<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934


     For the quarterly period ended July 1, 2001

                                       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

                          POWERWAVE TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)


              Delaware                          11-2723423
    (State or other jurisdiction of           (I.R.S. Employer
   incorporation or organization)             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

                             --------------------


     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 [_]

     As of August 1, 2001 the number of outstanding shares of Common Stock, par
value $.0001 per share, of the Registrant was 64,386,951.

================================================================================
<PAGE>

                          POWERWAVE TECHNOLOGIES, INC.
                                     INDEX

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

          Item 1.  Condensed Financial Statements

                              Condensed Consolidated Balance Sheets at July 1, 2001 (Unaudited) and
                                 December 31, 2000                                                               3

                              Condensed Consolidated Statements of Operations (Unaudited) for the three and
                                 six months ended July 1, 2001 and July 2, 2000                                  4

                              Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
                                 for the three and six months ended July 1, 2001 and July 2, 2000                5

                              Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months
                                 ended July 1, 2001 and July 2, 2000                                             6

                              Notes to Condensed Consolidated Financial Statements (Unaudited)                   7-10

          Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations         11-27

          Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                    28


Part II.  Other Information

          Item 6.  Exhibits and Reports on Form 8-K                                                              29

Signatures                                                                                                       30
</TABLE>

This Quarterly Report on Form 10-Q includes certain 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,
trends in average selling prices and gross margins, the level of expected
capital expenditures and 3G product trends.  Such forward-looking statements are
based on the beliefs of, and estimates made by and information currently
available to, the Company's management  and are subject to certain risks,
uncertainties and assumptions.  Any statements contained herein (including
without limitation statements to the effect that the Company or management
"estimates," "expects," "anticipates," "plans," "believes," "projects,"
"continues," "may," or "will," or statements concerning "potential" or
"opportunity" or variations thereof or comparable terminology or the negative
thereof) that are not statements of historical fact should be construed as
forward looking statements. The actual results of Powerwave Technologies, Inc.
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 factors which are discussed in "Additional Factors That May
Affect Future Results" under Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" at pages 11-27. 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.  Powerwave undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements which 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 Powerwave files from time to time
with the Securities and Exchange Commission, including subsequent Current
Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form
10-K.

                                       2
<PAGE>

                         POWERWAVE TECHNOLOGIES, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                         July 1,          December 31,
                                                                                          2001               2000
                                                                                      -------------      -------------
<S>                                                                                 <C>                   <C>
                                     ASSETS
Current Assets:
     Cash and cash equivalents....................................................       $ 99,190           $128,733
     Accounts receivable, net of allowance for doubtful accounts of  $3,277 and
      $3,021 at July 1, 2001 and December 31, 2000, respectively..................         63,184             80,006
     Inventories, net.............................................................         61,053             51,275
     Prepaid expenses and other current assets....................................          3,071              5,387
     Notes receivable.............................................................             --                 26
     Prepaid income taxes.........................................................          7,259                 --
     Deferred tax assets..........................................................          8,745              8,553
                                                                                         --------           --------
        Total current assets......................................................        242,502            273,980

Property and equipment............................................................        147,475            128,638
Less accumulated depreciation and amortization....................................        (38,462)           (26,980)
                                                                                         --------           --------
     Net property and equipment...................................................        109,013            101,658
                                                                                         --------           --------
Intangible assets, net............................................................          8,944             10,777
Deferred tax assets...............................................................          5,436              5,436
Other non-current assets..........................................................          1,617              1,946
                                                                                         --------           --------
TOTAL ASSETS......................................................................       $367,512           $393,797
                                                                                         ========           ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Accounts payable.............................................................       $ 32,752           $ 50,829
     Accrued expenses and other liabilities.......................................         21,758             24,023
     Current portion of long-term debt............................................             66                 96
     Income taxes payable.........................................................             --              2,299
                                                                                         --------           --------
        Total current liabilities.................................................         54,576             77,247

Long-term debt, net of current portion............................................             36                 42
Other non-current liabilities.....................................................             61                236
                                                                                         --------           --------
        Total liabilities.........................................................         54,673             77,525
                                                                                         --------           --------

Contingencies.....................................................................             --                 --

Shareholders' Equity:
     Preferred Stock, $.0001 par value, 5,000 shares authorized and no shares
       issued and outstanding.....................................................             --                 --
     Common Stock, $.0001 par value, 135,000 shares authorized, 64,198 shares
       issued and outstanding at July 1, 2001 and 63,509 shares issued and
       outstanding at December 31, 2000...........................................        230,102            221,349
     Accumulated other comprehensive income.......................................             --                276
     Retained earnings............................................................         82,737             94,647
                                                                                         --------           --------
        Total shareholders' equity................................................        312,839            316,272
                                                                                         --------           --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................................       $367,512           $393,797
                                                                                         ========           ========
</TABLE>

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

                                       3
<PAGE>

                         POWERWAVE TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
                     (in thousands, except per share data)


<TABLE>
<CAPTION>
                                             Three Months Ended       Six Months Ended
                                            --------------------    --------------------
                                            July 1,      July 2,     July 1,     July 2,
                                             2001         2000        2001        2000
                                            --------------------    --------------------
<S>                                         <C>         <C>         <C>         <C>
Net sales.................................  $78,248     $110,458    $151,224    $214,312
Cost of sales.............................   67,910       74,504     136,293     145,901
                                            -------     --------    --------    --------
Gross profit..............................   10,338       35,954      14,931      68,411
Operating expenses:
     Sales and marketing..................    3,602        5,382       8,578      10,447
     Research and development.............    8,359       10,627      19,256      19,635
     General and administrative...........    3,426        3,622       9,584       7,207
                                            -------     --------    --------    --------
Total operating expenses..................   15,387       19,631      37,418      37,289
                                            -------     --------    --------    --------

Operating income (loss)...................   (5,049)      16,323     (22,487)     31,122
Other income, net.........................    1,332        1,332       3,878       2,542
                                            -------     --------    --------    --------

Income (loss) before income taxes.........   (3,717)      17,655     (18,609)     33,664
Provision (benefit) for income taxes......   (1,338)       6,267      (6,699)     11,950
                                            -------     --------    --------    --------

Net income (loss).........................  $(2,379)    $ 11,388    $(11,910)   $ 21,714
                                            =======     ========    ========    ========

Basic earnings (loss) per share...........  $  (.04)    $   0.19    $   (.19)   $   0.36
                                            =======     ========    ========    ========
Diluted earnings (loss) per share.........  $  (.04)    $   0.18    $   (.19)   $   0.34
                                            =======     ========    ========    ========
Basic weighted average common shares......   64,061       61,332      63,879      61,134
                                            =======     ========    ========    ========
Diluted weighted average common shares....   64,061       64,784      63,879      64,534
                                            =======     ========    ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       4
<PAGE>

                         POWERWAVE TECHNOLOGIES, INC.
       CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                  (Unaudited)
                                (in thousands)

<TABLE>
<CAPTION>

                                              Three Months Ended         Six Months Ended
                                            ----------------------    ----------------------
                                              July 1,      July 2,      July 1,     July 2,
                                               2001         2000         2001        2000
                                            ----------------------    ----------------------
<S>                                         <C>          <C>          <C>          <C>

Net income (loss).........................    $(2,379)     $11,388      $(11,910)    $21,714
                                              -------      -------      --------     -------
Other comprehensive income (loss), net of
 tax:
 Unrealized gain (loss) on available-for-
  sale securities.........................         --          809          (276)        809
                                              -------      -------      --------     -------
Other comprehensive income (loss).........         --          809          (276)        809
                                              -------      -------      --------     -------
Comprehensive income (loss)...............    $(2,379)     $12,197      $(12,186)    $22,523
                                              =======      =======      ========     =======
</TABLE>

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

                                       5
<PAGE>

                         POWERWAVE TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                (in thousands)
<TABLE>
<CAPTION>
                                                                        Six Months Ended
                                                                   --------------------------
                                                                     July 1,        July 2,
                                                                      2001           2000
                                                                   -----------    -----------
<S>                                                                <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..............................................    $(11,910)      $ 21,714
  Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
    Depreciation and amortization................................      13,772          8,483
    Provision for doubtful accounts..............................         169            618
    Compensation costs related to stock options..................          30             45
    Loss on disposal of property, plant and equipment............           2             71
    Gain on sale of available-for-sale securities................        (568)            --
  Changes in operating assets and liabilities:
    Accounts receivable..........................................      16,652        (16,080)
    Inventories..................................................      (9,778)        (7,600)
    Prepaid expenses and other current assets....................       1,847           (554)
    Income taxes.................................................      (6,082)        11,002
    Accounts payable.............................................     (18,077)         8,069
    Accrued expenses and other liabilities.......................      (2,265)         2,718
    Other non-current assets.....................................          29         (2,704)
    Other non-current liabilities................................        (175)          (103)
                                                                     --------       --------
      Net cash provided by (used in) operating activities........     (16,354)        25,679

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment.............................     (18,867)       (45,682)
  Proceeds from the sale of available-for-sale securities........         568             --
  Payment received on notes receivable...........................          26          7,020
                                                                     --------       --------
      Net cash used in investing activities......................     (18,273)       (38,662)

CASH FLOW FROM FINANCING ACTIVITIES:
  Principal payments on long-term debt...........................        (164)          (128)
  Proceeds from the sale of stock under employee stock
   purchase plans................................................       1,622            654
  Proceeds from exercise of stock options........................       3,626          4,496
                                                                     --------       --------
      Net cash provided by financing activities..................       5,084          5,022
                                                                     --------       --------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................     (29,543)        (7,961)
CASH AND CASH EQUIVALENTS, beginning of period...................     128,733         76,671
                                                                     --------       --------
CASH AND CASH EQUIVALENTS, end of period.........................    $ 99,190       $ 68,710
                                                                     ========       ========

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid for:
    Interest.....................................................    $     46       $     12
                                                                     ========       ========
    Income taxes.................................................    $   (627)      $    949
                                                                     ========       ========

NON CASH ITEMS:
    Tax benefit related to stock option exercises................    $  3,419       $ 18,827
                                                                     ========       ========
    Tax benefit related to the issuance of Common Stock
     under employee stock purchase plans.........................    $     57       $    232
                                                                     ========       ========

  Acquisition of property and equipment through capital leases...    $    128       $     60
                                                                     ========       ========
</TABLE>

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

                                       6
<PAGE>

                         POWERWAVE TECHNOLOGIES, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
                     (in thousands, except per share data)


Basis of Presentation

     The accompanying condensed consolidated financial statements of Powerwave
Technologies, Inc. ("Powerwave" or the "Company") have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include
certain footnotes and financial presentations normally required under accounting
principles generally accepted in the United States for complete financial
reporting.  The interim financial information is unaudited, but reflects all
normal adjustments and accruals, which are, in the opinion of management,
considered necessary to provide a fair presentation for the interim periods
presented.  The accompanying condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.  Certain prior period amounts in the Condensed Consolidated
Statements of Cash Flows have been reclassified  to conform to the current
period financial presentation.

     The results of operations for the six months ended July 1, 2001, are not
necessarily indicative of the results to be expected for the entire fiscal year
ending December 30, 2001 (fiscal year 2001).  For further information on
additional factors that may affect future results, please refer to the
"Management Discussion and Analysis of Financial Condition and Results of
Operations" under Item 2 and the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.

Earnings (loss) Per Share

     In accordance with Statement of Financial Accounting Standards ("SFAS") 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. Potential common shares of 1,423 and
1,945 have been excluded from diluted weighted average common shares for the
three month and the six month periods ended July 1, 2001, respectively, as the
effect would be anti-dilutive.

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

<TABLE>
<CAPTION>
                                                    Three Months Ended        Six Months Ended
                                                   --------------------    ----------------------
                                                    July 1,     July 2,      July 1,     July 2,
                                                     2001        2000         2001        2000
                                                   --------------------    ----------------------
<S>                                                <C>         <C>         <C>          <C>
  Basic:........................................
    Basic weighted average common shares........     64,061      61,332       63,879      61,134
    Net income (loss)...........................    $(2,379)    $11,388     $(11,910)    $21,714
                                                    -------     -------     --------     -------
    Basic earnings (loss) per share.............    $  (.04)    $  0.19     $   (.19)    $  0.36
                                                    =======     =======     ========     =======

  Diluted:
    Basic weighted average common shares........     64,061      61,332       63,879      61,134
    Potential common shares.....................         --       3,452           --       3,400
                                                    -------     -------     --------     -------
    Diluted weighted average common shares......     64,061      64,784       63,879      64,534
    Net income (loss)...........................    $(2,379)    $11,388     $(11,910)    $21,714
                                                    -------     -------     --------     -------
    Diluted earnings (loss) per share...........    $  (.04)    $  0.18     $   (.19)    $  0.34
                                                    =======     =======     ========     =======
</TABLE>

                                       7
<PAGE>

New Accounting Pronouncements

     SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 as
amended, establishes accounting and reporting standards for derivative
instruments including certain derivative instruments embedded in other contracts
and for hedging activities. Under SFAS No. 133, certain contracts that were not
previously considered derivatives may now meet the definition of a derivative.
The Company adopted SFAS No. 133 effective January 1, 2001 and such adoption did
not have a material impact on the Company's consolidated financial statements.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued two
new pronouncements -- SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the
purchase method of accounting and eliminates the pooling-of-interest method for
business combinations initiated after June 30, 2001. SFAS No. 142 provides for,
among other things, the discontinuance of goodwill amortization, the
reassessment of the useful lives for existing recognized intangibles, and the
potential reclassification of amounts between recognized intangibles and
goodwill. The standard is effective for fiscal years beginning after December
15, 2001 and applies to all goodwill and other intangible assets recognized in
an entity's statement of financial position at that date, regardless of when
those assets were initially recognized. The Company is currently evaluating the
provisions of SFAS No. 141 and SFAS No. 142 and has not adopted such provisions
in its June 30, 2001 financial statements.

Inventories

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                                    July 1,       December 31,
                                                     2001             2000
                                                    -------       ------------
   <S>                                            <C>             <C>
     Parts and components.........................  $28,416         $29,023
     Work-in-process..............................   15,327          12,824
     Finished goods...............................   17,310           9,428
                                                    -------         -------
     Total........................................  $61,053         $51,275
                                                    =======         =======
</TABLE>

Segment Information

     Utilizing the management approach, the Company has broken down its business
based upon the RF frequency in megahertz ("MHz"), within which the product
operates, i.e., 800-1000 MHz , 1800-2000 MHz,  and over 2000 MHz. Neither
operating expenses nor specific assets are allocated to these segments.
Therefore, the segment information reported only includes net sales, cost of
sales and gross profit (loss).


<TABLE>
<CAPTION>
                                                                         Business Segments
                                                                         -----------------
                                                                           (in thousands)

                                                            800-1000     1800-2000        2000+
                                                               MHz          MHz            MHz         Total
                                                        -------------------------------------------------------
<S>                                                        <C>           <C>           <C>          <C>
Three months ended July 1, 2001
Net sales...............................................    $52,375       $ 8,097       $17,776      $ 78,248
Cost of sales...........................................     44,989         8,545        14,376        67,910
                                                            -------       -------       -------      --------
Gross profit (loss).....................................    $ 7,386       $  (448)      $ 3,400      $ 10,338
                                                            =======       =======       =======      ========
Three months ended July 2, 2000
Net sales...............................................    $82,446       $28,012       $    --      $110,458
Cost of sales...........................................     52,726        21,778            --        74,504
                                                            -------       -------       -------      --------
Gross profit............................................    $29,720       $ 6,234       $    --      $ 35,954
                                                            =======       =======       =======      ========
</TABLE>

                                       8

<PAGE>

<TABLE>
<CAPTION>
                                                                         Business Segments
                                                                         -----------------
                                                                           (in thousands)

                                                            800-1000     1800-2000        2000+
                                                               MHz          MHz            MHz         Total
                                                        -------------------------------------------------------
<S>                                                        <C>           <C>           <C>          <C>
Six months ended July 1, 2001
Net sales...............................................    $ 98,748      $20,039       $32,437      $151,224
Cost of sales...........................................      83,573       24,387        28,333       136,293
                                                            --------      -------       -------      --------
Gross profit (loss).....................................    $ 15,175      $(4,348)      $ 4,104      $ 14,931
                                                            ========      =======       =======      ========
Six months ended July 2, 2000
Net sales...............................................    $158,032      $56,280       $    --      $214,312
Cost of sales...........................................     101,550       44,351            --       145,901
                                                            --------      -------       -------      --------
Gross profit............................................    $ 56,482      $11,929       $    --      $ 68,411
                                                            ========      =======        ======      ========
</TABLE>

     The following schedule presents an analysis of Powerwave's net sales based
upon the geographic location of our customers.  North American sales include
sales to the United States, Canada and Mexico.  Asian sales include sales to
South Korea and all locations in Asia.  Europe and Other International sales
include sales to Europe and all other foreign countries.  Sales to Canada were
$23,525 and $61,682 for the six months ended July 1, 2001 and July 2, 2000,
respectively.  For the quarters ended July 1, 2001 and July 2, 2000, sales to
Canada were $13,299 and $37,378 respectively.   Sales to Mexico were $846 for
the six months ended July 1, 2001, compared to $5,353 for the six months ended
July 2, 2000.  For the quarters ended July 1, 2001 and July 2, 2000, sales to
Mexico were $846 and $2,794 respectively.  Sales to South Korea were $33,701 for
the six months ended July 1, 2001, compared to $14,911 for the six months ended
July 2, 2000.  For the quarters ended July 1, 2001 and July 2, 2000, sales to
South Korea were $20,882 and $7,080, respectively.

<TABLE>
<CAPTION>
                                                               North                         Europe and  Other
                                                             American          Asia           International        Total
                                                             --------          ----           -------------        -----
<S>                                                        <C>             <C>                <C>               <C>
   Net sales for the three months ended July 1, 2001....      $ 33,148        $24,224            $20,876          $ 78,248
   Net sales for the three months ended July 2, 2000....      $ 92,128        $ 7,080            $11,250          $110,458

   Net sales for the six months ended July 1, 2001......      $ 73,940        $38,575            $38,709          $151,224
   Net sales for the six months ended July 2, 2000......      $173,806        $14,911            $25,595          $214,312

</TABLE>

     The majority of the Company's assets are located in the United States.

     Total accounts receivable as of July 1, 2001, include 41% from United
States based customers, 44% from customers located in France and 10% from
customers located in South Korea.

     The Company's product sales have historically been concentrated in a small
number of customers.  During the quarter ended July 1, 2001, sales to one
customer accounted for approximately 45% of net sales and sales to two other
customers each accounted for more than 10% of net sales.  For the quarter ended
July 2, 2000, sales to one customer accounted for approximately 47% of net sales
and sales to one other customer accounted for more than 10% of net sales.

     During the six months ended July 1, 2001, sales to one customer accounted
for 41% of net sales and sales to another customer accounted for more than 10%
of net sales. During the six months ended July 2, 2000 sales to one customer
accounted for 44% of net sales and sales to two other customers accounted for
more than 10% of net sales.

Stock Option Plans

     The following is a summary of stock option transactions under Powerwave's
stock option plans, including the 1995 Stock Option Plan, the 1996 Stock
Incentive Plan, 1996 Director Stock Option Plan and the 2000 Stock Option Plan
for the six months ended July 1, 2001:

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                           Number of       Number of
                                                                         Option shares   Option shares
                                       Number of                          Exercisable    Available for
                                     Option shares       Price per           as of        Grant as of
                                      Outstanding          Share          July 1, 2001    July 1, 2001
                                     --------------    -------------     -------------   -------------
<S>                                  <C>               <C>               <C>             <C>
     Balance at January 1, 2001           8,266        $ 0.82-$73.56
        Granted                           1,375        $10.52-$50.00
        Exercised                          (678)       $ 0.82-$17.71
        Cancelled                          (695)       $ 2.29-$73.56
                                          -----
     Balance at July 1, 2001              8,268        $ 0.82-$73.56           2,881           2,041
                                          =====                                =====           =====
</TABLE>

     During the quarters ended July 1, 2001 and July 2, 2000, the Company
recorded compensation expense related to stock options of approximately $15 and
$22 respectively. For the six months ended July 1, 2001 and July 2, 2000,
compensation expense related to stock options was $30 and $45, respectively. The
remaining unamortized compensation expense as of July 1, 2001 was approximately
$126 and will be amortized through September 2003.

Employee Stock Purchase Plan

     The eighth offering under Powerwave's Employee Stock Purchase Plan (the
"Purchase Plan") concluded on January 31, 2001, with 61 shares of the Company's
Common Stock purchased under the Purchase Plan at a price per share of $26.775.
The ninth offering under the Purchase Plan concluded on July 31, 2001, with 85
shares of the Company's Common Stock purchased under the Purchase Plan at a
price per share of $14.586.


Stockholder Rights Plan

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


Contingencies

     The Company is subject to various legal proceedings from time to time as
part of its business. As of July 1, 2001, the Company is not currently party to
any legal proceedings, the adverse outcome of which, individually or in the
aggregate, the Company believes would have a material adverse effect on the
Company's business, financial condition and results of operations.

                                       10
<PAGE>

Item 2. 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."

Results of Operations

     The following table summarizes our results of operations as a percentage of
net sales for the three and six months ended July 1, 2001 and July 2, 2000.

<TABLE>
<CAPTION>
                                                 As a Percentage of Net Sales
                                           ----------------------------------------
                                           Three Months Ended     Six Months Ended
                                           ------------------    ------------------
                                           July 1,    July 2,    July 1,    July 2,
                                            2001       2000       2001       2000
                                           ------------------    ------------------
<S>                                        <C>        <C>        <C>        <C>
Net sales..............................     100.0%     100.0%     100.0%     100.0%
Cost of sales..........................      86.8       67.5       90.1       68.1
                                            -----      -----      -----      -----
Gross profit...........................      13.2       32.5        9.9       31.9
Operating expenses:
     Sales and marketing...............       4.6        4.8        5.7        4.9
     Research and development..........      10.7        9.6       12.7        9.1
     General and administrative........       4.4        3.3        6.4        3.4
                                            -----      -----      -----      -----
Total operating expenses...............      19.7       17.7       24.8       17.4

Operating income (loss)................      (6.5)      14.8      (14.9)      14.5
Other income, net......................       1.7        1.2        2.6        1.2
                                            -----      -----      -----      -----

Income (loss) before income taxes......      (4.8)      16.0      (12.3)      15.7
Provision (benefit) for income taxes...      (1.7)       5.7       (4.4)       5.6
                                            -----      -----      -----      -----

Net income (loss)......................      (3.1)%     10.3%      (7.9)%     10.1%
                                            =====      =====      =====      =====
</TABLE>

Three months ended July 1, 2001 and July 2, 2000

Net Sales

     Our net sales are derived primarily from the sale of RF power amplifiers
for use in wireless communications networks. Sales decreased by 29% to $78.2
million for the quarter ended July 1, 2001 from $110.5 million for the quarter
ended July 2, 2000. The decline in net sales was due to continued lower demand
for the majority of our single-carrier products which are sold through our
original equipment manufacturer ("OEM') customers, as well as continued weakness
in demand from the network operator market for our multi-carrier products. The
weakness in demand occurred in our products covering both the 800-1000 MHz and
our 1800-2000 MHz ranges. We believe that the global economic slowdown is
contributing to the weakness in demand that we are experiencing by delaying
purchasing decisions at the network operator level which, in turn, has led to
purchasing delays at the OEM level. We currently anticipate that the economic
slowdown in the United States and the slowdown in the worldwide wireless
communications markets will negatively impact our revenues for the remainder of
the current fiscal year. For the quarter ended July 1, 2001, total sales of
products for networks in the 800-1000 MHz range accounted for approximately 67%
of sales or $52.3 million, compared to approximately 75% of sales or $82.4
million for the quarter ended July 2, 2000. Sales of RF power amplifiers and
associated products for networks in the 1800-2000 MHz range accounted for
approximately 10% of sales or $8.1 million for the second quarter of 2001,
compared to approximately 25% or $28.0 million for the second quarter of 2000.
For the quarter ended July 1, 2001, sales of products for use in networks over
2000 MHz (generally referred to as 3G products) accounted for approximately 23%
of revenues or $17.8 million, as compared to no revenues for the quarter ended
July 2, 2000.

                                       11
<PAGE>

     We track the geographic location of our sales based upon the location of
our customers. 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 not able to identify the final
installation location of our products. Sales to customers in North America
accounted for the majority of our sales, comprising approximately 42% of revenue
or $33.1 million for the quarter ended July 1, 2001, compared to approximately
83% of revenue or $92.1 million for the quarter ended July 2, 2000. Total
international sales (excluding North American sales) accounted for approximately
58% of revenues or $45.1 million for the quarter ended July 1, 2001, compared to
approximately 17% or $18.3 million for the quarter ended July 2, 2000. Total
Asian sales increased to $24.2 million for the quarter ended July 1, 2001 from
$7.1 million for the quarter ended July 2, 2000. Total Asian sales accounted for
approximately 31% of revenues in the second quarter of 2001 compared to
approximately 6% of sales in the second quarter of 2000. See "Additional Factors
That May Affect Our Future Results--A Significant Amount of Our Revenues Comes
from a Few Customers; --Our Success is Tied to the Growth of the Wireless
Service Market; and --There are Many Risks Associated With International
Operations."

     For the second quarter ended July 1, 2001, total sales to Nortel Networks
Corporation and related entities ("Nortel") accounted for approximately 45% of
revenues and sales to LG Information & Communications, Ltd. ("LGIC"), and
Samsung Electronics Co. Ltd. ("Samsung") each accounted for at least 10% of the
revenues for the quarter.  Total sales to Nortel accounted for approximately 47%
of revenues for the quarter ended July 2, 2000 and sales to LM Ericsson
Telephone Company ("Ericsson") accounted for more than 10% of revenues.  We
cannot guarantee that we will continue to be successful in attracting new
customers or retaining or increasing business with our existing customers.  In
addition, we believe that a significant portion of our business with OEMs, such
as Ericsson, Lucent Technologies, Inc. ("Lucent"), Motorola, Inc. ("Motorola"),
Nokia Telecommunications. Inc. ("Nokia") and Nortel, is dependent upon the
deployment schedules of wireless network operators who are purchasing wireless
infrastructure equipment from such OEMs and on such OEMs' strategy concerning
the outsourcing of RF power amplifiers.  During the first half of fiscal 2001,
several major OEMs announced that they had lowered their expectations for
wireless infrastructure demand for the remainder of 2001.  A number of factors
have caused delays and may cause future delays in wireless infrastructure
deployment schedules for both North American and international deployments,
including deployments in Europe, Asia, South America and other areas.  Such
factors include economic slowdowns in the wireless operator's operating region,
delays in government approvals required for system deployment, reduced
subscriber demand for wireless services, high prices for new spectrum licenses,
increased competition and bidding between OEMs for infrastructure contracts and
delays in the development and delivery of telephone handsets which are
compatible with new wireless protocols.  In addition, a number of factors may
cause OEMs to alter their outsourcing strategy concerning RF power amplifiers,
which could cause such OEMs to reduce or eliminate their demand for external
supplies of RF power amplifiers or shift their demand to alternative suppliers.
Such factors include lower perceived internal manufacturing costs and
competitive reasons to remain vertically integrated.  Due to the uncertainties
associated with wireless infrastructure deployments and OEM demand, we have
experienced and expect to continue to experience significant fluctuations in
demand from our OEM customers.  Such fluctuations have caused and may continue
to cause significant reduction in our revenues and/or operating income which has
harmed and may continue to harm our business, financial condition and results of
operations.  See "Additional Factors That May Affect Our Future Results --A
Significant Amount of Our Revenues Comes from a Few Customers; --There are Many
Risks Associated With International Operations; and --Our Quarterly Results
Fluctuate Significantly."

Gross Profit

     Cost of sales consists primarily of raw materials, assembly and test labor,
overhead and warranty costs.  Gross profit margins for the second quarter of
fiscal 2001 and 2000 were 13.2% and 32.5%, respectively. The decrease in our
gross profit margins during the second quarter of 2001 as compared to the second
quarter of 2000 is due to several factors, the most significant being the large
decline in revenues which resulted in lower absorption of manufacturing overhead
expenses and increased labor costs, when viewed as a percentage of revenue.
Additionally, during the second quarter of 2001 we continued to incur additional
depreciation expenses associated with newly acquired capital equipment that we
purchased to support new production lines in our Santa Ana facility.  We
anticipate that in the near-term, due to our reduced sales level, we will
continue to experience lower labor and overhead absorption rates, which
increases our cost of sales as a percentage of revenues.

                                       12
<PAGE>

     While we continue to strive for manufacturing and engineering cost
reductions to offset pricing pressures on our products, we cannot guarantee that
these cost reduction or redesign efforts will keep pace with price declines and
cost increases. If we are unable to reduce our costs through our manufacturing
and/or engineering efforts, our gross margins and profitability may be adversely
affected. For a discussion of the effects of declining average sales prices on
our business, see "Additional Factors That May Affect Our Future Results--Our
Average Sales Prices are Declining."

     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.  Due to these competitive
pressures, we expect that the average sales prices of our products will continue
to decrease.  We have introduced new products at lower sales prices and these
lower sales prices have impacted the average sales prices of our products.
Future pricing actions by us and our competitors may also adversely impact our
gross profit margins and profitability, which could also result in decreased
liquidity and adversely affect our business, financial condition and results of
operations.  For a discussion of the impact of new products on our business, see
"Additional Factors That May Affect Our Future Results--We Must Develop and Sell
New Products in Order to Keep Up With Rapid Technological Change."

Operating Expenses

     Sales and marketing expenses consist primarily of sales commissions,
salaries, other expenses for sales and marketing personnel, travel expenses,
charges for customer demonstration units, reserves for credit losses, and trade
show expenses. Sales and marketing expenses decreased by 33% to $3.6 million for
the quarter ended July 1, 2001, from $5.4 million for the quarter ended July 2,
2000. As a percentage of sales, sales and marketing expenses were 4.6% and 4.8%
for the quarters ended July 1, 2001 and July 2, 2000, respectively. The decrease
in sales and marketing expenses in absolute dollars was primarily attributable
to decreased sales commissions resulting from lower product sales and reduced
personnel costs. For each of the quarters ended July 1, 2001 and July 2, 2000,
approximately $0.2 million in sales and marketing expenses represents the
amortization of a customer list and non-compete agreement acquired as part of
our acquisition of Hewlett-Packard Company's RF power amplifier business in
October 1998 (the "HP Acquisition").

     Research and development expenses include ongoing RF power amplifier design
and development expenses, as well as design expenses associated with reducing
the cost and improving the manufacturability of existing RF power amplifiers.
Current programs include cellular, PCS, and next generation "2.5G" and "3G"
products.  Research and development expenses decreased by 21% to $8.4 million
for the quarter ended July 1, 2001 from $10.6 million for the quarter ended July
2, 2000.  Research and development expenses as a percentage of sales for the
quarters ended July 1, 2001 and July 2, 2000 were 10.7% and 9.6%, respectively.
The decrease in research and development expenses in absolute dollars was
primarily due to reductions in material and engineering expenditures as several
of our design projects entered the production stage.

     General and administrative expenses consist primarily of salaries and other
expenses for management, finance, information systems, facilities maintenance
and human resources.  General and administrative expenses decreased by 5% to
$3.4 million for the quarter ended July 1, 2001, from $3.6 million for the
quarter ended July 2, 2000.  General and administrative expenses as a percentage
of sales for the quarters ended July 1, 2001 and July 2, 2000 were 4.4% and
3.3%, respectively.  The decrease in general and administrative expenses in
absolute dollars was primarily attributable to tighter cost controls and reduced
personnel costs.

     As part of the purchase price allocation of the HP Acquisition, an
allocation of approximately $4.6 million, reflecting the value of goodwill
acquired at the time of the acquisition was capitalized on our balance sheet.
This amount is being amortized over ten years and is included in general and
administrative expenses. For both the quarter ended July 1, 2001 and the quarter
ended July 2, 2000, approximately $0.1 million of goodwill was amortized and
included in general and administrative expenses. The Company will continue to
assess the recoverability of the amounts recorded for goodwill in future
periods.

                                       13
<PAGE>

Other Income (Expense)

     We earned $1.3 million of other income, net, during the second quarter of
2001 and the second quarter of 2000. Other income consists primarily of interest
income, net of any interest expense.

Provision (Benefit) for Income Taxes

     During the quarter ended July 1, 2001, we recorded a tax benefit at a rate
of 36.0% as a result of the availability of net operating loss carrybacks and
carryforwards. During the quarter ended July 2, 2000, we recorded a tax
provision at an effective rate of 35.5%.

Six months ended July 1, 2001 and July 2, 2000

Net Sales

     Net sales decreased by 29.4% to $151.2 million for the six months ended
July 1, 2001 from $214.3 million for the six months ended July 2, 2000. The
decrease in revenue was primarily attributed to reduced sales of our products
covering both the 800-1000 MHz and the 1800-2000 MHz ranges resulting from the
significant slowdown in demand within the global wireless communications market.
For the six months ended July 1, 2001, total sales of products for networks in
the 800-1000 MHz range accounted for approximately 64% of revenues or $98.7
million, compared to approximately 74% of revenues or $158.0 million for the six
months ended July 2, 2000. Sales of products for networks in the 1800-2000 MHz
range accounted for approximately 13% of revenues or $20.0 million for the first
six months of 2001, compared to approximately 26% of revenues or $56.3 million
for the first six months of 2000. The decline in sales of 800-1000 MHz and 1800-
2000 MHz products was partially offset by sales of products for use in networks
over 2000 MHz. For the six months ended July 1, 2001, sales of such products
accounted for approximately 22% of revenues or $32.4 million, as compared to no
revenues in the six months ended July 2, 2000.

     Total sales to North American customers accounted for approximately 49% or
73.9 million of revenues for the six months ended July 1, 2001, compared with
approximately 81% or $173.8 million for the six months ended July 2, 2000.  Our
total international sales (excluding North American sales) accounted for
approximately 51% of revenues or $77.3 million for the six months ended July 1,
2001, compared with approximately 19% or $40.5 million for the six months ended
July 2, 2000.  Total Asian sales accounted for approximately 26% or $38.6
million of revenues in the first six months of 2001 compared to approximately 7%
or $14.9 million in the first six months of 2000.

     For the first six months of 2001, total sales to Nortel accounted for
approximately 41% of revenues and sales to Samsung accounted for over 10% of
revenues.  For the first six months of 2000, Nortel accounted for approximately
44% of revenues and sales to Ericsson and Verizon Wireless accounted for over
10% of revenues for this period.  See "Additional Factors That May Affect Future
Results --A Significant Amount of Our Revenues Comes from a Few Customers; --
There are Many Risks Associated With International Operations; and --Our
Quarterly Results Fluctuate Significantly."

Gross Profit

     Gross profit margins for the first six months of fiscal 2001 and 2000 were
9.9% and 31.9%, respectively.  The decrease in gross margins during the first
six months of 2001 as compared to the first six months of 2000 was primarily due
to the unanticipated reduction in revenues resulting from the global economic
slowdown which led to lower absorption of manufacturing overhead expenses and
increased labor costs, as a percentage of our revenues. See "Additional Factors
That May Affect Future Results - A Significant Amount of Our Revenues Comes from
a Few Customers; and - Our Success is Tied to the Growth of the Wireless
Services Market."

Operating Expenses

     Sales and marketing expenses decreased by 17% to $8.6 million for the six
months ended July 1, 2001 from $10.4 million for the six months ended July 2,
2000. As a percentage of sales, sales and marketing expenses were 5.7% and 4.9%
for the six months ended July 1, 2001 and July 2, 2000, respectively.  The
decrease in actual sales

                                       14
<PAGE>

and marketing expenses was primarily attributable to decreased sales commissions
resulting from decreased product sales.

     Research and development expenses decreased slightly to $19.3 million for
the six months ended July 1, 2001 from $19.6 million for the six months ended
July 2, 2000. Research and development expenses as a percentage of sales for the
six months ended July 1, 2001 and July 2, 2000 were 12.7% and 9.1%,
respectively.

     General and administrative expenses increased to $9.6 million for the six
months ended July 1, 2001, from $7.2 million for the six months ended July 2,
2000.  General and administrative expenses as a percentage of sales were 6.4%
and 3.4%, respectively.  The increase in general and administrative expenses was
primarily attributable to approximately $2.2 million in one-time expenses
related to the move to our new Southern California headquarters and
manufacturing facility in March 2001.

Other Income (Expense)

     We earned $3.9 million of other income, net, during the first six months of
2001 compared to $2.5 million of other income, net, earned in the first six
months of 2000.  Other income consists primarily of interest income, net of any
interest expense. In addition, during the first quarter of 2001, we recognized a
gain of approximately $0.6 million on the sale of available-for-sale securities.

Provision for Income Taxes

     We recorded a tax benefit at a rate of 36.0% for the six months ended July
1, 2001 and a tax provision at a rate of 35.5% for the six months ended July 2,
2000.

Liquidity and Capital Resources

     We have historically financed our operations primarily through a
combination of cash on hand, cash provided from operations, equipment lease
financings, available borrowings under bank lines of credit and both private and
public equity offerings. As of July 1, 2001, we had working capital of $187.9
million, including $99.2 million in cash and cash equivalents as compared to
working capital of $196.7 million at December 31, 2000, which included $128.7
million in cash and cash equivalents.

     Net accounts receivable decreased to $63.2 million at July 1, 2001 from
$80.0 million at December 31, 2000, and net inventories increased to $61.1
million at July 1, 2001 from $51.3 million at December 31, 2000, primarily due
to the significant unanticipated decrease in sales volume during the first six
months of 2001 as compared to the fourth quarter of 2000. Net cash used by
operating activities was approximately $16.4 million for the six months ended
July 1, 2001, compared with net cash provided by operations of $25.7 million for
the six months ended July 2, 2000. The decrease in cash flow from operating
activities is primarily due to our net loss from operations coupled with a sharp
reduction in sales, which contributed to our higher inventory balances.

     Capital expenditures were approximately $19.0 million and $30.9 million for
the first six months of 2001 and 2000, respectively.  For the second quarter of
2001, our total capital spending was $2.2 million, which included tooling,
electronic test equipment and a security system upgrade for our new Santa Ana
facility.

     On May 31, 2001, we renewed our revolving credit agreement with Comerica
Bank-California. The credit facility provides for a revolving line of credit up
to a maximum principal amount outstanding at any one time of $20 million (the
"Revolving Commitment Amount"). We are 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 (6.75% at July 1,
2001) 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
terminates on May 31, 2002. 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 July 1, 2001 we
were in compliance with all covenants contained in the revolving credit
facility. There were no amounts outstanding and the full $20 million of the
Revolving Commitment Amount was available to us at July 1, 2001.

                                       15
<PAGE>

     On April 28, 1998, we purchased $2.5 million of 13.75% Senior Secured
Bridge Notes due April 28, 2000 (the "Notes") from Metawave Communications
Corporation ("Metawave"), a supplier of "smart" antennas to the wireless
communications market and a customer, in a private offering. The total amount
raised in this private offering was $29 million. The Notes initially accrued
interest at a rate of 13.75% per annum and interest was payable semi-annually.
The Notes contained provisions to increase the rate of interest during the life
of the Notes if the Notes were not repaid prior to maturity. The Notes were
secured by certain assets of Metawave and were redeemed in full on April 28,
1999. Upon the issuance of the Notes, we received related warrants to purchase
53,576 shares of Metawave Series D Preferred Stock at a price of $.01 per share.
We exercised these warrants in April 1999. These shares of Series D Preferred
Stock were converted into 51,420 shares of Metawave Common Stock upon Metawave's
initial public offering in May 2000. We sold these shares in February 2001, at
an average price per share, net of commissions of $11.06, and recognized a gain
of approximately $0.6 million. This gain was included in other income, net
during the first quarter of 2001.

     Net cash provided by financing activities was approximately $5.1 million
for the first six months of 2001 compared to $5.0 million for the first six
months of 2000. Net cash provided by financing activities primarily represents
proceeds from our employee's stock option exercises as well as proceeds from the
issuance of common stock under our Employee Stock Purchase Plan.

     We had cash and cash equivalents of $99.2 million at July 1, 2001, compared
with $128.7 million at December 31, 2000. We regularly review our cash funding
requirements and attempt to meet those requirements through a combination of
cash on hand, cash provided by operations, available borrowings under any credit
facilities, financing through equipment lease transactions, and possible future
public or private debt and/or equity offerings. We invest our excess cash in
short-term, investment-grade money market instruments.

     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 operations for at least the next 12 months. For the remainder of fiscal
2001, we currently anticipate capital spending on property and equipment to be
in the range of $3 to $6 million, and we currently plan to fund these
expenditures from our existing cash balances. In the past, we have occasionally
utilized both operating and capital lease financing for certain equipment
purchases used in our manufacturing and research and development operations and
expect to continue to do so selectively in the future. We may require additional
funds in the future to support our working capital requirements or for other
purposes, 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.
No assurance can be given that additional financing will be available in the
future or that if available, such financing will be obtainable on terms
favorable to us or our stockholders when we may require it.

New Accounting Pronouncements

     SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 as
amended, establishes accounting and reporting standards for derivative
instruments including certain derivative instruments embedded in other contracts
and for hedging activities. Under SFAS No. 133, certain contracts that were not
previously considered derivatives may now meet the definition of a derivative.
We adopted SFAS No. 133 effective January 1, 2001 and such adoption did not have
a material impact on our consolidated financial statements.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued two
new pronouncements -- SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the
purchase method of accounting and eliminates the pooling-of-interest method for
business combinations initiated after June 30, 2001. SFAS No. 142 provides for,
among other things, the discontinuance of goodwill amortization, the
reassessment of the useful lives for existing recognized intangibles, and the
potential reclassification of amounts between recognized intangibles and
goodwill. The standard is effective for fiscal years beginning after December
15, 2001 and applies to all goodwill and other intangible assets recognized in
an entity's statement of financial position at that date, regardless of when
those assets were initially recognized. The Company is currently evaluating the
provisions of SFAS No. 141 and SFAS No. 142 and has not adopted such provisions
in its June 30, 2001 financial statements.

                                       16
<PAGE>

Disclosure About Foreign Currency Risk

     A significant portion of our revenues is derived from international
sources, with our international customers accounting for approximately 51% of
our revenues for the first six months of fiscal 2001, 19% of our fiscal 2000
revenues and 33% of our fiscal 1999 revenues. 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 Asia, Europe and South America. International
locations have a history of instability in the value of their currencies.
Although we currently invoice all 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 the 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. Although 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 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 as well as current financial performance and overall economic
conditions. We may decide in the future to offer certain foreign customers
extended payment terms and/or sell certain products or services in the local
currency of such customers. If we sell products or services in a foreign
currency, our results of operations and gross margins may be affected by changes
in currency exchange rates.

     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 currently 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 local currency based 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 impact our future sales and gross margins.  For further
discussion of the risks associated with our international sales, see "Additional
Factors That May Affect Our Future Results--There are Many Risks Associated With
International Operations."

European Monetary Union

     Within Europe, the European Economic and Monetary Union (the "EMU")
introduced a new currency, the euro, on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services.

     On January 1, 1999, the participating countries adopted the euro as their
local currency, initially available for currency trading on currency exchanges
and non-cash transactions such as banking. The existing local currencies, or
legacy currencies, will remain legal tender through January 1, 2002. Beginning
on January 1, 2002, euro-denominated bills and coins will be issued for cash
transactions. For a period of up to six months from this date, both legacy
currencies and the euro will be legal tender. On or before July 1, 2002, the
participating countries will withdraw all legacy currencies and exclusively use
the euro.

     Our transactions are recorded in U.S. Dollars and we do not currently
anticipate future sales transactions being recorded in the euro.  Based on the
lack of transactions recorded in the euro, we do not believe that the euro will
have a material effect on our financial position, results of operations or cash
flows.   In addition, we have not incurred and do not expect to incur any
significant costs from the continued implementation of the euro, including any
currency risk, which could materially affect our business, financial condition
and results of operations.

     We have not experienced any significant operational disruptions to date and
do not currently expect the continued implementation of the euro to cause any
significant operational disruptions.

                                       17
<PAGE>

Additional Factors That May Affect Our Future Results

     Our future operating results may be impacted by a number of factors that
could cause our actual results to differ materially from those stated herein,
which reflect our current expectations. These factors include the following:

     .  the ability to add new customers to reduce our dependence on any one
        customer;
     .  the ability to maintain our existing customers;
     .  industry specific factors, including a slowdown in the demand for
        wireless communications and RF power amplifiers;
     .  the impact of any reduction in demand for our products;
     .  the ability to increase demand for our products from major wireless
        infrastructure OEMs;
     .  the ability to produce both new and existing products which meet the
        quality standards of both our existing and potential new customers;
     .  the ability to ramp-up production of new products in both a timely and
        cost effective manner;
     .  the ability to timely develop and produce commercially viable products
        at competitive prices;
     .  the ability to maintain a stable and reliable source of electricity to
        support our operations at a reasonable cost;
     .  the ability to manage rapid change in demand for our products;
     .  the availability and cost of components;
     .  the ability to finance our activities and maintain our financial
        liquidity;
     .  the ability of our products to operate and be compatible with various
        OEMs' base station equipment;
     .  worldwide and regional economic downturns and unfavorable political
        conditions;
     .  the ability to manage expense levels;
     .  the ability to manage future product repairs; and
     .  the ability to accurately anticipate customer demand.

A Significant Amount of Our Revenues Comes from a Few Customers

     We sell most of our products to a small number of customers, and we expect
that this will continue.  We believe that our future success depends upon our
ability to broaden our customer base and maintain relationships with major
wireless OEMs, such as Ericsson, LGIC, Lucent, Motorola, Nokia, Nortel and
Samsung, as well as major operators of wireless networks, such as AT&T Wireless,
Cingular Wireless and Verizon Wireless.

     Our dependence on a small number of major customers exposes us to numerous
risks, including:

     .  slowdowns or delays in deployment of wireless networks that reduce
        customer demand for our products;
     .  changes in customer forecasts and demand;
     .  customers leveraging their buying power to change the terms of pricing,
        payment and product delivery schedules; and
     .  direct competition should a customer decide to manufacture RF power
        amplifiers internally.

     For the six months ended July 1, 2001, our largest customer, Nortel,
accounted for approximately 41% of our net sales. For fiscal 2000, Nortel
accounted for approximately 47% of our net sales. During the first half of
fiscal 2001, a number of major OEMs have announced that they have lowered their
expectations for wireless infrastructure demand for the remainder of 2001. The
resulting significant reductions in demand by our OEM customers has and will
continue to have an adverse effect on our business, results of operations and
financial condition. For the second quarter of 2001, our next two largest
customers (in alphabetical order), LGIC and Samsung, each accounted for at least
10% 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.

     An example of the risks related to our customer concentration was
demonstrated in 1998. At that time, we had a significant geographic customer
concentration in South Korea, which experienced an economic and financial crisis
during 1998. For fiscal 1998, our South Korean customers accounted for $30.2
million, or approximately 30% of total net sales. This was a significant drop
from 1997, when our South Korean customers accounted for $99.3 million or
approximately 83% of our total net sales. During fiscal 2000, our South Korean
customers accounted for

                                       18
<PAGE>

approximately 8% of total sales or $34.1 million, and in fiscal 1999, they
accounted for approximately 21% of our total net sales or $62.2 million. For the
second quarter of fiscal 2001, our South Korean customers accounted for
approximately 26% of our net sales or $20.9 million.

     We believe that continued purchases of our products by OEMs is dependent
upon many factors, including the OEMs' view of utilizing third party suppliers
of RF power amplifiers. During fiscal 2000, Ericsson purchased Microwave Power
Devices, one of our competitors. Any shift in demand by an OEM away from
utilizing third party suppliers of RF amplifiers could have a negative impact on
our business, results of operations and financial condition. Additionally, OEM
purchases are impacted by their current view of wireless infrastructure
deployments and could be significantly reduced due to any delays of such
deployments. A number of factors may cause delays in wireless infrastructure
deployments, including the following factors:

     .  economic or political problems in the wireless operator's operating
        region;
     .  delays in government approvals required for system deployment;
     .  higher than anticipated network infrastructure costs;
     .  technical delays in the development of new wireless protocols, such as
        3G, and;
     .  reduced subscriber demand for wireless services.

     In addition, from time to time OEMs may purchase products from us in large
quantities over a short period of time, which may cause demand for our products
to change rapidly.  Due to these and other uncertainties associated with
wireless infrastructure deployments and OEMs' purchasing strategies, we may
experience significant fluctuations in demand from our OEM customers.  Such
fluctuations could cause a significant increase in demand which could exceed our
production capacity and could negatively impact our ability to meet customers'
demands as well as potentially impact product quality.  Alternatively, such
fluctuations could cause a significant reduction in revenues which could have a
material adverse effect on our business, results of operations and financial
condition.  We cannot guarantee that a major customer will not reduce, delay or
eliminate purchases from us, which could have a material adverse effect on our
business, results of operations and financial condition.

 Our Quarterly Results Fluctuate Significantly

     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, any of which could have
a material adverse effect on our business, results of operations and financial
condition. Factors that could cause our results of operations to vary include
the following:

     .  variations in the timing, cancellation, or rescheduling of customer
        orders and shipments;
     .  variations in manufacturing costs, capacities and efficiencies;
     .  capacity and production constraints, including constraints associated
        with single-source component suppliers;
     .  delays in qualification by customers of new products or redesigns;
     .  product failures and associated in-field service support costs;
     .  cancellations or reductions of customer orders and shipments due to
        economic slowdowns in the customers' operating regions;
     .  cancellations or rescheduling of customer orders and shipments due to
        excess inventory levels caused by changes in demand or deployment
        schedules at the customer;
     .  competitive factors, including pricing, availability and demand for
        competing amplification products;
     .  warranty expenses;
     .  the availability and cost of components;
     .  the timing, availability and sale of new products by us or our
        competitors;
     .  changes in the mix of products having differing gross margins;
     .  changes in average sales prices;
     .  long sales cycles associated with our products;
     .  variations in product development and other operating expenses;
     .  discounts given to certain customers for large volume purchases;
     .  interruptions in the supply of electricity and significant increases in
        the cost of electricity; and

                                       19
<PAGE>

     .  high fixed expenses that increase operating expenses, especially during
        a quarter with a sales shortfall.

     In addition, while we periodically receive order forecasts from our major
customers, such customers generally have no binding obligation to purchase the
forecasted amounts.  See "A Significant Amount of Our Revenues Comes From a Few
Customers." 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 quarterly results of
operations.  We cannot guarantee that our quarterly results of operations will
not be similarly adversely affected in the future.

     Our sales to customers are usually made under purchase orders with short
delivery requirements.  While we receive periodic order forecasts, customers
generally have no obligation to purchase the forecasted amounts and may cancel
orders, change delivery schedules or change the mix of products ordered with
minimal notice.  In spite of these limitations, we maintain significant work-in-
progress and raw materials inventory as well as increased levels of technical
production staff to meet estimated order forecasts.  If customers purchase less
than the forecasted amounts or cancel or delay existing purchase orders, we will
have higher levels of inventory that face a greater risk of obsolescence and
excess production staff.  If our customers desire to purchase products in excess
of the forecasted amounts or in a different product mix, we may lack the
inventory or manufacturing capacity to fill their orders.  Either situation
could have a material adverse effect upon our business, financial condition and
results of operations and future business with such customers.

     Due to these 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 analysts and investors.  In either case, the price
of our Common Stock could be materially adversely affected.  See "--Our Stock
Price Has Been and May Continue to Be Volatile."

 Our Average Sales Prices are Declining

     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 placing increasing price
pressure on wireless infrastructure manufacturers, which in turn has resulted in
downward pricing pressure on our products.  Competition among third-party
suppliers has also increased 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 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 product improvements, our gross margins will continue to decline.

     Sales of single carrier RF power amplifiers have been subject to intense
price competition and historically have carried lower gross profit margins than
our multi-carrier RF power amplifier products. If we cannot reduce manufacturing
costs on our single carrier RF power amplifiers and such RF power amplifiers
continue to account for a significant percentage of our net sales, our overall
gross profit margins will fall. In addition, we currently expect that 3G multi-
carrier RF power amplifiers will have lower gross margins than our 2G multi-
carrier products. If we are unable to continue to reduce our manufacturing costs
on all of our products, our gross margins will decline.

 Our Failure to Manage Future Growth Could Have Adverse Effects

     Our ability to compete effectively and manage future growth depends on our
ability to:

     .  effectively expand, train and manage our work force, particularly in
        response to fluctuations in demand for various products;
     .  manage production and inventory levels to meet product demand and new
        product introductions;
     .  manage and improve production quality;
     .  expand both the range of customers and the geographic scope of our
        customer base;
     .  reduce product costs; and

                                       20
<PAGE>

     .  improve financial and management controls, reporting systems and
        procedures.

     Any failure to manage growth effectively could have a material adverse
effect on our business, financial condition and results of operations.

     Our Facilities are Located in the State of California Which is Experiencing
an Electricity Shortage

     The two largest investor owned electric utility companies in California,
Pacific Gas & Electric and Southern California Edison, have been experiencing
electricity generation shortages due to the collapse of California's
deregulation strategy.  Pacific Gas & Electric has declared voluntary bankruptcy
in order to restructure its outstanding obligations, and Southern California
Edison continues to operate with the potential risk of a future bankruptcy
filing.  The inability of these companies to continue purchasing electricity has
resulted in rolling blackouts in certain parts of the state.  Our Southern
California operation is wholly dependent on Southern California Edison and our
Northern California engineering center is wholly dependent upon Pacific Gas and
Electric.  As of July 31, 2001 we have not experienced any significant
interruptions in electrical service to our facilities.  We currently do not have
backup power generators or alternate sources of power to support our needs in
the event of a blackout and our current insurance does not provide coverage for
any damages we or our customers may suffer as a result of interruptions of power
supply.  We are not able to guarantee that we will not experience any
significant interruptions in electrical service to our facilities in the future.
The loss of electrical service would cause a temporary shutdown of our
operations resulting in lost production and may require us to re-calibrate our
production equipment, resulting in potentially significant unanticipated costs.
In addition, many of our suppliers are located in California and could be
similarly affected.  Frequent and continuing shutdowns of our operations and
those of our suppliers could cause us to be unable to manufacture the products
required by our customers in a timely manner.  Shipments to our customers could
be delayed, resulting in the delay or loss of product revenues.  Such delay or
loss of product revenues could have a material adverse effect on our business,
financial condition and results of operations.

     Furthermore, the deregulation of the energy industry instituted in 1996 by
the California government has caused power prices to increase. Under
deregulation, utilities were encouraged to sell their plants, which
traditionally had produced most of California's power, to independent energy
companies that were expected to compete aggressively on price. Instead, due in
part to a shortage of supply, wholesale prices have skyrocketed over the past
year. As a result, we have begun to incur significant increases in our
electricity costs which are negatively impacting our results of operations. If
wholesale prices continue to increase and these increases are passed on to end
users, the operating expenses associated with our facilities will increase,
which could further harm our results of operations.


 Our Success is Tied to the Growth of the Wireless Services Market

     Almost all of our revenues come from the sale of RF power amplifiers for
wireless communications networks.  Our future success depends to a considerable
extent upon the continued growth and increased availability of wireless
communications services.  Wireless communications services may not continue to
grow and create demand for our products.  We believe that continued growth in
the use of wireless communications services depends, in part, on lowering the
cost per subscriber by reducing the costs of the infrastructure capital
equipment and thereby enabling reductions in wireless service pricing.
Although FCC regulations require local phone companies to reduce the rates
charged to wireless carriers for connection to their wireline networks, wireless
service rates will probably remain higher than rates charged by traditional
wireline companies.

     The expansion of wireless communications services depends on developed
countries, such as the United States, continuing to allow deployment of new
networks and upgrades to existing networks, and on less developed countries
deploying wireless communications networks.

     Our performance could be adversely affected by any of the following risks:

     .  failure of local governments or foreign countries to allow construction
        of new wireless communications systems;
     .  lack of demand for new wireless services;

                                       21
<PAGE>

     .  termination or delays by local governments or foreign countries of
        existing construction of wireless communications systems;
     .  imposition of moratoriums by local governments or foreign countries on
        building new base stations for existing wireless communications systems;
        and
     .  foreign authorities may disfavor wireless communications systems because
        of environmental concerns, political unrest, economic downturns,
        favorable prices for other communications services or delays in
        implementing wireless communications systems.

 We Depend on Single Sources for Key Components

     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 also purchase certain customized components from single
sources.  We have experienced, and expect to continue to experience, shortages
of single-sourced components.  Shortages have compelled us to adjust our product
designs and production schedules.  If single-sourced components become
unavailable in sufficient quantities or 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.  In addition, our reliance on
certain single-sourced components exposes us to quality control issues if such
suppliers experience a failure in their production process.  A failure in a
single-sourced component could force us to repair or replace a product utilizing
replacement components.  Such a requirement could have a material adverse effect
on our business, results of operations and financial condition.  In addition, if
we can not obtain comparable replacements or effectively retune or redesign our
products, there could be a material adverse effect on our business, results of
operations and financial condition.

     As a result of our reliance on certain single-sourced customized
components, an abrupt reduction in customer demand could result in excess
inventories of such components due to the nature of the volume purchasing
agreements that we utilize to obtain component cost reductions. If we are unable
to utilize such components in a timely manner and are unable to sell such
components due to their customized nature, the resulting negative impact on our
liquidity and resulting increased inventory levels could have a material adverse
effect on our business, results of operations and financial condition.

 The Market in Which We Operate is Highly Competitive

     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.  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 currently compete favorably with respect to these
characteristics, this may change in the future.  If we fail to address our
competitive challenges, there could be a material adverse effect on our
business, financial condition and results of operations.

     Our current competitors include Allen Telecom, Inc., Andrew Corporation and
Spectrian Corporation, in addition to a number of privately held companies
throughout the world, subsidiaries of certain multinational corporations and the
RF power amplifier manufacturing operations of the leading wireless
infrastructure

                                       22
<PAGE>

manufacturers such as Ericsson, Lucent, Motorola, Nokia and Samsung. 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. We may not be able
to successfully increase our market penetration or our overall share of the RF
power amplifier market. Our results of operations could be adversely impacted if
we are unable to effectively increase our share of the RF power amplifier
market.

     Our future success depends largely upon the rate at which wireless
infrastructure manufacturers incorporate our products into their systems.  A
substantial portion of the present worldwide production of RF power amplifiers
is captive within the internal manufacturing operations of leading wireless
infrastructure manufacturers such as Ericsson, Lucent, Motorola, Nokia and
Samsung.  These companies regularly evaluate whether to manufacture their own RF
power amplifiers rather than purchase them from us.  During 2000, Ericsson
purchased Microwave Power Devices, one of our competitors.  We cannot predict
the ultimate impact this purchase will have on our business with Ericsson.  Any
potential reduction in our business with Ericsson could have a negative impact
on our business, financial condition and results of operations.  In addition,
various  companies could also compete directly with us by selling their RF power
amplifiers to other manufacturers and operators, including our customers.  If we
are not successful in increasing the use of our products by the leading wireless
infrastructure manufacturers, there would be a material adverse effect on our
business, financial condition and results of operations.

 We Must Develop and Sell New Products in Order to Keep Up With Rapid
 Technological Change

     The markets in which we compete are characterized by:

     .  rapidly changing technology;
     .  constant pricing pressure;
     .  evolving industry standards and communications protocols; and
     .  frequent improvements in products and services.

     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 RF
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 third and fourth generation networks as well
as development projects for products requested by our customers. In spite of our
efforts, the deployment of a wireless network may be delayed which could cause a
particular research or development effort to not generate a revenue producing
product. Additionally, the new products we develop may not achieve market
acceptance or may not be manufacturable at competitive prices in sufficient
volumes. We cannot guarantee the success of our research and development
efforts.

     We also continue efforts to improve our existing cellular and PCS lines of
RF power amplifier products. Any delays in the shipment of these products may
cause customer dissatisfaction and delay or loss of product revenues. In
addition, it is possible that a significant number of development projects will
not result in manufacturable new products or product improvements.

     If we fail to develop new products or improve existing products in a timely
manner, there will be a material adverse effect on our business, financial
condition and results of operations.

 We May Fail to Develop Products that are Sufficiently Manufacturable or of
 Adequate Quality and Reliability

     Manufacturing our products is a complex process and requires significant
time and expertise to meet customers' specifications. Successful manufacturing
is substantially dependent upon our ability to tune these products to meet
specifications in an efficient manner. In this regard, we depend on our staff of
trained technicians. If we cannot design our products to minimize the manual
tuning process, if we are unable to attract additional trained technicians, or
if we lose a number of our trained technicians, it would have a material adverse
effect on our business, financial condition and results of operations.

                                       23
<PAGE>

     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 overall
relationship with our customers is good and that they consider our products to
be of good quality.  We also believe that our customers will demand increasingly
stringent product performance and reliability.  We cannot provide any assurance
that our product designs will remain successful or that they will keep pace with
technological developments, evolving industry standards and new communications
protocols.  We may fail to adequately improve product quality and meet the
quality standards of our customers, which could cause us to lose such customers.
Design problems could 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 RF
power amplifiers and have stringent quality control standards.   See "--Many
Wireless Infrastructure Manufacturers have Internal RF Power Amplifier
Production Capabilities."

 We Must Retain Key Executives and Personnel

     We need to hire and retain highly qualified technical, marketing and
managerial personnel.  Competition for personnel, particularly qualified
engineers, is intense, and 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 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 and our ability to market our existing
products and to develop new products. We do not have non-compete agreements with
our employees who are employed on an at-will-basis. Therefore, employees may
leave us and go to work for a competitor. We have had employees leave us and go
to work for competitors. While we believe that we have adequately protected our
proprietary technology, and we will take all legal measures to protect it, the
use of our processes by a competitor could have a material adverse effect on our
business, financial condition and results of operations.

 There are Many Risks Associated With International Operations

     For the first six months of fiscal 2001, fiscal years 2000, 1999 and 1998,
international revenues (excluding North American sales) accounted for
approximately 51%, 21%, 33% and 41%, respectively, of our net sales.  We
currently expect that international revenues will continue to account for a
significant percentage of our revenues for the foreseeable future.  Therefore,
the following risks associated with international operations could have a
material adverse effect on our performance:

     .  compliance with multiple and potentially conflicting regulations,
        including export requirements, tariffs, import duties and other
        barriers, and health and safety requirements;
     .  differences in intellectual property protections;
     .  difficulties in staffing and managing foreign operations;
     .  longer accounts receivable collection cycles;
     .  currency fluctuations;
     .  economic instability, including inflation and interest rate
        fluctuations, such as those previously seen in South Korea and Brazil;
     .  competition from foreign based suppliers;
     .  restrictions against the repatriation of earnings from a foreign
        country;
     .  overlapping or differing tax structures; and
     .  political or civil turmoil.

     We have traditionally invoiced all of our international sales in U.S.
Dollars. Accordingly, we do not currently engage in foreign currency hedging
transactions. However, as we continue to expand our international operations, we
may be paid in foreign currencies and, therefore, would become exposed to
possible losses in foreign currency

                                       24
<PAGE>

transactions. Since we sell our products in many countries, when the U.S. Dollar
becomes more expensive relative to the currency of our foreign customers, the
price of our products in those countries rises and our sales into those
countries may fall. This happened to us in South Korea during 1998. In addition,
as we sell our products into foreign countries, our products can become subject
to tariffs and import duties which raise the overall price of our products to
such a level that our products are no longer competitive in price to locally
based suppliers. If any of the above risks actually occurs, there may be a
material adverse effect on our business, financial condition and results of
operations.

 The Sales Cycle for Our Products is Lengthy

     The sales cycle associated with our products is typically lengthy, often
lasting from six to eighteen months.  Our customers normally conduct significant
technical evaluations of our products and our competitors' products before
making purchase commitments.  Our OEM customers typically require extensive
technical qualification of our products before they are integrated into any
OEM's product.  This qualification process involves a significant investment of
time and resources from us and the OEMs to ensure that our product designs are
fully qualified to perform with each OEM's equipment.  Also, individual wireless
network operators can subject our products to field and evaluation trials, which
can last anywhere from one to nine months, before making a purchase.  The
qualification and evaluation process and the customer field trials may delay the
shipment of sales forecasted for a specific customer for a particular quarter
and our operating results for that quarter could be materially adversely
affected.

 Many Wireless Infrastructure Manufacturers have Internal RF Power Amplifier
 Production Capabilities

     Many of the leading wireless infrastructure equipment manufacturers
internally manufacture their own RF power amplifiers. We believe that our
existing customers continuously evaluate whether to manufacture their own RF
power amplifiers. Certain of our customers regularly produce RF power amplifiers
in an attempt to replace products manufactured by us. We believe that this
practice will continue. Recently, Ericsson, one of our OEM customers, purchased
Microwave Power Devices, Inc., one of our competitors. In the event that our
customers manufacture their own RF power amplifiers, such customers could reduce
or eliminate their purchases of our products. We cannot guarantee that our
current customers will continue to rely or expand their reliance on us as an
external source of supply for their RF power amplifiers.

     Wireless infrastructure equipment manufacturers with internal manufacturing
capabilities could also sell RF power amplifiers externally to other
manufacturers, thereby competing directly with us.  In addition, even if we are
successful in selling our products to these customers, we believe that such
customers will demand price and other concessions based on their ability to
manufacture RF power amplifiers internally.  If, for any reason, our major
customers decide to produce their RF power amplifiers internally or through
joint ventures with other competitors, or require us to participate in joint
venture manufacturing with them, our business, results of operations and
financial condition could be materially adversely affected.


 Protection of Our Intellectual Property is Limited; Risk of Third-Party Claims
 of Infringement

     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 13 U.S. patents, and we currently have 15 separate
U.S. patent applications filed. 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 do not have non-compete agreements with our employees who are employed
on an "at-will" basis. Therefore, employees may leave us and go to work for a
competitor. We have had employees leave us and go to work for competitors in the
past. While we believe that we have adequately protected our proprietary
technology,

                                       25
<PAGE>

and we will take all legal measures to protect it, the use of our processes by a
competitor could have a material adverse effect on our business, financial
condition and results of operations.

     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 the rights of others.  We may fail to do so.  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.

     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
companies in our industry may face more frequent infringement claims. Although
there are no pending or threatened intellectual property lawsuits against us, we
may face litigation or infringement claims in the future. Such claims 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.  Although we may seek licenses from third parties
covering intellectual property that we are allegedly infringing, we cannot
guarantee that any such licenses could be obtained on acceptable terms, if at
all.

     Certain of our customers and other wireless communications infrastructure
equipment manufacturers may decide to protect their intellectual property by
deciding not to purchase RF power amplifiers from external sources.  The
appearance of a close working relationship with a particular customer may
adversely affect our ability to establish or maintain a relationship with, or
sell products to, competitors of that particular customer.  The failure of our
major customers to purchase products from us due to our relationship with other
customers could have a material adverse effect on our business, financial
condition and results of operations.

 Actual or Alleged Defects in Our Products May Create Liability to Those
 Claiming Injury

     Any of the following could have a material adverse effect on our business,
financial condition and results of operations:

     .  a determination or allegation that systems or devices relying on or
        incorporating our products create a health risk, causing us to be named
        as a defendant, and held liable, in a product liability lawsuit;
     .  delays or prohibitions on the installation of wireless communications
        networks due to alleged health or environmental risks; and
     .  our inability to maintain insurance at an acceptable cost or to
        otherwise protect against potential product liability lawsuits.


 Government Regulation of the Communications Industry

     The products that we manufacture are regulated.  We must obtain regulatory
approvals to manufacture and sell our products and our customers must obtain
approvals to operate our products.  The FCC has adopted regulations that impose
stringent RF emissions standards on the communications industry.  These
regulations may require that we alter the manner in which radio signals are
transmitted or otherwise alter the equipment transmitting such signals.  We are
also subject to regulatory requirements in international markets where prominent
local competitors may have the ability to influence regulations in situations
where we do not.

     The enactment by governments of new laws or regulations or a change in the
interpretation of existing regulations could adversely affect the market for our
products.  Deregulation of international communications industries along with RF
spectrum allocations made by the FCC have increased the potential demand for our
products.  We cannot guarantee that the trend toward deregulation and current
regulatory developments favorable to the promotion of new and expanded wireless
services will continue or that other future regulatory changes will have a
positive impact on us.  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

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<PAGE>

deliberation over competing technologies. In the past, the delays inherent in
this governmental approval process have caused, and may in the future cause, the
cancellation, postponement or rescheduling of the installation of communications
systems by our customers. These delays could have a material adverse effect on
our business, results of operations and financial condition.

 Our Stock Price Has Been and May Continue to Be Volatile

     The price of our Common Stock has exhibited high levels of volatility with
significant volume and price fluctuations, which makes our Common Stock
unsuitable for some investors.  In addition, the stock market has from time to
time experienced significant price and volume fluctuations.  The fluctuations in
the stock market are often unrelated to the operating performance of particular
companies, and the market prices for securities of technology companies have
been especially volatile.  These broad market fluctuations may adversely affect
the market price of our Common Stock.  Our stock price may be affected by the
factors discussed above as well as:

     .  fluctuations in our results of operations or the operations of our
        competitors;
     .  failure of such results of operations to meet the expectations of stock
        market analysts and investors;
     .  reductions in demand or expectations of future demand by our customers;
     .  delays or postponement of wireless infrastructure deployments, including
        new 3G deployments;
     .  changes in the political or economic outlook of the markets into which
        we sell our products;
     .  changes in stock market analyst recommendations regarding us, our
        competitors or our customers;
     .  the timing and announcements of technological innovations or new
        products by us or our competitors;
     .  changes in the wireless communications industry; and
     .  general market conditions.

 Risk of Litigation

     We are not currently party to any 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.
Any potential litigation, regardless of its merits, could result in substantial
costs to us and divert our attention from our operations.  Such diversion could
have an adverse impact on our business, results of operations and financial
condition.

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<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Our financial instruments include cash and cash equivalents and long-term
debt.  At July 1, 2001, the carrying values of our financial instruments
approximated their fair values based on current market prices and rates.

     Currently, we do not enter into derivative financial instruments and we do
not currently have any significant direct foreign currency exposure. Aside from
operating costs of our South Korean repair operation, we do not transact
business in foreign currencies. As a result , we do not have any significant
direct foreign currency exposure at July 1, 2001.

     We are exposed to a number of market risks in the ordinary course of
business. These risks, which include interest rate risk, foreign currency
exchange 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
concluded that none of our exposures in these areas is 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 the risks.
At the present time, we do not have any hedging programs in place and we are not
trading in any financial or derivative instruments.

     We currently do not have any material debt outstanding, so we do not have
interest rate risk from a liability perspective.  We do have a significant
amount of cash and short-term investments with maturities less than three
months.  This cash portfolio exposes us to interest rate risk as short-term
investment rates can be volatile.  Given the short-term maturity structure of
our investment portfolio, and the high-grade investment quality of our
portfolio, we believe that we are not subject to principal fluctuations and the
effective interest rate of our portfolio tracks closely to various short-term
money market interest rate benchmarks.  During the first six months of 2001, we
have seen significant interest rate reductions as the U.S. Federal Reserve has
aggressively lowered the short-term interest rate.  This has contributed to a
reduction in interest income from our cash investments.  We currently anticipate
that our interest income will continue to decline as a result of this lower
interest rate environment.

     Our international sales expose us to foreign currency risk in the ordinary
course of our business.  Please review our  "Disclosure About Foreign Currency
Risk" in this Form 10-Q for a more detailed description of the various risks
involved in our international sales.

     We require significant quantities of RF transistors, semiconductors and
various metals for use in the manufacture of our products.  We therefore are
exposed to certain commodity price risk associated with variations in the market
prices for these electronic components.  We attempt to manage this risk by
entering into supply agreements with various suppliers of these components.
These supply agreements are not long-term supply agreements.  If we 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 not be able to pass
such costs onto our customers.  In such an event, our business, results of
operations and financial condition could be adversely affected.   In addition,
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 adversely effect our business, results of operations and financial
condition.

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<PAGE>

                          PART II.  OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

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

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

10.30   Amendment No. 1 to Loan Agreement dated as of May 31, 2001, by and among
        the Company, Comerica Bank-California, as Agent, and the lenders party
        thereto.


        (b)  The Company filed a Current Report on Form 8-K dated June 1, 2001
             to report under item 5:(i) the declaration of a dividend of one
             preferred share purchase right for each outstanding share of Common
             Stock to be paid on June 18, 2001; and (ii) the adoption of a
             Stockholder Rights Plan to protect the Company's stockholders from
             coercive or otherwise unfair takeover tactics.

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<PAGE>

                                  SIGNATURES

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

                                               POWERWAVE TECHNOLOGIES, INC.


Date: August 1, 2001                 By: /s/  Kevin T. Michaels
                                     ------------------------------------------
                                              Kevin T. Michaels
                                     Senior Vice President, Finance and
                                     Chief Financial Officer


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