<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

     (Mark One)
     [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 For the quarterly period ended March 31, 2002.

     or

     [_]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 For the transition period from _______to________.

                       Commission File Number (000-25865)


                         Copper Mountain Networks, Inc.
             (Exact name of registrant as specified in its charter)


     Delaware                                                33-0702004
     (State or other jurisdiction of                         (I.R.S. Employer
     incorporation or organization)                          Identification No.)



               1850 Embarcadero Road, Palo Alto, California 94303
                                 (650) 687-3300
   (Address, including zip code, and telephone number, including area code, of
                          principal executive offices)



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

     The number of shares outstanding of the issuer's common stock, $.001 par
value, as of April 30, 2002 was 58,378,414.

<PAGE>

                         COPPER MOUNTAIN NETWORKS, INC.
                                      INDEX

<TABLE>
<CAPTION>
                                                                                        Page
<S>                                                                                     <C>
Part I.  Financial Information

         Item 1.  Financial Statements

                  Condensed Balance Sheets at March 31, 2002 and
                         December 31, 2001                                                2

                  Condensed Statements of Operations for the three months
                         ended  March 31, 2002 and 2001                                   3

                  Condensed Statement of  Stockholders' Equity for the three
                         months ended March 31, 2002                                      4

                  Condensed Statements of Cash Flows for the three months
                         ended March 31, 2002 and 2001                                    5

                  Notes to Condensed Financial Statements                                 6

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

         Item 3.  Quantitative and Qualitative Disclosures About Market
                  Risk                                                                   34


Part II. Other Information

         Item 1.  Legal Proceedings                                                      35

         Item 6.  Exhibits and Reports on Form 8-K                                       36
</TABLE>

<PAGE>

                         COPPER MOUNTAIN NETWORKS, INC.
                            CONDENSED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                    March 31,          December 31,
                                                                      2002                 2001
                                                                  -------------        ------------
                                                                   (Unaudited)
<S>                                                               <C>                  <C>
ASSETS
------

Current assets:
   Cash and cash equivalents                                      $      29,248        $     26,623
   Short-term marketable investments                                     37,207              46,202
   Accounts receivable, net                                                 532               1,574
   Inventory, net                                                         6,369               7,502
   Other current assets                                                     459                 393
                                                                  -------------        ------------
Total current assets                                                     73,815              82,294
Property and equipment, net                                              10,598              12,251
Other assets                                                              1,773               1,924
                                                                  -------------        ------------

Total assets                                                      $      86,186        $     96,469
                                                                  =============        ============


LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
   Accounts payable                                               $      19,349        $     17,661
   Adverse purchase commitment                                            6,983               8,083
   Accrued restructuring costs                                            2,914               3,205
   Accrued liabilities                                                    6,142               6,544
   Current portion of obligations under capital leases
     and equipment notes payable                                          3,134               3,120
                                                                  -------------        ------------
Total current liabilities                                                38,522              38,613
Obligations under capital leases and equipment
   notes payable, less current portion                                    2,728               3,534
Accrued restructuring costs                                               3,335               3,884
Other accrued                                                               283                 253

Stockholders' equity:
   Common stock                                                              58                  58
   Additional paid in capital                                           246,171             246,126
   Deferred compensation                                                 (3,490)             (5,666)
   Accumulated deficit                                                 (201,421)           (190,673)
   Other comprehensive income                                              ----                 340
                                                                  -------------        ------------
Total stockholders' equity                                               41,318              50,185
                                                                  -------------        ------------

Total liabilities and stockholders' equity                        $      86,186        $     96,469
                                                                  =============        ============
</TABLE>





            See accompanying notes to condensed financial statements

                                       2

<PAGE>

                         COPPER MOUNTAIN NETWORKS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (unaudited)


                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                       2002             2001
                                                   -----------      -----------


Net revenue                                        $     3,014      $     8,161
Cost of revenue                                          2,054           39,528
                                                   -----------      -----------
  Gross margin                                             960          (31,367)
Operating expenses:
  Research and development                               7,295           11,667
  Sales and marketing                                    1,752            7,010
  General and administrative                             2,441            7,796
  Amortization of purchased intangibles                   ----            5,326
  Amortization of deferred stock compensation*           2,176              555
  Recovery of bad debt                                    (689)            ----
  Restructuring costs                                     ----            4,382
                                                   -----------      -----------
      Total operating expenses                          12,975           36,736
                                                   -----------      -----------

Loss from operations                                   (12,015)         (68,103)

Other income (expense):
     Interest and other income, net                      1,450            1,425
     Interest expense                                     (183)            (218)
                                                   -----------      -----------
Net loss                                           $   (10,748)     $   (66,896)
                                                   ===========      ===========


Basic net loss per share                           $     (0.20)     $     (1.27)
                                                   ===========      ===========

Diluted net loss per share                         $     (0.20)     $     (1.27)
                                                   ===========      ===========


Basic common equivalent shares                          53,450           52,590
                                                   ===========      ===========

Diluted common equivalent shares                        53,450           52,590
                                                   ===========      ===========



* The following table shows how the Company's deferred stock compensation would
be allocated to cost of revenue and the respective expense categories:


  Cost of revenue                                  $       132      $        19
  Research and development                                 728              142
  Sales and marketing                                      289               92
  General and administrative                             1,027              302
                                                   -----------      -----------
     Total                                         $     2,176      $       555
                                                   ===========      ===========

            See accompanying notes to condensed financial statements.

                                        3

<PAGE>

                         COPPER MOUNTAIN NETWORKS, INC.
                   CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                               Common Stock
                                            -------------------
                                                                 Additional                                 Other         Total
                                            Number of             Paid in       Deferred   Accumulated  Comprehensive Stockholders'
                                             Shares     Amount    Capital    Compensation    Deficit       Income         Equity
                                            ---------  -------- ------------ ------------  -----------  ------------- -------------
<S>                                         <C>        <C>      <C>          <C>           <C>          <C>           <C>
Balance at December 31, 2001                   58,351  $     58 $    246,126 $     (5,666) $  (190,673) $         340 $      50,185


  Amortization related to deferred
    stock compensation                           ----      ----         ----        2,176         ----           ----         2,176

  Common stock issued under Employee
    Stock Purchase Plan                            26      ----           29         ----         ----           ----            29

  Exercise of options to purchase
    common stock                                   96      ----           16         ----         ----           ----            16


  Realization of unrealized gain on marketable   ----      ----         ----         ----         ----           (340)         (340)
    investment
  Net loss
                                                 ----      ----         ----         ----      (10,748)          ----       (10,748)
                                            ---------  -------- ------------ ------------  -----------  ------------- -------------

Balance at March 31, 2002                      58,473  $     58 $    246,171 $     (3,490) $  (201,421) $        ---- $      41,318
                                            =========  ======== ============ ============  ===========  ============= =============
</TABLE>


            See accompanying notes to condensed financial statements

                                       4

<PAGE>

                         COPPER MOUNTAIN NETWORKS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                   Three Months Ended March 31,
                                                                   ----------------------------
                                                                       2002           2001
                                                                   -------------  -------------
<S>                                                                <C>            <C>
Cash flows from operating activities:
  Net loss                                                         $   (10,748)   $   (66,896)
  Adjustments to reconcile net loss
     to net cash used in operating activities:
       Depreciation and amortization                                     2,066          8,161
       Non-cash portion of restructuring costs                              --          1,900
       Non-cash compensation                                             2,176            555
       Realized gain on investment in marketable investment             (1,020)            --
       Changes in operating assets and liabilities:
          Accounts receivable                                            1,042         17,248
          Inventory                                                      1,133          3,783
          Other current assets and other assets                             85         13,571
          Accounts payable and accrued liabilities                       1,316        (22,513)
          Adverse purchase commitment                                   (1,100)        16,061
          Accrued restructuring costs                                     (840)            --
                                                                   -----------    -----------

Net cash used in operating activities                                   (5,890)       (28,130)
                                                                   -----------    -----------
Cash flows from investing activities:
  Maturities of marketable investments, net                              9,675         52,133
  Purchases of property and equipment                                     (413)        (3,000)
                                                                   -----------    -----------

Net cash provided by investing activities                                9,262         49,133
                                                                   -----------    -----------
Cash flows from financing activities:
  Payments on capital leases and equipment notes payable                  (792)          (796)
  Proceeds from issuance of common stock                                    45            750
                                                                   -----------    -----------

Net cash used in financing activities                                     (747)           (46)
                                                                   -----------    -----------

Net increase in cash and cash equivalents                                2,625         20,957

Cash and cash equivalents at beginning of period                        26,623         65,838
                                                                   -----------    -----------

Cash and cash equivalents at end of period                         $    29,248    $    86,795
                                                                   ===========    ===========


Supplemental information:
  Interest paid                                                    $       183    $       218
                                                                   ===========    ===========
</TABLE>

            See accompanying notes to condensed financial statements

                                        5

<PAGE>

NOTE 1 - General and Summary of Significant Accounting Policies

In management's opinion, the accompanying unaudited condensed financial
statements for Copper Mountain Networks, Inc. (the "Company") for the three
month periods ended March 31, 2002 and 2001 have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and include all adjustments (consisting only of normal recurring accruals except
for a gain on investment of $1.0 million and a recovery of bad debt expense of
$0.7 million for the three months ended March 31, 2002 and a charge related to
excess inventory on hand and on order of $35.0 million, a restructuring charge
of $4.4 million, a $2.6 million charge related to the collectability of certain
receivable and a charge related to an investment in commercial paper of $0.6
million for the three months ended March 31, 2001) that the Company considers
necessary for a fair presentation of its financial position, results of
operations, and cash flows for such periods. The accompanying unaudited
condensed financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and in
accordance with the instructions to Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. All such
financial statements are unaudited except for the December 31, 2001 balance
sheet. This quarterly report and the accompanying financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto presented in its Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 (the "2001 Annual Report"). Footnotes which would
substantially duplicate the disclosures in the Company's audited financial
statements for the year ended December 31, 2001 contained in the 2001 Annual
Report have been omitted. The interim financial information contained in this
quarterly report is not necessarily indicative of the results to be expected for
any other interim period or for the full year ending December 31, 2002.

Investments In Marketable Securities

At March 31, 2002, the Company held investments in investment grade debt
securities with various maturities through June 2002 and money market funds.
Management determines the appropriate classification of its investments in debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. The Company's total investments in these securities as of
March 31, 2002 totaled $66.4 million. The Company has included $29.2 million of
these securities in cash and cash equivalents, as of March 31, 2002, as they
have original maturities of less than 90 days. The Company has designated all of
its remaining investments of $37.2 million as held-to-maturity.

At December 31, 2001, the Company had an investment in commercial paper issued
by Southern California Edison Company, which was included in short-term
marketable investments at a carrying value of $2.7 million. Also, included in
other comprehensive income at December 31, 2001 was an unrealized gain
adjustment of $0.3 million. In March 2002 the principal balance of this
investment was fully paid in the amount of $3.4 million, plus accrued interest.
The resulting gain in the amount of $1.0 million is included in other income for
the three months ended March 31, 2002.

Investments In Sales-Type Leases

During the year ended December 31, 2000, the Company entered into a $8.6 million
credit facility with a customer for the purchase of the Company's equipment
under a capital lease agreement. As of December 31, 2000, the customer had
utilized all of the funds available under this credit facility. The borrowings
under the capital lease agreement are to be repaid in quarterly installments and
accrue interest at 10.5% per annum. The lease was accounted for as a sales-type
capital lease. The obligation is secured by the related equipment. During the
year ended December 31, 2001, the Company received the lessee's quarterly lease
payments; however, as a result of the continuing deterioration of the lessee's
financial position, the Company recorded a $2.6 million charge to reduce the
carrying value of the lease receivable. This charge is included in bad debt
expense for the three months ended March 31, 2001. During the three months ended
March 31, 2002 the quarterly payment was received and is included in recovery of
bad debt. Any future payments received will be recorded as a recovery of bad
debt in the period received.

                                       6

<PAGE>

Concentration of Credit Risk

A relatively small number of customers account for a significant percentage of
the Company's revenues. The Company expects that the sale of its products to a
limited number of customers may continue to account for a high percentage of
revenues for the foreseeable future. The Company's revenues for the three months
ended March 31, 2002 include revenue recognized from significant customers
totaling $0.5 million and $0.4 million or 18% and 12% of net revenue and one
significant international customer totaling $0.4 million or 15% of net revenue.

The Company performs ongoing credit evaluations of its customers and generally
requires no collateral. Under certain circumstances the Company requires payment
prior to shipment for orders placed by customers whose credit does not meet the
Company's criteria. The Company had significant accounts receivable balances due
from two customers individually representing 27% and 10% of total accounts
receivable at March 31, 2002.

The Company from time to time maintains a substantial portion of its cash and
cash equivalents in money market accounts with one financial institution. The
Company invests its excess cash in debt instruments of the U.S. Treasury,
governmental agencies and corporations with strong credit ratings. The Company
has established guidelines relative to diversification and maturities that
attempt to maintain safety and liquidity.

Inventory

Inventory is stated at the lower of cost, principally standard costs, which
approximates actual costs on a first-in, first-out basis, or market. During the
first quarter of 2001, the Company recorded a charge of $35 million of which
$17.2 million related to future inventory purchase commitments of finished
products and raw materials in excess of anticipated requirements and $17.8
million related to excess inventory on hand at March 31, 2001. The reduction to
inventory value and loss on purchase commitments are included in cost of
revenues.


NOTE 2 - Management Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Examples include provisions for returns; bad debts; excess
inventory and adverse purchase commitments; restructuring; and the ultimate
outcome of litigation. Actual results could differ from those estimates.


NOTE 3 - Net Income (Loss) Per Share

Basic and diluted net income (loss) per share has been computed using the
weighted-average number of shares of common stock outstanding during the period
including any dilutive common stock equivalents.

Common stock equivalents of 3,024,480 and 2,924,569 shares for the three months
ended March 31, 2002 and 2001, respectively, were excluded from the calculation
because of their anti-dilutive effect.

                                       7

<PAGE>

NOTE 4 - Composition of Certain Balance Sheet Captions (in thousands)

<TABLE>
<CAPTION>
                                                            March 31,            December 31,
                                                              2002                   2001
                                                         ---------------        --------------
                                                           (Unaudited)
         <S>                                             <C>                    <C>
         Inventory:
           Raw materials                                 $        73,346        $       74,532
           Work in process                                           344                   329
           Finished goods                                         12,588                13,523
           Allowance for excess and obsolescence                 (79,909)              (80,882)
                                                         ---------------        --------------
                                                         $         6,369        $        7,502
                                                         ===============        ==============

         Accrued liabilities:
           Accrued compensation                          $         1,834        $        1,683
           Accrued warranty                                          525                   725
           Accrued paid time off                                   1,186                 1,250
           Deferred revenue                                          396                   842
           Other                                                   2,201                 2,044
                                                         ---------------        --------------
                                                         $         6,142        $        6,544
                                                         ===============        ==============
</TABLE>


NOTE 5 - Restructuring

On March 7, 2001, the Company announced that it had adopted a business plan to
re-size its business to reflect current and expected business conditions. This
restructuring plan was largely completed during 2001. As a result of the
adoption of this plan, the Company recorded charges of $4.4 million during the
three months ended March 31, 2001. These charges primarily relate to:
consolidation of the Company's continuing operations resulting in impairment of
assets, anticipated losses on disposition of assets and excess lease costs; and
the elimination of job responsibilities, resulting in costs incurred for
employee severance. Employee reductions occurred in almost all areas of the
Company, including operations, marketing, sales and administrative areas. As a
result of this plan, the Company had reduced its non-temporary work force by
approximately 100 positions. Substantially all workforce reductions related to
this plan occurred during 2001.

On August 2, 2001, the Company announced that it had adopted a business plan to
again re-size its business to reflect current and expected business conditions.
This restructuring plan is expected to largely be completed during 2002. As a
result of the adoption of this plan, the Company recorded charges of $16.0
million during the three months ended September 30, 2001. These charges
primarily relate to: consolidation of the Company's continuing operations
resulting in impairment of assets, anticipated losses on disposition of assets
and excess lease costs; and the elimination of job responsibilities, resulting
in costs incurred for employee severance. Employee reductions occurred in all
areas of the Company. As a result of this plan, the Company reduced its
non-temporary work force by approximately 150 additional positions.
Substantially all workforce reductions occurred during 2001.

As a part of these plans, the carrying values of certain assets were written
down. The impaired assets include furniture, leasehold improvements, computers
and other assets used in certain of the areas of the Company impacted by the
reduction in force. The projected future cash flows from these assets were less
than the carrying values of the assets. The carrying values of the assets held
for sale and the assets to be held and used were reduced to their estimated fair
values based on the present value of the estimated expected future cash flows.
Estimated expected future cash flows for the impaired assets are not
significant. In the year ended December 31, 2001, the Company recorded losses
from impairment of assets of $9.2 million, which were recorded as restructuring
costs. The cost of these losses was previously estimated to be $10.9 million.
This estimate was reduced by the utilization of assets, primarily laboratory
equipment, previously estimated to be held for disposition. Substantially all of
the impaired assets are being held for disposition and will not continue to be
depreciated. Depreciation expense for the year ended December 31, 2001 was
reduced by $1.9 million as a result of this charge. The Company estimates that
depreciation

                                       8

<PAGE>

expense will be reduced by $2.7 million, $2.4 million, $1.8 million and $0.4
million for the years ending December 31, 2002, 2003, 2004 and 2005,
respectively, as a result of this charge.

Also as part of these plans, the Company elected to consolidate its operations
and attempt to sublease certain of its facilities, which housed portions of its
operations, marketing, sales and administrative activities. In the year ended
December 31, 2001, the Company recorded estimated excess lease costs of $7.6
million which were recorded as restructuring costs. Estimated excess lease costs
are based on assumptions of differences between lease payments and sublease
receipts that could be realized on potential subleases and assumed carrying
terms. These assumptions are based on reasonably possible rates and terms from
other recent leases of comparable properties. The excess lease costs were
previously estimated to be $5.9 million. The increase in this estimate is
attributable to an increase in the estimated holding periods for the remaining
leases and decreased estimated sublease receipts based on continuing
deterioration in the market for comparable rental office space. The rates and
terms of the actual sub-leases may differ materially from these estimates which
could result in changes in the restructuring charge recognized during the year
ended December 31, 2001. Future cash outlays related to these plans are expected
to be completed in 2007. During the year ended December 31, 2001, charges
totaling $20.4 million were recorded and activities costing $13.2 million were
completed.

Details of the restructuring charges are as follows (in 000s):

<TABLE>
<CAPTION>
                                                           Reserve Balance                 Reserve Balance
                                            Cash/          at December 31,                   at March 31,
                                           Non-cash              2001         Activity          2002
                                        ---------------    ---------------    --------     ---------------

<S>                                     <C>                <C>                <C>           <C>
Impairment of assets                    Non-cash           $           113    $      -      $           113
Excess lease costs                      Cash                         6,454         (667)              5,787
Elimination of job responsibilities     Cash                           635         (150)                485
                                                           ---------------    ---------     ---------------
                                                           $         7,202    $    (817)    $         6,385
                                                           ===============    =========     ===============
</TABLE>

At March 31, 2002, the portion of the reserve balance related to the impairment
of assets is included in property and equipment, net. Future cash outlays are
expected to be completed in 2002, except for obligations under facility leases,
which are expected to be completed in 2007.

NOTE 6  - Litigation

Since October 2000, approximately twenty-four complaints have been filed in the
United States District Court for the Northern District of California against the
Company and two of its officers (the "Northern District Lawsuits"), along with
two related derivative actions against the Company and its directors in Delaware
and California, alleging violations of the federal securities laws arising out
of recent declines in the Company's stock price. Specifically, the complaints
allege claims in connection with various alleged statements and omissions to the
public and to the securities markets. The Northern District Lawsuits have been
consolidated for pretrial purposes before United States Judge Vaughn Walker of
the Northern District of California. The Company has filed a motion to dismiss
the Northern District Lawsuits. The derivative actions have been stayed. No
assurances can be made that we will be successful in our defense of such claims.
If we are not successful in our defense of such claims, we could be forced to
make significant payments to our stockholders and their lawyers, and such
payments could have a material adverse effect on our business, financial
condition and results of operations if not covered by our insurance carrier.
Even if such claims are not successful, the litigation could result in
substantial costs and divert management's attention and resources, which could
adversely affect our business, results of operations and financial position.

In December 2001, the Company and certain of its officers and directors were
named as defendants in a class action shareholder complaint filed in the United
States District Court for the Southern District of New York and captioned
Lowlicht v. Copper Mountain Networks, Inc., et al., Case No. 01-CV-10943. In the
complaint, the plaintiffs allege that the Company, certain of its officers and
directors and its IPO underwriters violated the federal securities laws because
the Company's IPO registration statement and prospectus contained untrue
statements of material fact or omitted material facts regarding the compensation
to be received by, and the stock allocation practices of, the IPO underwriters.
The plaintiffs seek unspecified monetary damages and other relief. Similar
complaints were filed in the same Court against numerous public companies that
conducted initial public offerings ("IPOs") of their common stock since the
mid-1990s (the "IPO Cases").

On August 8, 2001, all of the above-referenced lawsuits were consolidated for
pretrial purposes before United States Judge Shira Scheindlin of the Southern
District of New York. Judge Scheindlin held an initial case management
conference on September 7, 2001, at which time she ordered, among other things,
that the time for all defendants to respond to any complaint be postponed until
further order of the Court. On April 19, 2002, the plaintiffs filed an amended
complaint against the Company and certain of its officers and directors. The
allegations in the amended complaint are similar to the allegations in the
original complaint, and Judge Scheindlin has not yet set a date for the
defendants to respond to the amended complaint. Thus, the Company has not been
required to answer or respond to the complaint or the amended complaint, and no
discovery has been served on the Company.

                                        9

<PAGE>

In April 1999, the Company entered into a Manufacturing Contract (the
"Contract") with Flextronics International Fremont, Inc. ("Flextronics"),
whereby Flextronics purchased components for and manufactured equipment that the
Company sold to customers. In or about March 2001, Flextronics claimed that, due
to reductions by the Company in its equipment forecasts, Flextronics had
purchased more inventory than was necessary to meet the Company's reduced
equipment needs, and that the Company was responsible to purchase this excess
inventory from Flextronics. As a result, on or about May 31, 2001, the Company
and Flextronics' successor in interest, Flextronics International USA, Inc.,
entered into a letter agreement regarding this disputed excess inventory (the
"Letter Agreement"). The Letter Agreement requires the Company to pay
Flextronics $30.3 million in four installments, subject to the Company's right
to audit the composition and value of the excess inventory, and contains
provisions for adjusting the balance due to Flextronics based on discrepancies
found in the audit and agreed upon by the parties. In or about September 2001,
after the Company had paid the first two installments of $7.6 million, totaling
$15.2 million, the Company concluded in the course of its audit that Flextronics
had overstated the composition and value of the excess inventory and, therefore,
the Company owes nothing more under the Letter Agreement and is owed a refund of
$0.5 million. Flextronics has refused to refund this amount and disputes the
results of the Company's audit. The final two installments totaling $15.2
million are included in the Company's accounts payable at March 31, 2002.

On or about December 12, 2001, pursuant to the dispute resolution procedures in
the Contract, the Company filed a demand for arbitration against Flextronics
with the American Arbitration Association in San Diego County, California, case
number 73Y1810040901ARC, seeking a declaration that the Company does not owe
Flextronics any further amounts under the Letter Agreement and seeking, among
other relief, reimbursement for the $0.5 million overpayment, payment of $0.8
million for an outstanding invoice, and an accounting of the Contract from its
inception. Flextronics has not filed a response to the demand. The Company
expects arbitration proceedings to take place during the third quarter of 2002.

On or about January 30, 2002, Flextronics filed a civil action against the
Company in the Superior Court of the state of California, county of Santa Clara,
case number CV804953, alleging that the Company breached the Letter Agreement
and seeking, among other relief, $15.2 million, interest, attorneys' fees and
costs, and a writ of attachment in the amount of $15.2 million to secure its
claims pending the outcome of the arbitration. On or about May 6, 2002, this
action was dismissed without prejudice at the request of Flextronics. No similar
action has been filed in any other venue, but it is the Company's understanding
that Flextronics intends to file a similar action in the Superior Court of the
state of California, county of San Diego.

The Company incident to its business activities is party to other legal
proceedings and claims. Such matters are subject to many uncertainties and
outcomes are not predictable with assurance. Consequently, management is unable
to ascertain the ultimate aggregate amount of monetary liability, amounts which
may be covered by insurance, or the financial impact with respect to these
matters as of March 31, 2002. However, management believes that the final
resolution of these matters, individually and in the aggregate, will not have a
material adverse impact upon the Company's financial position, results of
operations or cash flows.

                                       10

<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Forward Looking Statements

     This document contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.

     Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this report to conform such statements to actual results or to
changes in our expectations.

     Readers are also urged to carefully review and consider the various
disclosures made by us which attempt to advise interested parties of the factors
which affect our business, including without limitation the disclosures made
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and under the caption "Risk Factors" included herein
and in the Company's Annual Report on Form 10-K for the year ended December 31,
2001 and other reports and filings made with the Securities and Exchange
Commission.

Overview

     Copper Mountain's current operating activities relate primarily to
developing, building and testing prototype products and establishing
relationships with its target customers.

     Our revenue is generated primarily from sales of our central office-based
equipment: our CopperEdge 200 DSL concentrators, or CE200, the related wide area
network cards, line cards and, to a lesser extent, from sales of our DSL CPE.
Additionally, we sell network management software which provides monitoring and
management capabilities for the CE200, revenues from which have not been
material to date. We also sell our CopperEdge 150 DSL concentrators, or CE150,
in the multiple tenant unit, or MTU, market.

     For the three months ended March 31, 2002, revenue recognized from our
largest three customers, Mpower, Versatel and Web Access, accounted for
approximately 18%, 15% and 12% of our revenue, respectively. While the level of
sales to any specific customer is anticipated to vary from period to period, we
expect that we will continue to have significant customer concentration for the
foreseeable future. Future sales, if any, to historically significant customers
may be substantially less than historical sales. The loss of any one of our
historically major customers or the delay of significant orders from such
customers, even if only temporary, could among other things reduce or delay our
net revenue, adversely impact our ability to achieve annual or quarterly
profitability and adversely impact our ability to generate positive cash flow,
and, as a consequence, could materially adversely affect our business, financial
condition and results of operations.

     In the future, we expect that revenues, if any, will be substantially
dependent on sales of our new VantEdge product. We expect that the VantEdge
product will be generally available for sale beginning in the summer of 2002,
however, we may not be successful introducing VantEdge by that time or
generating revenues via VantEdge at that time or thereafter.

     We market and sell our products directly to telecommunications service
providers and through distributors. We generally recognize revenue from product
sales or sales type leases upon shipment if collection of the resulting
receivable is probable and product returns are reasonably estimated and the
sales-type lease criteria are met. No revenue is recognized on products shipped
on a trial basis. Estimated sales returns, based on historical experience by
product, are recorded at the time the product revenue is

                                       11

<PAGE>

recognized. To date, significant revenues generated from international sources
are entirely comprised of sales to Versatel.

     We expect our gross margin to be affected by many factors including
competitive pricing pressures, fluctuations in manufacturing volumes, costs of
components and sub-assemblies, costs from our contract manufacturers, the mix of
products or system configurations sold and the volume and timing of sales of
follow-on line cards for systems shipped in prior periods.

     To date, gross margin on sales of our DSL access systems and related wide
area network and line cards, typically sold as combined systems, have been
higher than gross margin on sales of DSL CPE. Furthermore, combined systems are
not generally fully-populated (i.e., less than the total number of line cards
which each system can support) when sold. When our customers add more
subscribers than are supported in the initial configuration, we expect that
these customers will purchase additional line cards from us to increase
subscriber capacity. Historically, the sale of additional line cards has
generated higher gross margin than the initial sale of combined systems. Gross
margin on our DSL CPE is expected to decline in the future and we expect to face
pricing competition which may result in lower average selling prices for these
products as other suppliers of Copper Mountain compatible CPE enter the market.

     We outsource most of our manufacturing and supply chain management
operations, and we conduct manufacturing engineering, quality assurance, program
management, documentation control and product repairs at our facility in San
Diego, California. Accordingly, a significant portion of our cost of revenue
during the periods presented consists of payments to our current contract
manufacturer Plexus Corporation and our former contract manufacturer Flextronics
International Ltd. We selected our manufacturing partners with the goal of
lowering per unit product costs as a result of manufacturing economies of scale.
However, we cannot assure you that we will maintain the volumes required to
realize these economies of scale or when or if such cost reductions will occur.
The failure to obtain such cost reductions could materially adversely affect our
gross margins and operating results.

     Research and development expenses consist principally of salaries and
related personnel expenses, consultant fees and prototype expenses related to
the design, development and testing of our products and enhancement of our
network management software. We believe that continued investment in research
and development is critical to attaining our strategic product objectives and,
as a result, we expect these costs to comprise a substantial portion of our
operating expenses in the future.

     Sales and marketing expenses consist of salaries, commissions, travel costs
and related expenses for personnel engaged in marketing, sales and field service
support functions, as well as trade shows and promotional expenses.

     General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, human resources, management information
systems and administrative personnel, recruiting expenses, professional fees,
bad debt expenses and other general corporate expenses.

     Prior to the year ended December 31, 2000, amortization of deferred stock
compensation resulted from the granting of stock options to employees with
exercise prices per share determined to be below the fair values per share for
financial reporting purposes of our common stock at dates of grant. During the
year ended December 31, 2000, additional deferred compensation was recorded as
part of the purchase price of OnPREM Networks Corporation. During the second
quarter of 2001, additional deferred compensation was recorded in conjunction
with our stock option exchange program. During the third and fourth quarter of
2001, additional deferred compensation was recorded in conjunction with a grant
of restricted stock to employees. The intrinsic value of the options to purchase
common stock granted under the Exchange Program will be re-measured at the end
of each period for the life of the option. We expect that the total amount of
deferred compensation expense that will be recognized under the Exchange Program
could vary from period to period and the ultimate amount of deferred
compensation expense that will be recognized is not currently determinable. The
deferred compensation is being amortized to expense in accordance with FASB
Interpretation No. 28 over the vesting period of the individual options. We
recorded total deferred stock compensation of $26.0 million from inception to
March 31, 2002 and amortized $22.5 million from inception to March 31, 2002. In
August 2001, the Company granted 3,550,000 shares of restricted common

                                       12

<PAGE>

stock to certain employees. The shares, which are restricted as to sale or
transfer until vesting, will vest 50% one year from the date of grant and
ratably each month thereafter for a period of 12 months. The related net
compensation expense of approximately $7.2 million is being amortized over the
vesting period of two years. In October 2001, the Company granted 1,550,000
shares of restricted common stock to certain employees. The shares, which are
restricted as to sale or transfer until vesting, will vest monthly ratably after
one year of service for a total vesting period of 24 months. The related net
compensation expense of approximately $1.8 million is being amortized in
accordance with FASB Interpretation No. 28 over the vesting period of two years.
Deferred stock compensation and amortization of deferred stock compensation
could materially increase or decrease in future periods.

     On March 7, 2001, the Company announced that it had adopted a business plan
to re-size its business to reflect current and expected business conditions.
This restructuring plan was largely completed during 2001. As a result of the
adoption of this plan, the Company recorded charges of $4.4 million during the
three months ended March 31, 2001. These charges primarily relate to:
consolidation of the Company's continuing operations resulting in impairment of
assets, anticipated losses on disposition of assets and excess lease costs; and
the elimination of job responsibilities, resulting in costs incurred for
employee severance. Employee reductions occurred in almost all areas of the
Company, including operations, marketing, sales and administrative areas. As a
result of this plan, the Company had reduced its non-temporary work force by
approximately 100 positions. Substantially all workforce reductions related to
this plan occurred during 2001.

     On August 2, 2001, the Company announced that it had adopted a business
plan to again re-size its business to reflect current and expected business
conditions. This restructuring plan is expected to largely be completed during
2002. As a result of the adoption of this plan, the Company recorded charges of
$16.0 million during the three months ended September 30, 2001. These charges
primarily relate to: consolidation of the Company's continuing operations
resulting in impairment of assets, anticipated losses on disposition of assets
and excess lease costs; and the elimination of job responsibilities, resulting
in costs incurred for employee severance. Employee reductions occurred in all
areas of the Company. As a result of this plan, the Company reduced its
non-temporary work force by approximately 150 additional positions.
Substantially all workforce reductions occurred during 2001.

     As a part of these plans, the carrying values of certain assets were
written down. The impaired assets include furniture, leasehold improvements,
computers and other assets used in certain of the areas of the Company impacted
by the reduction in force. The projected future cash flows from these assets
were less than the carrying values of the assets. The carrying values of the
assets held for sale and the assets to be held and used were reduced to their
estimated fair values based on the present value of the estimated expected
future cash flows. Estimated expected future cash flows for the impaired assets
are not significant. In the year ended December 31, 2001, the Company recorded
losses from impairment of assets of $9.2 million, which were recorded as
restructuring costs. The cost of these losses was previously estimated to be
$10.9 million. This estimate was reduced by the utilization of assets, primarily
laboratory equipment, previously estimated to be held for disposition.
Substantially all of the impaired assets are being held for disposition and will
not continue to be depreciated. Depreciation expense for the year ended December
31, 2001 was reduced by $1.9 million as a result of this charge. The Company
estimates that depreciation expense will be reduced by $2.7 million, $2.4
million, $1.8 million and $0.4 million for the years ending December 31, 2002,
2003, 2004 and 2005, respectively, as a result of this charge.

     Also as part of these plans, the Company elected to consolidate its
operations and attempt to sublease certain of its facilities, which housed
portions of its operations, marketing, sales and administrative activities. In
the year ended December 31, 2001, the Company recorded estimated excess lease
costs of $7.6 million which were recorded as restructuring costs. Estimated
excess lease costs are based on assumptions of differences between lease
payments and sublease receipts that could be realized on potential subleases and
assumed carrying terms. These assumptions are based on reasonably possible rates
and terms from other recent leases of comparable properties. The excess lease
costs were previously estimated to be $5.9 million. The increase in this
estimate is attributable to an increase in the estimated holding periods for the
remaining leases and decreased estimated sublease receipts based on continuing
deterioration in the market for comparable rental office space. The rates and
terms of the actual sub-leases may differ materially from these estimates which
could result in changes in the restructuring charge recognized during

                                       13

<PAGE>

the year ended December 31, 2001. Future cash outlays related to these plans are
expected to be completed in 2007. During the year ended December 31, 2001,
charges totaling $20.4 million were recorded and activities costing $13.2
million were completed.

Details of the restructuring charges are as follows (in 000s):

<TABLE>
<CAPTION>
                                                           Reserve Balance                  Reserve Balance
                                            Cash/          at December 31,                    at March 31,
                                           Non-cash             2001           Activity           2002
                                        ---------------    ---------------     --------     ---------------
<S>                                     <C>                <C>           <C>           <C>
Impairment of assets                    Non-cash           $           113    $    ----     $           113
Excess lease costs                      Cash                         6,454         (667)              5,787
Elimination of job responsibilities     Cash                           635         (150)                485
                                                           ---------------    ---------     ---------------
                                                           $         7,202    $    (817)    $         6,385
                                                           ===============    =========     ===============
</TABLE>

     At March 31, 2002, the portion of the reserve balance related to the
impairment of assets is included in property and equipment, net. Future cash
outlays are expected to be completed in 2002, except for obligations under
facility leases, which are expected to be completed in 2007.

                                       14

<PAGE>

Results of Operations

The following table sets forth, as a percentage of net revenue, certain
statement of operations data for the periods indicated.

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                             March 31,
                                                                 -------------------------------
                                                                    2002                2001
                                                                 -----------        ------------
   <S>                                                           <C>                <C>
   Net revenue                                                         100.0%             100.0%
   Cost of revenue                                                      68.1              484.4
                                                                 -----------        -----------
     Gross margin                                                       31.9             (384.4)
   Operating expenses:
     Research and development                                          242.0              143.0
     Sales and marketing                                                58.1               85.9
     General and administrative                                         81.0               95.5
     Amortization of purchased intangibles                              ----               65.3
     Amortization of deferred stock compensation                        72.2                6.7
     Recovery of bad debt                                              (22.8)              ----
     Restructuring costs                                                ----               53.7
                                                                 -----------        -----------
         Total operating expenses                                      430.5              450.1
                                                                 -----------        -----------
   Loss from operations                                               (398.6)            (834.5)
   Interest and other income, net                                       42.0               14.8
                                                                 -----------        -----------
   Net loss                                                           (356.6)            (819.7)
                                                                 ===========        ===========
</TABLE>

Three Months Ended March 31, 2002 vs. Three Months Ended March 31, 2001

     Net Revenue. Net revenue decreased from $8.2 million for the three months
ended March 31, 2001 to $3.0 million for the three months ended March 31, 2002.
This decrease was due to decreased sales of our CE200 DSL access concentrators
and related line cards. Revenue recognized from our largest three customers for
the three months ended March 31, 2002, Mpower, Versatel and Web Access, was $0.5
million, $0.4 million and $0.3 million, respectively.

     Gross Margin. Our gross margin increased from $(31.4) million for the three
months ended March 31, 2001 to $1.0 million for the three months ended March 31,
2002. The gross margin for the three months ended March 31, 2001 was adversely
impacted by an excess inventory charge of $35.0 million. Before the impact of
this charge, gross margin as a percentage of sales for the three months ended
March 31, 2002 was adversely impacted by production volumes and sales mix.

     Research and Development. Our research and development expenses decreased
from $11.7 million for the three months ended March 31, 2001 to $7.3 million for
the three months ended March 31, 2002. This decrease was due to decreases in
personnel expenses, quality and technical support costs and expensed prototype
materials. Research and development expenses as a percentage of net revenue
increased from 143.0% for the three months ended March 31, 2001 to 242.0% for
the three months ended March 31, 2002. This increase in research and development
expense as a percentage of net revenue was primarily the result of a decrease in
our net revenue for the three months ended March 31, 2002.

     Sales and Marketing. Our sales and marketing expenses decreased from $7.0
million for the three months ended March 31, 2001 to $1.8 million for the three
months ended March 31, 2002. This decrease was primarily due to decreases in
personnel expenses for sales and marketing staff, travel costs and demonstration
equipment. Sales and marketing expenses as a percentage of net revenue decreased
from 85.9% of net revenue for the three months ended March 31, 2001 to 58.1% for
the three months ended March 31, 2002. This decrease was primarily the result of
the decreased costs described above, partially offset by a decrease in our net
revenue for the three months ended March 31, 2002.

                                       15

<PAGE>

     General and Administrative. Our general and administrative expenses
decreased from $7.8 million for the three months ended March 31, 2001 to $2.4
million for the three months ended March 31, 2002. This decrease was due to
decreased staffing for management information systems and administrative
personnel, decreases in bad-debt expense, facilities costs and outside services.
General and administrative expenses as a percentage of net revenue decreased
from 95.5% for the three months ended March 31, 2001 to 81.0% for the three
months ended March 31, 2002. This decrease was primarily the result of the
decreased costs described above, partially off set by a decrease in our net
revenue for the three months ended March 31, 2002.

     Amortization of Purchased Intangibles. Amortization of purchased
intangibles decreased from $5.3 million for the three months ended March 31,
2001 to zero for the three months ended March 31, 2002. We purchased OnPREM
Networks Corporation on February 29, 2000 for approximately $73.8 million. As a
result of the purchase we recorded purchased intangibles of approximately $70.4
million. Immediately following the purchase we wrote-off $6.3 million of
in-process research and development. During 2001 the OnPREM product line was
discontinued and the remaining purchased intangibles were written off.

     Interest and Other Income. Interest and other income was $1.4 million for
the three months ended March 31, 2001 compared to $1.5 million for the three
months ended March 31, 2002. During the three months ended March 31, 2002, the
Company realized gain of $1.0 million on an investment in commercial paper of
Southern California Edison. Excluding this gain, the decrease is primarily
attributable to a decreased average cash and short-term investment balances and
a decrease in average investment yields.

     Interest Expense. Our interest expense decreased from $218,000 for the
three months ended March 31, 2001 to $183,000 for the three months ended March
31, 2002. This decrease was primarily due to an decrease in the amount
outstanding under capital lease and equipment notes payable facilities.

 Liquidity and Capital Resources

     Currently, the Company is not generating sufficient revenue to fund its
operations. We expect our operating losses, net operating cash outflows and
capital expenditures to continue if we are unable to increase sales. At March
31, 2002, we had cash and cash equivalents of $29.2 million and short-term
marketable investments of $37.2 million.

     We currently require approximately $8 million to $12 million in cash per
quarter to fund our operations, and we presently expect that this rate of
quarterly cash use will continue through 2002. As a result, we believe that we
have sufficient cash, cash equivalents and marketable investments to fund our
operations for at least the next twelve months. These estimates reflect various
assumptions, including the assumptions that the sales of our existing products
will continue at approximately the same levels as in the first quarter of 2002,
that testing, continued development and commercialization of our new VantEdge
product proceeds as planned, that we do not incur significant additional
expenses related to litigation including any adverse determination in any of the
litigation described elsewhere in this Form 10-Q under the heading "Legal
Proceedings." Any of these assumptions may prove to be incorrect. In particular,
revenues from sales of our products have decreased in each of the previous six
quarters. In future quarters, it is unclear whether we will continue to generate
revenue from sales of products at the same levels, if at all. Moreover, in our
dispute with Flextronics, Flextronics sought to attach approximately $15.2
million of our cash as security for the amount of damages that they claim we owe
them. This action was subsequently dismissed without prejudice at Flextronics'
request, but we understand that Flextronics intends to re-file this action. If
Flextronics re-files this action and if Flextronics is successful in this
effort, our available cash could be reduced by up to $15.2 million at least
temporarily and perhaps permanently. We believe that such an action would be
without merit and we would defend against it vigorously. Finally, the
development and commercialization of our VantEdge product might be delayed or
might require the expenditure of significantly more funds than currently
anticipated, in which case our liquidity and capital resources would be
adversely affected.

     Cash used in operating activities for the three months ended March 31, 2002
and 2001 was $5.9 million and $28.1 million, respectively. The decrease in cash
used in operating activities was primarily the result of a net change in net
loss of $56.1 million partially off set by a decrease in depreciation expense
and changes in operating assets and liabilities.

                                       16

<PAGE>

     Cash provided by investing activities for the three months ended March 31,
2002 and 2001 was $9.3 million and $49.1 million, respectively. The decrease in
cash provided by investing activities for the three months ended March 31, 2002
compared to the same period in the prior year was the result of a decrease in
net maturities of marketable investments.

     Cash used in financing activities for the three months ended March 31, 2002
and 2001 was $747,000 and $46,000, respectively. The change in cash flow from
financing activities for the three months ended March 31, 2002 compared to the
same period in the prior year was primarily due to the decrease in proceeds
received from the exercise of stock options.

     In order to fund our operations beyond the third quarter of 2003, we expect
that we will have to raise additional funds. We anticipate that we will have to
seek equity or long-term debt financing in the private or public capital markets
to obtain the funds we need to continue operations.

     Additional financing may not be available when needed on terms and
conditions favorable to us or at all. If adequate funds are not available or are
not available on acceptable terms and conditions, we may be unable to fund our
ongoing operations. In addition, our inability to obtain cash may:

     .    impair our ability to successfully introduce, commercialize and
          generate revenues from our VantEdge product;

     .    damage our customers' perceptions of us and our management team;

     .    inhibit our ability to sell our products to a customer base which
          values financial strength and stability; and

     .    decrease our stock price.

     We have no material commitments other than an obligation to purchase
certain finished product and raw materials in excess of anticipated
requirements, obligations under our credit facilities and operating and capital
leases. Our future capital requirements will depend upon many factors, including
the timing of research and product development efforts and marketing efforts. We
expect to continue to expend amounts on property and equipment related to
facility infrastructure, computer equipment and for research and development
laboratory and test equipment to support on-going research and development
operations.

     Our capital requirements may vary based upon the timing and the success of
implementation of our business plan and as a result of regulatory, technological
and competitive developments or if:

..    demand for our products and services is less than or more than expected;

..    Flextronics is successful in restricting the use of our cash;

..    our obligation to purchase certain finished product and raw materials in
     excess of anticipated requirements is less than or more than expected;

..    our plans or projections change or prove to be inaccurate;

..    we make acquisitions;

..    we accelerate or delay development or availability of new products
     (including but not limited to our VantEdge Broadband Service Concentrator)
     or otherwise alter the schedule or targets of our business plan
     implementation; or

..    there is an adverse or favorable determination in any litigation to which
     we are a party.

     We intend to use our cash and other resources for working capital and other

general corporate purposes. We may also use a portion of our cash and other
resources to acquire complementary businesses or other assets. The amounts
actually expended for these purposes will vary significantly depending on a
number of factors, including revenue growth, if any, planned capital
expenditures, and the extent and timing of our entry into target markets. Our
management intends to invest our cash in excess of current operating
requirements in interest-bearing, investment-grade securities.

                                       17

<PAGE>

Risk Factors That May Affect Results of Operations and Financial Condition

     You should carefully consider the following risk factors and the other
information included herein as well as the information included in our Annual
Report on Form 10-K for the year ended December 31, 2001 before investing in our
common stock. Our business and results of operations could be seriously harmed
by any of the following risks. The trading price of our common stock could
decline due to any of these risks, and you may lose part or all of your
investment.

     The Difficulties Experienced By Many of Copper Mountain's Current Customers
And The Challenges Associated With Penetrating New Markets Have Had And Are
Expected To Continue To Have an Adverse Effect On Copper Mountain's Business.

     To date, Copper Mountain has sold the majority of its products to
competitive local exchange carrier or CLEC customers. Many CLECs have
experienced difficulties continuing to finance their businesses. As a result,
these CLECs have been forced to scale back their operations, and some, including
our historically two largest customers Northpoint Communications, Inc. and
Rhythms Netconnections, Inc., have filed for bankruptcy protection. Our
business, financial condition and results of operations have been materially and
adversely affected by these difficulties in the CLEC industry. We expect that
our business will continue to suffer unless and until we are able to diversify
our customer base to derive a substantially greater percentage of our revenues
from other types of telecommunication service providers, such as ILECs, who are
not experiencing the same level of financial difficulties.

     The failure of our CLEC customers to raise sufficient capital to fund their
operations and continue to order and pay for our products has impaired and may
continue to impair Copper Mountain's revenues and profitability. To the extent
we ship products to customers who become unable to pay for the products, we may
be required to write-off significant amounts of our accounts receivable.
Similarly, to the extent that our customers order products and then suspend or
cancel the orders prior to shipping, we will not generate revenues from the
products we build, our inventories may increase and our expenses will increase.
Specifically, we may incur substantially higher inventory carrying costs, as
well as be faced with the risk of the excess inventory that could become
obsolete over time.

     The uncertainties in the CLEC industry in general and among our CLEC
customers in particular, and the resulting impact on our business, has made it
increasingly difficult for us to reliably forecast our revenues and
profitability. We expect that we will continue to be faced with these challenges
for as long as the CLEC industry experiences financial difficulties, or until we
can successfully shift our business away from reliance on our CLEC customers and
add customers with stronger financial positions.

     If Copper Mountain Does Not Successfully Introduce and Commercialize the
VantEdge Product, Our Business Will Be Materially Adversely Impacted

     In response to the financial difficulties experienced by our CLEC customers
and the resulting reduction in the demand for our products, we have focused our
sales and marketing strategy on targeting ILECs, IXCs and international PTTs as
potential customers. The future success of our business will substantially
depend on our ability to successfully penetrate such customers. These customers
have traditionally been characterized by longer sales cycles and have
historically been slow to adopt new products. Accordingly, we anticipate that we
may continue to face challenges in connection with our plan to more aggressively
pursue this market, and our failure to successfully do so could materially
adversely affect our business, financial condition and results of operations.

     Sales of our existing DSL products, which were primarily aimed at the CLEC
market, have been decreasing for the last six quarters. Such sales could
continue to decrease, if they continue at all. As a result, our future success
is substantially dependant upon our ability to successfully market and
commercialize our new VantEdge product on a timely basis. We began development
of the VantEdge

                                       18

<PAGE>

product in 1999, and formally announced the product in 2001. We expect that the
VantEdge product will be generally available for sale beginning in the summer of
2002. We may not be able to finish the development and commercialization of the
VantEdge product by that time, if at all, for various reasons, including those
set forth in these risk factors. Even if we are successful in bringing the
VantEdge product to market, sales of the VantEdge product may not be sufficient
to allow us to continue to operate our business. Our business will be materially
adversely impacted if we do not successfully introduce and commercialize the
VantEdge product.

     Copper Mountain May Not Be Able to Obtain Additional Capital to Fund Its
Operations When Needed, and Without Additional Capital Copper Mountain May Not
Be Able to Sustain Its Operations

     We currently require approximately $8 million to $12 million in cash per
quarter to fund our operations, and we presently expect this rate of quarterly
cash use to continue through 2002. As a result, we believe that we have
sufficient cash and cash equivalents to fund our operations for at least the
next twelve months. These estimates reflect various assumptions, including the
assumption that sales of our existing products will continue at approximately
the same levels as in the fourth quarter of 2001, that testing, continued
development and commercialization of our new VantEdge product proceeds as
planned, that we do not incur significant additional expense related to
litigation, including any adverse determination in the litigation described
elsewhere in this Form 10-K under the heading "Legal Proceedings." Any of these
assumptions may prove to be incorrect. In particular, revenues from sales of our
products have decreased in each of the past six quarters. In future quarters, it
is unclear whether we will continue to generate revenue from sales of our
current products at the same levels, if at all. Moreover, in our dispute with
Flextronics, Flextronics sought to attach $15.2 million of our cash as security
for the amount of damages that they claim we owe them. This action was
subsequently dismissed without prejudice at Flextronics' request, but we
understand that Flextronics intends to re-file this action. If Flextronics
re-files this action and if Flextronics is successful in this effort, our
available cash could be reduced by up to $15.2 million at least temporarily and
perhaps permanently. We believe that such an action would be without merit and
we would defend against it vigorously. Also, the development and
commercialization of our VantEdge product might be delayed or might require the
expenditure of significantly more funds than currently anticipated, in which
case our liquidity and capital resources would be adversely affected.

     We currently fund our operations with our cash, cash equivalents and
marketable investments. In order to fund our operations beyond the third quarter
of 2003, we expect that we will have to raise additional funds. Moreover, we may
require such financing sooner than anticipated. We anticipate that we will have
to seek equity or long-term debt financing in the private or public capital
markets to obtain the funds we need to continue operations. Such capital raising
may be made more difficult if we are no longer listed on the NASDAQ stock market
as a result of our failure to continue to meet the listing requirements required
by NASDAQ, which is a risk we could face.

     If additional funds are raised through the issuance of equity securities,
the percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution, or such equity securities may have rights,
preferences or privileges senior to or more favorable than those of the holders
of our common stock. If additional funds are raised through the issuance of debt
securities, such securities would have rights, preferences and privileges senior
to or more favorable than those of the holders of common stock and the terms and
conditions relating to such debt could impose restrictions on our operations.

     Additional financing may not be available when needed on terms and
conditions favorable to us or at all. If adequate funds are not available or are
not available on acceptable terms and conditions, we may be unable to fund our
ongoing operations. In addition, our inability to obtain cash may:

..    make us unable to successfully introduce and commercialize our VantEdge
     product;

..    damage our customers' perceptions of us and our management team;

..    inhibit our ability to sell our products to a customer base which values
     financial strength and stability; and

..    decrease our stock price.

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<PAGE>

Any or all of these consequences would materially adversely affect our business,
financial condition or results of operations.

     Copper Mountain May Not Achieve Quarterly or Annual Profitability

     Copper Mountain has experienced a significant decline in revenues in each
quarter since the third quarter of 2000 and expects to continue incurring
significant sales and marketing, research and development and general and
administrative expenses and, as a result, we may have difficulty achieving
profitability. We cannot be certain that we will realize sufficient revenues in
the future to achieve profitability on an annual or quarterly basis.

     Copper Mountain Derives Almost All of Its Revenues From a Small Number of
Customers and Copper Mountain's Revenues May Decline Significantly if Any Major
Customer Cancels or Delays a Purchase of Copper Mountain's DSL Products

     Copper Mountain sells its products predominantly to CLECs. Sales to our
largest three customers accounted for approximately 44% of our net revenue for
the three months ended March 31, 2002. Unless and until we diversify and expand
our customer base, our future success will significantly depend upon the timing
and size of future purchase orders, if any, from our larger CLEC customers and,
in particular:

     .    the product requirements of these customers;

     .    the financial and operational success of these customers;

     .    the success of these customers' services deployed using our products;
          and

     .    the attractiveness of our products compared to our competitors
          products.

     Our revenue has declined on a sequential basis each quarter since the third
quarter of the year ended December 31, 2000 to the first quarter of the year
ending December 31, 2002. In light of the market dynamics of the
telecommunication service provider industry, it has become extremely difficult
for us to forecast our revenues. Future sales, if any, to our historically
significant customers may be substantially less than historical sales. The loss
of another major customer or the delay of significant orders from any
significant customer, even if only temporary, could among other things reduce or
delay our net revenue, adversely impact our ability to achieve annual or
quarterly profitability and adversely impact our ability to generate positive
cashflow, and, as a consequence, could materially adversely affect our business,
financial condition and results of operations.

     Historically, our backlog at the beginning of each quarter has not been
equal to expected revenue for that quarter. Accordingly, we are dependent upon
obtaining orders in a quarter for shipment in that quarter to achieve our
revenue objectives. In addition, due in part to factors such as the timing of
product release dates, purchase orders and product availability, significant
volume shipments of product could occur at the end of any given quarter. Failure
to ship products by the end of a quarter may adversely affect our operating
results. Furthermore, our customers may delay delivery schedules, cancel their
orders without notice or be unable to pay for delivered product. Due to these
and other factors, quarterly revenue, expenses and results of operations could
vary significantly in the future, and period-to-period comparisons should not be
relied upon as indications of future performance.

     Failure to Effectively Manage Operations in Light of Copper Mountain's
Changing Revenue Base Will Adversely Affect Its Business

     In the past, Copper Mountain has rapidly and significantly expanded and
contracted its operations and anticipates that in the future, expansion or
contraction in certain areas of its business may be required to address
potential changes in its client base and market opportunities. In particular, we
expect to face

                                       20

<PAGE>

numerous challenges in the execution of our new business strategy to focus more
on the domestic ILEC and IXC market. In connection with this endeavor, we may
not be able to implement management information and control systems in an
efficient and timely manner, and our current or planned personnel, systems,
procedures and controls may not be adequate to support our future operations. If
we are unable to manage growth or reduction in growth effectively, our business,
financial condition and results of operations will be materially adversely
affected. The volatility in our business has placed a significant strain on our
managerial and operational resources. To maintain the level of our operations
and personnel, we may be required to:

     .   improve existing and implement new operational, financial and
         management controls, reporting systems and procedures;

     .   install new management information and telecommunications systems; and

     .   train, motivate and manage our sales and marketing, engineering,
         technical and customer support employees.

     As of March 31, 2002 we operated our business from facilities in Palo Alto,
California and San Diego, California. We expect to continue to face challenges
related to effectively and efficiently coordinating our operations between our
facilities. If we are unsuccessful in meeting these challenges, our business and
operating results may be adversely affected.

     We have excess facilities in Fremont, San Diego and in Palo Alto that are
subleased or in the process of being subleased. We are obligated to continue
making payments on these leases. If we are unable to sublease these properties
to financially viable sub-lessees at rates comparable to those we are obligated
to pay, it could further adversely impact our financial condition.

     We cannot assure you that we will be able to sufficiently decrease our
operating expenses. If we are unable to realize sufficient savings from
re-sizing our business, and/or sufficiently increase our revenues, our ability
to deploy and service our products, fund our operations or respond to
competitive pressures could be significantly impaired.

     Copper Mountain Has a Limited Operating History

     Copper Mountain has a limited operating history as we were incorporated in
March 1996. Due to our limited operating history, it is difficult or impossible
for us to predict future results of operations and you should not expect future
revenue to be comparable to our historic revenue, nor are recent quarterly
revenues a reliable indicator of future quarterly revenues. In addition, we
believe that comparing different periods of our operating results is not
meaningful, and you should not rely on the results for any period as an
indication of our future performance. Investors in our common stock must
consider our business and prospects in light of the risks and difficulties
typically encountered by companies in their early stages of development,
particularly those in rapidly evolving markets such as the telecommunications
equipment industry and particularly within our volatile market segment. Some of
the specific risks include whether we are able:

     .   to compete in the intensely competitive market for telecommunications
         equipment;

     .   to attract new customers;

     .   to maintain a stable, sustainable customer base;

     .   to successfully penetrate international markets;

     .   to expand our addressable market by selling into the incumbent or ILEC
         market, the IXC market and international markets;

                                       21

<PAGE>

     .   to introduce new products and product enhancements in a timely and
         competitive fashion; and

     .   to successfully manage the size of our operational infrastructure.

We discuss these and other risks in more detail below.

     A Number of Factors Could Cause Copper Mountain's Operating Results to
Fluctuate Significantly and Cause Its Stock Price to be Volatile

     Copper Mountain's quarterly and annual operating results have fluctuated in
the past and are likely to fluctuate significantly in the future due to a
variety of factors, many of which are outside of our control. If our quarterly
or annual operating results do not meet the expectations of securities analysts
and investors, the trading price of our common stock could significantly
decline. Some of the factors that could affect our quarterly or annual operating
results include:

     .   telecommunications and DSL market conditions and economic conditions
         generally;

     .   the financial viability and telecommunications equipment capital
         expenditure activities of our major customers and prospective
         customers;

     .   our ability to penetrate the ILEC, IXC and PTT markets;

     .   our prospective customers' confidence in our ability to remain
         financially viable and these customers' willingness to purchase our
         products;

     .   the loss of any one or more of our major customers or a significant
         reduction in orders from those customers;

     .   fluctuations in demand for our products and services;

     .   the timing and amount of, or cancellation or rescheduling of, orders
         for our products and services, particularly large orders from our key
         customers and our strategic distribution partners;

     .   our ability to develop, introduce, ship and support new products and
         product enhancements and manage product transitions;

     .   new product introductions or announcements and price reductions of
         products offered by our competitors;

     .   a decrease in the average selling prices of our products;

     .   our ability to achieve cost reductions;

     .   our ability to obtain sufficient supplies of sole or limited source
         components for our products;

     .   changes in the prices of our components;

     .   our ability to maintain production volumes and quality levels for our
         products;

     .   the volume and mix of products sold and the mix of distribution
         channels through which they are sold;

     .   increased competition, particularly from larger, better capitalized
         competitors; and

     .   costs relating to possible acquisitions and integration of technologies
         or businesses.

                                       22

<PAGE>


     Copper Mountain Sells the Majority of Its Products to Telecommunications
Service Providers That May Reduce or Discontinue Their Purchase of Copper
Mountain's Products At Any Time

     The purchasers of Copper Mountain's products to date have predominantly
been the emerging telecommunications service providers known as CLECs. These
telecommunications service providers require substantial capital for the
development, construction and expansion of their networks and the introduction
of their services. Financing may not be available to emerging telecommunications
service providers on favorable terms, if at all. The inability of our current or
potential CLEC customers to acquire and keep customers, to successfully raise
needed funds, or to respond to any other trends such as price reductions for
their services or diminished demand for telecommunications services generally,
has adversely affected their operating results or caused them to reduce their
capital spending programs. If our customers are unable to raise sufficient
capital or forced to defer or curtail their capital spending programs, our sales
to those telecommunication service providers may be adversely affected, which
could have a material adverse effect on our business, financial condition and
results of operations. In addition, many of our telecommunications service
provider customers have recently experienced consolidation, reduced or
eliminated access to the capital markets and in some cases bankruptcy. The loss
of one or more of our telecommunications service provider customers due to the
aforementioned factors could have a material adverse effect on our business,
financial condition and results of operations.

     If DSL Technology and Copper Mountain's DSL Product Offerings Are Not
Accepted by Telecommunications Service Providers, Copper Mountain May Not Be
Able to Sustain or Grow Its Business

     Copper Mountain's future success is substantially dependent upon whether
DSL technology gains widespread market acceptance by financially viable
telecommunications service providers, of which there are a limited number, and
end users of their services. We have invested substantial resources in the
development of DSL technology, and all of our products are based on DSL
technology or depend on the widespread acceptance and continued deployment of
DSL technology. Telecommunications service providers are continuously evaluating
alternative high-speed data access technologies and may, at any time, adopt
technologies other than the DSL technologies offered by Copper Mountain. Even if
telecommunications service providers adopt policies favoring full-scale
implementation of DSL technology, they may defer purchases of our products or
they may not choose to purchase our product offerings. In addition, we have
limited ability to influence or control decisions made by telecommunications
service providers. In the event that the telecommunications service providers to
whom we market our products adopt technologies other than the DSL technologies
offered by Copper Mountain or choose not to purchase Copper Mountain's DSL
product offerings or Copper Mountain's other product offerings, we will not be
able to sustain or grow our business.

     We Have Been Named as a Defendant in Securities Class Action Litigation
That Could Result In Substantial Costs and Divert Management's Attention and
Resources

      Since October 2000, approximately twenty-four complaints have been filed
in the United States District Court for the Northern District of California
against Copper Mountain and two of our officers, and similar complaints have
been filed against Copper Mountain and our directors in Delaware and California
state courts, alleging violations of the securities laws arising out of declines
in the Company's stock price. Specifically, the complaints allege claims in
connection with various alleged statements and omissions to the public and to
the securities markets. In May 2001, the complaints filed in federal court were
consolidated into a single complaint. No assurances can be made that we will be
successful in our defense of the claims specified in any of these complaints. If
we are not successful in our defense of such claims, we could be forced to make
significant payments to our stockholders and their lawyers, and such payments
could have a material adverse effect on our business, financial condition and
results of operations if these payments are not entirely covered by our
insurance. Even if our defense against such claims is successful, the litigation
could result in substantial costs and divert management's attention and
resources, which could adversely affect our business.

                                       23

<PAGE>

     In December 2001, the Company and certain of its officers and directors
were named as defendants in a class action shareholder complaint filed in the
United States District Court for the Southern District of New York. Similar
complaints were filed in the same Court against hundreds of other public
companies that conducted initial public offerings ("IPOs") of their common stock
in the late 1990s (the "IPO Lawsuits"). In the complaint, the plaintiff alleges
that the Company, certain of its officers and directors and its IPO underwriters
violated the federal securities laws because the Company's IPO registration
statement and prospectus contained untrue statements of material fact or omitted
material facts regarding the compensation to be received by, and the stock
allocation practices of, the IPO underwriters. The plaintiff seeks unspecified
monetary damages and other relief. The IPO Lawsuits have been consolidated for
pretrial purposes. We have not been required to answer the complaint filed
against us, and no discovery has been served on us. We believe the lawsuit is
without merit and intend to defend against it vigorously.

     Copper Mountain is Currently Involved in a Dispute With Flextronics Related
to Certain Purchases of Inventory and This Dispute Could Result in Substantial
Costs and Divert Managements' Attention and Resources

     In April 1999, we entered into a Manufacturing Contract (the "Contract")
with Flextronics International Fremont, Inc. ("Flextronics"), whereby
Flextronics purchased components for and manufactured equipment that we sold to
customers. In or about March 2001, Flextronics claimed that, due to reductions
by we in its equipment forecasts, Flextronics had purchased more inventory than
was necessary to meet our reduced equipment needs, and that we were responsible
to purchase this excess inventory from Flextronics. As a result, on or about May
31, 2001, we and Flextronics' successor in interest, Flextronics International
USA, Inc., entered into a letter agreement regarding this disputed excess
inventory (the "Letter Agreement"). The Letter Agreement requires us to pay
Flextronics $30.3 million in four installments, subject to our right to audit
the composition and value of the excess inventory, and contains provisions for
adjusting the balance due to Flextronics based on discrepancies found in the
audit and agreed upon by the parties. In or about September 2001, after we had
paid the first two installments of $7.6 million, totaling $15.2 million, the
Company concluded in the course of its audit that Flextronics had overstated the
composition and value of the excess inventory and, therefore, we owe nothing
more under the Letter Agreement and are owed a refund of $0.5 million.
Flextronics has refused to refund this amount and disputes the results of our
audit.

     On or about December 12, 2001, pursuant to the dispute resolution
procedures in the Contract, we filed a demand for arbitration against
Flextronics with the American Arbitration Association in San Diego County,
California, case number 73Y1810040901ARC, seeking a declaration that we do not
owe Flextronics any further amounts under the Letter Agreement and seeking,
among other relief, reimbursement for the $0.5 million overpayment, payment of
$0.8 million for an outstanding invoice, and an accounting of the Contract from
its inception. Flextronics has not filed a response to the demand. We expect
arbitration proceedings to take place during the third quarter of 2002.

     On or about January 30, 2002, Flextronics filed a civil action against us
in the Superior Court of the state of California, county of Santa Clara, case
number CV804953, alleging that we breached the Letter Agreement and seeking,
among other relief, $15.2 million, interest, attorneys' fees and costs, and a
writ of attachment in the amount of $15.2 million to secure its claims pending
the outcome of the arbitration. On or about May 6, 2002, this action was
dismissed without prejudice at the request of Flextronics. No similar action
has been filed in any other venue, but it is our understanding that Flextronics
intends to file a similar action in the Superior Court of the State of
California, county of San Diego.


                                       24

<PAGE>

     Unless Copper Mountain Is Able to Keep Pace With the Rapidly Changing
Product Requirements of Its Customers, It Will Not Be Able to Sustain or Grow
Its Business

     The telecommunications and data communications markets are characterized by
rapid technological advances, evolving industry standards, changes in end-user
requirements, frequent new product introductions and evolving offerings by
telecommunications service providers. We believe our future success will depend,
in part, on our ability to anticipate or adapt to such changes and to offer, on
a timely basis, hardware and software products which meet customer demands. Our
inability to develop on a timely basis new products or enhancements to existing
products, or the failure of such new products or enhancements to achieve market
acceptance, could materially adversely affect our business, financial condition
and results of operations.

     Copper Mountain's Product Cycles Tend to be Short and Copper Mountain May
Incur Substantial Non-Recoverable Expenses or Devote Significant Resources to
Sales That Do Not Occur When Anticipated

     In the rapidly changing technology environment in which we operate, product
cycles tend to be short. Therefore, the resources we devote to product sales and
marketing may not generate revenues for us and from time to time we may need to
write-off excess and obsolete inventory. In the past, we have experienced such
write-offs attributed to the obsolescence of certain printed circuit boards and
product sub-assemblies and to an excess of raw materials and finished goods on
hand and on order. If we incur substantial sales, marketing and inventory
expenses in the future that we are not able to recover, it would affect our
liquidity and could have a material adverse effect on our business, financial
condition and results of operations.

     Copper Mountain's Ability to Sustain or Grow Its Business May Be Harmed if
It Is Unable to Develop and Maintain Certain Strategic Relationships with Third
Parties to Market and Sell Copper Mountain's Products

     Copper Mountain's success will depend in part upon its distribution
partnerships, including agreements under which we agree to sell our products to
certain service provider customers through distribution partners. The amount and
timing of resources which our distribution partners devote to our business is
not within our control. Our distribution partners may not perform their
obligations as expected. In some cases, agreements with our distribution
partners may be relatively new, and we cannot be certain that we will be able to
achieve expected revenues from such partners or sustain the level of revenue
generated thus far under similar arrangements. If any of our distribution
partners chooses not to renew, breaches or terminates its agreement or fails to
perform its obligations under its agreement, we may not be able to sustain or
grow our business. In the event that such relationships are terminated, we may
not be able to continue to maintain or develop similar relationships or to
replace distribution partners. In addition, any such agreements we enter into in
the future may not be successful.

     Intense Competition in the Market for Telecommunications Equipment Could
Prevent Copper Mountain From Increasing or Sustaining Revenue and Prevent Copper
Mountain From Achieving Annual Profitability

     The market for telecommunications equipment is highly competitive. We
compete directly with the following companies: Cisco Systems, Inc., Lucent
Technologies, Inc., Alcatel S.A., Nokia Corporation and Paradyne Corporation,
among others. If we are unable to compete effectively in the market for DSL
telecommunications equipment, our revenue levels and future results from
operations could be materially adversely affected. Many of our current and
potential competitors have significantly greater selling and marketing,
technical, manufacturing, financial, and other resources, including better
access to the capital markets, larger cash reserves, higher market
capitalizations, and vendor-sponsored lease financing programs. Moreover, our
competitors may foresee the course of market developments more accurately than
we do and could in the future develop new technologies that compete with our
products or render our

                                       25

<PAGE>

products obsolete. Although we believe we may have certain technological and
other advantages over our competitors, realizing and maintaining such advantages
will require a continued level of investment in research and development,
marketing and customer service and support. Due to the rapidly evolving markets
in which we compete, additional competitors with significant market presence and
financial resources, including other large telecommunications equipment
manufacturers, may enter those markets, thereby further intensifying
competition. We may not have sufficient resources to continue to make the
investments or achieve the technological advances necessary to compete
successfully with existing competitors or new competitors. Also, to the extent
we introduce new product offerings intended to capitalize on the anticipated
trend toward broad deployment of DSL services, including DSL services targeted
at residential subscribers seeking high-speed access to public communications
networks, we will encounter new competitors such as coaxial cable and wireless
equipment vendors. Even if we are successful in competing in the business DSL
market, we may not be able to compete successfully in the market for residential
subscribers.

     Future Consolidation in the Telecommunications Equipment Industry May
Increase Competition That Could Harm Copper Mountain's Business

     The markets in which Copper Mountain competes are characterized by
increasing consolidation both within the data communications sector and by
companies combining or acquiring data communications assets and assets for
delivering voice-related services. We cannot predict with certainty how industry
consolidation will affect our competitors. We may not be able to compete
successfully in an increasingly consolidated industry. Increased competition and
consolidation in our industry could require that we reduce the prices of our
products and result in our loss of market share, which would materially
adversely affect our business, financial condition and results of operations.
Because we may be dependent on certain strategic relationships with third
parties in our industry, any additional consolidation involving these parties
could reduce the demand for our products and otherwise harm our business
prospects.

     Copper Mountain May Experience Difficulties in the Introduction of New
Products That Could Result in Copper Mountain Having to Incur Significant
Unexpected Expenses or Delay the Launch of New Products

     Copper Mountain intends to continue to invest in product and technology
development. The development of new or enhanced products, including but not
limited to the VantEdge line of products announced in 2001 and other new or
enhanced DSL concentrator products and broadband services concentrator products,
is a complex and uncertain process requiring the accurate anticipation of
technological and market trends. We may experience design, manufacturing,
marketing and other difficulties that could delay or prevent our development,
introduction or marketing of new products and enhancements. The introduction of
new or enhanced products also requires that we manage the transition from older
products in order to minimize disruption in customer ordering patterns and
ensure that adequate supplies of new products can be delivered to meet
anticipated customer demand. In the future, we expect to develop certain new
products, such as new broadband services concentrators and associated line
cards, new DSL concentrators and line cards for different DSL variants. We may
not successfully develop, introduce or manage the transition of these new
products. Furthermore, products such as those we currently offer may contain
undetected or unresolved errors when they are first introduced or as new
versions are released. Despite testing, errors may be found in new products or
upgrades after commencement of commercial shipments. These errors could result
in:

     .    delays in or loss of market acceptance and sales;

     .    diversion of development resources;

     .    injury to our reputation; and

     .    increased service and warranty costs.

                                       26

<PAGE>

Any of these could materially adversely affect our business, financial condition
and results of operations.

     Copper Mountain Is Dependent on Widespread Market Acceptance of Its
Products

     Widespread market acceptance of Copper Mountain's products is critical to
its future success. Factors that may affect the market acceptance of our
products include market acceptance of broadband services concentrators in
general and Copper Mountain's broadband services concentrator products in
particular, market acceptance of DSL technology in particular, the performance,
price and total cost of ownership of our products, the availability and price of
competing products and technologies and the success and development of our
distribution partnerships and field sales channels. Many of these factors are
beyond our control. The introduction of new and enhanced products may cause
certain customers to defer or return orders for existing products. Although we
maintain reserves against such returns, such reserves may not be adequate. We
cannot be certain that we will not experience delays in product development in
the future. Failure of our existing or future products to maintain and achieve
meaningful levels of market acceptance would materially adversely affect our
business, financial condition and results of operations.

     Because Substantially All of Copper Mountain's Revenue is Derived From
Sales of a Small Number of Products, Its Future Operating Results Will Be
Dependent on Sales of These Products

     Copper Mountain currently derives substantially all of its revenues from
its product family of DSL solutions and expects that this concentration will
continue in the foreseeable future. The market may not continue to accept or
order our current products, and we may not be successful in marketing any new or
enhanced products, including, but not limited to our broadband services
concentrator. Any reduction in the demand for our current products or our
failure to successfully develop or market and introduce new or enhanced products
could materially adversely affect our operating results and cause the price of
our common stock to decline. We have already experienced these effects as a
result of the financial troubles facing many of our CLEC customers, including
the filing of a petition for Chapter 11 protection by our two historically
largest customers Northpoint Communications, Inc and Rhythms Netconnections,
Inc. Factors that could, in the future, affect sales of our current or new or
enhanced products include:

     .    the demand for DSL solutions;

     .    our successful development, introduction and market acceptance of new
          and enhanced products that address customer requirements;

     .    product introductions or announcements by our competitors;

     .    price competition in our industry and between DSL and competing
          technologies; and

     .    technological change.


     Copper Mountain's Limited Ability to Protect Its Intellectual Property May
Adversely Affect Its Ability to Compete

     Copper Mountain's success and ability to compete is dependent in part upon
its proprietary technology. Any infringement of our proprietary rights could
result in significant litigation costs, and any failure to adequately protect
our proprietary rights could result in our competitors offering similar
products, potentially resulting in loss of a competitive advantage and decreased
revenues. We rely on a combination of copyright, trademark and trade secret
laws, as well as confidentiality agreements and licensing arrangements, to
establish and protect our proprietary rights. Despite our efforts to protect our
proprietary rights, existing copyright, trademark and trade secret laws afford
only limited protection. In addition, the laws of certain foreign countries do
not protect our proprietary rights to the same extent as do the laws of the
United States. Attempts may be made to copy or reverse engineer aspects of our
products or to obtain

                                       27

<PAGE>

and use information that we regard as proprietary. Accordingly, we may
not be able to protect our proprietary rights against unauthorized third-party
copying or use. Furthermore, policing the unauthorized use of our products is
difficult. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on our future operating results.

     Claims Against Copper Mountain Alleging Its Infringement of a Third Party's
Intellectual Property Could Result in Significant Expense to Copper Mountain and
Result in Its Loss of Significant Rights

     The telecommunications industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of patent
infringement. From time to time, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to our business. Any claims asserting that our products infringe or
may infringe proprietary rights of third parties, if determined adversely to us,
could have a material adverse effect on our business, financial condition or
results of operations. In addition, in our agreements, we agree to indemnify our
customers for any expenses or liabilities resulting from claimed infringements
of patents, trademarks or copyrights of third parties. As the number of entrants
in our market increases and the functionality of our products is enhanced and
overlaps with the products of other companies, we may become subject to claims
of infringement or misappropriation of the intellectual property rights of
others. Any claims, with or without merit, could be time-consuming, result in
costly litigation, divert the efforts of our technical and management personnel,
cause product shipment delays or require us to enter into royalty or licensing
agreements, any of which could have a material adverse effect upon our operating
results. Such royalty or licensing agreements, if required, may not be available
on terms acceptable to us, if at all. Legal action claiming patent infringement
may be commenced against us. We cannot assure you that we would prevail in such
litigation given the complex technical issues and inherent uncertainties in
patent litigation. In the event a claim against us was successful and we could
not obtain a license to the relevant technology on acceptable terms or license a
substitute technology or redesign our products to avoid infringement, our
business, financial condition and results of operations would be materially
adversely affected.

     If Copper Mountain Loses Key Personnel It May Not Be Able to Successfully
Operate Its Business

     Copper Mountain's success depends to a significant degree upon the
continued contributions of the principal members of its sales, marketing,
engineering and management personnel, many of whom perform important management
functions and would be difficult to replace. Specifically, we believe that our
future success is highly dependent on our senior management. Except for an
agreement with our President and Chief Executive Officer and our Senior Vice
President of Engineering, we do not have employment contracts with our key
personnel. In any event, employment contracts would not prevent key personnel
from terminating their employment with Copper Mountain. The loss of the services
of any key personnel, particularly senior management and engineers, could
materially adversely affect our business, financial condition and results of
operations.

     If Copper Mountain is Unable to Retain and Hire Additional Qualified
Personnel As Necessary, It May Not Be Able to Successfully Achieve Its
Objectives

     We may not be able to attract and retain the necessary personnel to
accomplish our business objectives and we may experience constraints that will
adversely affect our ability to satisfy customer demand in a timely fashion or
to support our customers and operations. We have at times experienced, and
continue to experience, difficulty in recruiting qualified personnel. Recruiting
qualified personnel is an intensely competitive and time-consuming process.

     In addition, companies in the telecommunications industry whose employees
accept positions with competitors frequently claim that such competitors have
engaged in unfair hiring practices. We may receive notice of such claims as we
seek to hire qualified personnel and such notices may result in material

                                       28

<PAGE>

litigation. We could incur substantial costs in defending ourselves against any
such litigation, regardless of the merits or outcome of such litigation.

     Copper Mountain's Dependence on Sole and Single Source Suppliers Exposes It
to Supply Interruption

     Although Copper Mountain generally uses standard parts and components for
its products, certain key components are purchased from sole or single source
vendors for which alternative sources are not currently available. The inability
to obtain sufficient quantities of these components may in the future result in
delays or reductions in product shipments which could materially adversely
affect our business, financial condition and results of operations. We presently
purchase two semiconductor chips and a system control module from vendors for
which there are currently no substitutes. We have evaluated alternative source
vendors in the past for these key components and will continue to do so as
appropriate, but any alternative vendors may not meet our quality standards for
component vendors. In the event of a reduction or interruption of supply of any
such components, as much as nine months could be required before we would begin
receiving adequate supplies from alternative suppliers, if any. It is possible
that a source may not be available for us or be in a position to satisfy our
production requirements at acceptable prices and on a timely basis, if at all.
Alternatively, as a result of the long lead times associated with ordering
certain materials or components, we may not be able to accurately forecast our
need for materials and components and this could result in excess inventory and
related write-offs, which could have a material adverse effect on our business.

     In addition, the manufacture of certain of these single or sole source
components is extremely complex, and our reliance on the suppliers of these
components exposes us to potential production difficulties and quality
variations, which could negatively impact cost and timely delivery of our
products. Any significant interruption in the supply, or degradation in the
quality, of any component could have a material adverse effect on our business,
financial condition and results of operations.

     Copper Mountain's Dependence on Independent Manufacturers Could Result in
Product Delivery Delays

     Copper Mountain currently uses a small number of independent manufacturers
to provide certain printed circuit boards, chassis and subassemblies and, in
certain cases, to complete final assembly and testing of our products. Our
reliance on independent manufacturers involves a number of risks, including the
absence of adequate capacity, the unavailability of or interruptions in access
to certain process technologies and reduced control over delivery schedules,
manufacturing yields and costs. If our current manufacturers are unable or
unwilling to continue manufacturing our components in required volumes, it could
take up to six months for an alternative manufacturer to supply the needed
components in sufficient volumes. It is possible that a source may not be
available to us when needed or be in a position to satisfy our production
requirements at acceptable prices and on a timely basis, if at all. Any
significant interruption in supply would result in the allocation of products to
customers, which in turn could have a material adverse effect on our business,
financial condition and results of operations.

     Intense Demand for Parts and Components May Create Allocations or Shortages
Which May Expose Copper Mountain to Supply Interruption

     From time to time, the demand for parts and components, including
semiconductors, programmable devices and printed circuit boards, can be intense.
During these periods manufacturers and suppliers who provide such components to
us experience supply shortages which may in turn affect their ability to meet
our production demands. Moreover, the terms and conditions for purchase of such
parts and components, including order cancellation rights, may vary widely, may
be onerous and may result in adverse purchase commitments and excess inventory.
While we seek to enter into contracts with our suppliers which guarantee
adequate supplies of components for the manufacturing of our products, we cannot
be certain that suppliers will always be able to adequately meet our demands. To
date, we have not experienced any shortages of components or parts which have
impacted our ability to meet the shipment requirements of our

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<PAGE>

customers. However, in the event that we receive allocations of components from
our suppliers or experience outright interruption in the supply of components we
could experience an inability to ship or deliver our products to our customers
in a timely fashion. Any significant allocation of or interruption in the supply
of any component could have a material adverse effect on our business, financial
condition and results of operations.

     Copper Mountain's Customers May Demand Preferential Terms or Delay Copper
Mountain's Sales Cycle, Which Would Adversely Affect Its Results of Operations

     In certain cases, Copper Mountain's current and prospective customers are
able to exert a high degree of influence over Copper Mountain. These customers
may have sufficient bargaining power to demand low prices and other terms and
conditions that may materially adversely affect our business, financial
condition and results of operations. In addition, prior to selling our products
to such customers, we must typically undergo lengthy product approval processes.
Historically this product approval process has taken as long as one year; in the
future we expect this process to take as long as two years, especially for
ILECs, IXCs and PTTs. Accordingly, we are continually submitting successive
versions of our products as well as new products to our current and prospective
customers for approval. The length of the approval process can vary and is
affected by a number of factors, including customer priorities, customer
budgets, customers' evaluation of competing products and regulatory issues
affecting telecommunication service providers. Delays in the product approval
process or failure to gain any such approval could materially adversely affect
our business, financial condition and results of operations. While we have been
successful in the past in obtaining product approvals from our customers, future
approvals, if any, and the ensuing sales of such products, if any, likely will
take far longer to attain than in the past and may not continue to occur. Delays
can also be caused by late deliveries by other vendors, changes in
implementation priorities and slower than anticipated growth in demand for the
services that our products support. A delay in, or cancellation of, the sale of
our products could adversely affect the Company's results from operations or
cause them to significantly vary from quarter to quarter.

     Changes to Regulations Affecting the Telecommunications Industry Could
Reduce Demand for Copper Mountain's Products or Adversely Affect Its Results of
Operations

     Any changes to legal requirements relating to the telecommunications
industry, including the adoption of new regulations by federal or state
regulatory authorities under current laws or any legal challenges to existing
laws or regulations relating to the telecommunications industry could have a
material adverse effect upon the market for Copper Mountain's products.
Moreover, our distributors or telecommunications service provider customers may
require, or we may otherwise deem it necessary or advisable, that we modify our
products to address actual or anticipated changes in the regulatory environment.
Our inability to modify our products or address any regulatory changes could
have a material adverse effect on our business, financial condition or results
of operations.

     Copper Mountain's Failure to Comply with Regulations and Evolving Industry
Standards Could Delay or Prevent Its Introduction of New Products

     The market for Copper Mountain's products is characterized by the need to
meet a significant number of communications regulations and standards, some of
which are evolving as new technologies are deployed. In order to meet the
requirements of our customers, our products may be required to comply with
various regulations including those promulgated by the Federal Communications
Commission, or FCC, and standards established by Underwriters Laboratories and
Bell Communications Research. Failure of our products to comply, or delays in
compliance, with the various existing and evolving industry regulations and
standards could delay or prevent the introduction of our products. Moreover,
enactment by federal, state or foreign governments of new laws or regulations,
changes in the interpretation of existing laws or regulations or a reversal of
the trend toward deregulation in the telecommunications industry could have a
material adverse effect on our customers, and thereby materially adversely
affect our business, financial condition and results of operations.

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<PAGE>

     If Copper Mountain's Products Contain Defects, Copper Mountain May Be
Subject to Significant Liability Claims from Its Customers and the End-Users of
Its Products and Incur Significant Unexpected Expenses and Lost Sales

     Copper Mountain's products have in the past contained, and may in the
future contain, undetected or unresolved errors when first introduced or as new
versions are released. Despite extensive testing, errors, defects or failures
may be found in our current or future products or enhancements after
commencement of commercial shipments. If this happens, we may experience delay
in or loss of market acceptance and sales, product returns, diversion of
development resources, injury to our reputation or increased service and
warranty costs, any of which could have a material adverse effect on our
business, financial condition and results of operations. Moreover, because our
products are designed to provide critical communications services, we may
receive significant liability claims. Our agreements with customers typically
contain provisions intended to limit our exposure to liability claims. These
limitations may not, however, be effective in any or all cases or under any or
all scenarios, and they may not preclude all potential claims resulting from a
defect in one of our products or from a defect related to the installation or
operation of one of our products. Although we maintain product liability
insurance covering certain damages arising from implementation and use of our
products, our insurance may not cover any claims sought against us. Liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. As a result, any such claims, whether or not successful
could seriously damage our reputation and our business.

     Copper Mountain May Engage in Future Acquisitions That Dilute Its
Stockholders, Cause It to Incur Debt and Assume Contingent Liabilities

     As part of Copper Mountain's business strategy, we expect to review
acquisition prospects that would complement our current product offerings,
augment our market coverage or enhance our technical capabilities, or that may
otherwise offer growth opportunities. We may acquire businesses, products or
technologies in the future. In the event of such future acquisitions, we could:

     .    issue equity securities which would dilute current stockholders'
          percentage ownership;

     .    incur substantial debt; or

     .    assume contingent liabilities.

     Such actions by us could materially adversely affect our results of
operations and/or the price of our common stock. Acquisitions also entail
numerous risks, including:

     .    difficulties in assimilating acquired operations, technologies or
          products;

     .    unanticipated costs associated with the acquisition could materially
          adversely affect our results of operations;

     .    diversion of management's attention from other business concerns;

     .    adverse effects on existing business relationships with suppliers and
          customers;

     .    risks of entering markets in which we have no or limited prior
          experience; and

     .    potential loss of key employees of acquired organizations.

     We may not be able to successfully integrate any businesses, products,
technologies or personnel that we have acquired or might acquire in the future,
and our failure to do so could have a material adverse effect on our business,
financial condition and results of operations.

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<PAGE>

     We May Expand or Reduce Our Operations in International Markets. Our
Failure to Effectively Manage Our International Operations Could Harm Our
Business.

     Entering new international markets may require significant management
attention and expenditures and could adversely affect our operating margins and
earnings. To date, we have not been able to successfully penetrate these
markets. To the extent that we are unable to do so, our growth in international
markets would be limited, and our business could be harmed.

     We expect that our international business operations will be subject to a
number of material risks, including, but not limited to:

     .   difficulties in managing foreign sales channels;

     .   difficulties in enforcing agreements and collecting receivables through
         foreign legal systems and addressing other legal issues;

     .   longer payment cycles;

     .   taxation issues;

     .   differences in international telecommunications standards and
         regulatory agencies;

     .   product requirements different from those of our current customers;

     .   fluctuations in the value of foreign currencies; and

     .   unexpected domestic and international regulatory, economic or political
         changes.


     Copper Mountain's Stock Price Has Been and May Continue to be Extremely
Volatile

     The trading price of our common stock has been and is likely to continue to
be extremely volatile. Our stock price could be subject to wide fluctuations in
response to a variety of factors, including the following:

     .   actual or anticipated variations in quarterly operating results;

     .   announcements of technological innovations;

     .   new products or services offered by us or our competitors;

     .   changes in financial estimates by securities analysts;

     .   announcements of significant acquisitions, strategic partnerships,
         joint ventures or capital commitments by us or our competitors;

     .   announcements related to our major customers or potential future
         customers, including announcements related to their financial
         condition, plans for network or service deployments and equipment
         purchase plans and decisions;

     .   additions or departures of key personnel;

     .   announcements or loss of strategic relationships with third parties or
         telecommunications equipment providers by us or our competitors;

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<PAGE>

     .   sales of common stock;

     .   failure to continue to meet the minimum listing requirements of the
         NASDAQ stock market, which is a risk we could face; and

     .   other events or factors, many of which are beyond our control.

     In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices of many technology
companies' stocks have been highly volatile. These broad market and industry
factors may materially adversely affect the market price of our common stock,
regardless of our actual operating performance. In the past, following periods
of volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against such companies. We
have become the target of such litigation, and several class action lawsuits
have been filed against us and certain of our officers alleging violation of
Federal securities laws related to declines in our stock price. Such litigation
could result in substantial costs and a diversion of management's attention and
resources, which could materially adversely affect our business, financial
condition and results of operations.

     Copper Mountain Presents Pro Forma Operating Results on a Periodic Basis.
Our Investors Should Understand That Such Presentation Is Not Intended to Be a
Presentation In Accordance With Generally Accepted Accounting Principles

      Copper Mountain presents such financial information because we believe
that many of our investors find this information to be useful in analyzing and
interpreting our results from operations for a period. Such information is
presented for information purposes only and is not intended to be a substitute
for financial statements presented in accordance with generally accepted
accounting principles. We believe that this information is presented in a manner
that sufficiently describes the differences between the pro forma presentation
and a presentation in accordance with generally accepted accounting principles.
You should know that our pro forma results are not a presentation in accordance
with generally accepted accounting principles and are not presented in
accordance with the standards applied to financial statements filed with the
Securities and Exchange Commission. For more information regarding pro forma
financial statements, refer to the "Investor Alert" issued by the Securities and
Exchange Commission (Release 2001-144, issued December 4, 2001). For more
information on how Copper Mountain's pro forma financial results are different
from its financial results presented in accordance with generally accepted
accounting principles, please refer to the footnotes accompanying such pro forma
financial statements.

     Substantial Future Sales of Copper Mountain's Common Stock in Private
Placements or in the Public Market Could Cause Its Stock Price to Fall

     Sales of a large number of shares of Copper Mountain's common stock in
private placements or in the public market or the perception that such sales
could occur could cause the market price of its common stock to drop. As of
March 31, 2002, we had approximately 58 million shares of common stock
outstanding. We have filed four registration statements on Form S-8 with the
Securities and Exchange Commission covering the 19.1 million shares of common
stock reserved for issuance under our 1996 Equity Incentive Plan, 1999
Non-Employee Directors' Stock Option Plan, 1999 Employee Stock Purchase Plan,
the OnPREM 1998 Stock Option Plan, the 2000 Nonstatutory Stock Option Plan and
for options issued outside such plans. As of March 31, 2002, approximately 4.0
million shares are currently subject to exercisable options. Sales of a large
number of shares could have an adverse effect on the market price for our common
stock.

                                       33

<PAGE>

     Certain Provisions in Copper Mountain's Corporate Charter and Bylaws May
Discourage Take-Over Attempts and Thus Depress the Market Price of Our Stock

     Provisions in Copper Mountain's certificate of incorporation, as amended
and restated, may have the effect of delaying or preventing a change of control
or changes in its management. These provisions include:

     .   the right of the Board of Directors to elect a director to fill a
         vacancy created by the expansion of the Board of Directors;

     .   the ability of the Board of Directors to alter our bylaws without
         getting stockholder approval;

     .   the ability of the Board of Directors to issue, without stockholder
         approval, up to 10,000,000 shares of preferred stock with terms set by
         the Board of Directors; and

     .   the requirement that at least 10% of the outstanding shares are needed
         to call a special meeting of stockholders.

     Each of these provisions could discourage potential take-over attempts and
could adversely affect the market price of our common stock.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to changes in interest rates primarily from our debt
arrangements and our investments in certain marketable securities. Under our
current policies, we do not use interest rate derivative instruments to manage
exposure to interest rate changes. A hypothetical 100 basis point adverse move
in interest rates along the entire interest rate yield curve, which represents
the Company's expectation for a reasonably possible near-term change in such
rates, would not materially affect the fair value of its interest sensitive
financial instruments at March 31, 2002.

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<PAGE>

     PART II - OTHER INFORMATION

Item 1. Legal Proceedings

     Since October 2000, approximately twenty-four complaints have been filed in
the United States District Court for the Northern District of California against
the Company and two of its officers (the "Northern District Lawsuits"), along
with two related derivative actions against the Company and its directors in
Delaware and California, alleging violations of the federal securities laws
arising out of recent declines in the Company's stock price. Specifically, the
complaints allege claims in connection with various alleged statements and
omissions to the public and to the securities markets. The Northern District
Lawsuits have been consolidated for pretrial purposes before United States Judge
Vaughn Walker of the Northern District of California. The Company has filed a
motion to dismiss the Northern District Lawsuits. The derivative actions have
been stayed. No assurances can be made that we will be successful in our defense
of such claims. If we are not successful in our defense of such claims, we could
be forced to make significant payments to our stockholders and their lawyers,
and such payments could have a material adverse effect on our business,
financial condition and results of operations if not covered by our insurance
carrier. Even if such claims are not successful, the litigation could result in
substantial costs and divert management's attention and resources, which could
adversely affect our business, results of operations and financial position.

     In December 2001, the Company and certain of its officers and directors
were named as defendants in a class action shareholder complaint filed in the
United States District Court for the Southern District of New York and captioned
Lowlicht v. Copper Mountain Networks, Inc., et al., Case No. 01-CV-10943. In the
complaint, the plaintiffs allege that the Company, certain of its officers and
directors and its IPO underwriters violated the federal securities laws because
the Company's IPO registration statement and prospectus contained untrue
statements of material fact or omitted material facts regarding the compensation
to be received by, and the stock allocation practices of, the IPO underwriters.
The plaintiffs seek unspecified monetary damages and other relief. Similar
complaints were filed in the same Court against numerous public companies that
conducted initial public offerings ("IPOs") of their common stock since the
mid-1990s (the "IPO Cases").

     On August 8, 2001, all of the above-referenced lawsuits were consolidated
for pretrial purposes before United States Judge Shira Scheindlin of the
Southern District of New York. Judge Scheindlin held an initial case management
conference on September 7, 2001, at which time she ordered, among other things,
that the time for all defendants to respond to any complaint be postponed until
further order of the Court. On April 19, 2002, the plaintiffs filed an amended
complaint against the Company and certain of its officers and directors. The
allegations in the amended complaint are similar to the allegations in the
original complaint, and Judge Scheindlin has not yet set a date for the
defendants to respond to the amended complaint. Thus, the Company has not been
required to answer or respond to the complaint or the amended complaint, and no
discovery has been served on the Company.

     In April 1999, the Company entered into a Manufacturing Contract (the
"Contract") with Flextronics International Fremont, Inc. ("Flextronics"),
whereby Flextronics purchased components for and manufactured equipment that the
Company sold to customers. In or about March 2001, Flextronics claimed that, due
to reductions by the Company in its equipment forecasts, Flextronics had
purchased more inventory than was necessary to meet the Company's reduced
equipment needs, and that the Company was responsible to purchase this excess
inventory from Flextronics. As a result, on or about May 31, 2001, the Company
and Flextronics' successor in interest, Flextronics International USA, Inc.,
entered into a letter agreement regarding this disputed excess inventory (the
"Letter Agreement"). The Letter Agreement requires the Company to pay
Flextronics $30.3 million in four installments, subject to the Company's right
to audit the composition and value of the excess inventory, and contains
provisions for adjusting the balance due to Flextronics based on discrepancies
found in the audit and agreed upon by the parties. In or about September 2001,
after the Company had paid the first two installments of $7.6 million, totaling
$15.2 million, the Company concluded in the course of its audit that Flextronics
had overstated the composition and value of the excess inventory and, therefore,
the Company owes nothing more under the Letter Agreement and is owed a refund of
$0.5 million. Flextronics has refused to refund this amount and disputes the
results of the Company's audit.

     On or about December 12, 2001, pursuant to the dispute resolution
procedures in the Contract, the Company filed a demand for arbitration against
Flextronics with the American Arbitration Association in San Diego County,
California, case number 73Y1810040901ARC, seeking a declaration that the Company
does not owe Flextronics any further amounts under the Letter

                                       35

<PAGE>

Agreement and seeking, among other relief, reimbursement for the $0.5 million
overpayment, payment of $0.8 million for an outstanding invoice, and an
accounting of the Contract from its inception. Flextronics has not filed a
response to the demand. The Company expects arbitration proceedings to take
place during the third quarter of 2002.

     On or about January 30, 2002, Flextronics filed a civil action against the
Company in the Superior Court of the state of California, county of Santa Clara,
case number CV804953, alleging that the Company breached the Letter Agreement
and seeking, among other relief, $15.2 million, interest, attorneys' fees and
costs, and a writ of attachment in the amount of $15.2 million to secure its
claims pending the outcome of the arbitration. On or about May 6, 2002, this
action was dismissed without prejudice at the request of Flextronics. No similar
action has been filed in any other venue, but it is our understanding that
Flextronics intends to file a similar action in the Superior Court of the state
of California, county of San Diego.

Item 6. Exhibits and Reports on Form 8-K

(b)     Reports filed on Form 8-K during the quarter ended March 31, 2002:

        None

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<PAGE>

                                   SIGNATURES

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

                                               Copper Mountain Networks, Inc.




Date: May 13, 2002                      /s/    Richard S. Gilbert
                                               ---------------------------------
                                               Richard S. Gilbert
                                               Chairman, President and
                                               Chief Executive Officer



                                        /s/    Michael O. Staiger
                                               ---------------------------------
                                               Michael O. Staiger
                                               Chief Financial Officer
                                               Secretary

                                       37