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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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

For the quarterly period ended April 1, 2007

OR



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

For the transition period from  to

Commission File Number 000-21507



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POWERWAVE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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

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

(Address of principal executive offices, zip code)

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

Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $.0001 Nasdaq Global Select Market

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



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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated
filer  x    Accelerated filer ̈Non-accelerated filer ̈

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x

As of May 4, 2007, the number of outstanding shares of Common Stock, par value $0.0001 per share, of the Registrant was 130,285,960



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POWERWAVE TECHNOLOGIES, INC.

INDEX



|                                                           |  |          |  |                                                                                       |  |   
|---------------------------------------------------------- |  | -------- |  | ------------------------------------------------------------------------------------- |  | --
|CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS |  | 3       
|                                                           | 
|HOW TO OBTAIN POWERWAVE SEC FILINGS                        |  | 3       
|                                                           | 
|PART I  FINANCIAL INFORMATION                             |  | 4       
|                                                           |  | Item 1.  |  | Financial Statements (Unaudited)                                                      |  | 4 
|                                                           |  |          |  | Condensed Consolidated Balance Sheets                                                 |  | 4 
|                                                           |  |          |  | Condensed Consolidated Statements of Operations                                       |  | 5 
|                                                           |  |          |  | Condensed Consolidated Statements of Comprehensive Operations                         |  | 6 
|                                                           |  |          |  | Condensed Consolidated Statements of Cash Flows                                       |  | 7 
|                                                           |  |          |  | Notes to Condensed Consolidated Financial Statements                                  |  | 8 
|                                                           |  | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18
|                                                           |  | Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 32
|                                                           |  | Item 4.  |  | Controls and Procedures                                                               |  | 33
|                                                           | 
|PART II  OTHER INFORMATION                                |  | 35      
|                                                           |  |          | 
|                                                           |  | Item 1.  |  | Legal Proceedings                                                                     |  | 35
|                                                           |  | Item 1a. |  | Risk Factors                                                                          |  | 35
|                                                           |  | Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 46
|                                                           |  | Item 6.  |  | Exhibits                                                                              |  | 47
|                                                           | 
|SIGNATURES                                                 |  | 48      



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CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes
forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to revenue, revenue composition, market conditions, demand and
pricing trends, future expense levels, competition and growth prospects in our industry, trends in average selling prices and gross margins, product and infrastructure development, market demand and acceptance, the timing of and demand for next
generation products, customer relationships, tax rates, employee relations, the timing of and cost saving synergies from integration activities of the former LGP Allgon and REMEC, Inc.s Wireless Systems Businesses (REMEC Wireless)
and the Wireless Infrastructure Division Business of Filtronic plc (Filtronic Wireless), restructuring charges, the completion of integration activities related to LGP Allgon, REMEC Wireless and Filtronic Wireless and the level of
expected future capital and research and development expenditures. Such forward-looking statements are based on the beliefs of, estimates made by, and information currently available to Powerwave Technologies, Inc.s (Powerwave or
the Company) management and are subject to certain risks, uncertainties and assumptions. Any other statements contained herein (including without limitation statements to the effect that Powerwave or management estimates,
expects, anticipates, plans, believes, projects, continues, may, will, could, or would or statements concerning
potential or opportunity or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact are also forward-looking statements. The actual results of Powerwave may vary
materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors, including those discussed in under Part II,
Item 1A, Risk Factors. Because of these and other factors that may affect Powerwaves operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical
results to anticipate results or trends in future periods. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that Powerwave files from time to time with the Securities and Exchange Commission, including subsequent
Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

HOW TO OBTAIN POWERWAVE SEC FILINGS

All reports filed by Powerwave with the SEC are available free of
charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials filed by the Company with the SEC at the SECs public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Powerwave
also provides copies of its Forms 8-K, 10-K, 10-Q, Proxy Statement and Annual Report at no charge to investors upon request and makes electronic copies of its most recently filed reports available through its website at www.powerwave.com as soon as
reasonably practicable after filing such material with the SEC.



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PART I  FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS (UNAUDITED)
|------- | --------------------------------

POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)



|                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                   |  | April 1, 2007 |           |   | December 31,2006 |  
|                                                                                                                                                                                   |  | (Unaudited)   |           |   | (See Note)       |  
|ASSETS                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|                                                                                                                                                                                   |  |              
|Current assets:                                                                                                                                                                    |  |               |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                                                          |  | $             | 47,302    |   |                  | $ | 41,544    |  
|Restricted cash                                                                                                                                                                    |  |               | 5,828     |   |                  |   | 6,292     |  
|Accounts receivable, net of allowance for sales returns and doubtful accounts of $9,102 and $9,074 at April 1, 2007 and December 31,
2006, respectively                            |  |               | 193,865   |   |                  |   | 211,421   |  
|Inventories                                                                                                                                                                        |  |               | 159,572   |   |                  |   | 163,752   |  
|Prepaid expenses and other current assets                                                                                                                                          |  |               | 47,200    |   |                  |   | 59,689    |  
|                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total current assets                                                                                                                                                               |  |               | 453,767   |   |                  |   | 482,698   |  
|Property, plant and equipment, net                                                                                                                                                 |  |               | 128,767   |   |                  |   | 138,672   |  
|Intangible assets, net                                                                                                                                                             |  |               | 87,238    |   |                  |   | 94,778    |  
|Asset held for sale                                                                                                                                                                |  |               | 4,800     |   |                  |   | 5,924     |  
|Goodwill                                                                                                                                                                           |  |               | 481,450   |   |                  |   | 485,475   |  
|Other non-current assets                                                                                                                                                           |  |               | 8,346     |   |                  |   | 8,185     |  
|                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|TOTAL ASSETS                                                                                                                                                                       |  | $             | 1,164,368 |   |                  | $ | 1,215,732 |  
|                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                               |  |               |           |   |                  |   |           |  
|                                                                                                                                                                                   |  |              
|Current liabilities:                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Accounts payable                                                                                                                                                                   |  | $             | 114,074   |   |                  | $ | 115,966   |  
|Accrued income taxes                                                                                                                                                               |  |               | 21,569    |   |                  |   | 19,627    |  
|Accrued expenses and other current liabilities                                                                                                                                     |  |               | 94,527    |   |                  |   | 97,641    |  
|                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total current liabilities                                                                                                                                                          |  |               | 230,170   |   |                  |   | 233,234   |  
|Long-term debt                                                                                                                                                                     |  |               | 330,000   |   |                  |   | 330,000   |  
|Other non-current liabilities                                                                                                                                                      |  |               | 3,938     |   |                  |   | 900       |  
|                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                  |  |               | 564,108   |   |                  |   | 564,134   |  
|                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Commitments and contingencies (Notes 8 and 9)                                                                                                                                      |  |               |          |   |                  |   |          |  
|Shareholders equity:                                                                                                                                                              |  |               |           |   |                  |   |           |  
|Preferred stock, $0.0001 par value, 5,000 shares authorized and no shares issued or outstanding                                                                                    |  |               |          |   |                  |   |          |  
|Common stock, $0.0001 par value, 250,000 shares authorized, 130,198 shares issued and outstanding at April 1, 2007; and 130,081 shares
issued and outstanding at December 31, 2006 |  |               | 753,029   |   |                  |   | 751,380   |  
|Accumulated other comprehensive income                                                                                                                                             |  |               | 30,688    |   |                  |   | 35,210    |  
|Accumulated deficit                                                                                                                                                                |  |               | (183,457  | ) |                  |   | (134,992  | )
|                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                                         |  |               | 600,260   |   |                  |   | 651,598   |  
|                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                         |  | $             | 1,164,368 |   |                  | $ | 1,215,732 |  
|                                                                                                                                                                                   |  |               |           |   |                  |   |           |  

Note: December 31, 2006 balances were derived from the audited consolidated financial statements of Powerwave
Technologies, Inc.

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



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POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except
per share data)



|                                                                                                          |  |                    |         |   |               |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------- | - | ------- | -
|                                                                                                          |  | Three Months Ended |        
|                                                                                                          |  | April 1,2007       |         |   | April 2, 2006 |  
|Net sales                                                                                                 |  | $                  | 163,640 |   |               | $ | 181,811 |  
|Cost of sales:                                                                                            |  |                    |         |   |               |   |         |  
|Cost of goods                                                                                             |  |                    | 134,605 |   |               |   | 142,605 |  
|Intangible asset amortization                                                                             |  |                    | 4,886   |   |               |   | 2,922   |  
|Restructuring and impairment charges                                                                      |  |                    | 10,521  |   |               |   |        |  
|                                                                                                          |  |                    |         |   |               |   |         |  
|Total cost of sales                                                                                       |  |                    | 150,012 |   |               |   | 145,527 |  
|                                                                                                          |  |                    |         |   |               |   |         |  
|Gross profit                                                                                              |  |                    | 13,628  |   |               |   | 36,284  |  
|Operating expenses:                                                                                       |  |                    |         |   |               |   |         |  
|Sales and marketing                                                                                       |  |                    | 13,597  |   |               |   | 8,593   |  
|Research and development                                                                                  |  |                    | 25,628  |   |               |   | 15,325  |  
|General and administrative                                                                                |  |                    | 19,309  |   |               |   | 13,901  |  
|Intangible asset amortization                                                                             |  |                    | 2,920   |   |               |   | 2,076   |  
|Restructuring and impairment charges                                                                      |  |                    | 491     |   |               |   | 171     |  
|                                                                                                          |  |                    |         |   |               |   |         |  
|Total operating expenses                                                                                  |  |                    | 61,945  |   |               |   | 40,066  |  
|                                                                                                          |  |                    |         |   |               |   |         |  
|Operating loss                                                                                            |  |                    | (48,317 | ) |               |   | (3,782  | )
|Other income, net                                                                                         |  |                    | 952     |   |               |   | 627     |  
|                                                                                                          |  |                    |         |   |               |   |         |  
|Loss from continuing operations before income taxes                                                       |  |                    | (47,365 | ) |               |   | (3,155  | )
|Benefit from income taxes                                                                                 |  |                    | (235    | ) |               |   | (47     | )
|                                                                                                          |  |                    |         |   |               |   |         |  
|Loss from continuing operations                                                                           |  |                    | (47,130 | ) |               |   | (3,108  | )
|Income from discontinued operations, net of income taxes of $322 for the three months ended April 2, 2006 |  |                    |        |   |               |   | 828     |  
|                                                                                                          |  |                    |         |   |               |   |         |  
|Net loss                                                                                                  |  | $                  | (47,130 | ) |               | $ | (2,280  | )
|                                                                                                          |  |                    |         |   |               |   |         |  
|Loss per share from continuing operations:                                                                |  |                    |         |   |               |   |         |  
|                                                                                                          |  |                   
|Basic                                                                                                     |  | $                  | (0.36   | ) |               | $ | (0.03   | )
|                                                                                                          |  |                    |         |   |               |   |         |  
|Diluted                                                                                                   |  | $                  | (0.36   | ) |               | $ | (0.03   | )
|                                                                                                          |  |                    |         |   |               |   |         |  
|Earnings per share from discontinued operations:                                                          |  |                    |         |   |               |   |         |  
|Basic                                                                                                     |  | $                  |        |   |               | $ | 0.01    |  
|                                                                                                          |  |                    |         |   |               |   |         |  
|Diluted                                                                                                   |  | $                  |        |   |               | $ | 0.01    |  
|                                                                                                          |  |                    |         |   |               |   |         |  
|Net loss per share:                                                                                       |  |                    |         |   |               |   |         |  
|Basic                                                                                                     |  | $                  | (0.36   | ) |               | $ | (0.02   | )
|                                                                                                          |  |                    |         |   |               |   |         |  
|Diluted                                                                                                   |  | $                  | (0.36   | ) |               | $ | (0.02   | )
|                                                                                                          |  |                    |         |   |               |   |         |  
|Basic weighted average common shares                                                                      |  |                    | 130,162 |   |               |   | 111,660 |  
|                                                                                                          |  |                    |         |   |               |   |         |  
|Diluted weighted average common shares                                                                    |  |                    | 130,162 |   |               |   | 111,660 |  
|                                                                                                          |  |                    |         |   |               |   |         |  

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



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POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)

(In thousands)



|                                         |  |                    |         |   |               |   |        |  
|---------------------------------------- |  | ------------------ | ------- | - | ------------- | - | ------ | -
|                                         |  | Three Months Ended |        
|                                         |  | April 1,2007       |         |   | April 2, 2006 |  
|Net loss                                 |  | $                  | (47,130 | ) |               | $ | (2,280 | )
|Other comprehensive income (loss):       |  |                    |         |   |               |   |        |  
|Foreign currency translation adjustments |  |                    | (4,522  | ) |               |   | 3,430  |  
|                                         |  |                    |         |   |               |   |        |  
|Comprehensive income (loss)              |  | $                  | (51,652 | ) |               | $ | 1,150  |  
|                                         |  |                    |         |   |               |   |        |  

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



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POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



|                                                                                                                       |  |                    |         |   |               |   |         |  
|---------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------- | - | ------- | -
|                                                                                                                       |  | Three Months Ended |        
|                                                                                                                       |  | April 1,2007       |         |   | April 2, 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                  |  |                    |         |   |               |   |         |  
|Net income (loss)                                                                                                      |  | $                  | (47,130 | ) |               | $ | (2,280  | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                     |  |                    |         |   |               |   |         |  
|Depreciation and amortization                                                                                          |  |                    | 14,623  |   |               |   | 13,017  |  
|Non-cash restructuring and impairment charges                                                                          |  |                    | 11,012  |   |               |   |        |  
|Provision for sales returns and doubtful accounts                                                                      |  |                    | 212     |   |               |   | 157     |  
|Provision for excess and obsolete inventories                                                                          |  |                    | 1,639   |   |               |   | 1,730   |  
|Compensation costs related to stock-based awards                                                                       |  |                    | 1,071   |   |               |   | 1,033   |  
|Loss on disposal of property, plant and equipment                                                                      |  |                    | 313     |   |               |   | 22      |  
|Changes in operating assets and liabilities, net of acquisitions:                                                      |  |                    |         |   |               |   |         |  
|Accounts receivable                                                                                                    |  |                    | 15,009  |   |               |   | 24,179  |  
|Inventories                                                                                                            |  |                    | (878    | ) |               |   | (16,267 | )
|Prepaid expenses and other current assets                                                                              |  |                    | 13,335  |   |               |   | (1,187  | )
|Accounts payable                                                                                                       |  |                    | (1,205  | ) |               |   | (9,623  | )
|Accrued expenses and other current liabilities                                                                         |  |                    | (3,979  | ) |               |   | (20,889 | )
|Other non-current assets                                                                                               |  |                    | (1,694  | ) |               |   | 388     |  
|Other non-current liabilities                                                                                          |  |                    | 4,287   |   |               |   | (789    | )
|                                                                                                                       |  |                    |         |   |               |   |         |  
|Net cash provided by (used in) operating activities                                                                    |  |                    | 6,615   |   |               |   | (10,509 | )
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                  |  |                    |         |   |               |   |         |  
|Purchase of property, plant and equipment                                                                              |  |                    | (2,482  | ) |               |   | (2,948  | )
|Restricted cash                                                                                                        |  |                    | 435     |   |               |   |        |  
|Proceeds from the sale of property, plant and equipment                                                                |  |                    | 132     |   |               |   |        |  
|Proceeds from sale of assets held for sale                                                                             |  |                    |        |   |               |   | 19,118  |  
|Acquisitions, net of cash acquired                                                                                     |  |                    |        |   |               |   | (7,350  | )
|                                                                                                                       |  |                    |         |   |               |   |         |  
|Net cash provided by (used in) investing activities                                                                    |  |                    | (1,915  | ) |               |   | 8,820   |  
|CASH FLOW FROM FINANCING ACTIVITIES:                                                                                   |  |                    |         |   |               |   |         |  
|Proceeds from stock-based compensation arrangements                                                                    |  |                    | 613     |   |               |   | 7,676   |  
|                                                                                                                       |  |                    |         |   |               |   |         |  
|Net cash provided by financing activities                                                                              |  |                    | 613     |   |               |   | 7,676   |  
|                                                                                                                       |  |                    |         |   |               |   |         |  
|EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                                                                  |  |                    | 445     |   |               |   | 877     |  
|                                                                                                                       |  |                    |         |   |               |   |         |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                              |  |                    | 5,758   |   |               |   | 6,864   |  
|CASH AND CASH EQUIVALENTS, beginning of period                                                                         |  |                    | 41,544  |   |               |   | 232,519 |  
|                                                                                                                       |  |                    |         |   |               |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                                                               |  | $                  | 47,302  |   |               | $ | 239,383 |  
|                                                                                                                       |  |                    |         |   |               |   |         |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                                                    |  |                    |         |   |               |   |         |  
|Cash paid for:                                                                                                         |  |                    |         |   |               |   |         |  
|Interest expense                                                                                                       |  | $                  | 813     |   |               | $ | 813     |  
|                                                                                                                       |  |                    |         |   |               |   |         |  
|Income taxes                                                                                                           |  | $                  | 1,124   |   |               | $ | 708     |  
|                                                                                                                       |  |                    |         |   |               |   |         |  
|SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:                                                                          |  |                    |         |   |               |   |         |  
|Unpaid purchases of property and equipment excluded from cash flows from operating activities and investing activities |  | $                  | 630     |   |               | $ |        |  
|                                                                                                                       |  |                    |         |   |               |   |         |  
|Recognition of uncertain income tax positions (see Note 8)                                                             |  | $                  | 1,337   |   |               | $ |        |  
|                                                                                                                       |  |                    |         |   |               |   |         |  

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



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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in
thousands, except per share data)

Note 1. Nature of Operations

Powerwave is a global supplier of end-to-end wireless solutions for wireless communications networks. Powerwave designs, manufactures and markets antennas, boosters, combiners, filters, radio frequency power
amplifiers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use in cellular, PCS and 3G networks throughout the world.

Note 2.
Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of Powerwave have been prepared in accordance with accounting principles generally accepted
in the United States of America 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 of America 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. All intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements. Certain prior period amounts
have been reclassified to conform to the current period presentation.

The results of operations for the three months ended April 1,
2007 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 30, 2007 (fiscal 2007.) 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, 2006.

On September 29, 2006, Powerwave completed the sale of Arkivator Falköping AB (Arkivator), a wholly-owned subsidiary. Arkivator consisted of all of the Companys contract manufacturing segment. Therefore, with its
sale, the contract manufacturing segment of the Company was classified as discontinued operations and its results of operations have been removed from continuing operations for the first quarter of 2006.

On October 15, 2006, Powerwave completed the acquisition of the Wireless Infrastructure Division business of Filtronic plc, (the Filtronic
Wireless Acquisition). Therefore, these condensed consolidated financial statements include the operations of the Filtronic Wireless Acquisition for the first quarter of fiscal year 2007, but such results are not included in the first quarter
of fiscal year 2006.

Adoption of FASB Interpretation No. 48Accounting for Uncertainty in Income Taxes

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement
No. 109 (FIN 48), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement
related to accounting for income taxes. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax
returns, as well as all open tax years in these jurisdictions. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense. The cumulative effect of applying the
provisions of FIN 48 has been reported as an adjustment to the opening balance of retained earnings as of January 1, 2007 (see Note 8).

New Accounting Pronouncement

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement
(SFAS 157). SFAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and required



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additional disclosures about fair value measurements. SFAS 157 applies only to fair value measurements that are already required or permitted by other
accounting standards. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact that adopting SFAS 157 will have on its results of operations and financial condition.

Stock-Based Compensation

On
January 2, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (or SFAS 123R), which supersedes our previous accounting under APB
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). SFAS 123R requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including
stock options and stock issued under our employee stock plans. SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our consolidated statements of operations. We adopted SFAS 123R using the modified prospective transition method, which requires that
compensation expense be recognized in the financial statements for all awards granted after the date of adoption as well as for existing awards which have not vested as of the date of adoption. The modified prospective transition method does not
require restatement of prior periods to reflect the impact of SFAS 123R.

Prior to the adoption of SFAS 123R, we presented all tax benefits
resulting from the exercise of stock options as operating cash flows in our consolidated statements of cash flows. SFAS 123R requires that the realized tax benefit related to the excess of the deductible amount over the compensation cost recognized
(excess tax benefits) be classified in the statement of cash flow as a cash inflow from financing activities and a cash outflow from operating activities. At the end of 2004 we took a 100% valuation allowance against our U.S. deferred tax
assets. This valuation allowance is still in place. Accordingly we have booked no tax benefit related to stock-based compensation as financing cash inflows and operating cash outflows on our accompanying condensed consolidated
statements of cash flows for the three months ended April 1, 2007.

The Company has elected to follow the alternative transition
method for computing its additional paid-in capital pool. In addition, the Company treats the tax deductions from stock options as being realized when they reduce taxes payable in accordance with the principles and timing under
the relevant tax law. Under this transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date
fair value of those awards previously calculated under SFAS No. 123 for pro forma disclosure purposes.

During the three months
ended April 1, 2007 and April 2, 2006, the Company recognized compensation expense of $1.1 million and $0.8 million for stock options, $0.02 million and $0.2 million for employee stock purchase plan awards in its condensed consolidated
statement of operations, respectively.

Stock-based compensation expense was recognized as follows in the statement of operations (in
thousands):



|                                                              |  |                    |       |   |               |   |       |  
|------------------------------------------------------------- |  | ------------------ | ----- | - | ------------- | - | ----- | -
|                                                              |  | Three Months Ended |      
|                                                              |  | April 1, 2007      |       |   | April 2, 2006 |  
|Cost of sales                                                 |  | $                  | 99    |   |               | $ | 50    |  
|Sales and marketing expenses                                  |  |                    | 131   |   |               |   | 71    |  
|Research and development expenses                             |  |                    | 154   |   |               |   | 121   |  
|General and administrative expenses                           |  |                    | 687   |   |               |   | 791   |  
|                                                              |  |                    |       |   |               |   |       |  
|Increase to operating loss before income taxes                |  |                    | 1,071 |   |               |   | 1,033 |  
|Income tax effect using the current period effective tax rate |  |                    | (138  | ) |               |   | (142  | )
|                                                              |  |                    |       |   |               |   |       |  
|Increase to net loss                                          |  | $                  | 933   |   |               | $ | 891   |  
|                                                              |  |                    |       |   |               |   |       |  
|Increase to net loss per share:                               |  |                    |       |   |               |   |       |  
|Basic                                                         |  | $                  | 0.01  |   |               | $ | 0.01  |  
|                                                              |  |                    |       |   |               |   |       |  
|Diluted                                                       |  | $                  | 0.01  |   |               | $ | 0.01  |  
|                                                              |  |                    |       |   |               |   |       |  

As of April 1, 2007, unrecognized compensation expense related to the unvested portion of the
Companys stock options and employee stock purchase plan awards was approximately $4.7 million, which is expected to be recognized over a weighted-average period of 1.5 years.



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The Black-Scholes option valuation model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. Option valuation methods require the input of highly subjective assumptions including the weighted average risk-free interest rate, the expected life, and the expected stock price
volatility. The weighted average risk-free interest rate was determined based upon actual U.S. treasury rates over the actual vesting periods of the grants. The expected life was determined based upon actual option grant lives over a 10 year period.
We have utilized various market sources to calculate the implied volatility factor utilized in the Black-Scholes option valuation model. These included the implied volatility utilized in the pricing of options on the Companys common stock as
well as the implied volatility utilized in determining market prices of the Companys outstanding convertible notes. Using the Black-Scholes option valuation model, the estimated weighted average fair value of options granted during the first
quarter of fiscal years 2007 and 2006 were $2.55 per share and $4.17 per share, respectively.

The fair value of options granted under the
Companys stock incentive plans during the first three months of fiscal 2007 and 2006 was estimated on the date of grant using the Black-Scholes option-pricing model utilizing the multiple option approach and the following weighted-average
assumptions:



|                                         |  |                   |   |  |               |  
|---------------------------------------- |  | ----------------- | - |  | ------------- | -
|                                         |  | Three MonthsEnded |  
|                                         |  | April 1,2007      |   |  | April 2, 2006 |  
|Weighted average risk-free interest rate |  | 4.54              | % |  | 4.89          | %
|Expected life (in years)                 |  | 4.33              |   |  | 4.64          |  
|Expected stock volatility                |  | 47                | % |  | 38            | %
|Dividend yield                           |  | None              |   |  | None          |  

The weighted average risk free interest rate was calculated utilizing the U.S treasury rates over
a one to ten year horizon, based upon the actual life of options granted. The Company grants options with either a five year or ten year life. The expected life is based on the Companys actual historical option exercise experience. For the
employee stock purchase plan, the actual life of 6 months is utilized in the calculation.

The following table represents stock option
activity for the three months ended April 1, 2007:



|                                            |  |                 |   |  |                              |       |                                                    |      |                              |   |      
|------------------------------------------- |  | --------------- | - |  | ---------------------------- | ----- | -------------------------------------------------- | ---- | ---------------------------- | - | -----
|                                            |  | Number ofShares |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractual Life(in years) |      | AggregateIntrinsic Value (1)
|Outstanding at December 31, 2006            |  | 7,056           |   |  | $                            | 9.57  |                                                    |      |                              |   |      
|Granted                                     |  | 110             |   |  | $                            | 5.88  |                                                    |      |                              |   |      
|Exercised                                   |  | (3              | ) |  | $                            | 4.47  |                                                    |      |                              |   |      
|Canceled                                    |  | (394            | ) |  | $                            | 7.53  |                                                    |      |                              |   |      
|                                            |  |                 |   |  |                              |       |                                                    |      |                              |   |      
|Outstanding at April 1, 2007                |  | 6,769           |   |  | $                            | 9.63  |                                                    | 5.47 |                              | $ | 1,723
|                                            |  |                 |   |  |                              |       |                                                    |      |                              |   |      
|Vested or expected to vest at April 1, 2007 |  | 6,144           |   |  | $                            | 9.82  |                                                    | 5.18 |                              | $ | 1,705
|                                            |  |                 |   |  |                              |       |                                                    |      |                              |   |      
|Exercisable at April 1, 2007                |  | 4,166           |   |  | $                            | 10.89 |                                                    | 3.78 |                              | $ | 1,611
|                                            |  |                 |   |  |                              |       |                                                    |      |                              |   |      

---

|(1) | These amounts represent the difference between the exercise price and $5.69, the Companys closing
common stock price reported by Nasdaq on March 30, 2007, the last trading day of the fiscal quarter, for all in-the-money options outstanding.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 3. Inventories

Net inventories consist of the following:



|                       |  |              |         |                  |   |        
|---------------------- |  | ------------ | ------- | ---------------- | - | -------
|                       |  | April 1,2007 |         | December 31,2006
|Parts and components   |  | $            | 63,841  |                  | $ | 66,181 
|Work-in-process        |  |              | 11,094  |                  |   | 12,604 
|Finished goods         |  |              | 84,637  |                  |   | 84,967 
|                       |  |              |         |                  |   |        
|Total inventories, net |  | $            | 159,572 |                  | $ | 163,752
|                       |  |              |         |                  |   |        



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Inventories are net of an allowance for excess and obsolete inventory of approximately $37.7 million and
$48.9 million as of April 1, 2007 and December 31, 2006, respectively.

Note 4. Goodwill

The changes in the carrying amount of goodwill for the quarter ended April 1, 2007 is as follows:



|                           |  |   |         |  
|-------------------------- |  | - | ------- | -
|Balance, December 31, 2006 |  | $ | 485,475 |  
|Goodwill from acquisitions |  |   | 242     |  
|Effect of exchange rates   |  |   | (4,267  | )
|                           |  |   |         |  
|Balance, April 1, 2007     |  | $ | 481,450 |  
|                           |  |   |         |  

Note 5. Asset Held for Sale

As part of the restructuring plan related to the REMEC Wireless Acquisition, we moved production of certain wireless communications equipment out of Costa Rica primarily to Asia and vacated the building in Barreal de
Heredia, Costa Rica. In the fourth quarter of 2006, we completed the final consolidation of the building and made it available for sale. The Company expects that the final sale and disposal of the building will be completed in 2007. The carrying
value of the building has been separately presented in the accompanying balance sheet in the caption Asset held for sale, and effective November 2006, this asset is no longer depreciated. In the three months ended April 1, 2007, the
Company recorded an impairment charge of $1.1 million related to the building to reflect its estimated current market value.

Note 6. Other Income, Net

Other income, net, includes gains and losses on foreign currency transactions, interest income and interest expense associated with our
subordinated convertible notes and fees on our revolving credit agreement. The components of other income, net, are as follows:



|                                  |  |                    |        |   |               |   |        |  
|--------------------------------- |  | ------------------ | ------ | - | ------------- | - | ------ | -
|                                  |  | Three Months Ended |       
|                                  |  | April 1,2007       |        |   | April 2, 2006 |  
|Interest income                   |  | $                  | 242    |   |               | $ | 2,188  |  
|Interest expense                  |  |                    | (1,929 | ) |               |   | (2,055 | )
|Foreign currency gain (loss), net |  |                    | 1,783  |   |               |   | (61    | )
|Other income, net                 |  |                    | 856    |   |               |   | 555    |  
|                                  |  |                    |        |   |               |   |        |  
|Total                             |  | $                  | 952    |   |               | $ | 627    |  
|                                  |  |                    |        |   |               |   |        |  

Note 7. Restructuring and Impairment Charges

2006 Plan for Consolidation of Operations

In the fourth quarter of 2006, and in connection with the Filtronic Wireless Acquisition, we formulated and began to implement a plan to restructure our global manufacturing operations with an initial primary focus on our operations in
China. As part of this plan to reduce our costs, we are consolidating our manufacturing facilities in Wuxi and Shanghai, China, into the manufacturing facility located in Suzhou, China, acquired in the Filtronic Wireless Acquisition. The plan
is expected to be completed by the end of the second quarter of 2007 and includes reduction of workforce, impairment and disposal of inventory and equipment utilized in discontinued product lines, and facility closure costs. Management made a
decision to cease production of certain product lines manufactured in the two plants that are closing in China, as well as products manufactured in Costa Rica and produced at a contract manufacturer in China due to efforts to reduce costs and to
eliminate duplicative product lines. The Costa Rica manufacturing facility was closed in December 2006.

In the first quarter of 2007, the
Company recorded a charge of approximately $1.5 million for the impairment of the related inventory value that will be disposed and not generate future revenue. In addition, we recorded impairment of $6.2 million related to manufacturing equipment
located in our plants to be closed in both China and Costa Rica. The inventory and manufacturing equipment impairment charges were recorded as restructuring and impairment charges within cost of sales in the condensed consolidated statements of
operations.



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During fiscal 2006, Powerwave listed for sale three facilities located in Sweden and entered into sale
agreements for two of the three facilities. The prices negotiated resulted in a net loss of approximately $3.5 million. The total amount of these impairments was recognized in operating expenses for fiscal 2006. In the third quarter of 2006, the
Company recognized impairment in the value of its remaining facility in Sweden of approximately $18.3 million. The Company is currently preparing to sell the facility and expects the facility to be sold by the end of the second quarter of 2007.

In December 2006, we completed the closure of our manufacturing facility in Barreal de Heredia, Costa Rica and offered the building for
sale. The Company recorded a further impairment charge of $1.1 million related to the building in the first quarter of 2007 and expects that the sale of the building will be completed in 2007 (see Note 5). The impairment charge was recorded as a
restructuring and impairment charge within cost of sales in the condensed consolidated statement of operations.

A summary of the activity
affecting the Companys accrued restructuring liability related to the 2006 Plan for Consolidation of Operations for the fiscal year ended December 31, 2006 and the first quarter ended April 1, 2007 is as follows:



|                             |  |                     |        |   |                                          |   |       |       |  |   |        |  
|---------------------------- |  | ------------------- | ------ | - | ---------------------------------------- | - | ----- | ----- |  | - | ------ | -
|                             |  | WorkforceReductions |        |   | Facility Closures & EquipmentWrite-downs |   |       | Total | 
|Amounts accrued              |  | $                   | 5,189  |   |                                          | $ | 250   |       |  | $ | 5,439  |  
|Amounts paid/incurred        |  |                     | (300   | ) |                                          |   |      |       |  |   | (300   | )
|                             |  |                     |        |   |                                          |   |       |       |  |   |        |  
|Balance at December 31, 2006 |  |                     | 4,889  |   |                                          |   | 250   |       |  |   | 5,139  |  
|Amounts accrued              |  |                     | 474    |   |                                          |   | 1,731 |       |  |   | 2,205  |  
|Amounts paid/incurred        |  |                     | (3,378 | ) |                                          |   | (524  | )     |  |   | (3,902 | )
|Effects of exchange rates    |  |                     | (48    | ) |                                          |   |      |       |  |   | (48    | )
|                             |  |                     |        |   |                                          |   |       |       |  |   |        |  
|Balance at April 1, 2007     |  | $                   | 1,937  |   |                                          | $ | 1,457 |       |  | $ | 3,394  |  
|                             |  |                     |        |   |                                          |   |       |       |  |   |        |  

The costs associated with these exit activities were recorded in accordance with the accounting
guidance in SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, (FAS 146). Our restructuring and integration plan is subject to continued future refinement as additional information becomes
available. Restructuring activities are currently expected to continue through the second quarter of fiscal 2007.

Integration of
Filtronics Wireless Infrastructure Division Business

We are continuing to evaluate our initial restructuring and consolidation
plans for the Filtronic Wireless operations and we expect to finalize these plans in the first half of fiscal 2007.

Integration of LGP
Allgon and REMECs Wireless Systems Business

We recorded liabilities in connection with the acquisition for estimated
restructuring and integration costs related to the consolidation of REMECs Wireless operations and the LGP Allgon operations, including severance and future lease obligations on excess facilities. These estimated costs were included in the
allocation of the purchase consideration and resulted in additional goodwill pursuant to Emerging Issues Task Force Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination(or 95-3). The
implementation of the restructuring and integration plan is substantially complete.



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A summary of the activity affecting the Companys accrued restructuring liability related to the
integration of the REMEC Wireless Systems Business and LGP Allgon for the year ended December 31, 2006 and the first quarter ended April 1, 2007 is as follows:



|                                       |  |                     |        |   |                                        |   |        |       |  |   |       |   |  |   |        |  
|-------------------------------------- |  | ------------------- | ------ | - | -------------------------------------- | - | ------ | ----- |  | - | ----- | - |  | - | ------ | -
|                                       |  | WorkforceReductions |        |   | FacilityClosures &EquipmentWrite-downs |   |        | Other |  |   | Total |  
|Balance at January 1, 2006             |  | $                   | 8,787  |   |                                        | $ | 7,359  |       |  | $ | 243   |   |  | $ | 16,389 |  
|Amounts accrued in purchase accounting |  |                     | (2,359 | ) |                                        |   | 187    |       |  |   |      |   |  |   | (2,172 | )
|Amounts paid/incurred                  |  |                     | (4,887 | ) |                                        |   | (3,757 | )     |  |   | (50   | ) |  |   | (8,694 | )
|Effect of exchange rates               |  |                     | 545    |   |                                        |   | (80    | )     |  |   | 5     |   |  |   | 470    |  
|                                       |  |                     |        |   |                                        |   |        |       |  |   |       |   |  |   |        |  
|Balance at December 31, 2006           |  |                     | 2,086  |   |                                        |   | 3,709  |       |  |   | 198   |   |  |   | 5,993  |  
|Amounts accrued                        |  |                     |       |   |                                        |   | 49     |       |  |   |      |   |  |   | 49     |  
|Amounts paid/incurred                  |  |                     | (51    | ) |                                        |   | (581   | )     |  |   |      |   |  |   | (632   | )
|Effect of exchange rates               |  |                     | (25    | ) |                                        |   |       |       |  |   |      |   |  |   | (25    | )
|                                       |  |                     |        |   |                                        |   |        |       |  |   |       |   |  |   |        |  
|Balance at April 1, 2007               |  | $                   | 2,010  |   |                                        | $ | 3,177  |       |  | $ | 198   |   |  | $ | 5,385  |  
|                                       |  |                     |        |   |                                        |   |        |       |  |   |       |   |  |   |        |  

We expect that the workforce reduction amounts will be paid out over the next 18 months and the
facility closure amounts will be paid out over the remaining lease terms which approximate two years.

Note 8. Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires that the Company recognize
deferred tax assets and liabilities for each tax jurisdiction within which it operates based on the differences between the financial statement carrying amounts and the tax bases of the assets and liabilities, using enacted tax rates in effect for
each separate tax jurisdiction for the years such differences are expected to reverse. The Company does not provide deferred U.S. income taxes on undistributed earnings from certain foreign subsidiaries where such earnings are considered to be
permanently reinvested. Deferred income tax expense (benefit) results from the change in net deferred tax assets or deferred tax liabilities.

As of April 1, 2007, Powerwave expected to incur an annual effective tax rate of approximately 13%, excluding tax jurisdictions where tax benefits on losses are not recorded due to a full valuation allowance. Powerwaves recorded
a tax benefit of $0.2 million on pretax losses of $47.4 million resulting in a tax rate during the quarter of approximately 0.5%. The rate differs from the U.S. federal statutory tax rate of 35% primarily due to the losses without tax benefit in tax
jurisdictions where the Company has recorded a full valuation allowance; differences between the foreign tax rates and the U.S. rate, and the establishment of a valuation allowance of approximately $0.3 million against certain net operating loss
carryovers in Finland. Given the increased global scope of Powerwaves operations and the complexity of global tax and transfer pricing rules and regulations, it has become increasingly difficult to predict and thereafter realize our earnings
within each tax jurisdiction. This has resulted in, and could continue to result in, significant fluctuations in Powerwaves effective tax rate.

As of April 1, 2007, Powerwave had a consolidated net deferred tax asset of approximately $1.4 million related to certain foreign jurisdictions. The Company continually assesses the recoverability of its deferred
tax assets and records a valuation allowance when it is more likely than not that some or all or such deferred tax assets will not be realized. Recoverability of its deferred tax assets is dependent upon continued profitability from operations, as
well as the geographic region generating the profits. Based on historical and forecasted earnings, the Company established a valuation allowance against certain net deferred tax assets of approximately $0.3 million in Finland during the first
quarter of 2007. The Company continued to maintain a valuation allowance against its net deferred tax assets in the U.S., Sweden and the UK as of April 1, 2007 as the Company believes it is more likely than not that deferred taxes will not be
realized in these jurisdictions.

In July 2006, the FASB issued FIN 48, which clarifies the accounting and disclosure for uncertainty in
tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company is subject to the provisions of FIN 48 as
of January 1, 2007, and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The periods subject to
examination for the Companys U.S. federal return are the 2004 through 2006 tax years, including adjustments to net operating loss and credit carryovers to those years. In addition, the Company has subsidiaries in various foreign jurisdictions
that have statutes of limitation generally ranging from 3 to 6 years.



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A reserve for uncertain income tax positions has been recorded pursuant to FIN 48 in the
amount of $4.0 million in taxes and accrued penalties and interest of $0.18 million. Of this amount, $1.3 million would effect tax expense if the uncertain tax benefits were recognized and $2.7 million would result in a decrease of deferred tax
assets in jurisdictions where they are currently offset by a full valuation allowance. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense which were $0.04 million for the three months ended
April 1, 2007.

The Company is currently under audit by the Internal Revenue Service for the 2004 tax year. It is likely that the
examination phase of the audit will conclude in 2007, but it is reasonably possible that in the next 12 months that a change in the unrecognized tax benefits may occur as a result of the examination. The amount of the possible change is not expected
to result in a material change to the financial statements due to the Companys net operating loss carryovers and full valuation allowance against deferred tax assets in the U.S.

In addition to unrecognized tax benefits, the Company has valuation allowances related to tax benefits in certain jurisdictions arising from net
operating losses and related tax loss carryforwards. On a quarterly basis, the Company reassesses the need for such valuation allowances based on recent operating results, its assessment of the likelihood of future taxable income and developments in
the relevant tax jurisdictions. As a result of such a reassessment, and based on historical and forecasted earnings in Finland, the Company ascertained that the realization of the deferred tax assets in Finland is not probable and as such, the
Company has established a valuation allowances against Finlands NOLs in the first quarter of 2007 by $0.3 million. The Company continued to maintain a valuation allowance against its net deferred tax assets in the U.S., Sweden and UK
jurisdictions as of April 1, 2007 where the Company believes it is more likely than not that deferred tax assets will not be realized.

Note 9.
Commitments and Contingencies

In January, February and March 2007, four purported shareholder class action complaints were filed in the
United States District Court for the Central District of California against the Company, its President and Chief Executive Officer, its Executive Chairman of the Board of Directors and its Chief Financial Officer. The complaints are Jerry Crafton v.
Powerwave Technologies, Inc., et. al., Kenneth Kwan v. Powerwave Technologies, Inc., et. al., Achille Tedesco v. Powerwave Technologies, Inc., et. al. and Farokh Etemadieh v. Powerwave Technologies, Inc. et. al. and were brought under Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints purport to state claims on behalf of all persons who purchased Powerwave securities between May 2, 2005 and October 9, 2006. The essence of the
allegations are that the defendants made misleading statements or omissions concerning the Companys projected and actual sales revenues, the integration of certain acquisitions and the sufficiency of the Companys internal controls. The
Company believes that the purported shareholder class actions are without merit and intends to defend them vigorously.

Note 10. Contractual Guarantees
and Indemnities

Warranty Reserves

The Company establishes reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with its customers. The Company also has contractual requirements with
various customers that could require the Company to incur costs to repair an epidemic defect with respect to its products outside of the normal warranty period if such defect were to occur. The Companys warranty reserves are generally
established at the time of sale and updated throughout the warranty period based upon numerous factors including historical warranty return rates and expenses over various warranty periods. The Company also accrues additional warranty liabilities
for significant and unusual product performance issues at the time such issues are identified and the associated warranty related costs can be reasonably estimated. A summary of the activity that affected the Companys accrued warranty costs
for the three months ended April 1, 2007 and April 2, 2006 are as follows:



|                                                         |  |              |        |   |              |   |        |  
|-------------------------------------------------------- |  | ------------ | ------ | - | ------------ | - | ------ | -
|Description                                              |  | April 1,2007 |        |   | April 2,2006 |  
|Warranty reserve beginning balance                       |  | $            | 40,273 |   |              | $ | 20,321 |  
|Reserve balances recorded or assumed by acquisition      |  |              |       |   |              |   | 9,500  |  
|Reductions for warranty costs incurred                   |  |              | (4,457 | ) |              |   | (1,683 | )
|Warranty accrual related to current period sales         |  |              | 1,837  |   |              |   | 2,500  |  
|Change in estimate related to previous warranty accruals |  |              | (1,341 | ) |              |   |       |  
|Effect of exchange rates                                 |  |              | (109   | ) |              |   | 7      |  
|                                                         |  |              |        |   |              |   |        |  
|Warranty reserve ending balance                          |  | $            | 36,203 |   |              | $ | 30,645 |  
|                                                         |  |              |        |   |              |   |        |  



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During the normal course of its business, Powerwave makes certain contractual guarantees and indemnities
pursuant to which the Company may be required to make future payments under specific circumstances. Powerwave has not recorded any liability for these contractual guarantees and indemnities in the accompanying condensed consolidated financial
statements. A description of significant contractual guarantees and indemnities existing as of April 1, 2007 is included below:

Intellectual Property Indemnities

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

Director and Officer Indemnities
and Contractual Guarantees

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

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

General Contractual Indemnities/Products Liability

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

Other Guarantees and Indemnities

The Company occasionally issues guarantees for certain contingent liabilities under various contractual arrangements, including customer contracts,
self-insured retentions under certain insurance policies, and governmental value-added tax compliance programs. These guarantees normally take the form of standby letters of credit issued by the Companys bank, which may be secured by cash
deposits or pledges, or performance bonds



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issued by an insurance company. Historically, any amounts payable pursuant to such guarantees have not had a material negative effect on Powerwaves
business, financial condition or results of operations. In addition, the Company, as part of the agreements to register the convertible notes it issued in November 2004 and July 2003, agreed to indemnify the selling security holders against certain
liabilities, including liabilities under the Securities Act of 1933. The Companys indemnification obligations under such agreements are not limited in duration and generally not limited in amount.

Note 11. Earnings (Loss) Per Share

In accordance
with SFAS No. 128, Earning 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 and income available to common stockholders is adjusted to reflect any changes in income or loss that would result from the issuance of the dilutive common shares. The Companys potential common
shares include stock options under the treasury stock method and convertible subordinated debt under the if-converted method. Potential common shares of 30,701,188 and 33,074,533 related to the Companys stock option programs and convertible
debt have been excluded from diluted weighted average common shares for the three months ended April 1, 2007 and April 2, 2006, respectively, as the effect would be anti-dilutive.

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



|                                                  |  |              |         |   |               |   |         |  
|------------------------------------------------- |  | ------------ | ------- | - | ------------- | - | ------- | -
|                                                  |  | April 1,2007 |         |   | April 2, 2006 |  
|Basic:                                            |  |              |         |   |               |   |         |  
|Loss from continuing operations                   |  | $            | (47,130 | ) |               | $ | (3,108  | )
|Weighted average common shares                    |  |              | 130,162 |   |               |   | 111,660 |  
|                                                  |  |              |         |   |               |   |         |  
|Basic loss per share from continuing operations   |  | $            | (0.36   | ) |               | $ | (0.03   | )
|                                                  |  |              |         |   |               |   |         |  
|Income from discontinued operations, net of tax   |  | $            |        |   |               | $ | 828     |  
|                                                  |  |              |         |   |               |   |         |  
|Income per share from discontinued operations     |  | $            |        |   |               | $ | 0.01    |  
|                                                  |  |              |         |   |               |   |         |  
|Diluted:                                          |  |              |         |   |               |   |         |  
|Loss from continuing operations                   |  | $            | (47,130 | ) |               | $ | (3,108  | )
|Interest expense of convertible debt, net of tax  |  |              |        |   |               |   |        |  
|                                                  |  |              |         |   |               |   |         |  
|Loss from continuing operations, as adjusted      |  | $            | (47,130 | ) |               | $ | (3,108  | )
|                                                  |  |              |         |   |               |   |         |  
|Weighted average common shares                    |  |              | 130,162 |   |               |   | 111,660 |  
|Potential common shares                           |  |              |        |   |               |   |        |  
|                                                  |  |              |         |   |               |   |         |  
|Weighted average common shares, as adjusted       |  |              | 130,162 |   |               |   | 111,660 |  
|                                                  |  |              |         |   |               |   |         |  
|Diluted loss per share from continuing operations |  | $            | (0.36   | ) |               | $ | (0.03   | )
|                                                  |  |              |         |   |               |   |         |  
|Income from discontinued operations, net of tax   |  | $            |        |   |               | $ | 828     |  
|                                                  |  |              |         |   |               |   |         |  
|Income per share from discontinued operations     |  | $            |        |   |               | $ | 0.01    |  
|                                                  |  |              |         |   |               |   |         |  

Note 12. Customer Concentrations

Powerwaves product sales have historically been concentrated in a small number of customers. During the three months ended April 1, 2007 and
April 2, 2006, sales to customers that accounted for 10% or more of revenues for the quarter totaled $70.6 million and $70.3 million, respectively. Sales to Nokia accounted for approximately 29% and 16% while sales to Alcatel-Lucent and related
entities accounted for approximately 14% and 6% of total revenues during such quarters, respectively. Please note that Alcatel and Lucent completed their merger during the fourth quarter of 2006. During the three months ended April 2, 2006,
sales to Siemens accounted for approximately 13% of revenues and sales to Cingular Wireless accounted for approximately 10% of revenues.

As of April 1, 2007, approximately 21% and 11% of total accounts receivable related to two customers, respectively, that each accounted for 10% or more of Powerwaves total revenue during the first three months of 2007. Any
inability to collect outstanding receivables from these customers or the loss of, or reduction in, sales to any of these customers could have a material adverse effect on the Companys business, financial condition and results of operations.



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Note 13. Supplier Concentrations

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

Note 14.
Segments

Powerwave operates in one reportable business segment: Wireless Communications. Powerwaves revenues are
derived from the sale of wireless communications network products and coverage solutions, including antennas, boosters, combiners, filters, radio frequency power amplifiers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use
in cellular, PCS, and 3G wireless communications networks throughout the world.

On September 29, 2006, Powerwave sold its Arkivator
subsidiary which operated its entire contract manufacturing segment. Consequently, the contract manufacturing segment of Powerwave is classified as a discontinued operation and its results are removed from continuing operations for the first quarter
of 2006. The cash flow activities of the contract manufacturing segment remain in the statements of cash flows for the three months ended April 2, 2006.

Powerwave manufactures multiple product categories at its manufacturing locations and produces certain products at more than one location. With regards to sales, Powerwave sells its products through two major sales
channels. The largest channel is the original equipment manufacturers channel, which consists of large global companies such as Alcatel-Lucent, Ericsson, Motorola, Nokia, Siemens, Nortel and Samsung. The other major channel is direct to wireless
network operators, such as Cingular Wireless, Bouyges, Orange, Sprint, Verizon Wireless and Vodafone. A majority of our products are sold to both sales channels. The Company maintains global relationships with most of our customers. Our original
equipment manufacturer customers normally purchase on a global basis and the sales to these customers, while recognized in various reporting regions, are managed on a global basis. For network operator customers, where they have a global presence,
the Company typically maintains a global purchasing agreement. Individual sales are made on a regional basis.

The Company measures its
success by monitoring our net sales by product and consolidated gross margins, with a short-term goal of maintaining a positive operating cash flow while striving to achieve long-term operating profits.

Note 15. Subsequent Event

On April 24, 2007,
the Company terminated its Amended $75.0 million Credit Agreement with Bank of America N.A., as Documentation Agent and Comerica Bank as Administrative Agent. As of the date of termination, the Company had not borrowed any amounts under the Amended
Credit Agreement. In addition, the Company did not incur any early termination penalties in connection with the termination of the Amended Credit Agreement.

On April 24, 2007, Powerwave and certain of its subsidiaries, entered into a Revolving Trade Receivables Purchase Agreement with Deutsche Bank AG, New York Branch, as Administrative Agent (the Receivables
Purchase Agreement). The Receivables Purchase Agreement provides for a receivables sales facility pursuant to which certain trade receivables are sold to a group of banks, which group initially consists of Deutsche Bank AG, New York Branch.
The outstanding amount of trade receivables sold under the receivables facility may not exceed $65.0 million at any given time. Pursuant to the receivables sales facility, Powerwave and certain subsidiaries can sell eligible trade receivables to the
bank group for a purchase price equal to 90% of the face amount thereof, and Powerwave acts as the servicer for such receivables. Powerwaves appointment as the servicer is subject to termination events that are customary for such transactions.
The receivables sales facility is also subject to conditions to funding, representations and warranties, undertakings and early termination events that are customary for transactions of this nature. This trade receivables revolving credit agreement
is available for working capital and general corporate purposes.



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

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included under Item 1,
Financial Statements (Unaudited). 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 Risk Factors, in Part
II, Item 1A included herein.

Introduction and Overview

Powerwave is a global supplier of end-to-end wireless solutions for wireless communications networks. Our business consists of the design, manufacture and marketing and sale of products to improve coverage, capacity
and data speed in wireless communications networks, including antennas, boosters, combiners, filters, radio frequency power amplifiers, repeaters, tower-mounted amplifiers, and advanced coverage solutions. These products are utilized in major
wireless networks throughout the world which support voice and data communications by use of cell phones and other wireless communication devices. We sell such products to both original equipment manufacturers, who incorporate our products into
their proprietary base stations (which they then sell to network operators), and directly to individual wireless network operators for deployment into their existing networks.

Powerwave operates in one reportable business segment: Wireless Communications. All of our revenues are derived from the sale of wireless
communications network products and coverage solutions, including antennas, boosters, combiners, filters, radio frequency power amplifiers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use in cellular, PCS, and 3G wireless
communications networks throughout the world. Our products are sold globally and produced in multiple locations.

On September 29,
2006, we sold our Arkivator subsidiary which consisted of our entire contract manufacturing segment. Consequently, our contract manufacturing segment is now classified as a discontinued operation and the results of this segment are removed from
continuing operations for all reporting periods prior to the date of sale.

We believe that our future success depends upon continued
growth in demand for wireless services as well as our ability to broaden our customer base. For the fiscal year ended December 31, 2006 (fiscal 2006), our largest customer was Nokia, who accounted for approximately 21% of our net
sales. Our next largest customer in fiscal 2006, Siemens, accounted for approximately 13% of our net sales. Effective April 1, 2007, these two customers formed a new joint venture company consisting of both companies wireless infrastructure
divisions. Prior to the final completion of this merger, these two customers significantly reduced their purchase of our products due to what we believe was an effort to minimize their inventory levels prior to the completion of their proposed joint
venture. This reduction had a negative impact on our business and results of operations. Also during 2006, two other major OEM customers, Alcatel and Lucent, announced plans to merge, and their merger was completed during the fourth quarter of 2006.
These customer consolidations within the wireless infrastructure industry have created greater uncertainty in the short-term and have made accurate forecasting of short-term demand extremely difficult. The loss of any of these customers, or a
significant loss, reduction or rescheduling of orders from any of our customers would have a material adverse effect on our business, results of operations and financial condition. See We rely upon a few customers for the majority of our
revenues; and Our success is tied to the growth of the wireless services communications market... under Part II, Item 1A, Risk Factors.

A limited number of large original equipment manufacturers and large global wireless network operators account for a majority of wireless base station equipment purchasers in the wireless equipment market, and our
future success is dependent upon our ability to establish and maintain relationships with these types of customers. While we regularly attempt to expand our customer base, we cannot give any assurance that a major customer will not reduce, delay or
eliminate its purchases from us. During fiscal 2006 we experienced significant reductions in demand from Cingular Wireless, Nokia and Siemens, which had an adverse effect on our business and results of operations. These reductions have carried on
into fiscal 2007. We have also previously experienced significant reductions in demand from our customers, including the significant reduction in demand during fiscal 2003 as compared to fiscal 2002 that had an adverse effect on our business and
results of operations. Any future reductions in demand by any of our major customers would have a material adverse effect on our business, results of operations and financial condition. See We rely upon a few customers for the majority of our
revenues under Part II, Item 1A, Risk Factors.



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We have experienced, and expect to continue to experience, declining average sales prices for our
products. Consolidation among wireless service providers has enabled such companies to place increased pricing pressure on wireless infrastructure manufacturers, which in turn has resulted in downward pricing pressure on our products. In addition,
ongoing competitive pressures and consolidation within the wireless infrastructure equipment market have put pressure on us to continually reduce the sales price of our products. Consequently, we believe that our gross margins may decline over time
and that in order to maintain or improve our gross margins, we must achieve manufacturing cost reductions, reduce our overhead costs as well as our operating expenses and develop new products that incorporate advanced features that may generate
higher gross margins. See Our success is tied to the growth of the wireless services communications market; and Our average sales prices have declined under Part II, Item 1A, Risk Factors.

Critical Accounting Policies and Estimates

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

Revenue Recognition

The majority of our revenue is derived from the sales of products. We recognize revenue from product sales at the time of shipment or
delivery and passage of title depending upon the terms of the sale. We offer certain of our customers the right to return products within a limited time after delivery under specified circumstances, generally related to product defects. We monitor
and track such product returns and record a provision for the estimated amount of such future returns based on historical experience and any notification we receive of pending returns. While such returns have historically been within our
expectations and the provisions established, we cannot guarantee that we will continue to experience the same return rates that we have in the past. Any significant increase in product returns could have a material adverse effect on our operating
results for the period or periods in which such returns materialize.

Accounts Receivable

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

Inventories

We value our inventory at the lower of the actual cost to purchase and/or manufacture the inventory or the current estimated market value of the
inventory. We regularly review inventory quantities on hand and on order and record a provision for excess and obsolete inventory and/or vendor cancellation charges related to purchase commitments. Depending on the product line, such provisions are
established based on historical usage for the preceding twelve months, adjusted for known changes in demand for such products, or the estimated forecast of product demand and production requirements for the next twelve months. These provisions
reduce the cost basis of the respective inventory. Our industry is characterized by rapid technological change, frequent new product development, and rapid product obsolescence that could result in an increase in the amount of obsolete inventory
quantities on hand. As demonstrated during the past three fiscal years, demand for our products can fluctuate significantly. A significant increase in the demand for our products could result in a short-term increase in the cost of inventory
purchases while a significant decrease in demand could result in an increase in the amount of excess



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inventory quantities on hand. In addition, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or
overstated the provision required for excess and obsolete inventory. In the future, if our inventory is determined to be overvalued, we would be required to recognize additional expense in our cost of goods sold at the time of such determination.
Likewise, if our inventory is determined to be undervalued, we may have over-reported our costs of goods sold in previous periods and would be required to recognize additional gross profit at the time such inventory is sold. Although we make
reasonable efforts to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a material effect on the value of our inventory and our reported operating
results.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), which requires that the Company recognize deferred tax liabilities
and assets for each tax jurisdiction within which it operates based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect for each separate tax jurisdiction
for the years such differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some
or all deferred tax assets will not be realized. The Company records a reserve for uncertain income tax positions in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109 (FIN 48) and recognizes potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense. The cumulative effect of applying the provisions of FIN 48 has
been reported as an adjustment to the opening balance of retained earnings as of January 1, 2007.

Goodwill, Intangible Assets and
Long-Lived Assets

We record the assets acquired and liabilities assumed in business combinations at their respective fair values at the
date of acquisition, with any excess purchase price recorded as goodwill. Because of the expertise required to value intangible assets and in-process research and development, we typically engage independent valuation specialists to assist us in
determining those values. Valuation of intangible assets and in-process research and development entails significant estimates and assumptions including, but not limited to, determining the timing and expected costs to complete development projects,
estimating future cash flows from product sales, developing appropriate discount rates, estimating probability rates for the successful completion of development projects, continuation of customer relationships and renewal of customer contracts, and
approximating the useful lives of the intangible assets acquired. To the extent actual results differ from these estimates, our future results of operations may be affected.

We review the recoverability of the carrying value of goodwill on an annual basis or more frequently when an event occurs or circumstances change to
indicate that an impairment of goodwill has possibly occurred. The determination of whether any potential impairment of goodwill exists is based upon a comparison of the fair value of the reporting unit to the accounting value of the underlying net
assets of such reporting unit. To determine the fair value of the reporting unit, we utilize subjective valuations for the reporting unit based upon a discounted cash flow analysis. The discounted cash flow analysis is dependent upon a number of
various factors including estimates of forecasted revenues and costs, appropriate discount rates and other variables. If the fair value of the reporting unit is less than the carrying value of the underlying net assets, goodwill is deemed impaired
and an impairment loss is recorded to the extent that the carrying value of goodwill is less than the difference between the fair value of the reporting unit and the fair value of all its underlying identifiable assets and liabilities.

Purchased intangible assets with determinable useful lives are carried at cost less accumulated amortization, and are amortized using the
straight-line method over their estimated useful lives, which generally range up to 6 years. We review the recoverability of the carrying value of identified intangibles and other long-lived assets, including fixed assets, whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined based upon the forecasted undiscounted future net cash flows expected to result from the use of such asset and its
eventual disposition. Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future operating performance, growth rates and other factors. The actual cash flows realized from these assets may vary
significantly from our estimates due to increased competition, changes in technology, fluctuations in demand, consolidation of our customers and reductions in average selling prices. If the carrying value of an asset is determined not to be
recoverable from future operating cash flows, the asset is deemed impaired and an impairment loss is recognized to the extent the carrying



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value exceeds the estimated fair market value of the asset. While we do not believe that any of our intangible or other long-lived assets are currently
impaired, any future impairment of such assets could have a material adverse affect on our financial position and results of operations.

Warranties

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

Accruals for Restructuring and Impairment Charges

We recorded $53.0 million, $1.3 million and $2.6 million of restructuring and impairment charges during fiscal years 2006, 2005 and 2004, respectively. In
the fourth quarter of 2006 and in connection with the Filtronic Wireless Acquisition, we formulated and began to implement a plan to restructure our global manufacturing operations with an initial primary focus on our operations in China. The
China restructuring plan involves consolidating our manufacturing facilities in Wuxi and Shanghai, China, into the manufacturing facility in Suzhou, China, acquired in the Filtronic Wireless Acquisition. We are continuing to evaluate our
initial restructuring and consolidation plans for the Filtronic Wireless operations and we expect to finalize these plans in the first half of fiscal 2007.

In the first quarter of 2007, the Company recorded a charge of approximately $1.5 million for the impairment of the related inventory value that will be disposed and not generate future revenue. In addition, we
recorded impairment of $6.2 million related to manufacturing equipment located in our plants to be closed in both China and Costa Rica. The inventory and manufacturing equipment impairment charges were recorded in restructuring and impairment
charges within cost of sales in the condensed consolidated statements of operations.

All of these restructuring and impairment accruals
related primarily to workforce reductions, consolidation of facilities, and the discontinuation of certain product lines, including the associated write-downs of inventory, manufacturing and test equipment, and certain intangible assets. Such
accruals were based on estimates and assumptions made by management about matters which were uncertain at the time, including the timing and amount of sublease income that will be recovered on vacated property and the net realizable value of used
equipment that is no longer needed in our continuing operations. While we used our best current estimates based on facts and circumstances available at the time to quantify these charges, different estimates could reasonably be used in the relevant
periods to arrive at different accruals and/or the actual amounts incurred or recovered may be substantially different from the assumptions utilized, either of which could have a material impact on the presentation of our financial condition or
results of operations for a given period. As a result, we periodically review the estimates and assumptions used and reflect the effects of those revisions in the period that they become known.

Adoption of FASB Interpretation No. 48Accounting for Uncertainty in Income Taxes

In July 2006, the FASB issued FIN 48, which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce
the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing
positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company recognizes potential accrued interest and penalties related to
unrecognized tax benefits within operations as income tax expense. The cumulative effect of applying the provisions of FIN 48 has been reported as an adjustment to the opening balance of retained earnings as of January 1, 2007.

New Accounting Pronouncement

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (SFAS 157). SFAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and required
additional disclosures about fair value measurements. SFAS 157 applies only to fair value measurements that are already required or permitted by other accounting standards. SFAS 157 is effective for fiscal years beginning after November 15,
2007. The Company is currently evaluating the impact that adopting SFAS 157 will have on its results of operations and financial condition.



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Results of Operations

The following table summarizes Powerwaves results of operations as a percentage of net sales for the three months ended April 1, 2007 and April 2, 2006:



|                                                         |  |                   |    |  |               |   
|-------------------------------------------------------- |  | ----------------- | -- |  | ------------- | --
|                                                         |  | Three MonthsEnded |   
|                                                         |  | April 1,2007      |    |  | April 2, 2006 |   
|Net sales                                                |  | 100.0             | %  |  | 100.0         | % 
|Cost of sales:                                           |  |                   |    |  |               |   
|Cost of goods                                            |  | 82.3              |    |  | 78.4          |   
|Intangible asset amortization                            |  | 3.0               |    |  | 1.6           |   
|Restructuring and impairment charges                     |  | 6.4               |    |  |              |   
|                                                         |  |                   |    |  |               |   
|Total cost of sales                                      |  | 91.7              |    |  | 80.0          |   
|                                                         |  |                   |    |  |               |   
|Gross profit                                             |  | 8.3               |    |  | 20.0          |   
|Operating expenses:                                      |  |                   |    |  |               |   
|Sales and marketing                                      |  | 8.3               |    |  | 4.7           |   
|Research and development                                 |  | 15.6              |    |  | 8.4           |   
|General and administrative                               |  | 11.8              |    |  | 7.7           |   
|Intangible asset amortization                            |  | 1.8               |    |  | 1.1           |   
|Restructuring and impairment charges                     |  | 0.3               |    |  | 0.1           |   
|                                                         |  |                   |    |  |               |   
|Total operating expenses                                 |  | 37.8              |    |  | 22.0          |   
|                                                         |  |                   |    |  |               |   
|Operating loss                                           |  | (29.5             | )  |  | (2.0          | ) 
|Other income, net                                        |  | 0.6               |    |  | 0.3           |   
|                                                         |  |                   |    |  |               |   
|Loss from continuing operations before income taxes      |  | (28.9             | )  |  | (1.7          | ) 
|Benefit from income taxes                                |  | (0.1              | )  |  |              |   
|                                                         |  |                   |    |  |               |   
|Loss from continuing operations                          |  | (28.8             | )  |  | (1.7          | ) 
|                                                         |  |                   |    |  |               |   
|Income from discontinued operations, net of income taxes |  |                  |    |  | 0.4           |   
|                                                         |  |                   |    |  |               |   
|Net loss                                                 |  | (28.8             | )% |  | (1.3          | )%
|                                                         |  |                   |    |  |               |   

Three Months ended April 1, 2007 and April 2, 2006

Net Sales

Our sales are derived from
the sale of wireless communications network products and coverage solutions, including antennas, boosters, combiners, filters, radio frequency power amplifiers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use in cellular,
PCS, and 3G wireless communications networks throughout the world. Sales decreased by 10% to $163.6 million for the three months ended April 1, 2007, from $181.8 million, for the three months ended April 2, 2006. This decrease was due to
several factors, which included significant lower demand from our direct operator customers, which decreased by approximately $36.0 million or 46% for the three months ended April 1, 2007 from the three months ended April 2, 2006. This was
somewhat offset by an increase in our business with our OEM customers, which increased by approximately $17.8 million or 17% for the three months ended April 1, 2007 compared to the three months ended April 2, 2006. The increase in our OEM
business was primarily due to the impact of our Filtronic Wireless Acquisition in the fourth quarter of 2006.

The following table presents
a further analysis of our sales based upon our various product groups:



|                                       |  |                                           |         |  |               |   |  |   |         |  |     |  
|-------------------------------------- |  | ----------------------------------------- | ------- |  | ------------- | - |  | - | ------- |  | --- | -
|                                       |  | Three Months Ended (dollars in thousands) |        
|Wireless Communications Product Groups |  | April 1, 2007                             |         |  | April 2, 2006 |  
|Antenna systems                        |  | $                                         | 32,256  |  | 20            | % |  | $ | 51,200  |  | 28  | %
|Base station systems                   |  |                                           | 118,908 |  | 73            | % |  |   | 112,096 |  | 62  | %
|Coverage systems                       |  |                                           | 12,476  |  | 7             | % |  |   | 18,515  |  | 10  | %
|                                       |  |                                           |         |  |               |   |  |   |         |  |     |  
|Total                                  |  | $                                         | 163,640 |  | 100           | % |  | $ | 181,811 |  | 100 | %
|                                       |  |                                           |         |  |               |   |  |   |         |  |     |  



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Antenna systems consist of base station antennas and tower-mounted amplifiers. Base station systems
consist of products that are installed into or around the base station of wireless networks and include products such as boosters, combiners, filters, radio frequency power amplifiers and VersaFlex cabinets. Coverage systems consist primarily of
repeaters and advanced coverage solutions. The decrease in antenna systems and coverage systems product groups is due to the impact of lower demand during the three months ended April 1, 2007 as compared to the three months ended April 2,
2006.

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



|                    |  |                                           |         |  |               |   |  |   |         |  |     |  
|------------------- |  | ----------------------------------------- | ------- |  | ------------- | - |  | - | ------- |  | --- | -
|                    |  | Three Months Ended (dollars in thousands) |        
|Geographic Area     |  | April 1, 2007                             |         |  | April 2, 2006 |  
|Americas            |  | $                                         | 48,081  |  | 29            | % |  | $ | 58,152  |  | 32  | %
|Asia                |  |                                           | 38,220  |  | 23            | % |  |   | 24,336  |  | 13  | %
|Europe              |  |                                           | 76,298  |  | 47            | % |  |   | 98,033  |  | 54  | %
|Other international |  |                                           | 1,041   |  | 1             | % |  |   | 1,290   |  | 1   | %
|                    |  |                                           |         |  |               |   |  |   |         |  |     |  
|Total net sales     |  | $                                         | 163,640 |  | 100           | % |  | $ | 181,811 |  | 100 | %
|                    |  |                                           |         |  |               |   |  |   |         |  |     |  

Revenues in the Americas decreased in the first quarter of fiscal 2007 as compared to the first
quarter of fiscal 2006, primarily as a result of reduced demand by Cingular Wireless. The increase in revenues in the Asia region and the reduction in revenues in the European region is largely attributable to an increase in European OEM business
taking delivery of products in Asia for the Asian market and growth in demand in parts of the Asian region. Since wireless network infrastructure spending is dependent on individual network coverage and capacity demands, we do not believe that our
revenue fluctuations for any geographic region are necessarily indicative of a predictable trend for our future revenues by geographic area. In addition, as noted above, growth in one geographic location may not reflect actual demand growth in that
location due to the centralized buying processes of our original equipment manufacturer customers.

For the quarter ended April 1,
2007, total sales to Nokia accounted for approximately 29% of sales and sales to Alcatel-Lucent accounted for approximately 14% or more of sales for the quarter. For the quarter ended April 2, 2006, total sales to Nokia accounted for
approximately 16% of sales, sales to Siemens accounted for approximately 13% of sales and sales to Cingular Wireless accounted for approximately 10% of sales. Notwithstanding our acquisitions, our business remains largely dependent upon a limited
number of customers within the wireless communications market and we cannot guarantee that we will continue to be successful in attracting new customers or retaining or increasing business with our existing customers.

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

Cost of Sales and Gross Profit

Our cost of sales includes both fixed and variable cost components and consists primarily of
materials, assembly and test labor, overhead, which includes equipment and facility depreciation, transportation costs,



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warranty costs and amortization of product-related intangibles. Components of our fixed cost structure include test equipment and facility depreciation,
purchasing and procurement expenses and quality assurance costs. Given the fixed nature of such costs, the absorption of our overhead costs into inventory decreases and the amount of overhead variances expensed to cost of sales increases as volumes
decline since we have fewer units to absorb our overhead costs against. Conversely, the absorption of our overhead costs into inventory increases and the amount of overhead variances expensed to cost of sales decreases as volumes increase since we
have more units to absorb our overhead costs against. As a result, our gross profit margins generally decrease as revenue and volumes decline due to lower sales volume and higher amounts of overhead variances expensed to cost of sales; and our gross
profit margins generally increase as our revenue and volumes increase due to higher sales volume and lower amounts of overhead variances expensed to cost of sales.

The following table presents an analysis of our gross profit:



|                                     |  |                                           |         |  |               |   |  |   |         |  |       |  
|------------------------------------ |  | ----------------------------------------- | ------- |  | ------------- | - |  | - | ------- |  | ----- | -
|                                     |  | Three Months Ended (dollars in thousands) |        
|                                     |  | April 1, 2007                             |         |  | April 2, 2006 |  
|Net sales                            |  | $                                         | 163,640 |  | 100.0         | % |  | $ | 181,811 |  | 100.0 | %
|Cost of sales:                       |  |                                           |         |  |               |   |  |   |         |  |       |  
|Cost of sales                        |  |                                           | 134,605 |  | 82.3          | % |  |   | 142,605 |  | 78.4  | %
|Intangible amortization              |  |                                           | 4,886   |  | 3.0           | % |  |   | 2,922   |  | 1.6   | %
|Restructuring and impairment charges |  |                                           | 10,521  |  | 6.4           | % |  |   |        |  |      | %
|                                     |  |                                           |         |  |               |   |  |   |         |  |       |  
|Total cost of sales                  |  |                                           | 150,012 |  | 91.7          | % |  |   | 145,527 |  | 80.0  | %
|                                     |  |                                           |         |  |               |   |  |   |         |  |       |  
|Gross profit                         |  | $                                         | 13,628  |  | 8.3           | % |  | $ | 36,284  |  | 20.0  | %
|                                     |  |                                           |         |  |               |   |  |   |         |  |       |  

Our total gross profit decreased during the first quarter of fiscal 2007 compared to the first
quarter of fiscal 2006 primarily as a result of our decreased revenues and increased intangible amortization combined with restructuring and impairment charges incurred in the first quarter of fiscal 2007. Our lower revenues contributed to poor
absorption of our manufacturing overheads and delayed previously anticipated material cost reductions due to the lower purchasing volume. The completion of the Filtronic Wireless Acquisition in the fourth quarter of 2006 added significant additional
manufacturing overhead expenses which are not being absorbed by our lower revenues. Also contributing to the reduction in our gross margins was a significant reduction in direct operator sales, which typically have carried higher margins than our
OEM based sales. The increased intangible amortization costs are due to the Filtronic Wireless Acquisition. We incurred approximately $10.5 million of restructuring and impairment charges during the first quarter of fiscal 2007 related to
restructuring plans implemented in conjunction with our China manufacturing consolidation and the closure of our Costa Rica manufacturing location (see Note 7 Restructuring and Impairment Charges.)

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

We continue to strive for manufacturing and engineering cost reductions to offset pricing pressures
on our products, as evidenced by our decision to close our Costa Rica, Shanghai and Wuxi, China manufacturing operations as part of our plan to reduce our manufacturing costs. However, we cannot guarantee that these cost reduction, and our
outsourcing or product redesign efforts will keep pace with price declines and cost increases. If we are unable to further reduce our costs through our manufacturing, outsourcing and/or engineering efforts, our gross margins and profitability will
be adversely affected. See Our average sales prices have declined; and Our reliance on contract manufacturers exposes us to risks under Part II, Item 1A. Risk Factors.



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##### Table of Contents

Operating Expenses

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



|                                     |  |                                           |        |  |               |   |  |   |        |  |      |  
|------------------------------------ |  | ----------------------------------------- | ------ |  | ------------- | - |  | - | ------ |  | ---- | -
|                                     |  | Three Months Ended (dollars in thousands) |       
|Operating Expenses                   |  | April 1, 2007                             |        |  | April 2, 2006 |  
|Sales and marketing                  |  | $                                         | 13,597 |  | 8.3           | % |  | $ | 8,593  |  | 4.7  | %
|Research and development             |  |                                           | 25,628 |  | 15.6          | % |  |   | 15,325 |  | 8.4  | %
|General and administrative           |  |                                           | 19,309 |  | 11.8          | % |  |   | 13,901 |  | 7.7  | %
|Intangible amortization              |  |                                           | 2,920  |  | 1.8           | % |  |   | 2,076  |  | 1.1  | %
|Restructuring and impairment charges |  |                                           | 491    |  | 0.3           | % |  |   | 171    |  | 0.1  | %
|                                     |  |                                           |        |  |               |   |  |   |        |  |      |  
|Total operating expenses             |  | $                                         | 61,945 |  | 37.8          | % |  | $ | 40,066 |  | 22.0 | %
|                                     |  |                                           |        |  |               |   |  |   |        |  |      |  

Sales and marketing expenses consist primarily of sales salaries and commissions, travel expenses,
advertising and marketing expenses, selling expenses, charges for customer demonstration units and trade show expenses. Sales and marketing expenses increased by $5.0 million, or 58%, during the quarter ended April 1, 2007 as compared to the
quarter ended April 2, 2006. The increase resulted primarily due to increased salaries associated with increased headcount added over the last year, as well as increased travel expenses, trade show expenses, customer demonstration units and
selling expenses.

Research and development expenses consist primarily of ongoing design and development expenses for new wireless
communications network products, as well as for advanced coverage solutions. We also incur design expenses associated with reducing the cost and improving the manufacturability of our existing products. Research and development expenses can
fluctuate dramatically from period to period depending on numerous factors including new product introduction schedules, prototype developments and hiring patterns. Research and development expenses increased by $10.3 million, or 67%, during the
quarter ended April 1, 2007 as compared to the quarter ended April 2, 2006 primarily due to the Filtronic Wireless Acquisition in the fourth quarter of 2006, which added approximately 210 personnel to our research and development area as
well as increased the number of active projects within which such work is undertaken generating increased material expenses.

General and
administrative expenses consist primarily of salaries and other expenses for management, finance, information systems, facilities and human resources. General and administrative expenses increased $5.4 million, or 39%, during the quarter ended
April 1, 2007 as compared to the quarter ended April 2, 2006. This increase was due to additional expenses associated with the Filtronic Wireless Acquisition as well as increased professional fees associated with legal and accounting
compliance activities.

Amortization of customer-related intangibles from our acquisitions, amounted to $2.9 million for the first quarter
of fiscal 2007, compared to $2.1 million for the first quarter of fiscal 2006. The increase was due to amortization of the Filtronic Wireless intangibles acquired in October 2006. We also recorded a restructuring charge of $0.5 million in the first
quarter of fiscal 2007 for severance and facility closure costs related to REMEC Wireless compared to $0.2 million for the first quarter of fiscal 2006.

Other Income, net

The following table presents an analysis of other income, net:



|                                  |  |                                           |        |   |               |      |    |  |   |        |   |  |      |   
|--------------------------------- |  | ----------------------------------------- | ------ | - | ------------- | ---- | -- |  | - | ------ | - |  | ---- | --
|                                  |  | Three Months Ended (dollars in thousands) |       
|                                  |  | April 1, 2007                             |        |   | April 2, 2006 |     
|Interest income                   |  | $                                         | 242    |   |               | 0.2  | %  |  | $ | 2,188  |   |  | 1.2  | % 
|Interest expense                  |  |                                           | (1,929 | ) |               | (1.2 | )% |  |   | (2,055 | ) |  | (1.1 | )%
|Foreign currency gain (loss), net |  |                                           | 1,783  |   |               | 0.5  | %  |  |   | (61    | ) |  | (0.1 | )%
|Other income, net                 |  |                                           | 856    |   |               | 1.1  | %  |  |   | 555    |   |  | 0.3  | % 
|                                  |  |                                           |        |   |               |      |    |  |   |        |   |  |      |   
|Other income, net                 |  | $                                         | 952    |   |               | 0.6  | %  |  | $ | 627    |   |  | 0.3  | % 
|                                  |  |                                           |        |   |               |      |    |  |   |        |   |  |      |   



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Interest income decreased by $1.9 million during the quarter ended April 1, 2007 primarily due to
decreased cash balances following the Filtronic Wireless Acquisition in October 2006. As part of the Filtronic Wireless Acquisition, we paid $185 million in cash, along with 17.7 million shares of our common stock. This was offset by an
increase of $1.8 million of a net foreign currency gain during the quarter ended April 1, 2007 primarily due to the weakness of the U.S. dollar during the first quarter of 2007.

Provision for Income Taxes

Our
effective tax rate differs from the U.S. federal statutory tax rate of 35% primarily due to the losses without the tax benefit in tax jurisdictions where the Company has recorded a full valuation allowance and differences between the foreign tax
rate and the U.S. tax rate. We recorded a tax benefit at the rate of approximately 13% during the quarter ended April 1, 2007, excluding losses incurred in tax jurisdictions for which the deferred tax assets are offset by a full valuation
allowance. This compares to a tax provision at the rate of 13.7% for the quarter ended April 2, 2006. Given the increased global scope of our combined operations and the difficulty in predicting our earnings within each tax jurisdiction, we
expect that our effective tax rate may fluctuate dramatically in the future.

Net Loss

The following table presents a reconciliation of operating loss to net loss:



|                                                         |  |                                  |         |   |               |   |        |  
|-------------------------------------------------------- |  | -------------------------------- | ------- | - | ------------- | - | ------ | -
|                                                         |  | Three Months Ended(in thousands) |        
|                                                         |  | April 1,2007                     |         |   | April 2, 2006 |  
|Operating loss                                           |  | $                                | (48,317 | ) |               | $ | (3,782 | )
|Other income, net                                        |  |                                  | 952     |   |               |   | 627    |  
|                                                         |  |                                  |         |   |               |   |        |  
|Loss from continuing operations before income taxes      |  |                                  | (47,365 | ) |               |   | (3,155 | )
|Benefit from income taxes                                |  |                                  | (235    | ) |               |   | (47    | )
|                                                         |  |                                  |         |   |               |   |        |  
|Loss from continuing operations                          |  |                                  | (47,130 | ) |               |   | (3,108 | )
|                                                         |  |                                  |         |   |               |   |        |  
|Income from discontinued operations, net of income taxes |  |                                  |        |   |               |   | 828    |  
|                                                         |  |                                  |         |   |               |   |        |  
|Net loss                                                 |  | $                                | (47,130 | ) |               | $ | (2,280 | )
|                                                         |  |                                  |         |   |               |   |        |  

Our loss from continuing operations for the quarter ended April 1, 2007 of $47.1 million
compared to a loss of $3.1 million for the quarter ended April 2, 2006. The increase in the loss from continuing operations during the first quarter of fiscal 2007 as compared to the first quarter of fiscal 2006 is primarily the result of lower
revenues, and increased manufacturing overhead due to the Filtronic Wireless Acquisition which resulted in a lower gross margin and increased operating expenses associated with the Filtronic Wireless Acquisition, all resulting in larger operating
and net losses. Our net loss for the quarter ended April 1, 2007 of $47.1 million compared to a net loss of $2.3 million for the quarter ended April 2, 2006 reflects income in the first quarter of 2006 from the Arkivator business, which is
shown as a discontinued operation. The Arkivator business was sold in the third quarter of 2006.

Liquidity and Capital Resources

We have historically financed our operations through a combination of cash on hand, cash provided from operations, equipment lease financings, available
borrowings under bank lines of credit, private debt placements and both private and public equity offerings. Our principal sources of liquidity consist of existing cash balances, funds expected to be generated from future operations and borrowings
under bank lines of credit. As of April 1, 2007, we had working capital of $223.6 million, including $47.3 million in unrestricted cash and cash equivalents as compared to working capital of $392.4 million at April 2, 2006, which included
$239.4 million in unrestricted cash and cash equivalents. We currently invest our excess cash in short-term, investment-grade, money-market instruments with maturities of three months or less. We typically hold such investments until maturity and
then reinvest the proceeds in similar money market instruments. We believe that all of our cash investments would be readily available to us should the need arise.



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Cash Flows

The following table summarizes Powerwaves cash flows for the quarters ended April 1, 2007 and April 2, 2006:



|                                                      |  |                                          |        |   |               |   |         |  
|----------------------------------------------------- |  | ---------------------------------------- | ------ | - | ------------- | - | ------- | -
|                                                      |  | Three Months Ended(dollars in thousands) |       
|                                                      |  | April 1,2007                             |        |   | April 2, 2006 |  
|Net cash provided by (used in):                       |  |                                          |        |   |               |   |         |  
|Operating activities                                  |  | $                                        | 6,615  |   |               | $ | (10,509 | )
|Investing activities                                  |  |                                          | (1,915 | ) |               |   | 8,820   |  
|Financing activities                                  |  |                                          | 613    |   |               |   | 7,676   |  
|Effect of exchange rates on cash and cash equivalents |  |                                          | 445    |   |               |   | 877     |  
|                                                      |  |                                          |        |   |               |   |         |  
|Net increase in cash and cash equivalents             |  | $                                        | 5,758  |   |               | $ | 6,864   |  
|                                                      |  |                                          |        |   |               |   |         |  

Net cash provided by operations during the three months ended April 1, 2007 was $6.6 million
as compared to a net use of cash of $10.5 million during the three months ended April 2, 2006. The increase in cash provided by operations during the first three months of fiscal 2007 is primarily due to lower inventory and prepaid expenses
balances when compared to the year-end 2006 balances.

Net cash used in investing activities during the first quarter of fiscal 2007 was
$1.9 million as compared to the $8.8 million provided by investing activities during the first quarter of fiscal 2006. The cash provided by investing activities in the first quarter of 2006 was primarily related to $19.1 million in proceeds from the
disposition of our Philippines operations offset by the $7.4 million spent for an acquisition during the first quarter of fiscal 2006. Total capital expenditures during the three months ended April 1, 2007 and April 2, 2006 were
approximately $2.5 million and $2.9 million, respectively. The majority of the capital spending during both periods related to computer hardware and test equipment utilized in our manufacturing and research and development areas. We expect our
capital spending requirements for the remainder of this year to range between $9 million and $12 million, consisting of test and production equipment, as well as computer hardware and software.

The $0.6 million in net cash provided by financing activities during the three months ended April 1, 2007 and $7.7 million during the three months
ended April 2, 2006 resulted from the issuance of our Common Stock under our employee stock option programs and our Employee Stock Purchase Plan.

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

We have $130 million aggregate principal amount of 1.25% convertible subordinated notes that are
due in July 2008. The notes are callable by us beginning July 22, 2007. Our current intention is to repay these notes from a combination of our existing cash balances and cash generated from operations. No assurance can be given that we will be
able to generate positive operating cash flows in the future or maintain and/or grow our existing cash balances. If we do not generate sufficient cash from operations, we will be required to refinance the notes and no assurance can be given that we
will be able to refinance the notes on terms acceptable to us or at all. If we continue to generate losses from operations, we will likely encounter a more difficult environment in terms of raising additional financing.

Financing Activities

On
October 13, 2006, we entered into a $75 million Credit Agreement with Bank of America N.A., as Documentation Agent and Comerica Bank as Administrative Agent. In February 2007, the Credit Agreement was



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amended with an effective date of December 31, 2006, to adjust certain covenants. Prior to the Amendment, the Company received waivers from the banks
waiving certain covenants under the Credit Agreement, which required maintenance of certain financial measures. On April 24, 2007, we terminated the Amended Credit Agreement. As of the date of termination, the Company had not borrowed any
amounts under the Amended Credit Agreement. In addition, the Company did not incur any early termination penalties in connection with the termination of the Amended Credit Agreement.

On April 24, 2007, Powerwave and certain of its subsidiaries, entered into a Revolving Trade Receivables Purchase Agreement with Deutsche Bank AG,
New York Branch, as Administrative Agent (the Receivables Purchase Agreement). The Receivables Purchase Agreement provides for a receivables sales facility pursuant to which certain trade receivables are sold to a group of banks, which
group initially consists of Deutsche Bank AG, New York Branch. The outstanding amount of trade receivables sold under the receivables facility may not exceed $65.0 million at any given time. Pursuant to the receivables sales facility, Powerwave and
certain subsidiaries can sell eligible trade receivables to the bank group for a purchase price equal to 90% of the face amount thereof, and Powerwave acts as the servicer for such receivables. Powerwaves appointment as the servicer is subject
to termination events that are customary for such transactions. The receivables sales facility is also subject to conditions to funding, representations and warranties, undertakings and early termination events that are customary for transactions of
this nature. The Receivables Purchase Agreement is available for working capital and general corporate purposes.

We have a total of $330
million of convertible subordinated notes outstanding of which $130 million is due in July 2008. We are required to either repay or convert these notes prior to the due date.

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

Off-Balance Sheet Arrangements

Our off-balance sheet
arrangements consist primarily of conventional operating leases, purchase commitments and other commitments arising in the normal course of business, as further discussed below under Contractual Obligations and Commercial Commitments. As
of April 1, 2007, we did not have any other relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Contractual Obligations and Commercial
Commitments

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

Long-Term Debt

At April 1, 2007, we had $330.0 million of long-term debt, consisting of our outstanding 1.25% convertible subordinated notes due July 2008 and our
1.875% convertible subordinated notes due November 2024. These notes are convertible into shares of our Common Stock at the option of the holder. See Note 10. Financing Arrangements and Long-Term Debt in the Notes to Consolidated
Financial Statements included under Part II, Item 8, Financial Statements and Supplementary Data of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006 for additional information.



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Capital Lease Obligations

Our current outstanding capital lease obligations of $0.3 million relate primarily to manufacturing and test equipment and are included as part of other
current liabilities within our consolidated balance sheet.

Operating Lease Obligations

We have various operating leases covering vehicles, equipment, facilities and sales offices located throughout the world.

Purchase Commitments with Contract Manufacturers

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

Other Commitments

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

Guarantees Under Letters of Credit

We occasionally issue guarantees for certain contingent liabilities under various contractual arrangements, including customer contracts, self-insured retentions under certain insurance policies, and governmental
value-added tax compliance programs. These guarantees normally take the form of standby letters of credit issued by our bank that may be secured by cash deposits or pledges, or performance bonds issued by an insurance company.



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As of April 1, 2007, expected future cash payments related to contractual obligations and commercial
commitments were as follows:



|                                                         |  |                                       |         |           |   |           |  |            |       |       |   |         |  |   |        
|-------------------------------------------------------- |  | ------------------------------------- | ------- | --------- | - | --------- |  | ---------- | ----- | ----- | - | ------- |  | - | -------
|                                                         |  | Payments Due by Period (in thousands)
|                                                         |  | Less than 1Year                       |         | 1-3 Years |   | 3-5 Years |  | Thereafter |       | Total
|Long-term debt (including interest)                      |  | $                                     | 5,375   |           | $ | 138,313   |  | $          | 7,500 |       | $ | 248,750 |  | $ | 399,938
|Capital lease obligations                                |  |                                       | 282     |           |   |          |  |            |      |       |   |        |  |   | 282    
|Operating lease obligations                              |  |                                       | 5,004   |           |   | 4,387     |  |            | 1,886 |       |   |        |  |   | 11,277 
|Purchase commitments with contract manufacturers         |  |                                       | 110,386 |           |   |          |  |            |      |       |   |        |  |   | 110,386
|Other commitments                                        |  |                                       | 36,366  |           |   |          |  |            |      |       |   |        |  |   | 36,366 
|                                                         |  |                                       |         |           |   |           |  |            |       |       |   |         |  |   |        
|Total contractual obligations and commercial commitments |  | $                                     | 157,413 |           | $ | 142,700   |  | $          | 9,386 |       | $ | 248,750 |  | $ | 558,249
|                                                         |  |                                       |         |           |   |           |  |            |       |       |   |         |  |   |        

We have excluded the reserve for uncertain income tax positions of $1.4 million at April 1,
2007 as we cannot reasonably estimate when such liabilities will be settled.

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

Disclosure About Stock Option Plans

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

During the three months ended April 1, 2007, we granted options to purchase a total of 110,000 shares of Common Stock to employees. After deducting
393,938 shares for options forfeited, the result was net option forfeitures of 283,938. Net option forfeitures during the year represented 0.2% of our total outstanding common shares of 130,197,599 as of April 1, 2007. The following table
summarizes the net stock option grants to our employees, directors and executive officers during the three most recent fiscal periods:



|                                                                                                 |  |                                 |    |  |                            |   |  |                          |   
|------------------------------------------------------------------------------------------------ |  | ------------------------------- | -- |  | -------------------------- | - |  | ------------------------ | --
|                                                                                                 |  | Three MonthsEnded April 1, 2007 |    |  | Year EndedDecember 31,2006 |   |  | Year EndedJanuary 1,2006 |   
|Net grants (forfeitures) during the period as a % of total outstanding common shares             |  | (0.2                            | )% |  | 0.8                        | % |  | (0.4                     | )%
|Grants to executive officers during the period as a % of total options granted during the period |  |                                | %  |  | 27.0                       | % |  |                         | % 
|Grants to executive officers during the period as a % of total outstanding common shares         |  |                                | %  |  | 0.4                        | % |  |                         | % 
|Cumulative options held by executive officers as a % of total options outstanding                |  | 30.3                            | %  |  | 34.8                       | % |  | 30.5                     | % 

At April 1, 2007, a total of 8,566,134 options were available for grant under all of our
option plans and a total of 52,621 shares of Common Stock were held in escrow to cover all remaining exercises under the 1995 Stock Option Plan. See Note 13. Stock Option Plans in the Notes to Consolidated Financial
Statements included under Part II, Item 8, and Financial Statements and Supplementary Data of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006 for further information regarding the
1995 Stock Option Plan. The following table summarizes activity for outstanding options under all of our stock option plans during the three months ended April 1, 2007:





|                             |  |                 |   |  |                 |               |                              |   |                             |  |                              |  |   |      
|---------------------------- |  | --------------- | - |  | --------------- | ------------- | ---------------------------- | - | --------------------------- |  | ---------------------------- |  | - | -----
|                             |  | Number ofShares |   |  | Price Per Share |               | WeightedAverageExercisePrice |   | Number ofOptionsExercisable |  | WeightedAverageExercisePrice
|Balance at December 31, 2006 |  | 7,056,242       |   |  | $               | 2.19 -$67.08  |                              | $ | 9.57                        |  | 4,136,329                    |  | $ | 10.99
|Granted                      |  | 110,000         |   |  | $               | 5.17 - $ 6.54 |                              | $ | 5.88                        |  |                              |  |   |      
|Exercised                    |  | (3,022          | ) |  | $               | 4.05 - $ 5.41 |                              | $ | 4.47                        |  |                              |  |   |      
|Canceled                     |  | (393,938        | ) |  | $               | 5.01 -$38.02  |                              | $ | 7.53                        |  |                              |  |   |      
|                             |  |                 |   |  |                 |               |                              |   |                             |  |                              |  |   |      
|Balance at April 1, 2007     |  | 6,769,282       |   |  | $               | 2.19 -$67.08  |                              | $ | 9.63                        |  | 4,165,876                    |  | $ | 10.89
|                             |  |                 |   |  |                 |               |                              |   |                             |  |                              |  |   |      



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The following table summarizes outstanding stock options that are in-the-money and
out-of the-money as of April 1, 2007. For purposes of this table, in-the-money stock options are those options with an exercise price less than $5.69 per share, the closing price of Powerwave Common Stock on March 30, 2007, the
last trading day of the fiscal quarter, and out-of-the-money stock options are stock options with an exercise price greater than or equal to the $5.69 per share closing price.



|                          |  |             |  |                       |       |        |           |                       |   |             |  |          
|------------------------- |  | ----------- |  | --------------------- | ----- | ------ | --------- | --------------------- | - | ----------- |  | ---------
|                          |  | Exercisable |  | Unexercisable         |       |       
|                          |  | Shares      |  | Wtd.Avg.ExercisePrice |       | Shares |           | Wtd.Avg.ExercisePrice |   | TotalShares
|In-the-Money              |  | 1,725,612   |  | $                     | 4.76  |        | 173,439   |                       | $ | 5.05        |  | 1,899,051
|Out-of-the-Money          |  | 2,440,264   |  | $                     | 15.23 |        | 2,429,967 |                       | $ | 7.80        |  | 4,870,231
|                          |  |             |  |                       |       |        |           |                       |   |             |  |          
|Total Options Outstanding |  | 4,165,876   |  | $                     | 10.89 |        | 2,603,406 |                       | $ | 7.61        |  | 6,769,282
|                          |  |             |  |                       |       |        |           |                       |   |             |  |          

The following table sets forth certain information concerning the exercise of options by each of
our executive officers during the three months ended April 1, 2007, including the aggregate value of gains on the date of exercise held by such executive officers, as well as the number of shares covered by both exercisable and unexercisable
stock options as of April 1, 2007. Also reported are the values for the in-the-money options which represent the positive spread between the exercise prices of any such existing stock options and the closing price of the Companys Common
Stock on the last trading day of the fiscal quarter.



|                  |  |                          |  |                |   |                                                                    |         |                                                             |         |               |   |         |  |   |       
|----------------- |  | ------------------------ |  | -------------- | - | ------------------------------------------------------------------ | ------- | ----------------------------------------------------------- | ------- | ------------- | - | ------- |  | - | ------
|                  |  | SharesAcquiredonExercise |  | Value Realized |   | Number of Securities UnderlyingUnexercised Options atApril 1, 2007 |         | Value of UnexercisedIn-the-Money Optionsat April 1, 2007(1)
|Name              |  |                          |  | Exercisable    |   | Unexercisable                                                      |         | Exercisable                                                 |         | Unexercisable
|Bruce C. Edwards  |  |                         |  | $              |  |                                                                    | 200,000 |                                                             | 120,000 |               | $ | 56,000  |  | $ |      
|Ronald J. Buschur |  |                         |  | $              |  |                                                                    | 804,166 |                                                             | 295,834 |               | $ | 118,666 |  | $ | 45,334
|Kevin T. Michaels |  |                         |  | $              |  |                                                                    | 431,645 |                                                             | 197,605 |               | $ | 232,570 |  | $ | 45,334
|Geoff Fletcher    |  |                         |  | $              |  |                                                                    |        |                                                             |        |               | $ |        |  | $ |      

---

|(1) | In accordance with the Securities and Exchange Commissions rules, values are calculated by
subtracting the exercise price from the fair market value of the underlying Common Stock. For purposes of this table, fair market value per share is deemed to be $5.69, the Companys closing Common Stock price reported by Nasdaq on
March 30, 2007, the last trading day of the fiscal quarter.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Our shareholders have previously approved all stock option plans under which our Common Stock is reserved for issuance.
The following table provides summary information as of April 1, 2007, for all of our stock option plans:



|                                                       |  |                                                                                                   |  |                                                                        |      |                                                                                                                                         |           |    
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---
|                                                       |  | Number of Shares ofCommon Stock tobe Issued uponExercise ofOutstandingOptions, Warrantsand
Rights |  | WeightedAverageExercise Price of OutstandingOptions,Warrants andRights |      | Number of Shares ofCommon StockRemaining Availablefor Future Issuanceunder our StockOption
Plans(Excluding SharesReflected in Column 1) |          
|Equity Compensation Plans Approved by Shareholders     |  | 6,869,282                                                                                         |  | $                                                                      | 9.63 |                                                                                                                                         | 8,566,134 | (1)
|Equity Compensation Plans Not Approved by Shareholders |  |                                                                                                  |  |                                                                        |     |                                                                                                                                         |          |    
|                                                       |  |                                                                                                   |  |                                                                        |      |                                                                                                                                         |           |    
|Total                                                  |  | 6,869,282                                                                                         |  | $                                                                      | 9.63 |                                                                                                                                         | 8,566,134 |    
|                                                       |  |                                                                                                   |  |                                                                        |      |                                                                                                                                         |           |    

---

|(1) | The number of securities remaining available for future issuance has also been reduced to reflect
200,000 shares of restricted stock issued under the 2005 Stock Incentive Plan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Our financial instruments include cash and cash equivalents, restricted cash, short-term investments, capital leases and long-term debt. At April 1, 2007, the carrying values of our financial instruments approximated their fair values
based upon current market prices and rates.

We are exposed to a number of market risks in the ordinary course of business. These risks,
which include foreign currency risk, interest rate risk and commodity price risk, arise in the normal course of business rather than from trading. We have examined our exposures to these risks and have concluded that none of our exposures in these
areas are material to fair values, cash flows or earnings.

Foreign Currency Risk

Our international operations represent a substantial portion of our operating results and asset base. We maintain various operations in multiple foreign
locations including Brazil, China, Estonia, Finland, France, Germany, Hungary, Singapore, Sweden and the United Kingdom. These international operations generally incur local operating costs and generate third party revenues in currencies other than
the U.S. dollar. Such foreign currency revenues and expenses expose us to foreign currency risk and give rise to foreign exchange gains and losses.

We regularly pursue new customers in various international locations where new deployments or upgrades to existing wireless communication networks are planned. As a result, a significant portion of our revenues are derived from
international sources, with our international customers accounting for approximately 72% of our net sales during the three months ended April 1, 2007, 72% of our fiscal 2006 net sales, 64% of our fiscal 2005 net sales and 71% of our fiscal 2004
net sales. Such international sources include Europe, Asia and South America, where there has been historical volatility in several of the regions currencies. Changes in the value of the U.S. Dollar versus the local currency in which our
products are sold exposes us to foreign currency risk since 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. In addition,
certain of our international customers require that we transact business with them in their own local currency, regardless of the location of our operations, which also exposes us to foreign currency risk. As we sell products or services in foreign
currencies, we may be required to convert the payments received into U.S. Dollars or utilize such foreign currencies as payments for expenses of our business, which may give rise to foreign exchange gains and losses. Given the uncertainty as to when
and what specific foreign currencies we may be required or decide to accept as payment from our international customers, we cannot predict the ultimate impact that such a decision would have on our business, gross margins and results of operations.



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While we monitor our foreign currency exposures, we do not currently maintain an active foreign currency
hedging program. We may decide in the future to implement an active hedging program utilizing derivative instruments to assist in managing our foreign exchange rate risk. Based on our overall foreign exchange rate exposure at April 1, 2007, a
10% change in the Euro and the Swedish Krona could have a material effect on our consolidated results of operations or cash flows.

Interest Rate Risk

As of April 1, 2007, we had cash equivalents of approximately $53.1 million in both interest and non-interest bearing accounts,
including restricted cash. We also had $130.0 million of convertible subordinated notes due July 2008 at a fixed annual interest rate of 1.25%, $200.0 million of convertible subordinated notes due November 2024 at a fixed annual interest rate of
1.875%, and $0.3 million capital lease obligations with various maturities at fixed interest rates. We are exposed to interest rate risk primarily through our cash investment portfolio. While short-term investment rates have increased significantly
during the last year, we believe that we are not subject to material fluctuations in principal given the short-term maturities and high-grade investment quality of our investment portfolio, and the fact that the effective interest rate of our
portfolio tracks closely to various short-term money market interest rate benchmarks. Therefore, we currently do not use derivative instruments to manage our interest rate risk. Based on our overall interest rate exposure at April 1, 2007, we
do not believe that a 100 basis point change in interest rates would have a material effect on our consolidated financial position, results of operations or cash flows.

Commodity Price Risk

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



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Controls and Procedures

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

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error and all fraud. A control system, no



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matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within Powerwave have been detected.

Internal Control Over Financial
Reporting

There has been no change in the Companys internal control over financial reporting during the first quarter of fiscal
2007 that has materially affected, or is reasonable likely to materially affect, the Companys internal control over financial reporting.



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PART II  OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

In January, February and March
2007, four purported shareholder class action complaints were filed in the United States District Court for the Central District of California against the Company, its President and Chief Executive Officer, its Executive Chairman of the Board of
Directors and its Chief Financial Officer. The complaints are Jerry Crafton v. Powerwave Technologies, Inc., et. al., Kenneth Kwan v. Powerwave Technologies, Inc., et. al., Achille Tedesco v. Powerwave Technologies, Inc., et. al. and Farokh
Etemadieh v. Powerwave Technologies, Inc. et. al. and were brought under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints purport to state claims on behalf of all persons who purchased
Powerwave securities between May 2, 2005 and October 9, 2006. The essence of the allegations are that the defendants made misleading statements or omissions concerning the Companys projected and actual sales revenues, the
integration of certain acquisitions and the sufficiency of the Companys internal controls. The Company believes that the purported shareholder class actions are without merit and intends to defend them vigorously.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

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

We sell most of our products to a small number of customers, and we expect that this will continue. For the three
months ended April 1, 2007, sales to Nokia accounted for approximately 29% of net sales and sales to Siemens accounted for 4% of our net sales. Also, sales to Alcatel-Lucent accounted for approximately 14% of our net sales in the three months
ended April 1, 2007. Nokia and Siemens, who combined their wireless business effective April 1, 2007, accounted for approximately 34% of our revenues in 2006. For fiscal year 2005, Cingular Wireless accounted for approximately 16% of our
net sales and Nokia accounted for approximately 14% of our net sales. During fiscal year 2006, our direct sales to Cingular Wireless significantly declined compared to 2005 and such decline contributed to our operating loss and reduced financial
performance for fiscal 2006. During the fourth quarter of 2006 and the first quarter of 2007, Nokia and Siemens significantly reduced their demand, which also contributed to our operating loss for 2006 and the first quarter of 2007. The new
Nokia/Siemens entity is a significant percentage of our business and any decline in this business will have an adverse impact on our business and results of operations. Our future success is dependent upon the continued purchases of our products by
a small number of customers such as Nokia/Siemens, Cingular Wireless, and any fluctuations in demand from such customers or other customers would negatively impact our results of operations. If we are unable to broaden our customer base and expand
relationships with major wireless original equipment manufacturers and major operators of wireless networks, our business will continue to be impacted by unanticipated demand fluctuations due to our dependence on a small number of customers.
Unanticipated demand fluctuations can have a negative impact on our revenues and business, and an adverse effect on our results of operations and financial condition. In addition, our dependence on a small number of major customers exposes us to
numerous other risks, including:



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



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



| |  |  | consolidation of customers can reduce demand as well as increase pricing pressure on our products due to increased purchasing leverage;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | direct competition should a customer decide to increase its level of internal designing and/or manufacturing of wireless communication network products; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



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

We may incur unanticipated costs as we complete the
integration of our business with businesses we recently acquired.

On May 3, 2004, we completed the exchange offer for the
outstanding shares of LGP Allgon Holding AB. On September 2, 2005, we completed the REMEC Wireless Acquisition and on October 15, 2006, we completed the Filtronic Wireless Acquisition. All of these acquisitions involve the integration of
companies and operations, many of which are based in different countries that previously operated independently. This is a complex, costly and time consuming process. We have limited experience integrating operations as substantial and
geographically diverse as those of LGP Allgon, REMEC Wireless and Filtronic Wireless, and as a result, we may not successfully integrate these operations with our own in a timely manner, or at all. We have previously encountered difficulties and
delays in integrating and consolidating operations which have had a negative impact on our results of operations. The failure to successfully integrate these operations could undermine the anticipated benefits and synergies of the acquisitions,
which could adversely affect our business, financial condition and results of operations. The anticipated benefits and synergies of these acquisitions relate to cost savings associated with operational efficiencies, greater economies of scale and
revenue enhancement opportunities. However, these anticipated benefits and synergies are based on projections and assumptions, not actual experience, and assume a smooth and successful integration of these businesses.



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In addition, the recent acquisition of Filtronics Wireless Systems business is one of the largest
acquisitions we have undertaken and the complex process of integrating this business requires significant resources. We have incurred and will continue to incur significant costs and commit significant management time in integrating this operation,
information, communications and other systems and personnel, among other items. The integration of this business has resulted and will continue to result in cash outflows related to the integration process, such as:



| |  |  | additional restructuring costs, including the closure of facilities and personnel severance costs;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | fees and expenses of professionals and consultants involved in completing the integration process;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | settling existing liabilities of the acquired businesses;
| | - |  | ---------------------------------------------------------



| |  |  | integrating and converting technology and manufacturing systems as well as bills of material; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | integrating personnel.
| | - |  | ----------------------

We have
begun the process of implementing a new worldwide enterprise resource planning system and if we are unsuccessful in deploying the system or, if it takes longer than anticipated to deploy the system, we may incur significant additional costs which
would negatively impact our financial results as well as potentially weaken our systemic internal controls.

At the end of 2004,
we made the decision to replace our existing enterprise resource planning systems with a single global system from Oracle. We have begun the implementation phase and have converted the majority of the existing Powerwave operations to the Oracle
system. With the Filtronic Wireless Acquisition, we are now planning the conversion of the Filtronic systems and intend to convert the Filtronic enterprise resource planning systems during fiscal 2007 to the Oracle platform. System conversions are
expensive and time consuming undertakings that impact all areas of the Company. While a successful implementation will provide many benefits to the Company, an unsuccessful or delayed implementation will cost the Company significant time and
resources, as well as expense. During the third quarter of 2006, we encountered delays in our conversion of our European operations. These delays coupled with production transfer issues, resulted in delayed production and less revenues which
negatively impacted our results in the same quarter. While we have implemented our plans to finish the conversion process, these delays did have a negative impact on our operating costs. In addition, due to the systemic internal control features
within enterprise resource planning systems, any changes in our enterprise resource planning system will have an impact on the testing of our internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002. If we
encounter unanticipated delays in deploying our new enterprise resource planning system, we may be unable to complete within the currently required time period our Section 404 testing of the systemic internal controls within such system, which
could create a material weakness or significant deficiency in our overall internal controls as of the end of a fiscal year.

We
have previously experienced significant reductions in demand for our products by certain customers and if this continues, our operating results will be adversely impacted.

We have a history of significant unanticipated reductions in demand that demonstrates the risks related to our customer and industry concentration levels.
While our revenues have increased at times during fiscal years 2005 and 2006, a significant portion of this increase was due to our acquisitions of LGP Allgon and REMEC Wireless. During fiscal 2006, we experienced significantly reduced demand for
our products due to lower than anticipated purchasing plans by a major North American wireless network operator. In addition, in the fourth quarter of 2006, when we acquired Filtronic Wireless, Nokia and Siemens significantly reduced their demand
which had a significant negative impact on both Powerwave and the Filtronic Wireless businesses. As a result of this reduction and general slowness in the wireless infrastructure marketplace during the fourth quarter of fiscal 2006, our revenues
decreased to $169.8 million in the fourth quarter of fiscal 2006 from $258.7 million in the fourth quarter of 2005. This slowdown continued in the first quarter of 2007, when our revenues declined from the fourth quarter of 2006 and when
compared to the first quarter of 2006, even though the first quarter of 2007 included the Filtronic Wireless acquisition. These types of reductions in overall market demand had a negative impact on our business and results of operations.

During fiscal 2005 and 2006, we also experienced a significant reduction in demand from Nortel. We cannot guarantee that we will be able to continue
to generate new demand to offset reductions from existing customers. If we are unable to continue to generate new demand, our revenues will go down and our results of operations will be negatively impacted.



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

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

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



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



| |  |  | cost associated with restructuring activities, including severance, inventory obsolescence and facility closure costs;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



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



| |  |  | cost associated with consolidating acquisitions;
| | - |  | ------------------------------------------------



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



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



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

We have regularly generated a large percentage of our revenues in the last month of a quarter. Since we attempt to ship products quickly after we receive orders, we may not always have a significant backlog of
unfilled orders at the start of each quarter and we may be required to book a substantial portion of our orders during the quarter in which such orders ship. Our major customers generally have no obligation to purchase forecasted amounts and may
cancel orders, change delivery schedules or change the mix of products ordered with minimal notice and without penalty. As a result, we may not be able to accurately predict our quarterly sales. Because our expense levels are partially based on our
expectations of future sales, our expenses may be disproportionately large relative to our revenues, and we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Any shortfall in sales relative to
our quarterly expectations or any delay of customer orders would adversely affect our revenues and results of operations.

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

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

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

Wireless service providers are continuing to place pricing pressure on wireless
infrastructure manufacturers, which in turn, has resulted in lower selling prices for our products, with certain competitors aggressively reducing prices in an effort to increase their market share. In addition, the consolidation of original
equipment manufacturers such as Alcatel/Lucent and Nokia/Siemens is concentrating their purchasing power at the surviving entities, which is



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placing further pricing pressures on the products we sell to such customers. We may be forced to further reduce our prices to such customers, which would
have a negative impact on our business and results of operations. We believe that the average sales prices of our products will continue to decline for the foreseeable future. The average sales price for our products declined by between 2% to 12%
from fiscal 2005 to fiscal 2006. 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. With ongoing consolidation in our industry, the increased size of many of our customers allows them to exert greater pressure on us to reduce prices. In addition, average sales prices are affected by price discounts
negotiated without firm orders for large volume purchases by certain customers. To offset declining average sales prices, we must reduce manufacturing costs and ultimately develop new products with lower costs or higher average sales prices. If we
cannot achieve such cost reductions or increases in average selling prices, our gross margins will decline.

Our suppliers, contract
manufacturers or customers could become competitors.

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

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

Our revenues
come from the sale of wireless communications network products and coverage solutions. Our future success depends solely upon the growth and increased availability of wireless communications services. Wireless communications services may not grow at
a rate fast enough to create demand for our products, as we experienced during fiscal 2003 and again in fiscal 2006. During fiscal 2006 and into fiscal 2007, a major North American wireless network operator significantly reduced demand for new
products. In addition, during the same period, several major equipment manufacturers began a process of consolidating their operations, which significantly reduced their demand for products. During fiscal 2003, wireless network operators reduced or
delayed capital spending on wireless networks in order to preserve their operating cash and improve their balance sheets. Such reduced spending on wireless networks had a negative impact on our operating results. If wireless network operators delay
or reduce levels of capital spending, our operating results will be negatively impacted.

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

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



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

Our acquisition of Filtronics Wireless Infrastructure Division business, as
well as future acquisitions, or strategic alliances, may present risks, and we may be unable to achieve the financial and strategic goals intended at the time of any acquisition or strategic alliance.

On October 15, 2006, we completed the Filtronic Wireless Acquisition. In the past, we have acquired and made investments in other companies, products
and technologies and entered into strategic alliances with other companies. We continually evaluate these types of opportunities. In addition to the Filtronic Wireless Acquisition, we may acquire or invest in other companies, products or
technologies, or we may enter into joint ventures, mergers or strategic alliances with other companies. Such transactions subject us to numerous risks, including the following:



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



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



| |  |  | significant additional warranty costs due to product failures and or design differences that were not identified during due diligence, and such costs could result
in charges to earnings if they are not recoverable from the seller;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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

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

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

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

As part of the Filtronic Wireless Acquisition, we are
purchasing certain components from Filtronic plc for use in certain products included in the acquisition. Filtronic plc is a sole source of these components. If we were unable to obtain such components, we would have to redesign certain products and
find an alternative source of supply, which would likely increase our costs and have a negative impact on our business and results of operations. We may also be subject to penalties if we could not find a timely replacement if we were unable to meet
customer delivery requirements.



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

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

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

We sold our Philippines manufacturing facility to Celestica. If we
do not maintain certain volumes of production with Celestica, we could be adversely affected.

On March 10, 2006, we sold our
manufacturing facility in the Philippines to Celestica. As part of this sale, we have committed to buy products from Celestica manufactured in the Philippines facility. Due to the reduced revenues during 2006, we did not reach the revenue levels
agreed to with Celestica. If we do not maintain certain production levels with Celestica, we could be adversely impacted and required to pay certain penalties for failing to reach certain production volumes. Such failure could have a negative impact
on our operating results

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

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

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

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

We believe that our success depends upon the knowledge and experience of our management and technical personnel and our ability to market our existing
products and to develop new products. Our employees are generally employed on an at-will basis and do not have non-compete agreements. Therefore, we have had, and may continue to have, employees leave us and go to work for competitors.



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

As part of our manufacturing strategy, we utilize contract manufacturers in China, Philippines, Singapore and Thailand. We also
maintain our own manufacturing operations in China, Hungary, Finland and Estonia, as well as limited capability in the United States. We closed our Costa Rica manufacturing facility in December 2006.

The Chinese legal system lacks transparency, which gives the Chinese central and local government authorities a higher degree of control over our
business in China than is customary in the United States and makes the process of obtaining necessary regulatory approval in China inherently unpredictable. In addition, the protection accorded our proprietary technology and know-how under the
Chinese and Thai legal systems is not as strong as in the United States and, as a result, we may lose valuable trade secrets and competitive advantage. Also, manufacturing our products and utilizing contract manufacturers, as well as other suppliers
throughout the Asia region, exposes our business to the risk that our proprietary technology and ownership rights may not be protected or enforced to the extent that they may be in the United States.

Although the Chinese government has been pursuing economic reform and a policy of welcoming foreign investments during the past two decades, it is
possible that the Chinese government will change its current policies in the future, making continued business operations in China difficult or unprofitable.

In February 2006, the Philippines experienced a failed coup to overturn the existing government, which prompted the government to declare a state of emergency. While the state of emergency was eventually lifted, this
highlights some of the political risks of relying upon manufacturing operations in this location. In September 2006, Thailand experienced a military coup which overturned the existing government. We are not able to currently estimate what the
long-term impact of this coup will have on our operations in Thailand. If there were to be future coups or some other type of political unrest, such activity may impact the ability to manufacture products in this region and may prevent shipments
from entering or leaving the country. Any such disruptions could have a material negative impact on our operations and financial results.

We require air or ocean transport to ship products built in our various manufacturing locations to our customers. High energy costs have increased our transportation cost which has had a negative impact on our production costs.
Transportation costs would escalate if there were a shortage of air or ocean cargo space and any significant increase in transportation costs would cause an increase in our expenses and negatively impact our results of operations. In addition, if we
are unable to obtain cargo space or secure delivery of components or products due to labor strikes, lockouts, work slowdowns or work stoppages by longshoremen, dock workers, airline pilots or other transportation industry workers, our delivery of
products could be adversely delayed.

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

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

We conduct a significant portion of our business internationally, which exposes us to
increased business risks.

For the three months ended April 1, 2007, and fiscal years 2006, 2005, and 2004, international revenues
(excluding North American sales) accounted for approximately 72%, 72%, 64%, and 71% of our net sales, respectively. There are many risks that currently impact, and will continue to impact our international business and multinational operations,
including the following:



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



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



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| |  |  | differences in intellectual property protections throughout the world;
| | - |  | ----------------------------------------------------------------------



| |  |  | difficulties in staffing and managing foreign operations in Europe, Asia and South America, including dealings with unionized labor pools in Europe and in Asia;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | longer accounts receivable collection cycles in Europe, Asia and South America;
| | - |  | -------------------------------------------------------------------------------



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



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



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



| |  |  | competition for foreign based suppliers throughout the world;
| | - |  | -------------------------------------------------------------



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



| |  |  | the complexity of global tax and transfer pricing rules and regulations and our potential inability to benefit/offset losses in one tax jurisdiction with income
from another;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | cultural and language differences between the United States and the rest of the world; and
| | - |  | ------------------------------------------------------------------------------------------



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

Any
failure on our part to manage these risks effectively would seriously reduce our competitiveness in the wireless infrastructure marketplace.

Protection of our intellectual property is limited.

We rely upon trade secrets and patents to protect our intellectual
property. We execute confidentiality and non-disclosure agreements with certain employees and our suppliers, as well as limit access to and distribution of our proprietary information. We have an ongoing program to identify and file applications for
U.S. and other international patents.

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

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

We have received
third-party claims of infringement in the past and have been able to resolve such claims without having a material impact on our business. As the number of patents, copyrights and other intellectual property rights in our industry increases, and as
the coverage of these rights and the functionality of the products in the market further overlap, we believe that we may face additional infringement claims. Such claims, whether or not valid, could result in substantial costs and diversion of our
resources. A third party claiming infringement may also obtain an injunction or other equitable relief, which could effectively block the distribution or sale of allegedly infringing products, which would adversely affect our customer relationships
and negatively impact our revenues.

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

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



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

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

The price for shares of our Common Stock has exhibited high levels of volatility with
significant volume and price fluctuations, which makes our Common Stock unsuitable for many investors. For example, for the two years ended December 31, 2006, the price of our Common Stock ranged from a high of $15.76 to a low of $5.87. The
fluctuations in the price of our Common Stock have occasionally been unrelated to our operating performance. These broad fluctuations may negatively impact the market price of shares of our Common Stock. The price of our Common Stock has also been
influenced by:



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



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



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



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



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



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



| |  |  | lawsuits attempting to allege misconduct by the Company and its officers;
| | - |  | -------------------------------------------------------------------------



| |  |  | increases in the number of shares of our common stock outstanding; and
| | - |  | ----------------------------------------------------------------------



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

In addition, the increase in the number of shares of our outstanding Common Stock due to the Filtronic Wireless Acquisition adds 17.7 million shares in addition to the potential conversion of our outstanding convertible debt
instruments would add approximately 30.4 million shares of Common Stock to our outstanding shares. Such an increase may lead to sales of such shares or the perception that such sales may occur, either of which may adversely affect the market
for, and the market price of, our Common Stock. Any potential future sale or issuance of shares of our Common Stock or instruments convertible or exchangeable into shares of our Common Stock, or the perception that such sales or transactions could
occur, could adversely affect the market price of our Common Stock.

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

Possible Goodwill Impairment

If our revenues do not grow or reach anticipated levels or if our
common stock continues to trade at current low levels, it is possible that in the near future an indicator of impairment of our goodwill may exist and we may need to recognize an impairment in our goodwill. A large portion of the value of the
Company is dependent upon continued future growth in demand for our products. If such growth does not materialize or our forecasts and internal expectations are significantly reduced, we will likely have to recognize an impairment in the value of
our goodwill. At April 1, 2007, goodwill totaled $481.5 million, which equates to approximately 80% of our total equity. Such an impairment could result in a significant loss for the period in which such impairment occurs. In addition, our
acquisition of Filtronics Wireless Infrastructure Division business has an initial accounting value of $353.2 million, which includes approximately $186 million of goodwill identified in the preliminary allocation of the purchase price to the
fair value of the assets acquired. The accounting value, which reflects a purchase price that includes $185 million in cash and 17.7 million shares of our Common Stock valued at an average price of $9.22 per share based on the average closing
price for three days before and after our announcement of the Filtronic Wireless Acquisition in June 2006. Since that date our stock has declined significantly. On October 13, 2006, the last trading day prior to the close of the Filtronic
Wireless Acquisition, our stock closed at $6.28 per share. On March 30, 2007, our stock closed at $5.69 per share.



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

In conjunction with the acquisition of Filtronics Wireless Infrastructure business, we paid $185 million to
Filtronic, significantly reducing our cash balance. In April 2007, we entered into a revolving trade receivables purchase agreement which provides a sales facility for our trade receivables, up to a maximum of $65.0 million. While this agreement
gives us an additional source of liquidity, we may need to raise additional funds through public or private debt or equity financings in order to fund current operations or to take advantage of opportunities, including more rapid international
expansion or acquisitions of complementary businesses or technologies. If we are not successful in integrating our businesses and managing the worldwide aspects of our company, our operations may not generate profits and may consume our cash
resources faster than we anticipate. Such losses would make it difficult to obtain new sources of financing. In addition, if we do not generate sufficient cash flow from operations, we may need to raise additional funds to repay our $330.0 million
of outstanding convertible debt that we issued in 2003 and 2004, of which $130.0 million is due in July 2008. Our ability to secure additional financing or sources of funding is dependent upon numerous factors, including the current outlook of our
business, our credit rating and the market price of our common stock, all of which are directly impacted by our ability to increase revenues and generate profits. Our ability to increase revenues and generate profits is subject to numerous risks and
uncertainties and any significant decrease in our revenues or profitability could reduce our operating cash flows and erode our existing cash balances. If we are unable to secure additional financing or such financing is not available at acceptable
terms, we may not be able to take advantage of such opportunities, or otherwise respond to unanticipated competitive pressures.

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

Our products compete on the basis of the following characteristics:



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



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



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



| |  |  | pricing;
| | - |  | --------



| |  |  | quality;
| | - |  | --------



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



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



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

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

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



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

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

Failure to maintain effective internal controls over financial reporting could adversely affect our
business and the market price of our Common Stock.

Pursuant to rules adopted by the SEC implementing Section 404 of the
Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of our internal controls over financial reporting and provide a management report on our internal controls over financial reporting in all annual reports. This report contains,
among other matters, a statement as to whether or not our internal controls over financial reporting are effective and the disclosure of any material weaknesses in our internal controls over financial reporting identified by management.
Section 404 also requires our independent registered public accounting firm to audit managements report.

The Committee of
Sponsoring Organizations of the Treadway Commission (COSO) provides a framework for companies to assess and improve their internal control systems. Auditing Standard No. 2 provides the professional standards and related performance guidance for
auditors to attest to, and report on, managements assessment of the effectiveness of internal control over financial reporting under Section 404. Managements assessment of internal controls over financial reporting requires
management to make subjective judgments and, particularly because Section 404 and Auditing Standard No. 2 are newly effective, some of the judgments will be in areas that may be open to interpretation. Therefore, our managements
report on our internal controls over financial reporting may be difficult to prepare, and our auditors may not agree with our managements assessment.

While we currently believe our internal controls over financial reporting are effective, we are required to comply with Section 404 on an annual basis. If, in the future, we identify one or more material
weaknesses in our internal controls over financial reporting during this continuous evaluation process, our management will be unable to assert such internal controls are effective. Although we currently anticipate being able to continue to satisfy
the requirements of Section 404 in a timely fashion, we cannot be certain as to the timing of completion for our future evaluation, testing and any required remediation due in large part to the fact that there are limited precedents available
by which to measure compliance with these new requirements. In addition, we have begun the process of replacing our enterprise resource planning system and such system replacement during fiscal 2007 may create unanticipated delays in completing
the documentation and testing requirements of Section 404. Therefore, if we are unable to assert that our internal controls over financial reporting are effective in the future, or if our auditors are unable to attest that our managements
report is fairly stated or they are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our
business and the market price of our Common Stock.

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

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



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

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



|ITEM 2. | UNREGISTERED SALES OF EQUITTY SECURITIES AND USE OF PROCEEDS
|------- | ------------------------------------------------------------

Issuer Purchases of Equity Securities

The following table details the repurchases that were made during the three months
ended April 1, 2007.



|                         |  |                                  |     |  |                       |      |                                                                     |   |                                                                             |  
|------------------------ |  | -------------------------------- | --- |  | --------------------- | ---- | ------------------------------------------------------------------- | - | --------------------------------------------------------------------------- | -
|Period                   |  | Total Number of Shares Purchased |     |  | AveragePrice perShare |      | Total Number of Shares Purchased as Part of Publicly Announced Plan |   | Approximate Dollar Value of Shares That May Yet
Be Purchased Under the Plan
|                         |  |                                  |     |  |                       |      | (In thousands)                                                      |   | (In thousands)                                                             
|January 1  January 31   |  |                                 |     |  |                       |     |                                                                     |  |                                                                             | 
|February 1  February 28 |  |                                 |     |  |                       |     |                                                                     |  |                                                                             | 
|March 1  March 31       |  | 7,150                            | (1) |  | $                     | 5.00 |                                                                     |  |                                                                             | 

---

|(1) | On March 19, 2007, Ronald Buschur, the Companys President and Chief Executive Officer,
surrendered 7,150 shares of common stock to cover his tax withholding obligation with respect to the vesting of 20,000 shares under a December 2005 restricted stock grant.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 6. | EXHIBITS
|------- | --------

The following exhibits are filed as part
of this report:



|              |  |                                                                                                                                 
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                     
|31.1          |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.              
|              | 
|31.2          |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.              
|              | 
|32.1          |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.*
|              | 
|32.2          |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.*

---

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



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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.



|                   |  |  |  |                              |  |                        
|------------------ |  |  |  | ---------------------------- |  | -----------------------
|Date: May 11, 2007 |  |  |  | POWERWAVE TECHNOLOGIES, INC.
|                   |  |  | 
|                   |  |  |  | By:                          |  | /s/ KEVIN T. MICHAELS  
|                   |  |  |  |                              |  | Kevin T. Michaels      
|                   |  |  |  |                              |  | Chief Financial Officer



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