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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 28, 2003



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 000-21507



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POWERWAVE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 11-2723423                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



1801 E. St. Andrew
Place, Santa Ana, CA 92705

(Address of principal executive offices, zip code)



Registrants telephone number, including area code: (714) 466-1000



Securities registered pursuant to Section 12(b) of the
Act: None



Securities registered pursuant to Section
12(g) of the Act: Common Stock, Par Value $.0001



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Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K. ̈



Indicate by check mark whether the Registrant is an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of
1934.    Yes  x    No ̈



As of June 29, 2003, the aggregate market value of the voting stock of the
Registrant held by non-affiliates of the Registrant was $400,782,216 computed using the closing price of $6.15 per share of Common Stock on June 27, 2003, the last trading day of the second quarter, as reported by Nasdaq, based on the assumption
that directors and officers and more than 10% stockholders are affiliates. As of February 4, 2004 the number of outstanding shares of Common Stock, par value $.0001 per share, of the Registrant was 63,415,219.



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POWERWAVE TECHNOLOGIES, INC.



INDEX



|                                                           |  |          |  |                                                                                       |  |   
|---------------------------------------------------------- |  | -------- |  | ------------------------------------------------------------------------------------- |  | --
|CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS |  | 3       
|                                                           | 
|HOW TO OBTAIN POWERWAVE SEC FILINGS                        |  | 3       
|                                                           |  |         
|PART I                                                     |  |          |  | 3                                                                                    
|                                                           |  |          | 
|                                                           |  | ITEM 1.  |  | Business                                                                              |  | 3 
|                                                           |  |          | 
|                                                           |  | ITEM 2.  |  | Properties                                                                            |  | 11
|                                                           |  |          | 
|                                                           |  | ITEM 3.  |  | Legal Proceedings                                                                     |  | 11
|                                                           |  |          | 
|                                                           |  | ITEM 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 12
|                                                           |  |         
|PART II                                                    |  |          |  | 12                                                                                   
|                                                           |  |          | 
|                                                           |  | ITEM 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 12
|                                                           |  |          | 
|                                                           |  | ITEM 6.  |  | Selected Financial Data                                                               |  | 13
|                                                           |  |          | 
|                                                           |  | ITEM 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13
|                                                           |  |          | 
|                                                           |  | ITEM 7a. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 38
|                                                           |  |          | 
|                                                           |  | ITEM 8.  |  | Financial Statements and Supplementary Data                                           |  | 39
|                                                           |  |          |  | Independent Auditors Report                                                          |  | 40
|                                                           |  |          |  | Consolidated Balance Sheets                                                           |  | 41
|                                                           |  |          |  | Consolidated Statements of Operations                                                 |  | 42
|                                                           |  |          |  | Consolidated Statements of Comprehensive Operations                                   |  | 43
|                                                           |  |          |  | Consolidated Statements of Shareholders Equity                                       |  | 44
|                                                           |  |          |  | Consolidated Statements of Cash Flows                                                 |  | 45
|                                                           |  |          |  | Notes to Consolidated Financial Statements                                            |  | 47
|                                                           |  |          |  | Quarterly Financial Data (Unaudited)                                                  |  | 65
|                                                           |  |          | 
|                                                           |  | ITEM 9.  |  | Changes and Disagreements with Accountants on Accounting and Financial Disclosure     |  | 65
|                                                           |  |          | 
|                                                           |  | ITEM 9a. |  | Controls and Procedures                                                               |  | 65
|                                                           |  |         
|PART III                                                   |  |          |  | 66                                                                                   
|                                                           |  |          | 
|                                                           |  | ITEM 10. |  | Directors and Executive Officers of the Registrant                                    |  | 66
|                                                           |  |          | 
|                                                           |  | ITEM 11. |  | Executive Compensation                                                                |  | 68
|                                                           |  |          | 
|                                                           |  | ITEM 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 75
|                                                           |  |          | 
|                                                           |  | ITEM 13. |  | Certain Relationships and Related Transactions                                        |  | 76
|                                                           |  |          | 
|                                                           |  | ITEM 14. |  | Principal Accounting Fees and Services                                                |  | 77
|                                                           |  |         
|PART IV                                                    |  |          |  | 77                                                                                   
|                                                           |  |          | 
|                                                           |  | ITEM 15. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 77
|                                                           | 
|SIGNATURES                                                 |  | 83      
|                                                           | 
|SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS            |  | 84      



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CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS



This Annual Report on Form 10-K includes forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
relating to revenue, revenue composition, demand and pricing trends, future expense levels, competition in our industry, trends in average selling prices and gross margins, the transfer of certain manufacturing operations to contract manufacturers,
product and infrastructure development, market demand and acceptance, the timing of and demand for 3G products, customer relationships, employee relations, plans and predictions for acquired companies and assets, future acquisition plans,
restructuring charges and the level of expected capital and research and development expenditures. Such forward-looking statements are based on the beliefs of, estimates made by, and information currently available to Powerwave Technologies,
Inc.s (Powerwave or the Company) management and are subject to certain risks, uncertainties and assumptions. Any other statements contained herein (including without limitation statements to the effect that Powerwave or
management estimates, expects, anticipates, plans, believes, projects, continues, may, will, could, or would or
statements concerning potential or opportunity or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact are also forward-looking statements. The actual results of
Powerwave may vary materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors, including those discussed in
Additional Factors That May Affect Our Future Results under Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, at pages 13-37. Because of these and other factors that
may affect Powerwaves operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical results to anticipate results or trends in future periods. We undertake no
obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers should carefully
review the risk factors described in this and other documents that Powerwave files from time to time with the Securities and Exchange Commission (SEC), including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and
Annual Reports on Form 10-K.



HOW TO OBTAIN POWERWAVE SEC FILINGS



All reports filed by Powerwave with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials filed by the Company with the SEC at the SECs public
reference room located at 450 Fifth St., N.W., Washington, D.C. 20549. Powerwave also provides copies of its Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at no charge to investors upon request and makes electronic copies of its most recently filed
reports available through its website at www.powerwave.com as soon as reasonably practicable after filing such material with the SEC.



PART I



ITEM 1. BUSINESS



General



Powerwave Technologies, Inc. (Powerwave or the
Company or our or we) was incorporated in Delaware in January 1985, originally under the name Milcom International, Inc., and changed its name to Powerwave Technologies, Inc. in June 1996. Powerwave designs,
manufactures and markets ultra-linear radio frequency power amplifiers for use in the wireless communications market. Radio frequency power amplifiers, which are key components of wireless communications networks, increase the signal strength of
wireless transmissions from the base station to the handset while reducing interference, or noise. Less noise enables wireless service providers to deliver clearer call connections and reduces the number of interrupted or dropped calls.



Powerwave manufactures both single and multi-carrier radio
frequency power amplifiers for a variety of frequency ranges and transmission protocols. Single carrier radio frequency power amplifiers typically amplify a specific radio channel. Multi-carrier radio frequency power amplifiers are capable of
amplifying several radio channels at one time by integrating the functions of several single carrier radio frequency power amplifier units and cavity filters within a single multi-carrier radio frequency power amplifier unit. Powerwaves
products are currently being utilized in wireless networks operating in the 800-1000 megahertz (MHz), 1800-2000 MHz and over 2000 MHz frequency ranges. Our products support a wide range of transmission protocols including analog
protocols such as AMPS and TACS and digital protocols such as CDMA, TDMA, GSM, UMTS, W-CDMA and cdma2000.



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We believe that our future success depends upon continued growth in demand for wireless services as well
as our ability to broaden our customer base. For the fiscal year ended December 28, 2003 (fiscal 2003), our largest customer was Nortel, who accounted for approximately 57% of our net sales. Our next largest customer in fiscal 2003,
Nokia, accounted for 10% or more of our net sales. The loss of either of these customers, or a significant loss, reduction or rescheduling of orders from any of our customers would have a material adverse effect on our business, results of
operations and financial condition. See Additional Factors That May Affect Our Future ResultsWe rely upon a few customers for the majority of our revenues; Our success is tied to the growth of the wireless services
communications market; and Our future success is dependent upon our ability to compete globally under Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.



A limited number of large original equipment manufacturers
account for a majority of radio frequency power amplifier purchasers in the wireless equipment market, and our future success is dependent upon our ability to establish and maintain relationships with these types of customers. While we regularly
attempt to expand our customer base, we cannot give any assurance that a major customer will not reduce, delay or eliminate its purchases from us. We have previously experienced significant reductions in demand from our customers, including the
significant reduction in demand during fiscal 2003 as compared to fiscal 2002, that have had an adverse effect on our business and results of operations. Any future reductions in demand by any of our major customers would have a material adverse
effect on our business, results of operations and financial condition. See Additional Factors That May Affect Our Future ResultsWe rely upon a few customers for the majority of our revenues under Part II, Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations.



We have experienced, and expect to continue to experience, declining average sales prices for our products. Consolidation among wireless service providers
has enabled such companies to place increased pricing pressure on wireless infrastructure manufacturers, which in turn has resulted in downward pricing pressure on our products. In addition, ongoing competitive pressures in the radio frequency power
amplifier market have put pressure on us to continually reduce the sales price of our products. Consequently, we believe that our gross margins may decline over time and that in order to maintain or improve our gross margins, we must achieve
manufacturing cost reductions and develop new products that incorporate advanced features that may generate higher gross margins. See Additional Factors That May Affect Our Future ResultsWe rely upon a few customers for the majority of
our revenues; Our success is tied to the growth of the wireless services communications market; Our average sales prices have declined; and Our future success is dependent upon our ability to compete
globally under Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.



Significant Business Developments in Fiscal Year 2003



During fiscal 2003, we experienced significant reductions in demand from our customers as a result of an industry-wide reduction in wireless
infrastructure spending. In response, we accelerated the restructuring of our manufacturing operations to outsource the majority of our production to contract manufacturers located in Asia in an effort to reduce our operating cost structure and
enable us to be more competitive. In addition, we also accelerated the timing of technology transitions and new product introductions due to our transition to outsourced manufacturing and the continued economic downturn that has significantly
impacted demand in the wireless infrastructure industry. As a result, we recorded approximately $15.5 million of restructuring and impairment charges during fiscal 2003. These charges included cash restructuring charges of approximately $4.6 million
related primarily to severance payments made in connection with a reduction in our work force of approximately 560 employees. The remaining non-cash impairment charges of approximately $10.9 million related to a $3.0 million write-down of excess
manufacturing and test equipment that was disposed of, a $3.0 million write-down of certain product/technology and customer related intangibles and a $4.9 million write-down of goodwill. See Restructuring and Impairment Charges under
Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.



On July 10, 2003, we purchased selected assets of Ericsson Amplifier Technologies, Inc., a subsidiary of Ericsson, including certain inventories,
equipment and real estate for a cash purchase price of $9.8 million. We also assumed certain warranty obligations and made offers of employment to a limited number of employees of Ericsson Amplifier Technologies. In connection with the asset
purchase, we also entered into an agreement to become a supplier of certain radio frequency power amplifiers to Ericsson.



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On July 18, 2003, we completed a private placement of a total of $130.0 million aggregate principal
amount of 1.25% convertible subordinated notes due July 2008 and concurrently repurchased an aggregate amount of $25.0 million of our Common Stock (3,144,654 shares) from purchasers of the notes. We received net proceeds of $100.9 million after the
deduction of debt issuance costs and the repurchase of our Common Stock. The notes require semi-annual interest payments on January 15 and July 15 and the $130.0 million principal balance is due on July 15, 2008. The notes are convertible into
common shares of Powerwave at a conversion price of $10.49 per share. This represents a conversion rate of approximately 95.3289 shares of common stock per $1,000 principal amount of notes.



On December 1, 2003, Powerwave and LGP Allgon Holding AB (LGP
Allgon), a company organized under the laws of Sweden, announced an agreement to combine their businesses in a strategic transaction. Under the terms of the proposed acquisition, we will commence an exchange offer to acquire all of the
outstanding shares of LGP Allgon in exchange for newly-issued shares of our Common Stock. Each LGP Allgon share tendered in the exchange offer will be converted into 1.1 shares of our Common Stock. Based on our closing price on the Nasdaq National
Market on November 28, 2003, the last trading day before the announcement of the transaction, the transaction values LGP Allgon shares at Swedish kronor (SEK) 61.87 ($8.1950 at the currency exchange rate of 7.55 SEK per USD as of
November 28, 2003) per share. In addition, LGP Allgon shareholders will be offered the opportunity under a cash alternative to elect for all or a specified number of their LGP Allgon shares to be acquired by us for a fixed price of SEK 61.87 in cash
per LGP Allgon share. The cash alternative is subject to an aggregate maximum of $125.0 million. Completion of the transaction is subject to us acquiring more than 90% of LGP Allgons stock in the exchange offer and through the exercise of
options granted to us by certain shareholders of LGP Allgon, representing approximately 19% of the outstanding LGP Allgon shares. Depending on the form of consideration elected and the number of LGP Allgon shares tendered into the exchange offer,
LGP Allgon shareholders would own between 37% and 46% of our outstanding shares of Common Stock upon completion of the transaction. Completion of the transaction is also subject to the approval by our shareholders of the stock issuance in the
exchange offer under Nasdaq rules and a proposed amendment to our Certificate of Incorporation to increase our authorized shares of Common Stock, as well as regulatory approvals and satisfaction of other customary closing conditions. We anticipate
that the transaction will be completed either late in the first quarter or in the second quarter of 2004.



In December 2003, Powerwave and Filtronic plc mutually agreed to terminate their strategic alliance to jointly develop and supply integrated radio
frequency power amplifiers and conditioning unit solutions for the 3G wireless infrastructure base station market due to changes in both companies business strategies.



Industry Segments and Geographic Information



Powerwave currently operates in one industry segment: the design, manufacture and marketing of radio frequency power
amplifiers for use in wireless communication networks. We currently market our products through our own internal sales force as well as independent sales representatives and resellers. For the purposes of Statement of Financial Accounting Standards
No. 131, Disclosures About Segments of an Enterprise and Related Information, we have provided a breakdown of our sales in Note 20. Segments of the Notes to Consolidated Financial Statements under Part II, Item 8,
Financial Statements and Supplementary Data. Utilizing the management approach, we categorize our sales based upon the radio frequency in which the product is utilized, i.e. 800-1000 MHz commonly referred to as Cellular,
1800-2000 MHz, commonly referred to as PCS and over 2000 MHz, which includes 3G frequency bands. For a summary of our sales by geographic region, please refer to Note 20. Segments of the Notes to Consolidated Financial
Statements under Part II, Item 8, Financial Statements and Supplementary Data.



Business Strategy



Powerwaves strategy is to become the leading supplier of advanced radio frequency power amplifier solutions to the wireless communications industry and includes the following key elements:



| |  | provide leading technology to the wireless infrastructure industry through research and development that continues to improve our products technical performance and
establishes new levels of technical performance for the industry;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | utilize our research and development efforts to raise our productivity and lower our product costs;
| | - | ---------------------------------------------------------------------------------------------------



| |  | leverage our position as a leading supplier of both single carrier and multi-carrier radio frequency power amplifiers to increase our market share and expand our relationships with
our existing customers;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | continue to expand our customer base of wireless network original equipment manufacturers and leading wireless network operators; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| |  | maintain our focus on the quality, reliability and manufacturability of our radio frequency power amplifier products.
| | - | ---------------------------------------------------------------------------------------------------------------------



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Our focus on radio frequency power amplifier technology and the experience we have gained through the
implementation of our products in both analog and digital wireless networks throughout the world has enabled us to develop substantial expertise in both multi-carrier and single carrier radio frequency power amplifier technology. We intend to
continue to research and develop new methods to improve radio frequency power amplifier performance, including efforts to support future generation transmission standards. We believe that both our existing products and new products under development
will enable us to continue to expand our customer base by offering a broad range of products at attractive price points to meet the diverse requirements of wireless original equipment manufacturers and network operators. We also intend to leverage
our product lines in an attempt to expand our relationships with our existing customers and to add new customers. We believe that we are able to respond quickly and cost-effectively to new transmission protocols and design specifications by
obtaining components from numerous leading technology companies and utilizing various contract manufacturers. We also believe that our focus on the manufacturability of our radio frequency power amplifier designs helps us to increase our
manufacturing productivity while reducing our product costs. We believe that this ability to offer a broad range of products represents a competitive advantage over other third-party manufacturers of radio frequency power amplifiers.



If we are unsuccessful in designing new products, improving existing products
or reducing the costs of our products, our inability to meet these objectives would have a negative effect on our gross profit margins, business, results of operations and financial condition. In addition, if our outstanding customer orders were to
be significantly reduced, the resulting loss of purchasing volume would also adversely affect our cost competitive advantage, which would negatively affect our gross profit margins, business, results of operations and financial condition. See
Additional Factors That May Affect Our Future Results Our average sales prices have declined; and We may fail to develop products that are sufficiently manufacturable under Part II, Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations.



Markets



We provide radio frequency power
amplifiers that are generally located in wireless base stations which work to increase the signal strength of outgoing transmissions. Our single carrier and multi-carrier radio frequency power amplifiers work in base stations with a variety of other
sophisticated electronic equipment, including receivers, radios and oscillators.



Wireless networks typically utilize a number of base stations with high power antennas to serve a geographical region. Each region is broken down into a number of smaller geographical areas, or cells. Each
cell has its own base station that uses wireless technology to receive and transmit calls via base stations and the wireline public switched telephone network. Cellular networks typically operate within the 800 and 900 MHz bandwidths of the radio
spectrum and utilize either analog or digital protocols. PCS networks operate in a substantially similar manner as cellular networks, except that PCS networks typically operate at 1800 and 1900 MHz bandwidths and utilize only digital transmission
protocols. Third generation networks typically operate in the over 2000 MHz range utilizing only digital transmissions. Transmissions at the higher frequencies utilized by PCS and 3G networks have shorter transmission waves as compared to cellular
frequency transmissions, which tends to limit the distances transmissions can travel without significant degradation. Additionally, lower frequency signals penetrate into buildings and other obstacles better than higher frequency signals. Therefore,
wireless networks operating at high frequency ranges may require smaller operating cells and more base stations than existing cellular networks to cover the same total geographic area which could lead to increased wireless infrastructure spending in
the future.



In analog cellular networks, each base station is
allocated a certain number of frequency channels, each of which can carry only one call at a time. Originally, cellular base stations in analog networks used single carrier radio frequency power amplifiers for each frequency channel allocated to the
cell. With the use of multi-carrier radio frequency power amplifier technology, transmission signals can be amplified simultaneously through a single multi-carrier radio frequency power amplifier that allows for the simultaneous amplification of all
channels within a base station. Multi-carrier radio frequency power amplifiers require significantly higher linearity than do single carrier designs, but do not require separate, high-maintenance, tunable cavity filters. By eliminating the need for
cavity filters for each channel, multi-carrier radio frequency power amplifiers reduce overall deployment and maintenance costs associated with base stations. Many service providers still require additional capacity to serve the increased flow of
transmissions through their networks. This has led many service providers to move from analog networks to digital networks.



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In digital networks, calls are segmented into time slots or codes and transmitted across the entire
bandwidth of allocated spectrum, rather than in single channels of that spectrum. The calls are then reassembled when received at the base station or cellular phone. While using the entire bandwidth of allocated spectrum results in greater system
capacity, there is a greater likelihood that even minimal background noise will result in interrupted or dropped calls. Accordingly, ultra-linear amplification is even more critical in digital networks than in their analog counterparts.



Products



Powerwave offers both single and multi-carrier radio frequency power amplifiers for use in cellular networks, including
ultra-linear multi-carrier radio frequency power amplifiers for CDMA, cdma2000, TDMA and GSM digital cellular systems as well as analog systems utilizing AMPS and TACS protocols. We also offer both single and multi-carrier radio frequency power
amplifiers for use in PCS networks that operate in the international DCS-1800 frequency (1800 MHz) and the United States PCS band at 1900 MHz and multi-carrier radio frequency power amplifiers for 3G UMTS networks operating at 2100 MHz. Typical
system applications include CDMA, cdma 2000, W-CDMA, TDMA, and GSM protocols with output power ranging from 10 to 180 Watts (W).



Our ultra-linear multi-carrier radio frequency power amplifiers generally utilize feed-forward technology, and typically employ pre-distortion techniques.
Our multi-carrier designs also utilize an actively switched output combiner (3 or 4 way), which allows any number of radio frequency power amplifiers to be hot-swapped, or interchanged, without a significant loss of power. This design
also allows for true cold standby switching of a standby radio frequency power amplifier, thereby providing network operators with a backup redundancy solution for even greater reliability. These power amplifiers are typically designed to be
installed in racks of three or four radio frequency power amplifiers. Smart combiner paralleling units allow for both higher power as well as system redundancy, which is the ability of the system to remain operational in the event of the failure of
one or more of the paralleled radio frequency power amplifiers.



We offer various versions of our multi-carrier radio frequency power amplifiers providing from 10W to 180W of average power with maximum distortion of up to -65dBc or better. Up to four units can be combined in parallel utilizing our fully
redundant smart combiner racks for various effective average power ratings. We also offer booster products which combine one or more multi-carrier amplifiers with filters and/or combine products in a single integrated package.



We also offer single carrier radio frequency power amplifiers for GSM, CDMA
and TDMA operating systems. Products are available in a wide range of radio frequency output levels. These products are available in versions ranging from complete stand-alone units to highly integrated radio frequency power amplifiers for tower-top
applications.



Our multi-carrier radio frequency power
amplifiers range in price from approximately $1,500 to over $10,000 per radio frequency power amplifier, based upon the specification requirements. Our single carrier radio frequency power amplifiers range in price from approximately $500 to $3,000
per radio frequency power amplifier, depending upon product type and specifications. We also sell rack systems, cabinets and combiners for multiple radio frequency power amplifiers, ranging in price from approximately $2,000 to over $100,000,
depending upon specifications.



Customers



We sell our products to customers worldwide, including a variety of wireless
original equipment manufacturers, such as Ericsson, LGIC, Lucent, Motorola, Nokia, Nortel and Samsung. We also sell our products to operators of wireless networks, such as ALLTEL Corporation, AT&T Wireless, Cingular Wireless, Sprint PCS and
Verizon Wireless.



For fiscal 2003, our largest customer,
Nortel, accounted for approximately 57% of our net sales. Our next largest customer in fiscal 2003, Nokia, accounted for 10% or more of our net sales. The loss of any one of these customers, or a significant loss, reduction or rescheduling of orders
from any of our customers, would have a material adverse effect on our business, results of operations and financial condition. See Additional Factors That May Affect Our Future ResultsWe rely upon a few customers for the majority of our
revenues under Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.



Marketing and Distribution, International Sales



We sell our products through a highly technical direct sales force and through independent sales representatives. Direct sales personnel are assigned to
geographic territories and, in addition to sales responsibilities, manage networks of independent sales representatives. We utilize a network of independent sales representatives selected



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for their familiarity with our potential customers and their knowledge of the wireless infrastructure equipment market.
Both our direct sales personnel and independent sales representatives generate product sales, provide product and customer service, and provide customer feedback for product development. In addition, our sales personnel and independent sales
representatives receive support from our marketing, product support and customer service departments.



Our marketing efforts are focused on establishing and developing long-term relationships with potential customers. The initial sales cycle for certain of
our products, particularly our base station radio frequency power amplifiers, are lengthy, typically ranging from six to eighteen months. Our customers typically conduct significant technical evaluations of our products before making purchase
commitments. In addition, as is customary in the industry, sales are made through standard purchase orders that can be subject to cancellation, postponement or other types of delays. While certain customers provide us with estimated forecasts of
their future requirements, they are not typically bound by such forecasts.



International sales (excluding North American sales) of our products amounted to approximately 46%, 33%, and 41% of net sales for the fiscal years ended December 28, 2003, December 29, 2002, December 30, 2001,
respectively. Foreign sales of some of our products may be subject to national security and export regulations and may require us to obtain a permit or license. In recent years, we have not experienced any significant difficulties in obtaining
required permits or licenses. International sales also subject us to risks related to political upheaval and economic downturns in foreign countries and regions, such as the economic downturn in the South Korean and Asian markets in 1998 and the
Brazilian market during 1999. Since our foreign customers typically pay for our products with U.S. Dollars, a strengthening of the U.S. Dollar as compared to a foreign customers local currency would effectively increase the cost of our
products for that customer, thereby making our products less attractive to such customers. See Additional Factors That May Affect Our Future ResultsOur future success is dependent upon our ability to compete globally under
Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.



Service and Warranty



We offer warranties of various lengths which differ by customer and product type and typically cover defects in materials and workmanship. We, along with
our contract manufacturers, perform warranty obligations and other maintenance services for our products at our facilities in Southern California and at our contract manufacturing locations in Asia. We also utilize our South Korean sales
representative to provide service and support for the Korean market.



Product Development



We invest significant
resources in the research and development of new methods to improve amplifier performance, including reduced noise and increased power in the radio frequency amplification process, as well as alternatives to feed-forward technology techniques. We
also invest significant resources in the development of new amplifier products to support new transmission protocols, including EDGE and third generation protocols such as W-CDMA and cdma2000. Our development efforts also seek to reduce the cost and
increase the manufacturing efficiency of both new and existing products. Our total research and development staff consisted of 193 people as of December 28, 2003. Expenditures for research and development amounted to approximately $38.9
million in 2003, $33.1 million in 2002, and $34.8 million in 2001. See Additional Factors That May Affect Our Future ResultsThe wireless communications infrastructure equipment industry is extremely competitive; and If we are
unable to hire and retain highly qualified technical and managerial personnel under Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.



Competition



The wireless communications infrastructure equipment industry is extremely competitive and is characterized by rapid
technological change, new product development, rapid product obsolescence, evolving industry standards and significant price erosion over the life of a product. Our products compete on the basis of the following key characteristics: performance,
functionality, reliability, pricing, quality, designs that can be efficiently manufactured in large volumes, time-to-market delivery capabilities and compliance with industry standards. While we believe that we compete favorably with respect to the
foregoing characteristics, there can be no assurance that we will be able to continue to do so.



Our current competitors include Andrew Corporation, Fujitsu Limited, Hitachi Kokusai Electric Inc., Japan Radio Co., Ltd., Mitsubishi Electric Corporation
and REMEC, Inc. We also compete with a number of other foreign and privately held companies throughout the world, the subsidiaries of certain multinational corporations and, more



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importantly, the captive amplifier design and manufacturing operations within certain leading wireless infrastructure
original equipment manufacturers such as Ericsson, Motorola, Nokia, Nortel and Samsung. Some competitors have significantly greater financial, technical, manufacturing, sales, marketing and other resources than Powerwave and have achieved greater
name recognition for their existing products and technologies than we have. We cannot guarantee that we will be able to successfully increase our market penetration or our overall share of the radio frequency amplifier marketplace. Our results of
operations could be adversely impacted if we are unable to effectively increase our share of the radio frequency amplifier marketplace.



Powerwaves success depends in large part upon the rate at which wireless infrastructure original equipment manufacturers incorporate our products
into their systems. We believe that a substantial portion of the present worldwide production of radio frequency power amplifiers is captive within the internal manufacturing operations of a small number of leading wireless infrastructure
manufacturers such as Ericsson, Motorola, Nokia and Samsung. In addition, most large wireless infrastructure original equipment manufacturers maintain internal amplifier design capabilities that may compete directly with our products and our own
designs. Many of our customers internally design and/or manufacture their own radio frequency power amplifiers rather than purchase them from third-party vendors such as Powerwave. Many of our customers also continuously evaluate whether to
manufacture their own radio frequency power amplifiers or whether to utilize contract manufacturers to produce their own internal designs. Certain of our customers regularly produce or design radio frequency power amplifiers in an attempt to replace
products sold by us. We believe that this practice will continue. In the event that a customer manufactures or designs their own radio frequency power amplifiers, such customer could reduce or eliminate their purchase of our products, which would
result in reduced revenues and would adversely impact our results of operations and liquidity. Wireless infrastructure equipment manufacturers with internal manufacturing capabilities, including many of our customers, could also sell radio frequency
power amplifiers externally to other manufacturers, thereby competing directly with us. If, for any reason, our customers decide to produce their radio frequency power amplifiers internally, increase the percentage of their internal production,
require us to participate in joint venture manufacturing with them or compete directly against us, our revenues would decrease which would adversely impact our results of operations.



We have experienced significant price competition and we expect price competition in the sale of radio frequency power
amplifiers to increase. No assurance can be given that our competitors will not develop new technologies or enhancements to existing products or introduce new products that will offer superior price or performance features. We expect our competitors
to offer new and existing products at prices necessary to gain or retain market share. Certain of our competitors have substantial financial resources which may enable them to withstand sustained price competition or a market downturn better than
us. There can be no assurance that we will be able to compete successfully in the pricing of our products, or otherwise, in the future.



Backlog



Our six-month backlog of orders was approximately $40.5 million on December 28, 2003 compared to approximately $46.4 million on December 29, 2002. The reduction in our backlog is primarily due to the industry-wide
reduction in wireless infrastructure spending during 2003. We include in our reported backlog only the accepted product purchase orders with respect to which a delivery schedule has been specified for product shipment within six months.



Product orders in our backlog are frequently subject to changes in
delivery schedules or to cancellation at the option of the purchaser without significant penalty. While we regularly review our backlog of orders to ensure that it adequately reflects product orders expected to be shipped within a six-month period,
we cannot make any guarantee that such orders will actually be shipped or that such orders will not be delayed or cancelled in the future. We make regular adjustments to our backlog as customer delivery schedules change and in response to changes in
our production schedule. Accordingly, we stress that backlog as of any particular date should not be considered a reliable indicator of sales for any future period and our revenues in any given period may depend substantially on orders placed in
that period.



Manufacturing and Suppliers



During fiscal 2003, we outsourced the majority of our manufacturing
activities to third party manufacturers located primarily in Asia in order to reduce our operating cost structure. Our manufacturing process involves the assembly of numerous individual components and precise fine-tuning by production technicians.
The parts and materials used by us and our contract manufacturers consist primarily of printed circuit boards, specialized subassemblies, fabricated housings, relays and small electric circuit components, such as integrated circuits, semiconductors,
resistors and capacitors.



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As a result of outsourcing the majority of our production to contract manufacturers, the cost, quality,
performance and availability of our offshore contract manufacturing operations are, and will continue to be, essential to the successful production and sale of our products. Any delays in the ramp-up of our production lines at contract
manufacturers, or any delays in the qualification by our customers of the contract manufacturer facilities and the products produced there, could cause us to miss customer agreed product delivery dates. Similarly, the inability of our contract
manufacturers to meet production schedules or produce products in accordance with the quality and performance standards established by us or our customers could also cause us to miss customer agreed product delivery dates. Any failure to meet
customer agreed delivery dates could result in lost revenues due to customer cancellations, potential financial penalties payable by us to our customers and additional costs to expedite products or production schedules.



Our manufacturing, production and design operations are ISO 9001 and TL-9000
certified. ISO refers to the quality model developed by the International Organization for Standardization. TL refers to the set of quality system requirements that are specific to the telecommunications industry. Numerous customers and potential
customers throughout the world, particularly in Europe, require that their suppliers be ISO certified. In addition, many customers require that their suppliers purchase components only from subcontractors that are ISO certified. Powerwave requires
that all of its contract manufacturers maintain ISO and/or TL certifications.



A number of the parts used in our products are available from only one or a limited number of outside suppliers due to unique component designs as well as certain quality and performance requirements. To take
advantage of volume pricing discounts, we, along with our contract manufacturers, purchase certain customized components from single or limited sources. Powerwave has experienced, and expects to continue to experience, shortages of single-source and
limited-source components. Shortages have compelled us to adjust our product designs and production schedules and have caused us to miss customer requested delivery dates. If single-source or limited-source components become unavailable in
sufficient quantities in the desired time periods, are discontinued or are available only on unsatisfactory terms, we would be required to purchase comparable components from other sources and retune our products to function with the
replacement components, or may be required to redesign our products to use other components, either of which could delay production and delivery of our products. If production and delivery of our products are delayed such that they do not meet the
agreed upon delivery dates of our customers, such delays could result in lost revenues due to customer cancellations, as well as potential financial penalties payable to our customers. Any such loss of revenue or financial penalties would have a
material adverse effect on our results of operations.



Our
reliance on certain single-source and limited-source components exposes us to quality control issues if these suppliers experience a failure in their production process or otherwise fail to meet our quality requirements. A failure in single-source
or limited-source components or products could force us to repair or replace a product utilizing replacement components. If we cannot obtain comparable replacements or effectively retune or redesign our products, we could lose customer orders or
incur additional costs, which could have a material adverse effect on our gross margins and results of operations.



We believe that the production facilities that we utilize, which are primarily owned by our contract manufacturers, are in good condition and well
maintained and are not currently in need of any major investments.



Intellectual Property



We rely upon trade
secrets and patents to protect our intellectual property. We execute confidentiality and non-disclosure agreements with our employees and suppliers and limit access to, and distribution of, our proprietary information. We have an on-going program to
identify and file applications for both U.S. and international patents for various aspects of our technology. We have been granted a total of 28 U.S. patents and 14 foreign patents, and we have filed applications for over 25 additional U.S. patents
and over 50 additional foreign patents. All of these efforts, along with the knowledge and experience of our management and technical personnel, strengthen our ability to market our existing products and to develop new products. The departure of any
of our management and technical personnel, the breach of their confidentiality and non-disclosure obligations to us, or the failure to achieve our intellectual property objectives may have a material adverse effect on our business, financial
condition and results of operations.



We believe that our
success depends upon the knowledge and experience of our management and technical personnel, our ability to market our existing products and our ability to develop new products. We do not have non-compete agreements with our employees who are
employed on an at-will basis. Therefore, employees have left and may continue to leave us and go to work for competitors. While we believe that we have adequately protected our proprietary technology and that we have taken all legal
measures to protect it, we will continue to pursue all reasonable means available to protect it and to prohibit the unauthorized use of our proprietary technology. In spite of our efforts, the use of our processes by a competitor could have a
material adverse effect on our business, financial condition and results of operations.



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Our ability to compete successfully and achieve future revenue growth will depend, in part, on our
ability to protect our proprietary technology and operate without infringing upon the rights of others. We may not be able to successfully protect our intellectual property, or our intellectual property or proprietary technology may otherwise become
known or be independently developed by competitors. In addition, the laws of certain countries in which our products are or may be sold may not protect our products and intellectual property rights to the same extent as the laws of the United
States.



The inability to protect our intellectual property and
proprietary technology could have a material adverse effect on our business, financial condition and results of operations. As the number of patents, copyrights and other intellectual property rights in our industry increases, and as the coverage of
these rights and the functionality of the products in the market further overlap, we believe that we, along with other companies in our industry, may face more frequent infringement claims. Such litigation or claims of infringement could result in
substantial costs and diversion of resources and could have a material adverse effect on our business, results of operations and financial condition. A third party claiming infringement may also be able to obtain an injunction or other equitable
relief, which could effectively block our ability or our customers ability to distribute, sell or import allegedly infringing products. If it appears necessary or desirable, we may seek licenses from third parties covering intellectual
property that we are allegedly infringing. No assurance can be given, however, that any such licenses could be obtained on terms acceptable to us, if at all. The failure to obtain the necessary licenses or other rights could have a material adverse
effect on our business, financial condition and results of operations.



Employees



As of December 28, 2003, Powerwave
had 448 full and part-time employees, including 118 in manufacturing, 38 in quality, 193 in research and development, 32 in sales and marketing and 67 in general and administration. None of our employees are represented by a union. We believe that
our employee relations are good.



Contract Personnel



Powerwave also utilizes contract personnel hired from third party agencies.
As of December 28, 2003, we were utilizing approximately 34 contract personnel, primarily in our manufacturing operations.



ITEM 2. PROPERTIES



We own our
Southern California headquarters facility which is located in Santa Ana, California. This facility has approximately 360,000 square feet, of which 275,000 are available to us. The remaining 85,000 square feet is being sublet to an unrelated third
party. We also lease an additional 115,000 square foot warehouse facility in Santa Ana, California. The lease on this warehouse facility has an expiration date of March 2007.



We also own our research and development facility located in New York, which is approximately 85,000 square feet. This
facility is currently held for sale. We lease approximately 32,000 square feet in El Dorado Hills, California under two leases, expiring in January 2005 and August 2007, for our Northern California research and development staff. Our European
research and development staff occupy approximately 8,100 square feet in Bristol, United Kingdom under three leases expiring in October 2006, October 2009 and September 2010. We also lease five office suites for our regional sales and support staff.
These leases cover approximately 7,200 square feet and expire from 2004 through 2006.



We believe that our existing facilities provide adequate space for our operations.



ITEM 3. LEGAL PROCEEDINGS



We are
subject to various legal proceedings and threatened legal proceedings from time to time as part of our business. We are not currently party to any legal proceedings nor aware of any threatened legal proceedings, the adverse outcome of which,
individually or in the aggregate, we believe would have a material adverse effect on our business, financial condition and results of operations. However, any potential litigation, regardless of its merits, could result in substantial costs to us
and divert managements attention from our operations. Such diversions could have an adverse impact on our business, results of operations and financial condition.



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



No matters were submitted to a vote of security holders during the fourth quarter of 2003.



PART II



ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



Market Information



Powerwaves Common Stock is quoted on the Nasdaq National Market System under the symbol PWAV. Set forth below are the high and low sales prices as
reported by Nasdaq for Powerwaves Common Stock for the periods indicated.



|                                       |  |      |       |     |   |      
|-------------------------------------- |  | ---- | ----- | --- | - | -----
|                                       |  | High |       | Low
|Fiscal Year 2003                       |  |      |       |     |   |      
|First Quarter Ended March 30, 2003     |  | $    | 6.10  |     | $ | 3.05 
|Second Quarter Ended June 29, 2003     |  | $    | 7.64  |     | $ | 3.11 
|Third Quarter Ended September 28, 2003 |  | $    | 10.96 |     | $ | 5.15 
|Fourth Quarter Ended December 28, 2003 |  | $    | 7.96  |     | $ | 6.04 
|                                       |  |     
|Fiscal Year 2002                       |  |      |       |     |   |      
|First Quarter Ended March 31, 2002     |  | $    | 20.10 |     | $ | 12.87
|Second Quarter Ended June 30, 2002     |  | $    | 15.17 |     | $ | 7.05 
|Third Quarter Ended September 29, 2002 |  | $    | 8.32  |     | $ | 3.48 
|Fourth Quarter Ended December 29, 2002 |  | $    | 7.24  |     | $ | 2.75 



Holders



There were approximately 120 stockholders of record as of February 4, 2004.
We believe there are approximately 25,000 stockholders of Powerwaves Common Stock held in street name.



Dividends



We have not
paid any dividends to date and do not anticipate paying any dividends on our Common Stock in the foreseeable future. We anticipate that all future earnings will be retained to finance future growth.



Recent Sales of Unregistered Securities



On July 18, 2003, we completed a private placement of a total of $130.0
million aggregate principal amount of 1.25% convertible subordinated notes due July 2008. The notes were sold to the initial purchaser, Deutsche Bank Securities, Inc., under the exemption from registration provided in Rule 144A of the Securities Act
of 1933. Deutsche Bank Securities, Inc. purchased the notes for 97% of the aggregate principal amount or $126.1 million. Concurrently with the sale of the notes we repurchased an aggregate amount of $25.0 million of our Common Stock (3,144,654
shares). We received net proceeds of $100.9 million after the deduction of debt issuance costs and the repurchase of our Common Stock. The notes are convertible into common shares of Powerwave at a conversion price of $10.49 per share. This
represents a conversion rate of approximately 95.3289 shares of common stock per $1,000 principal amount of notes.



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ITEM 6. SELECTED FINANCIAL DATA



The following selected consolidated financial data has been derived from Powerwaves audited consolidated financial statements. The financial data as of and for the fiscal years ended December 28, 2003, December 29, 2002, and December
30, 2001 are included herein. The information set forth below is not necessarily indicative of the expectations of results for future operations and should be read in conjunction with the consolidated financial statements and notes thereto appearing
elsewhere in this Annual Report on Form 10-K.



|                                            |  |                                                          |         |   |                  |   |                  |  |   |                  |   |                 |   |         |  |   |        
|------------------------------------------- |  | -------------------------------------------------------- | ------- | - | ---------------- | - | ---------------- |  | - | ---------------- | - | --------------- | - | ------- |  | - | -------
|                                            |  | Fiscal Years Ended (in thousands, except per share data)
|                                            |  | December 28,2003                                         |         |   | December 29,2002 |   | December 30,2001 |  |   | December 31,2000 |   | January 2, 2000
|Consolidated Statements of Operations Data: |  |                                                          |         |   |                  |   |                  |  |   |                  |   |                 |   |         |  |   |        
|Net sales                                   |  | $                                                        | 239,069 |   |                  | $ | 384,889          |  | $ | 300,293          |   |                 | $ | 447,422 |  | $ | 292,547
|Operating income (loss)                     |  | $                                                        | (55,824 | ) |                  | $ | 3,910            |  | $ | (37,615          | ) |                 | $ | 64,717  |  | $ | 28,725 
|Net income (loss)                           |  | $                                                        | (32,859 | ) |                  | $ | 4,111            |  | $ | (20,512          | ) |                 | $ | 45,653  |  | $ | 20,265 
|Basic earnings (loss) per share             |  | $                                                        | (0.51   | ) |                  | $ | 0.06             |  | $ | (.33             | ) |                 | $ | 0.75    |  | $ | 0.34   
|Diluted earnings (loss) per share           |  | $                                                        | (0.51   | ) |                  | $ | 0.06             |  | $ | (.33             | ) |                 | $ | 0.71    |  | $ | 0.33   
|Basic weighted average common shares        |  |                                                          | 64,667  |   |                  |   | 65,485           |  |   | 64,197           |   |                 |   | 61,953  |  |   | 58,480 
|Diluted weighted average common shares      |  |                                                          | 64,667  |   |                  |   | 66,230           |  |   | 64,197           |   |                 |   | 65,313  |  |   | 60,671 
|                                            |  |                                                          |         |   |                 
|Consolidated Balance Sheet Data:            |  |                                                          |         |   |                  |   |                  |  |   |                  |   |                 |   |         |  |   |        
|Cash and cash equivalents                   |  | $                                                        | 260,528 |   |                  | $ | 162,529          |  | $ | 123,171          |   |                 | $ | 128,733 |  | $ | 76,671 
|Working capital                             |  | $                                                        | 280,245 |   |                  | $ | 218,504          |  | $ | 186,255          |   |                 | $ | 196,733 |  | $ | 118,566
|Total assets                                |  | $                                                        | 466,257 |   |                  | $ | 369,173          |  | $ | 363,017          |   |                 | $ | 393,797 |  | $ | 223,038
|Long-term debt, net of current portion      |  | $                                                        | 130,000 |   |                  | $ |                 |  | $ | 239              |   |                 | $ | 42      |  | $ |       
|Total shareholders equity                  |  | $                                                        | 271,037 |   |                  | $ | 325,661          |  | $ | 316,235          |   |                 | $ | 316,272 |  | $ | 169,779



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. This discussion contains
forward-looking statements, the realization of which may be impacted by certain important factors including, but not limited to, those discussed in Additional Factors That May Affect Our Future Results.



Introduction and Overview



Powerwaves business model is based upon the design, manufacture and
sale of radio frequency power amplifiers for use in wireless communication networks worldwide. Our products are utilized in major wireless networks throughout the world which support voice and data communications by use of cell phones and other
wireless communication devices. Wireless network operators generally use our products within each base station of a wireless network. We sell our products to both original equipment manufacturers, who incorporate our products into their proprietary
base stations (which they then sell to network operators), and directly to individual wireless network operators for deployment into their existing networks.



Our business is solely dependent upon the worldwide demand for wireless communications and the resulting requirements for infrastructure by wireless
network operators to support this demand. During the last three years, demand for this type of infrastructure product has fluctuated dramatically, and there has been a significant slowdown in capital spending by wireless network operators. This has
had a significant negative impact on overall demand for wireless infrastructure products, including radio frequency power amplifiers, and therefore, directly reduced demand for our products and increased price competition within our industry. These
two factors have led to the reduction in our revenues and contributed to the operating losses reported in our financial results.



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We believe that we have maintained our overall market share within the radio frequency power amplifier
market during this difficult industry period. We continue to invest in research and development of radio frequency power amplifier technology and we believe that we have one of our industrys leading product lines in terms of performance and
features. We believe that our proprietary design technology is a further differentiator for our products.



During 2003, we have been focused on restructuring the Company to lower our operating cost structure while ensuring that we maintain our operating
flexibility to support future growth in the industry. We measure our success by monitoring our net sales and gross margins, with a short-term goal of maintaining a positive operating cash flow while striving to achieve long-term operating profits.
We believe that there continues to be excellent growth opportunities within the wireless communications infrastructure marketplace from a long-term perspective. We continue to focus on positioning Powerwave to benefit from these long-term
opportunities.



Critical Accounting Policies and Estimates



We prepare our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information currently available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Any future changes to these estimates and assumptions could
cause a material change to our reported amounts of revenue, expenses, assets and liabilities. The critical accounting policies which we believe are the most significant for purposes of fully understanding and evaluating our reported financial
results include the following:



Revenue Recognition



We recognize revenue from product sales at the time of
shipment and passage of title. We also offer certain of our customers the right to return products that do not function properly within a limited time after delivery. We continuously monitor and track such product returns and record a provision for
the estimated amount of such future returns based on historical experience and any notification we receive of pending returns. While such returns have historically been within our expectations and the provisions established, we cannot guarantee that
we will continue to experience the same return rates that we have in the past. Any significant increase in product failure rates and the resulting product returns could have a material adverse effect on our operating results for the period or
periods in which such returns materialize.



Accounts
Receivable



We perform ongoing credit evaluations of our
customers and adjust credit limits based upon payment history, the customers current credit worthiness and various other factors, as determined by our review of their current credit information. We continuously monitor collections and payments
from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations
and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Since our accounts receivable are highly concentrated in a small number of customers, a significant change
in the liquidity or financial position of any one of these customers could have a material adverse effect on the collectibility of our accounts receivables, our liquidity and our future operating results.



Inventories



We value our inventory at the lower of the actual cost to purchase and/or
manufacture the inventory or the current estimated market value of the inventory. We regularly review inventory quantities on hand and on order and record a provision for excess and obsolete inventory and/or vendor cancellation changes related to
purchase commitments based primarily on our estimated forecast of product demand and production requirements for the next twelve months. Our industry is characterized by rapid technological change, frequent new product development, and rapid product
obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand. As demonstrated during the past three years, demand for our products can fluctuate significantly. A significant increase in the demand for our
products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. In addition, our estimates of future product
demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventory. In the future, if our inventory is determined to be overvalued, we would be required to recognize
additional expense in our cost of goods sold at the time of such determination. Likewise, if our inventory is determined to be undervalued, we may have



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over-reported our costs of goods sold in previous periods and would be required to recognize additional gross profit at
the time such inventory is sold. Therefore, although we make every reasonable effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a
material effect on the value of our inventory and our reported operating results.



Deferred Taxes



We
recognize deferred tax assets and liabilities based on the differences between the financial statement carrying values and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a
valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. During 2003, we operated at a loss. If we continue to operate at a loss for an
extended period of time or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we
could be required to increase the valuation allowance against all or a significant portion of our deferred tax assets which could substantially increase our effective tax rate for such period. Alternatively, if our future taxable income is
significantly higher than expected and/or we are able to utilize our tax credits, we may be required to reverse all or a significant part of our valuation allowance against such deferred tax assets which could substantially reduce our effective tax
rate for such period. Therefore, any significant changes in statutory tax rates or the amount of our valuation allowance could have a material effect on the value of our deferred tax assets and liabilities, and our reported financial results.



Goodwill and Long Lived Assets



We review the recoverability of the carrying value of goodwill on an annual
basis or more frequently when an event occurs or circumstances change to indicate that an impairment of goodwill has possibly occurred. Since we operate in a single business segment as a single reporting unit, the determination of whether any
potential impairment of goodwill exists is based upon a comparison of the fair value of the entire Company to the accounting value of our net assets. To determine the fair value of the entire Company, we review the market value of our outstanding
Common Stock based upon the average and closing stock prices, valuations based on multiples of sales, EBITDA and EBIT, as well as other valuation metrics. If the fair value of the Company is less than the accounting value of our net assets, goodwill
is deemed impaired and an impairment loss is recorded to the extent that the carrying value of goodwill is less than the difference between the fair value of the entire Company and the fair value of all other assets and liabilities.



We also review the recoverability of the carrying value of identified
intangibles and other long lived assets on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined based upon the forecasted
undiscounted future net cash flows from the operations to which the assets relate, utilizing our best estimates, appropriate assumptions and projections at the time. These projected future cash flows may vary significantly over time as a result of
increased competition, changes in technology, fluctuations in demand, consolidation of our customers and reductions in average selling prices. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is
deemed impaired and an impairment loss is recognized to the extent the carrying value exceeded the estimated fair market value of the asset.



Warranties



We offer warranties of various lengths to our customers depending upon the specific product and terms of the customer purchase agreement. Our standard
warranties require us to repair or replace defective product returned to us during such warranty period at no cost to the customer. We record an estimate for standard warranty-related costs based on our actual historical return rates and repair
costs at the time of the sale and update such estimate throughout the warranty period. While our standard warranty costs have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to
experience the same warranty return rates or repair costs that we have in the past. We also have contractual commitments to various customers that require us to incur costs to repair an epidemic defect with respect to our products outside of our
standard warranty period if such defect were to occur. Any costs related to epidemic defects are generally recorded at the time the epidemic defect becomes known to us and the costs of repair can be reasonably estimated. While we have not
historically experienced significant costs related to epidemic defects, we cannot guarantee that we will not experience significant costs to repair epidemic defects in the future. A significant increase in product return rates, a significant
increase in the costs to repair our products, or an unexpected epidemic defect in our products, could have a material adverse effect on our operating results for the period or period in which such returns or additional costs materialize.



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Stock-Based Compensation



We account for employee stock-based compensation under the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), as opposed to the fair value method prescribed by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). Pursuant to the provisions of APB 25, we generally do not record an expense for the value of stock-based awards granted to employees. If proposals currently under consideration by various accounting standards
organizations and governmental authorities are adopted, we may be required to treat the value of stock-based awards granted to employees as compensation expense in the future, which could have a material adverse effect on our reported operating
results and could negatively affect the price of our Common Stock. If these proposals are adopted, we could decide to reduce the number of stock-based awards granted to employees in the future, which could adversely impact our ability to attract
qualified candidates or retain existing employees without increasing their cash compensation and, therefore, have a material adverse effect on our business, results of operations and financial condition.



New Accounting Pronouncements



In June 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which addresses financial accounting and reporting for costs associated with exit or disposal
activities and supersedes Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a
Restructuring). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost as defined in EITF Issue 94-3 was
recognized at the date of an entitys commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. We adopted the provisions of SFAS 146 effective January 1, 2003 and such
adoption did not have a material impact on our consolidated financial statements. All restructuring charges recognized during the year ended December 28, 2003 have been recorded in accordance with the requirements of SFAS 146.



In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others(FIN 45). FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements
about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. We adopted the
disclosure provisions of FIN 45 during the fourth quarter of fiscal 2002 and the recognition provisions of FIN 45 effective January 1, 2003. Such adoption did not have a material adverse effect on our consolidated results of operations or financial
position.



In December 2002, the FASB issued Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure(SFAS 148). SFAS 148 amends SFAS 123 to provide alternative methods for voluntary transition to the fair value method
of accounting for stock-based employee compensation prescribed by SFAS 123. SFAS 148 also requires disclosure of the effects of an entitys accounting policy with respect to stock-based employee compensation on reported net income (loss) and
earnings (loss) per share in annual and interim financials statements. We adopted the disclosure provisions of SFAS 148 effective December 30, 2002 and have included the additional required disclosures in Note 2. Summary of Significant
Accounting Policies  Stock-Based Compensation within the Notes to Consolidated Financial Statements under Item 8, Financial Statements and Supplementary Data. Such adoption did not have a material adverse effect
on our consolidated results of operations or financial position.



In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities(FIN 46). In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used
for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. We adopted the provisions of FIN 46 effective February 1,
2003 and such adoption did not have a material impact on our consolidated financial statements since we currently have no variable interest entities. In December 2003, the FASB issued FIN 46R with respect to variable interest entities created before
January 31, 2003, which among other things, revised the implementation date to the first fiscal year or interim period ending after March 15, 2004, with the exception of Special Purpose Entities (SPE). The consolidation requirements
apply to all SPEs in the first fiscal year or



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##### Table of Contents

interim period ending after December 15, 2003. We adopted the provisions of FIN 46R effective December 29, 2003 and such
adoption did not have a material impact on our consolidated financial statements since we currently have no SPEs.



In April 2003, FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities(SFAS 149). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. SFAS 149 is effective for
contracts and hedging relationships entered into or modified after June 30, 2003. We adopted the provisions of SFAS 149 effective June 30, 2003 and such adoption did not have a material impact on our consolidated financial statements since we have
not entered into any derivative or hedging transactions.



In
May 2003, FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet:



| |  | a financial instrument issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its
assets at a specified or determinable date or upon an event that is certain to occur;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a financial instrument, other than an outstanding share, that embodies an obligation to repurchase the issuers equity shares, or is indexed to such an obligation, and requires
the issuer to settle the obligation by transferring assets; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a financial instrument that embodies an unconditional obligation that the issuer must settle by issuing a variable number of its equity shares if the monetary value of the
obligation is based solely or predominantly on (1) a fixed monetary amount, (2) variations in something other than the fair value of the issuers equity shares, or (3) variations inversely related to changes in the fair value of the
issuers equity shares.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In November 2003,
FASB issued FASB Staff Position No. 150-3 (FSS 150-3) which deferred the effective dates for applying certain provisions of SFAS 150 related to mandatorily redeemable financial instruments of certain non-public entities and certain
mandatorily redeemable non-controlling interests for public and non-public companies. For public entities, SFAS 150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effective for all
other financial instruments as of the first interim period beginning after June 15, 2003. For mandatorily redeemable non-controlling interests that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of
SFAS 150, but would be classified as liabilities by the parent, the classification and measurement provisions of SFAS 150 are deferred indefinitely. The measurement provisions of SFAS 150 are also deferred indefinitely for other mandatorily
redeemable non-controlling interests that were issued before November 4, 2003. For those instruments, the measurement guidance for redeemable shares and non-controlling interests in other literature shall apply during the deferral period.



We adopted the provisions of SFAS 150 effective June 30, 2003
and such adoption did not have a material impact on our consolidated financial statements.



17



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##### Table of Contents

Results of Operations



The following table summarizes Powerwaves results of operations as a percentage of net sales for the years ended December 28, 2003, December 29,
2002, and December 30, 2001:



|                                          |  |                    |    |  |                  |   |  |                  |   
|----------------------------------------- |  | ------------------ | -- |  | ---------------- | - |  | ---------------- | --
|                                          |  | Fiscal Years Ended |   
|                                          |  | December 28,2003   |    |  | December 29,2002 |   |  | December 30,2001 |   
|Net sales                                 |  | 100.0              | %  |  | 100.0            | % |  | 100.0            | % 
|Cost of sales                             |  | 93.2               |    |  | 83.7             |   |  | 90.1             |   
|                                          |  |                    |    |  |                  |   |  |                  |   
|Gross profit                              |  | 6.8                |    |  | 16.3             |   |  | 9.9              |   
|Operating expenses:                       |  |                    |    |  |                  |   |  |                  |   
|Sales and marketing                       |  | 4.8                |    |  | 3.0              |   |  | 4.6              |   
|Research and development                  |  | 16.3               |    |  | 8.6              |   |  | 11.6             |   
|General and administrative                |  | 5.8                |    |  | 3.7              |   |  | 5.3              |   
|Restructuring and impairment charges      |  | 3.2                |    |  |                 |   |  | 1.0              |   
|                                          |  |                    |    |  |                  |   |  |                  |   
|Total operating expenses                  |  | 30.1               |    |  | 15.3             |   |  | 22.5             |   
|                                          |  |                    |    |  |                  |   |  |                  |   
|Operating income (loss)                   |  | (23.3              | )  |  | 1.0              |   |  | (12.6            | ) 
|Other income, net                         |  | 1.0                |    |  | 0.5              |   |  | 1.9              |   
|                                          |  |                    |    |  |                  |   |  |                  |   
|Income (loss) before income taxes         |  | (22.3              | )  |  | 1.5              |   |  | (10.7            | ) 
|Provision for (benefit from) income taxes |  | (8.6               | )  |  | 0.4              |   |  | (3.9             | ) 
|                                          |  |                    |    |  |                  |   |  |                  |   
|Net income (loss)                         |  | (13.7              | )% |  | 1.1              | % |  | (6.8             | )%
|                                          |  |                    |    |  |                  |   |  |                  |   



Years ended December 28, 2003 and
December 29, 2002



Net Sales



Our sales are derived primarily from the sale of radio frequency power
amplifiers for use in wireless communications networks. Sales decreased by 38% to $239.1 million, for the year ended December 28, 2003, from $384.9 million, for the year ended December 29, 2002. This decrease is primarily due to an overall reduction
in demand resulting from the significant economic downturn that impacted the wireless communications industry that resulted in curtailed wireless infrastructure spending and reduced average selling prices.



The following table presents an analysis of our net sales based upon radio
frequency range:



|                       |  |                                   |         |  |                   |   |  |   |         |  |     |  
|---------------------- |  | --------------------------------- | ------- |  | ----------------- | - |  | - | ------- |  | --- | -
|                       |  | Fiscal Years Ended (in thousands) |        
|Radio Frequency Ranges |  | December 28, 2003                 |         |  | December 29, 2002 |  
|800-1000 MHz           |  | $                                 | 107,029 |  | 45                | % |  | $ | 242,498 |  | 63  | %
|1800-2000 MHz          |  |                                   | 90,938  |  | 38                | % |  |   | 84,209  |  | 22  | %
|2000+ MHz              |  |                                   | 41,102  |  | 17                | % |  |   | 58,182  |  | 15  | %
|                       |  |                                   |         |  |                   |   |  |   |         |  |     |  
|Total sales            |  | $                                 | 239,069 |  | 100               | % |  | $ | 384,889 |  | 100 | %
|                       |  |                                   |         |  |                   |   |  |   |         |  |     |  



The growth in sales
during 2003 of products in the 1800-2000 MHz range, or PCS band, is attributable to increased deployment activity in the North American market place as compared to the prior year. This deployment activity in the PCS band was associated with both the
switch by certain TDMA operators to GSM service, as well as expansion of CDMA operator coverages.



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##### Table of Contents

We track the geographic location of our sales based upon the location of our customers to which our
products are shipped. Since many of our customers purchase products from us at central locations and then reship the product with other base station equipment to locations throughout the world, we are unable to identify the final installation
location of our products. The following table presents an analysis of our net sales based upon the geographic area to which a product was shipped:



|                               |  |                                   |         |  |                   |   |  |   |         |  |     |  
|------------------------------ |  | --------------------------------- | ------- |  | ----------------- | - |  | - | ------- |  | --- | -
|                               |  | Fiscal Years Ended (in thousands) |        
|Geographic Area                |  | December 28, 2003                 |         |  | December 29, 2002 |  
|North America                  |  | $                                 | 128,350 |  | 54                | % |  | $ | 257,009 |  | 67  | %
|Asia                           |  |                                   | 31,974  |  | 13                | % |  |   | 37,460  |  | 10  | %
|Europe and other international |  |                                   | 78,745  |  | 33                | % |  |   | 90,420  |  | 23  | %
|                               |  |                                   |         |  |                   |   |  |   |         |  |     |  
|Total sales                    |  | $                                 | 239,069 |  | 100               | % |  | $ | 384,889 |  | 100 | %
|                               |  |                                   |         |  |                   |   |  |   |         |  |     |  



Net sales in each
geographic region are lower in fiscal 2003 as compared to fiscal 2002 primarily as a result of the fiscal 2003 industry-wide reduction in wireless infrastructure spending.



For the year ended December 28, 2003, total sales to Nortel accounted for approximately 57% of sales and sales to Nokia
accounted for 10% or more of sales for such period. For the year ended December 29, 2002, total sales to Nortel accounted for approximately 49% of sales and sales to Cingular Wireless and Nokia each accounted for 10% or more of sales. Our business
is dependent upon a limited number of customers and we cannot guarantee that we will continue to be successful in attracting new customers or retaining or increasing business with our existing customers. Reduced demand for our products negatively
impacted our revenues and operating results during the second half of fiscal 2002 and continued to do so during fiscal 2003. If reductions in overall market demand continue to result in a significant reduction in the future demand for our products
by our customers, our business, financial condition and results of operations will be negatively impacted.



A number of factors have caused delays and may cause future delays in new wireless infrastructure and upgrade deployment schedules for both North American
and international deployments, including deployments in the United States, Europe, Asia, South America and other areas. In addition, a number of factors may cause original equipment manufacturers to alter their outsourcing strategy concerning radio
frequency power amplifiers, which could cause such original equipment manufacturers to reduce or eliminate their demand for external supplies of radio frequency power amplifiers or shift their demand to alternative suppliers or internal suppliers.
Such factors include lower perceived internal manufacturing costs and competitive reasons to remain vertically integrated. Due to the possible uncertainties associated with wireless infrastructure deployments and original equipment manufacturer
demand, we have experienced and expect to continue to experience significant fluctuations in demand from our original equipment manufacturer and network operator customers. Such fluctuations have caused and may continue to cause significant
reductions in our revenues and/or operating results, which has adversely impacted and may continue to adversely impact our business, financial condition and results of operations.



Cost of Sales and Gross Profit



Our cost of sales includes both variable and fixed cost components and consists primarily of materials, assembly and test
labor, overhead, which includes equipment and facility depreciation, transportation costs and warranty costs. Components of our fixed cost structure include test equipment and facility depreciation, purchasing and procurement expenses and quality
assurance costs. Given the fixed nature of such costs, the overall absorption of our overhead costs into inventory decreases and the amount of unabsorbed overhead costs expensed to cost of sales increases as production volumes decline since we have
fewer units to absorb our overhead costs against. Conversely, the absorption of our overhead costs into inventory increases and the amount of unabsorbed overhead costs expensed to cost of sales decreases as production volumes increase since we have
more units to absorb our overhead costs against. As a result, our gross profit margins generally decrease as revenue and production volumes decline due to lower sales volume and higher amounts of unabsorbed overhead costs expensed to cost of sales;
and our gross profit margins generally increase as our revenue and production volumes increase due to higher sales volume and lower amounts of unabsorbed overhead costs expensed to cost of sales.



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##### Table of Contents

The following table presents an analysis of our gross profit:



|                                     |  |                                   |         |  |                   |   |  |   |         |  |       |  
|------------------------------------ |  | --------------------------------- | ------- |  | ----------------- | - |  | - | ------- |  | ----- | -
|                                     |  | Fiscal Years Ended (in thousands) |        
|                                     |  | December 28, 2003                 |         |  | December 29, 2002 |  
|Net sales                            |  | $                                 | 239,069 |  | 100.0             | % |  | $ | 384,889 |  | 100.0 | %
|Cost of sales:                       |  |                                   |         |  |                   |   |  |   |         |  |       |  
|Cost of sales                        |  |                                   | 215,003 |  | 89.9              | % |  |   | 322,107 |  | 83.7  | %
|Restructuring and impairment charges |  |                                   | 7,851   |  | 3.3               | % |  |   |        |  |      | %
|                                     |  |                                   |         |  |                   |   |  |   |         |  |       |  
|Total cost of sales                  |  |                                   | 222,854 |  | 93.2              | % |  |   | 322,107 |  | 83.7  | %
|                                     |  |                                   |         |  |                   |   |  |   |         |  |       |  
|Gross profit                         |  | $                                 | 16,215  |  | 6.8               | % |  | $ | 62,782  |  | 16.3  | %
|                                     |  |                                   |         |  |                   |   |  |   |         |  |       |  



The reduction in our
gross profit margins during fiscal 2003 as compared to fiscal 2002 is due to several factors, the primary factor being the significant reduction in revenues which resulted in lower absorption of our manufacturing overhead expenses and increased
labor costs when viewed as a percentage of revenues. In addition, approximately $7.9 million of restructuring charges relating to severance costs and the write-down of excess equipment and certain product/technology intangibles are included in cost
of sales during fiscal 2003. There were no restructuring charges included in cost of sales during fiscal 2002. See Restructuring and Impairment Charges.



The wireless communications infrastructure equipment industry is extremely competitive and is characterized by rapid
technological change, new product development and product obsolescence, evolving industry standards and significant price erosion over the life of a product. Certain of our competitors have aggressively lowered prices in an attempt to gain market
share. Due to these competitive pressures and the pressures of our customers to continually lower product costs, we expect that the average sales prices of our products will continue to decrease and negatively impact our gross margins. We have
introduced new products at lower sales prices and these lower sales prices have impacted the average sales prices of our products. We have also reduced prices on our existing products in response to our competitors and customer demands. The average
sales price of our products has declined by between 5% and 24% from 2002 to 2003. Future pricing actions by our competitors and us may adversely impact our gross profit margins and profitability, which could result in decreased liquidity and
adversely effect our business, financial condition and results of operations.



We continue to strive for manufacturing and engineering cost reductions to offset pricing pressures on our products, as evidenced by our decision during 2003 to outsource the majority of our production to contract
manufacturers in order to reduce our cost structure. However, we cannot guarantee that these cost reduction, outsourcing or product redesign efforts will keep pace with price declines and cost increases. If we are unable to further reduce our costs
through our manufacturing, outsourcing and/or engineering efforts, our gross margins and profitability will be adversely affected. See Additional Factors That May Affect Our Future ResultsOur average sales prices have declined; and
Our reliance on contract manufacturers to produce our products exposes us to increased risks



Operating Expenses



The following table presents a breakdown of our operating expenses by functional category and as a percentage of net sales:



|                                     |  |                                   |        |  |                   |   |  |   |        |  |      |  
|------------------------------------ |  | --------------------------------- | ------ |  | ----------------- | - |  | - | ------ |  | ---- | -
|                                     |  | Fiscal Years Ended (in thousands) |       
|Operating Expenses                   |  | December 28, 2003                 |        |  | December 29, 2002 |  
|Sales and marketing                  |  | $                                 | 11,557 |  | 4.8               | % |  | $ | 11,384 |  | 3.0  | %
|Research and development             |  |                                   | 38,928 |  | 16.3              | % |  |   | 33,087 |  | 8.6  | %
|General and administrative           |  |                                   | 13,946 |  | 5.8               | % |  |   | 14,401 |  | 3.7  | %
|Restructuring and impairment charges |  |                                   | 7,608  |  | 3.2               | % |  |   |       |  |     | %
|                                     |  |                                   |        |  |                   |   |  |   |        |  |      |  
|Total operating expenses             |  | $                                 | 72,039 |  | 30.1              | % |  | $ | 58,872 |  | 15.3 | %
|                                     |  |                                   |        |  |                   |   |  |   |        |  |      |  



Sales and marketing
expenses consist primarily of sales salaries and commissions, travel expenses, charges for customer demonstration units and trade show expenses. Sales and marketing expenses increased by $0.2 million, or 1.5%, during fiscal 2003 as compared to
fiscal 2002. While sales and marketing expenses remained relatively constant over the two years, we spent more on customer demonstration and trial units during fiscal 2003, which was offset by a reduction in sales commissions due to lower total
sales compared to fiscal 2002.



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Research and development expenses consist primarily of ongoing radio frequency power amplifier design and
development expenses as well as design expenses associated with reducing the cost and improving the manufacturability of existing radio frequency power amplifiers. Current programs include cellular, PCS and next generation 2.5G and 3G products, as
well as alternatives to feed-forward technology techniques. Research and development expenses can fluctuate dramatically from period to period depending on numerous factors including new product introduction schedules, prototype developments and
hiring patterns. Research and development expenses increased by $5.8 million, or 17.6%, during fiscal 2003 as compared to fiscal 2002. This increase is primarily attributable to material and personnel costs associated with prototype and
pre-production product development builds and other product development activities that occurred during fiscal 2003 as we pursued more new customer opportunities.



General and administrative expenses consist primarily of salaries and other expenses for management, finance, information
systems, facilities and human resources. General and administrative expenses decreased by $0.5 million, or 3.2%, during fiscal 2003 as compared to fiscal 2002 due to cost control efforts.



Restructuring and impairment charges amounted to $7.6 million during fiscal 2003 compared to no such charges during fiscal
2002. These charges relate primarily to our write-down of goodwill, as well as engineering test equipment and certain customer related intangibles, and severance payments made in connection with a reduction to our work force. See Restructuring
and Impairment Charges.



Other Income



Other income consists primarily of interest income, net of any interest
expense. Other income increased slightly to $2.4 million for the year ended December 28, 2003, from $2.0 million during the year ended December 29, 2002. The slight increase in other income for fiscal 2003 is primarily due to increased interest
income resulting from higher average cash investment balances during fiscal 2003 as compared to fiscal 2002, offset by the interest expense associated with the subordinated convertible notes issued in July 2003.



Provision (Benefit) for Income Taxes



We recorded a tax benefit at a rate of 38.5% during the year ended December
28, 2003 as compared to a tax provision of 30.0% for the year ended December 29, 2002. Our effective tax rate differs from the U.S. federal statutory tax rate of 35% primarily due to the impact of state taxes on domestic operations and foreign taxes
on non-U.S. operations.



Net Income (Loss)



The net loss for the year ended December 28, 2003 is $32.9 million
compared to net income of $4.1 million for the year ended December 29, 2002. The net loss recorded during fiscal 2003 is primarily due to the decline in revenues combined with lower gross profit margins, as well as our restructuring and impairment
charges recorded in fiscal 2003.



Years ended December 29, 2002 and December
30, 2001



Net Sales



Sales increased by 28% to $384.9 million for the year ended December 29,
2002 from $300.3 million for the year ended December 30, 2001. The increase in revenue resulted primarily from increased demand for wireless infrastructure products in both the Cellular and PCS frequency ranges.



21



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##### Table of Contents

The following table presents an analysis of our net sales based upon radio frequency range:



|                       |  |                                   |         |  |                   |   |  |   |         |  |     |  
|---------------------- |  | --------------------------------- | ------- |  | ----------------- | - |  | - | ------- |  | --- | -
|                       |  | Fiscal Years Ended (in thousands) |        
|Radio Frequency Ranges |  | December 29, 2002                 |         |  | December 30, 2001 |  
|800-1000 MHz           |  | $                                 | 242,498 |  | 63                | % |  | $ | 181,083 |  | 60  | %
|1800-2000 MHz          |  |                                   | 84,209  |  | 22                | % |  |   | 57,142  |  | 19  | %
|2000+ MHz              |  |                                   | 58,182  |  | 15                | % |  |   | 62,068  |  | 21  | %
|                       |  |                                   |         |  |                   |   |  |   |         |  |     |  
|Total sales            |  | $                                 | 384,889 |  | 100               | % |  | $ | 300,293 |  | 100 | %
|                       |  |                                   |         |  |                   |   |  |   |         |  |     |  



The following table
presents an analysis of our net sales based upon the geographic area to which a product was shipped:



|                               |  |                                   |         |  |                   |   |  |   |         |  |     |  
|------------------------------ |  | --------------------------------- | ------- |  | ----------------- | - |  | - | ------- |  | --- | -
|                               |  | Fiscal Years Ended (in thousands) |        
|Geographic Area                |  | December 29, 2002                 |         |  | December 30, 2001 |  
|North America                  |  | $                                 | 257,009 |  | 67                | % |  | $ | 176,295 |  | 59  | %
|Asia                           |  |                                   | 37,460  |  | 10                | % |  |   | 46,005  |  | 15  | %
|Europe and other international |  |                                   | 90,420  |  | 23                | % |  |   | 77,993  |  | 26  | %
|                               |  |                                   |         |  |                   |   |  |   |         |  |     |  
|Total sales                    |  | $                                 | 384,889 |  | 100               | % |  | $ | 300,293 |  | 100 | %
|                               |  |                                   |         |  |                   |   |  |   |         |  |     |  



Total international
sales (excluding North American sales) accounted for approximately 33% of revenues or $127.9 million for the year ended December 29, 2002, compared to approximately 41% or $124.0 million for the year ended December 30, 2001.



The reduction in our Asian sales for fiscal 2002 compared to fiscal 2001 was
largely due to a reduction in sales to our Korean based customers, which was partially offset by an increase in demand from customers located in China. Offsetting the reduction in demand in Asia during fiscal 2002 was an increase in our revenues to
our customers in Europe, which included products for both 2G and 3G networks. The increase in revenue within North America was primarily due to increased wireless infrastructure spending for both cellular and PCS networks.



For the year ended December 29, 2002, total sales to Nortel accounted for
approximately 49% of revenues and sales to Cingular Wireless and Nokia each accounted for 10% or more of revenues for the year. Total sales to Nortel accounted for approximately 44% of revenues for the year ended December 30, 2001 and sales to
Cingular Wireless accounted for 10% or more of revenues for such year.



Cost of Sales and Gross Profit



The following
table presents an analysis of our gross profit:



|                                     |  |                                   |         |  |                   |   |  |   |         |  |       |  
|------------------------------------ |  | --------------------------------- | ------- |  | ----------------- | - |  | - | ------- |  | ----- | -
|                                     |  | Fiscal Years Ended (in thousands) |        
|                                     |  | December 29, 2002                 |         |  | December 30, 2001 |  
|Net sales                            |  | $                                 | 384,889 |  | 100.0             | % |  | $ | 300,293 |  | 100.0 | %
|Cost of sales:                       |  |                                   |         |  |                   |   |  |   |         |  |       |  
|Cost of sales                        |  |                                   | 322,107 |  | 83.7              | % |  |   | 266,927 |  | 88.9  | %
|Restructuring and impairment charges |  |                                   |        |  |                  | % |  |   | 3,580   |  | 1.2   | %
|                                     |  |                                   |         |  |                   |   |  |   |         |  |       |  
|Total cost of sales                  |  |                                   | 322,107 |  | 83.7              | % |  |   | 270,507 |  | 90.1  | %
|                                     |  |                                   |         |  |                   |   |  |   |         |  |       |  
|Gross profit                         |  | $                                 | 62,782  |  | 16.3              | % |  | $ | 29,786  |  | 9.9   | %
|                                     |  |                                   |         |  |                   |   |  |   |         |  |       |  



The increase in our
gross profit margins during fiscal 2002 as compared to fiscal 2001 was due to several factors, including our increase in revenue which resulted in higher absorption of our manufacturing overhead expenses and improved manufacturing efficiencies due
to increased production volume. The impact of these factors was partially offset by lower sales prices throughout fiscal 2002. In addition, our 2001 gross profit margins were negatively impacted by $12.5 million in provisions for and disposals of
excess and obsolete inventories as well as



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##### Table of Contents

vendor cancellation charges resulting from the reduction in demand during fiscal 2001. Our 2001 gross profit margin was
further reduced by a non-cash charge of $3.6 million during the fourth quarter relating to the writedown of developed technology acquired through our acquisition of Hewlett-Packard Companys radio frequency power amplifier business in October
1998 (the HP Acquisition). See Restructuring and Impairment Charges. In fiscal 2002, approximately $0.4 million of cost of goods sold represented the amortization of developed technology acquired as part of the HP Acquisition
and our acquisition of Toracomm Limited in December 2001. This compared to approximately $2.3 million of amortization of developed technology related solely to the HP acquisition in fiscal 2001.



Operating Expenses



The following table presents a breakdown of our operating expenses by
functional category and as a percentage of net sales:



|                           |  |                                   |        |  |                   |   |  |   |        |  |      |  
|-------------------------- |  | --------------------------------- | ------ |  | ----------------- | - |  | - | ------ |  | ---- | -
|                           |  | Fiscal Years Ended (in thousands) |       
|Operating Expenses         |  | December 29, 2002                 |        |  | December 30, 2001 |  
|Sales and marketing        |  | $                                 | 11,384 |  | 3.0               | % |  | $ | 13,733 |  | 4.6  | %
|Research and development   |  |                                   | 33,087 |  | 8.6               | % |  |   | 34,750 |  | 11.6 | %
|General and administrative |  |                                   | 14,401 |  | 3.7               | % |  |   | 15,973 |  | 5.3  | %
|Impairment charges         |  |                                   |       |  |                  | % |  |   | 2,945  |  | 1.0  | %
|                           |  |                                   |        |  |                   |   |  |   |        |  |      |  
|Total operating expenses   |  | $                                 | 58,872 |  | 15.3              | % |  | $ | 67,401 |  | 22.5 | %
|                           |  |                                   |        |  |                   |   |  |   |        |  |      |  



Sales and marketing
expenses decreased by $2.3 million, or 1.7%, during fiscal 2002 as compared to fiscal 2001. The decrease in sales and marketing expenses from fiscal 2001 to fiscal 2002 was primarily attributable to lower sales commissions, lower personnel costs and
continued operating expense controls during fiscal 2002. For the year ended December 29, 2002, approximately $0.09 million in sales and marketing expenses represented the amortization of a non-compete agreement acquired as part of the HP
Acquisition. This compared to approximately $0.6 million of sales and marketing expenses related to the amortization of a customer list and non-compete agreement from the HP Acquisition for the year ended December 30, 2001.



Research and development expenses decreased by $1.7 million, or 4.8%, during
fiscal 2002 as compared to fiscal 2001. The slight decrease in research and development expenses for fiscal 2002 compared to fiscal 2001 was primarily attributable to continued operating expense controls during fiscal 2002.



General and administrative expenses decreased by $1.6 million, or 9.8%,
during fiscal 2002 as compared to fiscal 2001. The decrease in general and administrative expenses was primarily due to approximately $2.2 million in one time expenses that occurred in 2001 related to the move to our new Southern Californian
headquarters facility during the first quarter of 2001. In addition, general and administrative expenses during the year ended December 30, 2001 also included approximately $0.5 million related to the amortization of goodwill, which ceased to be
amortizable during the year ended December 29, 2002 due to the adoption of SFAS 142. These decreases were partially offset by higher personnel, professional and office related costs in fiscal 2002.



There were no impairment charges recorded in fiscal 2002 compared to $2.9
million of impairment charges recorded in fiscal 2001 related to the write-down of goodwill associated with our HP Acquisition. See Restructuring and Impairment Charges.



Other Income



We earned other income, net, of $2.0 million in fiscal year 2002, compared to $5.6 million in fiscal year 2001. The decrease in other income was primarily
due to the decline in short-term interest rates on our cash investments which decreased by more than 60% from fiscal year 2001 rates.



Provision (Benefit) for Income Taxes



During the year ended December 29, 2002, we recorded a tax provision at a rate of 30.0% as compared to a tax benefit at a rate of 36.0% for the year ended
December 30, 2001. The decrease in our effective tax rate was primarily due to lower state taxes.



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Net Income (Loss)



Net income for the year ended December 28, 2002 was $4.1 million compared to a net loss of $20.5 million for the year ended
December 30, 2001. Net income during fiscal 2002 was primarily due to increased demand for wireless infrastructure products.



Restructuring and Impairment Charges



As a result of the significant economic downturn effecting demand in the wireless infrastructure industry, we determined that it was necessary to test our
previously recorded goodwill for impairment during the first quarter of fiscal 2003. Since we operate in a single business segment as a single reporting unit, the determination of whether any potential impairment of goodwill exists is based on a
comparison of the fair value of the entire Company to the accounting value of our net assets. In estimating the fair value of the entire Company, we reviewed the market value of Powerwave based upon average and closing stock prices for our Common
Stock, valuations based on multiples of sales, EBITDA and EBIT, as well as other factors. Based on a comparison of these valuations compared to the accounting value of our underlying assets and liabilities, we concluded that the entire amount of our
recorded goodwill had been impaired and, therefore, recorded a non-cash charge of $4.9 million within operating expenses during the first quarter of fiscal 2003. During the remainder of 2003, we accelerated the restructuring of our manufacturing
operations to outsource the majority of our production to contract manufacturers located in Asia in an effort to further reduce our operating cost structure and enable us to be more competitive. In addition, we also accelerated the timing of
technology transitions and new product introductions due to our transition to outsourced manufacturing and the continued economic downturn that significantly impacted demand in the wireless infrastructure industry. As a result, we recorded
approximately $10.6 million of restructuring and additional impairment charges during the remainder of fiscal 2003. These charges included cash restructuring charges of approximately $4.6 million related primarily to severance payments made in
connection with a reduction in our work force during fiscal 2003 of approximately 560 employees. As of December 28, 2003, there were no material cash restructuring charges remaining unpaid. The remaining non-cash impairment charges of approximately
$6.0 million related to a $3.0 million write-down of excess manufacturing and test equipment that was disposed of and a $3.0 million write-down of certain product/technology and customer related intangibles, the value of which was impaired by the
technology and product transitions that occurred during the year. These restructuring and impairment charges have been recorded in cost of sales or operating expenses based upon the job classification of the impacted employees or the character of
the underlying assets. Of the total $15.5 million restructuring and impairment charges recorded during fiscal 2003, approximately $7.9 million was recorded within cost of sales and approximately $7.6 million was recorded within operating expenses.
We did not record any similar restructuring or impairment charges during the year ended December 29, 2002.



As a result of poor economic conditions and reductions in the forecasted future demand for products acquired through our HP Acquisition, we recorded a
non-cash charge of $6.5 million during the fourth quarter of fiscal year 2001 for the impairment of intangible assets associated with the HP Acquisition. This amount included approximately $3.6 million recorded in cost of sales related to the
writedown of developed technology and approximately $2.9 million recorded in general and administrative expenses related to the writedown of goodwill. The amount of this impairment charge was determined in accordance with APB Opinion No. 17,
Intangible Assets (APB 17), the predecessor of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Pursuant to APB 17, the impairment charge was calculated by comparing the carrying
value of these intangible assets to the net present value of the estimated future cash flows, based on our best estimates using appropriate judgments and assumptions, from the operations to which these assets related.



Liquidity and Capital Resources



We have historically financed our operations through a combination of cash
on hand, cash provided from operations, equipment lease financings, available borrowings under bank lines of credit, private debt placements and both private and public equity offerings. Our principal sources of liquidity consist of existing cash
balances and funds expected to be generated from future operations. As of December 28, 2003, we had working capital of $280.2 million, including $260.5 million in cash and cash equivalents, as compared to working capital of $218.5 million at
December 29, 2002, which included $162.5 million in cash and cash equivalents. We currently invest our excess cash in short-term, investment-grade, money-market instruments with maturities of three months or less. We typically hold such investments
until maturity and then reinvest the proceeds in similar money market instruments. We believe that all of our cash investments would be readily available to us should the need arise.



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Cash Flows



The following table summarizes Powerwaves cash flows for the years ended December 28, 2003 and December 29, 2002:



|                                             |  |                                   |         |   |                   |   |        |  
|-------------------------------------------- |  | --------------------------------- | ------- | - | ----------------- | - | ------ | -
|                                             |  | Fiscal Years Ended (in thousands) |        
|                                             |  | December 28, 2003                 |         |   | December 29, 2002 |  
|Net cash provided by (used in):              |  |                                   |         |   |                   |   |        |  
|Operating activities                         |  | $                                 | 6,906   |   |                   | $ | 40,076 |  
|Investing activities, including acquisitions |  |                                   | (12,322 | ) |                   |   | (3,864 | )
|Financing activities                         |  |                                   | 103,415 |   |                   |   | 3,146  |  
|                                             |  |                                   |         |   |                   |   |        |  
|Net increase in cash and cash equivalents    |  | $                                 | 97,999  |   |                   | $ | 39,358 |  
|                                             |  |                                   |         |   |                   |   |        |  



Net cash provided by
operations during fiscal 2003 decreased by $33.2 million as compared to fiscal 2002. This decrease is due to our significantly lower revenues and operating loss of $55.8 million during fiscal 2003, which included cash outlays of $4.6 million
associated with our restructuring charges. During the year ended December 28, 2003, our net accounts receivable increased to $56.3 million from $53.3 million at December 29, 2002, primarily due to shipping a higher percentage of our fourth quarter
revenue in the last month of the year. Our net inventories decreased to $15.2 million during the year ended December 28, 2003, from $29.9 million at December 29, 2002. In addition, during the year ended December 28, 2003, our accounts payable
increased to $48.9 million from $26.8 million at December 29, 2002. The reduction in our inventory and the increase in our accounts payable are primarily the result of our move to outsourced manufacturing. By utilizing external contract
manufacturers, we do not purchase most inventory until it is a completed product, which has had the effect of significantly reducing our total inventory and deferring our related accounts payable cash outflows.



Net cash used in investing activities reflects our acquisitions and capital
spending. The increase in net cash used in investing activities for fiscal 2003 compared to fiscal 2002 is primarily attributable to the $9.9 million acquisition of certain assets and liabilities of Ericsson in the third quarter of fiscal 2003.
Total capital expenditures during fiscal 2003 and 2002 were approximately $3.9 million and $5.1 million, respectively. The majority of the capital spending during fiscal 2003 and 2002 was for computer hardware and test equipment utilized in our
manufacturing and research and development areas. We expect our future annual capital spending requirements to range between $5 million and $10 million per year, consisting primarily of radio frequency test equipment, computer hardware and computer
software.



The increase in net cash provided by financing
activities during fiscal 2003 resulted from our issuance of $130.0 million of 1.25% convertible subordinated notes due July 2008 during the third quarter of 2003, of which $25.0 million was used to simultaneously repurchase 3,144,654 shares of our
outstanding Common Stock.



We currently believe that our
existing cash balances and funds expected to be generated from operations will provide us with sufficient funds to finance our current operations for at least the next twelve months as well as any potential cash outlays related to the acquisition of
LGP Allgon. Our principal source of liquidity consists of our existing cash balances and our unutilized bank line of credit. We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on
hand and cash provided by operations. Our ability to increase revenues and generate profits is subject to numerous risks and uncertainties and any significant further decrease in our revenues or profitability would reduce our operating cash flows
and erode our existing cash balances. No assurances can be given that we will be able to generate positive operating cash flows in the future or maintain and/or grow our existing cash balances.



Financing Activities



On July 18, 2003, we completed a private placement of $130.0 million
aggregate principal amount of 1.25% convertible subordinated notes due July 2008 and raised approximately $100.9 million in net proceeds after the deduction of debt issuance costs and the simultaneous repurchase of $25.0 million of our Common Stock
(3,144,654 shares). The notes require semi-annual interest payments on January 15 and July 15 and the $130.0 million principal balance is due on July 15, 2008. The notes are convertible into common shares of Powerwave at the conversion price of
$10.49 per share. This represents a conversion rate of approximately 95.3289 shares of Common Stock per $1,000 principal amount of notes. We currently expect to use the net proceeds for general corporate purposes and funding up to $125.0 million for
the potential cash portion of the exchange offer for LGP Allgon. See Note 8. Financing Arrangements and Long-Term Debt and Note 22. Subsequent Events in our consolidated financial statements under Item 8, Financial
Statements and Supplementary Data included herein.



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We maintain a $20.0 million revolving credit agreement with Comerica Bank-California. This credit
facility provides for an unsecured revolving line of credit up to a maximum principal amount outstanding at any one time of $20.0 million (the Revolving Commitment Amount) and expires on May 31, 2004. We are required to pay a commitment
fee of 0.25% per annum on the unused portion of the Revolving Commitment Amount, payable quarterly in arrears. The revolving credit facility allows for borrowings based either upon the banks prime rate (4.00% at December 28, 2003) or the
banks LIBOR rate plus an applicable LIBOR margin of 1.25% or 1.50%, based upon our debt leverage ratio. The revolving credit facility contains certain standard affirmative and negative covenants, including limitations on future indebtedness,
restricted payments, transactions with affiliates, liens, dividends, mergers, transfers of assets and leverage ratios. At December 28, 2003, we were in full compliance with all covenants contained in the revolving credit facility. There were no
amounts outstanding and the full $20.0 million of the Revolving Commitment Amount was available to us as of December 28, 2003.



On occasion, we have previously utilized both operating and capital lease financing for certain equipment purchases used in our manufacturing and research
and development operations and may selectively continue to do so in the future. We may require additional funds in the future to support our working capital requirements or for other purposes such as acquisitions, and we may seek to raise such
additional funds through the sale of public or private equity and/or debt financings, as well as from other sources. Our ability to maintain existing financing arrangements and to secure additional financing or sources of funding is dependent upon
our financial performance, credit rating and the market price for our Common Stock, which are both directly impacted by our ability to grow revenues and generate profits. We can make no guarantees that we will be able to obtain additional financing
or secure new financing arrangements in the future. If our operating performance were to deteriorate and our cash balances were to be significantly reduced, we would likely encounter a more difficult environment in terms of raising additional
funding to support our business.



Contractual Obligations and Commercial
Commitments



We incur various contractual obligations and
commercial commitments in our normal course of business. Such obligations and commitments consist primarily of the following:



Long-Term Debt



At December 28, 2003, we had $130.0 million of 1.25% convertible subordinated notes due July 2008 outstanding. The notes are convertible into shares of
our Common Stock at the option of the holder at a conversion price of $10.49 per share and accrue interest at an annual rate of 1.25%, payable semi-annually on January 15 and July 15. See Note 8. Financing Arrangements and Long-Term Debt
in our consolidated financial statements under Item 8, Financial Statements and Supplementary Data included herein for additional information.



Capital Lease Obligations



We do not currently have any outstanding capital lease obligations. Such obligations, if any, would be included under debt and recorded on our
consolidated balance sheets.



Operating Lease Obligations



We have various operating leases covering facilities in
Santa Ana and El Dorado Hills, California, Bristol, United Kingdom, and various sales offices throughout the world. We also maintain some minor operating leases relating to equipment rentals that amount to less than $50,000 per quarter.



Purchase Commitments with Contract Manufacturers



We generally issue purchase orders to our contract manufacturers with
delivery dates from four to six weeks from the purchase order date. In addition, we regularly provide such contract manufacturers with rolling six-month forecasts of material and finished goods requirements for planning and long-lead time parts
procurement purposes only. We are committed to accept delivery of materials pursuant to our purchase orders subject to various contract provisions which allow us to delay receipt of such order or allow us to cancel orders beyond certain agreed lead
times. Such cancellations may or may not include cancellation costs payable by us. In the past, we have been required to take delivery of materials from our suppliers that were in excess of our requirements and we have previously recognized charges
and expenses related to such excess material. If we are unable to adequately manage our contract manufacturers and adjust such commitments for changes in demand, we may incur additional inventory expenses related to excess and obsolete inventory.
Such expenses could have a material adverse effect on our business, financial condition and results of operations.



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Other Purchase Commitments



We also incur various purchase obligations with other vendors and suppliers for the purchase of inventory, as well as other
goods and services, in the normal course of business. These obligations are generally evidenced by purchase orders with delivery dates from four to six weeks from the purchase order date, and in certain cases, supply agreements that contain the
terms and conditions associated with these purchase arrangements. We are committed to accept delivery of such materials pursuant to such purchase orders subject to various contract provisions which allow us to delay receipt of such order or allow us
to cancel orders beyond certain agreed lead times. Such cancellations may or may not include cancellation costs payable by us. In the past, we have been required to take delivery of materials from our suppliers that were in excess of our
requirements and we have previously recognized charges and expenses related to such excess material. If we are not able to adequately manage our supply chain and adjust such commitments for changes in demand, we may incur additional inventory
expenses related to excess and obsolete inventory. Such expenses could have a material adverse effect on our business, financial condition and results of operations.



If our proposed acquisition of the outstanding shares of LGP Allgon is completed, we will be obligated to pay a fee to our
financial advisor, Deutsche Bank, and we will also assume the liability to pay a completion fee to LGP Allgons advisors, Merrill Lynch International and Enskillda. The total amount of such fees is estimated to be approximately $7.0 million.
Depending upon the number of shareholders that tender their shares under the cash alternative of the exchange offer, we may also be required to pay up to $125.0 million for the acquisition of such shares. As the advisor fees are not payable unless
the acquisition is completed and the actual amount of the potential cash payment for the acquisition of LGP Allgon shares cannot yet be determined, no amount relating to the advisor fees or the cash alternative has been included in the table set
forth below.



Guarantees Under Letters of Credit



We have issued standby letters of credit from time to
time as a security for certain liabilities. At December 28, 2003, total outstanding letters of credit approximated $0.6 million and are related to contingent liabilities under our workers compensation insurance policies in the United States.



As of December 28, 2003, expected future cash payments related
to contractual obligations and commercial commitments were as follows:



|                                                         |  |                                       |        |           |   |           |  |            |         |       |   |     |  |   |        
|-------------------------------------------------------- |  | ------------------------------------- | ------ | --------- | - | --------- |  | ---------- | ------- | ----- | - | --- |  | - | -------
|                                                         |  | Payments Due by Period (in thousands)
|                                                         |  | Less than1 Year                       |        | 1-3 Years |   | 3-5 Years |  | Thereafter |         | Total
|Long-term debt (including interest)                      |  | $                                     | 1,612  |           | $ | 3,250     |  | $          | 133,250 |       | $ |    |  | $ | 138,112
|Capital lease obligations                                |  |                                       |       |           |   |          |  |            |        |       |   |    |  |   |       
|Operating lease obligations                              |  |                                       | 1,661  |           |   | 2,654     |  |            | 764     |       |   | 125 |  |   | 5,204  
|Purchase commitments with contract manufacturers         |  |                                       | 36,410 |           |   |          |  |            |        |       |   |    |  |   | 36,410 
|Other purchase commitments                               |  |                                       | 9,627  |           |   |          |  |            |        |       |   |    |  |   | 9,627  
|Guarantees under letters of credit                       |  |                                       |       |           |   |          |  |            |        |       |   |    |  |   |       
|                                                         |  |                                       |        |           |   |           |  |            |         |       |   |     |  |   |        
|Total contractual obligations and commercial commitments |  | $                                     | 49,310 |           | $ | 5,904     |  | $          | 134,014 |       | $ | 125 |  | $ | 189,353
|                                                         |  |                                       |        |           |   |           |  |            |         |       |   |     |  |   |        



We believe that our
existing cash balances and funds expected to be generated from future operations will be sufficient to satisfy these contractual obligations and commercial commitments and that the ultimate payments associated with these commitments will not have a
material adverse effect on our liquidity position.



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Disclosure About Stock Option Plans



Our stock option program is a broad-based, long-term retention program that is intended to attract and retain talented
employees and align stockholder and employee interests. The program consists of five separate plans: one under which non-employee directors may be granted options to purchase shares of stock and four broad-based plans under which options may be
granted to all employees, including officers. Options granted under these plans expire either 5 or 10 years from the grant date and generally vest over two to four years.



All stock option grants to our executive officers and vice presidents are made after a review by, and with the approval of,
either the Compensation Committee of the Board of Directors or the entire Board of Directors. All members of the Compensation Committee are independent directors, as defined in the applicable rules for issuers traded on the Nasdaq Stock Market. Our
executive officers include Bruce C. Edwards, President and Chief Executive Officer, Ronald J. Buschur, Chief Operating Officer, and Kevin T. Michaels, Senior Vice President, Finance, Chief Financial Officer and Secretary. See the Compensation
Committee Report On Executive Compensation appearing in Part III, Item 11 of this Form 10-K for further information concerning the policies and procedures of the Company and the Compensation Committee regarding the use of stock options.



During the year ended December 28, 2003, we granted options to
purchase a total of 1,526,700 shares of Common Stock to employees. After deducting 1,857,131 shares for options forfeited, the result was net option forfeitures of 330,431. Net option forfeitures during the year represented 0.5% of our total
outstanding common shares of 63,257,429 as of December 28, 2003. The following table summarizes the net stock option grants to our employees, directors and executive officers during the three most recent fiscal periods:



|                                                                                                 |  |                    |    |  |                  |   |  |                  |  
|------------------------------------------------------------------------------------------------ |  | ------------------ | -- |  | ---------------- | - |  | ---------------- | -
|                                                                                                 |  | Fiscal Years Ended |   
|                                                                                                 |  | December 28,2003   |    |  | December 29,2002 |   |  | December 30,2001 |  
|Net grants (forfeitures) during the period as a % of total outstanding common shares             |  | (0.5               | )% |  | 3.1              | % |  | 1.6              | %
|Grants to executive officers during the period as a % of total options granted during the period |  | 18.0               | %  |  | 19.0             | % |  | 19.6             | %
|Grants to executive officers during the period as a % of total outstanding common shares         |  | 0.4                | %  |  | 0.9              | % |  | 0.7              | %
|Cumulative options held by executive officers as a % of total options outstanding                |  | 16.1               | %  |  | 19.5             | % |  | 17.6             | %



At December 28, 2003,
a total of 1,957,719 options were available for grant under all of our option plans and a total of 264,729 shares of Common Stock were held in escrow to cover all remaining exercises under the 1995 Stock Option Plan. See Note 12. Stock Option
Plans in the Notes to Consolidated Financial Statements included under Item 8, Financial Statements and Supplementary Data included herein for additional information regarding the 1995 Stock Option Plan.



The following table summarizes outstanding stock options that are
in-the-money and out-of the-money as of December 28, 2003. For purposes of this table, in-the-money stock options are those options with an exercise price less than $7.70 per share, the closing price of Powerwave Common Stock
on December 26, 2003, the last trading day of the fiscal year, and out-of-the-money stock options are stock options with an exercise price greater than or equal to the $7.70 per share closing price.



|                          |  |             |  |                        |       |        |           |                        |   |             |  |          
|------------------------- |  | ----------- |  | ---------------------- | ----- | ------ | --------- | ---------------------- | - | ----------- |  | ---------
|                          |  | Exercisable |  | Unexercisable          |       |       
|                          |  | Shares      |  | Wtd. Avg.ExercisePrice |       | Shares |           | Wtd. Avg.ExercisePrice |   | TotalShares
|In-the-Money              |  | 2,018,451   |  | $                      | 4.30  |        | 2,642,790 |                        | $ | 5.96        |  | 4,661,241
|Out-of-the-Money          |  | 2,836,416   |  | $                      | 20.76 |        | 1,454,339 |                        | $ | 16.89       |  | 4,290,755
|                          |  |             |  |                        |       |        |           |                        |   |             |  |          
|Total Options Outstanding |  | 4,854,867   |  | $                      | 13.91 |        | 4,097,129 |                        | $ | 9.84        |  | 8,951,996
|                          |  |             |  |                        |       |        |           |                        |   |             |  |          



For additional
information regarding the stock options granted to and exercised by executive officers during fiscal 2003, see Part III, Item 11. Executive Compensation.



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Disclosure About Foreign Currency Risk



We maintain various operations in several foreign locations including China, Finland, France, Singapore and the United
Kingdom. These operations incur expenses in foreign currencies and, while historically insignificant, certain locations have the ability to generate local currency revenue. Such foreign currency revenues and expenses expose us to foreign currency
risk and give rise to foreign exchange gains and losses. In addition, a significant portion of our revenues are derived from international sources, with our international customers accounting for approximately 46% of our net sales during fiscal
2003, 33% of our fiscal 2002 net sales and 41% of our fiscal 2001 net sales. We regularly pursue new customers in various domestic and international locations where new deployments or upgrades to existing wireless communication networks are planned.
Such international locations include Europe, Asia and South America, where there has been instability in several of the regions currencies. Although we currently invoice most of our customers in U.S. Dollars, changes in the value of the U.S.
Dollar versus the local currency in which our products are sold, along with economic and political conditions of such foreign countries, could adversely affect our business, financial condition and results of operations. In addition, the weakening
of an international customers local currency and banking market may negatively impact such customers ability to meet their payment obligations to us. While we currently believe that our international customers have the ability to meet
all of their obligations to us, there can be no assurance that they will continue to be able to meet such obligations. We regularly monitor the credit worthiness of our international customers and make credit decisions based on both prior sales
experience with such customers and their current financial performance, as well as overall economic conditions. In the future, we may be required or decide to offer certain international customers extended payment terms and/or sell products or
services in the local currency of such customers. In fiscal 2003, we began to sell products to customers in China in their local currency and receive payments in such local currency. If we sell products or services in a foreign currency, we may be
required to convert the payments received into U.S. Dollars or utilize such foreign currencies as payments for expenses of our business. Given the uncertainty as to when and what specific foreign currencies we may be required or decide to accept as
payment from our international customers, we cannot predict the ultimate impact that such a decision would have on our business, gross margins and results of operations.



Several of the international markets in which we sell our products have experienced significant weaknesses in their
currencies, banking systems and equity markets in the last few years. Such weaknesses could negatively impact demand for wireless services and thereby reduce demand for our products. Such a reduction in demand for our products could have a negative
impact on our future sales and gross margins. Our foreign customers generally pay for our products with U.S. Dollars. The past strengthening of the U.S. Dollar as compared to the Brazilian Real or the South Korean Won effectively increased the cost
of our products by as much as 100% or more for our Brazilian and South Korean customers. Such a significant increase in the equivalent local currency cost of such products makes them less attractive to such customers. Accordingly, changes in
exchange rates, and in particular a strengthening of the U.S. Dollar, may negatively affect our future sales and gross margins.



Disclosure About Terrorist Risk



We did not experience any direct impact from the September 11, 2001 terrorist attacks on the United States other than minor delays in certain material
shipments due to disruptions in the air transportation system. These delays did not have a material impact on us. We are unable to estimate or predict what impact future terrorist attacks will have on us, our customers, our suppliers and the market
demand for our products. Any production delays or shutdowns, reduction in demand or loss of customers due to terrorist attacks could have a material adverse effect on our business, financial condition, results of operations and future sales.



Additional Factors That May Affect Our Future Results



We rely upon a few customers for the majority of our revenues and the
loss of any one of these customers, or a significant loss, reduction or rescheduling of orders from any of these customers, would have a material adverse effect on our business, results of operations and financial condition.



We sell most of our products to a small number of customers, and we expect
that this will continue. For the fiscal year ended December 28, 2003 and December 29, 2002, our largest customer, Nortel, accounted for approximately 57% and 49% of our net sales, respectively, or $135.5 million and $187.5 million. For the years
ended December 28, 2003 and December 29, 2002, customers that accounted for 10% or more of our net sales included Nokia for both years and Cingular Wireless for fiscal 2002. The majority of our product sales are to original equipment manufacturers
of wireless base station equipment. Our future success is dependent upon the continued purchases of our products by such manufacturers and any fluctuations in demand from such customers could negatively impact our results of operations. If we are
unable to broaden our customer base and expand



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relationships with major wireless original equipment manufacturers and major operators of wireless networks, our business
will continue to be impacted by unanticipated demand fluctuations due to our dependence on a small number of customers. Unanticipated demand fluctuations can have a negative impact on our revenues and business and an adverse effect on our results of
operations and financial condition. In addition, our dependence on a small number of major customers exposes us to numerous other risks, including:



| |  | a slowdown or delay in deployment of wireless networks by any one customer could significantly reduce demand for our products;
| | - | ------------------------------------------------------------------------------------------------------------------------------



| |  | reductions in a single customers forecasts and demand could result in excess inventories;
| | - | ------------------------------------------------------------------------------------------



| |  | each of our customers have significant purchasing leverage over us to require changes in sales terms including pricing, payment terms and product delivery schedules;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | direct competition should a customer decide to increase its current level of radio frequency power amplifier manufacturing; and
| | - | -------------------------------------------------------------------------------------------------------------------------------



| |  | concentration of accounts receivable credit risk, which could have a material adverse effect on our liquidity and financial condition if one of our major customers declared
bankruptcy or delayed payment of their receivables.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have a history of significant reductions in demand which demonstrates the risks related to our customer and industry concentration levels. During fiscal 2003, we experienced an overall reduction in revenue of $145.8 million from our 2002
revenue levels, $52.0 million of which related to a single customer, Nortel, as a result of an industry-wide reduction in demand. We experienced a drop in revenue of $147.1 million from fiscal 2000 revenue levels during fiscal 2001, also as a result
of an industry-wide reduction in demand. In 1998, we had a significant geographic customer concentration in South Korea, which experienced an economic and financial crisis. Further impacting our ability to forecast future revenue, many of our
customers, including Nortel, provide minimal lead-time prior to the release of their purchase orders and have non-binding commitments to purchase from us. It is therefore difficult for us to predict our future sales.



We have experienced significant reductions in demand for our products from
both original equipment manufacturers and network operator customers, and if this continues, our operating results will continue to be adversely impacted.



During fiscal 2003, we experienced significantly reduced demand for our products due to lower than anticipated capital spending plans by major wireless
network operators. As a result, we experienced decreased revenues during fiscal 2003. If these reductions in overall market demand continue to result in significant reductions in future demand for our products from our original equipment
manufacturer customers, our revenues will be flat or down and our results of operations will continue to be negatively impacted.



We have also experienced significant reductions in network operator demand as well as significant delays in demand for WCDMA, or 3G, based products due to
the high projected capital cost of building such networks and market concerns regarding the inoperability of such network protocols. In combination with these market issues, a majority of wireless network operators have reduced their capital
spending plans in order to improve their overall cash flow. The continuation of any delays in development of 3G networks will result in continued reduced demand for our products which will have a material adverse effect on our business.



We have experienced, and will continue to experience, significant
fluctuations in sales and operating results from quarter to quarter.



Our quarterly results fluctuate due to a number of factors, including:



| |  | the lack of any obligation by our customers to purchase their forecasted demand for our products;
| | - | -------------------------------------------------------------------------------------------------



| |  | variations in the timing, cancellation, or rescheduling of customer orders and shipments;
| | - | -----------------------------------------------------------------------------------------



| |  | high fixed expenses that increase operating expenses, especially during a quarter with a sales shortfall;
| | - | ---------------------------------------------------------------------------------------------------------



| |  | product failures and associated warranty and in-field service support costs; and
| | - | --------------------------------------------------------------------------------



| |  | discounts given to certain customers for large volume purchases.
| | - | ----------------------------------------------------------------



We have regularly generated a large percentage of our revenues in the last month of a quarter. Since we attempt to ship products quickly after we receive
orders, we may not always have a significant backlog of unfilled orders at the start of each quarter and we may be required to book a substantial portion of our orders during the quarter in which such orders ship. Our major customers generally have
no obligation to purchase forecasted amounts and may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice and without



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penalty. As a result, we may not be able to accurately predict our quarterly sales. Because our expense levels are
partially based on our expectations of future sales, our expenses may be disproportionately large relative to our revenues, and we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Any shortfall
in sales relative to our quarterly expectations or any delay of customer orders would adversely affect our revenues and results of operations.



Order deferrals and cancellations by our customers, declining average sales prices, changes in the mix of products sold, delays in the introduction of new
products and longer than anticipated sales cycles for our products have, in the past, adversely affected our results of operations. Despite these factors, we, along with our contract manufacturers, maintain significant finished goods,
work-in-progress and raw materials inventory to meet estimated order forecasts. If our customers purchase less than the forecasted amounts or cancel or delay existing purchase orders, there will be higher levels of inventory that face a greater risk
of obsolescence. If our customers desire to purchase products in excess of the forecasted amounts or in a different product mix, there may not be enough inventory or manufacturing capacity to fill their orders.



Due to these and other factors, our past results are not reliable indicators
of our future performance. Future revenues and operating results may not meet the expectations of public market analysis investors. In either case, the price of our common stock could be materially adversely affected.



Our average sales prices have declined, and we anticipate that the average
sales prices for our products will continue to decline and negatively impact our gross profit margins.



Wireless service providers are continuing to place pricing pressure on wireless infrastructure manufacturers, which in turn, has resulted in lower selling
prices for our products, with certain competitors aggressively reducing prices in an effort to increase their market share. The average sales price for our products have declined by between 5% and 24% from 2002 to 2003. Fierce competition among our
competitors has also contributed to the downward price pressure on our products. Since wireless infrastructure manufacturers frequently negotiate supply arrangements far in advance of delivery dates, we must often commit to price reductions for our
products before we know how, or if, we can obtain such cost reductions. In addition, average sales prices are affected by price discounts negotiated without firm orders for large volume purchases by certain customers. To offset declining average
sales prices, we must reduce manufacturing costs and ultimately develop new products with lower costs or higher average sales prices. If we cannot achieve such cost reductions or increase average selling prices, our gross margins will continue to
decline.



Our success is tied to the growth of the wireless
services communications market and our future revenue growth is dependent upon the expected increase in the size of this market.



Our revenues come primarily from the sale of radio frequency power amplifiers for wireless communications networks. Our future success depends upon the
continued growth and increased availability of wireless communications services. Wireless communications services may not grow at a rate fast enough to create demand for our products, as we have experienced during fiscal 2003. During this period,
wireless network operators reduced or delayed capital spending on wireless networks in order to preserve their operating cash and improve their balance sheets. Such reduced spending on wireless networks has had a negative impact on our operating
results during fiscal 2003. If wireless network operators continue to delay or maintain reduced levels of capital spending, our operating results will continue to be negatively impacted.



Many of our wireless infrastructure manufacturer customers have internal radio frequency power amplifier production
and/or design capabilities and thereby effectively compete against us.



Many of our customers internally design and/or manufacture their own radio frequency power amplifiers. These customers also continuously evaluate whether to manufacture their own radio frequency power amplifiers or
utilize contract manufacturers to produce their own internal designs. Certain of our customers regularly produce or design radio frequency power amplifiers in an attempt to replace products manufactured by us. We believe that this practice will
continue. In the event that our customers manufacture or design their own radio frequency power amplifiers, such customers could reduce or eliminate their purchases of our products, which would result in reduced revenues and would adversely impact
our results of operations and liquidity. Wireless infrastructure equipment manufacturers with internal manufacturing capabilities, including many of our customers, could also sell radio frequency power amplifiers externally to other manufacturers,
thereby competing directly with us. If, for any reason, our customers decide to produce their radio frequency power amplifiers internally, increase the percentage of their internal production, require us to participate in joint venture manufacturing
with them or compete directly against us, our revenues would decrease which would adversely impact our results of operations.



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Our reliance on contract manufacturers to produce our products exposes us to risks of excess inventory
or inventory carrying costs.



If our contract manufacturers
are unable to timely respond to changes in customer demand, we may be unable to produce enough product to respond to sudden increases in demand resulting in lost revenues, or alternatively, in the case of order cancellations or decreases in demand,
we may be liable for excess or obsolete inventory or cancellation charges resulting from contractual purchase commitments that we have with our contract manufacturers. We regularly provide rolling forecasts of our requirements to our contract
manufacturers for planning purposes, pursuant to our agreements, a portion of which is binding upon us. Additionally, we are committed to accept delivery on the forecasted terms for a portion of the rolling forecast. Cancellations of orders or
changes to the forecasts provided to any of our contract manufacturers may result in cancellation costs payable by us. In the past, we have been required to take delivery of materials from other suppliers and subcontractors that were in excess of
our requirements and we have previously recognized charges and expenses related to such excess material.



By using contract manufacturers, our ability to directly control the use of all inventory is reduced since we do not have full operating control over
their operations. If we are unable to accurately forecast demand for our contract manufacturers and manage the costs associated with our contract manufacturers, we may be required to pay inventory carrying costs or purchase excess inventory. If we
or our contract manufacturers are unable to utilize such excess inventory in a timely manner, and are unable to sell excess components or products due to their customized nature, our operating results and liquidity would be negatively impacted.



Our reliance on contract manufacturers in Asia exposes us
to additional product transportation risks which can impact the timely delivery of our products.



If we are unable to obtain cargo space or secure delivery of components or products due to labor strikes, lockouts, work slowdowns or work stoppages by
longshoremen, dock workers, truck drivers, airline pilots and other transportation industry workers, our transportation costs could increase due to the utilization of alternative transportation methods or our delivery of products could be adversely
delayed. Any prolonged work slowdowns or future lockouts similar to the one experienced in fiscal 2002 on the West Coast of the United States could cause our transportation costs or transit times to significantly increase due to an increased demand
for air transportation of cargo. In addition, our products built in Asia for export to other countries require air or ocean transport. These transportation costs would escalate if there were a shortage of air or ocean cargo space. Any significant
increase in transportation costs would cause an increase in our expenses and negatively impact our results of operations.



We depend on single sources or limited sources for key components and products, which exposes us to risks related to product shortages or delays, all
of which could increase the cost of our products thereby reducing our operating profits.



A number of the parts used in our products are available from only one or a limited number of outside suppliers due to unique component designs as well as certain quality and performance requirements. To take
advantage of volume pricing discounts, we, along with our contract manufacturers, also purchase certain customized components from single or limited sources. We have experienced, and expect to continue to experience, shortages of single-source and
limited-source components. Shortages have compelled us to adjust our product designs and production schedules and have caused us to miss customer requested delivery dates. If single-source or limited-source components become unavailable in
sufficient quantities in the desired time periods, are discontinued or are available only on unsatisfactory terms, we would be required to purchase comparable components from other sources and retune our products to function with the
replacement components, or we may be required to redesign our products to use other components, either of which could delay production and delivery of our products. If production and delivery of our products are delayed such that we do not meet the
agreed upon delivery dates of our customers, such delays could result in lost revenues due to customer cancellations, as well as potential financial penalties payable to our customers. Any such loss of revenue or financial penalties would have a
material adverse effect on our results of operations.



Our
reliance on single or limited sources for components exposes us to potential product quality issues.



Our reliance on certain single-source and limited-source components and products exposes us and our contract manufacturers to quality control risks if
these suppliers experience a failure in their production process or otherwise fail to meet our quality requirements. A failure in a single-source or limited-source component or product could force us to repair or replace a product utilizing
replacement components. If we cannot obtain comparable replacements or effectively retune or redesign our products, we could lose customer orders or incur additional costs, which would have a material adverse effect on our results of operations.



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The wireless communications infrastructure equipment industry is extremely competitive and is
characterized by rapid technological change, frequent new product development, rapid product obsolescence, evolving industry standards and significant price erosion over the life of a product. If we are unable to compete effectively, our business,
results of operations and financial condition would be adversely affected.



Our products compete on the basis of the following characteristics:



| |  | performance;
| | - | ------------



| |  | functionality;
| | - | --------------



| |  | reliability;
| | - | ------------



| |  | pricing;
| | - | --------



| |  | quality;
| | - | --------



| |  | designs that can be efficiently manufactured in large volumes;
| | - | --------------------------------------------------------------



| |  | time-to-market delivery capabilities; and
| | - | -----------------------------------------



| |  | compliance with industry standards.
| | - | -----------------------------------



If we fail to address the above factors, there could be a material adverse effect on our business, results of operations and financial condition.



Our current competitors include Andrew Corporation, Fujitsu
Limited, Hitachi Kokusai Electric Inc., Japan Radio Co., Ltd., Mitsubishi Electric Corporation and REMEC, Inc., in addition to a number of privately held companies throughout the world, subsidiaries of certain multinational corporations and the
internal radio frequency power amplifier manufacturing operations and radio frequency amplifier design groups of the leading wireless infrastructure manufacturers such as Ericsson, Motorola, Nokia, Nortel and Samsung. Some competitors have adopted
aggressive pricing strategies in an attempt to gain market share which in return has caused us to lower our prices in order to remain competitive. Such pricing actions have had an adverse effect on our financial condition and results of operations.
In addition, some competitors have significantly greater financial, technical, manufacturing, sales, marketing and other resources than we do and have achieved greater name recognition for their products and technologies than we have. If we are
unable to successfully increase our market penetration or our overall share of the radio frequency power amplifier market, our revenues will decline, which would negatively impact our results of operations.



Our failure to enhance our existing products or to develop and introduce
new products that meet changing customer requirements and evolving technological standards could have a negative impact on our ability to sell our products.



To succeed, we must improve current products and develop and introduce new products that are competitive in terms of price, performance and quality.
These products must adequately address the requirements of wireless infrastructure manufacturing customers and end-users. To develop new products, we invest in the research and development of radio frequency power amplifiers for wireless
communications networks. We target our research and development efforts on major wireless network deployments worldwide, which cover a broad range of frequency and transmission protocols. In addition, we are currently working on products for next
generation networks, as well as development projects for products requested by our customers and improvements to our existing products. The deployment of a wireless network may be delayed which could result in the failure of a particular research or
development effort to generate a revenue producing product. Additionally, the new products we develop may not achieve market acceptance or may not be able to be manufactured cost effectively in sufficient volumes. Our research and development
efforts are generally funded internally and our customers do not normally pay for our research and development efforts. These costs are expensed as incurred. Therefore, if our efforts are not successful at creating or improving products that are
purchased by our customers, there will be a negative impact on our operating results due to high research and development expenses.



We may fail to develop products that are sufficiently manufacturable, which could negatively impact our ability to sell our products.



Manufacturing our products is a complex process that requires significant
time and expertise to meet customers specifications. Successful manufacturing is substantially dependent upon the ability to tune these products to meet specifications in an efficient manner. In this regard, we largely depend on our contract
manufacturers staff of trained technicians. If we cannot design our products to minimize the manual tuning process, or if our contract manufacturers lose a number of trained technicians or are unable to attract additional trained technicians,
we may be unable to have our products manufactured in a cost effective manner.



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We may fail to develop products that are of adequate quality and reliability, which could negatively
impact our ability to sell our products.



We have had
quality problems with our products in the past and may have similar problems in the future. We have replaced components in some products in accordance with our product warranties. We believe that our customers will demand that our products meet
increasingly stringent performance and reliability standards. If we cannot keep pace with technological developments, evolving industry standards and new communications protocols, if we fail to adequately improve product quality and meet the quality
standards of our customers, or if our contract manufacturers fail to achieve the quality standards of our customers, we risk losing business which would negatively impact our results of operations. Design problems could also damage relationships
with existing and prospective customers and could limit our ability to market our products to large wireless infrastructure manufacturers, many of which build their own, high quality radio frequency power amplifiers and have stringent quality
control standards.



If we are unable to hire and retain
highly qualified technical and managerial personnel, we may not be able to sustain or grow our business.



Competition for personnel, particularly qualified engineers, is intense. The loss of a significant number of such persons, as well as the failure to
recruit and train additional technical personnel in a timely manner, could have a material adverse effect on our business, results of operations and financial condition. The departure of any of our management and technical personnel, the breach of
their confidentiality and non-disclosure obligations to Powerwave or the failure to achieve our intellectual property objectives may also have a material adverse effect on our business.



We believe that our success depends upon the knowledge and experience of our management and technical personnel and our
ability to market our existing products and to develop new products. Our employees are employed on an at-will basis and do not have non-compete agreements. Therefore, we have had, and may continue to have, employees leave us and go to work for
competitors. The unauthorized use of our proprietary technology and processes by a competitor would diminish or eliminate our competitive or technological advantages and result in reduced revenues.



Our future success is dependent upon our ability to compete globally and
manage our multinational operations and business relationships.



There are many risks that impact our international business and multinational operations, including the following:



| |  | compliance with multiple and potentially conflicting regulations, including export requirements, tariffs, import duties and other trade barriers, as well as health and safety
requirements;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | potential labor strikes, lockouts, work slowdowns and work stoppages at U.S. and international ports;
| | - | -----------------------------------------------------------------------------------------------------



| |  | differences in intellectual property protections;
| | - | -------------------------------------------------



| |  | difficulties in staffing and managing foreign operations;
| | - | ---------------------------------------------------------



| |  | longer accounts receivable collection cycles;
| | - | ---------------------------------------------



| |  | currency fluctuations and resulting losses on currency translations;
| | - | --------------------------------------------------------------------



| |  | terrorists attacks on American companies;
| | - | -----------------------------------------



| |  | economic instability, including inflation and interest rate fluctuations, such as those previously seen in South Korea and Brazil;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| |  | competition for foreign based suppliers;
| | - | ----------------------------------------



| |  | overlapping or differing tax structures;
| | - | ----------------------------------------



| |  | cultural and language differences; and
| | - | --------------------------------------



| |  | political or civil turmoil.
| | - | ---------------------------



For fiscal 2003, 2002, and 2001, international revenues (excluding North American sales) accounted for approximately 46%, 33%, and 41% of our net sales,
respectively. We currently expect that international revenues will continue to account for a significant percentage of our revenues in the foreseeable future. Any failure on our part to effectively manage these multinational business risks would
seriously reduce our competitiveness in the wireless infrastructure marketplace.



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Our proposed exchange offer to acquire all of the outstanding shares of LGP Allgon, as well as other
future acquisitions or strategic alliances may present risks, and we may be unable to achieve the financial and strategic goals intended at the time of any acquisition or strategic alliance.



On November 30, 2003, we agreed to commence an exchange offer to acquire all
of the outstanding shares of LGP Allgon, a company organized under the laws of Sweden. In the past, we have acquired and made investments in other companies, products and technologies and entered into strategic alliances with other companies. In
addition to the proposed acquisition of LGP Allgon, we continually evaluate these types of opportunities. In the future, we may acquire or invest in other companies, products or technologies, or we may enter into joint ventures, mergers or strategic
alliances with other companies. Such transactions, including the proposed acquisition of LGP Allgon, subject us to numerous risks, including the following:



| |  | difficulty integrating the operations, technology and personnel of the acquired company;
| | - | ----------------------------------------------------------------------------------------



| |  | inability to achieve the anticipated financial and strategic benefits of the specific acquisition or strategic alliance;
| | - | ------------------------------------------------------------------------------------------------------------------------



| |  | inability to retain key technical and managerial personnel from the acquired company;
| | - | -------------------------------------------------------------------------------------



| |  | difficulty in maintaining controls, procedures and policies during the transition and integration process;
| | - | ----------------------------------------------------------------------------------------------------------



| |  | diversion of our managements attention from other business concerns;
| | - | ---------------------------------------------------------------------



| |  | difficulty in maintaining our relationships with existing suppliers or customers;
| | - | ---------------------------------------------------------------------------------



| |  | failure of our due diligence process to identify significant issues, including issues with respect to product quality, product architecture, legal and financial contingencies, and
product development; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | significant exit charges if products acquired in business combinations are unsuccessful.
| | - | ----------------------------------------------------------------------------------------



If we are unable to effectively manage these risks as part of our acquisition of LGP Allgon or any other acquisition or
joint venture, our business would be adversely affected.



There are significant risks related to our contract manufacturing operations in Asia.



As part of our strategy to reduce our production costs, we have outsourced the majority of our manufacturing operations to contract manufacturers in
China, Singapore and Thailand. This subjects us to the risks of doing business in these countries. The Chinese legal system is relatively new and lacks transparency, which gives the Chinese central and local government authorities a higher degree of
control over our business in China than is customary in developed economies and makes the process of obtaining necessary regulatory approval in China inherently unpredictable. In addition, the protection accorded our proprietary technology and
know-how under the Chinese and Thai legal systems is not as strong as in the United States and, as a result, we may lose valuable trade secrets and competitive advantage.



Although the Chinese government has been pursuing economic reform and a policy of welcoming foreign investments during the
past two decades, it is possible that the Chinese government will change its current policies in the future, making continued business operations in China difficult or unprofitable. Utilizing contract manufacturers and suppliers throughout the Asia
region exposes our operations to the risk that our proprietary technology and ownership rights may not be protected or enforced to the extent that they may be in the United States.



The initial sales cycle associated with our products is typically lengthy, often lasting from nine to eighteen months,
which could cause delays in forecasted sales and cause us to incur substantial expenses before we record any associated revenues.



Our customers normally conduct significant technical evaluations, trials and qualifications of our products before making purchase commitments. This
qualification process involves a significant investment of time and resources from both our customers and us in order to ensure that our product designs are fully qualified to perform as required. The qualification and evaluation process, as well as
customer field trials, may take longer than initially forecasted, thereby delaying the shipment of sales forecasted for a specific customer for a particular quarter and causing our operating results for the quarter to be less than originally
forecasted. Such a sales shortfall would reduce our profitability and negatively impact our results of operations.



Protection of our intellectual property is limited.



We rely upon trade secrets and patents to protect our intellectual property. We execute confidentiality and non-disclosure agreements with certain
employees and our suppliers, as well as limit access to and distribution of our



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proprietary information. We have an on-going program to identify and file applications for both U.S. and international
patents for various aspects of our technology. We have been granted a total of 28 U.S. patents and 14 foreign patents, and we have filed applications for over 25 additional U.S. patents and over 50 additional foreign patents.



The departure of any of our management and technical personnel, the breach of
their confidentiality and non-disclosure obligations to us, or the failure to achieve our intellectual property objectives could have a material adverse effect on our business, results of operations and financial condition. We do not have
non-compete agreements with our employees who are employed on an at-will basis. Therefore, we have had, and may continue to have, employees leave us and go to work for competitors. If we are not successful in prohibiting the unauthorized use of our
proprietary technology or the use of our processes by a competitor, our competitive advantage may be significantly reduced which would result in reduced revenues.



We are at risk of third-party claims of infringement that could harm our competitive position.



As the number of patents, copyrights and other intellectual property rights
in our industry increases, and as the coverage of these rights and the functionality of the products in the market further overlap, we believe that we may face infringement claims. Such claims, whether or not valid, could result in substantial costs
and diversion of our resources. A third party claiming infringement may also obtain an injunction or other equitable relief, which could effectively block the distribution or sale of allegedly infringing products, which would adversely affect our
customer relationships and negatively impact our revenues.



The communications industry is heavily regulated. We must obtain regulatory approvals to manufacture and sell our products, and our customers must obtain approvals to operate our products. Any failure or delay by us or any of our
customers to obtain such approvals could negatively impact our ability to sell our products.



Various governmental agencies have adopted regulations that impose stringent radio frequency emissions standards on the communications industry. Future
regulations may require that we alter the manner in which radio signals are transmitted or otherwise alter the equipment transmitting such signals. The enactment by governments of new laws or regulations or a change in the interpretation of existing
regulations could negatively impact the market for our products.



The increasing demand for wireless communications has exerted pressure on regulatory bodies worldwide to adopt new standards for such products, generally following extensive investigation and deliberation over competing technologies. The
delays inherent in this type of governmental approval process have caused, and may continue to cause, the cancellation, postponement or rescheduling of the installation of communications systems by our customers. These types of unanticipated delays
would result in delayed or cancelled customer orders.



Our
Common Stock price has been, and may continue to be, volatile and our shareholders may not be able to resell shares of our stock at or above the price paid for such shares.



The price for shares of our Common Stock has exhibited high levels of volatility with significant volume and price
fluctuations, which makes our Common Stock unsuitable for many investors. For example, for the two years ended December 28, 2003, the price of our Common Stock ranged from a high of $20.77 to a low of $2.62. The fluctuations in the price of our
Common Stock have occasionally been unrelated to our operating performance. These broad fluctuations may negatively impact the market price of shares of our Common Stock. The price of our Common Stock has also been influenced by:



| |  | fluctuations in our results of operations or the operations of our competitors or customers;
| | - | --------------------------------------------------------------------------------------------



| |  | failure of our results of operations to meet the expectations of stock market analysts and investors;
| | - | -----------------------------------------------------------------------------------------------------



| |  | reductions in wireless infrastructure demand or expectations of future wireless infrastructure demand by our customers;
| | - | -----------------------------------------------------------------------------------------------------------------------



| |  | delays or postponement of wireless infrastructure deployments, including new 3G deployments;
| | - | --------------------------------------------------------------------------------------------



| |  | changes in stock market analyst recommendations regarding us, our competitors or our customers;
| | - | -----------------------------------------------------------------------------------------------



| |  | the timing and announcements of technological innovations, new products or financial results by us or our competitors; and
| | - | --------------------------------------------------------------------------------------------------------------------------



| |  | changes in the wireless industry.
| | - | ---------------------------------



Based on the above, we expect that our stock price will continue to be extremely volatile. Therefore, we cannot guarantee that our investors will be able
to resell their Powerwave shares at or above their acquisition price.



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Our shareholder rights plan and charter documents could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our shareholders.



Our shareholder rights plan and certain provisions of our certificate of incorporation and Delaware law are intended to encourage potential acquirers to negotiate with us and allow our Board of Directors the
opportunity to consider alternative proposals in the interest of maximizing shareholder value. However, such provisions may also discourage acquisition proposals or delay or prevent a change in control, which in turn, could harm our stock price and
our shareholders.



We may need additional capital in the future
and such additional financing may not be available at favorable terms.



We may need to raise additional funds through public or private debt or equity financings in order to:



| |  | take advantage of opportunities, including more rapid international expansion or acquisitions of complementary businesses or technologies;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| |  | develop new products or services;
| | - | ---------------------------------



| |  | repay outstanding indebtedness; or
| | - | ----------------------------------



| |  | respond to unanticipated competitive pressures.
| | - | -----------------------------------------------



Our ability to secure additional financing or sources of funding is dependent upon numerous factors, including the current outlook of our business, our
credit rating and the market price of our common stock, all of which are directly impacted by our ability to increase revenues and generate profits. Our ability to increase revenues and generate profits is subject to numerous risks and uncertainties
and any significant decrease in our revenues or profitability could reduce our operating cash flows and erode our existing cash balances. If we are unable to secure additional financing or such financing is not available at acceptable terms, we may
not be able to take advantage of such opportunities, or otherwise respond to unanticipated competitive pressures.



Insurance costs continue to rise and coverages are becoming increasingly restrictive due to worldwide terrorist activity and accounting irregularities.
It is becoming progressively difficult to secure adequate policy limits to manage risk in a cost effective manner.



We purchase insurance to cover a wide variety of potential risks and liabilities. In the current worldwide insurance market, premiums are rising rapidly
while coverage is becoming increasingly restrictive. Our total cost of insurance increased by more than 47% during fiscal 2003 and is expected to further increase in fiscal 2004. It is also possible that certain coverages may no longer be available
or may only be available at prices that are prohibitively expensive. If we are unable to maintain our insurance coverages at their historical levels and at a reasonable cost, or if we are forced to bear an increased portion of the risks that we have
traditionally insured, our results of operations and financial condition could be adversely affected due to increased insurance costs and potential losses arising from reduced coverages.



Our business is subject to the risks of earthquakes and other natural catastrophic events, and to interruptions by man
made problems such as computer viruses or terrorism.



Our
corporate headquarters and our in-house manufacturing facilities, as well as the majority of our research and development operations, are located in the State of California in regions known for seismic activity. In addition, we have outsourced a
majority of our manufacturing to contract manufacturers in Asia, another region known for seismic activity. A significant natural disaster, such as an earthquake in either of these regions, could have a material adverse effect on our business,
operating results and financial condition. In addition, despite our implementation of network security measures, our servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer
systems. Any such event could have a material adverse effect on our business.



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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Our financial instruments include cash and cash equivalents and long-term debt. At December 28, 2003, the carrying values of our financial instruments
approximated their fair values based upon current market prices and rates.



We are exposed to a number of market risks in the ordinary course of business. These risks, which include foreign currency risk, interest rate risk and commodity price risk, arise in the normal course of business
rather than from trading. We have examined our exposures to these risks and have concluded that none of our exposures in these areas are material to fair values, cash flows or earnings. We regularly review these risks to determine if we should enter
into active strategies such as hedging to help manage our expenses. However, at the present time, we do not believe such active strategies are necessary and, therefore, do not have any hedging programs in place and are not trading in any financial
or derivative instruments.



Foreign Currency Risk



Our international sales expose us to foreign currency risk in the ordinary
course of our business. Currently, we do not enter into derivative financial instruments. Aside from the net operating costs of our foreign operations in France, Finland, Singapore and the United Kingdom, initial direct network operator sales in
Europe and our local revenues and operating costs of our foreign operations in China, we have not to date been required to transact any significant portion of our business in foreign currencies. As a result, we do not have any significant direct
foreign currency exposure at December 28, 2003. However, we currently anticipate that a greater percentage of our sales will be made in foreign currencies as we begin selling additional products to certain customers in their local foreign currency
during fiscal 2004. This, in turn, will increase our direct foreign currency exposure in the future. See Disclosure About Foreign Currency Risk under Item 7, Managements Discussion and Analysis of Financial Condition and
Results of Operations included herein.



Interest Rate Risk



As of December 28, 2003, we had $130.0 million of
convertible subordinated notes due July 2008 at a fixed annual interest rate of 1.25%. We also have a short-term investment portfolio of approximately $255.0 million with maturities of three months or less. These cash equivalents exposed us to
interest rate risk as short-term investment rates remained at historical lows during fiscal 2003. Given the short-term maturities and high-grade investment quality of our investment portfolio, we believe that we are not subject to material
fluctuations in principal and the effective interest rate of our portfolio tracks closely to various short-term money market interest rate benchmarks.



Commodity Price Risk



Our contract manufacturers require significant quantities of radio frequency transistors, semiconductors and various metals for use in the manufacture of
our products. Therefore, we are exposed to certain commodity price risk associated with variations in the market prices for these electronic components as these prices directly impact the price we pay our contract manufacturers to manufacture our
products. We attempt to manage this risk by entering into supply agreements with our contract manufacturers and various suppliers of these components. These supply agreements are not long-term supply agreements. If we or our contract manufacturers
become subject to a significant increase in the price of one of these components, we would likely be forced to pay such higher prices and we may be unable to pass such costs onto our customers. In addition, certain transistors and semiconductors are
regularly revised or changed by their manufacturers, which may result in a requirement for us to redesign a product that utilizes such components or cease to produce such products. In such events, our business, results of operations and financial
condition could be adversely affected. Additionally, we require specialized electronic test equipment, which is utilized in both the design and manufacture of our products. Such electronic test equipment is available from limited sources and may not
be available in the time periods required for us to meet our customers demand. If required, we may be forced to pay higher prices for such equipment and/or we may not be able to obtain the equipment in the time periods required, which would
then delay our development or production of new products. Such delays and any potential additional costs could have a material adverse effect on our business, results of operations and financial condition.



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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Index to Financial Statements/Schedule:



|                                                    |  |   
|--------------------------------------------------- |  | --
|Consolidated Financial Statements                   |  |   
|Independent Auditors Report                        |  | 40
|Consolidated Balance Sheets                         |  | 41
|Consolidated Statements of Operations               |  | 42
|Consolidated Statements of Comprehensive Operations |  | 43
|Consolidated Statements of Shareholders Equity     |  | 44
|Consolidated Statements of Cash Flows               |  | 45
|Notes to Consolidated Financial Statements          |  | 47
|Quarterly Financial Data (Unaudited)                |  | 65
|                                                    | 
|Financial Statements Schedule                       |  |   
|Schedule II  Valuation and Qualifying Accounts     |  | 84



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INDEPENDENT AUDITORS REPORT



To the Board of
Directors and Shareholders of Powerwave Technologies, Inc.:



We have audited the accompanying consolidated balance sheets of Powerwave Technologies, Inc. and subsidiaries (the Company) as of December 28, 2003 and December 29, 2002, and the related consolidated statements of operations, comprehensive
operations, shareholders equity and cash flows for each of the three years in the period ended December 28, 2003. Our audits also included the financial statement schedule listed in Item 8. These financial statements and the financial
statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.



We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Powerwave Technologies, Inc. and subsidiaries as of December 28, 2003 and December 29, 2002,
and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for goodwill and other intangible assets during 2002 in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.



/s/    DELOITTE & TOUCHE LLP



Costa Mesa, California

February 12, 2004



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POWERWAVE TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



|                                                                                                                                                                                    |  |                   |         |   |                  |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | -------
|                                                                                                                                                                                    |  | December 28, 2003 |         |   | December 29,2002
|ASSETS                                                                                                                                                                              |  |                   |         |   |                  |   |        
|Current assets:                                                                                                                                                                     |  |                   |         |   |                  |   |        
|Cash and cash equivalents                                                                                                                                                           |  | $                 | 260,528 |   |                  | $ | 162,529
|Accounts receivable, net of allowance for sales returns and doubtful accounts of $2,332 and $2,505 at December 28, 2003 and December 29, 2002,
respectively                         |  |                   | 56,278  |   |                  |   | 53,264 
|Inventories                                                                                                                                                                         |  |                   | 15,187  |   |                  |   | 29,921 
|Prepaid expenses and other current assets                                                                                                                                           |  |                   | 6,413   |   |                  |   | 9,288  
|Deferred tax assets                                                                                                                                                                 |  |                   | 6,940   |   |                  |   | 6,931  
|                                                                                                                                                                                    |  |                   |         |   |                  |   |        
|Total current assets                                                                                                                                                                |  |                   | 345,346 |   |                  |   | 261,933
|                                                                                                                                                                                    |  |                  
|Property, plant and equipment, net                                                                                                                                                  |  |                   | 67,975  |   |                  |   | 84,822 
|Goodwill                                                                                                                                                                            |  |                   | 3,439   |   |                  |   | 4,852  
|Deferred tax assets                                                                                                                                                                 |  |                   | 35,990  |   |                  |   | 14,922 
|Other non-current assets                                                                                                                                                            |  |                   | 13,507  |   |                  |   | 2,644  
|                                                                                                                                                                                    |  |                   |         |   |                  |   |        
|TOTAL ASSETS                                                                                                                                                                        |  | $                 | 466,257 |   |                  | $ | 369,173
|                                                                                                                                                                                    |  |                   |         |   |                  |   |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                |  |                   |         |   |                  |   |        
|Current liabilities:                                                                                                                                                                |  |                   |         |   |                  |   |        
|Accounts payable                                                                                                                                                                    |  | $                 | 48,942  |   |                  | $ | 26,842 
|Accrued expenses and other current liabilities                                                                                                                                      |  |                   | 16,159  |   |                  |   | 16,587 
|                                                                                                                                                                                    |  |                   |         |   |                  |   |        
|Total current liabilities                                                                                                                                                           |  |                   | 65,101  |   |                  |   | 43,429 
|Long-term debt                                                                                                                                                                      |  |                   | 130,000 |   |                  |   |       
|Other non-current liabilities                                                                                                                                                       |  |                   | 119     |   |                  |   | 83     
|                                                                                                                                                                                    |  |                   |         |   |                  |   |        
|Total liabilities                                                                                                                                                                   |  |                   | 195,220 |   |                  |   | 43,512 
|                                                                                                                                                                                    |  |                   |         |   |                  |   |        
|Commitments and contingencies (Note 13)                                                                                                                                             |  |                   |        |   |                  |   |       
|                                                                                                                                                                                    |  |                  
|Shareholders equity:                                                                                                                                                               |  |                   |         |   |                  |   |        
|Preferred stock, $0.0001 par value, 5,000 shares authorized and no shares issued or outstanding                                                                                     |  |                   |        |   |                  |   |       
|Common Stock, $0.0001 par value, 135,000 shares authorized, 63,257 shares issued and outstanding at December 28, 2003 and 65,707 shares issued
and outstanding at December 29, 2002 |  |                   | 225,651 |   |                  |   | 247,415
|Accumulated other comprehensive loss                                                                                                                                                |  |                   | (1      | ) |                  |   |       
|Retained earnings                                                                                                                                                                   |  |                   | 45,387  |   |                  |   | 78,246 
|                                                                                                                                                                                    |  |                   |         |   |                  |   |        
|Total shareholders equity                                                                                                                                                          |  |                   | 271,037 |   |                  |   | 325,661
|                                                                                                                                                                                    |  |                   |         |   |                  |   |        
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                          |  | $                 | 466,257 |   |                  | $ | 369,173
|                                                                                                                                                                                    |  |                   |         |   |                  |   |        



The accompanying notes
are an integral part of these consolidated financial statements.



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POWERWAVE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                          |  |                    |         |   |                  |   |                  |  |   |         |  
|----------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ---------------- |  | - | ------- | -
|                                          |  | Fiscal Years Ended |        
|                                          |  | December 28,2003   |         |   | December 29,2002 |   | December 30,2001 | 
|Net sales                                 |  | $                  | 239,069 |   |                  | $ | 384,889          |  | $ | 300,293 |  
|                                          |  |                    |        
|Cost of sales                             |  |                    | 222,854 |   |                  |   | 322,107          |  |   | 270,507 |  
|                                          |  |                    |         |   |                  |   |                  |  |   |         |  
|Gross profit                              |  |                    | 16,215  |   |                  |   | 62,782           |  |   | 29,786  |  
|                                          |  |                    |        
|Operating expenses:                       |  |                    |         |   |                  |   |                  |  |   |         |  
|Sales and marketing                       |  |                    | 11,557  |   |                  |   | 11,384           |  |   | 13,733  |  
|Research and development                  |  |                    | 38,928  |   |                  |   | 33,087           |  |   | 34,750  |  
|General and administrative                |  |                    | 13,946  |   |                  |   | 14,401           |  |   | 15,973  |  
|Restructuring and impairment charges      |  |                    | 7,608   |   |                  |   |                 |  |   | 2,945   |  
|                                          |  |                    |         |   |                  |   |                  |  |   |         |  
|Total operating expenses                  |  |                    | 72,039  |   |                  |   | 58,872           |  |   | 67,401  |  
|                                          |  |                    |         |   |                  |   |                  |  |   |         |  
|Operating income (loss)                   |  |                    | (55,824 | ) |                  |   | 3,910            |  |   | (37,615 | )
|                                          |  |                    |        
|Other income, net                         |  |                    | 2,394   |   |                  |   | 1,963            |  |   | 5,565   |  
|                                          |  |                    |         |   |                  |   |                  |  |   |         |  
|Income (loss) before income taxes         |  |                    | (53,430 | ) |                  |   | 5,873            |  |   | (32,050 | )
|                                          |  |                    |        
|Provision for (benefit from) income taxes |  |                    | (20,571 | ) |                  |   | 1,762            |  |   | (11,538 | )
|                                          |  |                    |         |   |                  |   |                  |  |   |         |  
|Net income (loss)                         |  | $                  | (32,859 | ) |                  | $ | 4,111            |  | $ | (20,512 | )
|                                          |  |                    |         |   |                  |   |                  |  |   |         |  
|Basic earnings (loss) per share           |  | $                  | (0.51   | ) |                  | $ | 0.06             |  | $ | (0.33   | )
|                                          |  |                    |         |   |                  |   |                  |  |   |         |  
|Diluted earnings (loss) per share         |  | $                  | (0.51   | ) |                  | $ | 0.06             |  | $ | (0.33   | )
|                                          |  |                    |         |   |                  |   |                  |  |   |         |  
|Basic weighted average common shares      |  |                    | 64,667  |   |                  |   | 65,485           |  |   | 64,197  |  
|                                          |  |                    |         |   |                  |   |                  |  |   |         |  
|Diluted weighted average common shares    |  |                    | 64,667  |   |                  |   | 66,230           |  |   | 64,197  |  
|                                          |  |                    |         |   |                  |   |                  |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



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POWERWAVE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(in thousands)



|                                                                      |  |                    |         |   |                  |   |                  |  |   |         |  
|--------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ---------------- |  | - | ------- | -
|                                                                      |  | Fiscal Years Ended |        
|                                                                      |  | December 28,2003   |         |   | December 29,2002 |   | December 30,2001 | 
|Net income (loss)                                                     |  | $                  | (32,859 | ) |                  | $ | 4,111            |  | $ | (20,512 | )
|Other comprehensive loss, net of tax:                                 |  |                    |         |   |                  |   |                  |  |   |         |  
|Reclass of unrealized gains for amounts included in net income (loss) |  |                    |        |   |                  |   |                 |  |   | (276    | )
|Foreign currency translation adjustments                              |  |                    | (1      | ) |                  |   |                 |  |   |        |  
|                                                                      |  |                    |         |   |                  |   |                  |  |   |         |  
|Comprehensive income (loss)                                           |  | $                  | (32,860 | ) |                  | $ | 4,111            |  | $ | (20,788 | )
|                                                                      |  |                    |         |   |                  |   |                  |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



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POWERWAVE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(in thousands)



|                                                                                           |  |              |   |  |                                             |         |   |                   |   |      |                           |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------ | - |  | ------------------------------------------- | ------- | - | ----------------- | - | ---- | ------------------------- |  | - | ------- | - |  | - | ------- | -
|                                                                                           |  | Common Stock |   |  | AccumulatedOtherComprehensive Income (Loss) |         |   | Retained Earnings |   |      | TotalShareholders Equity | 
|                                                                                           |  | Shares       |   |  | Amount                                      |         |   |                   |  
|Balance at December 31, 2000                                                               |  | 63,509       |   |  | $                                           | 221,349 |   |                   | $ | 276  |                           |  | $ | 94,647  |   |  | $ | 316,272 |  
|Issuance of Common Stock related to the exercise of stock options                          |  | 1,177        |   |  |                                             | 6,605   |   |                   |   |     |                           |  |   |        |   |  |   | 6,605   |  
|Tax benefit related to stock option exercises                                              |  |             |   |  |                                             | 6,536   |   |                   |   |     |                           |  |   |        |   |  |   | 6,536   |  
|Compensation expense related to stock option grants                                        |  |             |   |  |                                             | 59      |   |                   |   |     |                           |  |   |        |   |  |   | 59      |  
|Issuance of Common Stock related to the Employee Stock Purchase Plan                       |  | 145          |   |  |                                             | 2,857   |   |                   |   |     |                           |  |   |        |   |  |   | 2,857   |  
|Tax benefit related to the sale of shares purchased under the Employee Stock Purchase Plan |  |             |   |  |                                             | 146     |   |                   |   |     |                           |  |   |        |   |  |   | 146     |  
|Issuance of Common Stock, net                                                              |  | 250          |   |  |                                             | 4,548   |   |                   |   |     |                           |  |   |        |   |  |   | 4,548   |  
|Net loss                                                                                   |  |             |   |  |                                             |        |   |                   |   |     |                           |  |   | (20,512 | ) |  |   | (20,512 | )
|Reclassification of unrealized gains for amounts included in net income                    |  |             |   |  |                                             |        |   |                   |   | (276 | )                         |  |   |        |   |  |   | (276    | )
|                                                                                           |  |              |   |  |                                             |         |   |                   |   |      |                           |  |   |         |   |  |   |         |  
|Balance at December 30, 2001                                                               |  | 65,081       |   |  | $                                           | 242,100 |   |                   | $ |     |                           |  | $ | 74,135  |   |  | $ | 316,235 |  
|Issuance of Common Stock related to the exercise of stock options                          |  | 402          |   |  |                                             | 2,024   |   |                   |   |     |                           |  |   |        |   |  |   | 2,024   |  
|Tax benefit related to stock option exercises                                              |  |             |   |  |                                             | 1,222   |   |                   |   |     |                           |  |   |        |   |  |   | 1,222   |  
|Compensation expense related to stock option grants                                        |  |             |   |  |                                             | 59      |   |                   |   |     |                           |  |   |        |   |  |   | 59      |  
|Issuance of Common Stock related to the Employee Stock Purchase Plan                       |  | 224          |   |  |                                             | 1,941   |   |                   |   |     |                           |  |   |        |   |  |   | 1,941   |  
|Tax benefit related to the sale of shares purchased under the Employee Stock Purchase Plan |  |             |   |  |                                             | 69      |   |                   |   |     |                           |  |   |        |   |  |   | 69      |  
|Net income                                                                                 |  |             |   |  |                                             |        |   |                   |   |     |                           |  |   | 4,111   |   |  |   | 4,111   |  
|                                                                                           |  |              |   |  |                                             |         |   |                   |   |      |                           |  |   |         |   |  |   |         |  
|Balance at December 29, 2002                                                               |  | 65,707       |   |  | $                                           | 247,415 |   |                   | $ |     |                           |  | $ | 78,246  |   |  | $ | 325,661 |  
|Issuance of Common Stock related to the exercise of stock options                          |  | 265          |   |  |                                             | 1,120   |   |                   |   |     |                           |  |   |        |   |  |   | 1,120   |  
|Tax benefit related to stock option exercises                                              |  |             |   |  |                                             | 370     |   |                   |   |     |                           |  |   |        |   |  |   | 370     |  
|Compensation expense related to stock option grants                                        |  |             |   |  |                                             | 38      |   |                   |   |     |                           |  |   |        |   |  |   | 38      |  
|Issuance of Common Stock related to the Employee Stock Purchase Plan                       |  | 430          |   |  |                                             | 1,505   |   |                   |   |     |                           |  |   |        |   |  |   | 1,505   |  
|Tax benefit related to the sale of shares purchased under the Employee Stock Purchase Plan |  |             |   |  |                                             | 203     |   |                   |   |     |                           |  |   |        |   |  |   | 203     |  
|Stock repurchases                                                                          |  | (3,145       | ) |  |                                             | (25,000 | ) |                   |   |     |                           |  |   |        |   |  |   | (25,000 | )
|Foreign currency translation adjustments                                                   |  |             |   |  |                                             |        |   |                   |   | (1   | )                         |  |   |        |   |  |   | (1      | )
|Net loss                                                                                   |  |             |   |  |                                             |        |   |                   |   |     |                           |  |   | (32,859 | ) |  |   | (32,859 | )
|                                                                                           |  |              |   |  |                                             |         |   |                   |   |      |                           |  |   |         |   |  |   |         |  
|Balance at December 28, 2003                                                               |  | 63,257       |   |  | $                                           | 225,651 |   |                   | $ | (1   | )                         |  | $ | 45,387  |   |  | $ | 271,037 |  
|                                                                                           |  |              |   |  |                                             |         |   |                   |   |      |                           |  |   |         |   |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



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POWERWAVE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                         |  |                    |         |   |                  |   |         |                  |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ---------------- |  | - | ------- | -
|                                                                                         |  | Fiscal Years Ended |        
|                                                                                         |  | December 28,2003   |         |   | December 29,2002 |   |         | December 30,2001 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                    |         |   |                  |   |         |                  |  |   |         |  
|Net income (loss)                                                                        |  | $                  | (32,859 | ) |                  | $ | 4,111   |                  |  | $ | (20,512 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                    |         |   |                  |   |         |                  |  |   |         |  
|Depreciation and amortization                                                            |  |                    | 19,214  |   |                  |   | 22,053  |                  |  |   | 25,922  |  
|Non-cash restructuring and impairment charges                                            |  |                    | 10,909  |   |                  |   |        |                  |  |   | 6,547   |  
|Provision for sales returns and doubtful accounts                                        |  |                    | 2,004   |   |                  |   | 3,967   |                  |  |   | 1,988   |  
|Provision for excess and obsolete inventories                                            |  |                    | 3,308   |   |                  |   | 5,797   |                  |  |   | 8,828   |  
|Deferred income taxes                                                                    |  |                    | (20,503 | ) |                  |   | 11,339  |                  |  |   | (11,240 | )
|Compensation costs related to stock options                                              |  |                    | 38      |   |                  |   | 59      |                  |  |   | 59      |  
|Loss (gain) on disposal of property, plant and equipment                                 |  |                    | (24     | ) |                  |   | 770     |                  |  |   | 267     |  
|Gain on sale of available-for-sale securities                                            |  |                    |        |   |                  |   |        |                  |  |   | (568    | )
|Changes in operating assets and liabilities, net of acquisitions:                        |  |                    |         |   |                  |   |         |                  |  |   |         |  
|Accounts receivable                                                                      |  |                    | (5,019  | ) |                  |   | 2,502   |                  |  |   | 18,426  |  
|Inventories                                                                              |  |                    | 10,724  |   |                  |   | (2,193  | )                |  |   | 8,922   |  
|Prepaid expenses and other current assets                                                |  |                    | 624     |   |                  |   | (3,693  | )                |  |   | (587    | )
|Accounts payable                                                                         |  |                    | 22,099  |   |                  |   | 4,150   |                  |  |   | (28,525 | )
|Accrued expenses and other current liabilities                                           |  |                    | (70     | ) |                  |   | (6,616  | )                |  |   | (3,093  | )
|Other non-current assets                                                                 |  |                    | (3,574  | ) |                  |   | (2,185  | )                |  |   | 6       |  
|Other non-current liabilities                                                            |  |                    | 35      |   |                  |   | 15      |                  |  |   | (168    | )
|                                                                                         |  |                    |         |   |                  |   |         |                  |  |   |         |  
|Net cash provided by operating activities                                                |  |                    | 6,906   |   |                  |   | 40,076  |                  |  |   | 6,272   |  
|                                                                                         |  |                    |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                    |         |   |                  |   |         |                  |  |   |         |  
|Purchase of property, plant and equipment                                                |  |                    | (3,903  | ) |                  |   | (5,062  | )                |  |   | (21,608 | )
|Proceeds from the sale of property, plant and equipment                                  |  |                    | 1,515   |   |                  |   | 1,198   |                  |  |   | 4       |  
|Proceeds from sale of available-for-sale securities                                      |  |                    |        |   |                  |   |        |                  |  |   | 568     |  
|Payment received on notes receivable                                                     |  |                    |        |   |                  |   |        |                  |  |   | 26      |  
|Acquisition, net of cash acquired                                                        |  |                    | (9,934  | ) |                  |   |        |                  |  |   | (68     | )
|                                                                                         |  |                    |         |   |                  |   |         |                  |  |   |         |  
|Net cash used in investing activities                                                    |  |                    | (12,322 | ) |                  |   | (3,864  | )                |  |   | (21,078 | )
|CASH FLOW FROM FINANCING ACTIVITIES:                                                     |  |                    |         |   |                  |   |         |                  |  |   |         |  
|Proceeds from long-term debt, net of issuance costs                                      |  |                    | 125,869 |   |                  |   |        |                  |  |   |        |  
|Principal payments on long-term debt                                                     |  |                    | (79     | ) |                  |   | (819    | )                |  |   | (218    | )
|Common stock repurchases                                                                 |  |                    | (25,000 | ) |                  |   |        |                  |  |   |        |  
|Proceeds from the sale of stock under Employee Stock Purchase Plan                       |  |                    | 1,505   |   |                  |   | 1,941   |                  |  |   | 2,857   |  
|Proceeds from exercise of stock options                                                  |  |                    | 1,120   |   |                  |   | 2,024   |                  |  |   | 6,605   |  
|                                                                                         |  |                    |         |   |                  |   |         |                  |  |   |         |  
|Net cash provided by financing activities                                                |  |                    | 103,415 |   |                  |   | 3,146   |                  |  |   | 9,244   |  
|                                                                                         |  |                    |         |   |                  |   |         |                  |  |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |  |                    | 97,999  |   |                  |   | 39,358  |                  |  |   | (5,562  | )
|CASH AND CASH EQUIVALENTS, beginning of period                                           |  |                    | 162,529 |   |                  |   | 123,171 |                  |  |   | 128,733 |  
|                                                                                         |  |                    |         |   |                  |   |         |                  |  |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                                 |  | $                  | 260,528 |   |                  | $ | 162,529 |                  |  | $ | 123,171 |  
|                                                                                         |  |                    |         |   |                  |   |         |                  |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



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POWERWAVE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(in thousands)



|                                                                                            |  |                    |        |   |                  |   |        |                  |  |   |       |  
|------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ---------------- | - | ------ | ---------------- |  | - | ----- | -
|                                                                                            |  | Fiscal Years Ended |       
|                                                                                            |  | December 28,2003   |        |   | December 29,2002 |   |        | December 30,2001 | 
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                         |  |                    |        |   |                  |   |        |                  |  |   |       |  
|Cash paid (received) for:                                                                   |  |                    |        |   |                  |   |        |                  |  |   |       |  
|Interest expense                                                                            |  | $                  | 46     |   |                  | $ | 81     |                  |  | $ | 82    |  
|                                                                                            |  |                    |        |   |                  |   |        |                  |  |   |       |  
|Income taxes                                                                                |  | $                  | (160   | ) |                  | $ | (9,662 | )                |  | $ | 400   |  
|                                                                                            |  |                    |        |   |                  |   |        |                  |  |   |       |  
|NON-CASH ITEMS:                                                                             |  |                    |        |   |                  |   |        |                  |  |   |       |  
|Acquisition of property and equipment through capital lease                                 |  | $                  |       |   |                  | $ |       |                  |  | $ | 128   |  
|                                                                                            |  |                    |        |   |                  |   |        |                  |  |   |       |  
|Tax benefit related to stock options exercised                                              |  | $                  | 370    |   |                  | $ | 1,222  |                  |  | $ | 6,536 |  
|                                                                                            |  |                    |        |   |                  |   |        |                  |  |   |       |  
|Tax benefit related to the issuance of Common Stock under the Employee Stock Purchase Plan  |  | $                  | 203    |   |                  | $ | 69     |                  |  | $ | 146   |  
|                                                                                            |  |                    |        |   |                  |   |        |                  |  |   |       |  
|Reclassification of unrealized gains for amounts included in net income, net of tax of $192 |  | $                  |       |   |                  | $ |       |                  |  | $ | 276   |  
|                                                                                            |  |                    |        |   |                  |   |        |                  |  |   |       |  
|                                                                                            |  |                    |       
|In conjunction with its acquisitions, the Company assumed liabilities as follows:           |  |                    |        |   |                  |   |        |                  |  |   |       |  
|                                                                                            |  |                    |       
|Fair value of assets acquired                                                               |  | $                  | 10,359 |   |                  | $ |       |                  |  | $ | 5,324 |  
|Cash paid, net of cash acquired                                                             |  |                    | (9,934 | ) |                  |   |       |                  |  |   | (68   | )
|                                                                                            |  |                    |        |   |                  |   |        |                  |  |   |       |  
|Liabilities assumed                                                                         |  | $                  | 425    |   |                  | $ |       |                  |  | $ | 5,256 |  
|                                                                                            |  |                    |        |   |                  |   |        |                  |  |   |       |  



The accompanying notes
are an integral part of these consolidated financial statements.



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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts in thousands, except per share data)



Note 1. Nature of Operations



Powerwave Technologies, Inc. (Powerwave or the Company) is a Delaware corporation engaged in the design, manufacture and marketing
of radio frequency power amplifiers and related equipment for use in the wireless communications market. The Company sells both single and multi-carrier radio frequency power amplifiers for a variety of frequency ranges and a wide range of digital
and analog transmission protocols. The Companys products are currently being utilized in cellular, PCS and 3G base stations throughout the world.



Note 2. Summary of Significant Accounting Policies



Basis of Presentation



The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and
include the accounts of Powerwave Technologies, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements.



Reclassifications



Certain prior period amounts have been reclassified to conform to the
current period presentation.



Fiscal Year



The Company operates on a 52-53 week fiscal year that ends on the Sunday
closest to December 31. The Companys fiscal quarters generally span 13 weeks, with the exception of a 53-week fiscal year, when an additional week is added to adjust the year to the Sunday closest to December 31. During such years, the
additional week is added to the first quarter of such year. Fiscal year 2001 ended on December 30, 2001, fiscal year 2002 ended on December 29, 2002, and fiscal 2003 ended on December 28, 2003. Fiscal year 2004, as 53-week fiscal year, will end on
January 2, 2005 and fiscal year 2005 will end on January 1, 2006.



New Accounting Pronouncements



In June 2002,
the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which addresses financial
accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity(including Certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability
for an exit cost as defined in EITF Issue 94-3 was recognized at the date of an entitys commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. The Company adopted the
provisions of SFAS 146 effective January 1, 2003 and such adoption did not have a material impact on the consolidated financial statements. All restructuring charges recognized during the year ended December 28, 2003 have been recorded in accordance
with the requirements of SFAS 146.



In November 2002, the FASB
issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others(FIN 45). FIN 45 elaborates on the disclosures to be made by the
guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The Company adopted the disclosure provisions of FIN 45 during the fourth quarter of fiscal 2002 and the recognition provisions of FIN 45 effective January 1, 2003. Such adoption did not have a
material impact on the consolidated financial statements.



In
December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure(SFAS 148). SFAS 148 amends Statement No. 123, Accounting for
Stock-Based Compensation(SFAS 123), to provide alternative methods for voluntary transition to



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the fair value method of accounting for stock-based employee compensation prescribed by SFAS 123. SFAS 148 also requires
disclosure of the effects of an entitys accounting policy with respect to stock-based employee compensation on reported net income (loss) and earnings (loss) per share in annual and interim financials statements. The Company adopted the
disclosure provisions of SFAS 148 effective December 30, 2002 and has included the additional required disclosures below under Stock-Based Compensation. Such adoption did not have a material impact on the consolidated financial
statements.



In January 2003, FASB issued Interpretation No.
46, Consolidation of Variable Interest Entities(FIN 46). In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of
the entity if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.
The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The Company adopted the provisions of FIN 46 effective February 1, 2003 and such adoption did not have a material impact on its
consolidated financial statements since it currently has no variable interest entities. In December 2003, the FASB issued FIN 46R with respect to variable interest entities created before January 31, 2003, which among other things, revised the
implementation date to the first fiscal year or interim period ending after March 15, 2004, with the exception of Special Purpose Entities (SPE). The consolidation requirements apply to all SPEs in the first fiscal year or interim period
ending after December 15, 2003. The Company adopted the provisions of FIN 46R effective December 29, 2003 and such adoption did not have a material impact on its consolidated financial statements since it currently has no SPEs.



In April 2003, FASB issued Statement of Financial Accounting Standards No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities(SFAS 149). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. SFAS 149 is effective for contracts and hedging relationships entered into or modified after June 30, 2003. The Company adopted the provisions of SFAS 149 effective June 30, 2003 and such
adoption did not have a material impact on its consolidated financial statements since the Company has not entered into any derivative or hedging transactions.



In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both debt and equity and requires an issuer to classify the
following instruments as liabilities in its balance sheet:



| |  | a financial instrument issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its
assets at a specified or determinable date or upon an event that is certain to occur;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a financial instrument, other than an outstanding share, that embodies an obligation to repurchase the issuers equity shares, or is indexed to such an obligation, and requires
the issuer to settle the obligation by transferring assets; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a financial instrument that embodies an unconditional obligation that the issuer must settle by issuing a variable number of its equity shares if the monetary value of the
obligation is based solely or predominantly on (1) a fixed monetary amount, (2) variations in something other than the fair value of the issuers equity shares, or (3) variations inversely related to changes in the fair value of the
issuers equity shares.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In November 2003,
FASB issued FASB Staff Position No. 150-3 (FSS 150-3) which deferred the effective dates for applying certain provisions of SFAS 150 related to mandatorily redeemable financial instruments of certain non-public entities and certain
mandatorily redeemable non-controlling interests for public and non-public companies. For public entities, SFAS 150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effective for all
other financial instruments as of the first interim period beginning after June 15, 2003. For mandatorily redeemable non-controlling interests that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of
SFAS 150, but would be classified as liabilities by the parent, the classification and measurement provisions of SFAS 150 are deferred indefinitely. The measurement provisions of SFAS 150 are also deferred indefinitely for other mandatorily
redeemable non-controlling interests that were issued before November 4, 2003. For those instruments, the measurement guidance for redeemable shares and non-controlling interests in other literature shall apply during the deferral period.



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The Company adopted the provisions of SFAS 150 effective June 30, 2003 and such adoption did not have a
material impact on its consolidated financial statements.



Use of Estimates



The preparation of the
consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during reporting years. Actual results could differ from those estimates.



Cash and Cash Equivalents



Cash and cash equivalents generally consist of cash, time deposits,
commercial paper, auction rate securities, money market funds and other money market instruments with maturity dates of three months or less. The Company invests its excess cash in only investment grade money market instruments from companies in a
variety of industries and, therefore, believes that it bears minimal principal risk. Such investments are stated at cost, which approximates fair value.



Accounts Receivable



The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company continuously monitors collections
and payments from its customers and regularly adjusts credit limits of customers based upon payment history and a customers current credit worthiness, as judged by the Company. The Company records a provision for estimated credit losses and
such losses have been within managements expectations.



Inventories



Inventories are stated at the
lower of cost, determined on a first-in, first-out basis, or market. The Company periodically reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on current production requirements and
forecasted product demand.



Property, Plant and Equipment



Property, plant and equipment are stated at cost. The
Company depreciates or amortizes these assets using the straight-line method over the estimated useful lives of the various classes of assets, as follows:



|                               |  |                           
|------------------------------ |  | --------------------------
|Machinery and equipment        |  | 2 to 5 years              
|Office furniture and equipment |  | 3 to 5 years              
|Leasehold improvements         |  | Remaining life of lease   
|Property under capital leases  |  | 3 to 5 years              
|Buildings                      |  | 30 years                  
|Building improvements          |  | Remaining life of building



The Company
periodically reviews the recoverability of its long-lived assets using the methodology prescribed in SFAS No. 144. The Company also reviews these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted future net cash flows from the operations to which the assets relate, based on managements best estimates using appropriate
assumptions and projections at the time, to the carrying amount of the assets. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is deemed impaired and an impairment loss is recognized equal to the
amount by which the carrying amount exceeds the estimated fair value of the asset.



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##### Table of Contents

Goodwill



The Company adopted SFAS 142 effective December 31, 2001 and no impairment was identified. As a result, Powerwave is no longer required to amortize
goodwill or workforce intangibles effective for fiscal 2002 and such amounts have been combined and reported as goodwill in the reported balance sheets at December 28, 2003 and December 29, 2002. Prior to the adoption of SFAS 142, these intangibles
were amortized over the following estimated useful lives:



|          |  |         
|--------- |  | --------
|Goodwill  |  | 10 years
|Workforce |  | 10 years



Total amortization
expense related to these items of $0.5 million was recorded as expense in the financial statements for fiscal year 2001. Had the non-amortization provisions of SFAS 142 been in effect for fiscal year 2001, earnings (loss) per share would have
improved by less than $0.01 per share.



The Company operates in
a single business segment as a single business unit and periodically reviews the recoverability of the carrying value of goodwill using the methodology prescribed in SFAS 142. Recoverability of goodwill is determined by comparing the fair value of
the entire Company to the accounting value of the underlying net assets. If the fair value of the Company is determined to be less than the fair value of the net assets, goodwill is deemed impaired and an impairment loss is recognized to the extent
that the carrying value of goodwill exceeds the difference between the fair value of the Company and the fair value of all other assets and liabilities.



Warranties



The Company offers warranties generally ranging from one to five years, depending on the product and negotiated terms of purchase agreements with its
customers. Such warranties require the Company to repair or replace defective product returned to the Company during such warranty period at no cost to the customer. An estimate by the Company for warranty related costs is recorded by the Company at
the time of sale based on its actual historical product return rates and expected repair costs. Such costs have been within managements expectations.



Stock Based Compensation



Pursuant to Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation (SFAS 123), the Company has
elected to continue using the intrinsic value method of accounting for stock based awards granted to employees and directors in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and its
related interpretations to account for its stock option and purchase plans. Powerwave only records compensation expense for stock based awards granted with an exercise price below the market value of the Companys stock at the grant date.



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The Black-Scholes option valuation model prescribed by SFAS No. 123 was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation methods require the input of highly subjective assumptions including the expected stock price volatility. Using the Black-Scholes option
valuation model, the estimated weighted average fair value of options granted during 2003, 2002, and 2001 were $2.54 per share, $7.07 per share, and $9.01 per share, respectively. Had compensation cost for the Companys stock option plans and
its stock purchase plans been determined based on the estimated fair value at the grant dates for awards under those plans consistent with the fair value method of SFAS No. 123 utilizing the Black-Scholes option-pricing model, the Companys net
income (loss) and basic and diluted earnings (loss) per share for the years ended December 28, 2003, December 29, 2002 and December 30, 2001, would have approximated the pro forma amounts indicated below:



|                                                                                           |  |                    |         |   |                  |   |         |                  |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------ | ------- | - | ---------------- | - | ------- | ---------------- |  | - | ------- | -
|                                                                                           |  | Fiscal Years Ended |        
|                                                                                           |  | December 28,2003   |         |   | December 29,2002 |   |         | December 30,2001 | 
|Net income (loss):                                                                         |  |                    |         |   |                  |   |         |                  |  |   |         |  
|As reported                                                                                |  | $                  | (32,859 | ) |                  | $ | 4,111   |                  |  | $ | (20,512 | )
|Deduct: Additional expense per SFAS No. 123, fair value method, net of related tax effects |  |                    | (8,201  | ) |                  |   | (12,566 | )                |  |   | (17,583 | )
|                                                                                           |  |                    |         |   |                  |   |         |                  |  |   |         |  
|Pro forma                                                                                  |  | $                  | (41,060 | ) |                  | $ | (8,455  | )                |  | $ | (38,095 | )
|                                                                                           |  |                    |         |   |                  |   |         |                  |  |   |         |  
|Basic earnings (loss) per share:                                                           |  |                    |         |   |                  |   |         |                  |  |   |         |  
|As reported                                                                                |  | $                  | (0.51   | ) |                  | $ | 0.06    |                  |  | $ | (0.33   | )
|Pro forma                                                                                  |  | $                  | (0.63   | ) |                  | $ | (0.13   | )                |  | $ | (0.59   | )
|Diluted earnings (loss) per share:                                                         |  |                    |         |   |                  |   |         |                  |  |   |         |  
|As reported                                                                                |  | $                  | (0.51   | ) |                  | $ | 0.06    |                  |  | $ | (0.33   | )
|Pro forma                                                                                  |  | $                  | (0.63   | ) |                  | $ | (0.13   | )                |  | $ | (0.59   | )



The fair value of
options granted under the Companys stock incentive plans during 2003, 2002 and 2001 was estimated on the date of grant using the Black-Scholes option-pricing model utilizing the multiple option approach using the following weighted-average
assumptions:



|                                         |  |                    |   |  |                  |   |  |                  |  
|---------------------------------------- |  | ------------------ | - |  | ---------------- | - |  | ---------------- | -
|                                         |  | Fiscal Years Ended |  
|                                         |  | December 28,2003   |   |  | December 29,2002 |   |  | December 30,2001 |  
|Weighted average risk-free interest rate |  | 1.73  2.05        | % |  | 2.18             | % |  | 3.35             | %
|Expected life (in years)                 |  | 5.2                |   |  | 5.1              |   |  | 5.2              |  
|Expected stock volatility                |  | 49% - 177          | % |  | 180              | % |  | 105              | %
|Dividend yield                           |  | None               |   |  | None             |   |  | None             |  



Due to the fact that
the Companys employee stock options have characteristics significantly different from those of traded options and any changes in the subjective input assumptions can materially affect the fair value estimates, management does not believe that
the existing models provide a reliable single measure of the fair value of its employee stock options. Therefore, the Company believes that the pro forma net expense per SFAS No. 123 calculated above is not a reliable measure of the costs of the
Companys stock option plans.



Revenue Recognition



The Company recognizes revenue from product sales at the
time of shipment and passage of title. The Company also offers certain of its customers a right to return products that do not function properly within a limited time after delivery. The Company continuously monitors and tracks such returns and
records a provision, as a charge to revenues, to reflect the Companys estimate of such returns, based on historical experience and any notification received by the Company of such a return. Such returns have historically been within
managements expectations.



Foreign Currency
Translation



In accordance with Statement of Financial
Accounting Standards No. 52, Foreign Currency Translation(SFAS 52), some of Powerwaves international operations use the respective local currencies as their functional currency while other international operations use the
U.S. Dollar as their functional currency. Revenue and expenses from the Companys international subsidiaries are translated using the monthly average exchange rates in effect for the period in which the items occur. The Companys
international subsidiaries that have the U.S. Dollar as their functional currency translate monetary assets and liabilities using current rates of exchange at the balance sheet date and translate non-monetary assets and liabilities using historical
rates of exchange. Gains and losses from remeasurement for such subsidiaries are included in other income, net and have historically not been significant. The Companys international subsidiaries that do not have the U.S. Dollar as their
functional currency translate assets and liabilities at current rates of exchange in effect at the balance sheet date. The resulting gains and losses from translation for such subsidiaries are included as a component of shareholders equity.



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Income Taxes



The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in
effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that
some or all or any deferred tax assets will not be realized.



Earnings (Loss) Per Share



In accordance with
Statement of Financial Accounting Standards No. 128, Earnings Per Share, basic earnings (loss) per share is based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based upon the weighted
average number of common and potential common shares for each period presented. Potential common shares include stock options using the treasury stock method.



Comprehensive Operations



For the year ended December 28, 2003, the Company had other comprehensive losses of $1,000 related to adjustments resulting from foreign currency
translation. The year ended December 29, 2002 had no other comprehensive income (loss). For the year ended December 30, 2001, the Company had other comprehensive loss of $0.3 million, all of which reflects the change in unrealized gains on
available-for-sale securities, net of tax.



Note 3. Inventories



Net inventories consist of the following:



|                     |  |                   |        |                   |   |       
|-------------------- |  | ----------------- | ------ | ----------------- | - | ------
|                     |  | December 28, 2003 |        | December 29, 2002
|Parts and components |  | $                 | 5,295  |                   | $ | 7,939 
|Work-in-process      |  |                   | 722    |                   |   | 900   
|Finished goods       |  |                   | 9,170  |                   |   | 21,082
|                     |  |                   |        |                   |   |       
|Total inventories    |  | $                 | 15,187 |                   | $ | 29,921
|                     |  |                   |        |                   |   |       



Inventories are net of
an allowance for excess and obsolete inventory of approximately $8.6 million and $9.0 million as of December 28, 2003 and December 29, 2002, respectively. Powerwave regularly reviews inventory quantities on hand and records an allowance for excess
and obsolete inventory based primarily on sales backlog, forecasted product demand and production requirements for the next twelve months.



Note 4. Property, Plant and Equipment



Net property, plant and equipment consist of the following:



|                                                |  |                   |         |   |                   |   |         |  
|----------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                |  | December 28, 2003 |         |   | December 29, 2002 |  
|Machinery and equipment                         |  | $                 | 51,464  |   |                   | $ | 70,568  |  
|Buildings and improvements                      |  |                   | 38,660  |   |                   |   | 38,227  |  
|Land                                            |  |                   | 14,838  |   |                   |   | 14,838  |  
|Office furniture and equipment                  |  |                   | 12,171  |   |                   |   | 10,199  |  
|Leasehold improvements                          |  |                   | 953     |   |                   |   | 953     |  
|Construction in progress                        |  |                   |        |   |                   |   | 468     |  
|                                                |  |                   |         |   |                   |   |         |  
|Gross property, plant and equipment             |  |                   | 118,086 |   |                   |   | 135,253 |  
|Less: Accumulated depreciation and amortization |  |                   | (50,111 | ) |                   |   | (50,431 | )
|                                                |  |                   |         |   |                   |   |         |  
|Total property, plant and equipment             |  | $                 | 67,975  |   |                   | $ | 84,822  |  
|                                                |  |                   |         |   |                   |   |         |  



During fiscal 2003,
Powerwave determined that certain of its equipment had become excess to its production requirements as a result of its restructuring efforts and, therefore, was no longer useful to the Company. This equipment was physically segregated from the
Companys remaining active equipment and sold or disposed of prior to December 28, 2003. The difference between the estimated net selling price for such equipment and its net book value resulted in an impairment charge of approximately $3.0
million during fiscal 2003. See Note 7 for additional details.



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Note 5. Other Non-Current Assets



Other non-current assets consist of the following:



|                                 |  |                   |        |                   |   |      
|-------------------------------- |  | ----------------- | ------ | ----------------- | - | -----
|                                 |  | December 28, 2003 |        | December 29, 2002
|Building held for sale (Note 17) |  | $                 | 5,850  |                   | $ |     
|Deferred acquisition costs       |  |                   | 3,607  |                   |   |     
|Debt issue costs                 |  |                   | 3,769  |                   |   |     
|Long-term prepaid expenses       |  |                   | 91     |                   |   | 2,073
|Other non-current assets         |  |                   | 190    |                   |   | 571  
|                                 |  |                   |        |                   |   |      
|Total other non-current assets   |  | $                 | 13,507 |                   | $ | 2,644
|                                 |  |                   |        |                   |   |      



Note 6. Accrued Expenses and Other
Current Liabilities



Accrued expenses and other current
liabilities consist of the following:



|                                                     |  |                   |        |                   |   |       
|---------------------------------------------------- |  | ----------------- | ------ | ----------------- | - | ------
|                                                     |  | December 28, 2003 |        | December 29, 2002
|Accrued warranty costs                               |  | $                 | 4,829  |                   | $ | 5,133 
|Accrued payroll and employee benefits                |  |                   | 3,203  |                   |   | 4,015 
|Accrued vendor cancellations costs                   |  |                   | 743    |                   |   | 982   
|Accrued income taxes                                 |  |                   | 2,374  |                   |   | 2,281 
|Accrued interest expense                             |  |                   | 750    |                   |   | 8     
|Accrued sales tax                                    |  |                   | 921    |                   |   | 602   
|Other accrued expenses                               |  |                   | 3,339  |                   |   | 3,566 
|                                                     |  |                   |        |                   |   |       
|Total accrued expenses and other current liabilities |  | $                 | 16,159 |                   | $ | 16,587
|                                                     |  |                   |        |                   |   |       



Note 7. Restructuring and
Impairment Charges



As a result of the significant
economic downturn effecting demand in the wireless infrastructure industry, Powerwave determined that it was necessary to test its previously recorded goodwill for impairment during the quarter ended March 30, 2003. Since Powerwave operates in a
single business segment as a single reporting unit, the determination of whether any potential impairment of goodwill exists is based on a comparison of the fair value of the entire Company to the accounting value of its net assets. In estimating
the fair value of the entire Company, Powerwave reviewed the average and closing stock prices for its Common Stock, valuations based on multiples of sales, EBITDA and EBIT, as well as other factors. Based on a comparison of these valuations to the
accounting value of the underlying assets and liabilities, the Company concluded that the entire amount of its recorded goodwill had been impaired and, therefore, recorded a non-cash impairment charge of $4.9 million within operating expenses in the
first quarter of fiscal 2003.



During fiscal 2003, Powerwave
accelerated the restructuring of its manufacturing operations to outsource the majority of its production to contract manufacturers located in Asia in order to further reduce the Companys operating cost structure and enable it to be more
competitive. Additionally, the Company accelerated the timing of technology transitions and new product introductions due to its transition to outsourced manufacturing and the continued economic downturn that has significantly impacted demand in the
wireless infrastructure industry. As a result, the Company recorded approximately $10.6 million of restructuring and impairment charges during fiscal 2003. These charges included cash restructuring charges of approximately $4.6 million related
primarily to severance payments made in connection with a reduction in its work force of approximately 560 employees. The remaining non-cash impairment charges of approximately $6.0 million related to a $3.0 million write-down of excess
manufacturing and test equipment that was disposed of and a $3.0 million write-down of certain product/technology and customer related intangibles, the value of which was impaired by the technology and product transitions that were implemented
during the year. These restructuring and impairment charges were recorded in cost of sales or operating expenses based upon the job classification of the impacted employees or the character of the underlying assets. Approximately $7.9 million of the
total $15.5 million restructuring and impairment charges incurred during fiscal 2003 was recorded in cost of sales and approximately $7.6 million was recorded in operating expenses.



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A summary of the Companys restructuring and impairment activities during year ended December 28,
2003 is as follows:



|                                                     |  |                   |       |                    |   |                               |  |       |       |  |   |       
|---------------------------------------------------- |  | ----------------- | ----- | ------------------ | - | ----------------------------- |  | ----- | ----- |  | - | ------
|                                                     |  | EmployeeSeverance |       | EquipmentWritedown |   | Goodwill &IntangibleWritedown |  | Total
|Total amounts expensed to date                       |  | $                 | 4,551 |                    | $ | 2,982                         |  | $     | 7,927 |  | $ | 15,460
|Identified future restructuring and impairment costs |  |                   |      |                    |   |                              |  |       |      |  |   |      
|                                                     |  |                   |       |                    |   |                               |  |       |       |  |   |       
|Total identified restructuring and impairment costs  |  | $                 | 4,551 |                    | $ | 2,982                         |  | $     | 7,927 |  | $ | 15,460
|                                                     |  |                   |       |                    |   |                               |  |       |       |  |   |       



A summary of the
activity that affected the Companys accrued restructuring costs for the year ended December 28, 2003 is as follows:



|                             |  |                   |        |   |                    |   |        |                               |  |   |        |   |  |   |         |  
|---------------------------- |  | ----------------- | ------ | - | ------------------ | - | ------ | ----------------------------- |  | - | ------ | - |  | - | ------- | -
|                             |  | EmployeeSeverance |        |   | EquipmentWritedown |   |        | Goodwill &IntangibleWritedown |  |   | Total  |  
|Balance at December 29, 2002 |  | $                 |       |   |                    | $ |       |                               |  | $ |       |   |  | $ |        |  
|Amounts expensed             |  |                   | 4,551  |   |                    |   | 2,982  |                               |  |   | 7,927  |   |  |   | 15,460  |  
|Amounts paid/incurred        |  |                   | (4,531 | ) |                    |   | (2,982 | )                             |  |   | (7,927 | ) |  |   | (15,440 | )
|                             |  |                   |        |   |                    |   |        |                               |  |   |        |   |  |   |         |  
|Balance at December 28, 2003 |  | $                 | 20     |   |                    | $ |       |                               |  | $ |       |   |  | $ | 20      |  
|                             |  |                   |        |   |                    |   |        |                               |  |   |        |   |  |   |         |  



As a result of poor
economic conditions and reductions in the forecasted future demand for products acquired through the Companys acquisition of the radio frequency amplifier group of Hewlett Packard Company, Powerwave recorded a non-cash charge of $6.5 million
during fiscal year 2001 for the impairment of intangible assets associated with such acquisition. This charge included approximately $3.6 million recorded in cost of sales related to the write-down of developed technology and approximately $2.9
million recorded in operating expenses related to the write-down of goodwill.



Note 8. Financing Arrangements and Long-Term Debt



On July 18, 2003, Powerwave completed the private placement of $130.0 million aggregate principal amount of 1.25% convertible subordinated notes due July 2008. The notes are convertible into shares of the Common Stock of Powerwave at a
conversion price of $10.49 per share and accrue interest at an annual rate of 1.25% with interest payable semi-annually on January 15 and July 15. The notes are general unsecured obligations of the Company and are subordinate in right of payment to
all of the Companys existing and future senior indebtedness. In addition, the indenture for the notes does not restrict the Company from incurring senior debt or other indebtedness and does not impose any financial covenants on the Company.
The notes are callable by the Company beginning July 22, 2007. Powerwave used a portion of the proceeds of the offering to fund the repurchase of $25.0 million of the Companys Common Stock (3,144,654 shares) simultaneously with the issuance of
the notes. The Company received net cash proceeds of approximately $100.9 million after the deduction of the amount used for the Common Stock repurchase and debt issuance costs.



The Company maintains an unsecured revolving credit agreement with Comerica Bank-California. This credit facility provides
for a revolving line of credit up to a maximum principal amount outstanding at any one time of $20.0 million (the Revolving Commitment Amount) and expires on May 31, 2004. The Company is required to pay a commitment fee of 0.25% per
annum on the unused portion of the Revolving Commitment Amount. The commitment fee is payable quarterly in arrears. The revolving credit facility allows for borrowings based either upon the banks prime rate (4.00% at December 28, 2003) or the
banks LIBOR rate plus an applicable LIBOR margin of 1.25% or 1.50%, based upon the Companys debt leverage ratio. The revolving credit facility contains certain standard affirmative and negative covenants, including limitations on future
indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers, transfers of assets and leverage ratios. At December 28, 2003, the Company was in compliance with all covenants contained in the revolving credit facility.
There were no amounts outstanding and the full $20.0 million of the Revolving Commitment Amount was available to the Company at December 28, 2003.



Note 9. Shareholders Equity



On May 31, 2001, the Board of Directors adopted a Shareholder Rights Plan to protect shareholder interests against takeover strategies that may not
provide maximum shareholder value. A dividend of one preferred stock purchase right (Right) for each share of the Companys Common Stock was distributed to shareholders of record



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on June 18, 2001. The Rights automatically attached to outstanding shares so no separate certificates were issued. Each
Right allows its holder to purchase one one-hundredth of a share of Series A Jr. Participating Preferred Stock at an exercise price of $115.00 per share. This portion of a preferred share gives the shareholder approximately the same dividend, voting
and liquidation rights as one share of Common Stock. The Rights are not currently exercisable, but will become exercisable if certain events occur relating to a person or group acquiring or attempting to acquire 15 percent or more of the outstanding
shares of Common Stock. The Rights expire on June 1, 2011, unless redeemed or exchanged by the Company earlier.



In December 2001, the Company issued a total of 250,000 shares of its Common Stock valued at $4.5 million in connection with the acquisition of Toracomm
Limited.



In July 2003, the Company repurchased $25.0 million
worth of its stock, or 3,144,654 shares, in conjunction with its private placement of $130.0 million aggregate principal amount of 1.25% convertible subordinated notes due July 2008. See Note 8.



Note 10. 401(k) and Profit-Sharing Plans



The Company sponsors a 401(k) and profit-sharing plan covering all eligible
employees and provides for a Company match in cash on a portion of participant contributions. The Companys 401(k) and profit sharing plan is managed by Fidelity Investments, and is an employee self-directed plan which offers a variety of
investment choices via mutual funds. Employees may contribute up to 15% of their base salary, subject to IRS maximums. The Company matches 100% of the first 3% of eligible compensation contributed and 50% of the next 2% of eligible compensation
contributed. The Companys matching contributions are made in cash and are invested in the same percentage among the various funds offered as selected by the employee. Employer matching contributions for the years ended December 28, 2003,
December 29, 2002 and December 30, 2001 were $1.0 million, $1.2 million, and $1.1 million, respectively. There were no discretionary profit sharing contributions authorized for the years ended December 28, 2003, December 29, 2002 or December 30,
2001.



Note 11. Employee Stock Purchase Plan



The Companys Employee Stock Purchase Plan (the ESPP)
provides that a total of 3,000,000 shares of Common Stock are reserved for issuance under the plan. The ESPP, which is intended to qualify as an employee stock purchase plan under Section 423 of the Code, is implemented utilizing
six-month offerings with purchases occurring at six-month intervals. The ESPP administration is overseen by the Board of Directors. Employees are eligible to participate if they are employed by the Company for at least 20 hours per week and if they
have been employed by the Company for at least 90 days. The ESPP permits eligible employees to purchase Common Stock through payroll deductions, which may not exceed 20% of an employees compensation. The price of Common Stock purchased under
the ESPP is 85% of the lower of the fair market value of the Common Stock at the beginning of each six-month offering period or on the applicable purchase date. Employees may end their participation in an offering at any time during the offering
period, and participation ends automatically upon termination of employment. The Board may at any time amend or terminate the ESPP, except that no such amendment or termination may adversely affect shares previously granted under the ESPP. During
fiscal 2003, the twelfth and thirteenth purchases under the ESPP occurred on January 31, 2003 and July 31, 2003, respectively. A total of 254,602 shares were purchased in the twelfth purchase at $3.50 per share and 175,579 shares were purchased in
the thirteenth purchase at $3.49 per share. At December 28, 2003, there were rights to purchase approximately 110,000 shares outstanding under the ESPPs fourteenth offering, which will conclude on January 30, 2004. There were 1,627,922 shares
available for purchase at December 28, 2003 under the ESPP.



Note 12. Stock
Option Plans



The purposes of the Companys stock
option plans are to attract and retain the best available personnel for positions of substantial responsibility with the Company and to provide participants with additional incentives in the form of options to purchase the Companys Common
Stock which will encourage them to acquire a proprietary interest in, and to align their financial interests with those of the Company and its shareholders. All of the Companys stock option plans have been approved by the Companys
shareholders.



1995 Stock Option Plan



The Companys 1995 Stock Option Plan (the 1995 Plan), as
amended, permits executive personnel, key employees and non-employee members of the Board of Directors of the Company to participate in ownership of the Company. The 1995 Plan is administered by the Compensation Committee of the Companys Board
of Directors. The 1995 Plan provides for the grant of non-statutory stock options under the applicable provisions of the Internal Revenue Code. The option price per share may not be less than 85% of the fair market value of a share of Common



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Stock on the grant date as determined by the Companys Board of Directors. In addition, for any individual
possessing 10% or more of the voting power of all classes of stock of the Company, the exercise price may not be less than 110% of the fair market value of a share of Common Stock on the grant date, as determined by the Companys Board of
Directors. Options generally vest at the rate of 25% on the first anniversary of the grant date and 2% per month thereafter. All options expire no later than ten years after the grant date. Up to 5,815,845 shares of the Companys Common Stock
were reserved for issuance under the 1995 Plan. Pursuant to the amended Stockholders Agreement dated as of November 8, 1996, between the Company and certain of its original shareholders, those certain shareholders agreed that once the Company
issued 3,285,000 shares of Common Stock under the 1995 Stock Option Plan, any additional shares issued under that Plan upon an option exercise would be coupled with a redemption from those shareholders of an equal number of shares at a redemption
price equaling the option exercise price. The Company and those certain shareholders have agreed that this share redemption agreement applies only to the exercise of options to purchase a total of 2,530,845 shares of the Companys Common Stock.
As of December 28, 2003, a total of 5,551,116 options have been exercised under the 1995 Plan, of which a total of 2,266,116 shares of Common Stock have been funded from those shareholders party to the amended Stockholders Agreement.
The effect of this transaction is to eliminate any dilution from the further exercise of options under the 1995 Plan. At December 28, 2003 there were 264,285 options outstanding under the 1995 Plan at a weighted average exercise price of $4.05 per
share. There were 444 shares available for grant under the 1995 Plan at December 28, 2003 and there were a total of 264,729 shares of Common Stock held in escrow by the Company on behalf of those shareholders party to the Stockholders
Agreement to fund all future exercises under the 1995 Plan.



1996 Stock Incentive Plan



The Companys
1996 Stock Incentive Plan (the 1996 Plan), as amended, provides for the granting of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code),
non-statutory options and restricted stock grants to directors, officers, employees and consultants of the Company, except that incentive stock options may not be granted to non-employee directors or consultants. A total of 9,000,000 shares of the
Companys Common Stock are reserved for issuance under the 1996 Plan. As of December 28, 2003, all of the options granted under the 1996 Plan have been non-statutory options. The 1996 Plan provides that for non-statutory stock options, the
option price per share may not be less than 85% of the fair market value of a share of Common Stock on the grant date and that the exercise price may not be less than 110% of the fair market value of a share of Common Stock on the grant date for any
individual possessing 10% or more of the voting power of all classes of stock of the Company. Authority to control and manage the 1996 Plan is vested with the Companys Board of Directors, which has sole discretion and authority, consistent
with the provisions of the 1996 Plan, to determine the administration of the 1996 Plan and to determine which eligible participants will receive options, the time when options will be granted, the terms of options granted and the number of shares
which will be subject to options granted under the 1996 Plan. Options generally vest at the rate of 25% on the first anniversary of the grant date and the remaining 75% vests in equal monthly installments over the following three years. All options
expire no later than ten years after the grant date.As of December 28, 2003, a total of 3,978,045 options had been exercised under the 1996 Plan and there were 4,703,806 options outstanding under the 1996 Plan at a weighted average exercise
price of $12.80 per share. There were 318,149 shares available for grant under the 1996 Plan at December 28, 2003.



1996 Director Stock Option Plan



The Companys 1996 Director Stock Option Plan (the Director Plan), as amended, provides that a total of 1,200,000 shares of the
Companys Common Stock are reserved for issuance under the plan. The Director Plan provides that each member of the Companys Board of Directors who is not an employee or paid consultant of the Company will automatically be eligible to
receive non-statutory options to purchase common stock under the Director Plan. Pursuant to the terms of the Director Plan, each director elected after December 5, 1996, will be granted an initial option under the Director Plan covering 30,000
shares of Common Stock, that shall vest at the rate of 25% on the first anniversary of the grant date and the remaining 75% shall vest in equal monthly installments over the following three years. Furthermore, on each anniversary date of December 5,
each director who shall have been an eligible participant under the Director Plan for at least six (6) months shall be granted an annual option under the Director Plan to purchase 10,000 (5,000 shares for years prior to 2002) shares of Common Stock
that vests 100% on the fourth anniversary date of the grant. The Director Plan provides that the exercise price per share of grants issued under the Director Plan shall be equal to 100% of the fair market value of a share of Common Stock on the
grant date. All options expire no later than five years after the grant date. As of December 28, 2003, a total of 195,000 options had been exercised under the Director Plan. There were 460,000 options outstanding under the Director Plan as of
December 28, 2003 at a weighted average exercise price of $23.79 per share. There were 545,000 shares available for grant under the Director Plan at December 28, 2003.



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2000 Stock Option Plan



The Companys 2000 Stock Option Plan (the 2000 Plan) provides that a total of 2,640,000 shares of the
Companys Common Stock are reserved for issuance under the 2000 Plan. The 2000 Plan provides for the granting of only non-statutory stock options to employees, executive officers and consultants of the Company. The exercise price per share of
Common Stock of the Company covered by each option shall be equal to 100% of the fair market value of the Common Stock on the date that the option is granted. In no event shall any participant under the 2000 Plan be granted options under the 2000
Plan covering more than 300,000 shares in any one calendar year. Authority to control and manage the 2000 Plan is vested with the Companys Board of Directors, which has sole discretion and authority, consistent with the provisions of the 2000
Plan, to determine the administration of the 2000 Plan. The Board of Directors may delegate such responsibilities in whole or in part to a committee consisting of two or more members of the Board of Directors or two or more executive officers of the
Company (the Administrator). All option grants to executive officers of the Company shall be approved by the Board of Directors or the Compensation Committee of the Board of Directors. The Administrator of the 2000 Plan shall have the
authority, consistent with the provisions of the 2000 Plan and the authority granted by the Board of Directors, to determine which eligible participants will receive options, the time when options will be granted, the terms of options granted and
the number of shares which will be subject to options granted under the 2000 Plan. Notwithstanding the foregoing, the Administrator shall not have the authority to amend an Option Agreement to effect a re-pricing of the exercise price of
an option either by (i) lowering the exercise price of a previously granted option or (ii) by canceling a previously granted option and granting a new option, except that changes in the Companys capital structure or a change in control of the
Company pursuant to the terms of the 2000 Plan shall not be considered a re-pricing of such option. Options generally vest at the rate of 25% on the first anniversary of the grant date and the remaining 75% vests in equal monthly installments over
the following three years. All options expire no later than five years after the grant date. As of December 28, 2003, 4,572 shares had been exercised under the 2000 Plan. There were 2,556,846 options outstanding under the 2000 Plan as of December
28, 2003 at a weighted average exercise price of $11.90 per share. There were 78,582 shares available for grant under the 2000 plan at December 28, 2003.



2002 Stock Option Plan



The Companys 2002 Stock Option Plan (the 2002 Plan) was approved by the shareholders of the Company on April 24, 2002. The 2002 Plan
provides that a total of 2,000,000 shares of the Companys Common Stock are reserved for issuance under the 2002 Plan. Employees and consultants or independent advisors who are in the service of the Company or its subsidiaries are eligible to
participate in the 2002 Plan. The Companys executive officers and other highly paid employees are also eligible to participate in the 2002 Plan. The 2002 Plan provides only for the granting of non-statutory stock options. The exercise price
per share of Common Stock of the Company covered by each option shall be equal to 100% of the fair market value of the Common Stock on the date that the option is granted. In no event shall any participant under the 2002 Plan be granted options
under the 2002 plan covering more than 300,000 shares in any one calendar year. All options granted pursuant to the 2002 Plan shall have a maximum term of no more than ten years from the grant date. Authority to control and manage the 2002 Plan is
vested with the Companys Board of Directors, which has sole discretion and authority, consistent with the provisions of the 2002 Plan, to determine the administration of the 2002 Plan. The Board of Directors may delegate such responsibilities
in whole or in part to a committee consisting of two or more members of the Board of Directors or two or more officers of the Company. All option grants to executive officers of the Company shall be approved by the Board of Directors or the
Compensation Committee of the Board of Directors. The Administrator of the 2002 Plan shall have the authority, consistent with the provisions of the 2002 Plan and the authority of the Board of Directors, to determine which eligible participants will
receive options, the time when options will be granted, the terms of options granted and the number of shares which will be subject to options granted under the 2002 Plan. Notwithstanding the foregoing, the Administrator shall not have the authority
to amend an option agreement to effect a re-pricing of the exercise price of such option either by (1) lowering the exercise price of a previously granted option or (2) by canceling a previously granted option and granting a new option
except that changes in the Companys capital structure or a change in control of the Company pursuant to the terms of the 2002 Plan shall not be considered a re-pricing of such option. As of December 28, 2003, 17,397 shares had been exercised
under the 2002 Plan. There were 967,059 options outstanding under the 2002 Plan as of December 28, 2003 at a weighted average exercise price of $5.39 per share. There were 1,015,544 shares available for grant under the 2002 plan at December 28,
2003.



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At December 28, 2003, a total of 1,957,719 options were available for grant under all of the
Companys option plans. The following table summarizes activity under the Companys stock plans.



|                             |  |                 |   |  |                   |  |                              |       |                             |       |                              |   |      
|---------------------------- |  | --------------- | - |  | ----------------- |  | ---------------------------- | ----- | --------------------------- | ----- | ---------------------------- | - | -----
|                             |  | Number ofShares |   |  | Price Per Share   |  | WeightedAverageExercisePrice |       | Number ofOptionsExercisable |       | WeightedAverageExercisePrice
|Balance at December 31, 2000 |  | 8,267           |   |  | $  0.82 - $73.56  |  | $                            | 16.40 |                             | 2,047 |                              | $ | 5.31 
|Granted                      |  | 2,292           |   |  | $10.50 - $50.00   |  | $                            | 14.03 |                             |       |                              |   |      
|Exercised                    |  | (1,293          | ) |  | $  0.82 - $17.71  |  | $                            | 5.46  |                             |       |                              |   |      
|Canceled                     |  | (1,244          | ) |  | $  2.29 - $73.56  |  | $                            | 17.01 |                             |       |                              |   |      
|                             |  |                 |   |  |                   |  |                              |       |                             |       |                              |   |      
|Balance at December 30, 2001 |  | 8,022           |   |  | $  0.82 - $73.56  |  | $                            | 17.39 |                             | 3,319 |                              | $ | 13.54
|Granted                      |  | 3,033           |   |  | $  3.37 - $20.10  |  | $                            | 8.17  |                             |       |                              |   |      
|Exercised                    |  | (468            | ) |  | $  0.82 - $11.66  |  | $                            | 4.59  |                             |       |                              |   |      
|Canceled                     |  | (988            | ) |  | $  4.58 - $67.08  |  | $                            | 24.21 |                             |       |                              |   |      
|                             |  |                 |   |  |                   |  |                              |       |                             |       |                              |   |      
|Balance at December 29, 2002 |  | 9,599           |   |  | $  0.82 - $73.56  |  | $                            | 14.40 |                             | 4,545 |                              | $ | 15.61
|Granted                      |  | 1,527           |   |  | $  3.12 - $10.04  |  | $                            | 6.63  |                             |       |                              |   |      
|Exercised                    |  | (317            | ) |  | $  1.33 - $  6.52 |  | $                            | 3.96  |                             |       |                              |   |      
|Canceled                     |  | (1,857          | ) |  | $  3.66 - $73.56  |  | $                            | 21.13 |                             |       |                              |   |      
|                             |  |                 |   |  |                   |  |                              |       |                             |       |                              |   |      
|Balance at December 28, 2003 |  | 8,952           |   |  | $  0.82 - $67.08  |  | $                            | 12.05 |                             | 4,855 |                              | $ | 13.91
|                             |  |                 |   |  |                   |  |                              |       |                             |       |                              |   |      



The following table
summarizes information about all stock options outstanding at December 28, 2003 under the 1995 Plan, 1996 Plan, Director Plan, 2000 Plan and 2002 Plan.



|                         |  |                                          |  |                                         |       |                                             |      |                    |       |                                |   |      
|------------------------ |  | ---------------------------------------- |  | --------------------------------------- | ----- | ------------------------------------------- | ---- | ------------------ | ----- | ------------------------------ | - | -----
|                         |  | Options Outstanding at December 28, 2003 |  | Options Exercisable atDecember 28, 2003
|Range of Exercise Prices |  | OptionsOutstanding                       |  | WeightedAverageExercise Price           |       | Weighted Average Remaining Contractual Life |      | OptionsExercisable |       | WeightedAverage Exercise Price
|$  0.82 - $  4.58        |  | 1,230                                    |  | $                                       | 3.25  |                                             | 4.62 |                    | 1,131 |                                | $ | 3.22 
|$  4.64 - $  5.41        |  | 1,755                                    |  | $                                       | 5.36  |                                             | 7.71 |                    | 609   |                                | $ | 5.31 
|$  5.42 - $  7.60        |  | 1,676                                    |  | $                                       | 6.57  |                                             | 6.73 |                    | 278   |                                | $ | 6.49 
|$  7.61 - $11.81         |  | 1,831                                    |  | $                                       | 10.96 |                                             | 4.99 |                    | 1,106 |                                | $ | 13.48
|$11.82 - $22.83          |  | 1,558                                    |  | $                                       | 16.73 |                                             | 4.61 |                    | 1,029 |                                | $ | 17.07
|$22.83 - $67.08          |  | 902                                      |  | $                                       | 41.37 |                                             | 4.79 |                    | 702   |                                | $ | 41.39
|                         |  |                                          |  |                                         |       |                                             |      |                    |       |                                |   |      
|Total                    |  | 8,952                                    |  | $                                       | 12.05 |                                             | 5.71 |                    | 4,855 |                                | $ | 13.91
|                         |  |                                          |  |                                         |       |                                             |      |                    |       |                                |   |      



The Company records
compensation expense for options granted with an exercise price below the market value of the Companys Common Stock at the date of grant. This compensation expense is calculated as the difference between the market value of the stock and the
option exercise price at the grant date and is amortized over the option vesting period. The Company recorded a total of $0.04 million, $0.06 million and $0.06 million as compensation expense during fiscal years 2003, 2002, and 2001, respectively.
There was no remaining unamortized compensation expense as of December 28, 2003.



Note 13. Commitments and Contingencies



Powerwave had various outstanding leases as of December 28, 2003, the majority of which relate to real estate operating leases, including 115,000 square feet of warehouse space in Santa Ana, California, 31,500 square feet of engineering and
office space in El Dorado Hills, California, and 8,100 square feet of engineering and office space in Bristol, United Kingdom.



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Future minimum lease payments required under all operating leases at December 28, 2003 are payable as
follows:



|            |  |       |      
|----------- |  | ----- | -----
|Fiscal Year |  | Total
|2004        |  |       | 1,661
|2005        |  |       | 1,370
|2006        |  |       | 1,284
|2007        |  |       | 586  
|2008        |  |       | 178  
|Thereafter  |  |       | 125  
|            |  |       |      
|Total       |  | $     | 5,204
|            |  |       |      



Total rent expense was
$1.9 million, $2.0 million and $2.8 million for the years ended December 28, 2003, December 29, 2002 and December 30, 2001, respectively.



Powerwave is subject to various legal proceedings from time to time as part of its business. As of December 28, 2003, Powerwave was not currently party to
any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, it believes would have a material adverse effect on its business, financial condition and results of operations.



Note 14. Contractual Guarantees and Indemnities



The Company establishes reserves for future product warranty costs that are
expected to be incurred pursuant to specific warranty provisions with its customers. The Company also has contractual requirements with various customers that could require the Company to incur costs to repair an epidemic defect with respect to its
products outside of the normal warranty period if such defect were to occur. The Companys warranty reserves are generally established at the time of sale and updated throughout the warranty period based upon numerous factors including
historical warranty return rates and expenses over various warranty periods. The Company also accrues additional warranty liabilities for significant and unusual product performance issues at the time such issues are identified and the associated
warranty related costs can be reasonably estimated. A summary of the activity that affected the Companys accrued warranty costs for the years ended December 29, 2002 and December 28, 2003 is as follows:



|                                                         |  |                        |        |  
|-------------------------------------------------------- |  | ---------------------- | ------ | -
|Description                                              |  | Accrued Warranty Costs |       
|Balance at December 30, 2001                             |  | $                      | 6,669  |  
|Reductions for warranty costs incurred                   |  |                        | (3,647 | )
|Warranty accrual related to current year sales           |  |                        | 2,942  |  
|Change in estimate related to previous warranty accruals |  |                        | (831   | )
|                                                         |  |                        |        |  
|Balance at December 29, 2002                             |  | $                      | 5,133  |  
|                                                         |  |                        |        |  
|Reductions for warranty costs incurred                   |  |                        | (3,265 | )
|Warranty accrual related to current year sales           |  |                        | 2,771  |  
|Change in estimate related to previous warranty accruals |  |                        | 190    |  
|                                                         |  |                        |        |  
|Balance at December 28, 2003                             |  | $                      | 4,829  |  
|                                                         |  |                        |        |  



During its normal
course of business, the Company makes certain contractual guarantees and indemnities pursuant to which the Company may be required to make future payments under specific circumstances. Powerwave has not recorded any liability for these contractual
guarantees and indemnities in the accompanying consolidated financial statements. A description of significant contractual guarantees and indemnities existing as of December 28, 2003 is included below:



Intellectual Property Indemnities



The Company indemnifies certain customers and its contract manufacturers
against liability arising from third-party claims of intellectual property rights infringement related to the Companys products. These indemnities appear in development and supply agreements with our customers as well as manufacturing service
agreements with our contract manufacturers, are not limited in amount or duration and generally survive the expiration of the contract. Given that the amount of any potential liabilities related to such indemnities cannot be determined until an
infringement claim has been made, Powerwave is unable to determine the maximum amount of losses that it could incur related to such indemnifications. Historically, any amounts payable pursuant to such intellectual property indemnifications have not
had a material effect on the Companys business, financial condition or results of operations.



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Director and Officer Indemnities and Contractual Guarantees



The Company has entered into indemnification agreements with its directors
and executive officers which require the Company to indemnify such individuals to the fullest extent permitted by Delaware law. The Companys indemnification obligations under such agreements are not limited in amount or duration. Certain costs
incurred in connection with such indemnifications may be recovered under certain circumstances under various insurance policies. Given that the amount of any potential liabilities related to such indemnities cannot be determined until a lawsuit has
been filed against a director or executive officer, the Company is unable to determine the maximum amount of losses that it could incur relating to such indemnifications. Historically, any amounts payable pursuant to such director and officer
indemnifications have not had a material negative effect on the Companys business, financial condition or results of operations.



The Company has also entered into severance and change in control agreements with certain of its executives. These agreements provide for the payment of
specific compensation benefits to such executives upon the termination of their employment with Powerwave.



General Contractual Indemnities/Products Liability



During the normal course of business, the Company enters into contracts with customers where it has agreed to indemnify the other party for personal
injury or property damage caused by the Companys products. The Companys indemnification obligations under such agreements are not limited in duration and are generally not limited in amount. Historically, any amounts payable pursuant to
such contractual indemnities have not had a material negative effect on the Companys business, financial condition or results of operations. The Company maintains product liability insurance as well as errors and omissions insurance which may
provide a source of recovery to the Company in the event of an indemnification claim.



Workers Compensation Insurance Guarantees



The Company has issued a guarantee in the form of a standby letter of credit in the amount of $600,000 as a security for contingent liabilities under certain workers compensation insurance policies. This letter of
credit is supported by a pledge of a cash deposit of $600,000 with the bank that issued the letter of credit. The Companys workers compensation insurance carrier may draw upon the letter of credit if the Company does not fund its required
portion of workers compensation claims.



Note 15. Income Taxes



The provision (benefit) for income taxes for the fiscal
years ended December 28, 2003, December 29, 2002 and December 30, 2001 consists of the following:



|                                     |  |                    |         |   |                  |   |        |                  |  |   |         |  
|------------------------------------ |  | ------------------ | ------- | - | ---------------- | - | ------ | ---------------- |  | - | ------- | -
|                                     |  | Fiscal Years Ended |        
|                                     |  | December 28,2003   |         |   | December 29,2002 |   |        | December 30,2001 | 
|Current:                             |  |                    |         |   |                  |   |        |                  |  |   |         |  
|Federal                              |  | $                  | (179    | ) |                  | $ | (9,337 | )                |  | $ | (483    | )
|State                                |  |                    | 34      |   |                  |   | (240   | )                |  |   | 174     |  
|Foreign                              |  |                    | 77      |   |                  |   |       |                  |  |   | 11      |  
|                                     |  |                    |         |   |                  |   |        |                  |  |   |         |  
|Total current provision (benefit)    |  |                    | (68     | ) |                  |   | (9,577 | )                |  |   | (298    | )
|                                     |  |                    |         |   |                  |   |        |                  |  |   |         |  
|Deferred:                            |  |                    |         |   |                  |   |        |                  |  |   |         |  
|Federal                              |  |                    | (17,914 | ) |                  |   | 11,008 |                  |  |   | (10,353 | )
|State                                |  |                    | (2,597  | ) |                  |   | 298    |                  |  |   | (887    | )
|Foreign                              |  |                    | 8       |   |                  |   | 33     |                  |  |   |        |  
|                                     |  |                    |         |   |                  |   |        |                  |  |   |         |  
|Total deferred provision (benefit)   |  |                    | (20,503 | ) |                  |   | 11,339 |                  |  |   | (11,240 | )
|                                     |  |                    |         |   |                  |   |        |                  |  |   |         |  
|Provision (benefit) for income taxes |  | $                  | (20,571 | ) |                  | $ | 1,762  |                  |  | $ | (11,538 | )
|                                     |  |                    |         |   |                  |   |        |                  |  |   |         |  



The provision
(benefit) for income taxes in the accompanying consolidated financial statements reconciles to the amount computed by applying the federal statutory rate of 35% to income (loss) before income taxes for the fiscal years ended December 28, 2003,
December 29, 2002 and December 30, 2001 as follows:



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|                                         |  |                    |         |   |                  |   |        |                  |  |   |         |  
|---------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------ | ---------------- |  | - | ------- | -
|                                         |  | Fiscal Years Ended |        
|                                         |  | December 28,2003   |         |   | December 29,2002 |   |        | December 30,2001 | 
|Taxes at federal statutory rate          |  | $                  | (18,700 | ) |                  | $ | 2,055  |                  |  | $ | (11,217 | )
|State taxes, net                         |  |                    | (1,666  | ) |                  |   | (57    | )                |  |   | (463    | )
|Other                                    |  |                    | (205    | ) |                  |   | (236   | )                |  |   | 142     |  
|Research and experimentation tax credits |  |                    |        |   |                  |   | (1,052 | )                |  |   | (387    | )
|Change in valuation allowance            |  |                    |        |   |                  |   | 1,052  |                  |  |   | 387     |  
|                                         |  |                    |         |   |                  |   |        |                  |  |   |         |  
|Provision (benefit) for income taxes     |  | $                  | (20,571 | ) |                  | $ | 1,762  |                  |  | $ | (11,538 | )
|                                         |  |                    |         |   |                  |   |        |                  |  |   |         |  



Deferred income taxes
reflect the net tax effects of tax carry-forwards and temporary differences between the carrying amount of assets and liabilities for tax and financial reporting purposes. The Companys deferred tax assets and liabilities were comprised of the
following major components:



|                                   |  |                    |        |   |                  |   |        |  
|---------------------------------- |  | ------------------ | ------ | - | ---------------- | - | ------ | -
|                                   |  | Fiscal Years Ended |       
|                                   |  | December 28,2003   |        |   | December 29,2002 |  
|Depreciable property and equipment |  | $                  | (2,496 | ) |                  | $ | (5,524 | )
|Accruals and provisions            |  |                    | 4,327  |   |                  |   | 4,631  |  
|Costs capitalized into inventories |  |                    | 3,951  |   |                  |   | 4,311  |  
|State taxes                        |  |                    | (2,337 | ) |                  |   | (1,403 | )
|Amortizable intangible assets      |  |                    | 10,827 |   |                  |   | 8,809  |  
|Tax credit carry-forwards          |  |                    | 10,926 |   |                  |   | 10,992 |  
|Net operating loss carry-forwards  |  |                    | 27,503 |   |                  |   | 9,890  |  
|Other                              |  |                    | 137    |   |                  |   | 122    |  
|Valuation allowance                |  |                    | (9,908 | ) |                  |   | (9,975 | )
|                                   |  |                    |        |   |                  |   |        |  
|Net deferred tax assets            |  | $                  | 42,930 |   |                  | $ | 21,853 |  
|                                   |  |                    |        |   |                  |   |        |  



As of December 28,
2003, Powerwave had combined federal and state operating loss carry-forwards of approximately $66.6 million and $84.0 million, respectively, that expire from 2016 to 2023. The Company also had federal and California tax credit carry-forwards of $3.6
million and $7.3 million, respectively. The federal tax credits will begin to expire in 2016 and the California tax credits will begin to expire in 2006.



The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the actual timing within which the
underlying temporary differences become taxable or deductible. Based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences, management believes that it is more
likely than not that the remaining net deferred tax assets at December 28, 2003 will be realized by the Company.



Note 16. Earnings (Loss) Per Share



In accordance with SFAS No. 128, Earnings Per Share (SFAS 128), basic earnings (loss) per share is based upon the weighted average
number of common shares outstanding. Diluted earnings (loss) per share is based upon the weighted average number of common and potential common shares for each period presented. Potential common shares include stock options under the treasury stock
method and convertible subordinated debt under the if-converted method. Potential common shares of 6,033,308 and 1,688,536 related to the Companys convertible debt and stock option programs have been excluded from diluted weighted average
common shares for the years ended December 28, 2003 and December 30, 2001, respectively, as the effect would be anti-dilutive.



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The following details the calculation of basic and diluted earnings (loss) per share:



|                                       |  |                    |         |   |                  |   |                  |  |   |         |  
|-------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ---------------- |  | - | ------- | -
|                                       |  | Fiscal Years Ended |        
|                                       |  | December 28,2003   |         |   | December 29,2002 |   | December 30,2001 | 
|Basic:                                 |  |                    |         |   |                  |   |                  |  |   |         |  
|Basic weighted average common shares   |  |                    | 64,667  |   |                  |   | 65,485           |  |   | 64,197  |  
|Net income (loss)                      |  | $                  | (32,859 | ) |                  | $ | 4,111            |  | $ | (20,512 | )
|                                       |  |                    |         |   |                  |   |                  |  |   |         |  
|Basic earnings (loss) per share        |  | $                  | (0.51   | ) |                  | $ | 0.06             |  | $ | (0.33   | )
|                                       |  |                    |         |   |                  |   |                  |  |   |         |  
|Diluted:                               |  |                    |         |   |                  |   |                  |  |   |         |  
|Basic weighted average common shares   |  |                    | 64,667  |   |                  |   | 65,485           |  |   | 64,197  |  
|Potential common shares                |  |                    |        |   |                  |   | 745              |  |   |        |  
|                                       |  |                    |         |   |                  |   |                  |  |   |         |  
|Diluted weighted average common shares |  |                    | 64,667  |   |                  |   | 66,230           |  |   | 64,197  |  
|Net income (loss)                      |  | $                  | (32,859 | ) |                  | $ | 4,111            |  | $ | (20,512 | )
|                                       |  |                    |         |   |                  |   |                  |  |   |         |  
|Diluted earnings (loss) per share      |  | $                  | (0.51   | ) |                  | $ | 0.06             |  | $ | (0.33   | )
|                                       |  |                    |         |   |                  |   |                  |  |   |         |  



Note 17. Acquisitions



On July 10, 2003, the Company completed the acquisition
of certain assets and liabilities of Ericsson Amplifier Technologies, Inc. (AMT) pursuant to an asset purchase agreement. Under the asset purchase agreement, the Company purchased selected assets of AMT, including certain inventories,
equipment and real estate for a cash payment of $9.8 million. The Company also assumed certain warranty obligations of AMT and made offers of employment to a limited number of employees of AMT as part of the purchase. In connection with the asset
purchase, the Company also entered into an agreement to become a supplier of certain 2.1 GHz W-CDMA radio frequency power amplifiers of Ericsson AB. The acquisition was accounted for under the purchase method of accounting and the total purchase
price of approximately $10.4 million, including assumed liabilities of $0.4 million and capitalized acquisition costs of $0.1 million, has been allocated as follows: $1.0 million to equipment, $5.9 million to assets held for sale, $0.1 million to
contract intangibles and $3.4 million to goodwill. The results of operations of AMT are included in the consolidated financial statements from the date of acquisition. The pro-forma effect of the acquisition is not material to the Companys
results of operations for fiscal 2001, 2002 or 2003.



Note 18. Customer
Concentrations



Powerwaves product sales have
historically been concentrated in a small number of customers. During the years ended December 28, 2003, December 29, 2002, and December 30, 2001, sales to customers that accounted for 10% or more of revenues for the year totaled $171.0 million,
$294.3 million, and $170.3 million, respectively. Sales to Nortel Networks Corporation and related entities (Nortel) accounted for approximately 57%, 49%, and 44% of total revenues during such years, respectively. During the year ended
December 28, 2003, one customer in addition to Nortel accounted for approximately 15% of total revenues. During the year ended December 29, 2002, two customers in addition to Nortel accounted for approximately 15% and 13% of total revenues. During
the year ended December 30, 2001, one customer in addition to Nortel accounted for approximately 13% of total revenues during such period.



As of December 28, 2003, approximately 65% of total accounts receivable related to two customers that each accounted for 10% or more of Powerwaves
total revenue during fiscal 2003. The loss of, or reduction in, sales to any of these customers could have a material adverse effect on the Companys business, financial condition and results of operations.



Note 19. Supplier Concentrations



Certain of Powerwaves products, as well as components utilized in such
products, are available in the short-term only from a single or a limited number of sources. In addition, in order to take advantage of volume pricing discounts, the Company purchases certain customized components for its radio frequency power
amplifiers from single-source suppliers as well as finished radio frequency amplifiers from single-source contract manufacturers. The inability to obtain single-source components or finished radio frequency amplifiers in the amounts needed on a
timely basis or at commercially reasonable prices could result in delays in product introductions, interruption in product shipments or increases in product costs, which could have a material adverse effect on the Companys business, financial
condition and results of operations until alternative sources could be developed at a reasonable cost.



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Note 20. Segments



Powerwave operates in a single business segment as a designer and manufacturer of radio frequency power amplifiers for wireless telecommunications
equipment. Net sales are derived primarily from the sale of radio frequency power amplifiers for use in wireless communications networks. The Company reviews its revenues based upon the radio frequency in which the product is utilized (i.e.,
800-1000 MHz (commonly referred to as cellular), 1800-2000 MHz (commonly referred to as PCS) and over 2000 MHz, which includes 3G frequency bands. Cost of sales, operating expenses and specific assets are not tracked or
allocated to these radio frequency ranges. The following schedule presents an analysis of Powerwaves net sales based upon radio frequency range:



|                       |  |                    |         |                  |   |                  |  |   |        
|---------------------- |  | ------------------ | ------- | ---------------- | - | ---------------- |  | - | -------
|                       |  | Fiscal Years Ended
|Radio Frequency Ranges |  | December 28,2003   |         | December 29,2002 |   | December 30,2001
|800-1000 MHz           |  | $                  | 107,029 |                  | $ | 242,498          |  | $ | 181,083
|1800-2000 MHz          |  |                    | 90,938  |                  |   | 84,209           |  |   | 57,142 
|2000+ MHz              |  |                    | 41,102  |                  |   | 58,182           |  |   | 62,068 
|                       |  |                    |         |                  |   |                  |  |   |        
|Total sales            |  | $                  | 239,069 |                  | $ | 384,889          |  | $ | 300,293
|                       |  |                    |         |                  |   |                  |  |   |        



The following schedule
presents an analysis of Powerwaves net sales based upon the geographic area to which a product was shipped:



|                               |  |                    |         |                  |   |                  |  |   |        
|------------------------------ |  | ------------------ | ------- | ---------------- | - | ---------------- |  | - | -------
|                               |  | Fiscal Years Ended
|Geographic Area                |  | December 28,2003   |         | December 29,2002 |   | December 30,2001
|North America                  |  | $                  | 128,350 |                  | $ | 257,009          |  | $ | 176,295
|Asia                           |  |                    | 31,974  |                  |   | 37,460           |  |   | 46,005 
|Europe and other international |  |                    | 78,745  |                  |   | 90,420           |  |   | 77,993 
|                               |  |                    |         |                  |   |                  |  |   |        
|Total sales                    |  | $                  | 239,069 |                  | $ | 384,889          |  | $ | 300,293
|                               |  |                    |         |                  |   |                  |  |   |        



North American sales
include sales to the United States, Canada and Mexico. Asian sales include sales to China, South Korea and other locations in Asia. Europe and Other International sales include sales to Europe and all other foreign countries. Sales to Canada were
$63.8 million, $128.7 million, and $53.1 million during the years ended December 28, 2003, December 29, 2002, and December 30, 2001, respectively. Sales to Finland were $35.4 million, $57.2 million, and $13.3 million during the years ended December
28, 2003, December 29, 2002, and December 30, 2001, respectively. Sales to France were $41.4 million, $32.0 million, and $63.0 million during the years ended December 28, 2003, December 29, 2002, and December 30, 2001, respectively.



The majority of Powerwaves assets are located in the United States, in
the State of California. Total accounts receivable as of December 28, 2003 include 35% from customers based in Canada, 33% from customers based in the United States and 18% from customers based in France.



Note 21. Related Party Transactions



As of December 28, 2003, the Company had no significant transactions with,
receivables from, or payables to any related parties.



During
the second quarter ended June 30, 2002, Ronald J. Buschur, the Chief Operating Officer of the Company, repaid a $1.4 million bridge loan that was issued by the Company in connection with his relocation to Southern California.



Note 22. Subsequent Events



On December 1, 2003, Powerwave and LGP Allgon, a company organized under the
laws of Sweden (LGP Allgon) announced that they had agreed to combine their businesses in a strategic transaction. Under the terms of the proposed acquisition, Powerwave will commence a tender offer to acquire all of the outstanding
shares of LGP Allgon, in exchange for newly-issued shares of Powerwave Common Stock. Each LGP Allgon share tendered into the exchange offer will be converted into 1.1 shares of Powerwave Common Stock. Based on Powerwaves closing



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price on the Nasdaq National Market on November 28, 2003 (the last trading day before the announcement of the
Transaction), the transaction values LGP Allgon shares at Swedish kronor (SEK) 61.87 ($8.1950 at the currency exchange rate of 7.55 SEK per USD as of November 28, 2003) per share. In addition, LGP Allgon shareholders will be offered the
opportunity, under a cash alternative, to elect for all or a specified number of their LGP Allgon shares to be acquired by Powerwave for a fixed price of SEK 61.87 in cash per LGP Allgon share. The cash alternative is subject to an aggregate maximum
of $125.0 million. Completion of the transaction is subject to Powerwave acquiring more than 90% of LGP Allgons stock in the exchange offer and through the exercise of options granted to Powerwave by certain shareholders of LGP Allgon,
representing approximately 19% of the outstanding LGP Allgon shares. Depending on the form of consideration elected and the number of LGP Allgon shares tendered into the exchange offer, LGP Allgon shareholders will own between 37% and 46% of
Powerwaves outstanding shares of Common Stock upon completion of the transaction. Completion of the transaction is also subject to the approval by Powerwaves shareholders of the stock issuance in the exchange offer under Nasdaq rules and
a proposed amendment to Powerwaves Certificate of Incorporation to increase its authorized shares of Common Stock, as well as regulatory approvals and satisfaction of other customary closing conditions. The parties anticipate that the
transaction will be completed either late in the first quarter or in the second quarter of 2004.



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QUARTERLY FINANCIAL DATA (UNAUDITED)

(in thousands, except per share data)



|                                       |  |                |         |   |               |   |         |                   |  |   |                  |   |  |   |        |  
|-------------------------------------- |  | -------------- | ------- | - | ------------- | - | ------- | ----------------- |  | - | ---------------- | - |  | - | ------ | -
|                                       |  | Quarters Ended |        
|                                       |  | March 30, 2003 |         |   | June 29, 2003 |   |         | September 28,2003 |  |   | December 28,2003 |  
|Fiscal 2003:                           |  |                |         |   |               |   |         |                   |  |   |                  |   |  |   |        |  
|Net sales                              |  | $              | 52,154  |   |               | $ | 51,509  |                   |  | $ | 63,158           |   |  | $ | 72,248 |  
|Gross profit (loss)                    |  | $              | 3,785   |   |               | $ | (7,121  | )                 |  | $ | 6,409            |   |  | $ | 13,142 |  
|Operating loss                         |  | $              | (17,264 | ) |               | $ | (25,060 | )                 |  | $ | (10,819          | ) |  | $ | (2,681 | )
|Net loss                               |  | $              | (10,568 | ) |               | $ | (15,237 | )                 |  | $ | (5,666           | ) |  | $ | (1,388 | )
|                                       |  |                |         |  
|Basic loss per share                   |  | $              | (0.16   | ) |               | $ | (0.23   | )                 |  | $ | (0.09            | ) |  | $ | (0.02  | )
|Diluted loss per share                 |  | $              | (0.16   | ) |               | $ | (0.23   | )                 |  | $ | (0.09            | ) |  | $ | (0.02  | )
|Basic weighted average common shares   |  |                | 65,877  |   |               |   | 65,976  |                   |  |   | 63,639           |   |  |   | 63,174 |  
|Diluted weighted average common shares |  |                | 65,877  |   |               |   | 65,976  |                   |  |   | 63,639           |   |  |   | 63,174 |  
|                                       | 
|                                       |  | Quarters Ended |        
|                                       |  | March 31,2002  |         |   | June 30,2002  |   |         | September 29,2002 |  |   | December 29,2002 |  
|Fiscal 2002:                           |  |                |         |   |               |   |         |                   |  |   |                  |   |  |   |        |  
|Net sales                              |  | $              | 104,085 |   |               | $ | 113,368 |                   |  | $ | 91,300           |   |  | $ | 76,136 |  
|Gross profit                           |  | $              | 18,703  |   |               | $ | 21,571  |                   |  | $ | 13,626           |   |  | $ | 8,883  |  
|Operating income (loss)                |  | $              | 3,199   |   |               | $ | 5,521   |                   |  | $ | 643              |   |  | $ | (5,452 | )
|Net Income (loss)                      |  | $              | 2,720   |   |               | $ | 4,377   |                   |  | $ | 1,003            |   |  | $ | (3,989 | )
|                                       |  |                |         |  
|Basic earnings (loss) per share        |  | $              | 0.04    |   |               | $ | 0.07    |                   |  | $ | 0.02             |   |  | $ | (0.06  | )
|Diluted earnings (loss) per share      |  | $              | 0.04    |   |               | $ | 0.07    |                   |  | $ | 0.02             |   |  | $ | (0.06  | )
|Basic weighted average common shares   |  |                | 65,233  |   |               |   | 65,415  |                   |  |   | 65,584           |   |  |   | 65,707 |  
|Diluted weighted average common shares |  |                | 66,675  |   |               |   | 66,223  |                   |  |   | 66,069           |   |  |   | 65,707 |  



ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A. CONTROLS AND PROCEDURES



Disclosure
Controls and Procedures



We have established disclosure
controls and procedures to ensure that material information relating to Powerwave and its consolidated subsidiaries is made known to the officers who certify the Companys financial reports, as well as other members of senior management and the
Board of Directors, to allow timely decisions regarding required disclosures. As of the end of the period covered by this report, Powerwave carried out an evaluation, under the supervision and with the participation of the Companys management,
including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Rule 13a-15 of the Securities and Exchange Act of
1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information related to the Company that
is required to be included in Powerwaves annual and periodic SEC filings.



Internal Control Over Financial Reporting



There has been no change in the Companys internal control over financial reporting during the fourth fiscal quarter that has materially affected, or is reasonable likely to materially affect, the Companys internal control over
financial reporting.



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PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



Directors



John L.
Clendenin, 69, has been non-executive Chairman of the Board of Directors of Powerwave since January 3, 1999 and has been a member of the Board of Directors since May 1998. Mr. Clendenin is a Chairman Emeritus of BellSouth Corporation, a
telecommunications holding company. He served as Chairman of the Board of BellSouth until December 31, 1997 and as President and Chief Executive Officer from 1984 until his retirement at the end of 1996. Prior to BellSouth, Mr. Clendenin was
President of Southern Bell from April 1981 to December 1983. He also serves on the Board of Directors of Coca-Cola Enterprises, Inc., Equifax Inc., Acuity Brands, Inc., The Kroger Company and The Home Depot, Inc.



Daniel A. Artusi, 49, joined Powerwaves Board of Directors in
December 2002. Mr. Artusi is the President and Chief Executive Officer of Silicon Laboratories Inc., a designer and manufacturer of integrated circuits for the communications industry. Prior to joining Silicon Laboratories in August 2001, Mr. Artusi
held various positions at Motorola, Inc. from 1977 to 2001. From August 1999 to August 2001, Mr. Artusi served as Corporate Vice President and General Manager of Motorolas Networking and Computing Systems Group. Mr. Artusi served as Vice
President and General Manager of Motorolas Wireless Infrastructure Division from May 1997 to August 1999 and as General Manager of Motorolas RF Products Division from April 1996 to May 1997.



Gregory M. Avis, 45, has been a member of Powerwaves Board of
Directors since October 1995. Mr. Avis has been a managing partner of Summit Partners, a venture capital and private equity firm, since January 1990. Mr. Avis also serves on the Board of Directors of Ditech Communications Corp. and IMPAC Medical
Systems.



Bruce C. Edwards,50, joined the Company in
February 1996 as President and Chief Executive Officer and Director. Mr. Edwards was Executive Vice President, Chief Financial Officer and Director of AST Research, Inc., a personal computer company, from July 1994 to December 1995 and Senior Vice
President, Finance and Chief Financial Officer of AST Research, Inc. from March 1988 to July 1994. Mr. Edwards currently serves on the Board of Directors of Emulex Corporation.



David L. George, 50, has been a member of Powerwaves Board of Directors since November 1995. Since April 2002,
he has served as Chief Operating Officer, Chief Technical Officer and President of the Wireless Communications Division of Bizcom U.S.A., Inc., a public company specializing in emergency management software solutions and wireless communications
systems. Prior to joining Bizcom, Mr. George was in private practice providing consulting services to participants in the wireless industry. From June 2000 to June 2001, he was Executive Vice President of Operations for Securicor Wireless, Inc., a
large mobile radio network provider. Mr. George was the co-founder and served as Executive Vice President and Chief Technical Officer of ComSpace Corporation, formerly known as Unique Technologies, International, L.L.C., a wireless technology
development company from February 1994 to June 2000. From November 1983 to February 1994, Mr. George served as Vice President, Director of Operations, Commercial Communications Division of Uniden America. A member of the Institute of Electrical and
Electronic Engineers for more than 22 years, he holds several patents relating to wireless technology and networks.



Eugene L. Goda, 67, has been a member of Powerwaves Board of Directors since November 1995. From June 1997 to March 2000, Mr. Goda served as
Chairman of the Board, President and Chief Executive Officer of Objectshare Inc., a software company. From October 1991 to October 1995, Mr. Goda served as Chief Executive Officer of Simulation Sciences, Inc., a software company. From July 1989 to
September 1991, he served as Chief Executive Officer of Meridian Software Systems.



Carl W. Neun, 60, has been a member of Powerwaves Board of Directors since February 2000. From 1993 to January 2000, Mr. Neun was Senior Vice President and Chief Financial Officer of Tektronix, Inc. From
1987 to 1993, he was Senior Vice President of Administration and Chief Financial Officer of Conner Peripherals, Inc. Mr. Neun currently serves on the Board of Directors of Planar Systems, RadiSys Corp, and Oregon Steel Mills, Inc.



Safi U. Qureshey, 52, has been a member of Powerwaves Board of
Directors since February 2000. Mr. Qureshey is active an investor in early stage technology companies. Mr. Qureshey was the cofounder and former Chief Executive Officer and Chairman of AST Research, Inc. a personal computer company. Mr. Qureshey is
also a former member of President Clintons Export Council and was a Regents Professor at the Graduate School of Management, University of California at Irvine.



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Andrew J. Sukawaty, 48, has been a member of Powerwaves Board of Directors since May 1998.
Mr. Sukawaty is President and Chief Executive Officer of Cable Partners Europe L.L.C., formerly known as Callahan Associates International (UK), a global communications development and operating company. Mr. Sukawaty is also a Deputy Chairman of
mm02, PLC, formerly BT Wireless, a Chairman of Telenet, and a non-executive Chairman of Inmarsat Group. From September 1996 to June 2000, Mr. Sukawaty served as President and Chief Executive Officer of Sprint PCS. Prior to joining Sprint PCS, Mr.
Sukawaty was Chief Executive Officer of NTL Limited, a British diversified broadcast transmission and communications company, since 1994. From 1989 to 1994, he was Chief Operating Officer of Mercury One-2-One, a PCS service provider in the United
Kingdom. Prior to 1989, Mr. Sukawaty held various positions with US WEST, Inc., AT&T and Northwestern Bell.



Executive Officers



Bruce C. Edwards,50, joined the Company in February 1996 as President and Chief Executive Officer and Director. Mr. Edwards was Executive Vice
President, Chief Financial Officer and Director of AST Research, Inc., a personal computer company, from July 1994 to December 1995 and Senior Vice President, Finance and Chief Financial Officer of AST Research, Inc. from March 1988 to July 1994.
Mr. Edwards currently serves on the Board of Directors of Emulex Corporation.



Ronald J. Buschur, 39, joined the Company in June 2001 as Chief Operating Officer. Prior to joining the Company, Mr. Buschur held various positions at HMT Technology/Komag, an independent supplier of thin-film
disks, including President and Chief Operating Officer from 1999 to 2000, Vice President of Sales, Marketing and Quality Assurance from 1997 to 1999 and Vice President of Quality Assurance from 1994 to 1997. From 1993 to 1994, Mr. Buschur was
Director of Quality at Maxtor, a disk drive company. Mr. Buschur held various managerial positions at Digital Equipment Corporation, a computer manufacturer from 1987 to 1993.



Kevin T. Michaels,45, joined the Company in June 1996 as Vice President, Finance and Chief Financial Officer and was
appointed Secretary in June 1996. Mr. Michaels was named Senior Vice President, Finance in February 2000. Prior to joining the Company, Mr. Michaels worked for AST Research, Inc. for eight years, most recently as Vice President, Treasurer from
October 1995 to June 1996. From July 1991 to October 1995, Mr. Michaels was Treasurer of AST Research, Inc. and from June 1988 to June 1991, he was Assistant Treasurer.



Audit Committee and Audit Committee Financial Expert



The Company has a standing Audit Committee and the current members of this committee are Gregory M. Avis, David L. George
and Carl W. Neun, all of whom are independent under both Section 10A of the Securities Act of 1934 (Exchange Act) and under the Nasdaq marketplace rules. The Companys Board of Directors has determined that Carl W. Neun, a member of
the audit committee and Board of Directors, is an audit committee financial expert as such term is defined in Item 401(h) of SEC Regulation S-K. For Mr. Neuns relevant experience, see his biography listed in Directors above.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Exchange Act requires the Companys directors and
executive officers, and persons who own more than ten percent of a registered class of the Companys equity securities, to file reports of ownership with the Securities and Exchange Commission (SEC) and Nasdaq. Directors, executive
officers and greater than ten-percent beneficial owners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.



Based solely on a review of filings with the Securities and Exchange Commission and written representations by each executive officer and director that
no other reports were required, we believe that all of our directors and executive officers have complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, during fiscal 2003.



Code of Ethics



The Company has adopted a code of ethics that applies to all employees of the Company, including the Companys
principal executive officer, principal financial officer and principal accounting officer. This code of ethics is designed to comply with the Nasdaq marketplace rules related to codes of conduct. A copy of our Code of Business Conduct and Ethics
Policy is attached as Exhibit 14 to this Form 10-K.



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ITEM 11. EXECUTIVE COMPENSATION



Compensation
Committee Report on Executive Compensation



Powerwaves compensation policies applicable to its executive officers are administered by the Compensation Committee of the Board of Directors. The Compensation Committees members consist of directors who are independent from
the executive officers or the management of the Company. Powerwaves executive compensation programs are designed to attract, motivate and retain the executive talent needed to optimize shareholder value. The programs are designed to enhance
shareholder value by aligning the financial interests of the executive officers of the Company with those of our shareholders.



Compensation Policy



Powerwaves executive compensation programs are based on the belief that the interests of the executives should be closely aligned with the
Companys shareholders. In support of this philosophy, a meaningful portion of each executives compensation is placed at-risk and is linked to the accomplishment of specific results that are expected to lead to the creation of value for
Powerwaves shareholders from both a short-term and long-term perspective. With this pay-for-performance and shareholder alignment orientation, Powerwaves compensation policies and programs are designed to (1) attract, develop, reward and
retain highly qualified and productive individuals; and (2) motivate executives to improve the overall performance and profitability of Powerwave.



There are three primary components of executive compensation: base salary, bonus and stock option grants. While the elements of compensation are
considered separately, the Compensation Committee takes into account the total compensation package afforded by the Company to the individual executive.



Base Salary



Salaries paid to executive officers (including the Chief Executive Officer) are reviewed annually by the Compensation Committee and proposed adjustments
are based upon an assessment of the nature of the position and the individuals contribution to corporate goals, experience and tenure of the executive officer, comparable market salary data, growth in the Companys size and complexity,
and changes in the executives responsibilities. The Compensation Committee approves all changes to executive officers salaries.



Annual Management Bonus



Powerwave has established a cash bonus plan for all employees including executive management. Payment of bonuses is dependent on the Company achieving
specific performance criteria for the fiscal year. During fiscal 2003, eighty percent of the bonus was tied to objective Company performance criteria related to operating revenue, pre-tax profit, on-time delivery metrics and customer satisfaction.
The remaining twenty percent was tied to objective individual performance targets. No amounts attributable to individual performance targets are paid unless the Company first achieves the Company performance targets for the fiscal year. The
Company-wide performance targets are established at the beginning of the fiscal year on the basis of an annual budget developed by management and approved by the Board of Directors. The individual performance targets are also established at the
beginning of the fiscal year by the individuals manager and these targets are designed to further Powerwaves corporate goals. The size of the overall cash bonus pool is subject to the approval of the Board of Directors. Once the overall
bonus pool is approved, employees are eligible for their individual target bonuses based upon Powerwaves overall achievement of its performances goals. The Compensation Committee reviews and approves all bonuses for executive officers, based
upon an evaluation of their individual performance and contribution to Powerwaves overall performance. No bonus payments were made during fiscal 2003 as the Company did not fulfill its performance targets. Also, no bonus payments were made
during fiscal 2003 with respect to individual performance targets.



Stock Options



Stock options are designed to
align the interests of executives with those of the shareholders. Stock option grants may be made to executive officers when one of the following events occurs: upon initial employment, upon promotion to a new, higher level position that entails
increased responsibilities and accountability, for the recognition of superior performance, or as an incentive for continued service with Powerwave as well as continued superior performance. For executive officers, the Chairman or the Chief
Executive Officer recommends the number of options to be granted within a range associated with the individual executives salary level, and presents this to the Compensation Committee and the entire Board of Directors for their review and
approval. The Compensation Committee takes into account the total compensation offered to its executives when considering the number of



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options awarded. The Chief Executive Officer and the Chief Financial Officer comprise the members of the Companys
Option Committee, and are empowered by the Board of Directors and the Compensation Committee to grant options to non-officer employees of the Company up to a grant amount of 20,000 shares per employee. All grants for employees of the Company in
excess of this amount are submitted to the Compensation Committee or the Board of Directors for approval. All grants for executive officers of Powerwave are submitted to both the Compensation Committee and the entire Board of Directors for approval.
In fiscal 2003, Mr. Buschur and Mr. Michaels each received an option grant as an incentive for continued service to the Company. See Executive OfficersOption Grants In Fiscal 2003.



CEO Compensation



The principal components of compensation for the Chief Executive Officer for
fiscal 2003 included only base salary. The Compensation Committee increased Mr. Edwards base salary from $420,000 to $440,000, effective February 3, 2003, based on an assessment of the nature of his position, comparable market salary,
contribution to corporate goals, and experience with Powerwave.



During fiscal 2003, no bonuses were paid to Mr. Edwards with respect to the individual performance component of the bonus plan or with respect to Company-wide performance as Powerwave did not fulfill its performance targets during the year.
In fiscal 2003, Mr. Edwards was not granted any options to purchase shares of Common Stock.



Policy Regarding Section 162(m) of the Internal Revenue Code



The Compensation Committee has reviewed Powerwaves executive compensation plans to determine if revisions may be necessary due to the provisions of
Section 162(m) of the Internal Revenue Code which generally disallows a tax deduction to public corporations for compensation paid to any of the corporations executive officers in excess of $1,000,000 during any fiscal year. It is the current
policy of the Compensation Committee to preserve, to the extent reasonably possible, Powerwaves ability to obtain a corporate tax deduction for compensation paid to executive officers of Powerwave to the extent consistent with the best
interests of the Company and its shareholders. The Compensation Committee continually reviews Powerwaves existing executive compensation plans and will propose changes, if necessary and reasonable, to ensure compliance with the provisions of
Section 162(m) which allow performance-based compensation to be excluded from the deduction limits.



Members of the Compensation Committee:



Andrew J. SukawatyChairman of the Compensation Committee



Daniel A. Artusi



Eugene L. Goda



Safi U. Qureshey



Compensation Committee Interlocks and Insider Participation



During fiscal 2003, all of the members of the Compensation Committee consisted of independent directors and none of the members of the Compensation
Committee has served as an employee of the Company.



Compensation of
Executive Officers



The following sets forth certain
information regarding Powerwaves executive officers:



Summary Compensation Table



The following
table sets forth summary information concerning compensation paid by or accrued for services rendered to the Company in all capacities during the past three fiscal years to the Companys Chief Executive Officer and to each of the two additional
executive officers whose salary and bonus exceeded $100,000 (the Named Executive Officers.)



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|                                                                                        |  |              |  |                            |                       |     |                                      |     |           |                       |     |                    |           |  |                       |     |  |     |                    |          
|--------------------------------------------------------------------------------------- |  | ------------ |  | -------------------------- | --------------------- | --- | ------------------------------------ | --- | --------- | --------------------- | --- | ------------------ | --------- |  | --------------------- | --- |  | --- | ------------------ | ---------
|                                                                                        |  |              |  | Summary Compensation Table |                       |     |                                      |     |           |                       |    
|                                                                                        |  |              |  | Annual Compensation        |                       |     | Long-termCompensationAwards Options |     |           | All OtherCompensation |    
|Name and Principal Position                                                             |  | Year         |  | Salary                     |                       |     | Bonus                                |     | Other     |                       |     |                   
|Bruce C. Edwards President and Chief Executive Officer                                  |  | 200320022001 |  | $$$                        | 438,077416,539370,960 |     |                                      | $$$ | 100,800 |                       | $$$ | 29,81824,19110,491 | (1)(1)(1) |  | 400,000             |     |  | $$$ |                 |          
|                                                                                        |  |              |  |                            |                       |    
|Ronald J. Buschur Chief Operating Officer                                               |  | 200320022001 |  | $$$                        | 395,238348,462154,846 | (6) |                                      | $$$ | 56,000  |                       | $$$ | 18,4305,910       | (2)(2)    |  | 200,000100,000400,000 | (6) |  | $$$ | 6,972101,79775,235 | (4)(5)(6)
|                                                                                        |  |              |  |                            |                       |    
|Kevin T. Michaels Senior Vice President, Finance, Chief Financial Officer and Secretary |  | 200320022001 |  | $$$                        | 297,619274,231234,308 |     |                                      | $$$ | 44,000  |                       | $$$ | 28,60522,06011,787 | (3)(3)(3) |  | 75,00075,00050,000    |     |  | $$$ |                 |          

---

|(1) | Includes $11,388, $11,477 and $6,415 of 401(k) matching contributions, and $18,094, $12,714
and $4,076 of health coverage payments during fiscal years 2003, 2002 and 2001, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Consists of $18,094 and $5,910 of health coverage payments during fiscal years 2003 and 2002,
respectively.
|--- | -----------------------------------------------------------------------------------------------------------

|(3) | Includes $10,175, $9,346 and $7,711 of 401(k) matching contributions, and $18,094, $12,714
and $4,076 of health coverage payments during fiscal years 2003, 2002 and 2001, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Consists of $6,972 of reimbursement related to costs associated with Mr. Buschurs
relocation to Southern California.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(5) | Consists of $101,797 of reimbursement related to costs associated with Mr. Buschurs
relocation to Southern California.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(6) | Mr. Buschur joined Powerwave as Chief Operating Officer in June 2001, at a base salary of
$330,000. In connection with his employment, Mr. Buschur was granted a stock option to purchase 400,000 shares of common stock at an exercise price of $11.81 per share. In addition, during fiscal 2001, Powerwave reimbursed Mr. Buschur $75,235 in
relocation costs and provided an unsecured bridge loan of $1.4 million, both of which related to his relocation to Southern California. At December 29, 2002, the entire $1.4 million bridge loan had been repaid in full.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Option Grants in Fiscal 2003



The following table sets forth certain information concerning grants of
options to each of Powerwaves Named Executive Officers during the fiscal year ended December 28, 2003. In addition, in accordance with the rules and regulations of the Securities and Exchange Commission, the following table sets forth the
hypothetical gains that would exist for the options based on the assumption that the stock price were to appreciate annually by 5% and 10%, respectively. The rates do not represent Powerwaves estimate or projection of future Common Stock
prices and no assurance can be given that the share price will appreciate at the rates shown in the table.



|                  |  |                                             |     |  |                                                      |   |     |                            |      |                   |            |                                                                                                 |   |         |  |   |          
|----------------- |  | ------------------------------------------- | --- |  | ---------------------------------------------------- | - | --- | -------------------------- | ---- | ----------------- | ---------- | ----------------------------------------------------------------------------------------------- | - | ------- |  | - | ---------
|                  |  |                                             |     |  | Option Grants During Fiscal 2003                     |   |    
|Name              |  | Number ofSecuritiesUnderlyingOptionsGranted |     |  | % of TotalOptionsGranted toEmployeesin FiscalYear(1) |   |     | ExercisePrice ($/Share)(2) |      | ExpirationDate(3) |            | Potential Realizable Valueat Assumed Annual Rates of Stock Price Appreciationfor Option Term(4)
|                  |  |                                             |     |  | 5%                                                   |   | 10%
|Bruce C. Edwards  |  |                                            |     |  |                                                     |   |     |                            |     |                   |           |                                                                                                 |   |        |  |   |         
|Ronald J. Buschur |  | 200,000                                     | (5) |  | 13.1                                                 | % |     | $                          | 6.57 |                   | 10/17/2013 |                                                                                                 | $ | 826,368 |  | $ | 2,094,178
|Kevin T. Michaels |  | 75,000                                      | (5) |  | 4.9                                                  | % |     | $                          | 6.57 |                   | 10/17/2013 |                                                                                                 | $ | 309,888 |  | $ | 785,317  



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---

|(1) | Options to purchase an aggregate of 1,526,700 shares of Common Stock were granted to
employees, including the Named Executive Officers, during the fiscal year ended December 28, 2003.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The exercise price of each option is equal to the fair market value of Common Stock on the
date of the grant.
|--- | -------------------------------------------------------------------------------------------------------------

|(3) | Options granted have a term of 10 years, subject to earlier termination in certain events
related to termination of employment.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(4) | The amount assumes a Common Stock price of $10.70 at 5% appreciation and $17.04 at 10%
appreciation. There is no guarantee that the Common Stock price will actually appreciate to these levels.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Subject to continued employment with the Company, the options become exercisable as to one
forty-eighth per month beginning November 1, 2003.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



Aggregated Option Exercises and Values for Fiscal 2003



The following table sets forth certain information concerning the exercise
of options by each of Powerwaves Named Executive Officers during fiscal 2003, including the aggregate value of gains on the date of exercise. In addition, the table includes the number of shares covered by both exercisable and unexercisable
stock options as of December 28, 2003. Also reported are the values for in-the-money options which represent the positive spread between the exercise prices of any such existing stock options and the fiscal year end price of
Powerwaves Common Stock.



|                  |  |                                                                                       |             |                |               |     |                                                               |         |                                                          |         |  |   |         |  |   |        
|----------------- |  | ------------------------------------------------------------------------------------- | ----------- | -------------- | ------------- | --- | ------------------------------------------------------------- | ------- | -------------------------------------------------------- | ------- |  | - | ------- |  | - | -------
|                  |  | Aggregated Option Exercises During Fiscal 2003 and Option Values at December 28, 2003
|Name              |  | Shares Acquired onExercise                                                            |             | Value Realized |               |     | Number of SecuritiesUnderlying UnexercisedOptions at 12/28/03 |         | Value of Unexercised In-the-Money Options at 12/28/03(1)
|                  |  |                                                                                       | Exercisable |                | Unexercisable |     | Exercisable                                                   |         | Unexercisable                                           
|                  |  |                                                                                       |             |                |               |    
|Bruce C. Edwards  |  | 50,000                                                                                |             | $              | 35,500        | (2) |                                                               | 83,333  |                                                          | 266,667 |  | $ | 190,833 |  | $ | 610,667
|                  |  |                                                                                       |             |                |               |    
|Ronald J. Buschur |  |                                                                                      |             | $              |              |     |                                                               | 291,666 |                                                          | 408,334 |  | $ | 85,749  |  | $ | 369,251
|                  |  |                                                                                       |             |                |               |    
|Kevin T. Michaels |  |                                                                                      |             | $              |              |     |                                                               | 259,041 |                                                          | 136,459 |  | $ | 548,319 |  | $ | 195,719

---

|(1) | In accordance with the Securities and Exchange Commissions rules, values are calculated
by subtracting the exercise price from the fair market value of the underlying common stock. For purposes of this table, the fair market value per share is deemed to be $7.70, Powerwaves closing Common Stock price reported by Nasdaq on
December 26, 2003, the last trading day of fiscal year 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents estimated market value on the date of exercise of shares, less option exercise
price. These options were exercised and the shares were still held by Mr. Edwards as of December 28, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Employment Agreements and Change-in-Control Arrangements



Effective August 1, 2003, Powerwave entered into severance agreements with Bruce C. Edwards, Ronald J. Buschur and Kevin T. Michaels. Mr. Edwards
severance agreement provides that if his employment is terminated without cause or if he voluntarily resigns for good reason (as such terms are defined below), he shall be entitled to (i) a lump-sum payment equal to three
times his total annual compensation; and (ii) continued group health insurance for a period of thirty-six months. For purposes of this agreement, total annual compensation is defined as base salary for the year in which
employment terminates plus the greater of Mr. Edwards target bonus for the year in which employment terminates or the actual bonus paid in the prior year. Mr. Buschur and Mr. Michaels have executed identical severance agreements, except that
the severance payment amount is two times their total annual compensation, and the period of continued health coverage is twenty-four months.



Effective August 1, 2003, Powerwave also entered into change of control agreements with Mr. Edwards, Mr. Buschur and Mr. Michaels. Mr. Edwards
change in control agreement provides that if in anticipation of, connection with, or within two years following a change in control, Mr. Edwards employment is terminated without cause, or if Mr. Edwards voluntarily
resigns for good reason, then Mr. Edwards shall be entitled to (i) a lump-sum payment equal to three times his total annual compensation; (ii) continued health insurance for a period of thirty-six months; and (iii) the immediate vesting
of all unvested stock options held by Mr. Edwards. For purposes of this agreement, the term total annual compensation has the same definition as provided in the severance agreement. Mr. Buschur and Mr. Michaels have executed identical
change in control agreements, except that the lump sum payment is two times their total annual compensation, and the period of continued health insurance coverage is twenty-four months.



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For purposes of these agreements, cause means the continued, unreasonable refusal or omission
by the employee to perform any material duties required of him by the Company, if such duties are consistent with duties customary for his position; any material act or omission by the employee involving malfeasance or gross negligence in the
performance of his duties to, or material deviation from any of the policies or directives of the Company; conduct on the part of the employee which constitutes the breach of any statutory or common law duty of loyalty to the Company, including the
unauthorized disclosure of material confidential information or trade secrets of the Company; or any illegal act by employee which materially and adversely affects the business of the Company or any felony committed by employee, as evidenced by
conviction thereof, provided that the Company may suspend the employee with pay while any allegation of such illegal or felonious act is investigated.



The term good reason means any of the following, without the employees written consent: a reduction by the Company in the
employees compensation that is not made in connection with an across the board reduction of all the Companys executive salaries; a reduction by the Company of the employees benefits from those he was entitled to immediately prior
to the termination of employment or a change in control, whichever occurs first, that is not made in connection with an across the board reduction of all the Companys benefits; the failure of the Company to obtain an agreement from any
successor to the Company, or purchaser of all or substantially all of the Companys assets, to assume the severance agreement or change in control agreement; the assignment of duties to the employee which reflect a material adverse change in
authority, responsibility or status with the Company or any successor; a relocation of the employee to a location more than 30 miles from the location where the employee was regularly assigned to immediately prior to the employees termination
of employment or a change in control, whichever occurs first; or a failure by the Company to pay any portion of the employees compensation within ten (10) days of the date due.



These agreements define change in control as the occurrence of any of the following events: (i) the acquisition,
directly or indirectly, by any person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial ownership of more than fifty percent of the outstanding securities of Powerwave; (ii) a
merger or consolidation in which Powerwave is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which Powerwave in incorporated; (iii) the sale, transfer or other disposition of all or
substantially all of the assets of Powerwave; (iv) a complete liquidation or dissolution of Powerwave; or (v) any reverse merger in which Powerwave is the surviving entity but in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Companys outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such merger.



Compensation of Directors



Base Compensation



For fiscal 2003, Powerwaves non-employee directors, other than Mr.
Avis who waived his fees, received a retainer fee of $20,000 per year, payable in quarterly installments, and $1,000 for each Board meeting attended (including phone meetings where resolutions are taken). The non-executive Chairman receives an
additional retainer fee of $20,000 per year payable in quarterly installments. Directors of the Company who are also employees receive no additional compensation for their services as a director.



Options



The 1996 Director Stock Option Plan (the Director Plan), as amended, provides that a total of 1,200,000 shares
of the Companys Common Stock are reserved for issuance under the plan. The Director Plan provides that each member of Powerwaves Board of Directors who is not an employee or paid consultant of the Company will automatically be eligible
to receive non-statutory options to purchase Common Stock under the plan. Pursuant to the terms of the Director Plan, each director elected after December 5, 1996, will be granted an initial option under the Director Plan covering 30,000 shares of
Common Stock that shall vest at the rate of 25% on the first anniversary of the grant date and the remaining 75% shall vest in equal monthly installments over the following three years. Furthermore, on each anniversary date of December 5, each
director who shall have been an eligible participant under the Director Plan for at least six months shall be granted an annual option under the Director Plan to purchase 10,000 shares of Common Stock that vests 100% on the fourth anniversary date
of the grant. The Director Plan provides that the exercise price per share of grants issued under the Director Plan shall be equal to 100% of the fair market value of a share of Common Stock on the grant date. All options expire no later than five
years after the grant date. As of December 28, 2003, a total of 195,000 options had been exercised under the Director Plan. There were 460,000 options outstanding under the Director Plan as of December 28, 2003 at a weighted average exercise price
of $23.79 per share. There were 545,000 shares available for grant under the Director Plan at December 28, 2003.



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On December 5, 2003, Messrs. Clendenin, Artusi, George, Goda, Neun, Qureshey and Sukawaty were each
granted an option to purchase 10,000 shares of Common Stock at an exercise price of $7.70 per share under the Director Plan in connection with their annual membership on the Board. Mr. Avis waived his option grant.



Corporate Governance Policies and Practices



The following is a summary of our corporate governance policies and
practices:



| |  | All members of the Board are independent directors, as defined by Nasdaq, excluding the Chief Executive Officer. Independent directors do not receive consulting, legal or other fees
from Powerwave other than Board and Committee compensation.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The independent directors of the Board meet regularly without the presence of management.
| | - | -----------------------------------------------------------------------------------------



| |  | All of our employees, officers and directors are subject to Powerwaves Code of Business Conduct and Ethics Policy. The ethics policy meets the requirements of Nasdaq, as well
as the code of ethics requirements of the SEC.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Directors stand for reelection every year.
| | - | ------------------------------------------



| |  | The Boards current policy is to separate the roles of Chairman of the Board and Chief Executive Officer.
| | - | ---------------------------------------------------------------------------------------------------------



| |  | The Audit and Compensation Committees consist entirely of independent directors.
| | - | --------------------------------------------------------------------------------



| |  | At least annually, the Board reviews Powerwaves business initiatives, capital projects and budget matters.
| | - | -----------------------------------------------------------------------------------------------------------



| |  | The Audit Committee reviews and approves all related-party transactions.
| | - | ------------------------------------------------------------------------



| |  | As part of our Code of Business Conduct and Ethics Policy, we have made a whistleblower hotline available to all employees for anonymous reporting of financial or other
concerns. The Audit Committee receives directly, without management participation, all hotline activity reports, including complaints on accounting, internal controls or auditing matters.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Stock Performance Graph



The following graph compares the cumulative total shareholder returns for Powerwaves Common Stock with the cumulative total return of the S &
P 500 Index, and the S & P Communications Equipment Index. The presentation assumes $100 invested on January 3, 1999 in Powerwaves Common Stock, the S & P 500 Index and the S & P Communications Equipment Index with all dividends
reinvested. No cash dividends were declared on Powerwaves Common Stock during this period. Shareholder returns over the indicated period should not be considered indicative of future shareholder returns.



LOGO



|                                         |  |                              |       |                 |   |                                      |  |   |    
|---------------------------------------- |  | ---------------------------- | ----- | --------------- | - | ------------------------------------ |  | - | ---
|Measurement Period (Fiscal Year
Covered) |  | Powerwave Technologies, Inc. |       | S & P 500 Index |   | S & P Communications Equipment Index
|1999                                     |  | $                            | 417   |                 | $ | 156                                  |  | $ | 387
|2000                                     |  | $                            | 1,253 |                 | $ | 141                                  |  | $ | 169
|2001                                     |  | $                            | 390   |                 | $ | 125                                  |  | $ | 62 
|2002                                     |  | $                            | 114   |                 | $ | 97                                   |  | $ | 29 
|2003                                     |  | $                            | 165   |                 | $ | 125                                  |  | $ | 47 



Notwithstanding
anything to the contrary set forth in the Companys previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this Annual Report on Form
10-K, in whole or in part, the Board Compensation Committee Report on Executive Compensation and the Stock Performance Comparison Graph shall not be incorporated by reference into any such filings.



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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



The following table sets forth information concerning the beneficial ownership of Powerwaves outstanding Common Stock as of February 4, 2004, except
as otherwise noted, by persons who are directors, Named Executive Officers, nominees or persons known to Powerwave to be beneficial owners of five percent or more of our outstanding Common Stock. The table also includes the beneficial stock
ownership of all directors and Named Executive Officers of Powerwave as a group.



|                                                                                               |  |                                        |      |  |                                   
|---------------------------------------------------------------------------------------------- |  | -------------------------------------- | ---- |  | ----------------------------------
|Name and Address of Beneficial Owner(1)                                                        |  | Number of Shares Beneficially Owned(2) |      |  | Percentage of SharesOutstanding(2)
|                                                                                               |  |                                       
|FMR Corp. 82 Devonshire Street, Boston, MA 02109                                               |  | 8,206,339                              | (3)  |  | 12.9                              
|                                                                                               |  |                                       
|David A. Rocker Suite 1759, 45 Rockefeller Plaza, New York, NY 10111                           |  | 5,551,909                              | (4)  |  | 8.8                               
|                                                                                               |  |                                       
|Brown Investment Advisory & Trust Company 19 South Bond Street, Suite 400, Baltimore, MD 21231 |  | 3,985,483                              | (5)  |  | 6.3                               
|                                                                                               |  |                                       
|Deutsche Bank AG 12 Taunusanlage, D-60325, Frankfurt am, Main, Germany                         |  | 3,879,546                              | (6)  |  | 6.1                               
|                                                                                               |  |                                       
|Bruce C. Edwards                                                                               |  | 877,291                                | (7)  |  | 1.4                               
|                                                                                               |  |                                       
|Ronald J. Buschur                                                                              |  | 337,499                                | (8)  |  | *                                 
|                                                                                               |  |                                       
|Kevin T. Michaels                                                                              |  | 282,556                                | (9)  |  | *                                 
|                                                                                               |  |                                       
|John L. Clendenin                                                                              |  | 159,000                                | (10) |  | *                                 
|                                                                                               |  |                                       
|Safi U. Qureshey                                                                               |  | 97,500                                 | (11) |  | *                                 
|                                                                                               |  |                                       
|Carl W. Neun                                                                                   |  | 90,800                                 | (12) |  | *                                 
|                                                                                               |  |                                       
|David L. George                                                                                |  | 50,625                                 | (13) |  | *                                 
|                                                                                               |  |                                       
|Eugene L. Goda                                                                                 |  | 45,000                                 | (14) |  | *                                 
|                                                                                               |  |                                       
|Andrew J. Sukawaty                                                                             |  | 30,000                                 | (15) |  | *                                 
|                                                                                               |  |                                       
|Daniel A. Artusi                                                                               |  | 9,375                                  | (16) |  | *                                 
|                                                                                               |  |                                       
|Gregory M. Avis                                                                                |  |                                       |      |  |                                  
|                                                                                               |  |                                       
|All Executive Directors and Named Executive Officers as a Group (11 persons)                   |  | 1,979,646                              | (17) |  | 3.1                               

---

|* | Less than 1%
|- | ------------

|(1) | Unless otherwise indicated, the business address of each holder is: c/o Powerwave
Technologies, Inc., 1801 E. St. Andrew Place, Santa Ana, CA 92705.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Beneficial ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to options or warrants currently exercisable, or exercisable within 60 days of February 4, 2004, and shares of Common
Stock subject to our outstanding 1.25% convertible notes due July 2008 currently convertible, or convertible within 60 days of February 4, 2004, are deemed outstanding for computing the percentage of the person holding such options, warrants or
convertible notes but are not deemed outstanding for computing the percentage of any other person. As of February 4, 2004, the Company had a total of 63,415,219 shares of Common Stock issued and outstanding. Except as indicated by footnote and
subject to community property laws where applicable, to the knowledge of the Company, the companies and persons named in this table have sole voting and investment power with respect to all shares of Common Stock shown to be beneficially owned by
them.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | Based on a Schedule 13G dated February 10, 2004, filed with the Securities and Exchange
Commission by FMR Corp., which reflects ownership as of January 31, 2004. The Schedule 13G states that FMR Corp. has sole voting power to vote or direct the vote of 411,200 shares and sole dispositive power as to 8,206,339 shares.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Based on a Schedule 13F dated November 10, 2003, filed with the Securities and Exchange
Commission by David A. Rocker. The Schedule 13F states that the number of shares beneficially owned by David A. Rocker as of September 30, 2003 is 5,551,909.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Based on a Schedule 13G dated February 14, 2003, filed with the Securities and Exchange
Commission by Brown Investment Advisory & Trust Company, which reflects ownership as of December 31, 2002. The Schedule 13G states that Brown Investment Advisory & Trust Company has sole voting power as to 3,969,838 shares and sole
dispositive power as to 3,940,960 shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Based on a Schedule 13G dated February 6, 2004, filed with the Securities and Exchange
Commission by Deutsche Bank AG, which reflects ownership as of December 31, 2003. The Schedule 13G states that the number of shares beneficially owned by Deutsche Bank AG as of December 31, 2003 is 3,879,546, which includes 3,097,655 shares issuable
upon conversion of Powerwaves outstanding 1.25% convertible notes due July 2008, assuming a conversion rate of 95.3289 shares per principal amount of convertible notes held and a cash payment in lieu of any fractional interest.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Includes options exercisable for 116,666 shares within 60 days of February 4, 2004.
|--- | -----------------------------------------------------------------------------------

|(8) | Consists of options exercisable for 337,499 shares within 60 days of February 4, 2004.
|--- | --------------------------------------------------------------------------------------

|(9) | Includes options exercisable for 278,312 shares within 60 days of February 4, 2004.
|--- | -----------------------------------------------------------------------------------

|(10) | Includes options exercisable for 75,000 shares within 60 days of February 4, 2004.
|---- | ----------------------------------------------------------------------------------

|(11) | Includes options exercisable for 90,000 shares within 60 days of February 4, 2004.
|---- | ----------------------------------------------------------------------------------

|(12) | Includes options exercisable for 90,000 shares within 60 days of February 4, 2004.
|---- | ----------------------------------------------------------------------------------

|(13) | Includes options exercisable for 15,000 shares within 60 days of February 4, 2004.
|---- | ----------------------------------------------------------------------------------

|(14) | Includes options exercisable for 15,000 shares within 60 days of February 4, 2004.
|---- | ----------------------------------------------------------------------------------

|(15) | Includes options exercisable for 15,000 shares within 60 days of February 4, 2004.
|---- | ----------------------------------------------------------------------------------

|(16) | Consists of options exercisable for 9,375 shares within 60 days of February 4, 2004.
|---- | ------------------------------------------------------------------------------------

|(17) | Includes options exercisable for 1,041,852 shares within 60 days of February 4, 2004 (see
footnotes 7-16).
|---- | ----------------------------------------------------------------------------------------------------------



Securities Authorized for Issuance Under
Equity Compensation Plans



All stock option plans under
which our Common Stock is reserved for issuance have previously been approved by our shareholders. We have no other equity compensation plans other than our stock option plans. The following table provides summary information as of December 28, 2003
for all of our stock option plans:

|                             |  |                                                                                                     |  |                                                                        |       |                                                                                                                                         |          
|---------------------------- |  | --------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | ----- | --------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                             |  | Number of Shares of Common Stock to beIssued upon Exerciseof OutstandingOptions, Warrantsand Rights |  | Weighted AverageExercise Priceof OutstandingOptions,Warrants andRights |       | Number of Shares ofCommon StockRemaining Availablefor Future Issuanceunder our StockOption Plans(Excluding
SharesReflected in Column 1)
|Approved by Shareholders     |  | 8,951,996                                                                                           |  | $                                                                      | 12.05 |                                                                                                                                         | 1,957,719
|Not Approved by Shareholders |  |                                                                                                    |  |                                                                        |      |                                                                                                                                         |         
|                             |  |                                                                                                     |  |                                                                        |       |                                                                                                                                         |          
|Total                        |  | 8,951,996                                                                                           |  | $                                                                      | 12.05 |                                                                                                                                         | 1,957,719
|                             |  |                                                                                                     |  |                                                                        |       |                                                                                                                                         |          



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The Company has entered into indemnification agreements with its directors and certain executive officers. Such agreements require the Company to indemnify such individuals to the fullest extent permitted by Delaware
law.



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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES



The Audit Committee regularly reviews and determines whether specific projects or expenditures with our independent auditors, Deloitte & Touche LLP and their affiliates (Deloitte & Touche),
potentially affects their independence. The Audit Committees policy is to pre-approve all audit and permissible non-audit services provided by Deloitte & Touche. Pre-approval is generally provided by the Audit Committee for up to one year,
is detailed as to the particular service or category of services to be rendered, and is generally subject to a specific budget. The Audit Committee may also pre-approve additional services or specific engagements on a case-by-case basis. Management
is required to provide quarterly updates to the Audit Committee regarding the extent of any services provided in accordance with this pre-approval, as well as the cumulative fees for all non-audit services incurred to date.



The following table sets forth the aggregate fees billed to us by Deloitte
& Touche for the fiscal year ended December 28, 2003 and December 29, 2003:



|                               |  |                  |         |     |                  |   |         |    
|------------------------------ |  | ---------------- | ------- | --- | ---------------- | - | ------- | ---
|                               |  | December 28,2003 |         |     | December 29,2002 |  
|Audit fees                     |  | $                | 325,400 | (1) |                  | $ | 225,900 | (1)
|Audit-related fees             |  |                  | 579,931 | (2) |                  |   | 25,065  | (2)
|Tax fees                       |  |                  | 49,648  | (3) |                  |   | 43,889  | (3)
|All other fees                 |  |                  |        |     |                  |   |        |    
|                               |  |                  |         |     |                  |   |         |    
|Total audit and non-audit fees |  | $                | 954,979 |     |                  | $ | 294,854 |    
|                               |  |                  |         |     |                  |   |         |    

---

|(1) | Includes fees for professional services rendered for the audit of Powerwaves annual
financial statements and review of Powerwaves annual report on Form 10-K for the fiscal year 2003 and 2002 and for reviews of the financial statements included in Powerwaves quarterly reports on Form 10-Q for the first three quarters of
fiscal 2003 and 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes fees for professional services rendered in fiscal 2003 and 2002, in connection with
acquisition planning, due diligence and related SEC registration statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes fees for professional services rendered in fiscal 2003 and 2002, in connection with
tax compliance (including U.S. federal and international returns) and tax consulting.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



PART IV



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



(a) Documents filed as a part of this report:



(1) Financial Statements



The
financial statements included in Part II, Item 8 of this document are filed as part of this Report.



(2) Financial Statement Schedule



The financial statement schedule included in Part II, Item 8 of this document is filed as part of this Report. All other schedules are omitted as the
required information is inapplicable or the information is included in the consolidated financial statements or related notes.



(3) Exhibits



The following exhibits are filed as part of this Report:



|               |  |                                                                                                                                                                                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                        
|2.1            |  | Amended and Restated Asset Purchase Agreement with Hewlett-Packard Company, dated as of October 9, 1998 (incorporated by reference to Exhibit 2.1 to the Companys Form 8-K as filed with the Securities and Exchange Commission on October 26,
1998).             
|               | 
|2.2            |  | Purchase and Sale Agreement and Joint Escrow Instructions with Hewlett-Packard Company, dated as of August 31, 1998. (incorporated by reference to Exhibit 2.2 to the Companys Form 8-K
as filed with the Securities and Exchange Commission on October 26, 1998).



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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|3.2    |  | Form of Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Companys Registration Statement on Form-S-1 (File No.
333-13679) as filed with the Securities and Exchange Commission on December 3, 1996).                                                                                                                                                                                                                               
|       | 
|3.4    |  | Form of Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Companys Registration Statement on Form-S-1 (File No. 333-13679) as filed with the
Securities and Exchange Commission on December 3, 1996).                                                                                                                                                                                                                                                     
|       | 
|3.5    |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Powerwave Technologies, Inc., a Delaware Corporation (incorporated by reference to Exhibit 3.1 to the
Companys Form 10-Q as filed with the Securities and Exchange Commission on August 15, 2000).                                                                                                                                                                                                                 
|       | 
|3.6    |  | Certificate of Designation of Rights, Preferences and Privileges of Series A Junior Participating Preferred Stock of Powerwave Technologies, Inc. (incorporated herein by reference to Exhibit
2.1 to Registrants Form 8-A dated June 4, 2001.)                                                                                                                                                                                                                                                     
|       | 
|3.7    |  | Rights Agreement, dated as of June 1, 2001 between Powerwave Technologies, Inc. and U.S. Stock Transfer Corporation, as Rights Agent, which includes as Exhibit A thereto the form of
Certificate of Designation for the Series A Junior Participating Preferred Stock, as Exhibit B thereto the Form of Rights Certificate and as Exhibit C thereto a Summary of Terms of Stockholder Rights Plan. (incorporated herein by reference to
Exhibit 2.1 to Registrants Form 8-A12G dated June 4, 2001.)
|       | 
|4.1    |  | Stockholders Agreement, dated October 10, 1995, among the Company and certain stockholders (incorporated by reference to Exhibit 4.1 to the Companys Registration Statement on
Form-S-1 (File No. 333-13679) as filed with the Securities and Exchange Commission on October 8, 1996).                                                                                                                                                                                                             
|       | 
|4.2    |  | Amendment to Stockholders Agreement (incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form-S-1 (File No. 333-13679) as filed with the Securities and
Exchange Commission on October 8, 1996).                                                                                                                                                                                                                                                                     
|       | 
|4.3    |  | Indenture, dated as of July 18, 2003, by and between Powerwave Technologies, Inc. and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 4.2 of the
Companys Registration Statement on Form S-3 (File No. 333-107633) filed with the Securities and Exchange Commission on August 4, 2003).                                                                                                                                                                     
|       | 
|4.4    |  | Registration Rights Agreement, dated as of July 18, 2003, by and between Powerwave Technologies, Inc. and Deutsche Bank Securities Inc. (incorporated by reference to Exhibit 4.3 of the
Companys Registration Statement on Form S-3 (File No. 333-107633) filed with the Securities and Exchange Commission on August 4, 2003).                                                                                                                                                                    
|       | 
|4.5    |  | First Amendment to Rights Agreement, dated June 19, 2003, between Powerwave Technologies, Inc. and U.S. Stock Transfer Corporation, as Rights Agent (incorporated by reference to Exhibit 2 of
the Companys Form 8-A12G/A as filed with the Securities and Exchange Commission on July 10, 2003.)                                                                                                                                                                                                   
|       | 
|4.6    |  | Form of Global 1.25% Convertible Subordinated Note Due 2008 (incorporated by reference to Exhibit 4.4 to the Companys Form S-3 (File No. 333-107633) as filed with the Securities and
Exchange Commission on August 4, 2003.)                                                                                                                                                                                                                                                                       
|       | 
|10.1   |  | Milcom International, Inc. 1995 Stock Option Plan (the 1995 Plan) (incorporated by reference to Exhibit 10.1 to the Companys Registration Statement on Form-S-1 (File No.
333-13679) as filed with the Securities and Exchange Commission on October 8, 1996).*                                                                                                                                                                                                                                   
|       | 
|10.2   |  | Form of Stock Option Agreement for 1995 Plan (incorporated by reference to Exhibit 10.2 to the Companys Registration Statement on Form-S-1 (File No. 333-13679) as filed with the
Securities and Exchange Commission on October 8, 1996).*                                                                                                                                                                                                                                                          
|       | 
|10.3   |  | Amendment No. 1 to 1995 Stock Option Plan (incorporated by reference to Exhibit 10.3 to the Companys Registration Statement on Form-S-1 (File No. 333-13679) as filed with the Securities
and Exchange Commission on October 8, 1996).*                                                                                                                                                                                                                                                             
|       | 
|10.3.1 |  | Amendment No. 2 to the 1995 Plan (incorporated by reference to Exhibit 10.3.1 to the Companys Registration Statement on Form-S-1 (File No. 333-28463) as filed with the Securities and
Exchange Commission on June 4, 1997).*                                                                                                                                                                                                                                                                       
|       | 
|10.4   |  | Powerwave Technologies, Inc. 1996 Stock Incentive Plan (the 1996 Plan) (incorporated by reference to Exhibit 10.4 to the Companys Registration Statement on Form-S-1 (File
No. 333-13679) as filed with the Securities and Exchange Commission on October 8, 1996).*                                                                                                                                                                                                                              



78



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|       |  |                                                                                                                                                                                                                                                                                                                               
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.5   |  | Form of Stock Option Agreement for 1996 Plan (incorporated by reference to Exhibit 10.5 to the Companys Registration Statement on Form-S-1 (File No. 333-13679) as filed with the
Securities and Exchange Commission on October 8, 1996).*                                                                                   
|       | 
|10.6   |  | Form of Restricted Stock Purchase Agreement for 1996 Plan (incorporated by reference to Exhibit 10.6 to the Companys Registration Statement on Form-S-1 (File No. 333-13679) as filed
with the Securities and Exchange Commission on October 8, 1996).*                                                                      
|       | 
|10.6.1 |  | Amendment No. 1 to 1996 Plan (incorporated by reference to Exhibit 10.6.1 to the Companys Registration Statement on Form-S-1 (File No. 333-28463) as filed with the Securities and
Exchange Commission on June 4, 1997).*                                                                                                    
|       | 
|10.6.2 |  | Amendment No. 2 to 1996 Plan (incorporated by reference to Exhibit 4.6 to the Companys Registration Statement on Form S-8 (File No. 333-20549) as filed with the Securities and Exchange
Commission on October 8, 1998).*                                                                                                    
|       | 
|10.7   |  | Powerwave Technologies, Inc. 1996 Director Stock Option Plan (the Director Plan) (incorporated by reference to Exhibit 10.7 to the Companys Registration Statement on
Form-S-1 (File No. 333-13679) as filed with the Securities and Exchange Commission on October 8, 1996).*                                             
|       | 
|10.7.1 |  | Amendment No.1 to Director Plan (incorporated by reference to Exhibit 4.7 to the Companys Registration Statement on Form S-8 (File No. 333-20549) as filed with the Securities and
Exchange Commission on October 8, 1998).*                                                                                                 
|       | 
|10.8   |  | Form of Stock Option Agreement for Director Plan (incorporated by reference to Exhibit 10.8 to the Companys Registration Statement on Form-S-1 (File No. 333-13679) as filed with the
Securities and Exchange Commission on October 8, 1996).*                                                                               
|       | 
|10.9   |  | Powerwave Technologies, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.9 to the Companys Registration Statement on Form-S-1 (File No. 333-13679) as filed
with the Securities and Exchange Commission on October 8, 1996).*                                                                      
|       | 
|10.9.1 |  | Amendment No. 1 to Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.9.1 to the Companys Registration Statement on Form-S-1 (File No. 333-28463) as filed with the
Securities and Exchange Commission on June 4, 1997).*                                                                                 
|       | 
|10.9.2 |  | Amendment to Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1.1 to the Companys Registration Statement on form S-8 (File No. 333-107645) as filed with the
Securities and Exchange commission on August 4, 2003.)                                                                                      
|       | 
|10.11  |  | Redemption Agreement, dated October 10, 1995, among the Company and certain stockholders (incorporated by reference to Exhibit 10.11 to the Companys Registration Statement on Form-S-1
(File No. 333-13679) as filed with the Securities and Exchange Commission on October 8, 1996).                                       
|       | 
|10.14  |  | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.14 to the Companys Registration Statement on Form-S-1 (File No. 333-13679) as filed with the Securities and
Exchange Commission on October 8, 1996).*                                                                                             
|       | 
|10.24  |  | Powerwave Technologies, Inc. 2000 Stock Option Plan (the 2000 Plan) (incorporated by reference to Exhibit 4.1 to the Companys Form S-8 (File No. 333-38568) as filed with the
Securities and Exchange Commission on June 5, 2000).*                                                                                        
|       | 
|10.25  |  | Form of Stock Option Agreement for the 2000 Plan (incorporated by reference to Exhibit 4.2 to the Companys Form S-8 (File No. 333-38568) as filed with the Securities and Exchange
Commission on June 5, 2000).*                                                                                                             
|       | 
|10.26  |  | Agreement for Purchase and Sale of Property and Joint Escrow Instructions by and between Boeing Realty Corporation and Powerwave Technologies, Inc., dated as of May 9, 2000 (incorporated by
reference to Exhibit 2.1 to the Companys Form 8-K as filed with the Securities and Exchange Commission on June 9, 2000).       
|       | 
|10.27  |  | First Amendment to Agreement for Purchase and Sale of Property and Escrow Instruction by and between Boeing Realty Corporation and Powerwave Technologies, Inc., dated May 12, 2000
(incorporated by reference to Exhibit 2.2 to the Companys Form 8-K as filed with the Securities and Exchange Commission on June 9, 2000).
|       | 
|10.28  |  | Loan Agreement dated as of May 26, 2000, by and among the Company, Comerica Bank-California, as Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.3 to the
Companys Form 10-Q as filed with the Securities and Exchange Commission on August 15, 2000).                                          



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|      |  |                                                                                                                                                                                                                                                                                                                                             
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.29 |  | Revolving Note dated as of May 26, 2000, pursuant to the Loan Agreement dated as of May 26, 2000 by and among the Company, Comerica Bank-California, as Agent, and the lenders party thereto
(incorporated by reference to Exhibit 10.4 to the Companys Form 10-Q as filed with the Securities and Exchange Commission on August 15, 2000).
|      | 
|10.30 |  | First Amendment to Loan Agreement dated as of May 31, 2001, by and among the Company, Comerica Bank-California, as Agent, and the lenders party thereto (incorporated by reference to Exhibit
10.30 to the Companys Form 10-Q as filed with the Securities and Exchange Commission on August 7, 2001).                                     
|      | 
|10.31 |  | Second Amendment to Loan Agreement dated as of December 26, 2001, by and among the Company, Comerica Bank-California, as Agent, and the lenders party thereto (incorporated by reference to
Exhibit 10.31 to the Companys Form 10-K as filed with the Securities and Exchange Commission on February 12, 2002).                            
|      | 
|10.32 |  | Amendment No. 3 to Loan Agreement dated as of May 31, 2002, by and among the Company, Comerica Bank-California, as Agent, and the lenders party thereto (incorporated by reference to Exhibit
10.32 to the Companys Form 10-Q as filed with the Securities and Exchange Commission on July 26, 2002).                                      
|      | 
|10.33 |  | Manufacturing Services and Supply Agreement between the Company and Celestica Corporation dated as of November 1, 2002 (incorporated by reference to Exhibit 10.33 to the Companys form
10-K as filed with the Securities and Exchange Commission on February 24, 2003.)**                                                                 
|      | 
|10.34 |  | Powerwave Technologies, Inc. 2002 Stock Option Plan (2002 Plan) (incorporated by reference to Exhibit 4.2 to the Companys Form S-8 (File No. 333-88836) as filed with the
Securities and Exchange Commission on May 5, 2002).*                                                                                                           
|      | 
|10.35 |  | Form of Stock Option Agreement for the 2002 Plan (incorporated by reference to Exhibit 4.1 to the Companys Form S-8 (File No. 333-88836) as filed with the Securities and Exchange
Commission May 5, 2002).*                                                                                                                               
|      | 
|10.36 |  | Manufacturing Services and Supply Agreement between the Company and Venture Corporation Limited dated as of January 13, 2003 (incorporated by reference to Exhibit 10.36 to the Companys
Form 10-Q as filed with the Securities and Exchange Commission on May 7, 2003).**                                                                 
|      | 
|10.37 |  | Repair Services Agreement between the Company and VM Services, Inc. dated June 26, 2003 (incorporated by reference to Exhibit 10.37 to the Companys Form 10-Q as filed with the
Securities and Exchange Commission on August 5, 2003)**                                                                                                    
|      | 
|10.38 |  | Amendment No. 4 to Loan Agreement dated as of September 15, 2003, by and among the Company, Comerica Bank-California, as Agent, and the lenders party thereto (incorporated by reference to
Exhibit 10.38 to the Companys Form 10-Q as filed with the Securities and Exchange Commission on October 29, 2003).                             
|      | 
|10.39 |  | Change in Control Agreement dated as of August 1, 2003, between the Company and Bruce C. Edwards (incorporated by reference to Exhibit 10.39 to the Companys Form 10-Q as filed with the
Securities and Exchange Commission on October 29, 2003).*                                                                                         
|      | 
|10.40 |  | Change in Control Agreement dated as of August 1, 2003, between the Company and Ronald J. Buschur (incorporated by reference to Exhibit 10.40 to the Companys Form 10-Q as filed with the
Securities and Exchange Commission on October 29, 2003).*                                                                                        
|      | 
|10.41 |  | Change in Control Agreement dated as of August 1, 2003, between the Company and Kevin T. Michaels (incorporated by reference to Exhibit 10.41 to the Companys Form 10-Q as filed with the
Securities and Exchange Commission on October 29, 2003).*                                                                                        
|      | 
|10.42 |  | Severance Agreement dated as of August 1, 2003, between the Company and Bruce C. Edwards (incorporated by reference to Exhibit 10.42 to the Companys Form 10-Q as filed with the
Securities and Exchange Commission on October 29, 2003).*                                                                                                 
|      | 
|10.43 |  | Severance Agreement dated as of August 1, 2003, between the Company and Ronald J. Buschur (incorporated by reference to Exhibit 10.43 to the Companys Form 10-Q as filed with the
Securities and Exchange Commission on October 29, 2003).*                                                                                                
|      | 
|10.44 |  | Severance Agreement dated as of August 1, 2003, between the Company and Kevin T. Michaels (incorporated by reference to Exhibit 10.44 to the Companys Form 10-Q as filed with the
Securities and Exchange Commission on October 29, 2003).*                                                                                                
|      | 
|14    |  | Code of Ethics                                                                                                                                                                                                                                                                                                                              



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|21.1 |  | Subsidiaries of the registrant                                                                                                                                                                                                                                                                                                                                                                         
|     | 
|23.1 |  | Independent Auditors Consent                                                                                                                                                                                                                                                                                                                                                                          
|     | 
|24.1 |  | Power of Attorney included in signature page.                                                                                                                                                                                                                                                                                                                                                          
|     | 
|31.1 |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                     
|     | 
|31.2 |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                     
|     | 
|32.1 |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.***                                                                                                                                                                                                                                                                     
|     | 
|32.2 |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.***                                                                                                                                                                                                                                                                     
|     | 
|99.1 |  | Opinion of Deutsche Bank Securities, Inc., Financial Advisor to Powerwave (incorporated by reference to Exhibit 99.1 to the Companys Form S-4 (File No. 333-112182) as filed with the
Securities and Exchange Commission on January 26, 2004.)                                                                                                                                                        
|     | 
|99.2 |  | Non-solicitation Agreement dated November 30, 2003, by and between LGP Allgon Holding AB and the Company (incorporated by reference to Exhibit 99.2 to the Companys Form S-4 (File No.
333-112182) as filed with the Securities and Exchange Commission on January 26, 2004.)                                                                                                                         
|     | 
|99.3 |  | Form of Option Agreement dated November 30, 2003, by and between the registrant and each of Mikael Gottschlich, Eva Gottschlich, Manfred Gottschlich, Skanditek Industriforvaltning AB, G.
Kallstrom & Co AB and Dag Tigerschiold (incorporated by reference to Exhibit 99.3 to the Companys Form S-4 (File No. 333-112182) as filed with the Securities and Exchange Commission on January 26, 2004.)
|     | 
|99.4 |  | Form of Lockup Agreement dated November 30, 2003, by and between the Company and each of Mikael Gottschlich, Eva Gottschlich, Manfred Gottschlich, Skanditek Industriforvaltning AB, Kallstrom
& Co AB and Dag Tigerschiold (incorporated by reference to Exhibit 99.4 to the Companys Form S-4 (File No. 333-112182) as filed with the Securities and Exchange Commission on January 26, 2004.)      
|     | 
|99.5 |  | Form of Proxy Card for shareholders of the Company (incorporated by reference to Exhibit 99.5 to the Companys Form S-4 (File No. 333-112182) as filed with the Securities and Exchange
Commission on January 26, 2004.)                                                                                                                                                                               
|     | 
|99.6 |  | Consent of Deutsche Bank Securities Inc. (incorporated by reference to Exhibit 99.6 to the Companys Form S-4 (File No. 333-112182) as filed with the Securities and Exchange Commission
on January 26, 2004.)                                                                                                                                                                                         

---

|* | Indicates Item 14(a)(3) exhibit (management contract or compensation plan or arrangement).
|- | ------------------------------------------------------------------------------------------

|** | Registrant has sought confidential treatment pursuant to Rule 24b-2 of the Exchange Act for a portion of the referenced exhibit.
|-- | --------------------------------------------------------------------------------------------------------------------------------

|*** | In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed filed for the purposes of Section 18 of the Securities and Exchange Act of
1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(b) Items reported on Form 8-K in Fourth Quarter



The Registrant furnished a Current Report to the SEC on Form 8-K on October
14, 2003, to report under Item 12, Results of Operations and Financial Condition, the announcement of financial results for the fiscal quarter ended September 28, 2003.



The Registrant furnished a Current Report to the SEC on Form 8-K on October 17, 2003, to provide under Item 12, Results of
Operations and Financial Condition, a transcript of a conference call and simultaneous web-cast presentation on October 14, 2003, relating to the Companys financial results for the third quarter ended September 28, 2003.



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The Registrant filed a Current Report to the SEC on Form 8-K on December 3, 2003, to report under Item 5,
Other Events and Regulation FD Disclosure, the announcement of a tender offer to the shareholders of LGP Allgon to exchange 1.1 shares of Powerwave stock for each outstanding share of LGP Allgon.



(c) Financial Statement Schedule



Schedule II Valuation and Qualifying Accounts



Powerwave Technologies, Powerwave and the Powerwave Technologies logo are
registered trademarks of Powerwave Technologies, Inc. All other products or service names mentioned herein may be trademarks or registered trademarks of their respective owners.



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SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) 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, in the City of Santa Ana, State of California, on the
12th day of February 2004.



POWERWAVE TECHNOLOGIES, INC.By:

/s/ BRUCE C. EDWARDSBruce C. Edwards  President and Chief Executive Officer




We, the
undersigned directors and officers of Powerwave Technologies, Inc., do hereby constitute and appoint Bruce C. Edwards and Kevin T. Michaels as our true and lawful attorney-in-fact and agents with power of substitution, to do any and all acts and
things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorney-in-fact and agent may deem necessary or advisable to
enable said corporation to comply with the Securities and Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including
specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto; and we do hereby ratify and confirm all that
said attorney-in-fact and agent, shall do or cause to be done by virtue hereof.



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.



|                                         |  |                                                                                           |  |                  
|---------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | -----------------
|Signature                                |  | Title                                                                                     |  | Date             
|                                         |  |                                                                                          
|/s/ BRUCE C. EDWARDSBruce C. Edwards     |  | President, Chief Executive Officer and Director (Principal Executive Officer)             |  | February 12, 2004
|                                         |  |                                                                                          
|/s/ KEVIN T. MICHAELSKevin T. Michaels   |  | Senior Vice President, Finance and Chief Financial Officer (Principal Accounting Officer) |  | February 12, 2004
|                                         |  |                                                                                          
|/s/ JOHN L. CLENDENINJohn L. Clendenin   |  | Chairman of the Board                                                                     |  | February 12, 2004
|                                         |  |                                                                                          
|/s/ DANIEL A. ARTUSIDaniel A. Artusi     |  | Director                                                                                  |  | February 12, 2004
|                                         |  |                                                                                          
|/s/ GREGORY M. AVISGregory M. Avis       |  | Director                                                                                  |  | February 12, 2004
|                                         |  |                                                                                          
|/s/ DAVID L. GEORGEDavid L. George       |  | Director                                                                                  |  | February 12, 2004
|                                         |  |                                                                                          
|/s/ EUGENE L. GODAEugene L. Goda         |  | Director                                                                                  |  | February 12, 2004
|                                         |  |                                                                                          
|/s/ CARL W. NEUNCarl W. Neun             |  | Director                                                                                  |  | February 12, 2004
|                                         |  |                                                                                          
|/s/ SAFI U. QURESHEYSafi U. Qureshey     |  | Director                                                                                  |  | February 12, 2004
|                                         |  |                                                                                          
|/s/ ANDREW J. SUKAWATYAndrew J. Sukawaty |  | Director                                                                                  |  | February 12, 2004



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SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

(in thousands)



|                                                  |  |                               |        |                             |   |            |  |   |                        |   |  |   |       
|------------------------------------------------- |  | ----------------------------- | ------ | --------------------------- | - | ---------- |  | - | ---------------------- | - |  | - | ------
|Description                                       |  | Balance atBeginning of Period |        | Charges toCosts andExpenses |   | Deductions |  |   | Balance atEnd ofPeriod
|Year ended December 28, 2003:                     |  |                               |        |                             |   |            |  |   |                        |   |  |   |       
|Allowance for doubtful accounts and sales returns |  | $                             | 2,505  |                             | $ | 2,004      |  | $ | (2,177                 | ) |  | $ | 2,332 
|Allowance for excess and obsolete inventory       |  | $                             | 8,998  |                             | $ | 3,308      |  | $ | (3,720                 | ) |  | $ | 8,586 
|                                                  |  |                               |        |                            
|Year ended December 29, 2002:                     |  |                               |        |                             |   |            |  |   |                        |   |  |   |       
|Allowance for doubtful accounts and sales returns |  | $                             | 3,143  |                             | $ | 3,967      |  | $ | (4,605                 | ) |  | $ | 2,505 
|Allowance for excess and obsolete inventory       |  | $                             | 11,114 |                             | $ | 5,797      |  | $ | (7,913                 | ) |  | $ | 8,998 
|                                                  |  |                               |        |                            
|Year ended December 30, 2001:                     |  |                               |        |                             |   |            |  |   |                        |   |  |   |       
|Allowance for doubtful accounts and sales returns |  | $                             | 3,021  |                             | $ | 1,988      |  | $ | (1,866                 | ) |  | $ | 3,143 
|Allowance for excess and obsolete inventory       |  | $                             | 9,449  |                             | $ | 8,828      |  | $ | (7,163                 | ) |  | $ | 11,114



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