   |        |                |  |   |        | 



| |                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the first nine months of fiscal 2003, we realized a $2.1 million
benefit due to the sale of inventory that had been fully reserved, due
primarily to excess inventories not expected to be sold, in periods prior
to the nine months ending December 31, 2002.

OTHER CURRENT ASSETS



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

|                           |  |                   |        |                |  |   |        | 
|-------------------------- |  | ----------------- | ------ | -------------- |  | - | ------ | 
|                           |  | December 31, 2002 |        | March 31, 2002
|                           |  |                   |        |               
|Receivables from suppliers |  | $                 | 4,393  |                |  | $ | 2,836  | 
|Non-trade receivables      |  |                   | 3,305  |                |  |   | 2,134  | 
|Prepaid expenses           |  |                   | 2,284  |                |  |   | 2,443  | 
|Prepaid insurance          |  |                   | 1,285  |                |  |   | 361    | 
|Tax refund                 |  |                   | 1,433  |                |  |   | 2,561  | 
|Other                      |  |                   | 558    |                |  |   | 440    | 
|                           |  |                   |        |                |  |   |        | 
|                           |  | $                 | 13,258 |                |  | $ | 10,775 | 
|                           |  |                   |        |                |  |   |        | 



| |                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Non-trade receivables as of December 31, 2002 included $1.5 million from
the sale of manufacturing assets and $0.6 million for transition costs
due from Microelectronics Technology, Inc. related to an outsourcing
agreement executed in June 2002. Non-trade receivables as of December
31, 2002 also included $0.8 million of interest receivable related to our
short-term investments.

OTHER ASSETS



| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Included in other assets are equity investments and long-term deposits
for premises leased by us. Equity investments represent voting interest
of less than 20% and are accounted for

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | under the cost method because the
Company is not able to exercise significant influence
over the investee. Equity investments in marketable securities are
classified as available-for-sale in accordance with the provisions of
SFAS 115 and reported at fair value with unrealized gains and losses
recorded in accumulated other comprehensive income (loss). Equity
investments in non-marketable securities are recorded at cost. We
continually review these equity investments to evaluate whether
conditions have occurred that would suggest an impairment of carrying
value. Impairment losses of $0.4 million were recorded in the first nine
months of fiscal 2003 on our equity investments in marketable securities,
included in other assets. There were impairment losses of approximately
$8.8 million during the first nine months of fiscal 2002. Of this $8.8
million loss, $0.9 million was on our short-term investments in
marketable securities, which are discussed in the Short-Term
Investments footnote above. The remaining $7.9 million loss was on our
equity investments, which consisted of a $4.5 million loss on our
minority investments in marketable equity securities and a $3.4 million
loss on our equity investments in non-marketable securities. We
determined that the recorded value for these certain investments exceeded
their fair value and that these losses were other than temporary in
nature.

ACCRUED LIABILITIES



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

|                             |  |                   |        |                |  |   |        | 
|---------------------------- |  | ----------------- | ------ | -------------- |  | - | ------ | 
|                             |  | December 31, 2002 |        | March 31, 2002
|                             |  |                   |        |               
|Customer deposits            |  | $                 | 1,134  |                |  | $ | 1,804  | 
|Accrued payroll and benefits |  |                   | 1,693  |                |  |   | 2,461  | 
|Accrued commissions          |  |                   | 3,502  |                |  |   | 2,533  | 
|Accrued warranty             |  |                   | 4,712  |                |  |   | 4,674  | 
|Accrued restructuring        |  |                   | 7,471  |                |  |   | 3,534  | 
|Deferred income              |  |                   | 2,658  |                |  |   | 652    | 
|Other                        |  |                   | 3,243  |                |  |   | 3,748  | 
|                             |  |                   |        |                |  |   |        | 
|                             |  | $                 | 24,413 |                |  | $ | 19,406 | 
|                             |  |                   |        |                |  |   |        | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101), if the revenue
recognition criteria are not met (as described in the revenue recognition
footnote below), revenue is deferred. With certain of our customers, we
have collected the amounts due; however, the revenue is deferred due to
the reasons described above. The increase in accrued restructuring is
due to additional restructuring charges in the first nine months of
fiscal 2003, which are discussed in the Restructuring Charges footnote
below.

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

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. Our policy
is to hedge forecasted and actual foreign currency risk with forward
contracts that expire within twelve months. Specifically, we hedge
foreign currency risks relating to firmly committed backlog, open
purchase orders and non-functional currency monetary assets and
liabilities. Derivatives hedging non-functional currency monetary assets
and liabilities are recorded on the balance sheet at fair value and
changes in fair value are recognized currently in earnings.                                                                                                                                                                                                                                                                                                                                                       
|
| | Additionally, we hedge forecasted non-U.S. dollar sales and non-U.S.
dollar purchases. In accordance with 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. We record effective changes in the fair value of these
cash flow hedges in accumulated other comprehensive income (OCI) until
the revenue is recognized or the related purchases are recognized in cost
of sales, at which time the changes are reclassified to revenue and cost
of sales, respectively. All amounts accumulated in OCI at quarter end
will be reclassified to earnings within the next 12 months. A gain of
$0.1 million was recognized in other income and expense in the first nine
months of fiscal 2003 related to the exclusion of time value from
effectiveness testing and ineffectiveness resulting from forecasted
transactions that did not occur.
|
| | The following table summarizes the activity in OCI, with regard to the
changes in fair value of derivative instruments, for the first nine
months of fiscal 2003 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                       |  |                   |      |  
|-------------------------------------- |  | ----------------- | ---- | -
|                                       |  | Nine
Months Ended
|                                       |  | December 31, 2002
|                                       |  | Gains/(Losses)   
|                                       |  |                  
|Beginning balance as of April 1, 2002  |  | $                 | 142  |  
|Net changes                            |  |                   | (68  | )
|Reclassifications to revenue           |  |                   | (230 | )
|Reclassifications to cost of sales     |  |                   | (3   | )
|                                       |  |                   |      |  
|Ending balance as of December 31, 2002 |  | $                 | (159 | )
|                                       |  |                   |      |  

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CONCENTRATION OF CREDIT RISK



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financial instruments that potentially subject us to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. We have cash investment policies that limit the amount of
credit exposure to any one financial institution and restrict placement
of investments to financial institutions evaluated as highly
creditworthy. Investments, under our policy, must have a rating, at the
time of purchase, of A1 or P1 for short-term paper and a rating of A or
better for long-term notes or bonds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Accounts receivable concentrated with certain customers primarily in the
telecommunications industry and in certain geographic locations may
subject us to concentration of credit risk. One customer accounted for
approximately 12% of net sales for the third quarter of fiscal 2003. One
customer accounted for approximately 16% of net sales for the third
quarter of fiscal 2002. For the first nine months of fiscal 2003, one
customer accounted for 12% of net sales. For the first nine months of
fiscal 2002 two customers accounted for 16% and 10% of net sales,
respectively. One customer accounted for approximately 14% of the total
accounts receivable balance at the end of the third quarter of fiscal
2003. No other customer accounted for more than 10% of the total accounts
receivable balance at the end of the third quarter of fiscal 2003. In the
third quarter of fiscal 2002 two customers accounted for approximately
21% and 11%, respectively of the total accounts receivable balance. We
actively market and sell products in Africa, Asia, Europe, the Middle
East and the Americas. We perform on-going credit evaluations of our
customers financial conditions and generally require no collateral,
although sales to Asia, Eastern Europe and the Middle East are primarily
paid through letters of credit.

REVENUE RECOGNITION



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We recognize revenue pursuant to SAB 101. Accordingly, revenue is
recognized when all four of the following criteria are met: (i)
persuasive evidence that the arrangement exists; (ii) delivery of the
products and/or services has occurred; (iii) the selling price is fixed
or determinable; and (iv) collectibility is reasonably assured.                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | In accordance with SAB 101, revenues from product sales are generally
recognized when title and risk of loss passes to the customer, except
when product sales are combined with significant post-shipment
installation services. Under this exception, revenue is deferred until
such services have been performed. Service and repair revenue is
recognized when the related services and repairs are delivered.                                                                                                                                                                                                                                                                                                                                    
|
| | At the time revenue is recognized, we establish an accrual for estimated
warranty expenses associated with our sales, recorded as a component of
cost of revenue. Our standard warranty is generally for a period of 27
months from the date of sale and our warranty accrual represents the best
estimate of the amounts necessary to settle future and existing claims on
products sold as of the balance sheet date. While we believe that our
warranty accrual is adequate and that the judgment applied is
appropriate, such amounts estimated to be due and payable could differ
materially from what will actually transpire in the future. If our actual
warranty costs are greater than the accrual, cost of sales will increase
accordingly.

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NET LOSS PER SHARE



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

LITIGATION AND CONTINGENCIES



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company is subject to legal proceedings that arise in the normal
course of its business. In the opinion of management, these proceedings
should not have a material adverse effect on the business, financial
position, and results of operations of the Company. In addition, while
not legal proceedings, suppliers have made claims against us and we have
reasonably estimated and provided for these claims. If settlement of
these claims results in amounts greater than our accruals, there could be
additional liabilities required upon ultimate resolution of these claims.
See also the Subsequent Events footnote below for discussion
regarding claims related to Competitive Local Exchange Carriers (CLEC)
bankruptcies.

RESTRUCTURING CHARGES



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the first quarter of fiscal 2003, we entered into an agreement to
outsource our San Jose, California manufacturing operations to
Microelectronics Technology Inc. (MTI) in Taiwan. As a result of changes
associated with this agreement, as well as other reductions in operating
expenses and facilities, we recorded restructuring charges of $14.2
million in the first quarter of fiscal 2003. This restructuring charge
consisted of $2.8 million for employee severance and benefits, $8.2
million for vacated building lease obligations, $0.6 million for legal
costs, $3.3 million for transition costs related to outsourcing of our
manufacturing operations as mentioned above and $1.8 million as a write
off of manufacturing equipment. These restructuring costs were reduced by
$2.5 million, which represented the amount reimbursable from MTI for the
costs relating to the transfer of certain of our manufacturing assets to
MTI in accordance with our joint agreement.                                                                  
|
| | Under the terms of our agreement with MTI for transfer of our
manufacturing operations to them, MTI has assumed assembly, integration
and testing of our Altium product family, as well as assembly and testing
of the Outdoor Unit portion of our XP4 product. The agreement also
provides for continuing cooperation between the companies for future
products now being developed. Under terms of the agreement, MTI is
acquiring certain of our manufacturing assets related to the production
of the Altium and XP4 product lines and we are providing assistance in
the transition of the operation. In addition, we are consigning certain
inventory associated with these products to MTI, and MTI is purchasing
such inventory as it is utilized in manufacturing. We are retaining
product design and R&D functions for these products. We expect to
complete the transition of affected manufacturing operations and transfer
all of these assets to MTI by the end of fiscal year 2003. We have
recorded the sale of assets totaling $1.9 million, excluding

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | interest, as of December 31, 2002. The total value of the assets sold to
MTI is expected to be $2.2 million, excluding interest. MTI has been
making quarterly payments of $0.3 million since October 2002 for the
assets sold. The transaction includes a five-year supply agreement
between the two companies. As a result of the agreement, MTI will be our
primary manufacturer of the Outdoor Unit portion of Altium products and
of the XP4 products. Sales of our Altium and XP4 products for the first
nine months of fiscal 2003 account for 62% of total revenues for that
period.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The severance and benefit charges of $2.8 million taken in the first
quarter of fiscal 2003 were for a reduction in workforce of 153
employees, with reductions affecting primarily the manufacturing
operations area due to the outsourcing of our San Jose, California
manufacturing operations. As of June 30, 2002 all affected employees had
been notified. As of December 31, 2002, 148 employees have been
terminated. We anticipate that the remaining affected employees jobs
will be eliminated by March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | As we do not expect any significant recovery in the economy in the near
future, we took additional steps in the third quarter of fiscal 2003 to
reduce costs and to improve asset management. As a result of reductions
in facilities and operating expenses, we recorded restructuring charges
of $13.2 million in the third quarter of fiscal 2003. These restructuring
charges consisted of $0.2 million for employee severance and benefits,
$10.8 million for vacated building lease obligations and $2.2 million as
a write off of certain fixed assets in our San Jose, California location,
related to the transfer of certain manufacturing operations to MTI.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | During fiscal 2002, the telecommunications and mobile cellular industry
experienced a severe downturn due to the declining global economy. This
impacted our revenues significantly. In response to this downturn, we
announced several restructuring programs in fiscal 2002 to focus on
profit contribution by reducing expenses and improving operational
efficiency. These restructuring programs included consolidation of our
U.S. manufacturing operations by relocating our Seattle, Washington
operations to our San Jose, California facility, a worldwide reduction in
workforce and a consolidation of additional excess facilities. Due to
the economic downturn, we recorded restructuring and receivable valuation
charges of $24.6 million during fiscal 2002. This consisted of $8.4
million for employee severance and benefits, $11.2 million for
facility-related and other costs (including $8.6 million for vacated
building lease obligations, $2.1 million for the loss on impairment of
equipment, $0.1 million for legal costs and $0.4 million for the write
off of goodwill) and $5.0 million for uncollectible accounts receivable.
There were cumulative cash payments and non-cash expenses against this
provision of $7.7 million and $7.5 million, respectively, resulting in an
ending provision balance at March 31, 2002 of $9.4 million. The cash
payments were related primarily to workforce reduction payments and the
non-cash expenses were related primarily to equipment and receivable
valuation charges.
|
| | The vacated building lease obligations of $10.8 million, $8.2 million and
$8.6 million recorded in the third and first quarters of fiscal 2003 and
in the first nine months of 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | fees. Should operating lease rental rates continue to decline in the
current market or should it take longer than expected to find a suitable
tenant to sublease the Seattle, WA, San Jose, CA and Coventry, United
Kingdom facilities, adjustments to the facilities lease loss reserve will
be made in future periods, if necessary, based upon actual events and
circumstances.



| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following table summarizes the balance of the restructuring accrual as
of December 31, 2002 and the type and amount of restructuring costs
utilized during the first nine months of fiscal 2003 (in millions):

|                                |  |              |      |            |  |       |      |   |  |   |      |  
|------------------------------- |  | ------------ | ---- | ---------- |  | ----- | ---- | - |  | - | ---- | -
|                                |  | Severance    |      | Facilities |  |       |      |  
|                                |  | and Benefits |      | and Other  |  | Total
|                                |  |              |      |            |  |      
|Balance as of April 1, 2002     |  | $            | 2.3  |            |  | $     | 7.1  |   |  | $ | 9.4  |  
|Provision                       |  |              | 3.0  |            |  |       | 24.4 |   |  |   | 27.4 |  
|Cash payments                   |  |              | (3.2 | )          |  |       | (5.8 | ) |  |   | (9.0 | )
|Non-cash expenses               |  |              |     |            |  |       | (4.0 | ) |  |   | (4.0 | )
|Reimbursable transition costs   |  |              |     |            |  |       | 2.5  |   |  |   | 2.5  |  
|                                |  |              |      |            |  |       |      |   |  |   |      |  
|Balance as of December 31,
2002 |  | $            | 2.1  |            |  | $     | 24.2 |   |  | $ | 26.3 |  
|                                |  |              |      |            |  |       |      |   |  |   |      |  
|Current portion                 |  |              | 2.1  |            |  |       | 5.4  |   |  | $ | 7.5  |  
|Long-term portion               |  |              | 0.0  |            |  |       | 18.8 |   |  | $ | 18.8 |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The remaining accrual balance of $26.3 million as of December 31, 2002 is
expected to be paid out in cash. We expect $2.7 million of the remaining
cash restructuring charges to be paid out in fiscal 2003 and an additional
$5.8 million to be paid out in fiscal 2004 (including $0.6 million for
severance and benefits and $5.2 million for vacated building lease
obligations). We anticipate further vacated building lease obligations of
$17.8 million to be paid out during fiscal 2005 through fiscal 2012.

COMPREHENSIVE INCOME



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

|                   |                                               |   |                                 |    |                    |      |                   |     |      |       |         |     |  |        |          |       |  |      |  
|------------------ | --------------------------------------------- | - | ------------------------------- | -- | ------------------ | ---- | ----------------- | --- | ---- | ----- | ------- | --- |  | ------ | -------- | ----- |  | ---- | -
|                   |                                               |   |                                 |    | Three Months Ended |      | Nine Months Ended
|                   |                                               |   |                                 |    | December 31,       |      | December 31,     
|                   |                                               |   |                                 |    |                    |      |                  
|                   |                                               |   |                                 |    | 2002               |      | 2001              |     | 2002 |       | 2001   
|                   |                                               |   |                                 |    |                    |      |                   |     |      |       |        
|Net loss           |                                               | $ | (16,164                         | )  |                    | $    | (57,428           | )   |      | $     | (43,442 | )   |  | $      | (159,985 | )    
|                   | Other comprehensive income
(loss) net of tax: |   |                                 |    |                    |      |                   |     |      |       |         |     |  |        |          |       | 
|                   |                                               |   | Unrealized currency gain
(loss) |    |                    | (600 | )                 |     |      | 1,750 |         |     |  | (4,232 | )        |       |  | (154 | )
|                   | Unrealized holding gain (loss)
on investments |   |                                 | 38 |                    |      |                   | 228 |      |       |         | 224 |  |        |          | 2,857 | 
|                   |                                               |   |                                 |    |                    |      |                   |     |      |       |         |     |  |        |          |      
|Comprehensive loss |                                               | $ | (16,726                         | )  |                    | $    | (55,450           | )   |      | $     | (47,450 | )   |  | $      | (157,282 | )    
|                   |                                               |   |                                 |    |                    |      |                   |     |      |       |         |     |  |        |          |      

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NEW ACCOUNTING PRONOUNCEMENTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 143, Accounting for Asset Retirement Obligations (SFAS
143). SFAS 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. Companies are
required to adopt SFAS 143 for fiscal years beginning after June 15,
2002, but early adoption is encouraged. We are in the process of
determining what impact, if any, this standard will have on our financial
position and results of operations, although we do not anticipate that
the adoption of this standard will have a material impact on our
financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | We have adopted SFAS No. 144 Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS 144). SFAS No. 144 supersedes SFAS No. 121
by requiring that one accounting model be used for long-lived assets to
be disposed of by sale, whether previously held and used or newly
acquired and by broadening the presentation of discontinued operations to
include more disposal transactions. The adoption of SFAS No. 144 does
not have a material impact on our financial position or results of
operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | In June 2002, the FASB issued SFAS 146,  Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146) which addresses accounting
for restructuring and similar costs. SFAS 146 supersedes previous
accounting guidance, principally Emerging Issues Task Force Issue No.
94-3. The Company will adopt the provisions of SFAS 146 for
restructuring activities initiated after December 31, 2002. SFAS 146
requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3,
a liability for an exit cost was recognized at the date of the Companys
commitment to an exit plan. SFAS 146 also establishes that the
liability should initially be measured and recorded at fair value.
Accordingly, SFAS 146 may affect the timing of recognizing future
restructuring costs as well as the amounts recognized.                                                                                                                                                                                                                                                                                                                                           
|
| | In November 2002, the FASB issued Interpretation 45, Guarantors
Accounting and Disclosure Requirements for Guarantees of Indebtedness of
Others (FIN 45). The Interpretation elaborates on the existing
disclosure requirements for most guarantees, including loan guarantees
such as standby letters of credit. It also clarifies that at the time a
company issues a guarantee, the company must recognize an initial
liability for the fair value, or market value, of the obligations it
assumes under the guarantee and must disclose that information in its
interim and annual financial statements. The provisions related to
recognizing a liability at inception of the guarantee for the fair value
of the guarantors obligations do not apply to product warranties or to
guarantees accounted for as derivatives. The initial recognition and
initial measurement provisions apply on a prospective basis to guarantees
issued or modified after December 31, 2002. The Interpretation requires
footnote disclosures beginning in interim and year-end financial
statements for periods ending after December 15, 2002. We have not yet
completed the analysis of the impact of FIN 45 on the Companys
consolidated financial statements.
|
| | In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure (SFAS 148). SFAS
148 amends FASB Statement No. 123, Accounting for Stock-Based
Compensation. Although it does not                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | require use of fair value method of accounting for stock-based employee
compensation, it does provide alternative methods of transition. It also
amends the disclosure provisions of Statement 123 and APB Opinion No. 28,
Interim Financial Reporting, 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 Opinion No. 28 is effective for
interim periods beginning after December 15, 2002. We will adopt this
standard for our fourth quarter of fiscal year 2003. We do 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
our interim reporting.

OPERATING SEGMENT AND GEOGRAPHIC INFORMATION



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company is organized into two operating segments: products and
services. The Companys Chief Executive Officer has been identified as
the Chief Operating Decision-Maker as defined by Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131). Resources are
allocated to each of these segments using information about 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. We design
and develop these products in Wellington, New Zealand and San Jose,
California. Prior to June 30, 2002, we manufactured the XP4 and Altium
family of products in San Jose, California. In June 2002, we entered into
an agreement with Microelectronics Technology, Inc. (MTI) in Taiwan for
outsourcing of our XP4 and Altium products manufacturing operations. We
expect to complete the transition of manufacturing operations by the end
of fiscal year 2003. We manage 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. We maintain regional service centers in
Scotland and the Philippines.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | We do not identify or allocate assets or depreciation by operating
segment, nor does the CEO evaluate segments based on these criteria.
Operating segments generally do not sell products to each other, and
accordingly, there are no significant inter-segment revenues to be
reported. We do not allocate interest and taxes to operating segments.
The accounting policies for each reporting segment are the same.                                                                                                                                                                                                                                                                                                                                                                                           

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| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | The following table sets forth net revenues and operating loss by
operating segment (in thousands):

|          |                  |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |          |  
|--------- | ---------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|          |                  |  | Three Months Ended |         | Nine Months Ended
|          |                  |  | December 31,       |         | December 31,     
|          |                  |  |                    |         |                  
|          |                  |  | 2002               |         | 2001              |  | 2002 |         | 2001
|          |                  |  |                    |         |                   |  |      |         |     
|Products: |                  |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         
|          | Revenues         |  | $                  | 41,781  |                   |  | $    | 38,053  |      |  | $ | 128,619 |   |  | $ | 162,326  |  
|          | Operating loss   |  |                    | (16,861 | )                 |  |      | (58,052 | )    |  |   | (45,997 | ) |  |   | (152,141 | )
|Services: |                  |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         
|          | Revenues         |  |                    | 7,484   |                   |  |      | 7,117   |      |  |   | 22,525  |   |  |   | 20,426   |  
|          | Operating income |  |                    | 1,757   |                   |  |      | 843     |      |  |   | 5,146   |   |  |   | 2,658    |  
|Total:    |                  |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         
|          | Revenues         |  | $                  | 49,265  |                   |  | $    | 45,170  |      |  | $ | 151,144 |   |  | $ | 182,752  |  
|          | Operating loss   |  |                    | (15,104 | )                 |  |      | (57,209 | )    |  |   | (40,851 | ) |  |   | (149,483 | )



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

|               |                |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |         | 
|-------------- | -------------- | - | ------------------ | ------ | ----------------- | - | ------ | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|               |                |   | Three Months Ended |        | Nine Months Ended
|               |                |   | December 31,       |        | December 31,     
|               |                |   |                    |        |                  
|               |                |   | 2002               |        | 2001              |   | 2002   |        | 2001
|               |                |   |                    |        |                   |   |        |        |     
|Altium         |                | $ | 13,555             |        |                   | $ | 6,154  |        |      | $ | 33,096  |         |  | $ | 41,626  |        
|DXR            |                |   | 9,968              |        |                   |   | 7,273  |        |      |   | 31,750  |         |  |   | 23,715  |        
|SPECTRUM II    |                |   | 73                 |        |                   |   | 5,121  |        |      |   | 2,456   |         |  |   | 34,007  |        
|XP4            |                |   | 17,655             |        |                   |   | 19,334 |        |      |   | 60,219  |         |  |   |        
|Other Products |                |   | 530                |        |                   |   | 171    |        |      |   | 1,098   |         |  |   | 878     |        
|               |                |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |        
|               | Total Products |   |                    | 41,781 |                   |   |        | 38,053 |      |   |         | 128,619 |  |   |         | 162,326 | 
|               | Total Services |   |                    | 7,484  |                   |   |        | 7,117  |      |   |         | 22,525  |  |   |         | 20,426  | 
|               |                |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |        
|Total Revenues |                | $ | 49,265             |        |                   | $ | 45,170 |        |      | $ | 151,144 |         |  | $ | 182,752 |        
|               |                |   |                    |        |                   |   |        |        |      |   |         |         |  |   |         |        

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

|                   |      |                    |        |                   |      |   |        |  |  |   |         |  |  |   |         | 
|------------------ | ---- | ------------------ | ------ | ----------------- | ---- | - | ------ |  |  | - | ------- |  |  | - | ------- | 
|                   |      | Three Months Ended |        | Nine Months Ended
|                   |      | December 31,       |        | December 31,     
|                   |      |                    |        |                  
|                   | 2002 |                    | 2001   |                   | 2002 |   | 2001  
|                   |      |                    |        |                   |      |   |        | 
|Europe             |      | $                  | 8,182  |                   |      | $ | 12,416 |  |  | $ | 30,825  |  |  | $ | 45,329  | 
|Brazil             |      |                    | 358    |                   |      |   | 2,889  |  |  |   | 3,377   |  |  |   | 18,732  | 
|China              |      |                    | 866    |                   |      |   | 6,778  |  |  |   | 5,245   |  |  |   | 32,675  | 
|Middle East/Africa |      |                    | 17,787 |                   |      |   | 8,430  |  |  |   | 38,195  |  |  |   | 29,235  | 
|Thailand           |      |                    | 4,837  |                   |      |   |       |  |  |   | 21,533  |  |  |   |        | 
|United States      |      |                    | 3,614  |                   |      |   | 4,588  |  |  |   | 8,005   |  |  |   | 15,054  | 
|Other Americas     |      |                    | 3,836  |                   |      |   | 4,261  |  |  |   | 10,189  |  |  |   | 21,683  | 
|Other Asia/Pacific |      |                    | 9,785  |                   |      |   | 5,808  |  |  |   | 33,775  |  |  |   | 20,044  | 
|                   |      |                    |        |                   |      |   |        |  |  |   |         |  |  |   |         | 
|Total Revenue      |      | $                  | 49,265 |                   |      | $ | 45,170 |  |  | $ | 151,144 |  |  | $ | 182,752 | 
|                   |      |                    |        |                   |      |   |        |  |  |   |         |  |  |   |        

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

|                                  |  |                   |        |                |  |   |        | 
|--------------------------------- |  | ----------------- | ------ | -------------- |  | - | ------ | 
|                                  |  | December 31, 2002 |        | March 31, 2002
|                                  |  |                   |        |               
|United States                     |  | $                 | 10,302 |                |  | $ | 19,872 | 
|United Kingdom                    |  |                   | 13,625 |                |  |   | 15,732 | 
|Other foreign countries           |  |                   | 6,346  |                |  |   | 6,090  | 
|                                  |  |                   |        |                |  |   |        | 
|Total property and equipment,
net |  | $                 | 30,273 |                |  | $ | 41,694 | 
|                                  |  |                   |        |                |  |   |        | 

SUBSEQUENT EVENTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On January 21, 2003 we secured a $22.5 million revolving credit facility
with Silicon Valley Bank. The credit facility has one-year renewable
terms and an interest rate of either the banks prime rate or LIBOR plus
2%. We currently have no plans to utilize this facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | On January 22, 2003, we received a demand letter for $2.5 million from
counsel to unsecured creditors in the bankruptcy proceeding of one of our
Competitive Local Exchange Carriers (CLEC) customers for monies we
received within 90 days of the customer seeking relief, on May 21, 2001,
under the United States Bankruptcy Code. On February 10, 2003 we
received a demand letter for $8.3 million from counsel to unsecured
creditors in the bankruptcy proceedings of another one of our CLEC
customers for monies we received within 90 days of the customer seeking
relief, on April 18, 2001, under the United States Bankruptcy Code. We
intend to vigorously defend ourselves against these claims. However,
because of the inherent uncertainties of litigation in general and our
analysis of the issues presented by these threatened litigations is not
yet complete, we cannot assure you that the ultimate outcomes will be in
our favor. If we do not ultimately prevail against these claims, we will
be required to remit to the counsel to the unsecured creditors for the
benefit of such creditors some or all of the $2.5 and $8.3 million.

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

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



| |  | Our expectation that the total value of the assets sold to Microelectronics Technology Inc. will be $2.2 million, excluding
interest;                                                                                                                                   
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Our expectation that the remaining affected employees from our reduction in workforce will have their jobs eliminated by
March 31, 2003;                                                                                                                                
| 
| |  | Our expectation to adjust facilities lease loss reserves in future periods, if necessary, based upon actual events and
circumstances;                                                                                                                                   
| 
| |  | Our plan to pay out in cash the remaining restructuring accrual balance as of December 31, 2002 of $26.3 million;                                                                                                                                                       
| 
| |  | Our expectation that $2.7 million of the remaining cash restructuring charges will be paid out in fiscal 2003 and an
additional $5.8 million in fiscal 2004 (including $0.6 million for severance and benefits and $5.2 million for vacated
building lease obligations);
| 
| |  | Our anticipation that further vacated building lease obligations of $17.8 million will be paid out during fiscal 2005
through fiscal 2012;                                                                                                                              
| 
| |  | Our anticipation that the adoption of SFAS 143, Accounting for Asset Retirement Obligations will not have a material
impact on our financial position or results of operations;                                                                                       
| 
| |  | Our expectation that the adoption
of SFAS 148, Accounting for Stock-Based Compensation - Transition and Disclosure will
not have a material impact on our financial position or results of operations;                                                                
| 
| |  | Our expectation that gross profit, as a percentage of sales, will increase slightly in the fourth quarter of fiscal 2003 as
compared to the third quarter of fiscal 2003 due to reduced manufacturing costs as a result of the outsourcing program;                     
| 
| |  | Our estimation that under certain circumstances the facilities lease losses for our facilities in Seattle, WA, San Jose, CA
and Coventry, United Kingdom could increase;                                                                                                
| 
| |  | 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;                                                                                                        

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| |  | Our expectation that international sales will continue to account for the majority of our net product sales for the
foreseeable future;                 
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The possibility that settlement of estimated supplier cancellation claims may result in additional liabilities upon
ultimate resolution of these claims;
| 
| |  | Our belief that we maintain adequate reserves to cover exposure for
doubtful accounts;                                                                  
| 
| |  | Our expectation to maintain our cash and short-term investments at or near the current level during the fourth quarter of
fiscal 2003; and              
| 
| |  | Our plan not to currently utilize our revolving credit facility with Silicon Valley Bank.                                                               

All forward looking statements included in this document are made as of the
date hereof, based on information available to us as of the date hereof, and we
assume no obligation to update any forward looking statement or statements. The
reader should also consult the cautionary statements and risk factors listed in
this Quarterly Report and those listed from time to time in our Reports on
Forms 10-Q, 8-K, and our most recent Annual Report on Form 10-K for the year
ended March 31, 2002, including those contained in the section, Factors That
May Affect Future Financial Results, beginning on page 29 in this Quarterly
Report, in evaluating these forward-looking statements.

Critical Accounting Policies and Estimates

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

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##### Table of Contents



Results of Operations

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

|                                          |          |  |                    |       |                   |  |        |        |      |  |       |       |    |  |       |       |   
|----------------------------------------- | -------- |  | ------------------ | ----- | ----------------- |  | ------ | ------ | ---- |  | ----- | ----- | -- |  | ----- | ----- | --
|                                          |          |  | Three Months Ended |       | Nine Months Ended
|                                          |          |  | December 31,       |       | December 31,     
|                                          |          |  |                    |       |                  
|                                          |          |  | 2002               |       | 2001              |  | 2002   |        | 2001
|                                          |          |  |                    |       |                   |  |        |        |     
|Net sales                                 |          |  | 100.0              | %     |                   |  | 100.0  | %      |      |  | 100.0 | %     |    |  | 100.0 | %    
|Cost of sales                             |          |  | 73.1               |       |                   |  | 88.7   |        |      |  | 76.8  |       |    |  | 79.8  |      
|Inventory valuation charges
(benefit)     |          |  | (1.2               | )     |                   |  | 87.3   |        |      |  | (1.4  | )     |    |  | 56.2  |      
|                                          |          |  |                    |       |                   |  |        |        |      |  |       |       |    |  |       |      
|Gross profit (loss)                       |          |  | 28.1               |       |                   |  | (76.0  | )      |      |  | 24.6  |       |    |  | (36.0 | )    
|Research and development                  |          |  | 6.8                |       |                   |  | 9.1    |        |      |  | 6.9   |       |    |  | 8.1   |      
|Selling, general and administrative       |          |  | 25.2               |       |                   |  | 30.3   |        |      |  | 26.6  |       |    |  | 24.3  |      
|Restructuring and asset valuation
charges |          |  | 26.8               |       |                   |  | 11.3   |        |      |  | 18.1  |       |    |  | 13.4  |      
|                                          |          |  |                    |       |                   |  |        |        |      |  |       |       |    |  |       |      
|Operating loss                            |          |  | (30.7              | )     |                   |  | (126.7 | )      |      |  | (27.0 | )     |    |  | (81.8 | )    
|Interest income                           |          |  | 1.0                |       |                   |  | 1.6    |        |      |  | 0.9   |       |    |  | 1.1   |      
|Interest expense                          |          |  | (0.7               | )     |                   |  | 0.0    |        |      |  | (0.4  | )     |    |  | 0.0   |      
|Other income (expense), net               |          |  | (1.6               | )     |                   |  | (0.4   | )      |      |  | (1.0  | )     |    |  | (1.0  | )    
|Impairment of investments                 |          |  |                   |       |                   |  | (1.1   | )      |      |  | (0.3  | )     |    |  | (4.9  | )    
|                                          |          |  |                    |       |                   |  |        |        |      |  |       |       |    |  |       |      
|Loss before provision for income
taxes    |          |  | (32.0              | )     |                   |  | (126.6 | )      |      |  | (27.8 | )     |    |  | (86.6 | )    
|Provision for income taxes                |          |  | 0.8                |       |                   |  | 0.5    |        |      |  | 0.9   |       |    |  | 1.0   |      
|                                          |          |  |                    |       |                   |  |        |        |      |  |       |       |    |  |       |      
|                                          | Net loss |  |                    | (32.8 | )%                |  |        | (127.1 | )%   |  |       | (28.7 | )% |  |       | (87.6 | )%
|                                          |          |  |                    |       |                   |  |        |        |      |  |       |       |    |  |       |      

Net Sales
In the third quarter of fiscal 2003, while we continued to see limited capital
expenditures by industry participants, we have seen some growth in our business
in certain regions. Net sales for the third quarter of fiscal 2003 increased to
$49.3 million, compared to $45.2 million reported in the second quarter of
fiscal 2002. Revenues from our Altium and DXR product lines increased while
sales for our XP4 and Spectrum II product lines decreased. Our Altium product
line net sales increased to $13.6 million in the third quarter of fiscal 2003
from $6.2 million in the comparable quarter of fiscal 2002. Net sales of our
DXR product line increased to $10.0 million in the third quarter of fiscal 2003
compared to $7.3 million in the third quarter of fiscal 2002. Our XP4 product
line net sales decreased to $17.7 million in the third quarter of fiscal 2003,
from $19.3 million in the comparable quarter of fiscal 2002. Net sales of our
Spectrum II

20



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product line decreased to $0.1 million in the third quarter of
fiscal 2003 from $5.1 million in the
comparable quarter of fiscal 2002, due to the product reaching its planned end
of life. Service revenue was $7.5 million in the third quarter of fiscal 2003,
compared to $7.1 million in the third quarter of fiscal 2002.

Net sales to China decreased to $0.9 million in the third quarter of fiscal
2003 from $6.8 million in the third quarter of fiscal 2002, primarily due to
lower sales to customers in China who are continuing to utilize existing
inventory on hand to meet the demands in that region. Net sales in Europe
decreased to $8.2 million in the third quarter of fiscal 2003, compared to
$12.4 million in the third quarter of fiscal 2002, primarily due to ongoing
restrictions of capital expenditures in Europe. Net sales in the Middle
East/Africa region increased to $17.8 million in the third quarter of fiscal
2003 from $8.4 million in the third quarter of fiscal 2002, primarily due to
sales to one customer in Africa. Net sales in the Asia/Pacific region
increased to $9.8 million in the third quarter of fiscal 2003 from $5.8 million
in the third quarter of fiscal 2002, primarily due to increased sales to two
customers in that region. Net sales to Thailand increased to $4.8 million in
the third quarter of fiscal 2003 from zero in the third quarter of fiscal 2002
due to several major projects in that location.

Net sales for the first nine months of fiscal 2003 were $151.1 million,
compared to $182.8 million reported in the first nine months of fiscal 2002 due
to ongoing restrictions over capital spending in the telecommunications and
mobile cellular market. The decrease in net sales was primarily due to
decreased sales of our Spectrum II product line, due to the product reaching
its planned end of life. We experienced a decline in net sales in China,
Europe, North America and Latin America due to a continued slowdown in the
telecommunications industry and weak economic conditions. However this decline
was partially offset by increases in sales in Thailand, the Asia/Pacific and
Middle East/Africa regions. Net sales to U.S. customers decreased to $8.0
million in the first nine months of fiscal 2003, compared to $15.1 million in
the first nine months of fiscal 2002, due to decreased sales to three customers
as a result of ongoing capital restrictions. Net sales to Brazil decreased
significantly to $3.4 million in the first nine months of fiscal 2003 from
$18.7 million in the first nine months of fiscal 2002 due to decreased sales to
one customer. Net sales in Europe decreased to $30.8 million in the first nine
months of fiscal 2003 from $45.3 million in the first nine months of fiscal
2002, due to ongoing restrictions of capital spending. Net sales to China
decreased significantly to $5.2 million in the first nine months of fiscal
2003, from $32.7 million in the first nine months of fiscal 2002, primarily due
to lower sales to customers in China who are continuing to utilize existing
inventory on hand to meet the demands in that region. Net sales in the Other
Asia/Pacific region increased significantly to $33.8 million in the first nine
months of fiscal 2003 from $20.0 million in the first nine months of fiscal
2002, primarily due to increased sales to two customers in that region. Net
sales to Thailand increased significantly to $21.5 million in the first nine
months of fiscal 2003 from zero in the first nine months of fiscal 2002 due to
several major projects in that location.

One customer accounted for 12% of net sales for the third quarter of fiscal
2003 and three customers accounted for 17%, 15% and 14%, respectively, of our
backlog as of December 31, 2002. For the first nine months of fiscal 2003, one
customer accounted for 12% of net sales. For the third quarter of fiscal 2002,
two customers accounted for 21%, and 11% of net sales, respectively. For the
first nine months of fiscal 2002 two customers accounted for 16% and 10% of net
sales, respectively.

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During the third quarter of fiscal 2003, we received $50.1 million in new
orders shippable over the next 12 months compared to $65.9 million in the third
quarter of fiscal 2002, representing a decrease of 24%. During the first nine
months of fiscal 2003, we received $150.1 million in new orders shippable over
the next 12 months compared to $208.1 million in first nine months of fiscal
2002, representing a decrease of 28%. The backlog at December 31, 2002 was
$85.6 million compared to $94.1 million at March 31, 2002. We review our
backlog on an ongoing basis and make adjustments to it as required. Orders in
our current backlog are subject to changes in delivery schedules or to
cancellation at the option of the purchaser without significant penalty.
Accordingly, although useful for scheduling production, backlog as of any
particular date may not be a reliable measure of sales for any future period.

Gross Profit
Gross profit as a percentage of net sales in the third quarter of fiscal 2003
was 28.1% compared to a gross loss of 76.0% in the third quarter of fiscal
2002. The increase in gross margin in the third quarter of fiscal 2003, as
compared to the third quarter of fiscal 2002, was primarily due to inventory
valuation benefits and charges. The inventory valuation benefit of 1.2% in the
third quarter of fiscal 2003 was due to the sale of some of our excess
inventories, which were reserved as inventory valuation charges in the periods
prior to fiscal 2003. The inventory valuation charges of 87.3% taken in the
third quarter of fiscal 2002 were to reserve for excess inventory. Excess
inventory was calculated by comparing backlog and our order forecast to the
inventory quantities on hand to determine the amount of excess inventory at
that time. Inventory for all product lines in excess of nine months
is fully reserved, unless firm backlog exists, and we
partially reserve inventory in excess of three months for certain
product lines. The increase in gross margin in the third quarter of fiscal 2003, as
compared to the third quarter of fiscal 2002, exclusive of inventory valuation
benefits and charges mentioned above, was primarily due to lower manufacturing
costs which resulted in an increase in gross profit of approximately 13% and a
favorable mix impact of 2.3%. There was no significant impact on gross profit
due to pricing during the third quarter of fiscal 2003. We expect gross profit
as a percentage of sales to increase slightly in the fourth quarter of fiscal
2003 as compared to the third quarter of fiscal 2003, due to reduced
manufacturing costs as a result of the outsourcing program.

Gross profit as a percentage of net sales was 24.6% in the first nine months of
fiscal 2003 compared to a gross loss of 36.0% in the first nine months of
fiscal 2002. The inventory valuation benefit in the first nine months of
fiscal 2003 of 1.4% was due to the sale of inventories, which were reserved as
inventory valuation charges, in the periods prior to fiscal 2003. The
inventory valuation charges of 56.2% taken in the first nine months of fiscal
2002 were to reserve for excess inventory. For the first nine months of fiscal
2003 as compared to the first nine months of fiscal 2002, lower manufacturing
spending had a positive impact on gross profit of approximately 3.0%, as a
percentage of net sales. Product mix had a positive impact on gross profit of
approximately 1.4% for the first nine months of fiscal 2003 compared to the
first nine months of fiscal 2002. Pricing had a negative impact on gross
profit of approximately 1.4% for the first nine months of fiscal 2003 as
compared to the first nine months of fiscal 2002.

Research and Development
In the third quarter of fiscal 2003, research and development expenses
decreased to $3.4 million from $4.1 million in the third quarter of fiscal
2002, primarily due to less materials purchases. As a percentage of net
sales, research and development expenses decreased to 6.8% in the third quarter
of fiscal 2003 from 9.1% in the third quarter of fiscal 2002.

In the first nine months of fiscal 2003, research and development expenses
decreased to $10.4 million from $14.8 million in the first nine months of
fiscal 2002 due to the consolidation and

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relocation of our Seattle, Washington research and development operations to
our San Jose, California facility in June 2001. As a percentage of net sales,
research and development expenses decreased to 6.9% in the first nine months of
fiscal 2003, compared to 8.1% in the first nine months of fiscal 2002.

Selling, General and Administrative
In the third quarter of fiscal 2003, selling, general and administrative
expenses decreased to $12.4 million from $13.7 million in the third quarter of
fiscal 2002. This decrease was a result of a reduction in workforce and other
cost reduction measures that were taken in fiscal 2002 and the first and third
quarters of fiscal 2003. As a percentage of net sales, selling, general and
administrative expenses decreased to 25.2% in the third quarter of fiscal 2003,
compared to 30.3% in third quarter of fiscal 2002, primarily due to the reasons
described above. We expect our selling, general and administrative expenses
will continue to decrease in the fourth quarter of fiscal 2003, compared to the
third quarter of fiscal 2003, as a result of ongoing cost reduction measures.

Selling, general and administrative expenses in the first nine months of fiscal
2003 decreased to $40.2 million compared to $44.4 million in the first nine
months of fiscal 2002, primarily due to the reasons mentioned above. As a
percentage of net sales, selling, general and administrative expenses increased
to 26.6% in the first nine months of fiscal 2003, compared to 24.3% in the
first nine months of fiscal 2002 primarily because the rate of the decrease in
net sales exceeded the rate of the decrease of selling, general and
administrative expenses.

Restructuring Charges
During the first quarter of fiscal 2003, we entered into an agreement to
outsource our San Jose, California manufacturing operations to Microelectronics
Technology Inc. (MTI) in Taiwan. As a result of changes associated with this
agreement, as well as other reductions in operating expenses and facilities, we
recorded restructuring charges of $14.2 million in the first quarter of fiscal
2003. This restructuring charge consisted of $2.8 million for employee
severance and benefits, $8.2 million for vacated building lease obligations,
$0.6 million for legal costs, $3.3 million for transition costs related to
outsourcing of our manufacturing operations as mentioned above and $1.8 million
as a write off of manufacturing equipment. These restructuring costs were
reduced by $2.5 million, which represented the amount reimbursable from MTI for
the costs relating to the transfer of certain of our manufacturing assets to
MTI in accordance with our joint agreement.

Under the terms of our agreement with Microelectronics Technology Inc. (MTI)
for transfer of our manufacturing operations to them, MTI has assumed assembly,
integration and testing of our Altium product family, as well as assembly and
testing of the Outdoor Unit portion of our XP4 product. The agreement also
provides for continuing cooperation between the companies for future products
now being developed. Under terms of the agreement, MTI is acquiring certain of
our manufacturing assets related to the production of the Altium and XP4
product lines and we are providing assistance in the transition of the
operation. In addition, we are consigning certain inventory associated with
these products to MTI, and MTI is purchasing such inventory as it is utilized
in manufacturing. We are retaining product design and R&D functions for these
products. We expect to complete the transition of affected manufacturing
operations and transfer all of these assets to MTI by the end of fiscal year
2003. We have recorded the sale of assets totaling $1.9 million, excluding
interest, as of December 31, 2002. The total value of the assets sold to MTI
is expected to be $2.2 million, excluding interest. MTI has been making
quarterly

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payments of $0.3 million since October 2002 for the assets sold. The
transaction includes a five-year supply agreement between the two companies.
As a result of the agreement, MTI will be our primary manufacturer of the
Outdoor Unit portion of Altium products and of the XP4 products. Sales of our
Altium and XP4 products for the first nine months of fiscal 2003 account for
62% of total revenues for that period.

The severance and benefit charges of $2.8 million taken in the first quarter of
fiscal 2003 were for a reduction in workforce of 153 employees, with reductions
affecting primarily the manufacturing operations area due to the outsourcing of
our San Jose, California manufacturing operations. As of June 30, 2002 all
affected employees had been notified. As of December 31, 2002, 148 employees
have been terminated. We anticipate that the remaining affected employees jobs
will be eliminated by March 31, 2003.

As we do not expect any significant recovery in the economy in the near future,
we took additional steps in the third quarter of fiscal 2003 to reduce costs
and to improve asset management. As a result of reductions in facilities and
operating expenses, we recorded restructuring charges of $13.2 million in the
third quarter of fiscal 2003. These restructuring charges consisted of $0.2
million for employee severance and benefits, $10.8 million for vacated building
lease obligations and $2.2 million as a write off of certain fixed assets in
our San Jose, California location, related to the transfer of certain
manufacturing operations to MTI.

During fiscal 2002, the telecommunications and mobile cellular industry
experienced a severe downturn due to the declining global economy. This
impacted our revenues significantly. In response to this downturn, we announced
several restructuring programs in fiscal 2002 to focus on profit contribution
by reducing expenses and improving operational efficiency. These restructuring
programs included consolidation of our U.S. manufacturing operations by
relocating our Seattle, Washington operations to our San Jose, California
facility, a worldwide reduction in workforce and a consolidation of additional
excess facilities. Due to the economic downturn, we recorded restructuring and
receivable valuation charges of $24.6 million during fiscal 2002. This
consisted of $8.4 million for employee severance and benefits, $11.2 million
for facility-related and other costs (including $8.6 million for vacated
building lease obligations, $2.1 million for the loss on impairment of
equipment, $0.1 million for legal costs and $0.4 million for the write off of
goodwill) and $5.0 million for uncollectible accounts receivable. There were
cumulative cash payments and non-cash expenses against this provision of $7.7
million and $7.5 million, respectively, resulting in an ending provision
balance at March 31, 2002 of $9.4 million. The cash payments were related
primarily to workforce reduction payments and the non-cash expenses were
related primarily to equipment and receivable valuation charges.

The vacated building lease obligations of $10.8 million, $8.2 million and $8.6
million recorded in the third and first quarters of fiscal 2003 and in the
first nine months of 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.
Should operating lease rental rates continue to decline in the current market
or should it take longer than expected to find a suitable tenant to sublease
the Seattle, WA, San Jose, CA and Coventry, United Kingdom facilities,
adjustments to the facilities lease loss reserve will be made in future
periods, if necessary, based upon actual events and circumstances.

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The following table summarizes the balance of the restructuring accrual as of
December 31, 2002 and the type and amount of restructuring costs utilized
during the first nine months of fiscal 2003 (in millions):

|                                |  |              |      |            |  |       |      |   |  |   |      |  
|------------------------------- |  | ------------ | ---- | ---------- |  | ----- | ---- | - |  | - | ---- | -
|                                |  | Severance    |      | Facilities |  |       |      |  
|                                |  | and Benefits |      | and Other  |  | Total
|                                |  |              |      |            |  |      
|Balance as of April 1, 2002     |  | $            | 2.3  |            |  | $     | 7.1  |   |  | $ | 9.4  |  
|Provision                       |  |              | 3.0  |            |  |       | 24.4 |   |  |   | 27.4 |  
|Cash payments                   |  |              | (3.2 | )          |  |       | (5.8 | ) |  |   | (9.0 | )
|Non-cash expenses               |  |              |     |            |  |       | (4.0 | ) |  |   | (4.0 | )
|Reimbursable transition costs   |  |              |     |            |  |       | 2.5  |   |  |   | 2.5  |  
|                                |  |              |      |            |  |       |      |   |  |   |      |  
|Balance as of December 31,
2002 |  | $            | 2.1  |            |  | $     | 24.2 |   |  | $ | 26.3 |  
|                                |  |              |      |            |  |       |      |   |  |   |      |  
|Current portion                 |  |              | 2.1  |            |  |       | 5.4  |   |  | $ | 7.5  |  
|Long-term portion               |  |              | 0.0  |            |  |       | 18.8 |   |  | $ | 18.8 |  

The remaining accrual balance of $26.3 million as of December 31, 2002 is
expected to be paid out in cash. We expect $2.7 million of the remaining cash
restructuring charges to be paid out in fiscal 2003 and an additional $5.8
million to be paid out in fiscal 2004 (including $0.6 million for severance and
benefits and $5.2 million for vacated building lease obligations). We
anticipate further vacated building lease obligations of $17.8 million to be
paid out during fiscal 2005 through fiscal 2012.

Other Income (Expense)
Interest income was $0.5 million in the third quarter of fiscal 2003 compared
to $0.7 million in the third quarter of fiscal 2002. The decrease was
primarily due to lower interest rates in the third quarter of fiscal 2003 as
compared to the third quarter of fiscal 2002. Other expense was $0.8 million in
the third quarter of fiscal 2003 compared to $0.2 million in the third quarter
of fiscal 2002. The increase was primarily due to an increase in foreign
exchange losses.

During the third quarter of fiscal 2003, we recorded an immaterial amount as an
impairment loss on our equity investments in marketable securities. During the
third quarter of fiscal 2002, we recorded an impairment loss of $0.5 million on
certain of our minority investments in marketable and non-marketable
securities. We determined that the recorded value for these certain investments
exceeded their fair value and that these losses were other than temporary in
nature.

In the first nine months of fiscal 2003, interest income decreased to $1.4
million from $2.0 million in the first nine months of fiscal 2002, primarily
due to lower interest rates in the first nine months of fiscal 2003 compared to
the first nine months of fiscal 2002. During the first nine months of fiscal
2003, we recorded $0.4 million as impairment loss on our equity investments in
marketable securities. During the first nine months of fiscal 2002, we
recorded $8.8 million as impairment loss. This loss consisted of $4.5 million
related to our minority investments in marketable securities, a $3.4 million
loss on our minority investments in non-marketable securities and a $0.9
million loss on short-term investments in marketable securities. We determined
that the carrying value for these certain investments exceeded their fair value
and that these losses were other than temporary in nature.

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

Liquidity And Capital Resources

Net cash provided by operating activities in the first nine months of fiscal
2003 was $6.3 million compared to net cash used of $22.3 million in the first
nine months of fiscal 2002. The decrease in cash used for operating activities
was primarily due to a decrease in inventory of $12.6 million during the first
nine months of fiscal 2003 as compared to an increase of $39.8 million in the
first nine months of fiscal 2002. Accounts receivable decreased by $9.0 million
during the first nine months of fiscal 2003, primarily due to improved shipment
linearity, customer mix and successful collection efforts. Long term
liabilities increased due to restructuring costs accrued in the third and first
quarters of fiscal 2003, partially offset by payments made toward prior period
restructuring costs.

Purchases of property and equipment were $3.4 million in the first nine months
of fiscal 2003 compared to $10.6 million in the first nine months of fiscal
2002. The planned decrease in capital expenditures was made in response to the
economic slowdown.

In the first nine months of fiscal 2003, proceeds from the sale of our common
stock of $0.9 million were derived from the exercise of employee stock options
and the employee stock purchase plan.

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

At December 31, 2002, our principal sources of liquidity consisted of $90.2
million in cash and cash equivalents and short-term investments. We expect to
maintain our cash and short-term investments at or near the current level
during the fourth quarter of fiscal 2003. Our cash requirements for fiscal
2003 are primarily to fund operations, research and development, capital
expenditures and restructuring activities.

On January 21, 2003 we secured a $22.5 million revolving credit facility with
Silicon Valley Bank. The credit facility has one-year renewable terms and an
interest rate of prime or LIBOR plus 2%. We currently have no plans to utilize
this facility.

Commercial commitments
As of December 31, 2002 we had $1.6 million in standby letters of credit
outstanding with several financial institutions to support bid and performance
bonds issued to various customers. In connection with the issuance of these
letters of credit, we held $0.7 million of cash as collateral for these
specific obligations as of December 31, 2002. Also as of December 31, 2002, we
had outstanding forward foreign exchange contracts in the aggregate amount of
$17.5

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million,
for which restricted cash of $0.7 million was held as collateral by one of the
financial institutions utilized to hedge our foreign currency risk exposure.

Contractual obligations
The following table provides information related to our remaining contractual
obligations:

|                                   |                              |      |        |      |  |      |       |      |  |      |       |        |  |             |       |  |  |   |       |  |  |        |        |       |  |   |        | 
|---------------------------------- | ---------------------------- | ---- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ------ |  | ----------- | ----- |  |  | - | ----- |  |  | ------ | ------ | ----- |  | - | ------ | 
|                                   | Payments due (in thousands):
|                                   |                             
|                                   | Years ending March 31,      
|                                   |                             
|                                   |                              |      |        |      |  |      |       |      |  |      |       |        |  |             |       |  |  |   |       |  |  | 2008 & |        | Total
|                                   |                              |      |        |      |  |      |       |      |  |      |       |        |  |             |       |  |  |   |       |  |  |        |        |      
|                                   |                              | 2003 |        | 2004 |  | 2005 |       | 2006 |  | 2007 |       | Beyond |  | Obligations
|                                   |                              |      |        |      |  |      |       |      |  |      |       |        |  |            
|Operating leases (a)               |                              | $    | 1,401  |      |  | $    | 5,451 |      |  | $    | 5,373 |        |  | $           | 5,494 |  |  | $ | 5,646 |  |  | $      | 24,379 |       |  | $ | 47,744 | 
|Unconditional
purchase
obligations |                              | $    | 26,923 |      |  |      |      |      |  |      |      |        |  |             |      |  |  |   |      |  |  |        |       |       |  | $ | 26,923 | 



|(a) |  | Contractual cash obligations include $24,064 of lease obligations
that have been included in the restructuring accrual.
|--- |  | -----------------------------------------------------------------------------------------------------------------------

Restructuring payments
We accrued $17.1 million in restructuring charges during fiscal 2002 and $23.4
million in the first nine months of fiscal 2003 for cash outlays. Of this total
accrual of $40.5 million, $14.2 million was paid as of December 31, 2002. As
of December 31, 2002 the remaining cash to be paid out is $26.3 million. We
expect $2.7 million of the remaining cash restructuring charges to be paid out
in fiscal 2003 and an additional $5.8 million to be paid out in fiscal 2004
(including $0.6 million for severance and benefits and $5.2 million for vacated
building lease obligations). We anticipate further vacated building lease
obligations of $17.8 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.

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

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

|                                            |  |                      |        |      |  |   |        |  
|------------------------------------------- |  | -------------------- | ------ | ---- |  | - | ------ | -
|                                            |  | Years Ended March 31
|                                            |  |                     
|                                            |  | 2003                 |        | 2004
|                                            |  |                      |        |     
|Cash equivalents and
short-term investments |  | $                    | 57,053 |      |  | $ | 14,234 |  
|Weighted average
interest rate              |  |                      | 1.74   | %    |  |   | 2.19   | %

The primary objective of our short-term investment activities is to preserve
principal, while at the same time maximize yields without significantly
increasing risk. Our short-term investments are for fixed interest rates;
therefore, changes in interest rates will not generate a gain or loss on these
investments unless they are sold prior to maturity. Actual gains and losses
due to the sale of our investments prior to maturity have been immaterial. The
average days to maturity for investments held at the end of the third quarter
of fiscal 2003 was 51 days and they had an average yield of 1.83% per annum.

As of December 31, 2002, unrealized losses on investments were immaterial. The
investments have been recorded at fair value on our balance sheet. During the
first nine months of fiscal 2003, we recorded a permanent impairment for
certain investments of $0.4 million.

Exchange Rate Risk:

We routinely use forward foreign exchange contracts to hedge our exposures
related to the monetary assets and liabilities of our operations denominated in
non-functional currencies. In addition, we enter into forward foreign exchange
contracts to establish with certainty the U.S. dollar amount of anticipated
transactions denominated in a foreign currency. The primary business objective
of this hedging program is to minimize the gains and losses resulting from
exchange rate changes. At December 31, 2002, we held forward contracts in 11
currencies in the aggregate amount of $17.5 million, primarily in British
pounds and the euro. The amount of unrealized losses on these contracts at
December 31, 2002 was immaterial.

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

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

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Factors That May Affect Future Financial Results

The statements contained in this Quarterly Report on Form 10-Q concerning our
future products, expenses, revenues, gross margins, liquidity and cash needs,
as well as our plans and strategies, contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange
Act of 1934, as amended. All statements, trend analyses and other information
contained herein about the markets for our services and products and trends in
revenue, as well as other statements identified by the use of forward-looking
terminology, including ''anticipate, ''believe, ''plan, ''estimate,
''expect, ''goal and ''intend, or the negative of these terms or other
similar expressions, constitute forward-looking statements. These
forward-looking statements are based on current expectations, and we assume no
obligation to update this information. Numerous factors, including the risk
factors discussed below, economic and competitive conditions, timing and volume
of incoming orders, shipment volumes, product margins and foreign exchange
rates, could cause actual results to differ materially from those described in
these statements, and prospective investors and stockholders should carefully
consider these factors set forth below and elsewhere in evaluating these
forward-looking statements.

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

The wireless interconnection and access business is a specialized segment
of the wireless telecommunications industry and is extremely competitive. We
expect that competition will increase. Many of our competitors have more
extensive engineering, manufacturing and marketing capabilities and
significantly greater financial, technical, and personnel resources than 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, Inc., Sagem AS, SIAE and Siemens AG, as well as several private
companies currently in the startup stage. Some of our competitors have product
lines that compete with ours, and are also original equipment manufacturers
(OEMs) through 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 complete may encourage certain of our
competitors to enter into additional business combinations, to accelerate
product development, or to engage in aggressive price reductions or other
competitive practices, thereby creating even more powerful or aggressive
competitors.

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

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

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

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

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

We participate in a highly volatile industry that is characterized by
vigorous competition for market share and rapid technological development.
These factors could result in aggressive pricing practices and growing
competition both from start-up companies and from well-capitalized
telecommunication systems providers, which, in turn, could decrease our
revenues. In response to changes in our industry and market conditions, we may
restructure our activities to more strategically realign our resources. This
includes assessing whether we should consider disposing of, or otherwise
exiting, businesses and reviewing the recoverability of our tangible and
intangible assets. Any decision to limit investment in our tangible and
intangible assets or to dispose of or otherwise exit businesses may result in
the recording of accrued liabilities for special charges, such as workforce
reduction costs. In June 2002, we entered into an agreement with
Microelectronics Technology Inc. (MTI) to outsource our San Jose manufacturing
operations to MTI. As a result of changes associated with this agreement, as
well as other reductions in operating expenses and facilities, we reduced our
worldwide headcount by approximately 20% and recorded restructuring charges of
$27.4 million in the first nine months of fiscal 2003. Additionally, accounting
estimates with respect to the useful life and ultimate recoverability of our
carrying basis of assets could change as a result of such assessments and
decisions, and could harm our results of operations.

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

Due to the rapid and increasingly severe economic downturn in the United
States, as well as the global tightening of the capital markets for
telecommunications and mobile cellular projects during calendar 2001 and
calendar 2002, our business opportunities have decreased in Europe, Asia and
other countries and geographic regions where we conduct business. To the extent
that the economic downturn and the global tightening of the capital markets
continue, the demand for our products and services may decrease further in
these countries and geographic regions. The continuing decline in financial
condition of CLECs including those currently

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involved in bankruptcy
proceedings, may continue to have a negative impact on our financial results.
For example, on January 22, 2003 we received a demand letter for $2.5 million
from counsel to unsecured creditors in the bankruptcy proceeding of one of our
CLEC customers for
monies we received within 90 days of the customer seeking relief, on May
21, 2001, under the United States Bankruptcy Code. On February 10, 2003 we
also received a demand letter for $8.3 million from counsel to unsecured
creditors in the bankruptcy proceeding of another one of our CLEC customers for
monies received within 90 days of the customer seeking relief, on April 18,
2001, under the United States Bankruptcy Code. We intend to vigorously defend
ourselves against these claims. However, because of the inherent uncertainties
of litigation in general and our analysis of the issues presented by these
threatened litigations is not yet complete, we cannot assure you that the
ultimate outcomes will be in our favor. If we do not ultimately prevail
against these claims, we will be required to remit to the counsel to the
unsecured creditors for the benefit of such creditors some or all of the $2.5
and $8.3 million. Repayment of these amounts could have a negative impact on
our results of operations. In addition, the terrorist attack of September 11,
2001, the subsequent military response by the United States, the potential U.S.
war against Iraq, and future events occurring in response to, or in connection
with, the September 11 attack and action in Iraq have negatively impacted, and
may continue to negatively impact, the economy in general. This could impact
our current and future business in the Middle East region and could result in
our customers delaying or canceling the purchase of our products, which would
have a significant negative impact on our revenues. Due in part to the economic
downturn, we undertook a worldwide reduction in work force of approximately 35%
and closed our Seattle, Washington facility in fiscal 2002. In the first
quarter of fiscal 2003 we entered into an agreement with Microelectronics
Technology Inc. (MTI) to outsource our manufacturing operations to MTI. As a
result of changes associated with this agreement, we reduced our headcount by
approximately 20% with the reduction affecting various locations.

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

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

Our average sales prices are
declining.

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,

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we must often

cost reductions can be obtained. As a result, current or future price reduction
commitments could, and any inability by us to respond to increased price
competition would, harm our business, financial condition and results of
operations.

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

Sales of our products are concentrated in a small number of customers. For
the quarter ended December 31, 2002, one customer accounted for 12% of our net
sales. In addition, three customers accounted for 17%, 15%, and 14% of our
backlog as of December 31, 2002. For the first nine months of fiscal 2003, one
customer accounted for 12% of the net sales. The worldwide telecommunications
industry is dominated by a small number of large corporations, and we expect
that a significant portion of our future product sales will continue to be
concentrated in a limited number of customers. In addition, our customers
typically are not contractually obligated to purchase any quantity of products
in any particular period, and product sales to major customers have varied
widely from period to period. In addition, as a result of the global tightening
of the capital markets for the telecommunications and mobile cellular projects
in calendar year 2001 and calendar year 2002, the demand for our products and
services has decreased and may continue to decrease. The loss of any existing
customer, a significant reduction in the level of sales to any existing
customer, or our inability to gain additional customers could result in further
declines in our revenues. If these revenue declines occur, our business,
financial condition, and results of operations would be harmed.

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

We are highly dependent on sales to customers outside the United States.
During fiscal 2000, 2001, and 2002, sales to international customers accounted
for 79%, 69% and 92% of our net sales, respectively. Sales to international
customers for the first nine months of fiscal 2003 accounted for 95% of our net
sales. Sales to the Middle East/Africa region accounted for approximately 25%
of net sales for the first nine months of fiscal 2003. Also a significant
portion of our international sales are in lesser developed countries and we
expect that international sales will continue to account for the majority of
our net product sales for the foreseeable future. As a result, the occurrence
of any international, political, economic or geographic event that adversely
affects our business could result in significant revenue shortfalls. These
revenue shortfalls could cause our business, financial condition and results of
operations to be harmed. Some of the risks and challenges of doing business
internationally include:



| |  |  | unexpected changes in regulatory requirements;                          
| | - |  | ------------------------------------------------------------------------
|
| |  |  | fluctuations in foreign currency exchange rates;                        
|
| |  |  | imposition of tariffs and other barriers and restrictions;              
|
| |  |  | management and operation of an enterprise spread over various countries;
|
| |  |  | burden of complying with a variety of foreign laws;                     

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| |  |  | general economic and geopolitical conditions, including
inflation and trade relationships;
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | war and acts of terrorism;                                                                
|
| |  |  | currency exchange controls; and                                                           
|
| |  |  | unforeseen changes in export regulations.                                                 

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.

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

Our manufacturing operations, which have been substantially subcontracted,
are highly dependent upon the delivery of materials by outside suppliers in a
timely manner. Also, we depend in part upon subcontractors to assemble major
components and subsystems used in our products in a timely and satisfactory
manner. In June 2002, we entered into a five year manufacturing and supply
agreement with Microelectronics Technology Inc. (MTI). Under the terms of our
agreement with MTI, MTI will assume assembly, integration and testing of our
Altium product family, as well as assembly and testing of the Outdoor Unit
(ODU) portion of the XP4 product. Sales of our Altium and XP4 products for the
third quarter of fiscal 2003, accounted for 63% of total revenues for that
quarter. We do not generally enter into long-term or volume purchase agreements
with any of our suppliers, and we cannot assure you that such materials,
components and subsystems will be available to us at such time and in
quantities we require, if at all. In addition, due to the rapid and
increasingly severe economic downturn, our suppliers have experienced and are
continuing to experience various financial difficulties, which may impact their
ability to supply the materials, components and subsystems that we require.
Our inability to develop alternative sources of supply quickly and on a
cost-effective basis could materially impair our ability to manufacture and
deliver our products to our customers in a timely manner. We cannot assure you
that we will not experience material supply problems or component or subsystem
delays in the future. Also, the subcontractors may not be able to maintain the
quality of our products, which might result in a large number of product
returns by customers and could harm our business, financial condition and
results of operations.

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

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

Many of our current and potential customers require significant capital
funding to finance their telecommunications and mobile cellular projects, which
include the purchase of our products and services. Due to the current
tightening of capital markets worldwide, available

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funding for these projects
has been and may continue to be unavailable to some customers and thereby slow
or halt the purchase of our products and services. This reduction in demand
has resulted in excess inventories on hand, and could result in additional
excess inventories in the future. In fiscal 2002, we recorded inventory
valuation charges of $102.7 million for excess inventory and supplier
commitments resulting from the reduction in our sales volume compared to the
prior fiscal year. In the first nine months of fiscal 2003, we recorded an
inventory
valuation benefit of $2.1 million, which represented a benefit from the
sale of previously reserved inventories. If funding continues to be
unavailable to our customers or their customers, we may be forced to take
additional reserves for excess inventory. We cannot assure you that we will be
successful in matching our inventory purchases with anticipated shipment
volumes. As a result, we may fail to control the amount of inventory on hand
and may be forced to take unanticipated additional reserves. Such additional
inventory reserves, if required, would decrease our profits.

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

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

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| |  |  | downward pricing pressure on our products;                                                                                                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | adoption of new technologies and industry standards;                                                                                                                            
|
| |  |  | competitive factors, including pricing, availability and
demand for competing products;                                                                                         
|
| |  |  | ability of our customers to obtain financing to enable their
purchase of our products;                                                                                          
|
| |  |  | fluctuations in foreign currency exchange rates;                                                                                                                                
|
| |  |  | regulatory developments;                                                                                                                                                        
|
| |  |  | general economic conditions worldwide; and                                                                                                                                      
|
| |  |  | claims or litigation related to the continuing decline in
financial conditions of CLECs including but not limited to those
CLECs currently involved in bankruptcy proceedings.

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, trademark, patents and contractual rights to protect our intellectual
property. In addition, we enter into confidentiality and invention assignment
agreements with our employees, and enter into non-disclosure agreements with
our suppliers and appropriate customers so as to limit access to and disclosure
of our proprietary information. We cannot assure you that any steps taken by us
will be adequate to deter

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misappropriation or impede independent third party
development of similar technologies. In the event that such intellectual
property arrangements are insufficient, our business, financial condition and
results of operations could be harmed. Moreover, we have significant operations
in the United Kingdom and New Zealand, and our business is highly dependent on
sales to customers outside the United States. We cannot assure you that the
protection provided to our intellectual property by the laws and courts of
foreign nations will be substantially similar to the remedies available under
United States law. Furthermore, we cannot assure you that third parties
will not assert infringement claims against us based on foreign
intellectual property rights and laws that are different from those established
in the United States.

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

The wireless telecommunications industry is characterized by vigorous
protection and pursuit of intellectual property rights, which has resulted in
often protracted and expensive litigation. We may in the future be notified
that we are infringing 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
productions.

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

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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 27, Item 2  Managements
Discussion and Analysis of Financial Condition and Results of Operations -
Quantitative and Qualitative Disclosures About Market Risk.




ITEM 4. CONTROLS AND PROCEDURES

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

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PART II  OTHER INFORMATION




ITEM 1  LEGAL PROCEEDINGS



| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There are no material existing or pending legal proceedings against us.
We are, however, subject to claims by either former or current employees,
suppliers, or arising from CLECs bankruptcies.




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 45.

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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: February 14, 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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STRATEX NETWORKS, INC.
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Charles D. Kissner, certify that:



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



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



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



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



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

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

|                        |  |                                      |                       
|----------------------- |  | ------------------------------------ | ----------------------
|Date: February 14, 2003 |  | By                                   | /s/ Charles D. Kissner
|                        |  |                                      |                       
|                        |  |                                      | Charles D. Kissner    
|                        |  | Chairman and Chief Executive Officer

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

I, Carl A. Thomsen, certify that:



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



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



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



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



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

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

|                        |  |    |                        
|----------------------- |  | -- | -----------------------
|Date: February 14, 2003 |  | By | /s/ Carl A. Thomsen    
|                        |  |    |                        
|                        |  |    | Carl A. Thomsen        
|                        |  |    | Chief Financial Officer

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EXHIBIT INDEX

|               |  |                                                                                                                         
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                             
|               |  |                                                                                                                         
|99.1           |  | Certification of Charles D. Kissner, Chief Executive
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|99.2           |  | Certification of Carl A. Thomsen, Chief Financial Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   

45