<PAGE>

================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-Q


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


        For the quarterly period ended October 1, 2000

                                      OR


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


        For the transition period from ________to_________


                       Commission File Number 000-21507

                         POWERWAVE TECHNOLOGIES, INC.

            (Exact name of registrant as specified in its charter)


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

                               2026 McGaw Avenue
                           Irvine, California 92614
              (Address of principal executive offices, zip code)


      Registrant's telephone number, including area code: (949) 809-1100


                               _______________


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

     As of November 6, 2000 the number of outstanding shares of Common Stock,
par value $.0001 per share, of the Registrant was 63,206,892.

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

                         POWERWAVE TECHNOLOGIES, INC.
                                     INDEX

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

        Item 1.  Financial Statements

                    Consolidated Balance Sheets at October 1, 2000 (Unaudited)
                      and January 2, 2000                                                                     3

                    Consolidated Statements of Income (Unaudited) for the three and nine months
                      ended October 1, 2000 and October 3, 1999                                               4

                    Consolidated Statements of Comprehensive Income  (Unaudited) for the
                      three and nine months ended October 1, 2000 and October 3, 1999                         5

                    Consolidated Statements of Cash Flows (Unaudited) for the nine months ended
                      October 1, 2000 and October 3, 1999                                                     6

                    Notes to Consolidated Financial Statements (Unaudited)                                    7-11

        Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations        12-30

        Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                   31

Part II.  Other Information

        Item 6.  Exhibits and Reports on Form 8-K                                                             32

Signatures                                                                                                    33
</TABLE>

This Quarterly Report on Form 10-Q includes certain forward-looking statements
as defined within Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended, relating to
revenue, demand and pricing trends, future expense levels, trends in average
selling prices, the timing for the Company's facilities consolidation and the
level of expected capital expenditures. Such forward-looking statements are
based on the beliefs of, and estimates made by and information currently
available to, the Company's management and are subject to certain risks,
uncertainties and assumptions. Any statements contained herein (including
without limitation statements to the effect that the Company or management
"estimates," "expects," "anticipates," "plans," "believes," "projects,"
"continues," "may," or "will," or statements concerning "potential" or
"opportunity" or variations thereof or comparable terminology or the negative
thereof) that are not statements of historical fact should be construed as
forward looking statements. The actual results of Powerwave may vary materially
from those expected or anticipated in these forward-looking statements. The
realization of such forward-looking statements may be impacted by certain
important factors which are discussed in "Additional Factors That May Affect
Future Results" under Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" at pages 12-30. Because of these and other
factors that may affect Powerwave's operating results, past performance should
not be considered an indicator of future performance and investors should not
use historical results to anticipate results or trends in future periods.
Powerwave undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Readers should carefully review the risk factors described
in this and other documents Powerwave files from time to time with the
Securities and Exchange Commission, including subsequent Current Reports on Form
8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

                                       2
<PAGE>

                         POWERWAVE TECHNOLOGIES, INC.
                          CONSOLIDATED BALANCE SHEETS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                     October 1,          January 2,
                                                                                        2000                2000
                                                                                  --------------       -------------
<S>                                                                               <C>                  <C>
ASSETS                                                                              (Unaudited)

Current Assets:
  Cash and cash equivalents.......................................................      $124,654            $ 76,671
  Accounts receivable, net of allowance for doubtful accounts of $3,511 and
   $2,988 at October 1, 2000 and January 2, 2000, respectively....................        72,733              47,476
  Inventories, net................................................................        43,183              31,696
  Prepaid expenses and other current assets.......................................         4,005               2,449
  Notes receivable................................................................            25               7,045
  Prepaid income taxes............................................................         1,575                  --
  Deferred tax assets.............................................................         5,502               5,888
                                                                                        --------            --------
     Total current assets.........................................................       251,677             171,225

Property, plant and equipment.....................................................        86,881              45,286
Less accumulated depreciation and amortization....................................       (22,475)            (12,354)
                                                                                        --------            --------
  Net property, plant and equipment...............................................        64,406              32,932
                                                                                        --------            --------

Land..............................................................................        14,838                  --
Intangible assets, net............................................................        11,668              14,344
Deferred tax assets...............................................................         4,507               4,507
Other non-current assets, net.....................................................         2,111                  30
                                                                                        --------            --------
TOTAL ASSETS......................................................................      $349,207            $223,038
                                                                                        ========            ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts payable................................................................      $ 31,028            $ 30,128
  Accrued expenses and other liabilities..........................................        22,950              19,399
  Current portion of long-term debt...............................................           132                 125
  Income taxes payable............................................................            --               3,007
                                                                                        --------            --------
     Total current liabilities....................................................        54,110              52,659

Long-term debt, net of current portion............................................            45                  --
Other non-current liabilities.....................................................           234                 600
                                                                                        --------            --------
     Total liabilities............................................................        54,389              53,259
                                                                                        --------            --------

Shareholders' Equity:
  Preferred Stock, $.0001 par value, 5,000 shares authorized and no shares
    outstanding...................................................................            --                  --
  Common Stock, $.0001 par value, 135,000 shares authorized, 63,173 shares
    issued and outstanding at October 1, 2000 and 60,489 shares
    issued and outstanding at January 2, 2000.....................................       211,972             120,785
  Accumulated other comprehensive income..........................................           555                  --
  Retained earnings...............................................................        82,291              48,994
                                                                                        --------            --------
     Total shareholders' equity...................................................       294,818             169,779
                                                                                        --------            --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................................      $349,207            $223,038
                                                                                        ========            ========
</TABLE>

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

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                    Three Months Ended                      Nine Months Ended
                                             -------------------------------         -------------------------------
<S>                                          <C>                  <C>                <C>                  <C>
                                                 October 1,       October 3,         October 1,           October 3,
                                                    2000             1999               2000                 1999
                                             -------------------------------         -------------------------------

Net sales.................................         $111,877          $76,900           $326,190             $201,417
Cost of sales.............................           75,337           54,697            221,238              146,060
                                                   --------          -------           --------             --------
Gross profit..............................           36,540           22,203            104,952               55,357
Operating expenses:
  Sales and marketing.....................            5,122            3,620             15,569               10,609
  Research and development................           11,009            7,311             30,644               18,982
  General and administrative..............            3,980            3,464             11,188                8,809
                                                   --------          -------           --------             --------
Total operating expenses..................           20,111           14,395             57,401               38,400
                                                   --------          -------           --------             --------

Operating income..........................           16,429            7,808             47,551               16,957
Other income, net.........................            1,529              904              4,072                1,604
                                                   --------          -------           --------             --------

Income before income taxes................           17,958            8,712             51,623               18,561
Provision for income taxes................            6,375            3,093             18,326                6,688
                                                   --------          -------           --------             --------

Net income................................         $ 11,583          $ 5,619           $ 33,297             $ 11,873
                                                   ========          =======           ========             ========

Basic earnings per share..................            $0.19            $0.09              $0.55                $0.20
                                                   ========          =======           ========             ========
Diluted earnings per share................            $0.18            $0.09              $0.52                $0.20
                                                   ========          =======           ========             ========
Basic weighted average common shares......           62,230           59,913             61,499               57,843
                                                   ========          =======           ========             ========
Diluted weighted average common shares....           65,402           62,229             64,823               59,826
                                                   ========          =======           ========             ========
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                    Three Months Ended              Nine Months Ended
                                                 -------------------------     -------------------------
                                                 October 1,     October 3,     October 1,     October 3,
                                                    2000           1999           2000           1999
                                                 -------------------------     -------------------------
<S>                                               <C>            <C>            <C>            <C>
Net income................................        $11,583        $ 5,619        $33,297        $11,873
                                                  -------        -------        -------        -------
Other comprehensive income (loss), net of
tax:

  Unrealized gain (loss) on available for
   sale securities, restricted............           (254)            --            555             --
                                                  -------        -------        -------        -------
Other comprehensive income (loss).........           (254)            --            555             --
                                                  -------        -------        -------        -------
Comprehensive income......................        $11,329        $    --        $33,852        $    --
                                                  =======        =======        =======        =======
</TABLE>

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

                                       5
<PAGE>

                         POWERWAVE TECHNOLOGIES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                                  Nine  Months Ended
                                                                                              -------------------------
                                                                                              October 1,     October 3,
                                                                                                 2000           1999
                                                                                              ----------     ----------
<S>                                                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income..........................................................................         $ 33,297       $ 11,873
  Adjustments to reconcile net income to net cash provided by
  operating activities:
    Depreciation and amortization.....................................................           13,639          7,060
    Change in provision for doubtful accounts.........................................              523          1,413
    Change in provision for inventory reserves........................................            3,572            680
    Compensation costs related to stock options.......................................               64             30
    Loss on disposal of property, plant and equipment.................................               66            120
  Changes in current assets and liabilities:
    Accounts receivable...............................................................          (25,780)       (14,306)
    Inventories.......................................................................          (15,061)         5,236
    Prepaid expenses and other current assets.........................................             (615)          (186)
    Income taxes......................................................................           17,320          6,304
    Accounts payable..................................................................              900          6,825
    Accrued expenses and other liabilities............................................            3,551          3,226
  Other non-current assets............................................................           (2,430)          (280)
  Other non-current liabilities.......................................................             (366)            93
                                                                                               --------       --------
      Net cash provided by operating activities.......................................           28,680         28,088

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment...........................................          (41,964)       (10,830)
  Purchase of land....................................................................          (14,838)            --
  Sales of property, plant and equipment..............................................               --            808
  Redemption of long-term investments.................................................               --          2,500
                                                                                               --------       --------
      Net cash used in investing activities...........................................          (56,802)        (7,522)

CASH FLOW FROM FINANCING ACTIVITIES:
  Payment received on notes receivable................................................            7,020             --
  Principal payments on long-term debt................................................             (136)       (23,982)
  Issuance of Common Stock............................................................           63,348         58,725
  Proceeds from exercise of stock options.............................................            5,873          3,242
                                                                                               --------       --------
      Net cash provided by financing activities.......................................           76,105         38,075
                                                                                               --------       --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............................................           47,983         58,641
CASH AND CASH EQUIVALENTS, beginning of period........................................           76,671         13,307
                                                                                               --------       --------
CASH AND CASH EQUIVALENTS, end of period..............................................         $124,654       $ 71,948
                                                                                               ========       ========

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid for:
    Interest..........................................................................         $     27       $    988
                                                                                               ========       ========
    Income taxes......................................................................         $  1,005       $    385
                                                                                               ========       ========

NON CASH ITEMS:
    Tax benefit related to stock option exercises.....................................         $ 21,648       $  6,855
                                                                                               ========       ========
    Tax benefit related to issuance of Common Stock under the Employee Stock Purchase          $    254       $    215
     Plan.............................................................................         ========       ========

  Acquisition of property and equipment through capital leases........................         $    189       $     --
                                                                                               ========       ========
  Unrealized gain on available for sale securities, restricted, net of tax of $386....         $    555       $     --
                                                                                               ========       ========
  Note received in conjunction with sale of land and building.........................         $     --       $  7,475
                                                                                               ========       ========
</TABLE>

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

                                       6
<PAGE>

                         POWERWAVE TECHNOLOGIES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
             (in thousands except for share and per share amounts)
                                October 1, 2000

Basis of Presentation

     The accompanying consolidated financial statements have been prepared by
Powerwave Technologies, Inc. ("Powerwave" or the "Company") without audit
(except for balance sheet information as of January 2, 2000) in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.  In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.  The
accompanying consolidated financial statements do not include certain footnotes
and financial presentations normally required under generally accepted
accounting principles and, therefore, 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 January 2, 2000.  The accounting
policies followed by the Company are set forth in Note 2 of the Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 2000.

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

Stock Split

     On April 26, 2000, Powerwave's shareholders approved an amendment to the
Company's Amended and Restated Certificate of Incorporation to increase the
number of authorized shares of Common Stock from 40,000,000 to 135,000,000 and
effect a three-for-one stock split of Powerwave's Common Stock. The effective
date of the three-for-one stock split was May 15, 2000. All share and per share
amounts included in the accompanying consolidated financial statements and
footnotes have been restated for all periods presented to reflect the stock
split.

Earnings Per Share

     Effective December 28, 1997, the Company adopted SFAS No. 128, Earnings per
Share. In accordance with SFAS No. 128, basic earnings per share is based upon
the weighted average number of common shares outstanding. Diluted earnings per
share is based upon the weighted average number of common and potential common
shares for each period presented. Potential common shares include stock options
using the treasury stock method.

     The following details the calculation of basic and diluted earnings per
share (share numbers are in thousands):

<TABLE>
<CAPTION>
                                                          Three Months Ended               Nine Months Ended
                                                       -------------------------        ------------------------
                                                       October 1,     October 3,        October 1,    October 3,
                                                          2000           1999              2000          1999
                                                       -------------------------        ------------------------
<S>                                                    <C>            <C>               <C>            <C>
  Basic:
    Basic weighted average common shares........         62,230         59,913            61,499        57,843
    Net income..................................        $11,583        $ 5,619           $33,297       $11,873
                                                        -------        -------           -------       -------
    Basic earnings per share....................        $  0.19        $  0.09           $  0.55       $  0.20
                                                        =======        =======           =======       =======
</TABLE>

                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                          Three Months Ended             Nine Months Ended
                                                       -------------------------     ------------------------
                                                       October 1,     October 3,     October 1,    October 3,
                                                          2000           1999           2000          1999
                                                       -------------------------     ------------------------
<S>                                                    <C>            <C>            <C>            <C>
Diluted:
    Basic weighted average common shares........         62,230         59,913         61,499        57,843
    Potential common shares.....................          3,172          2,316          3,324         1,983
                                                        -------        -------        -------       -------
    Diluted weighted average common shares......         65,402         62,229         64,823        59,826
    Net income..................................        $11,583        $ 5,619        $33,297       $11,873
                                                        -------        -------        -------       -------
    Diluted earnings per share..................        $  0.18        $  0.09        $  0.52       $  0.20
                                                        =======        =======        =======       =======
</TABLE>

Comprehensive Income

     The Company has adopted SFAS No. 130, Reporting Comprehensive Income. For
the three and nine months ended October 1, 2000 the Company had other
comprehensive income (loss) of ($254) and $555, respectively, all of which
reflects the change in unrealized gains on available for sale securities, net of
tax. These securities are restricted under Rule 144 of the Securities and
Exchange Act of 1933.

New Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes new accounting and reporting standards for derivative
financial instruments and for hedging activities.  SFAS No. 133 requires the
Company to measure all derivatives at fair value and to recognize them in the
balance sheet as an asset or liability, depending on the Company's rights or
obligations under the applicable derivative contract.  In June 1999, the FASB
issued SFAS No. 137, which deferred the effective date of adoption of SFAS No.
133 for one year.  The Company will adopt SFAS No. 133 no later than the first
quarter of fiscal year 2001. Currently, adoption of SFAS No. 133 is not expected
to have a material impact on the Company's consolidated financial statements.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, which the Company is required to adopt no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999.  Currently,
adoption of SAB No. 101 is not expected to have a material impact on the
Company's consolidated financial statements.

     In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation, an interpretation of
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees ("FIN 44"). FIN 44 clarifies the application of APB No. 25 for the
following: the definition of employee for purposes of applying APB No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence for various modifications to the terms of a
previously fixed stock option or award; and the accounting for an exchange of
stock compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions cover specific events occurring after either
December 15, 1998 or January 12, 2000.  The adoption of FIN 44 did not have a
material impact on the Company's consolidated financial statements.

Segment Information

     Utilizing the management approach, the Company has broken down its business
based upon the RF frequency in megahertz ("MHz"), in which the product is
utilized in, i.e., 800 to 1000 MHz ("Cellular"), 1800 to 2000 MHz  ("PCS"), 400
to 450 MHz ("LMR") and over 2000 MHz ("Other").  The Company does not allocate
operating expenses to these segments, nor does the Company allocate specific
assets to these segments. Therefore, segment information reported includes only
net sales, cost of sales and gross profit (loss).

                                       8
<PAGE>

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

                                                    Cellular            PCS              LMR           Other
                                                  800-1000 MHz     1800-2000 MHz     400-450 MHz     2000+ MHz        Total
                                                  ------------     -------------     -----------     ---------        -----
<S>                                               <C>              <C>               <C>             <C>            <C>
Three months ended October 1, 2000
Net sales.................................          $88,561           $23,120          $    --        $   196       $111,877
Cost of sales.............................           56,905            18,159               --            273         75,337
                                                    -------           -------          -------        -------       --------
Gross profit..............................          $31,656           $ 4,961          $    --        $   (77)      $ 36,540
                                                    =======           =======          =======        =======       ========

Three months ended October 3, 1999
Net sales.................................          $54,711           $22,198          $    (9)       $    --       $ 76,900
Cost of sales.............................           36,133            18,213              351             --         54,697
                                                    -------           -------          -------        -------       --------
Gross profit (loss).......................          $18,578           $ 3,985          $  (360)       $    --       $ 22,203
                                                    =======           =======          =======        =======       ========
</TABLE>


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

                                                    Cellular            PCS              LMR           Other
                                                  800-1000 MHz     1800-2000 MHz     400-450 MHz     2000+ MHz        Total
                                                  ------------     -------------     -----------     ---------        -----
<S>                                               <C>              <C>               <C>             <C>            <C>
Nine months ended October 1, 2000
Net sales..................................        $246,593           $79,401          $    --        $   196       $326,190
Cost of sales..............................         158,457            62,508               --            273        221,238
                                                   --------           -------          -------        -------       --------
Gross profit...............................        $ 88,136           $16,893          $    --        $   (77)      $104,952
                                                   ========           =======          =======        =======       ========

Nine months ended October 3, 1999
Net sales..................................        $147,123           $53,634          $   660        $    --       $201,417
Cost of sales..............................         100,667            42,932            2,461             --        146,060
                                                   --------           -------          -------        -------       --------
Gross profit (loss)........................        $ 46,456           $10,702          $(1,801)       $    --       $ 55,357
                                                   ========           =======          =======        =======       ========
</TABLE>

     The following schedule presents an analysis of Powerwave's net sales based
upon the geographic location to which a product was shipped.  North American
sales include sales to the United States, Canada and Mexico.  Asian sales
include sales to South Korea and all locations in Asia.  Europe and Other
International sales include sales to Europe and all other foreign countries.
Included in North American sales were shipments to Canada of $42.3 million and
$19.5 million for the quarters ended October 1, 2000 and October 3, 1999,
respectively.  Shipments to Canada were $104.6 million and $67.7 million for the
nine months ended October 1, 2000 and October 3, 1999, respectively. For the
quarters ended October 1, 2000 and October 3, 1999, shipments to South Korea
were $11.8 million and $18.6 million, respectively.  For the nine months ended
October 1, 2000 and October 3, 1999, shipments to South Korea were $26.7 million
and $40.2 million, respectively.

<TABLE>
<CAPTION>
                                                                   North                   Europe and Other
                                                                 American         Asia      International      Total
                                                                 --------         ----      -------------      -----
     <S>                                                         <C>            <C>            <C>            <C>
     Sales for the three months ended October 1, 2000...         $ 83,280       $14,912        $13,685        $111,877
     Sales for the three months ended October 3, 1999...         $ 49,885       $18,593        $ 8,422        $ 76,900

     Sales for the nine months ended October 1, 2000....         $257,086       $29,823        $39,281        $326,190
     Sales for the nine months ended October 3, 1999....         $138,219       $40,233        $22,965        $201,417
</TABLE>


     Total accounts receivable as of October 1, 2000, include 78% from United
States based customers, 8% from customers located in France and 11% from
customers located in South Korea.

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

                                       9
<PAGE>

     The Company's product sales have historically been concentrated in a small
number of customers, which exposes the Company to the risk of significant
revenue fluctuations due to its concentrated customer base. During the quarter
ended October 1, 2000 sales to five customers totaled $95.8 million, or
approximately 86% of sales.  For the quarter ended October 3, 1999 sales to five
customers totaled $58.8 million, or approximately 76% of sales.

     During the nine months ended October 1, 2000 sales to four customers
totaled $249.4 million, or approximately 76% of sales. For the nine months ended
October 3, 1999 sales to five customers totaled $158.8 million, or approximately
79% of sales. For more information regarding customer concentration see
"Additional Factors that May Affect our Future Results--A Significant Amount of
Our Revenues Comes from a Few Customers," under Item 2 of this Form 10-Q.

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 2000 Stock Option Plan and the 1996 Director Stock Option
Plan, for the nine months ended October 1, 2000:

<TABLE>
<CAPTION>

                                                                               Number of       Number of
                                                                                Options         Options
                                                                              Exercisable    Available for
                                                                                 as of        grant as of
                                              Number of       Price per        October 1,      October 1,
                                               Shares           Share             2000            2000
                                             ----------     -------------       ---------      ---------
          <S>                                <C>            <C>                 <C>            <C>
          Balance at January 2, 2000          7,463,553     $ 0.82-$25.65
           Granted                            2,717,350     $15.42-$67.08
           Exercised                         (1,600,072)    $ 0.82-$11.75
           Cancelled                            (61,580)    $ 1.33-$50.92
                                             ----------
          Balance at October 1, 2000          8,519,251     $ 0.82-$67.08       1,922,245      2,885,605
                                             ==========                         =========      =========
</TABLE>

     During the quarters ended October 1, 2000 and October 3, 1999, the Company
recorded compensation expense related to stock options of approximately $19 and
$15 respectively.  For the nine months ended October 1, 2000 and October 3, 1999
compensation expense related to stock options was $64 and $30. The remaining
unamortized compensation expense as of October 1, 2000 was approximately $171
and will be amortized through September 2003.

Employee Stock Purchase Plan

     The seventh offering under Powerwave's Employee Stock Purchase Plan (the
"Purchase Plan") concluded on July 31, 2000, with 38,934 shares of the Company's
Common Stock purchased under the Purchase Plan at a price per share of $25.50.
At October 1, 2000 there were rights to purchase approximately 24,000 shares of
Common Stock outstanding under the Purchase Plan's eighth offering, which will
conclude on January 31, 2001.

The HP Acquisition

     On October 9, 1998, Powerwave completed the purchase of Hewlett-Packard
Company's ("HP") RF power amplifier business and its manufacturing and research
and development facility in Folsom, California and its production equipment and
manufacturing lines located in Malaysia, for a total purchase price of
approximately $65.9 million (the "HP Acquisition").  Approximately $57.4 million
of the total purchase price was paid to HP in cash, approximately $1.1 million
was in acquisition costs and the balance related to assumed liabilities.   This
business was part of HP's Wireless Infrastructure Division and was focused on
the design and manufacture of RF power amplifiers for wireless communications,
including cellular, PCS and wireless local loop ("WLL").  Since the acquisition
date, we have transferred both the Folsom and Malaysian production equipment and
manufacturing lines to our Irvine, California facility.  We have sold the Folsom
facility and have established a new research and development facility in El
Dorado Hills, California.

                                       10
<PAGE>

     The HP Acquisition was accounted for as a purchase and, accordingly, the
total purchase price was allocated to the assets acquired and liabilities
assumed at their estimated fair values in accordance with Accounting Principles
Board Opinion No. 16. The purchase price was allocated to tangible assets
acquired of approximately $34.7 million, developed technology of $11.5 million,
in-process research and development of $12.4 million, other intangible assets of
$2.7 million and goodwill of approximately $4.6 million. The Company's
consolidated financial statements for the year ended January 3, 1999 include a
charge of $12.4 million for the write-off of acquired in-process research and
development expenses associated with the HP Acquisition. The in-process research
and development expenses arose from new product projects that were under
development at the date of the acquisition and expected to eventually lead to
new products but had not yet established technological feasibility and for which
no future alternative use was identified. The valuation of the in-process
research and development projects was based upon the discounted expected future
net cash flows of the products over the products' expected life, reflecting the
estimated stage of completion of the projects and an estimate of the costs to
complete the projects. New product development projects underway at HP at the
time of the acquisition included, among others, single carrier CDMA technology,
ultra-linear technology for use in multi-carrier RF power amplifiers and
advanced linear power module technology for use in next generation wireless
communications. The Company estimated that these projects were approximately 75%
complete at the date of the acquisition in October 1998 and estimated that the
cost to complete these projects would aggregate approximately $2.5 million and
would be incurred over a two-year period. The Company discontinued further
development on the single carrier CDMA project as of January 2, 2000 and
discontinued further development on the advanced linear power module technology
project as of July 2, 2000. Since the date of the acquisition the Company has
incurred a total of $2.5 million of research and development expenses related to
all three projects. One product incorporating the ultra-linear technology for
use in multi-carrier RF power amplifiers entered production during the third
quarter of 2000. For more information on the HP Acquisition, please refer to
Note 17 of Notes to Consolidated Financial Statements in the Company's Annual
Report on Form 10-K for the fiscal year ended January 2, 2000.

                                       11
<PAGE>

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

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

Results of Operations

  The following table summarizes our results of operations as a percentage of
net sales for the three and nine months ended October 1, 2000 and October 3,
1999.

<TABLE>
<CAPTION>
                                                                         As a Percentage of Net Sales
                                                  --------------------------------        ---------------------------------
                                                         Three Months Ended                      Nine Months Ended
                                                  --------------------------------        ---------------------------------
                                                    October 1,        October 3,            October 1,        October 3,
                                                       2000              1999                  2000              1999
                                                  --------------------------------        ---------------------------------
<S>                                               <C>                 <C>                 <C>                 <C>
Net sales.................................            100.0%            100.0%                100.0%            100.0%
Cost of sales.............................             67.3              71.1                  67.8              72.5
                                                      -----             -----                 -----             -----
Gross profit..............................             32.7              28.9                  32.2              27.5
Operating expenses:
  Sales and marketing.....................              4.6               4.7                   4.8               5.3
  Research and development................              9.8               9.5                   9.4               9.4
  General and administrative..............              3.6               4.5                   3.4               4.4
                                                      -----             -----                 -----             -----
Total operating expenses..................             18.0              18.7                  17.6              19.1

Operating income..........................             14.7              10.2                  14.6               8.4
Other income, net.........................              1.4               1.1                   1.2               0.8
                                                      -----             -----                 -----             -----

Income before income taxes................             16.1              11.3                  15.8               9.2
Provision for income taxes................              5.7               4.0                   5.6               3.3
                                                      -----             -----                 -----             -----

Net income................................             10.4%              7.3%                 10.2%              5.9%
                                                      =====             =====                 =====             =====
</TABLE>

Three months ended October 1, 2000 and October 3, 1999

Net Sales

     Our net sales are derived primarily from the sale of RF power amplifiers
for use in wireless communications networks. Sales increased by 45% to $111.8
million for the quarter ended October 1, 2000 from $76.9 million for the quarter
ended October 3, 1999. The growth in revenue was due to increased sales of our
cellular (800-1000 MHz) and PCS (1800-2000 MHz) products. For the quarter ended
October 1, 2000, total sales of cellular products (including both single and
multi-carrier RF power amplifiers and racks) accounted for approximately 79% of
revenues or $88.6 million, compared to approximately 71% of revenues or $54.7
million for the quarter ended October 3, 1999. Sales of RF power amplifiers and
associated products for PCS networks (consisting mainly of single carrier RF
power amplifiers) accounted for approximately 21% of revenues or $23.1 million
for the third quarter of 2000, compared to approximately 29% or $22.3 million
for the third quarter in 1999. Sales of Other (over 2000 MHz) products accounted
for less than 1% of sales for the third quarter of 2000. We had no sales of
these products in the third quarter of 1999.

     Total international sales (excluding North American sales) accounted for
approximately 26% of revenues or $28.6 million for the quarter ended October 1,
2000, compared with approximately 35% or $27.0 million for the quarter ended
October 3, 1999. Total Asian sales decreased to $14.9 million for the quarter
ended October 1, 2000 from $18.6 million for the quarter ended October 3, 1999.
Total Asian sales accounted for approximately 13% of

                                       12
<PAGE>

revenues in the third quarter of 2000 compared to approximately 24% of revenues
in the third quarter of 1999. We have previously experienced postponement,
rescheduling and cancellation of orders from our South Korean customers which we
believe was due to the economic crisis in South Korea, and Asia in general,
which reduced South Korean wireless service operator's demand for our products.
We are unable to predict the level of future demand from our Asian customers and
whether order fluctuations, including cancellations will continue to be
experienced from our customers in Asia or any other areas that have or may have
economic and or financial crisis. In addition, fluctuations in any of our
customers' demand can lead to postponement, rescheduling and cancellation of
orders to us. See "Additional Factors That May Affect Future Results--A
Significant Amount of Our Revenues Comes from a Few Customers; --Our Success is
Tied to the Growth of the Wireless Service Market: --There are Many Risks
Associated With International Operations; and -- We Previously Have Relied Upon
the South Korean Market."

     For the third quarter ended October 1, 2000, total sales to Nortel Networks
Corporation and related entities ("Nortel") accounted for approximately 55% of
revenues and sales to LM Ericsson Telephone Company ("Ericsson") accounted for
over 10% of the revenues for the quarter.  We cannot guarantee that we will
continue to be successful in attracting new customers or retaining or increasing
business with our existing customers.  In addition, we believe that a
significant portion of our business with OEMs, such as Ericsson, Lucent
Technologies, Inc. ("Lucent") and Nortel, depends upon the development schedules
of wireless network operators who are purchasing infrastructure equipment from
such OEMs and on such OEMs' strategy concerning the outsourcing of RF power
amplifiers. A number of factors may cause delays in wireless infrastructure
deployment schedules for both North American and international deployments,
including deployments in Brazil, Asia, South America and other areas.  Such
factors include economic or political problems in the wireless operator's
operating region, delays in government approvals required for system deployment,
and reduced subscriber demand for wireless services.  In addition, a number of
factors may cause OEMs to alter their outsourcing strategy concerning RF power
amplifiers, which could cause such OEMs to reduce or eliminate their demand for
external supplies of RF power amplifiers or shift their demand to alternative
suppliers.   Such factors include lower perceived internal manufacturing costs
and competitive reasons to remain vertically integrated.  Due to the possible
uncertainties associated with wireless infrastructure deployments and OEM
demand, we have experienced and expect to continue to experience significant
fluctuations in demand from our OEM customers.  Such fluctuations could
significantly reduce our revenues and/or operating income which could harm our
business, financial condition and results of operations.  See "Additional
Factors That May Affect Future Results --A Significant Amount of Our Revenues
Comes from a Few Customers; --There are Many Risks Associated With International
Operations; and --Our Quarterly Results Fluctuate Significantly."

Gross Profit

     Cost of sales consists primarily of raw materials, assembly and test labor,
overhead and warranty costs.  Gross profit margins for the third quarter of
fiscal 2000 and 1999 were 32.7% and 28.9%, respectively. The increase in gross
margins during the third quarter of 2000 as compared to the third quarter of
1999 was primarily due to the final closure of the acquired Folsom manufacturing
facility in the fourth quarter of 1999 and the resulting improvements in
manufacturing operating costs.  Also during the third quarter of 2000, sales of
multi-carrier RF power amplifier products accounted for a greater percentage of
product sales when compared to the third quarter of 1999.  Our multi-carrier RF
power amplifier products have traditionally carried higher margins than our
single carrier RF power amplifier products.  While we continue to strive for
manufacturing and engineering cost reductions to offset pricing pressures on our
products, we cannot guarantee that these cost reduction or redesign efforts will
keep pace with price declines and cost increases. If we are unable to reduce our
costs through our manufacturing and/or engineering efforts, our gross margins
and profitability may be adversely affected. For a discussion of the effects of
declining average sales prices on our business, see "Additional Factors That May
Affect Future Results--Our Average Sales Prices are Declining."

     As part of the HP Acquisition, we completed an allocation of the purchase
price of the acquisition to both the tangible and intangible assets and
liabilities acquired in the acquisition.  The purchase price allocation is
included in our financial statements for the fiscal year ended January 3, 1999,
and includes an allocation of $11.5 million to developed technology acquired and
$0.2 million to workforce.  These amounts were capitalized and are being
amortized on a straight-line basis over five and ten years, respectively, and
are included in cost of sales.  For both

                                       13
<PAGE>

the quarter ended October 1, 2000 and the quarter ended October 3, 1999,
approximately $0.6 million was amortized and included in cost of sales. As an
additional part of the HP Acquisition, we assumed certain specific liabilities
from HP related to the acquired business, including certain warranty
obligations. During the third quarter ended October 1, 2000, and the third
quarter ended October 3, 1999, we incurred warranty expenses of approximately
$40,000 and $100,000, respectively, which were offset against specific
liabilities assumed in the acquisition. For more information concerning the
purchase price allocation associated with the HP Acquisition, see Note 17 of the
Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for
the fiscal year ended January 2, 2000.

     The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product.  Due to these competitive
pressures, we expect that the average sales prices of our products will continue
to decrease.  We have and will continue to introduce new products at lower sales
prices.  These lower sales prices have impacted the average sales prices of our
products.  Future pricing actions by us and our competitors also may impact
adversely our gross profit margins and profitability, which also could result in
decreased liquidity and adversely affect our business, financial condition and
results of operations.  For a discussion of the impact of new products on our
business, see "Additional Factors That May Affect Future Results--We Must
Develop and Sell New Products in Order to Keep Up With Rapid Technological
Change."

Operating Expenses

     Sales and marketing expenses consist primarily of sales commissions,
salaries, other expenses for sales and marketing personnel, travel expenses,
charges for customer demonstration units, reserves for credit losses and trade
show expenses. Sales and marketing expenses increased by 41% to $5.1 million for
the quarter ended October 1, 2000 from $3.6 million for the quarter ended
October 3, 1999. As a percentage of sales, sales and marketing expenses were
4.6% and 4.7% for the quarters ended October 1, 2000 and October 3, 1999,
respectively. The increase in sales and marketing expenses in absolute dollars
was primarily attributable to increases in the sales and marketing staff, and
increased sales commissions related to increased product sales. As part of the
purchase price allocation of the HP Acquisition, an allocation of approximately
$2.5 million, reflecting the value of a customer list and a non-compete
agreement, was capitalized on our balance sheet. Approximately $0.2 million of
amortization expense related to the customer list and non-compete agreement has
been included in sales and marketing expenses for both the quarters ended
October 1, 2000 and October 3, 1999.

     Research and development expenses include ongoing RF power amplifier design
and development expenses, as well as those design expenses associated with
reducing the cost and improving the manufacturability of existing RF power
amplifiers.  Current programs include cellular, PCS and next generation "3G"
products.  Research and development expenses increased by 51% to $11.0 million
for the quarter ended October 1, 2000 from $7.3 million for the quarter ended
October 3, 1999.  Research and development expenses as a percentage of sales for
the quarters ended October 1, 2000 and October 3, 1999 were 9.8% and 9.5%,
respectively. The actual increase in research and development expenses was due
primarily to increased staffing and associated engineering costs related to new
product development programs and existing product enhancement efforts. We
anticipate that we will continue operating at a higher expense level for
research and development because we intend to continue to emphasize investment
in research and development programs in future periods.

     General and administrative expenses consist primarily of salaries and other
expenses for management, finance, information systems, facilities maintenance
and human resources.  General and administrative expenses increased by 15% to
$4.0 million for the quarter ended October 1, 2000, from $3.5 million for the
quarter ended October 3, 1999.  General and administrative expenses as a
percentage of sales were 3.6% and 4.5% for the third quarter of fiscal 2000 and
1999, respectively. The increase in general and administrative expenses in
dollars is attributable primarily to increased staffing costs associated with
supporting our increased revenues and personnel. As part of the purchase price
allocation of the HP Acquisition, an allocation of approximately $4.6 million,
reflecting the value of goodwill acquired, was capitalized on our balance sheet.
Approximately $0.1 million of goodwill amortization expense has been included in
general and administrative expenses for both the quarters ended October 1, 2000
and October 3, 1999.

                                       14
<PAGE>

Other Income (Expense)

     We earned $1.5 million of other income, net, during the third quarter of
2000 compared to $0.9 million of other income, net, earned in the third quarter
of 1999. Other income consists primarily of interest income, net of any interest
expense. The increase in other income is primarily due to increased interest
income on our cash balances, which increased significantly as a result of the
sale of 1.5 million shares of our Common Stock during the third quarter of 2000.
See "Liquidity and Capital Resources".

Provision for Income Taxes

     Our effective tax rate was 35.5% and 35.5% for the quarters ended October
1, 2000 and October 3, 1999, respectively.

Nine months ended October 1, 2000 and October 3, 1999

Net Sales

     Net sales increased by 62% to $326.2 million for the nine months ended
October 1, 2000 from $201.4 million for the nine months ended October 3, 1999.
The increase in revenue was primarily attributed to increased sales of our
cellular and PCS products. For the nine months ended October 1, 2000, total
sales of cellular products accounted for approximately 76% of revenues or $246.6
million, compared to approximately 73% of revenues or $147.1 million for the
nine months ended October 3, 1999. Sales of PCS products accounted for
approximately 24% of revenues or $79.4 million for the first nine months of
2000, compared to approximately 27% of revenues or $53.6 million for the first
nine months of 1999. Sales of Other (over 2000 MHz) products accounted for less
than 1% of sales for the first nine months of 2000. We had no sales of these
products in the first nine months of 1999. Sales of LMR amplifiers accounted for
no revenues for the nine months ended October 1, 2000, compared to less than 1%
of revenues or $0.7 million for the nine months ended October 3, 1999.

     Total sales to North American customers accounted for approximately 79% of
revenues or $257.1 million for the nine months ended October 1, 2000, compared
with approximately 69% or $138.2 million for the nine months ended October 3,
1999.  Our total international sales (excluding North American sales) accounted
for approximately 21% of revenues or $69.1 million for the nine months ended
October 1, 2000, compared with approximately 31% or $63.2 million for the nine
months ended October 3, 1999. Total Asian sales accounted for approximately 9%
of revenues in the first nine months of 2000 compared to approximately 20% of
revenues in the first nine months of 1999.

     For the first nine months of 2000, total sales to Nortel accounted for
approximately 48% of revenues and sales to Ericsson accounted for over 10% of
revenues.  For the first nine months of 1999, Nortel accounted for approximately
44% of revenues and sales to Lucent accounted for over 10% of revenues for this
period.  See "Additional Factors That May Affect Future Results --A Significant
Amount of Our Revenues Comes from a Few Customers; --There are Many Risks
Associated With International Operations; and --Our Quarterly Results Fluctuate
Significantly."

Gross Profit

     Gross profit margins for the first nine months of fiscal 2000 and 1999 were
32.2% and 27.5%, respectively. The increase in gross margins during the first
nine months of 2000 as compared to the first nine months of 1999 was primarily
due to the final closure of the acquired Folsom manufacturing facility in the
fourth quarter of 1999 and the resulting improvements in manufacturing operating
costs.  Also during the first nine months of 2000, sales of multi-carrier RF
power amplifier products accounted for a greater percentage of product sales
when compared to the first nine months of 1999.  Our multi-carrier RF power
amplifier products have traditionally carried higher margins than our single-
carrier RF power amplifier products.  See "Additional Factors That May Affect
Future Results - Our Average Sales Prices are Declining."

                                       15
<PAGE>

Operating Expenses

     Sales and marketing expenses increased by 47% to $15.6 million for the nine
months ended October 1, 2000 from $10.6 million for the nine months ended
October 3, 1999.  As a percentage of sales, sales and marketing expenses were
4.8% and 5.3% for the nine months ended October 1, 2000 and October 3, 1999,
respectively.  The increase in the dollar amount of sales and marketing expenses
was primarily attributable to increases in the sales and marketing staff, and
increased sales commissions related to increased product sales.

     Research and development expenses increased by 61% to $30.6 million for the
nine months ended October 1, 2000 from $18.9 million for the nine months ended
October 3, 1999.  Research and development expenses as a percentage of sales for
the nine months ended October 1, 2000 and October 3, 1999 were 9.4% and 9.4%,
respectively. The increase in the dollar amount of research and development
expenses was primarily due to increased staffing and associated engineering
costs related to continued new product development efforts, such as 3G
developments, and existing product enhancement efforts.

     General and administrative expenses increased by 27% to $11.2 million for
the nine months ended October 1, 2000, from $8.8 million for the nine months
ended October 3, 1999. General and administrative expenses as a percentage of
sales were 3.4% and 4.4%, respectively. The increase in the dollar amount of
general and administrative expenses was attributable primarily to increased
staffing costs associated with supporting our increased revenues and personnel.

Other Income (Expense)

     We earned $4.0 million of other income, net, during the first nine months
of 2000 compared to $1.6 million of other income, net, earned in the first nine
months of 1999. The increase in other income primarily reflects the retirement
of the debt incurred as part of the HP Acquisition in March 1999, and the
resulting elimination of interest expense associated with such debt. Other
income consists primarily of interest income, net of any interest expense.

Provision for Income Taxes

     Our effective tax rate was 35.5% and 36.0% for the nine months ended
October 1, 2000 and October 3, 1999, respectively. The decrease in our effective
tax rate was due to tax benefits from international sales and research and
development tax credits.

Liquidity and Capital Resources

     We have historically financed our operations primarily through a
combination of cash on hand, cash provided from operations, equipment lease
financings, available borrowings under bank lines of credit and both private and
public equity offerings. As of October 1, 2000, we had working capital of $197.6
million, including $124.6 million in cash and cash equivalents as compared with
working capital of $118.6 million at January 2, 2000, which included $76.7
million in cash and cash equivalents.

     Net accounts receivable increased to $72.7 million at October 1, 2000 from
$47.5 million at January 2, 2000, primarily due to increased sales volume during
the third quarter of 2000 as compared to the fourth quarter of 1999.  Net
inventory increased to $43.2 million at October 1, 2000 from $31.7 million at
January 2, 2000.  Cash provided by operating activities was approximately $28.7
million for the nine months ended October 1, 2000, compared with  $28.1 million
for the nine months ended October 3, 1999.

     Net cash provided by financing activities was approximately $76.1 million
for the first nine months of 2000 compared with $38.1 million of cash provided
by financing activities for the first nine months of 1999. On August 23, 2000 we
sold 1.5 million shares of our Common Stock at a price per share of $41.1875 to
Deutsche Banc Alex.Brown pursuant to a previously filed shelf registration.
Total net proceeds after offering expenses were approximately $61.7 million. As
a comparison to the prior year period, during the first quarter of 1999 we
received net proceeds of approximately $57.8 million from a public offering of
6.9 million shares (adjusted to reflect a three-

                                       16
<PAGE>

for-one stock split on May 15, 2000) of our Common Stock. In addition, in March
1999 we utilized approximately $22.8 million of the 1999 proceeds to retire all
outstanding bank debt associated with the HP Acquisition.

     Capital expenditures were approximately $56.8 million and $10.8 million for
the first nine months of 2000 and 1999, respectively.  On May 31, 2000, we paid
$35.3 million for a 360,000 square foot facility located on approximately 22
acres of land in Santa Ana, California which we are planning to utilize as our
Southern California headquarters and manufacturing facility.  Approximately
$20.5 million of the purchase price was allocated to the building, with the
remaining $14.8 million allocated to land, which includes approximately 3 acres
of undeveloped land.  We are planning to consolidate our Southern California
manufacturing operations, engineering, and headquarters facility to this
facility during the first half of fiscal 2001.  The remaining amount of capital
spending during the first nine months of 2000 and the majority of capital
spending during the first nine months of 1999 represents spending on electronic
test equipment utilized in our manufacturing and research and development areas.

     As part of the HP Acquisition, we acquired HP's manufacturing and research
and development facility in Folsom, California. Of the purchase price, a total
net value of $8.1 million was allocated to land, land improvements and
buildings. On July 15, 1999, we sold the Folsom facility for approximately $8.4
million. We received approximately $0.9 million in cash (before expenses) and an
interest free note for $7.5 million due December 31, 1999. The note was secured
by the land, land improvements and building. In exchange for the interest free
note, the buyer entered into a rent-free lease with us of the Folsom facility
through December 31, 1999. In December 1999, the note receivable on the Folsom
facility was amended to extend the maturity date to January 27, 2000 and to
apply an annual interest rate of 8% beginning December 31, 1999. The buyer of
the Folsom facility made an additional principal payment of $0.5 million on
December 30, 1999, and prepaid the future interest due on the note. The
remaining principal balance of approximately $7.0 million was paid on January
27, 2000.

     On June 16, 2000 we entered into a revolving credit agreement with Comerica
Bank-California, dated as of May 31, 2000.  The credit facility provides for a
revolving line of credit up to a maximum principal amount outstanding at any one
time of $20 million (the "Revolving Commitment Amount"). We are required to pay
a commitment fee of 0.25% per annum on the unused portion of the Revolving
Commitment Amount.  The commitment fee is payable quarterly in arrears.  The
revolving credit facility allows for borrowings based either upon the bank's
prime rate (9.5%) at October 1, 2000 or the bank's LIBOR rate plus an applicable
LIBOR Margin of 1.25% or 1.50%, based upon our debt leverage ratio.  There were
no amounts outstanding as of October 1, 2000.  The revolving credit facility
terminates on May 31, 2001.  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. We were in
compliance with all covenants contained in the revolving credit facility at
October 1, 2000.  The full $20 million of the Revolving Commitment Amount was
available to us at October 1, 2000.

     We had cash and cash equivalents of $124.6 million at October 1, 2000,
compared with $76.7 million at January 3, 1999. We regularly review our cash
funding requirements and attempt to meet those requirements through a
combination of cash on hand, cash provided by operations, available borrowings
under any credit facilities, financing through equipment lease transactions, and
possible future public or private debt and/or equity offerings. We invest our
excess cash in short-term, investment-grade money market instruments.

     We currently believe that our existing cash balances and funds expected to
be generated from operations will provide us with sufficient funds to finance
our operations for at least the next 12 months. In addition to equipment
purchases, over the next nine months we plan to spend approximately $15 million
to make capital improvements to the manufacturing and headquarters facility we
purchased on May 31, 2000. Currently, we plan to fund these expenditures from
our existing cash balances. However, in the past, we have utilized both
operating and capital lease financing for certain equipment purchases used in
our manufacturing and research and development operations and expect to continue
to selectively do so in the future. We may in the future require additional
funds to support our working capital requirements or for other purposes, and may
seek to raise such additional funds through the sale of public or private equity
and/or debt financings or from other sources. No assurance can be given that
additional financing will be available in the future or that if available, such
financing will be obtainable on terms favorable to us or our stockholders when
we may require it.

                                       17
<PAGE>

Disclosure About Foreign Currency Risk

     A significant portion of our revenues have been derived from international
sources, with our international customers accounting for approximately 21% of
our revenues for the first nine months of fiscal 2000, 33% of our fiscal 1999
revenues and 41% of our fiscal 1998 revenues. We regularly pursue new customers
in various domestic and international locations where new deployments or
upgrades to existing wireless communication networks are planned.  Such
international locations include Europe and South America, where there has been
instability in several of the region's currencies, including the Brazilian Real.
Although we currently invoice all of our customers in U.S. Dollars, changes in
the value of the U.S. Dollar versus the local currency in which our products are
sold, along with the economic and political conditions of such foreign
countries, could adversely affect our business, financial condition and results
of operations.  In addition, the weakening of an international customer's local
currency and banking market may negatively impact such customer's ability to
meet their payment obligations to us.  Although we currently believe that our
international customers have the ability to meet all of their obligations to us,
there can be no assurance that they will continue to be able meet such
obligations.  We regularly monitor the credit worthiness of our international
customers and make credit decisions based on both prior sales experience with
such customers as well as current financial performance and overall economic
conditions.  We may decide in the future to offer certain foreign customers
extended payment terms and/or sell certain products or services in the local
currency of such customers.  If we sell products or services in a foreign
currency, our results of operations and gross margins may be affected by changes
in currency exchange rates.

     Several of the international markets in which we sell our products have
experienced significant weaknesses in their currencies, banking systems and
equity markets in the last few years.   Such weaknesses could negatively impact
demand for wireless services and thereby reduce demand for our products.  Such a
reduction in demand for our products could have a negative impact on our future
sales and gross margins.  Our foreign customers currently pay for our products
with U.S. Dollars.  Previously, the strengthening of the U.S. Dollar as compared
to the Brazilian Real or the South Korean Won, effectively increased the cost of
our products by as much as 100% or more for our Brazilian and South Korean
customers.   Such a significant increase in the local currency based cost of our
products makes them less attractive to such customers.   Accordingly, changes in
exchange rates, and in particular a strengthening of the U.S. Dollar, may
negatively impact our future sales and gross margins.  For further discussion of
the risks associated with our international sales, see "Additional Factors That
May Affect Future Results--There are Many Risks Associated With International
Operations."

European Monetary Union

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

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

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

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

                                       18
<PAGE>

New Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes new accounting and reporting standards for derivative
financial instruments and for hedging activities.  SFAS No. 133 requires the
Company to measure all derivatives at fair value and to recognize them in the
balance sheet as an asset or liability, depending on the Company's rights or
obligations under the applicable derivative contract.  In June 1999, the FASB
issued SFAS No. 137, which deferred the effective date of adoption of SFAS No.
133 for one year.  The Company will adopt SFAS No. 133 no later than the first
quarter of fiscal year 2001. Currently, adoption of SFAS No. 133 is not expected
to have a material impact on the Company's consolidated financial statements.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, which the Company is required to adopt no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999.  Currently,
adoption of SAB No. 101 is not expected to have a material impact on the
Company's consolidated financial statements.

     In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation, an interpretation of
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees ("FIN 44"). FIN 44 clarifies the application of APB No. 25 for the
following: the definition of employee for purposes of applying APB No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence for various modifications to the terms of a
previously fixed stock option or award; and the accounting for an exchange of
stock compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions cover specific events occurring after either
December 15, 1998 or January 12, 2000.  The adoption of FIN 44 did not have a
material impact on the Company's consolidated financial statements.

Additional Factors That May Affect Our Future Results

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

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

A Significant Amount of Our Revenues Comes from a Few Customers

                                       19
<PAGE>

     We sell most of our products to a small number of customers, and we expect
that this will continue.  We believe that our future success depends upon our
ability to broaden our customer base and maintain relationships with major
wireless original equipment manufacturers, or OEMs, such as, Ericsson, Hyundai
Electronics Industries Co. ("Hyundai"), LG Information & Communications, Ltd.
("LGIC"), Lucent, Motorola Inc. ("Motorola"), Nokia Telecommunications Inc.
("Nokia"), Nortel and Samsung Electronics Co. Ltd. ("Samsung"), as well as major
operators of wireless networks, such as AT&T Wireless Services ("AT&T
Wireless"), BellSouth Cellular Corp. ("Bellsouth") and Verizon Wireless
("Verizon Wireless").

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

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

     For the nine months ended October 1, 2000, our largest customer was Nortel,
which accounted for approximately 48% of our net sales.  For fiscal 1999, a
total of five customers accounted for approximately 80% of our total revenue.
The loss of any of our customers, or a significant loss, reduction or
rescheduling of orders from any of our customers, would have a material adverse
effect on our business, results of operations and financial condition.  The
risks related to our customer concentration were magnified in 1998 due to
certain of our customer's geographic concentration in South Korea which
experienced an economic and financial crisis during 1998.  For the first nine
months of 2000, our South Korean customers including Hyundai, LGIC and Samsung,
accounted for  $26.7 million, or approximately 8% of our total net sales. During
1999, our South Korean customers accounted for approximately 21% of our total
net sales or $62.2 million.

     We believe that continued purchases of our products by OEMs depends upon
many factors, including the OEMs' view of utilizing third party suppliers of RF
power amplifiers and their current view of wireless infrastructure deployments
and could be significantly reduced due to any delays of such deployments. A
number of factors may cause delays in wireless infrastructure deployments,
including the following such factors:

     .    economic or political problems in the wireless operator's operating
          region;
     .    delays in government approvals required for system deployment; and
     .    reduced subscriber demand for wireless services.

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

  Our Quarterly Results Fluctuate Significantly

     We experience, and will continue to experience, significant fluctuations in
sales and operating results from quarter to quarter. Our quarterly results
fluctuate due to a number of factors, any of which could have a material adverse
effect on our business, results of operations and financial condition.  Factors
that could cause our results of operations to vary include the following:

     .    variations in the timing, cancellation, or rescheduling of customer
          orders and shipments;

                                       20
<PAGE>

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

     In addition, while we periodically receive order forecasts from our major
customers, such customers have no binding obligation to purchase the forecasted
amounts.  See "--A Significant Amount of Our Revenues Comes From a Few
Customers." Order deferrals and cancellations by our customers, declining
average sales prices, changes in the mix of products sold, delays in the
introduction of new products and longer than anticipated sales cycles for our
products have in the past adversely affected our quarterly results of
operations.  We cannot guarantee that our quarterly results of operations will
not be harmed in the future.

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

     Due to these factors, we believe that our past results are not reliable
indicators of our future performance.  Current operating profitability may fall,
and future revenues and operating results may not meet the expectations of
public market analysts and investors.  In either case, the price of our Common
Stock could significantly decline.  See "--Our Stock Price Has Been and May
Continue to Be Volatile."

  Our Average Sales Prices are Declining

     Our average sales prices have declined, and we anticipate that the average
sales prices for our products will continue to decline and negatively impact our
gross profit margins.  Consolidation among wireless service providers has
enabled such companies to place increased pricing pressure on wireless
infrastructure manufacturers, which in turn has resulted in downward pricing
pressure on our products.  Competition among third-party suppliers also has
increased the downward price pressure on our products.  Since wireless
infrastructure manufacturers frequently negotiate supply arrangements far in
advance of delivery dates, we must often commit to price reductions for our
products before we know how, or if, we can obtain such cost reductions.  In
addition, average sales prices are affected by price discounts negotiated for
large volume purchases by certain customers which have significant leverage over
us due to our limited customer base.  To offset declining average sales prices,
we must reduce

                                       21
<PAGE>

manufacturing costs and ultimately develop new products with lower costs or
higher average sales prices. If we cannot achieve such cost reductions or
product improvements, our gross margins will decline.

     We anticipate that single carrier RF power amplifier products will continue
to account for a large portion of our net sales going forward and that gross
margins will decline on our multi-carrier RF power amplifiers as well. Sales of
single carrier RF power amplifiers have been subject to intense price
competition and carry lower gross profit margins than multi-carrier RF power
amplifier products. If we cannot reduce manufacturing costs on our single
carrier RF power amplifiers and such RF power amplifiers account for an
increased percentage of net sales, our overall gross profit margins will fall.
In addition, lower gross margins on our multi-carrier RF power amplifiers will
cause our overall gross profit margins to decline.

  Our Failure to Manage Future Growth Could Have Adverse Effects

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

     .    effectively expand, train and manage our work force, particularly in
          response to fluctuations in demand for various products;
     .    manage production and inventory levels to meet product demand and new
          product introductions;
     .    introduce new products into production and ramp-up such production in
          a cost effective manner;
     .    expand production capacity while maintaining a high quality level;
     .    obtain additional production equipment on short lead times in order to
          meet increases in production demand;
     .    manage and improve production quality;
     .    expand both the range of customers and the geographic scope of our
          customer base;
     .    reduce product costs; and
     .    improve financial and management controls, reporting systems and
          procedures.

     We are not able to guarantee that we will be able to achieve any or all of
the above factors in an appropriate manner. Any failure to manage growth
effectively could have a material adverse effect on our business, financial
condition and results of operations.

     We Recently Acquired a New Facility and are Currently Consolidating our
Manufacturing Operations, Engineering and Headquarters Facility to This New
Location

     On May 31, 2000 we acquired a 360,000 square foot facility located on
approximately 22 acres of land for $35.3 million. Approximately 85,000 square
feet are being sublet to an unrelated third party, with the remaining 275,000
square feet available for us. This facility requires substantial re-design and
building improvements before we can relocate our operations to it. We began the
transition of our manufacturing operations to this new facility in the third
quarter of 2000, and we currently expect to have all of our manufacturing
operations relocated to this facility within the next nine months. We also are
planning to relocate our administrative departments, as well as our Southern
California engineering and sales and marketing operations to this new facility
within a similar time frame. Moving our manufacturing operations to a new
facility entails numerous risks to our business operations, including the risk
that we will not complete the moves on schedule; that we will not obtain
recertification of our production lines in a timely manner from our customers
who require production line qualifications; that the costs to re-design and
improve the facility will escalate and exceed our current expectations; that the
new facility will not function properly and that we will not achieve the desired
benefits from consolidating our operations at one facility. If any of these or
other risks occur they could have a material adverse affect on our business,
financial condition and results of operations.

  We Must Retain Key Executives and Personnel

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

                                       22
<PAGE>

achieve our intellectual property objectives may have a material adverse effect
on our business, financial condition and results of operations.

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

  There are Many Risks Associated With International Operations

     For the first nine months of 2000, international revenues (excluding North
American sales) accounted for approximately 21% of our total net sales. For
fiscal years 1999, 1998 and 1997, international revenues (excluding North
American sales) accounted for approximately 33%, 41% and 84% respectively, of
our net sales.  We currently expect that international revenues will continue to
account for a significant percentage of our revenues for the foreseeable future.
Therefore, the following risks associated with international operations could
have a material adverse effect on our performance:

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

     We have traditionally invoiced all of our foreign sales in U.S. Dollars.
Accordingly, we do not currently engage in foreign currency hedging
transactions.  However, as we continue to expand our international operations,
we may be paid in foreign currencies and, therefore, would become exposed to
possible losses in foreign currency transactions.  Since we sell our products in
many countries, when the U.S. Dollar becomes more expensive relative to the
currency of our foreign customers, the price of our products in those countries
rises and our sales into those countries may fall.  This happened to us in South
Korea during 1998.  In addition, as we sell our products into foreign countries,
our products can become subject to tariffs and import duties which raise the
overall price of our products to such a level that our products are no longer
competitive in price to locally based suppliers.  If any of the above risks
actually occurs, there may be a material adverse effect on our business,
financial condition and results of operations.

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

     Most of our revenues come from the sale of RF power amplifiers for wireless
communications networks. Our future success depends to a considerable extent
upon the continued growth and increased availability of wireless communications
services, including cellular and PCS. Wireless communications services may not
continue to grow and create demand for our products. We believe that continued
growth in the use of wireless communications services depends, in part, on
lowering the cost per subscriber by reducing the costs of the infrastructure
capital equipment and thereby enabling reductions in wireless service pricing.
Although FCC regulations require local

                                       23
<PAGE>

phone companies to reduce the rates charged to wireless carriers for connection
to their wireline networks, wireless service rates will probably remain higher
than rates charged by traditional wireline companies.

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

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

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

  We Depend on Single Sources for Key Components and Key Equipment

     A number of the parts used in our products are available from only one or a
limited number of outside suppliers due to unique component designs as well as
certain quality and performance requirements.  To take advantage of volume
pricing discounts, we also purchase certain customized components from single
sources.  We have experienced, and expect to continue to experience, shortages
of single-sourced components.  Shortages have compelled us to adjust our product
designs and production schedules.  If single-sourced components become
unavailable in sufficient quantities or available only on unsatisfactory terms,
we would be required to purchase comparable components from other sources and
"retune" our products to function with the replacement components, or we may be
required to redesign our products to use other components, either of which could
delay production and delivery of our products.  In addition, our reliance on
certain single-sourced components could expose us to quality control issues if
such suppliers experienced a failure in their production process.  A failure in
a single-sourced component could force us to repair or replace a product
utilizing replacement components.  Such a requirement could have a material
adverse effect on our business, results of operations and financial condition.
In addition, if we could not obtain comparable replacements or effectively
retune or redesign our products, our business, results of operations and
financial condition could be harmed.

     The RF power amplifier business which we acquired in the HP Acquisition
utilized certain custom components manufactured by HP for certain products.  We
had a one-year supply commitment from HP for these components which has expired
and we have begun sourcing certain components from new suppliers, as well as we
have redesigned products to no longer utilize such components.  If we were
requested to produce a large quantity of products which utilized such custom
components, our ability to produce such older products is limited.

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

     A majority of the specialized test equipment that we utilize in both our
development programs and on our production lines come from a limited number of
suppliers, and in some cases from sole suppliers.  Due to the current overall
level of demand in the wireless industry for test equipment, we have experienced
and expect to continue to experience delays and shortages of specialized test
equipment.  The failure to obtain the required specialized test equipment in the
required time periods could cause a development program to fall behind schedule,
which could cause a customer to cancel such program or could cause a production
schedule to fall behind a

                                       24
<PAGE>

customer requested schedule, which could result in cancellations of the customer
order. If either event were to happen, such event could have a material adverse
effect on our business, results of operations and financial condition.

We Previously Have Relied Upon the South Korean Market

     Three of our customers, Hyundai, LGIC and Samsung, are based in South Korea
and collectively accounted for approximately 8% of our net sales for the first
nine months of fiscal 2000.   Historically, we have had a larger exposure to the
South Korean market.  For fiscal year 1999, customers based in South Korea
collectively accounted for approximately 21% of our net sales and they accounted
for approximately 30% of our net sales for fiscal 1998, and approximately 83% of
net sales for fiscal 1997.  These customers have purchased products primarily
for deployment in the South Korean digital cellular and PCS networks.

     The build-out of the South Korean digital cellular networks began in 1995
with two independent service providers offering digital CDMA service beginning
in 1996. In contrast, the build-out of the South Korean PCS networks began in
the third quarter of 1997 with four service providers. We provided multi-carrier
cellular RF power amplifiers starting from the initial stages of the digital
cellular network buildout in South Korea. During 1997, we began shipping, in
volume, PCS single carrier RF power amplifiers for use in the new PCS networks
being built in South Korea. Sales to our South Korean customers for the South
Korean PCS networks represented substantially all of our PCS sales during fiscal
1997 and approximately 86% of our PCS sales for the first nine months of fiscal
1998. Since 1998, our South Korean PCS Sales have significantly declined while
our non-South Korean PCS sales have significantly increased.

     The delay, postponement and cancellation of the build-out of the South
Korean digital wireless networks which occurred during 1998, did have an adverse
effect on our revenues and results of operations during fiscal 1998. The
economic and financial crisis in Asia and South Korea caused a reduction in the
value of the South Korean Won when compared to the U.S. dollar. This reduction
in purchasing value caused a reduction in South Korean wireless service
operators' demand for our products. Our South Korean customers pay for products
with U.S. dollars. As such, the strengthening of the U.S. dollar as compared to
the South Korean Won during 1998, increased the effective cost of our products
by at times as much as 100% or more for our South Korean customers. The
resulting significant increase in the local currency cost of such products made
them less attractive to our customers. Additionally, due to the economic
problems the South Korean banking network faced in 1998, it became more
difficult for local operating companies to raise additional financing to support
the increased costs of their infrastructure buildout. These types of economic
problems experienced in Asia have also been encountered in other areas of the
world where we operate, such as Brazil in South America.

     Due to the numerous factors involved, we are unable to predict when, if
ever, these networks will be completed pursuant to the South Korean wireless
network operators' original build-out projections. In addition, we are unable to
predict what levels such sales will be in fiscal 2000.

     Hyundai, LGIC and Samsung have also been marketing wireless infrastructure
equipment for installation in networks outside of the South Korean market. We
cannot predict whether such customers will be successful in obtaining new
business outside of South Korea or that, if successful, they will continue to
purchase RF power amplifiers from us. Any further significant decrease in our
sales of RF power amplifiers to these customers, without an offsetting increase
in sales to other customers, could harm our business, results of operations and
financial condition.

  The Market in Which We Operate is Highly Competitive

     The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, frequent new
product development, rapid product obsolescence, evolving industry standards and
significant price erosion over the life of a product.  Our products compete on
the basis of the following key characteristics:

     .    performance;
     .    functionality;

                                       25
<PAGE>

     .    reliability;
     .    pricing;
     .    quality;
     .    designs that can be efficiently manufactured in large volumes;
     .    time-to-market delivery capabilities; and
     .    compliance with industry standards.

     While we believe that we compete favorably with respect to these
characteristics at present, this may change.  If we fail to address our
competitive challenges, there could be a material adverse effect on our
business, financial condition and results of operations.

     Our current competitors include AML Communications, Inc., Microwave Power
Devices, Inc. and Spectrian Corporation, in addition to the RF power amplifier
manufacturing operations of the leading wireless infrastructure manufacturers
such as Ericsson, Lucent, Motorola, Nokia and Samsung.  Some competitors have
significantly greater financial, technical, manufacturing, sales, marketing and
other resources than we do and have achieved greater name recognition for their
products and technologies than we have.  We may not be able to successfully
increase our market penetration or our overall share of the RF power amplifier
market.  Our results of operations could be adversely impacted if we are unable
to effectively increase our share of the RF power amplifier market.

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

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

  The markets in which we compete are characterized by:

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

     To succeed, we must improve current products and develop and introduce new
products that are competitive in terms of price, performance and quality.  These
products must adequately address the requirements of wireless infrastructure
manufacturing customers and end-users.

     To develop new products, we invest in the research and development of RF
power amplifiers for wireless communications networks. We target our research
and development efforts on major wireless network deployments worldwide, which
cover a broad range of frequency and transmission protocols. In addition, we are
currently working on products for third generation networks as well as
development projects for products requested by our customers. In spite of our
efforts, the deployment of a wireless network may be delayed which could cause a
particular research or development effort to not generate a revenue producing
product. Additionally, the new products we develop may not achieve market
acceptance or may not be manufacturable at competitive prices in sufficient
volumes. We cannot guarantee the success of our research and development
efforts.

     We also continue efforts to improve our existing cellular and PCS lines of
RF power amplifier products and to reduce the costs of such products. Any delays
in the shipment of these products may cause customer dissatisfaction and delay
or loss of product revenues.

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<PAGE>

In addition, it is possible that a significant number of development projects
will not result in manufacturable new products or product improvements.

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

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

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

     We have had quality problems with our products in the past and may have
similar problems in the future.  We have replaced components in some products in
accordance with our product warranties.  We believe that our overall
relationship with our customers is good and that they consider our products to
be of good quality.  We also believe that our customers will demand increasingly
stringent product performance and reliability, particularly in domestic markets.
We cannot provide any assurance that our product designs will remain successful
or that they will keep pace with technological developments, evolving industry
standards and new communications protocols.  We may fail to adequately improve
product quality and meet the quality standards of our customers, which could
cause us to lose such customers.  Design problems could damage relationships
with existing and prospective customers and could limit our ability to market
our products to large wireless infrastructure manufacturers, many of which build
their own, high quality RF power amplifiers and have stringent quality control
standards.   See "--Many Wireless Infrastructure Manufacturers have Internal RF
Power Amplifier Production Capabilities."

  The Sales Cycle for Our Products is Lengthy

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

  Many Wireless Infrastructure Manufacturers have Internal RF Power Amplifier
 Production Capabilities

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

     Wireless infrastructure equipment manufacturers with internal manufacturing
capabilities could also sell RF power amplifiers externally to other
manufacturers, thereby competing directly with us.  In addition, even if we are
successful in selling our products to these customers, we believe that such
customers will demand price and other

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<PAGE>

concessions based on their ability to manufacture RF power amplifiers
internally. If, for any reason, our major customers decide to produce their RF
power amplifiers internally or through joint ventures with other competitors, or
require us to participate in joint venture manufacturing with them, our
business, results of operations and financial condition could be materially
adversely affected.

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

     We rely upon trade secrets to protect our intellectual property. We execute
confidentiality and non-disclosure agreements with our employees and limit
access to and distribution of our proprietary information. We hold a total of
five U.S. Patents for various aspects of our technology. In addition, we have
applied for several additional U.S. and international patents for various
aspects of our proprietary technology. These efforts assist us in relying upon
the knowledge and experience of our management and technical personnel, to
market our existing products and to develop new products. The departure of any
of our management and technical personnel, the breach of their confidentiality
and non-disclosure obligations to us or the failure to achieve our intellectual
property objectives may have a material adverse effect on our business,
financial condition and results of operations.

     We do not have non-compete agreements with our employees who are employed
on an "at-will" basis. Therefore, employees may leave us and go to work for a
competitor. We have had employees leave us and go to work for competitors. While
we believe that we have adequately protected our proprietary technology, and we
will take all legal measures to protect it, the use of our processes by a
competitor could have a material adverse effect on our business, financial
condition and results of operations.

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

     As the number of patents, copyrights and other intellectual property rights
in our industry increases, and as the coverage of these rights and the
functionality of the products in the market further overlap, we believe that
companies in our industry may face more frequent infringement claims. Although
there are no pending or threatened intellectual property lawsuits against us, we
may face litigation or infringement claims in the future. Such claims could
result in substantial costs and diversion of our resources.

     A third party claiming infringement may also obtain an injunction or other
equitable relief, which could effectively block the distribution or sale of
allegedly infringing products.  Although we may seek licenses from third parties
covering intellectual property that we are allegedly infringing, we cannot
guarantee that any such licenses could be obtained on acceptable terms, if at
all.

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

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

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

     .    if systems or devices relying on or incorporating our products are
          determined or alleged to create a health risk, causing us to be named
          as a defendant, and held liable, in a product liability lawsuit;
     .    if systems or devices relying on or incorporating our products are
          determined to be defective or malfunction and cause loss of service or
          property damage and such malfunction is determined to be caused by our
          products, we could be held liable in a property liability lawsuit;

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<PAGE>

     .    delays or prohibitions on the installation of wireless communications
          networks due to alleged health or environmental risks; and
     .    our inability to maintain insurance at an acceptable cost or to
          otherwise protect against potential product liability lawsuits.

  Government Regulation of the Communications Industry

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

     The enactment by governments of new laws or regulations or a change in the
interpretation of existing regulations could adversely affect the market for our
products.  Recent deregulation of international communications industries along
with RF spectrum allocations made by the FCC have increased the potential demand
for our products.  We cannot guarantee that the trend toward deregulation and
current regulatory developments favorable to the promotion of new and expanded
wireless services will continue or that other future regulatory changes will
have a positive impact on us.  The increasing demand for wireless communications
has exerted pressure on regulatory bodies worldwide to adopt new standards for
such products, generally following extensive investigation and deliberation over
competing technologies.  In the past, the delays inherent in this governmental
approval process have caused, and may in the future cause, the cancellation,
postponement or rescheduling of the installation of communications systems by
our customers.  These delays could have a material adverse effect on our
business, results of operations and financial condition.

  Our Stock Price Has Been and May Continue to Be Volatile

     The price of our Common Stock has exhibited high levels of volatility with
significant volume and price fluctuations, which makes our Common Stock not
suitable for all investors.  In addition, the stock market has from time to time
experienced significant price and volume fluctuations.  The fluctuations in the
stock market are often unrelated to the operating performance of particular
companies, and the market prices for securities of technology companies have
been especially volatile.  These broad market fluctuations may adversely affect
the market price of our Common Stock.  Our stock price may be affected by the
factors discussed above as well as:

     .    fluctuations in our results of operations or the operations of our
          competitors;
     .    failure of such results of operations to meet the expectations of
          stock market analysts and investors;
     .    sales of a significant number of shares of restricted securities in
          the market;
     .    changes in the political or economic outlook of the markets into which
          we sell our products (such as South Korea or Brazil);
     .    changes in stock market analyst recommendations regarding us or our
          competitors;
     .    the timing and announcements of technological innovations or new
          products by us or our competitors;
     .    changes in the wireless communications industry; and
     .    general market conditions.

  Risk of Litigation

     We are subject to various legal proceedings from time to time as part of
our business. In July 1998, lawsuits were filed by certain of our stockholders
against us and certain of our present and former directors and officers. These
lawsuits were consolidated and an amended complaint was filed in December 1998.
The stockholders bringing these lawsuits claim to represent a class consisting
of all persons who purchased our Common Stock between June 4, 1997 and January
16, 1998. The consolidated action alleges, among other things, that we (and
certain of our present and former officers and directors) violated federal
securities laws by making misrepresentations designed to artificially inflate
our stock price and allow certain individuals to sell their Common Stock at
artificially inflated prices. The parties reached an agreement to settle the
lawsuit for $3,000,000, which is

                                       29
<PAGE>

entirely within the limits of the Company's first layer of insurance coverage.
In accordance with the requirements of Federal Rule of Civil Procedure Rule 23,
the settlement was approved by the United States District Court for the Central
District of California on August 21, 2000, and the consolidated action was
dismissed with prejudice. The settlement agreement provides that the settlement
is in no way an admission of wrongdoing on the part of the Company or any of its
present or former officers and directors.

     In September 1999, a former customer filed a lawsuit against us. The
lawsuit alleges, among other things, that we sold defective LMR products to this
customer from 1994 to 1998. The lawsuit sought direct damages in the amount of
$1.6 million as well as unspecified punitive damages. We deny these allegations
of wrongdoing. In November 2000 the parties reached a preliminary agreement to
settle this lawsuit. Such settlement will not have a material adverse effect on
the Company.

     Powerwave is not currently party to any other legal proceedings, the
adverse outcome of which, individually or in the aggregate, we believe would
have a material adverse effect on our business, financial condition and results
of operations. In addition, litigation, regardless of its merits, could result
in substantial costs to us and divert management's attention from our
operations.

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<PAGE>

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     It is our current policy to not enter into derivative financial
instruments. We do not currently have any significant foreign currency exposure
since we do not transact business in foreign currencies. Due to this, we do not
have any significant overall currency exposure at October 1, 2000.

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

     We currently do not have any material debt outstanding, so we do not have
interest rate risk from a liability perspective.  We do have a significant
amount of cash and short-term investments with maturities less than three
months.  This cash portfolio exposes us to interest rate risk as short-term
investment rates can be volatile.  Given the short-term maturity structure of
our investment portfolio, and the high-grade investment quality of our
portfolio, we believe that we are not subject to principal fluctuations and the
effective interest rate of our portfolio tracks closely to various short-term
money market interest rate benchmarks.

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

     We require significant quantities of RF transistors or semiconductors, and
various metals for use in the manufacture of our products.  We therefore are
exposed to certain commodity price risk associated with variations in the market
prices for these electronic components.  We attempt to manage this risk by
entering into supply agreements with various suppliers of these components.
These supply agreements are not long-term supply agreements so if we become
subject to a significant increase in the price of one of these components, we
would likely be forced to pay such higher prices and we may not be able to pass
such costs onto our customers.  In such an event, our business, results of
operations and financial condition could be adversely affected.   In addition,
we require specialized electronic test equipment, which is utilized in both the
design and manufacture of our products.  Such electronic test equipment is
available from limited sources and may not be available in the time periods
required for us to meet our customers' demand.  If required, we may be forced to
pay higher prices for such equipment and or we may not be able to obtain the
equipment in the time periods required, which would then delay our development
or production of new products.  Such delays and any potential additional costs
could adversely effect our business, results of operations and financial
condition.

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<PAGE>

                          PART II.  OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K

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

Exhibit
Number
------

27.1    Financial Data Schedule.

        (b)  No reports have been filed on Form 8-K for the quarter for which
             this report is filed.



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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.

                                          POWERWAVE TECHNOLOGIES, INC.


Date:   November 13, 2000             By: /s/ Kevin T. Michaels
                                      ------------------------------------------
                                              Kevin T. Michaels
                                              Senior Vice President, Finance and
                                              Chief Financial Officer


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