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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 4, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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



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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 an accelerated filer as defined in Rule 12b-2 of the Securities Exchange
Act of 1934.    Yes  x    No ̈



As of April 28, 2004 the number of outstanding shares of Common Stock, par
value $0.0001 per share, of the Registrant was 63,487,910.



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##### Table of Contents

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 Loss                               |  | 6 
|                                                           |  | Condensed Consolidated Statements of Cash Flows                                       |  | 7 
|                                                           |  | Notes to Condensed Consolidated Financial Statements                                  |  | 9 
|                                                           |  |                                                                                      
|Item 2.                                                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16
|                                                           |  |                                                                                      
|Item 3.                                                    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 37
|                                                           |  |                                                                                      
|Item 4.                                                    |  | Controls and Procedures                                                               |  | 38
|                                                           | 
|PART II  OTHER INFORMATION                                |  | 38                                                                                   
|                                                           |  |                                                                                      
|Item 1.                                                    |  | Legal Proceedings                                                                     |  | 38
|                                                           |  |                                                                                      
|Item 6.                                                    |  | Exhibits and Reports on Form 8-K                                                      |  | 39
|                                                           | 
|SIGNATURES                                                 |  | 40                                                                                   



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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, demand and pricing trends, future expense levels, competition in our industry, trends in average selling prices and gross margins, the transfer of certain manufacturing operations to contract manufacturers,
product and infrastructure development, market demand and acceptance, the timing of and demand for 3G products, customer relationships, employee relations, plans and predictions for pending acquisitions, acquired companies and assets, future
acquisition plans, restructuring charges and the level of expected capital and research and development expenditures. Such forward-looking statements are based on the beliefs of, estimates made by, and information currently available to Powerwave
Technologies, Inc.s (Powerwave or the Company) management and are subject to certain risks, uncertainties and assumptions. Any other statements contained herein (including without limitation statements to the effect
that Powerwave or management estimates, expects, anticipates, plans, believes, projects, continues, may, will, could, or
would or statements concerning potential or opportunity or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact are also forward-looking statements. The
actual results of Powerwave may vary materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors, including those
discussed in Additional Factors That May Affect Our Future Results under Part I, Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations, at pages 16-37. Because of these and other
factors that may affect Powerwaves operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical results to anticipate results or trends in future periods. We
undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers
should carefully review the risk factors described in this and other documents that Powerwave files from time to time with the Securities and Exchange Commission, including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and
Annual Reports on Form 10-K.



HOW TO OBTAIN POWERWAVE SEC FILINGS



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



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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 4, 2004 |         |   | December 28, 2003 |  
|                                                                                                                                                                                |  | (Unaudited)   |         |   | (See Note)        |  
|ASSETS                                                                                                                                                                          |  |               |         |   |                   |   |         |  
|Current assets:                                                                                                                                                                 |  |               |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                                       |  | $             | 250,354 |   |                   | $ | 260,528 |  
|Accounts receivable, net of allowance for sales returns and doubtful accounts of $2,251 and $2,332 at April 4, 2004 and December 28, 2003,
respectively                         |  |               | 51,204  |   |                   |   | 56,278  |  
|Inventories                                                                                                                                                                     |  |               | 17,326  |   |                   |   | 15,187  |  
|Prepaid expenses and other current assets                                                                                                                                       |  |               | 5,419   |   |                   |   | 6,413   |  
|Deferred tax assets                                                                                                                                                             |  |               | 5,137   |   |                   |   | 6,940   |  
|                                                                                                                                                                                |  |               |         |   |                   |   |         |  
|Total current assets                                                                                                                                                            |  |               | 329,440 |   |                   |   | 345,346 |  
|                                                                                                                                                                                |  |              
|Property, plant and equipment, net                                                                                                                                              |  |               | 65,436  |   |                   |   | 67,975  |  
|Goodwill                                                                                                                                                                        |  |               | 3,439   |   |                   |   | 3,439   |  
|Deferred tax assets                                                                                                                                                             |  |               | 40,151  |   |                   |   | 35,990  |  
|Other non-current assets                                                                                                                                                        |  |               | 14,078  |   |                   |   | 13,507  |  
|                                                                                                                                                                                |  |               |         |   |                   |   |         |  
|TOTAL ASSETS                                                                                                                                                                    |  | $             | 452,544 |   |                   | $ | 466,257 |  
|                                                                                                                                                                                |  |               |         |   |                   |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                            |  |               |         |   |                   |   |         |  
|Current liabilities:                                                                                                                                                            |  |               |         |   |                   |   |         |  
|Accounts payable                                                                                                                                                                |  | $             | 37,212  |   |                   | $ | 48,942  |  
|Accrued expenses and other current liabilities                                                                                                                                  |  |               | 15,821  |   |                   |   | 16,159  |  
|                                                                                                                                                                                |  |               |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                                       |  |               | 53,033  |   |                   |   | 65,101  |  
|                                                                                                                                                                                |  |              
|Long-term debt                                                                                                                                                                  |  |               | 130,000 |   |                   |   | 130,000 |  
|Other non-current liabilities                                                                                                                                                   |  |               | 119     |   |                   |   | 119     |  
|                                                                                                                                                                                |  |               |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                               |  |               | 183,152 |   |                   |   | 195,220 |  
|                                                                                                                                                                                |  |               |         |   |                   |   |         |  
|Commitments and contingencies (Note 11)                                                                                                                                         |  |               |        |   |                   |   |        |  
|                                                                                                                                                                                |  |              
|Shareholders equity:                                                                                                                                                           |  |               |         |   |                   |   |         |  
|Preferred stock, $0.0001 par value, 5,000 shares authorized and no shares issued or outstanding                                                                                 |  |               |        |   |                   |   |        |  
|Common stock, $0.0001 par value, 135,000 shares authorized, 63,487 shares issued and outstanding at April 4, 2004 and 63,257 shares issued and
outstanding at December 28, 2003 |  |               | 227,286 |   |                   |   | 225,651 |  
|Accumulated other comprehensive loss                                                                                                                                            |  |               | (17     | ) |                   |   | (1      | )
|Retained earnings                                                                                                                                                               |  |               | 42,123  |   |                   |   | 45,387  |  
|                                                                                                                                                                                |  |               |         |   |                   |   |         |  
|Total shareholders equity                                                                                                                                                      |  |               | 269,392 |   |                   |   | 271,037 |  
|                                                                                                                                                                                |  |               |         |   |                   |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                      |  | $             | 452,544 |   |                   | $ | 466,257 |  
|                                                                                                                                                                                |  |               |         |   |                   |   |         |  



Note: December 28, 2003
balances were derived from audited financial statements.



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 4, 2004      |        |   | March 30,2003 |  
|Net sales                              |  | $                  | 63,224 |   |               | $ | 52,154  |  
|Cost of sales                          |  |                    | 52,450 |   |               |   | 48,369  |  
|                                       |  |                    |        |   |               |   |         |  
|Gross profit                           |  |                    | 10,774 |   |               |   | 3,785   |  
|                                       |  |                   
|Operating expenses:                    |  |                    |        |   |               |   |         |  
|Sales and marketing                    |  |                    | 3,547  |   |               |   | 2,901   |  
|Research and development               |  |                    | 9,281  |   |               |   | 9,950   |  
|General and administrative             |  |                    | 3,603  |   |               |   | 3,347   |  
|Goodwill impairment charge             |  |                    |       |   |               |   | 4,852   |  
|                                       |  |                    |        |   |               |   |         |  
|Total operating expenses               |  |                    | 16,431 |   |               |   | 21,050  |  
|                                       |  |                    |        |   |               |   |         |  
|Operating loss                         |  |                    | (5,657 | ) |               |   | (17,265 | )
|Other income, net                      |  |                    | 351    |   |               |   | 752     |  
|                                       |  |                    |        |   |               |   |         |  
|Loss before income taxes               |  |                    | (5,306 | ) |               |   | (16,513 | )
|Benefit from income taxes              |  |                    | (2,043 | ) |               |   | (5,945  | )
|                                       |  |                    |        |   |               |   |         |  
|Net loss                               |  | $                  | (3,263 | ) |               | $ | (10,568 | )
|                                       |  |                    |        |   |               |   |         |  
|Basic loss per share                   |  | $                  | (0.05  | ) |               | $ | (0.16   | )
|                                       |  |                    |        |   |               |   |         |  
|Diluted loss per share                 |  | $                  | (0.05  | ) |               | $ | (0.16   | )
|                                       |  |                    |        |   |               |   |         |  
|Basic weighted average common shares   |  |                    | 63,393 |   |               |   | 65,877  |  
|                                       |  |                    |        |   |               |   |         |  
|Diluted weighted average common shares |  |                    | 63,393 |   |               |   | 65,877  |  
|                                       |  |                    |        |   |               |   |         |  



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 LOSS

(Unaudited)

(In thousands)



|                                         |  |                    |        |   |                |   |         |  
|---------------------------------------- |  | ------------------ | ------ | - | -------------- | - | ------- | -
|                                         |  | Three Months Ended |       
|                                         |  | April 4, 2004      |        |   | March 30, 2003 |  
|Net loss                                 |  | $                  | (3,263 | ) |                | $ | (10,568 | )
|Other comprehensive loss, net of tax:    |  |                    |        |   |                |   |         |  
|Foreign currency translation adjustments |  |                    | (16    | ) |                |   | (1      | )
|                                         |  |                    |        |   |                |   |         |  
|Comprehensive loss                       |  | $                  | (3,279 | ) |                | $ | (10,569 | )
|                                         |  |                    |        |   |                |   |         |  



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 4, 2004      |         |   | March 30, 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |  |                    |         |   |                |   |         |  
|Net loss                                                                                  |  | $                  | (3,263  | ) |                | $ | (10,568 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                    |         |   |                |   |         |  
|Depreciation and amortization                                                             |  |                    | 3,846   |   |                |   | 4,948   |  
|Goodwill impairment charge                                                                |  |                    |        |   |                |   | 4,852   |  
|Provision for sales returns and doubtful accounts                                         |  |                    | 178     |   |                |   | 9       |  
|Provision for excess and obsolete inventories                                             |  |                    | 6       |   |                |   | 1,221   |  
|Deferred income taxes                                                                     |  |                    | (2,076  | ) |                |   | (5,997  | )
|Compensation costs related to stock options                                               |  |                    |        |   |                |   | 15      |  
|Loss (gain) on disposal of property, plant and equipment                                  |  |                    | (37     | ) |                |   | 12      |  
|Changes in operating assets and liabilities:                                              |  |                    |         |   |                |   |         |  
|Accounts receivable                                                                       |  |                    | 4,896   |   |                |   | 10,795  |  
|Inventories                                                                               |  |                    | (2,146  | ) |                |   | (4,125  | )
|Prepaid expenses and other current assets                                                 |  |                    | 995     |   |                |   | (52     | )
|Accounts payable                                                                          |  |                    | (11,730 | ) |                |   | 1,706   |  
|Accrued expenses and other current liabilities                                            |  |                    | (355    | ) |                |   | (1,317  | )
|Other non-current assets                                                                  |  |                    | (825    | ) |                |   | (216    | )
|Other non-current liabilities                                                             |  |                    |        |   |                |   | 1       |  
|                                                                                          |  |                    |         |   |                |   |         |  
|Net cash provided by (used in) operating activities                                       |  |                    | (10,511 | ) |                |   | 1,284   |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |  |                    |         |   |                |   |         |  
|Purchase of property, plant and equipment                                                 |  |                    | (1,248  | ) |                |   | (735    | )
|Proceeds from the sale of property, plant and equipment                                   |  |                    | 233     |   |                |   | 172     |  
|                                                                                          |  |                    |         |   |                |   |         |  
|Net cash used in investing activities                                                     |  |                    | (1,015  | ) |                |   | (563    | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                     |  |                    |         |   |                |   |         |  
|Proceeds from the sale of stock under Employee Stock Purchase Plan                        |  |                    | 902     |   |                |   | 892     |  
|Proceeds from exercise of stock options                                                   |  |                    | 450     |   |                |   | 23      |  
|                                                                                          |  |                    |         |   |                |   |         |  
|Net cash provided by financing activities                                                 |  |                    | 1,352   |   |                |   | 915     |  
|                                                                                          |  |                    |         |   |                |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      |  |                    | (10,174 | ) |                |   | 1,636   |  
|CASH AND CASH EQUIVALENTS, beginning of period                                            |  |                    | 260,528 |   |                |   | 162,529 |  
|                                                                                          |  |                    |         |   |                |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                                  |  | $                  | 250,354 |   |                | $ | 164,165 |  
|                                                                                          |  |                    |         |   |                |   |         |  



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, CONTINUED

(Unaudited)

(In thousands)



|                                                                                           |  |                    |     |   |               |   |   
|------------------------------------------------------------------------------------------ |  | ------------------ | --- | - | ------------- | - | --
|                                                                                           |  | Three Months Ended
|                                                                                           |  | April 4,2004       |     |   | March 30,2003
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                        |  |                    |     |   |               |   |   
|Cash paid (received) for:                                                                  |  |                    |     |   |               |   |   
|Interest expense                                                                           |  | $                  | 812 |   |               | $ | 13
|                                                                                           |  |                    |     |   |               |   |   
|Income taxes                                                                               |  | $                  | (64 | ) |               | $ | 9 
|                                                                                           |  |                    |     |   |               |   |   
|NON-CASH ITEMS:                                                                            |  |                    |     |   |               |   |   
|Tax benefit related to stock options exercised                                             |  | $                  | 181 |   |               | $ | 49
|                                                                                           |  |                    |     |   |               |   |   
|Tax benefit related to the issuance of Common Stock under the Employee Stock Purchase Plan |  | $                  | 103 |   |               | $ | 30
|                                                                                           |  |                    |     |   |               |   |   



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



Note 2. Summary of Significant Accounting Policies



Basis of Presentation



The 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. 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 28, 2003.



The results of operations for the quarter ended April 4, 2004 are not necessarily indicative of the results to be expected
for the entire fiscal year ending January 2, 2005 (fiscal 2004.)



Reclassifications



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



Use of Estimates



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



Stock-Based Compensation



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



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The Black-Scholes option valuation model prescribed by SFAS 123 was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation methods require the input of highly subjective assumptions including the expected stock price volatility. Using the Black-Scholes option
valuation model, the estimated weighted average fair value of options granted during the first quarter of fiscal years 2004 and 2003 were $3.97 per share and $3.30 per share, respectively. Had compensation cost for the Companys stock option
plans and its stock purchase plans been determined based on the estimated fair value at the grant dates for awards under those plans consistent with the fair value method of SFAS No. 123 utilizing the Black-Scholes option-pricing model, the
Companys net loss and basic and diluted loss per share for the quarters ended April 4, 2004 and March 30, 2003 would have approximated the pro forma amounts indicated below:



|                                                                                       |  |                    |        |   |                |   |         |  
|-------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | -------------- | - | ------- | -
|                                                                                       |  | Three Months Ended |       
|                                                                                       |  | April 4, 2004      |        |   | March 30, 2003 |  
|Net loss:                                                                              |  |                    |        |   |                |   |         |  
|As reported                                                                            |  | $                  | (3,263 | ) |                | $ | (10,568 | )
|Deduct: Additional expense per SFAS 123, fair value method, net of related tax effects |  |                    | (1,705 | ) |                |   | (2,886  | )
|                                                                                       |  |                    |        |   |                |   |         |  
|Pro forma                                                                              |  | $                  | (4,968 | ) |                | $ | (13,454 | )
|                                                                                       |  |                    |        |   |                |   |         |  
|Basic loss per share:                                                                  |  |                    |        |   |                |   |         |  
|As reported                                                                            |  | $                  | (0.05  | ) |                | $ | (0.16   | )
|Pro forma                                                                              |  | $                  | (0.08  | ) |                | $ | (0.20   | )
|Diluted loss per share:                                                                |  |                    |        |   |                |   |         |  
|As reported                                                                            |  | $                  | (0.05  | ) |                | $ | (0.16   | )
|Pro forma                                                                              |  | $                  | (0.08  | ) |                | $ | (0.20   | )



The fair value of
options granted under the Companys stock incentive plans during the first quarters of fiscal 2004 and 2003 was estimated on the date of grant using the Black-Scholes option-pricing model utilizing the multiple option approach using the
following weighted-average assumptions:



|                                         |  |                    |   |  |                |  
|---------------------------------------- |  | ------------------ | - |  | -------------- | -
|                                         |  | Three Months Ended |  
|                                         |  | April 4, 2004      |   |  | March 30, 2003 |  
|Weighted average risk-free interest rate |  | 2.17               | % |  | 1.85           | %
|Expected life (in years)                 |  | 5.3                |   |  | 5.1            |  
|Expected stock volatility                |  | 71                 | % |  | 177            | %
|Dividend yield                           |  | None               |   |  | None           |  



Due to the fact that
the Companys employee stock options have characteristics significantly different from those of traded options and any changes in the subjective input assumptions can materially affect the fair value estimates, management does not believe that
the existing models provide a reliable single measure of the fair value of its employee stock options. Therefore, the Company believes that the pro forma net expense per SFAS 123 calculated above is not a reliable measure of the costs of the
Companys stock option plans.



Foreign Currency
Translation



In accordance with Statement of Financial
Accounting Standards No. 52, Foreign Currency Translation(SFAS 52), Powerwaves international operations use their respective local currencies as their functional currency. Revenue and expenses from the Companys
international subsidiaries are translated using the monthly average exchange rates in effect for the period in which the items occur. Assets and liabilities of the Companys international subsidiaries are translated at current rates of exchange
in effect at the balance sheet date. The resulting translation gains and losses for such subsidiaries are included within accumulated other comprehensive loss as a separate component of shareholders equity. Realized gains and losses from
foreign currency transactions are reported in other income, net, and have historically been insignificant.



Note 3. Inventories



Net inventories consist of the following:



|                     |  |               |        |                   |   |       
|-------------------- |  | ------------- | ------ | ----------------- | - | ------
|                     |  | April 4, 2004 |        | December 28, 2003
|Parts and components |  | $             | 6,109  |                   | $ | 5,295 
|Work-in-process      |  |               | 916    |                   |   | 722   
|Finished goods       |  |               | 10,301 |                   |   | 9,170 
|                     |  |               |        |                   |   |       
|Total inventories    |  | $             | 17,326 |                   | $ | 15,187
|                     |  |               |        |                   |   |       



Inventories are net of
an allowance for excess and obsolete inventory of approximately $4.5 million and $8.6 million as of April 4, 2004 and December 28, 2003, respectively. During the three months ended April 4, 2004, the Company disposed of approximately $3.9 million of
fully reserved excess and obsolete inventory. Powerwave regularly reviews inventory quantities on hand and records an allowance for excess and obsolete inventory based primarily on sales backlog, forecasted product demand and production requirements
for the next twelve months.



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Note 4. Property, Plant and Equipment



Net property, plant and equipment consist of the following:



|                                                |  |               |         |   |                   |   |         |  
|----------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                                |  | April 4, 2004 |         |   | December 28, 2003 |  
|Machinery and equipment                         |  | $             | 51,292  |   |                   | $ | 51,464  |  
|Buildings and improvements                      |  |               | 38,660  |   |                   |   | 38,660  |  
|Land                                            |  |               | 14,838  |   |                   |   | 14,838  |  
|Office furniture and equipment                  |  |               | 12,214  |   |                   |   | 12,171  |  
|Leasehold improvements                          |  |               | 953     |   |                   |   | 953     |  
|                                                |  |               |         |   |                   |   |         |  
|Gross property, plant and equipment             |  |               | 117,957 |   |                   |   | 118,086 |  
|Less: Accumulated depreciation and amortization |  |               | (52,521 | ) |                   |   | (50,111 | )
|                                                |  |               |         |   |                   |   |         |  
|Total property, plant and equipment, net        |  | $             | 65,436  |   |                   | $ | 67,975  |  
|                                                |  |               |         |   |                   |   |         |  



Note 5. Other Non-Current Assets



Other non-current assets consist of the following:



|                               |  |               |        |                   |   |       
|------------------------------ |  | ------------- | ------ | ----------------- | - | ------
|                               |  | April 4, 2004 |        | December 28, 2003
|Building held for sale         |  | $             | 5,850  |                   | $ | 5,850 
|Deferred acquisition costs     |  |               | 4,469  |                   |   | 3,607 
|Debt issue costs, net          |  |               | 3,562  |                   |   | 3,769 
|Other non-current assets       |  |               | 197    |                   |   | 281   
|                               |  |               |        |                   |   |       
|Total other non-current assets |  | $             | 14,078 |                   | $ | 13,507
|                               |  |               |        |                   |   |       



Note 6. Accrued Expenses and Other
Current Liabilities



Accrued expenses and other current
liabilities consist of the following:



|                                                     |  |               |        |                   |   |       
|---------------------------------------------------- |  | ------------- | ------ | ----------------- | - | ------
|                                                     |  | April 4, 2004 |        | December 28, 2003
|Warranty costs (Note 12)                             |  | $             | 4,086  |                   | $ | 4,829 
|Payroll and employee benefits                        |  |               | 3,239  |                   |   | 3,203 
|Vendor cancellations costs                           |  |               | 1,021  |                   |   | 743   
|Income taxes                                         |  |               | 2,480  |                   |   | 2,374 
|Interest expense                                     |  |               | 343    |                   |   | 750   
|Sales tax                                            |  |               | 1,103  |                   |   | 921   
|Other accrued expenses                               |  |               | 3,549  |                   |   | 3,339 
|                                                     |  |               |        |                   |   |       
|Total accrued expenses and other current liabilities |  | $             | 15,821 |                   | $ | 16,159
|                                                     |  |               |        |                   |   |       



Note 7. Goodwill Impairment Charge



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



Note 8. Financing Arrangements and Long-Term Debt



On July 18, 2003, Powerwave completed the private placement of $130.0
million aggregate principal amount of 1.25% convertible subordinated notes due July 2008. The notes are convertible into the Common Stock of Powerwave at a conversion price of $10.49 per share and accrue interest at an annual rate of 1.25% with
interest payable semi-annually on January 15 and July 15. The notes are general unsecured obligations of the Company and are subordinate in right of payment to all of the Companys existing and future senior indebtedness. In addition, the
indenture for the notes does not restrict the Company from incurring senior debt or other indebtedness and does not impose any financial covenants on the Company. The notes are callable by the Company beginning July 22, 2007.



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Powerwave used a portion of the proceeds of the offering to fund the repurchase of $25.0 million of the Companys
Common Stock (3,144,654 shares) simultaneously with the issuance of the notes. The Company received net cash proceeds of approximately $100.9 million after the deduction of the amount used for the Common Stock repurchase and debt issuance costs.



The Company maintains an unsecured revolving credit agreement
with Comerica Bank-California. This credit facility provides for a revolving line of credit up to a maximum principal amount outstanding at any one time of $20.0 million (the Revolving Commitment Amount) and expires on May 31, 2004. The
Company is required to pay a commitment fee of 0.25% per annum on the unused portion of the Revolving Commitment Amount. The commitment fee is payable quarterly in arrears. The revolving credit facility allows for borrowings based either upon the
banks prime rate (4.00% at April 4, 2004) or the banks LIBOR rate plus an applicable LIBOR margin of 1.25% or 1.50%, based upon the Companys debt leverage ratio. The revolving credit facility contains certain standard affirmative
and negative covenants, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers, transfers of assets and leverage ratios. At April 4, 2004, the Company was in compliance with all
covenants contained in the revolving credit facility. There were no amounts outstanding and the full $20.0 million of the Revolving Commitment Amount was available to the Company at April 4, 2004.



Note 9. Employee Stock Purchase Plan



The previous offering under Powerwaves Employee Stock Purchase Plan
(the ESPP) concluded on January 30, 2004, with 139,117 shares of the Companys Common Stock purchased under the ESPP at a price per share of $6.49. At April 4, 2004, there were rights to purchase approximately 47,000 shares of
Common Stock outstanding under the ESPPs current offering, which will conclude on July 30, 2004.



Note 10. Stock Option Plans



The following is a summary of stock option transactions under Powerwaves stock option plans, including the 1995 Stock Option Plan, the 1996 Stock Incentive Plan, the 1996 Director Stock Option Plan, the 2000 Stock Option Plan and the
2002 Stock Option Plan, for the quarter ended April 4, 2004:



|                             |  |                  |   |  |                 |                    |                                 |   |                               |  |                                 |  |   |      
|---------------------------- |  | ---------------- | - |  | --------------- | ------------------ | ------------------------------- | - | ----------------------------- |  | ------------------------------- |  | - | -----
|                             |  | Number of Shares |   |  | Price Per Share |                    | Weighted Average Exercise Price |   | Number of Options Exercisable |  | Weighted Average Exercise Price
|Balance at December 28, 2003 |  | 8,952            |   |  | $               | 0.82   -   $67.08  |                                 | $ | 12.05                         |  | 4,855                           |  | $ | 13.91
|Granted                      |  | 54               |   |  | $               | 7.50   -   $  9.91 |                                 | $ | 8.93                          |  |                                 |  |   |      
|Exercised                    |  | (99              | ) |  | $               | 1.33   -   $  9.80 |                                 | $ | 5.13                          |  |                                 |  |   |      
|Canceled                     |  | (99              | ) |  | $               | 4.65   -   $49.44  |                                 | $ | 16.40                         |  |                                 |  |   |      
|                             |  |                  |   |  |                 |                    |                                 |   |                               |  |                                 |  |   |      
|Balance at April 4, 2004     |  | 8,808            |   |  | $               | 0.82   -   $67.08  |                                 | $ | 12.06                         |  | 5,182                           |  | $ | 13.94
|                             |  |                  |   |  |                 |                    |                                 |   |                               |  |                                 |  |   |      



At April 4, 2004, a
total of 2,002,102 shares were available for grant under all of the Companys stock option plans.



Note 11. Commitments and Contingencies



Powerwave had various outstanding leases as of April 4, 2004, the majority of which relate to real estate operating leases, including 115,000 square feet of warehouse space in Santa Ana, California, 31,500 square feet
of engineering and office space in El Dorado Hills, California, and 8,100 square feet of engineering and office space in Bristol, United Kingdom.



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Future minimum lease payments required under all operating leases at April 4, 2004 are payable as
follows:



|                  |  |       |      
|----------------- |  | ----- | -----
|Fiscal Year       |  | Total
|Remainder of 2004 |  | $     | 1,257
|2005              |  |       | 1,375
|2006              |  |       | 1,288
|2007              |  |       | 589  
|2008              |  |       | 181  
|Thereafter        |  |       | 129  
|                  |  |       |      
|Total             |  | $     | 4,819
|                  |  |       |      



Total rent expense was
$0.5 million during the each of the quarters ended April 4, 2004 and March 30, 2003, respectively.



Powerwave is subject to various legal proceedings from time to time as part of its business. As of April 4, 2004, Powerwave was not currently party to any
legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, it believes would have a material adverse effect on its business, financial condition or results of operations.



Note 12. Contractual Guarantees and Indemnities



The Company establishes reserves for future product warranty costs that are
expected to be incurred pursuant to specific warranty provisions with its customers. The Company also has contractual requirements with various customers that could require the Company to incur costs to repair an epidemic defect with respect to its
products outside of the normal warranty period if such defect were to occur. The Companys warranty reserves are generally established at the time of sale and updated throughout the warranty period based upon numerous factors including
historical warranty return rates and expenses over various warranty periods. The Company also accrues additional warranty liabilities for significant and unusual product performance issues at the time such issues are identified and the associated
warranty related costs can be reasonably estimated. A summary of the activity that affected the Companys accrued warranty costs for the quarters ended April 4, 2004 and March 30, 2003 are as follows:



|                                                         |  |               |        |   |                |   |        |  
|-------------------------------------------------------- |  | ------------- | ------ | - | -------------- | - | ------ | -
|Description                                              |  | April 4, 2004 |        |   | March 30, 2003 |  
|Beginning Balance                                        |  | $             | 4,829  |   |                | $ | 5,133  |  
|Reductions for warranty costs incurred                   |  |               | (1,060 | ) |                |   | (1,074 | )
|Warranty accrual related to current period sales         |  |               | 493    |   |                |   | 840    |  
|Change in estimate related to previous warranty accruals |  |               | (176   | ) |                |   | 132    |  
|                                                         |  |               |        |   |                |   |        |  
|Ending Balance                                           |  | $             | 4,086  |   |                | $ | 5,031  |  
|                                                         |  |               |        |   |                |   |        |  



During its normal
course of business, the Company makes certain contractual guarantees and indemnities pursuant to which the Company may be required to make future payments under specific circumstances. Powerwave has not recorded any liability for these contractual
guarantees and indemnities in the accompanying consolidated financial statements. A description of significant contractual guarantees and indemnities existing as of April 4, 2004 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



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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 maintains directors and officers insurance as well which may provide a source of recovery to the Company in the event of an indemnification claim.



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



General Contractual Indemnities/Products Liability



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



Workers Compensation Insurance Guarantees



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



Note 13. Earnings (Loss) Per Share



In accordance with SFAS No. 128, Earnings Per
Share (SFAS 128), basic earnings (loss) per share is based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based upon the weighted average number of common and potential common
shares for each period presented. Potential common shares include stock options under the treasury stock method and convertible subordinated debt under the if-converted method. Potential common shares of 13,523,651 and 157,146 related to the
Companys convertible debt and stock option programs, as applicable, have been excluded from diluted weighted average common shares for the quarters ended April 4, 2004 and March 30, 2003, respectively, as the effect would be anti-dilutive.



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



|                                       |  |                    |        |   |                |   |         |  
|-------------------------------------- |  | ------------------ | ------ | - | -------------- | - | ------- | -
|                                       |  | Three Months Ended |       
|                                       |  | April 4, 2004      |        |   | March 30, 2003 |  
|Basic:                                 |  |                    |        |   |                |   |         |  
|Basic weighted average common shares   |  |                    | 63,393 |   |                |   | 65,877  |  
|Net loss                               |  | $                  | (3,263 | ) |                | $ | (10,568 | )
|                                       |  |                    |        |   |                |   |         |  
|Basic loss per share                   |  | $                  | (0.05  | ) |                | $ | (0.16   | )
|                                       |  |                    |        |   |                |   |         |  
|Diluted:                               |  |                    |        |   |                |   |         |  
|Basic weighted average common shares   |  |                    | 63,393 |   |                |   | 65,877  |  
|Potential common shares                |  |                    |       |   |                |   |        |  
|                                       |  |                    |        |   |                |   |         |  
|Diluted weighted average common shares |  |                    | 63,393 |   |                |   | 65,877  |  
|Net loss                               |  | $                  | (3,263 | ) |                | $ | (10,568 | )
|                                       |  |                    |        |   |                |   |         |  
|Diluted loss per share                 |  | $                  | (0.05  | ) |                | $ | (0.16   | )
|                                       |  |                    |        |   |                |   |         |  



Note 14. Customer Concentrations



Powerwaves product sales have historically been
concentrated in a small number of customers. During the quarters ended April 4, 2004 and March 30, 2003, sales to customers that accounted for 10% or more of revenues for the quarter totaled $41.6 million and $44.0 million, respectively. Sales to
Nortel Networks Corporation and related entities (Nortel) accounted for approximately 54% and 52% of revenues during such quarters, respectively. During the quarter ended April 4, 2004, one customer in addition to Nortel accounted for
approximately 12% of revenue. During the quarter ended March 30, 2003, two customers in addition to Nortel accounted for approximately 23% and 10% of revenues.



As of April 4, 2004, approximately 66% of total accounts receivable related to the two customers that each accounted for 10% or more of
Powerwaves net sales during the first quarter of 2004. The loss of, or reduction in, sales to any of these customers could have a material adverse effect on the Companys business, financial condition and results of operations.



Note 15. Supplier Concentrations



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



Note 16. Segments and Geographic Data



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



|                       |  |                    |        |                |   |       
|---------------------- |  | ------------------ | ------ | -------------- | - | ------
|                       |  | Three Months Ended
|Radio Frequency Ranges |  | April 4, 2004      |        | March 30, 2003
|800-1000 MHz           |  | $                  | 22,697 |                | $ | 33,074
|1800-2000 MHz          |  |                    | 32,641 |                |   | 6,887 
|2000+ MHz              |  |                    | 7,886  |                |   | 12,193
|                       |  |                    |        |                |   |       
|Total net sales        |  | $                  | 63,224 |                | $ | 52,154
|                       |  |                    |        |                |   |       



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



|                               |  |                    |        |                |   |       
|------------------------------ |  | ------------------ | ------ | -------------- | - | ------
|                               |  | Three Months Ended
|Geographic Area                |  | April 4, 2004      |        | March 30, 2003
|North America                  |  | $                  | 31,620 |                | $ | 32,481
|Asia                           |  |                    | 12,252 |                |   | 3,079 
|Europe and other international |  |                    | 19,352 |                |   | 16,594
|                               |  |                    |        |                |   |       
|Total sales                    |  | $                  | 63,224 |                | $ | 52,154
|                               |  |                    |        |                |   |       



North American sales
include sales to the United States, Canada and Mexico. Asian sales include sales to China, South Korea and other locations in Asia. European and other international sales include sales to Europe and all other foreign countries. Sales to Canada were
$11.1 million and $20.3 million, during the quarters ended April 4, 2004 and March 30, 2003, respectively. Sales to Finland were $7.6 million and $11.7 million during the quarters ended April 4, 2004 and March 30, 2003, respectively. Sales to France
were $10.9 million and $4.5 million during the quarters ended April 4, 2004 and March 30, 2003, respectively.



The majority of Powerwaves assets are located in the United States, in the State of California. Total accounts receivable as of April 4, 2004
include 27% from customers based in Canada, 23% from customers based in the United States, 18% from customers based in France and 14% from customers based in China.



Note 17. Pending Acquisition



On December 1, 2003, Powerwave and LGP Allgon Holding AB, a company organized under the laws of Sweden (LGP Allgon) announced that they had agreed to combine
their businesses in a strategic transaction. Under the terms of the pending acquisition, Powerwave commenced an exchange offer on April 2, 2004 to acquire all of the outstanding shares of LGP Allgon, in exchange for newly-issued shares of Powerwave
Common Stock. In the exchange offer, LGP Allgon shareholders can elect to exchange each of their LGP Allgon shares for 1.1 shares of Powerwave Common Stock. Based on Powerwaves closing price on the Nasdaq National Market on November 28, 2003
(the last trading day before the announcement of the transaction), the transaction valued LGP Allgon shares at Swedish kronor (SEK) 61.87 ($8.1950 at the currency exchange rate of 7.55 SEK per USD as of November 28, 2003) per share. In
addition, LGP Allgon shareholders have been offered the opportunity, under a cash alternative, to elect to exchange all or a specified number of their LGP Allgon shares to be acquired by Powerwave for a fixed price of SEK 61.87 in cash per LGP
Allgon share. The cash alternative is subject to an aggregate maximum $125.0 million. The exchange offer is scheduled to close on or about April 30, 2004. One of the conditions to the completion of the transaction, which may be waived by Powerwave,
is Powerwaves acquisition of more than 90% of LGP Allgons stock in the exchange offer and through the exercise of options granted to Powerwave by certain shareholders of LGP Allgon, representing approximately 19% of the outstanding LGP
Allgon shares. Depending on the form of consideration elected and the number of LGP Allgon shares tendered into the exchange offer, LGP Allgon shareholders will own between 37% and 46% of Powerwaves outstanding shares of Common Stock upon
completion of the transaction. Powerwaves shareholders approved the issuance of Powerwave stock necessary to complete the exchange offer and the amendment to Powerwaves Certificate of Incorporation to increase its authorized shares of
Common Stock at a Special Meeting of shareholders on April 27, 2004.



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. This discussion contains forward-looking statements, the realization of which may be impacted by certain important factors including, but not limited to, those discussed in Additional Factors That May Affect
Our Future Results included herein.



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Introduction and Overview



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



During the last few years, the market for network equipment in the wireless communications market has been characterized by a severe downturn coupled with
reduced investment in infrastructure equipment combined with slower than expected deployment of next generation equipment. Financial difficulties have also contributed to the wireless network operators reduced capital spending as they have
been forced to consolidate in order to improve profitability and strengthen their balance sheets.



Currently, the majority of the wireless network operators offer wireless voice and data services on what are commonly referred to as 2 or 2.5G networks.
These networks utilize common transmission protocols including Code Division Multiple Access or CDMA, Time Division Multiple Access or TDMA, and Global System for Mobile or GSM, all of which define different standards for transmitting voice and data
within wireless networks. Within these transmission protocols, there are various improvements available to increase the speed of data transmission or to increase the amount of voice capacity in the network. These types of improvements are generally
referred to as 2.5G and include upgrades to GSM such as General Packet Radio Service or GPRS and Enhanced Data Rates for Global Evolution or EDGE. For CDMA networks, various upgrades are referred to as CDMA 1x and CDMA2000.



The next generation of wireless voice and data transmission protocols is
referred to as 3G. The next generation provides significantly higher data rate transmissions, with significant additional voice capacity and the ability to transmit high capacity information, such as video and web access. The major transmission
protocol is known as Wideband Code Division Multiple Access or WCDMA. This protocol is being utilized in the next generation of GSM networks, which are referred to as Universal Mobile Telecommunication Systems or UMTS.



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



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



During 2003, we focused on restructuring the Company to lower our operating cost structure while ensuring that we maintain our operating flexibility to
support future growth in the industry. For 2004, we are striving to continue our focus on cost savings while we expand our market opportunities through our proposed acquisition of LGP Allgon. We measure our success by monitoring our net sales and
gross margins, with a short-term goal of maintaining a positive operating cash flow while striving to achieve long-term operating profits. We believe that there continues to be excellent growth opportunities within the wireless communications
infrastructure marketplace from a long-term perspective. We continue to focus on positioning Powerwave to benefit from these long-term opportunities.



Critical Accounting Policies and Estimates



We prepare our 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



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assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the periods presented. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenue, expenses, assets and liabilities. The critical accounting
policies which we believe are the most significant for purposes of fully understanding and evaluating our reported financial results include the following:



Revenue Recognition



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



Accounts Receivable



We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history, the customers current credit worthiness and various other factors, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and
maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions
established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Since our accounts receivable are highly concentrated in a small number of customers, a significant change in the liquidity or
financial position of any one of these customers could have a material adverse effect on the collectibility of our accounts 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 based primarily on our estimated forecast of product
demand and production requirements for the next twelve months. Our industry is characterized by rapid technological change, frequent new product development, and rapid product obsolescence that could result in an increase in the amount of obsolete
inventory quantities on hand. As demonstrated during the past three 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 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.
Therefore, although we make every reasonable effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a material effect on the value of our
inventory and our reported operating results.



Deferred
Taxes



We recognize deferred tax assets and liabilities
based on the differences between the financial statement carrying values and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable
income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. During 2003 and for the first fiscal quarter of 2004, we operated at a loss. If we continue to operate at a loss for an extended
period of time or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be
required to increase the valuation allowance against all or a significant portion of our deferred tax assets which could substantially increase our effective tax rate for such period. Alternatively, if our future taxable income is significantly
higher than expected and/or we are able to utilize our tax credits, we may be required to reverse all or a



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significant part of our valuation allowance against such deferred tax assets which could substantially reduce our
effective tax rate for such period. Therefore, any significant changes in statutory tax rates or the amount of our valuation allowance could have a material effect on the value of our deferred tax assets and liabilities, and our reported financial
results.



Goodwill and Long Lived Assets



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



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



Warranties



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



Stock-Based Compensation



We account for employee stock-based compensation under the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), as opposed to the fair value method prescribed by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Pursuant to the provisions of APB 25, we generally do not record an expense for the value of stock-based awards granted to employees. If proposals currently
under consideration by various accounting standard organizations are adopted, such as the Financial Accounting Standards Board Proposed Statement of Financial Accounting Standard, Share-Based Payment, an amendment of FASB Statements No. 123
and 95, we may be required to treat the value of stock-based awards granted to employees as compensation expense in the future, which could have a material adverse effect on our reported operating results and could negatively affect the
price of our Common Stock. If these proposals are adopted, we could decide to reduce the number of stock-based awards granted to employees in the future, which could adversely impact our ability to attract qualified candidates or retain existing
employees without increasing their cash compensation and, therefore, have a material adverse effect on our business, results of operations and financial condition.



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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 4, 2004 and March 30,
2003:



|                           |  |                    |    |  |                |   
|-------------------------- |  | ------------------ | -- |  | -------------- | --
|                           |  | Three Months Ended |   
|                           |  | April 4, 2004      |    |  | March 30, 2003 |   
|Net sales                  |  | 100.0              | %  |  | 100.0          | % 
|Cost of sales              |  | 83.0               |    |  | 92.7           |   
|                           |  |                    |    |  |                |   
|Gross profit               |  | 17.0               |    |  | 7.3            |   
|Operating expenses:        |  |                    |    |  |                |   
|Sales and marketing        |  | 5.6                |    |  | 5.6            |   
|Research and development   |  | 14.7               |    |  | 19.1           |   
|General and administrative |  | 5.7                |    |  | 6.4            |   
|Goodwill impairment charge |  |                   |    |  | 9.3            |   
|                           |  |                    |    |  |                |   
|Total operating expenses   |  | 26.0               |    |  | 40.4           |   
|                           |  |                    |    |  |                |   
|Operating loss             |  | (9.0               | )  |  | (33.1          | ) 
|Other income, net          |  | 0.6                |    |  | 1.4            |   
|                           |  |                    |    |  |                |   
|Loss before income taxes   |  | (8.4               | )  |  | (31.7          | ) 
|Benefit from income taxes  |  | (3.2               | )  |  | (11.4          | ) 
|                           |  |                    |    |  |                |   
|Net loss                   |  | (5.2               | )% |  | (20.3          | )%
|                           |  |                    |    |  |                |   



Three Months ended April 4, 2004
and March 30, 2003



Net Sales



Our sales are derived primarily from the sale of radio frequency power
amplifiers for use in wireless communications networks. Sales increased by 21% to $63.2 million, for the quarter ended April 4, 2004, from $52.2 million, for the quarter ended March 30, 2003. This increase is primarily due to a modest rebound in
wireless infrastructure spending as we believe wireless network operators have begun to take steps to improve their wireless networks coverage and capacity. In addition, pursuant to our fiscal year policy, the quarter ended April 4, 2004
consisted of 14 weeks and the quarter ended March 30, 2003 consisted of 13 weeks. The following table presents an analysis of our net sales based upon radio frequency range:



|                       |  |                                           |        |  |                |   |  |   |        |  |     |  
|---------------------- |  | ----------------------------------------- | ------ |  | -------------- | - |  | - | ------ |  | --- | -
|                       |  | Three Months Ended (Dollars in thousands) |       
|Radio Frequency Ranges |  | April 4, 2004                             |        |  | March 30, 2003 |  
|800-1000 MHz           |  | $                                         | 22,697 |  | 36             | % |  | $ | 33,074 |  | 63  | %
|1800-2000 MHz          |  |                                           | 32,641 |  | 52             | % |  |   | 6,887  |  | 13  | %
|2000+ MHz              |  |                                           | 7,886  |  | 12             | % |  |   | 12,193 |  | 24  | %
|                       |  |                                           |        |  |                |   |  |   |        |  |     |  
|Total sales            |  | $                                         | 63,224 |  | 100            | % |  | $ | 52,154 |  | 100 | %
|                       |  |                                           |        |  |                |   |  |   |        |  |     |  



The decrease in sales
in the 800-1000 MHz range during the first quarter of 2004 as compared to the same period in fiscal 2003 is attributable to reduced demand, particularly for products in the TDMA transmission protocol, which is primarily in the cellular band in the
North American market. The growth in net sales during the first quarter of 2004 of products in the 1800-2000 MHz range, or PCS band, is attributable to increased deployment activity worldwide as compared to the prior year. A significant portion of
this increase is due to increased deployment activity in the PCS band that is associated with the switch by several TDMA network operators to GSM service as well as the expansion of CDMA network operator coverages in the North American market. The
decrease during the same period for the 2000+ MHz range resulted primarily from sales price reductions of the products sold for the 3G marketplace. Since wireless network operators continue to operate networks in all three frequency ranges and
infrastructure spending in any particular frequency range depends on individual network coverage and capacity needs during a quarter, we do not believe that our revenue fluctuations for any single frequency range are necessarily indicative of a
predictable trend for our future revenues by frequency band.



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



|                               |  |                                           |        |  |                |   |  |   |        |  |     |  
|------------------------------ |  | ----------------------------------------- | ------ |  | -------------- | - |  | - | ------ |  | --- | -
|                               |  | Three Months Ended (Dollars in thousands) |       
|Geographic Area                |  | April 4, 2004                             |        |  | March 30, 2003 |  
|North America                  |  | $                                         | 31,620 |  | 50             | % |  | $ | 32,481 |  | 62  | %
|Asia                           |  |                                           | 12,252 |  | 19             | % |  |   | 3,079  |  | 6   | %
|Europe and other international |  |                                           | 19,352 |  | 31             | % |  |   | 16,594 |  | 32  | %
|                               |  |                                           |        |  |                |   |  |   |        |  |     |  
|Total sales                    |  | $                                         | 63,224 |  | 100            | % |  | $ | 52,154 |  | 100 | %
|                               |  |                                           |        |  |                |   |  |   |        |  |     |  



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North American revenues remained relatively flat in the first quarter of fiscal 2004 as compared to the
first quarter of 2003. In the North American marketplace, reduced demand for TDMA products was offset by increased demand for both GSM and CDMA based products. Sales in Asia increased due to increased demand for GSM and CDMA products in both China
and South Korea. We also experienced some initial demand for operator-direct sales in Asia, which contributed to the increase in Asian sales during the first quarter of 2004. Increased sales in Europe and other international areas resulted from
increased shipments of GSM products, offset by reduced revenues for 3G products. Since regional wireless network infrastructure spending is dependent on individual network coverage and capacity demands during a quarter, 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 location.



For the quarter ended April 4, 2004, total sales to Nortel accounted for approximately 54% of sales and sales to Nokia accounted for 10% or more of sales
for such period. For the quarter ended March 30, 2003, total sales to Nortel accounted for approximately 52% of sales and sales to ALLTEL and Nokia each accounted for 10% or more of sales. Our business is dependent upon a limited number of customers
and we cannot guarantee that we will continue to be successful in attracting new customers or retaining or increasing business with our existing customers. Reduced demand for our products has negatively impacted our revenues and operating results.
If reductions in overall market demand continue to result in a significant reduction in the future demand for our products by our customers, our business, financial condition and results of operations will be negatively impacted.



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



Cost of Sales and Gross Profit



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



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##### Table of Contents

The following table presents an analysis of our gross profit:



|              |  |                                           |        |  |                |   |  |   |        |  |     |  
|------------- |  | ----------------------------------------- | ------ |  | -------------- | - |  | - | ------ |  | --- | -
|              |  | Three Months Ended (Dollars in thousands) |       
|              |  | April 4, 2004                             |        |  | March 30, 2003 |  
|Net sales     |  | $                                         | 63,224 |  | 100            | % |  | $ | 52,154 |  | 100 | %
|Cost of sales |  |                                           | 52,450 |  | 83             | % |  |   | 48,369 |  | 93  | %
|              |  |                                           |        |  |                |   |  |   |        |  |     |  
|Gross profit  |  | $                                         | 10,774 |  | 17             | % |  | $ | 3,785  |  | 7   | %
|              |  |                                           |        |  |                |   |  |   |        |  |     |  



Our gross profit
margins during the first quarter of fiscal 2004 as compared to the same period of fiscal 2003 were favorably impacted by the 21% increase in net sales, which resulted in higher absorption of our manufacturing overhead expenses and decreased labor
costs when viewed as a percentage of sales. In addition, the first quarter of 2004 benefited from the cost reductions realized from our decision in fiscal 2003 to outsource the majority of production of our products to contract manufacturers located
in Asia.



The wireless communications infrastructure equipment
industry is extremely competitive and is characterized by rapid technological change, new product development and product obsolescence, evolving industry standards and significant price erosion over the life of a product. Certain of our competitors
have aggressively lowered prices in an attempt to gain market share. Due to these competitive pressures and the pressures of our customers to continually lower product costs, we expect that the average sales prices of our products will continue to
decrease and negatively impact our gross margins. We have introduced new products at lower sales prices and these lower sales prices have impacted the average sales prices of our products. We have also reduced prices on our existing products in
response to our competitors and customer demands. During fiscal 2003, the average sales price of our products declined between 5% and 24% from fiscal 2002. 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 during 2003 to outsource the majority of our production to contract manufacturers in order to reduce our cost structure. However, we cannot guarantee that these cost reduction,
outsourcing or product redesign efforts will keep pace with price declines and cost increases. If we are unable to further reduce our costs through our manufacturing, outsourcing and/or engineering efforts, our gross margins and profitability will
be adversely affected. See Additional Factors That May Affect Our Future ResultsOur average sales prices have declined; and Our reliance on contract manufacturers exposes us to risks



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 4, 2004                             |        |  | March 30, 2003 |  
|Sales and marketing        |  | $                                         | 3,547  |  | 5              | % |  | $ | 2,901  |  | 6  | %
|Research and development   |  |                                           | 9,281  |  | 15             | % |  |   | 9,950  |  | 19 | %
|General and administrative |  |                                           | 3,603  |  | 6              | % |  |   | 3,347  |  | 6  | %
|Goodwill impairment charge |  |                                           |       |  |               | % |  |   | 4,852  |  | 9  | %
|                           |  |                                           |        |  |                |   |  |   |        |  |    |  
|Total operating expenses   |  | $                                         | 16,431 |  | 26             | % |  | $ | 21,050 |  | 40 | %
|                           |  |                                           |        |  |                |   |  |   |        |  |    |  



Sales and marketing
expenses consist primarily of sales salaries and commissions, travel expenses, charges for customer demonstration units and trade show expenses. Sales and marketing expenses increased by $0.6 million, or 22%, during the quarter ended April 4, 2004
as compared to the quarter ended March 30, 2003. The increase results primarily from a $0.4 million increase in sales commissions and personnel costs due to our increase in sales.



Research and development expenses consist primarily of ongoing radio frequency power amplifier design and development
expenses as well as design expenses associated with reducing the cost and improving the manufacturability of existing radio frequency power amplifiers. Current programs include cellular, PCS and next generation 2.5G and 3G products, as well as
alternatives to feed-forward technology techniques. Research and development expenses can fluctuate dramatically from period to period depending on numerous factors including new product introduction schedules, prototype developments and hiring
patterns. Research and development expenses decreased by $0.7 million, or 7%, during the quarter ended April 4, 2004 as compared to the quarter ended



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March 30, 2003. This decrease is primarily due to a $0.9 million decrease in material costs associated with a large
number of prototype and pre-production product development builds during the first quarter of fiscal 2003 that did not similarly occur in the first quarter of 2004, offset by a slight increase in personnel costs.



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 $0.3 million, or 8%, during the quarter ended April 4, 2004 as compared to the quarter ended March 30, 2003 due to
an increase in personnel costs.



During the quarter ended March
30, 2003, we incurred an impairment charge of $4.9 million incurred related to our write-down of goodwill. As a result of the significant economic downturn effecting demand in the wireless infrastructure industry, we determined that it was necessary
to test our previously recorded goodwill for impairment during the first quarter of fiscal 2003. Since we operate in a single business segment as a single reporting unit, the determination of whether any potential impairment of goodwill exists is
based on a comparison of the fair value of the entire Company to the accounting value of our net assets. In estimating the fair value of the entire Company, we reviewed the market value of Powerwave based upon average and closing stock prices for
our Common Stock, valuations based on multiples of sales, EBITDA and EBIT, as well as other factors. Based on a comparison of these valuations compared to the accounting value of our underlying assets and liabilities, we concluded that the entire
amount of our recorded goodwill had been impaired and, therefore, recorded a non-cash charge of $4.9 million within operating expenses during the first quarter of fiscal 2003. We incurred no such charge during the quarter ended April 4, 2004.



Non-operating Income and Expenses



The following table presents an analysis of the differences between our
operating loss and net loss:



|                          |  |                                           |        |   |                |    |    |  |   |         |   |  |     |   
|------------------------- |  | ----------------------------------------- | ------ | - | -------------- | -- | -- |  | - | ------- | - |  | --- | --
|                          |  | Three Months Ended (Dollars in thousands) |       
|                          |  | April 4, 2004                             |        |   | March 30, 2003 |   
|Operating loss            |  | $                                         | (5,657 | ) |                | (9 | )% |  | $ | (17,265 | ) |  | (33 | )%
|Other income, net         |  |                                           | 351    |   |                | 1  | %  |  |   | 752     |   |  | 1   | % 
|Benefit from income taxes |  |                                           | 2,043  |   |                | 3  | %  |  |   | 5,945   |   |  | 12  | % 
|                          |  |                                           |        |   |                |    |    |  |   |         |   |  |     |   
|Net loss                  |  | $                                         | (3,263 | ) |                | (5 | )% |  | $ | (10,568 | ) |  | (20 | )%
|                          |  |                                           |        |   |                |    |    |  |   |         |   |  |     |   



Other Income, net



Other income consists primarily of interest income, net
of any interest expense. Other income decreased to $0.4 million during the quarter ended April 4, 2004, from $0.8 million during the quarter ended March 30, 2003 primarily due to the interest expense associated with our 1.25% subordinated
convertible notes issued in July 2003.



Benefit from Income
Taxes



We recorded a tax benefit at a rate of 38.5% during
the quarter ended April 4, 2004 as compared to a tax benefit of 36.0% for the quarter ended March 30, 2003. Our effective tax rate differs from the U.S. federal statutory tax rate of 35% primarily due to the impact of state taxes on domestic
operations and foreign taxes on non-U.S. operations.



Net
Loss



The net loss for the quarter ended April 4, 2004 is
$3.3 million compared to a net loss of $10.6 million for the quarter ended March 30, 2003. The net loss for the first quarter of fiscal 2004 was less than the net loss for the first quarter of 2003 primarily due to the increase in sales combined
with higher gross profit margins and the $4.9 million goodwill impairment charge recorded in the first quarter of fiscal 2003.



Liquidity and Capital Resources



We have historically financed our operations through a combination of cash on hand, cash provided from operations, equipment lease financings, available
borrowings under bank lines of credit, private debt placements and both private and public equity offerings. Our principal sources of liquidity consist of existing cash balances and funds expected to be generated from future operations. As of April
4, 2004, we had working capital of $276.4 million, including $250.4 million in cash and cash equivalents, as compared to working capital of $280.2 million at December 28, 2003, which included $260.5 million in cash and cash equivalents. We currently
invest our excess cash in short-term, investment-grade, money-market instruments with maturities of three months or less. We typically hold such investments until maturity and then reinvest the proceeds in similar money market instruments. We
believe that all of our cash investments would be readily available to us should the need arise.



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Cash Flows



The following table summarizes Powerwaves cash flows for the quarters ended April 4, 2004 and March 30, 2003:



|                                                     |  |                                   |         |   |               |   |       |  
|---------------------------------------------------- |  | --------------------------------- | ------- | - | ------------- | - | ----- | -
|                                                     |  | Three Months Ended (in thousands) |        
|                                                     |  | April 4,2004                      |         |   | March 30,2003 |  
|Net cash provided by (used in):                      |  |                                   |         |   |               |   |       |  
|Operating activities                                 |  | $                                 | (10,511 | ) |               | $ | 1,284 |  
|Investing activities                                 |  |                                   | (1,015  | ) |               |   | (563  | )
|Financing activities                                 |  |                                   | 1,352   |   |               |   | 915   |  
|                                                     |  |                                   |         |   |               |   |       |  
|Net increase (decrease) in cash and cash equivalents |  | $                                 | (10,174 | ) |               | $ | 1,636 |  
|                                                     |  |                                   |         |   |               |   |       |  



Net cash used in
operations during the quarter ended April 4, 2004 was $10.5 million as compared to net cash provided by operations of $1.3 million during the quarter ended March 30, 2003. This use of cash in operations during the first quarter of 2004 primarily
related to the reduction in our outstanding accounts payable of $11.7 million when compared to our December 28, 2003 balance. During the quarter ended April 4, 2004, our net accounts receivable decreased to $51.2 million from $56.3 million at
December 28, 2003, primarily due to lower revenues in the first quarter of 2004 when compared to the fourth quarter of 2003. Our net inventories increased by $2.1 million to $17.3 million at April 4, 2004, from $15.2 million at December 28, 2003.



Net cash used in investing activities reflects our capital
spending. Total capital expenditures during the quarters ended April 4, 2004 and March 30, 2003 were approximately $1.2 million and $0.7 million, respectively. The majority of the capital spending during such quarters was for computer hardware and
test equipment utilized in our manufacturing and research and development areas. We expect our future annual capital spending requirements to range between $5 million and $10 million per year, consisting primarily of radio frequency test equipment,
computer hardware and computer software.



The $0.4 million
increase in net cash provided by financing activities in the first quarter of fiscal 2004 as compared to the first quarter of fiscal 2003 represents increases in proceeds 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 and funds expected to be generated from operations will provide us with sufficient funds to finance our current operations for at least the next twelve months as well as any potential cash outlays related to the
acquisition of LGP Allgon. Our principal source of liquidity consists of our existing cash balances. We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand and cash provided by
operations. Our ability to increase revenues and generate profits is subject to numerous risks and uncertainties and any significant further decrease in our revenues or profitability would reduce our operating cash flows and erode our existing cash
balances. No assurances can be given that we will be able to generate positive operating cash flows in the future or maintain and/or grow our existing cash balances.



Financing Activities



We maintain a $20.0 million revolving credit agreement with Comerica Bank-California. This credit facility provides for an unsecured revolving line of
credit up to a maximum principal amount outstanding at any one time of $20.0 million (the Revolving Commitment Amount) and expires on May 31, 2004. We are required to pay a commitment fee of 0.25% per annum on the unused portion of the
Revolving Commitment Amount, payable quarterly in arrears. The revolving credit facility allows for borrowings based either upon the banks prime rate (4.00% at April 4, 2004) or the banks LIBOR rate plus an applicable LIBOR margin of
1.25% or 1.50%, based upon our debt leverage ratio. The revolving credit facility contains certain standard affirmative and negative covenants, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens,
dividends, mergers, transfers of assets and leverage ratios. At April 4, 2004, we were in full compliance with all covenants contained in the revolving credit facility. There were no amounts outstanding and the full $20.0 million of the Revolving
Commitment Amount was available to us as of April 4, 2004.



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



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so in the future. We may require additional funds in the future to support our working capital requirements or for other
purposes such as acquisitions, and we may seek to raise such additional funds through the sale of public or private equity and/or debt financings, as well as from other sources. Our ability to maintain existing financing arrangements and to secure
additional financing or sources of funding is dependent upon our financial performance, credit rating and the market price for our Common Stock, which are both directly impacted by our ability to grow revenues and generate profits. We can make no
guarantees that we will be able to obtain additional financing or secure new financing arrangements in the future. If our operating performance 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.



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 4, 2004, we had $130.0 million of 1.25% convertible subordinated
notes due July 2008 outstanding. The notes are convertible into shares of our Common Stock at the option of the holder at a conversion price of $10.49 per share and accrue interest at an annual rate of 1.25%, payable semi-annually on January 15 and
July 15. See Note 8. Financing Arrangements and Long-Term Debt in the Notes to Consolidated Financial Statements included under Part II, Item 8, Financial Statements of the Companys Annual Report on Form
10-K for the fiscal year ended December 28, 2003 for additional information.



Capital Lease Obligations



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



Operating Lease Obligations



We have various operating leases covering facilities in Santa Ana and El Dorado Hills, California, Bristol, United Kingdom, and various sales offices
throughout the world. We also maintain some minor operating leases relating to equipment rentals that amount to less than $75,000 per quarter.



Purchase Commitments with Contract Manufacturers



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



Other Purchase
Commitments



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



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



Guarantees Under Letters of
Credit



We have issued standby letters of credit from time
to time as a security for certain liabilities. At April 4, 2004, total outstanding letters of credit approximated $0.6 million and are related to contingent liabilities under our workers compensation insurance policies in the United States.



As of April 4, 2004, expected future cash payments related to
contractual obligations and commercial commitments were as follows:



|                                                         |  |                                       |        |           |   |           |  |            |         |       |   |     |  |   |        
|-------------------------------------------------------- |  | ------------------------------------- | ------ | --------- | - | --------- |  | ---------- | ------- | ----- | - | --- |  | - | -------
|                                                         |  | Payments Due by Period (in thousands)
|                                                         |  | Less than 1 Year                      |        | 1-3 Years |   | 3-5 Years |  | Thereafter |         | Total
|Long-term debt (including interest)                      |  | $                                     | 1,625  |           | $ | 3,250     |  | $          | 132,438 |       | $ |    |  | $ | 137,313
|Capital lease obligations                                |  |                                       |       |           |   |          |  |            |        |       |   |    |  |   |       
|Operating lease obligations                              |  |                                       | 1,583  |           |   | 2,526     |  |            | 438     |       |   | 272 |  |   | 4,819  
|Purchase commitments with contract manufacturers         |  |                                       | 26,775 |           |   |          |  |            |        |       |   |    |  |   | 26,775 
|Other purchase commitments                               |  |                                       | 4,534  |           |   |          |  |            |        |       |   |    |  |   | 4,534  
|Guarantees under letters of credit                       |  |                                       |       |           |   |          |  |            |        |       |   |    |  |   |       
|                                                         |  |                                       |        |           |   |           |  |            |         |       |   |     |  |   |        
|Total contractual obligations and commercial commitments |  | $                                     | 34,517 |           | $ | 5,776     |  | $          | 132,876 |       | $ | 272 |  | $ | 173,441
|                                                         |  |                                       |        |           |   |           |  |            |         |       |   |     |  |   |        



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



Disclosure About Stock
Option Plans



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



All stock option grants to our executive officers and vice
presidents are made after a review by, and with the approval of, either the Compensation Committee of the Board of Directors or the entire Board of Directors. All members of the Compensation Committee are independent directors, as defined in the
applicable rules for issuers traded on the Nasdaq Stock Market. Our executive officers include Bruce C. Edwards, President and Chief Executive Officer, Ronald J. Buschur, Chief Operating Officer, and Kevin T. Michaels, Senior Vice President,
Finance, Chief Financial Officer and Secretary. See the Compensation Committee Report On Executive Compensation appearing in Part III, Item 11 of the Companys Form 10-K for the fiscal year ended December 28, 2003 for further
information concerning the policies and procedures of the Company and the Compensation Committee regarding the use of stock options.



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During the quarter ended April 4, 2004, we granted options to purchase a total of 54,500 shares of Common
Stock to employees. After deducting 98,883 shares for options forfeited, the result was net option forfeitures of 44,383. Net option forfeitures during the year represented 0.1% of our total outstanding common shares of 63,487,202 as of April 4,
2004. The following table summarizes the net stock option grants to our employees, directors and executive officers during the three most recent fiscal periods:



|                                                                                                 |  |                                  |    |  |                              |    |  |                              |  
|------------------------------------------------------------------------------------------------ |  | -------------------------------- | -- |  | ---------------------------- | -- |  | ---------------------------- | -
|                                                                                                 |  | Three Months Ended April 4, 2004 |    |  | Year Ended December 28, 2003 |    |  | Year Ended December 29, 2002 |  
|Net grants (forfeitures) during the period as a % of total outstanding common shares             |  | (0.1                             | )% |  | (0.5                         | )% |  | 3.1                          | %
|Grants to executive officers during the period as a % of total options granted during the period |  |                                 | %  |  | 18.0                         | %  |  | 19.0                         | %
|Grants to executive officers during the period as a % of total outstanding common shares         |  |                                 | %  |  | 0.4                          | %  |  | 0.9                          | %
|Cumulative options held by executive officers as a % of total options outstanding                |  | 16.4                             | %  |  | 16.1                         | %  |  | 19.5                         | %



At April 4, 2004, a
total of 2,002,102 options were available for grant under all of our option plans and a total of 256,037 shares of Common Stock were held in escrow to cover all remaining exercises under the 1995 Stock Option Plan. See Note 12. Stock Option
Plans in the Notes to Consolidated Financial Statements included under Part II, Item 8, Financial Statements of the Companys Annual Report on Form 10-K for the fiscal year ended December 28, 2003 for further
information regarding the 1995 Stock Option Plan. The following table summarizes activity under all of our stock option plans during the quarter ended April 4, 2004:



|                             |  |                 |   |  |                 |                    |                              |   |                             |  |                              |  |   |      
|---------------------------- |  | --------------- | - |  | --------------- | ------------------ | ---------------------------- | - | --------------------------- |  | ---------------------------- |  | - | -----
|                             |  | Number ofShares |   |  | Price Per Share |                    | WeightedAverageExercisePrice |   | Number ofOptionsExercisable |  | WeightedAverageExercisePrice
|Balance at December 28, 2003 |  | 8,951,996       |   |  | $               | 0.82   -   $67.08  |                              | $ | 12.05                       |  | 4,854,867                    |  | $ | 13.91
|Granted                      |  | 54,500          |   |  | $               | 7.50   -   $  9.91 |                              | $ | 8.93                        |  |                              |  |   |      
|Exercised                    |  | (99,348         | ) |  | $               | 1.33   -   $  9.80 |                              | $ | 5.13                        |  |                              |  |   |      
|Canceled                     |  | (98,883         | ) |  | $               | 4.65   -   $49.44  |                              | $ | 16.40                       |  |                              |  |   |      
|                             |  |                 |   |  |                 |                    |                              |   |                             |  |                              |  |   |      
|Balance at April 4, 2004     |  | 8,808,265       |   |  | $               | 0.82   -   $67.08  |                              | $ | 12.06                       |  | 5,182,084                    |  | $ | 13.94
|                             |  |                 |   |  |                 |                    |                              |   |                             |  |                              |  |   |      



There were no grants
of options to any of our executive officers or directors during the quarter ended April 4, 2004.



The following table summarizes outstanding stock options that are in-the-money and out-of the-money as of April 4, 2004. For
purposes of this table, in-the-money stock options are those options with an exercise price less than $8.12 per share, the closing price of Powerwave Common Stock on April 2, 2004, 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 $8.12 per share closing price.



|                          |  |             |  |                        |       |             |           |                        |   |       |  |          
|------------------------- |  | ----------- |  | ---------------------- | ----- | ----------- | --------- | ---------------------- | - | ----- |  | ---------
|                          |  | Exercisable |  | Unexercisable          |       | TotalShares
|                          |  | Shares      |  | Wtd. Avg.ExercisePrice |       | Shares      |           | Wtd. Avg.ExercisePrice |  
|In-the-Money              |  | 2,189,734   |  | $                      | 4.48  |             | 2,502,281 |                        | $ | 6.08  |  | 4,692,015
|Out-of-the-Money          |  | 2,992,350   |  | $                      | 20.86 |             | 1,123,900 |                        | $ | 16.70 |  | 4,116,250
|                          |  |             |  |                        |       |             |           |                        |   |       |  |          
|Total Options Outstanding |  | 5,182,084   |  | $                      | 13.94 |             | 3,626,181 |                        | $ | 9.37  |  | 8,808,265
|                          |  |             |  |                        |       |             |           |                        |   |       |  |          



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The following table sets forth certain information concerning the exercise of options by each of our
executive officers during the quarter ended April 4, 2004, 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 4, 2004. 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.



|                  |  |                           |             |                |               |                                                                    |             |                                                              |               |  |   |         |  |   |        
|----------------- |  | ------------------------- | ----------- | -------------- | ------------- | ------------------------------------------------------------------ | ----------- | ------------------------------------------------------------ | ------------- |  | - | ------- |  | - | -------
|Name              |  | Shares AcquiredonExercise |             | Value Realized |               | Number of SecuritiesUnderlying UnexercisedOptions at April 4, 2004 |             | Value of Unexercised In-the-Money Options atApril 4, 2004(1)
|                  |  |                           | Exercisable |                | Unexercisable |                                                                    | Exercisable |                                                              | Unexercisable
|Bruce C. Edwards  |  |                          |             | $              |              |                                                                    | 116,666     |                                                              | 233,334       |  | $ | 316,165 |  | $ | 632,335
|Ronald J. Buschur |  |                          |             | $              |              |                                                                    | 337,499     |                                                              | 362,501       |  | $ | 145,206 |  | $ | 435,794
|Kevin T. Michaels |  |                          |             | $              |              |                                                                    | 278,312     |                                                              | 117,188       |  | $ | 645,444 |  | $ | 222,704

---

|(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 $8.12, the Companys closing Common Stock price reported by Nasdaq on April 2,
2004, the last trading day of the fiscal quarter.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All stock option plans under which our Common Stock is reserved for issuance have previously been approved by our shareholders. The following table provides summary information as of April 4, 2004, for all of our stock option plans:



|                             |  |                                                                                                         |  |                                                                             |       |                                                                                                                                                |          
|---------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                             |  | Number of Shares of Common Stock to be Issued upon Exercise of Outstanding Options, Warrants and Rights |  | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights |       | Number of Shares of Common Stock Remaining Available for Future Issuance under our
Stock Option Plans (Excluding Shares Reflected in Column 1)
|Approved by shareholders     |  | 8,808,265                                                                                               |  | $                                                                           | 12.06 |                                                                                                                                                | 2,002,102
|Not Approved by shareholders |  |                                                                                                        |  |                                                                             |      |                                                                                                                                                |         
|                             |  |                                                                                                         |  |                                                                             |       |                                                                                                                                                |          
|Total                        |  | 8,808,265                                                                                               |  | $                                                                           | 12.06 |                                                                                                                                                | 2,002,102
|                             |  |                                                                                                         |  |                                                                             |       |                                                                                                                                                |          



Disclosure About Foreign Currency
Risk



We maintain various operations in several foreign
locations including China, Finland, France, Singapore and the United Kingdom. These operations incur expenses in foreign currencies and, while historically insignificant, certain locations have the ability to generate local currency revenue. Such
foreign currency revenues and expenses expose us to foreign currency risk and give rise to foreign exchange gains and losses. In addition, a significant portion of our revenues are derived from international sources, with our international customers
accounting for approximately 50% of our net sales during the quarter ended April 4, 2004, 46% of our fiscal 2003 net sales and 33% of our fiscal 2002 net sales. We regularly pursue new customers in various domestic and international locations where
new deployments or upgrades to existing wireless communication networks are planned. Such international locations include Europe, Asia and South America, where there has been instability in several of the regions currencies. Although we
currently invoice most of our customers in U.S. Dollars, changes in the value of the U.S. Dollar versus the local currency in which our products are sold, along with economic and political conditions of such foreign countries, could adversely affect
our business, financial condition and results of operations. In addition, the weakening of an international customers local currency and banking market may negatively impact such customers ability to meet their payment obligations to us.
While we currently believe that our international customers have the ability to meet all of their obligations to us, there can be no assurance that they will continue to be able to meet such obligations. We regularly monitor the credit worthiness of
our international customers and make credit decisions based on both prior sales experience with such customers and their current financial performance, as well as overall economic conditions. In the future, we may be required or decide to offer
certain international customers extended payment terms and/or sell products or services in the local currency of such customers. In fiscal 2003, we began to sell products to customers in China in their local currency and receive payments in such
local currency. If we sell products or services in a foreign currency, we may be required to convert the payments received into U.S. Dollars or utilize such foreign currencies as payments for expenses of our business. Given the uncertainty as to
when and what specific foreign currencies we may be required or decide to accept as payment from our international customers, we cannot predict the ultimate impact that such a decision would have on our business, gross margins and results of
operations.



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



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Disclosure About Terrorist Risk



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



Additional Factors That May Affect Our Future
Results



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



We sell most of our products to a small number of
customers, and we expect that this will continue. For the quarter ended April 4, 2004, total sales to Nortel accounted for approximately 54% of net sales and sales to Nokia accounted for 10% or more of net sales for such period. For fiscal year
2003, Nortel accounted for approximately 57% of our net sales and Nokia accounted for 10% or more of our net sales. The majority of our product sales are to original equipment manufacturers of wireless base station equipment. Our future success is
dependent upon the continued purchases of our products by such manufacturers and any fluctuations in demand from such customers could negatively impact our results of operations. If we are unable to broaden our customer base and expand relationships
with major wireless original equipment manufacturers and major operators of wireless networks, our business will continue to be impacted by unanticipated demand fluctuations due to our dependence on a small number of customers. Unanticipated demand
fluctuations can have a negative impact on our revenues and business and an adverse effect on our results of operations and financial condition. In addition, our dependence on a small number of major customers exposes us to numerous other risks,
including:



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



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



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



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



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



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



We have a history of significant reductions in demand
which demonstrates the risks related to our customer and industry concentration levels. During fiscal 2003, we experienced significantly reduced demand for our products due to lower than anticipated capital spending plans by major wireless network
operators. This reduction in spending by network operators also resulted in reduced purchases by wireless original equipment manufacturers, whose primary customers are network operators. As a result, our revenues decreased during fiscal 2003 to $239
million from $385 million in fiscal 2002. Revenues from network operators decreased to $47.9 million in 2003 from $73.5 million in 2002. Our revenues for the first quarter of fiscal 2004 were approximately 12% lower than our fourth quarter 2003
revenues. If these reductions in overall market demand continue to result in significant reductions in future demand for our products from our original equipment manufacturer customers, our revenues will be flat or down and our results of operations
will continue to be negatively impacted.



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



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We have no purchase obligations from our customers because of their ability to reschedule or cancel
orders with no penalty and we may experience sales short falls relative to expenses.



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



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



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



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



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



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



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



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



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



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



Wireless service providers are continuing to place pricing pressure on wireless infrastructure manufacturers, which in turn, has resulted in lower selling
prices for our products, with certain competitors aggressively reducing prices in an effort to increase their market share. The average sales price for our products have declined by between 5% and 24% from 2002 to 2003. Fierce competition among our
competitors has also contributed to the downward price pressure on our products which we expect to continue during 2004. Since wireless infrastructure manufacturers frequently negotiate supply arrangements far in advance of delivery dates, we must
often commit to price reductions for our products before we know how, or if, we can obtain such cost reductions. In addition, average sales prices are affected by price discounts negotiated without firm orders for large volume purchases by certain
customers. To offset declining average sales prices, we must reduce manufacturing costs and ultimately develop new products with lower costs or higher average sales prices. If we cannot achieve such cost reductions or increase average selling
prices, our gross margins will continue to decline.



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



Almost all of our revenues come primarily from the sale of radio frequency power amplifiers for wireless communications
networks. Our future success depends upon the continued growth and increased availability of wireless communications services. Wireless communications services may not grow at a rate fast enough to create demand for our products, as we experienced
during fiscal 2003. During this period, wireless network operators reduced or delayed capital spending on wireless networks in order to preserve their operating cash and improve their



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balance sheets. Such reduced spending on wireless networks has had a negative impact on our operating results during
fiscal 2003. If wireless network operators continue to delay or maintain reduced levels of capital spending, our operating results will continue to be negatively impacted.



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



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



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.



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.



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



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



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



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



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



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



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



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



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



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



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



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



On April 2, 2004, we commenced an exchange offer to acquire all of the outstanding shares of LGP Allgon. In the past, we have acquired and made
investments in other companies, products and technologies and entered into strategic alliances with other companies. In addition to the proposed acquisition of LGP Allgon, we continually evaluate these types of opportunities. In the future, we may
acquire or invest in other companies, products or technologies, or we may enter into joint ventures, mergers or strategic alliances with other companies. Such transactions, including the proposed acquisition of LGP Allgon, subject us to numerous
risks, including the following:



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



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



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| |  | 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 our acquisition of LGP Allgon or any other acquisition or
joint venture, our business would be adversely affected.



If
the consummation of our proposed exchange offer to acquire all of the outstanding shares of LGP Allgon is delayed or otherwise fails to be completed within a reasonable period of time, our business and operating results may be adversely impacted.



In connection with the exchange offer for LGP Allgon, we
have discussed the expected benefits of the combined businesses with our customers, and dedicated significant resources in developing plans for the combined company. If the consummation of the exchange offer is delayed or fails to be completed, our
customers may delay purchasing decisions or we may be required to divert resources from our existing business to try and close the transaction, either of which would adversely impact our operating results. In addition, we have incurred significant
expenses in connection with the exchange offer that have been capitalized as part of the proposed acquisition. If we fail to complete the exchange offer, these costs will be expensed and will adversely impact our operating results in the period such
expense is recognized.



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



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



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.



Since our products are built in Asia, we require air or ocean transport to ship the products to our customers. 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.



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



For the first quarter of 2004, and fiscal
years 2003, 2002 and 2001, international revenues (excluding North American sales) accounted for approximately 50%, 46%, 33% and 41% 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 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;
| | - | -----------------------------------------------------------------------------------------------------



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



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



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



| |  | 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 in Europe and Asia;
| | - | -----------------------------------------------------------



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



| |  | cultural and language differences between the United States, Europe and Asia; 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 on-going program to identify and file
applications for both U.S. and international patents for various aspects of our technology. We have been granted a total of 28 U.S. patents and 14 foreign patents, and we have filed applications for over 25 additional U.S. patents and over 50
additional foreign patents.



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



We may need to raise additional funds through public or private debt or
equity financings in order to take advantage of opportunities, including more rapid international expansion or acquisitions of complementary businesses or technologies. If we are not successful in integrating our business and managing the worldwide
aspects of the combined company resulting from the proposed LGP Allgon acquisition, our operations may not generate profits and may consume our cash resources faster than we anticipate. Such losses would make it difficult to obtain



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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 outstanding convertible debt that we issued in 2003 as well as any debt assumed in the proposed transaction. 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., Mitsubishi Electric Corporation and REMEC, Inc., in addition to a number of privately held companies throughout the world, subsidiaries of certain multinational corporations and the
internal radio frequency power amplifier manufacturing operations and radio frequency amplifier design groups of the leading wireless infrastructure manufacturers such as Ericsson, Motorola, Nokia, Nortel and Samsung. Some competitors have adopted
aggressive pricing strategies in an attempt to gain market share which in return has caused us to lower our prices in order to remain competitive. Such pricing actions have had an adverse effect on our financial condition and results of operations.
In addition, some competitors have significantly greater financial, technical, manufacturing, sales, marketing and other resources than we do and have achieved greater name recognition for their products and technologies than we have. If we are
unable to successfully increase our market penetration or our overall share of the radio frequency power amplifier market, our revenues will decline, which would negatively impact our results of operations.



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



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



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



We purchase insurance to cover a wide variety of potential risks and liabilities. In the current worldwide insurance market,
premiums are rising rapidly while coverage is becoming increasingly restrictive. Our total cost of insurance increased by more than 47% during fiscal 2003 to approximately $2.8 million per year and is expected to further increase in fiscal 2004. It
is also possible that certain coverages may no longer be available or may only be available at prices that are prohibitively expensive. If we are unable to maintain our insurance coverages at their historical levels and at a reasonable cost, or if
we are forced to bear an increased portion of the risks that we have traditionally insured, our results of operations and financial condition could be adversely affected due to increased insurance costs and potential losses arising from reduced
coverages.



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



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



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Our financial instruments include cash and cash equivalents and long-term debt. At April 4, 2004, the carrying values of our financial instruments
approximated their fair values based upon current market prices and rates.



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



Foreign Currency Risk



Our international sales expose us to foreign currency risk in the ordinary
course of our business. Currently, we do not enter into derivative financial instruments. Aside from the net operating costs of our foreign operations in France, Finland, Singapore and the United Kingdom, direct network operator sales in Europe and
our local revenues and operating costs of our foreign operations in China, we have not to date been required to transact any significant portion of our business in foreign currencies. As a result, we do not have any significant direct foreign
currency exposure at April 4, 2004. However, we anticipate that a greater percentage of our sales will be made in foreign currencies as we begin selling additional products to certain customers in their local foreign currency during fiscal 2004.
This, in turn, will increase our direct foreign currency exposure in the future. See Disclosure About Foreign Currency Risk under Item 2, Managements Discussion and Analysis of Financial Condition and Results of
Operations included herein.



Interest Rate Risk



As of April 4, 2004, we had $130.0 million of convertible subordinated notes
due July 2008 at a fixed annual interest rate of 1.25%. We also have a short-term investment portfolio of approximately $242.0 million with maturities of three months or less. These cash equivalents exposed us to interest rate risk as short-term
investment rates remained at historical lows during the first quarter of 2004. Given the short-term maturities and high-grade investment quality of our investment portfolio, we believe that we are not subject to material fluctuations in principal
and the effective interest rate of our portfolio tracks closely to various short-term money market interest rate benchmarks.



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Commodity Price Risk



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



ITEM 4. CONTROLS AND PROCEDURES



Disclosure
Controls and Procedures



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



Internal Control Over Financial Reporting



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



PART II  OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



We are
subject to various legal proceedings and threatened legal proceedings from time to time as part of our business. We are not currently party to any legal proceedings nor aware of any threatened legal proceedings, the



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adverse outcome of which, individually or in the aggregate, we believe would have a material adverse effect on our
business, financial condition and results of operations. However, any potential litigation, regardless of its merits, could result in substantial costs to us and divert managements attention from our operations. Such diversions could have an
adverse impact on our business, results of operations and financial condition.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



(a) Exhibits



The following exhibits
are filed as part of this report:



|               |  |                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | 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 and Exchange Act of
1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(b) Reports on Form 8-K:



The Registrant furnished a Current Report to the SEC on Form 8-K on January
22, 2004, to report under Item 12, Results of Operations and Financial Condition, the announcement of financial results for the fiscal year ended December 28, 2003.



The Registrant furnished a Current Report to the SEC on Form 8-K on January 26, 2004, to provide under Item 12, Results of
Operations and Financial Condition, a transcript of a conference call and simultaneous web-cast presentation on January 22, 2004, relating to the Companys financial results for the fiscal year ended December 28, 2003.



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



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SIGNATURES



Pursuant to the requirements of
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: April 30, 2004 |  | POWERWAVE TECHNOLOGIES, INC.
|                     |  |                             
|                     |  | By:                          |  | /s/ KEVIN T. MICHAELS                                     
|                     |  |                              |  | Kevin T. Michaels                                         
|                     |  |                              |  | Senior Vice President, Finance and Chief Financial Officer



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