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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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



For the quarterly period ended October 3, 2004



OR



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



For the transition period from  to



Commission File Number 000-21507



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POWERWAVE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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



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

(Address of principal executive offices, zip code)



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



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



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



As of November 5, 2004, the number of outstanding shares of Common Stock, par
value $0.0001 per share, of the Registrant was 104,444,919.



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##### Table of Contents

POWERWAVE TECHNOLOGIES, INC.



INDEX



|                                                           |  |                                                                                       |  |   
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS |  | 3                                                                                    
|                                                           | 
|HOW TO OBTAIN POWERWAVE SEC FILINGS                        |  | 3                                                                                    
|                                                           | 
|PART I  FINANCIAL INFORMATION                             |  | 4                                                                                    
|                                                           |  |                                                                                      
|Item 1.                                                    |  | Financial Statements (Unaudited)                                                      |  | 4 
|                                                           |  | Condensed Consolidated Balance Sheets                                                 |  | 4 
|                                                           |  | Condensed Consolidated Statements of Operations                                       |  | 5 
|                                                           |  | Condensed Consolidated Statements of Comprehensive Operations                         |  | 6 
|                                                           |  | Condensed Consolidated Statements of Cash Flows                                       |  | 7 
|                                                           |  | Notes to Condensed Consolidated Financial Statements                                  |  | 8 
|                                                           |  |                                                                                      
|Item 2.                                                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16
|                                                           |  |                                                                                      
|Item 3.                                                    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 41
|                                                           |  |                                                                                      
|Item 4.                                                    |  | Controls and Procedures                                                               |  | 42
|                                                           | 
|PART II 
OTHER INFORMATION                                |  | 43                                                                                   
|                                                           |  |                                                                                      
|Item 1.                                                    |  | Legal Proceedings                                                                     |  | 43
|                                                           |  |                                                                                      
|Item 4.                                                    |  | Submission of Matters to a Vote of Security Holders                                   |  | 43
|                                                           |  |                                                                                      
|Item 6.                                                    |  | Exhibits                                                                              |  | 43
|                                                           | 
|SIGNATURES                                                 |  | 44                                                                                   



2



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##### Table of Contents

CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS



This Quarterly Report on Form 10-Q includes forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
relating to revenue, revenue composition, market conditions, preliminary allocations of purchase consideration in the LGP Allgon acquisition, demand and pricing trends, future expense levels, competition in our industry, trends in average selling
prices and gross margins, product and infrastructure development, market demand and acceptance, the timing of and demand for next generation products, customer relationships, employee relations, the timing of and cost saving synergies from
integration activities of the former LGP Allgon businesses, the timing and cost to acquire the remaining outstanding common shares of LGP Allgon under compulsory acquisition proceedings restructuring charges, the completion of integration activities
related to LGP Allgon and the level of expected future capital and research and development expenditures. Such forward-looking statements are based on the beliefs of, estimates made by, and information currently available to Powerwave Technologies,
Inc.s (Powerwave or the Company) management and are subject to certain risks, uncertainties and assumptions. Any other statements contained herein (including without limitation statements to the effect that Powerwave or
management estimates, expects, anticipates, plans, believes, projects, continues, may, will, could, or would or
statements concerning potential or opportunity or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact are also forward-looking statements. The actual results of
Powerwave may vary materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors, including those discussed in
Additional Factors That May Affect Our Future Results under Part I, Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations. Because of these and other factors that may affect
Powerwaves operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical results to anticipate results or trends in future periods. We undertake no obligation to
publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers should carefully review the
risk factors described in this and other documents that Powerwave files from time to time with the Securities and Exchange Commission, including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.



HOW TO OBTAIN POWERWAVE SEC FILINGS



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



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##### Table of Contents

PART I  FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)



POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)



|                                                                                                                                                                                   |  |                |         |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ---------------- | - | ------- | -
|                                                                                                                                                                                   |  | October 3,2004 |         | December 28,2003 |  
|                                                                                                                                                                                   |  | (Unaudited)    |         | (See Note)       |  
|ASSETS                                                                                                                                                                             |  |                |         |                  |   |         |  
|                                                                                                                                                                                   |  |               
|Current assets:                                                                                                                                                                    |  |                |         |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                          |  | $              | 124,049 |                  | $ | 259,928 |  
|Restricted cash                                                                                                                                                                    |  |                | 6,243   |                  |   | 600     |  
|Accounts receivable, net of allowance for sales returns and doubtful accounts of $6,034 and $2,332 at October 3, 2004 and December 28, 2003,
respectively                          |  |                | 118,568 |                  |   | 56,278  |  
|Inventories, net                                                                                                                                                                   |  |                | 61,147  |                  |   | 15,187  |  
|Prepaid expenses and other current assets                                                                                                                                          |  |                | 28,136  |                  |   | 13,353  |  
|                                                                                                                                                                                   |  |                |         |                  |   |         |  
|Total current assets                                                                                                                                                               |  |                | 338,143 |                  |   | 345,346 |  
|                                                                                                                                                                                   |  |               
|Property, plant and equipment, net                                                                                                                                                 |  |                | 152,820 |                  |   | 67,975  |  
|Goodwill                                                                                                                                                                           |  |                | 249,437 |                  |   | 3,439   |  
|Intangible assets, net                                                                                                                                                             |  |                | 62,355  |                  |   | 190     |  
|Other non-current assets                                                                                                                                                           |  |                | 50,162  |                  |   | 49,307  |  
|                                                                                                                                                                                   |  |                |         |                  |   |         |  
|TOTAL ASSETS                                                                                                                                                                       |  | $              | 852,917 |                  | $ | 466,257 |  
|                                                                                                                                                                                   |  |                |         |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                               |  |                |         |                  |   |         |  
|                                                                                                                                                                                   |  |               
|Current liabilities:                                                                                                                                                               |  |                |         |                  |   |         |  
|Accounts payable                                                                                                                                                                   |  | $              | 72,187  |                  | $ | 48,942  |  
|Accrued expenses and other current liabilities                                                                                                                                     |  |                | 92,935  |                  |   | 16,159  |  
|Short-term debt and current portion of long-term debt                                                                                                                              |  |                | 49      |                  |   |        |  
|                                                                                                                                                                                   |  |                |         |                  |   |         |  
|Total current liabilities                                                                                                                                                          |  |                | 165,171 |                  |   | 65,101  |  
|                                                                                                                                                                                   |  |               
|Long-term debt, net of current portion                                                                                                                                             |  |                | 130,016 |                  |   | 130,000 |  
|Other non-current liabilities                                                                                                                                                      |  |                | 246     |                  |   | 119     |  
|                                                                                                                                                                                   |  |                |         |                  |   |         |  
|Total liabilities                                                                                                                                                                  |  |                | 295,433 |                  |   | 195,220 |  
|                                                                                                                                                                                   |  |                |         |                  |   |         |  
|Commitments and contingencies (Note 7)                                                                                                                                             |  |                |        |                  |   |        |  
|                                                                                                                                                                                   |  |               
|Shareholders equity:                                                                                                                                                              |  |                |         |                  |   |         |  
|Preferred stock, $0.0001 par value, 5,000 shares authorized and no shares issued or outstanding                                                                                    |  |                |        |                  |   |        |  
|Common stock, $0.0001 par value, 250,000 shares authorized, 104,429 shares issued and outstanding at October 3, 2004 and 63,257 shares issued
and outstanding at December 28, 2003 |  |                | 525,166 |                  |   | 225,651 |  
|Accumulated other comprehensive income (loss)                                                                                                                                      |  |                | 17,557  |                  |   | (1      | )
|Retained earnings                                                                                                                                                                  |  |                | 14,761  |                  |   | 45,387  |  
|                                                                                                                                                                                   |  |                |         |                  |   |         |  
|Total shareholders equity                                                                                                                                                         |  |                | 557,484 |                  |   | 271,037 |  
|                                                                                                                                                                                   |  |                |         |                  |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                         |  | $              | 852,917 |                  | $ | 466,257 |  
|                                                                                                                                                                                   |  |                |         |                  |   |         |  

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Note: December 28, 2003 balances were derived from the
audited consolidated financial statements of Powerwave Technologies, Inc.



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



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##### Table of Contents

POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except
per share data)



|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|----------------------------------------- |  | ------------------ | ------- | - | ------------------ | - | ------- | --------------- |  | - | ------------------ | - |  | - | ------- | -
|                                          |  | Three Months Ended |         |   | Nine Months Ended  |  
|                                          |  | October 3, 2004    |         |   | September 28, 2003 |   |         | October 3, 2004 |  |   | September 28, 2003 |  
|Net sales                                 |  | $                  | 138,291 |   |                    | $ | 63,158  |                 |  | $ | 317,496            |   |  | $ | 166,821 |  
|                                          |  |                    |         |  
|Cost of sales:                            |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Cost of goods                             |  |                    | 101,901 |   |                    |   | 56,154  |                 |  |   | 246,422            |   |  |   | 154,986 |  
|Intangible asset amortization             |  |                    | 1,643   |   |                    |   | 111     |                 |  |   | 2,771              |   |  |   | 708     |  
|Restructuring and impairment charges      |  |                    |        |   |                    |   | 484     |                 |  |   | 506                |   |  |   | 8,055   |  
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Total cost of sales                       |  |                    | 103,544 |   |                    |   | 56,749  |                 |  |   | 249,699            |   |  |   | 163,749 |  
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Gross profit                              |  |                    | 34,747  |   |                    |   | 6,409   |                 |  |   | 67,797             |   |  |   | 3,072   |  
|                                          |  |                    |         |  
|Operating expenses:                       |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Sales and marketing                       |  |                    | 9,818   |   |                    |   | 3,130   |                 |  |   | 19,672             |   |  |   | 8,601   |  
|Research and development                  |  |                    | 11,533  |   |                    |   | 9,821   |                 |  |   | 33,868             |   |  |   | 29,585  |  
|General and administrative                |  |                    | 7,193   |   |                    |   | 3,878   |                 |  |   | 16,683             |   |  |   | 10,425  |  
|Intangible asset amortization             |  |                    | 2,666   |   |                    |   |        |                 |  |   | 4,434              |   |  |   |        |  
|In-process research and development       |  |                    |        |   |                    |   |        |                 |  |   | 23,450             |   |  |   |        |  
|Restructuring and impairment charges      |  |                    | 102     |   |                    |   | 399     |                 |  |   | 2,103              |   |  |   | 7,607   |  
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Total operating expenses                  |  |                    | 31,312  |   |                    |   | 17,228  |                 |  |   | 100,210            |   |  |   | 56,218  |  
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Operating income (loss)                   |  |                    | 3,435   |   |                    |   | (10,819 | )               |  |   | (32,413            | ) |  |   | (53,146 | )
|Other income (expense), net               |  |                    | (312    | ) |                    |   | 607     |                 |  |   | 24                 |   |  |   | 1,973   |  
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Income (loss) before income taxes         |  |                    | 3,123   |   |                    |   | (10,212 | )               |  |   | (32,389            | ) |  |   | (51,173 | )
|Provision for (benefit from) income taxes |  |                    | 324     |   |                    |   | (4,546  | )               |  |   | (1,763             | ) |  |   | (19,702 | )
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Net income (loss)                         |  | $                  | 2,799   |   |                    | $ | (5,666  | )               |  | $ | (30,626            | ) |  | $ | (31,471 | )
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Basic income (loss) per share             |  | $                  | 0.03    |   |                    | $ | (0.09   | )               |  | $ | (0.35              | ) |  | $ | (0.48   | )
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Diluted income (loss) per share           |  | $                  | 0.03    |   |                    | $ | (0.09   | )               |  | $ | (0.35              | ) |  | $ | (0.48   | )
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Basic weighted average common shares      |  |                    | 104,343 |   |                    |   | 63,639  |                 |  |   | 86,467             |   |  |   | 65,164  |  
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  
|Diluted weighted average common shares    |  |                    | 104,837 |   |                    |   | 63,639  |                 |  |   | 86,467             |   |  |   | 65,164  |  
|                                          |  |                    |         |   |                    |   |         |                 |  |   |                    |   |  |   |         |  



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



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POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS OPERATIONS

(Unaudited)

(In
thousands)



|                                         |  |                    |        |                   |                   |        |                |  |   |                   |   |  |   |         |  
|---------------------------------------- |  | ------------------ | ------ | ----------------- | ----------------- | ------ | -------------- |  | - | ----------------- | - |  | - | ------- | -
|                                         |  | Three Months Ended |        |                   | Nine Months Ended |       
|                                         |  | October 3, 2004    |        | September 28,2003 |                   |        | October 3,2004 |  |   | September 28,2003 |  
|Net income (loss)                        |  | $                  | 2,799  |                   | $                 | (5,666 | )              |  | $ | (30,626           | ) |  | $ | (31,471 | )
|Other comprehensive income (loss):       |  |                    |        |                   |                   |        |                |  |   |                   |   |  |   |         |  
|Foreign currency translation adjustments |  |                    | 13,768 |                   |                   |       |                |  |   | 17,558            |   |  |   | (1      | )
|                                         |  |                    |        |                   |                   |        |                |  |   |                   |   |  |   |         |  
|Comprehensive income (loss)              |  | $                  | 16,567 |                   | $                 | (5,666 | )              |  | $ | (13,068           | ) |  | $ | (31,472 | )
|                                         |  |                    |        |                   |                   |        |                |  |   |                   |   |  |   |         |  



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



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##### Table of Contents

POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



|                                                                                          |  |                   |          |   |                    |   |         |  
|----------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ------------------ | - | ------- | -
|                                                                                          |  | Nine Months Ended |         
|                                                                                          |  | October 3,2004    |          |   | September 28, 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |  |                   |          |   |                    |   |         |  
|Net loss                                                                                  |  | $                 | (30,626  | ) |                    | $ | (31,471 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                   |          |   |                    |   |         |  
|Depreciation and amortization                                                             |  |                   | 24,709   |   |                    |   | 14,310  |  
|In-process research and development charges                                               |  |                   | 23,450   |   |                    |   |        |  
|Non-cash restructuring and impairment charges                                             |  |                   | 458      |   |                    |   | 11,143  |  
|Provision for sales returns and doubtful accounts                                         |  |                   | 770      |   |                    |   | 1,500   |  
|Provision for excess and obsolete inventories                                             |  |                   | 1,420    |   |                    |   | 2,050   |  
|Deferred income taxes                                                                     |  |                   | (2,285   | ) |                    |   | (19,736 | )
|Compensation costs related to stock options                                               |  |                   |         |   |                    |   | 38      |  
|Loss (gain) on disposal of property, plant and equipment                                  |  |                   | 108      |   |                    |   | (31     | )
|Gain on disposal of assets held for sale                                                  |  |                   | (531     | ) |                    |   |        |  
|Changes in operating assets and liabilities, net of effects of acquisition:               |  |                   |          |   |                    |   |         |  
|Accounts receivable                                                                       |  |                   | 6,512    |   |                    |   | 5,460   |  
|Inventories                                                                               |  |                   | (6,585   | ) |                    |   | 6,161   |  
|Prepaid expenses and other current assets                                                 |  |                   | (2,051   | ) |                    |   | 2,934   |  
|Accounts payable                                                                          |  |                   | (28,676  | ) |                    |   | 6,201   |  
|Accrued expenses and other current liabilities                                            |  |                   | (3,045   | ) |                    |   | (712    | )
|Other non-current assets                                                                  |  |                   | (1,609   | ) |                    |   | 1,917   |  
|Other non-current liabilities                                                             |  |                   | (93      | ) |                    |   | 3       |  
|                                                                                          |  |                   |          |   |                    |   |         |  
|Net cash used in operating activities                                                     |  |                   | (18,074  | ) |                    |   | (233    | )
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |  |                   |          |   |                    |   |         |  
|Purchase of property, plant and equipment                                                 |  |                   | (10,251  | ) |                    |   | (2,296  | )
|Proceeds from the sale of property, plant and equipment                                   |  |                   | 1,073    |   |                    |   | 388     |  
|Proceeds from the sale of assets held for sale                                            |  |                   | 6,381    |   |                    |   |        |  
|Acquisition, net of cash acquired                                                         |  |                   | (88,299  | ) |                    |   | (9,934  | )
|                                                                                          |  |                   |          |   |                    |   |         |  
|Net cash used in investing activities                                                     |  |                   | (91,096  | ) |                    |   | (11,842 | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                     |  |                   |          |   |                    |   |         |  
|Proceeds from long-term debt, net of issuance costs                                       |  |                   |         |   |                    |   | 125,869 |  
|Proceeds from bank debt                                                                   |  |                   | 14,722   |   |                    |   |        |  
|Principal payments on bank debt and capital leases                                        |  |                   | (42,872  | ) |                    |   | (79     | )
|Common stock repurchases                                                                  |  |                   |         |   |                    |   | (25,000 | )
|Proceeds from the sale of stock under Employee Stock Purchase Plan                        |  |                   | 1,591    |   |                    |   | 1,505   |  
|Proceeds from exercise of stock options                                                   |  |                   | 891      |   |                    |   | 490     |  
|                                                                                          |  |                   |          |   |                    |   |         |  
|Net cash provided by (used in) financing activities                                       |  |                   | (25,668  | ) |                    |   | 102,785 |  
|                                                                                          |  |                   |          |   |                    |   |         |  
|EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS                       |  |                   | (1,041   | ) |                    |   |        |  
|                                                                                          |  |                   |          |   |                    |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      |  |                   | (135,879 | ) |                    |   | 90,710  |  
|CASH AND CASH EQUIVALENTS, beginning of period                                            |  |                   | 259,928  |   |                    |   | 162,239 |  
|                                                                                          |  |                   |          |   |                    |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                                  |  | $                 | 124,049  |   |                    | $ | 252,949 |  
|                                                                                          |  |                   |          |   |                    |   |         |  



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



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##### Table of Contents

POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in
thousands, except per share data)



Note 1. Nature of Operations



Powerwave Technologies, Inc. (Powerwave or
the Company), a Delaware corporation, is a global supplier of end-to-end wireless solutions for wireless communications networks. Powerwave designs, manufactures and markets antennas, boosters, combiners, filters, radio frequency power
amplifiers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use in cellular, PCS and 3G networks throughout the world. The Company also manufactures and sells advanced industrial components, primarily for the automotive and
food industries, under contract manufacturing arrangements with certain Nordic industrial companies.



Note 2. Summary of Significant Accounting Policies



Basis of Presentation



The accompanying condensed consolidated financial statements of Powerwave have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include certain footnotes and financial presentations normally required under accounting principles generally accepted in the United States of America for
complete financial reporting. The interim financial information is unaudited, but reflects all normal adjustments and accruals, which are, in the opinion of management, considered necessary to provide a fair presentation for the interim periods
presented. Certain prior period amounts have been reclassified to conform to the current period presentation.



During the second quarter of fiscal year 2004, Powerwave completed its acquisition of LGP Allgon (see Note 3. Acquisition of LGP Allgon.) The
condensed consolidated financial statements include the operations of LGP Allgon from May 2004 forward.



The results of operations for the three and nine months ended October 3, 2004 are not necessarily indicative of the results to be expected for the entire
fiscal year ending January 2, 2005 (fiscal 2004.) The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Companys Annual Report
on Form 10-K for the fiscal year ended December 28, 2003.



Foreign Currency Translation



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



Stock-Based Compensation



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



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The Black-Scholes option valuation model prescribed by SFAS 123 was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation methods require the input of highly subjective assumptions including the expected stock price volatility. Using the Black-Scholes option
valuation model, the estimated weighted average fair value of options granted during the third quarter of fiscal years 2004 and 2003 were $2.05 per share and $4.03 per share, respectively. Had compensation cost for the Companys stock option
plans and its stock purchase plans been determined based on the estimated fair value at the grant dates for awards under those plans consistent with the fair value method of SFAS 123 utilizing the Black-Scholes option-pricing model, the
Companys net income (loss) and basic and diluted income (loss) per share for the three and nine months ended October 3, 2004 and September 28, 2003 would have approximated the pro forma amounts indicated below:



|                                                                                       |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -------------- |  | - | ----------------- | - |  | - | ------- | -
|                                                                                       |  | Three Months Ended |        |   | Nine Months Ended |  
|                                                                                       |  | October 3,2004     |        |   | September 28,2003 |   |        | October 3,2004 |  |   | September 28,2003 |  
|Net income (loss):                                                                     |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |         |  
|As reported                                                                            |  | $                  | 2,799  |   |                   | $ | (5,666 | )              |  | $ | (30,626           | ) |  | $ | (31,471 | )
|Deduct: Additional expense per SFAS 123, fair value method, net of related tax effects |  |                    | (1,366 | ) |                   |   | (1,587 | )              |  |   | (3,894            | ) |  |   | (6,397  | )
|                                                                                       |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |         |  
|Pro forma                                                                              |  | $                  | 1,433  |   |                   | $ | (7,253 | )              |  | $ | (34,520           | ) |  | $ | (37,868 | )
|                                                                                       |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |         |  
|Basic income (loss) per share:                                                         |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |         |  
|As reported                                                                            |  | $                  | 0.03   |   |                   | $ | (0.09  | )              |  | $ | (0.35             | ) |  | $ | (0.48   | )
|Pro forma                                                                              |  | $                  | 0.01   |   |                   | $ | (0.11  | )              |  | $ | (0.40             | ) |  | $ | (0.58   | )
|Diluted income (loss) per share:                                                       |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |         |  
|As reported                                                                            |  | $                  | 0.03   |   |                   | $ | (0.09  | )              |  | $ | (0.35             | ) |  | $ | (0.48   | )
|Pro forma                                                                              |  | $                  | 0.01   |   |                   | $ | (0.11  | )              |  | $ | (0.40             | ) |  | $ | (0.58   | )



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



|                                         |  |                   |  |                   
|---------------------------------------- |  | ----------------- |  | ------------------
|                                         |  | Nine Months Ended
|                                         |  | October 3,2004    |  | September 28, 2003
|Weighted average risk-free interest rate |  | 2.2% - 2.8%       |  | 1.7% - 2.0%       
|Expected life (in years)                 |  | 5.2               |  | 5.1               
|Expected stock volatility                |  | 53% - 71%         |  | 74%-177%          
|Dividend yield                           |  | None              |  | None              



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



Note 3. Acquisition of LGP Allgon



On May 3, 2004, the Company completed its exchange offer
for the outstanding shares of LGP Allgon Holding AB (LGP Allgon), a Swedish public company and global provider of wireless infrastructure equipment and coverage solutions to wireless network communications operators and original
equipment manufacturers. Pursuant to the terms of the exchange offer, LGP Allgon shareholders were offered 1.1 shares of newly issued Powerwave Common Stock in exchange for each share of LGP Allgon common stock. In addition, pursuant to the exchange
offer, Powerwave offered a cash alternative whereby LGP Allgon shareholders could alternatively elect to exchange their LGP Allgon common stock for a fixed price of Swedish kronor (SEK) 61.87 in lieu of Powerwave shares. This cash
alternative was subject to an aggregate maximum of $125 million. Powerwave believes that the acquisition of LGP Allgon increased the combined companys products offerings within the global wireless infrastructure market and improved its ability
to offer more complete end-to-end solutions for its customers complex network requirements. These factors contributed to a purchase price in excess of the fair value of the net assets acquired, resulting in goodwill of approximately $246.0
million as of October 3, 2004.



As of October 3, 2004,
Powerwave had acquired approximately 98% of LGP Allgons outstanding common stock in exchange for approximately $96.6 million in cash and 40,685,596 shares of Powerwave Common Stock,



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valued at $297.0 million based upon the average closing price for the three days before and after the announcement of the
transaction. The Company has initiated compulsory acquisition proceedings to acquire the remaining LGP Allgon shares that were not tendered and expects to pay between $7.0 million and $8.0 million as additional purchase price related to such
proceedings.



In connection with the acquisition, the Company
began to formulate and implement a plan to restructure and integrate the operations of the combined companies. Pursuant to such plan, the Company recognized $16.6 million as liabilities or asset write-downs in connection with the acquisition for
estimated restructuring and integration costs related to the consolidation of LGP Allgon operations, including amounts for future lease obligations on excess facilities, impairment of excess equipment, write-downs of inventory for discontinued
product lines and severance related costs for expected workforce reductions. These estimated costs were included in the allocation of the purchase consideration in accordance with SFAS No. 141, Business Combinations and EITF 95-3,
Recognition of Liabilities in Connection with a Purchase Business Combination.Implementation of the restructuring and integration plan is underway and additional actions are expected pending certain product related decisions and
the further assessment of workforce and facility related requirements. The restructuring and integration plan is expected to be finalized by the end of 2004, at which time any additional charges will be recorded as an adjustment to goodwill.
Integration activities related to such plan are currently expected to continue through the first quarter of fiscal 2005. See Note 6. Restructuring and Impairment Charges for additional information on the Companys restructuring and
integration plans.



The Company has completed a preliminary
allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed based upon estimates of fair value determined by management with the assistance of independent valuation specialists. Such allocation and
amounts may change as certain independent valuations are finalized and the restructuring and integration plan is completed. Based on these preliminary estimates, Powerwave allocated approximately $66.5 million to various identifiable intangible
assets related to patents and technology, customers and trademarks, with a weighted average life of 4 years. In addition, $23.5 million was allocated to purchased in-process research and development that was expensed upon completion of the
acquisition (as a charge not deductible for tax purposes) since the underlying products had not reached technological feasibility, successful development was uncertain and no future alternative uses existed.



The following unaudited pro forma financial information for the three and
nine months ended October 3, 2004 and September 28, 2003, assumes that the LGP Allgon acquisition had occurred on the first day of each period presented. The pro forma financial information is presented for information purposes only. The unaudited
pro forma financial information excludes the effect of the in-process research and development charge of $23.5 million. Such information is based upon the standalone historical results of each company and does not reflect the actual results that
would have been reported had the acquisition been completed when assumed, nor is it indicative of the future results of operations for the combined enterprise.



|                       |  |                    |         |   |                   |   |         |                   |  |   |         |  
|---------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|                       |  | Three Months Ended |         |   | Nine Months Ended |  
|Pro forma              |  | September 28, 2003 |         |   | October 3,2004    |   |         | September 28,2003 | 
|Net sales              |  | $                  | 136,459 |   |                   | $ | 426,899 |                   |  | $ | 365,552 |  
|                       |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Net loss               |  | $                  | (9,003  | ) |                   | $ | (14,301 | )                 |  | $ | (58,980 | )
|                       |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Basic loss per share   |  | $                  | (0.09   | ) |                   | $ | (0.14   | )                 |  | $ | (0.56   | )
|                       |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Diluted loss per share |  | $                  | (0.09   | ) |                   | $ | (0.14   | )                 |  | $ | (0.56   | )
|                       |  |                    |         |   |                   |   |         |                   |  |   |         |  



Note 4. Inventories



Net inventories consist of the following:



|                     |  |                 |        |                   |   |       
|-------------------- |  | --------------- | ------ | ----------------- | - | ------
|                     |  | October 3, 2004 |        | December 28, 2003
|Parts and components |  | $               | 28,317 |                   | $ | 5,295 
|Work-in-process      |  |                 | 2,683  |                   |   | 722   
|Finished goods       |  |                 | 30,147 |                   |   | 9,170 
|                     |  |                 |        |                   |   |       
|Total inventories    |  | $               | 61,147 |                   | $ | 15,187
|                     |  |                 |        |                   |   |       



Inventories are net of
an allowance for excess and obsolete inventory of approximately $18.3 million and $8.6 million as of October 3, 2004 and December 28, 2003, respectively. Powerwave regularly reviews inventory quantities on hand and records an allowance for excess
and obsolete inventory based on numerous factors including sales backlog, historical inventory usage, and forecasted product demand and production requirements for the next twelve months.



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Note 5. Income Taxes



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



Powerwave recorded an effective tax rate of 10.4% and 5.2% for the three and
nine months ended October 3, 2004, respectively. These rates differ from the U.S. federal statutory tax rate of 35% primarily due to the acquisition of LGP Allgon, which substantially increased the number of tax jurisdictions within which the
Company operates, the related impact of the distribution of earnings and losses in such tax jurisdictions, and the impact of the in-process research and development charge which was not tax deductible. Given the increased global scope of
Powerwaves operations and the complexity of global tax and transfer pricing rules and regulations, it has become increasingly difficult for the Company to predict and manage its earnings within each tax jurisdiction. This has resulted in, and
could continue to result in, significant fluctuations in Powerwaves effective tax rate.



As of October 3, 2004, Powerwave had a consolidated net tax deferred asset of approximately $44.4 million, primarily related to U.S. domestic operations. The Company continually assesses the recoverability of its
deferred tax assets and records a valuation allowance when it is more likely than not that some or all or such deferred tax assets will not be realized. Recoverability of its deferred tax assets is dependent upon continued profitability from
operations, as well as the geographic region generating the profits. In recent years, Powerwave has generated losses in certain tax jurisdictions, including the U.S., and profits in others, resulting in consolidated operating losses. Should the
Company continue to operate at a loss in certain tax jurisdictions, it would likely record an additional valuation allowance against its deferred tax assets in the future.



Note 6. Restructuring and Impairment Charges



Integration with LGP Allgon



In connection with Powerwaves acquisition of LGP Allgon during the second quarter of fiscal 2004, the Company began to formulate and implement a
plan to restructure and integrate LGP Allgons operations with Powerwaves operations. As a result, Powerwave recorded a restructuring charge related to its legacy operations of approximately $2.6 million during the nine months ended
October 3, 2004 in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This amount included approximately $2.2 million in connection with workforce reductions of approximately 100
employees at various Powerwave operating locations and $0.4 million in connection with future lease obligations and asset write-downs related to the closure of its facility in Long Island, New York, and the consolidation of engineering facilities in
El Dorado Hills, California. Based on the job classification of the impacted employees or the characterization of the underlying assets and lease expenses, approximately $0.5 million of this restructuring charge was recorded in cost of sales and
approximately $2.1 million was recorded in operating expenses. In addition, the Company recognized $16.6 million as liabilities or asset write-downs in connection with the LGP Allgon acquisition for estimated restructuring and integration costs
related to the consolidation of LGP Allgon operations, including amounts for future lease obligations on excess facilities, impairment of excess equipment, write-downs of inventory for discontinued product lines and severance related costs for
expected workforce reductions. These estimated costs were included in the allocation of the purchase price and recorded as an adjustment to goodwill. Implementation of the Companys restructuring and integration plan is underway and additional
actions are expected pending certain product related decisions and the further assessment of workforce and facility related requirements. The restructuring and integration plan is expected to be finalized by the end of 2004, at which time any
additional charges will be recorded as an adjustment to goodwill or, if related to pre-existing Powerwave operations, as a charge to earnings as incurred. Integration activities related to such plan are currently expected to continue through the
first quarter of fiscal 2005.



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Outsourcing of Radio Frequency Power Amplifier Production



Powerwave outsourced the majority of its radio frequency power amplifier
production to contract manufacturers located in Asia during fiscal 2003 in order to further reduce the Companys operating cost structure and enable it to be more competitive. During fiscal 2003, the Company also accelerated the timing of
certain technology transitions and new product introductions due to its transition to outsourced manufacturing, as well as the continued economic downturn that significantly impacted demand in the wireless infrastructure industry. As a result,
Powerwave recorded approximately $10.8 million of restructuring and impairment charges during the nine months ended September 28, 2003. These charges included cash restructuring charges of approximately $4.5 million related primarily to severance
payments made prior to September 28, 2003 in connection with a reduction of its work force of approximately 550 employees. The remaining non-cash impairment charges of approximately $6.3 million related to a $3.2 million write-down of excess
manufacturing and test equipment and a $3.1 million write-down of certain product/technology and customer related intangibles, the value of which was impaired by the technology and product transitions that were implemented during the quarter. These
restructuring and impairment charges were recorded in cost of sales or operating expenses based upon the job classification of the impacted employees or the character of the underlying assets. During the nine months ended September 28, 2003,
approximately $8.1 million of the total $10.8 million restructuring and impairment charges was recorded in cost of sales and approximately $2.7 million was recorded in operating expenses.



Goodwill Impairment



During the quarter ended March 30, 2003, Powerwave determined that it was necessary to test its previously recorded goodwill for impairment as a result of
the significant economic downturn effecting demand in the wireless infrastructure industry. Since Powerwave operated in a single business segment as a single reporting unit at such time, the determination of whether any potential impairment of
goodwill exists was based on a comparison of the fair value of the entire Company to the accounting value of its net assets. In estimating the fair value of the entire Company, Powerwave reviewed the average and closing stock prices for its Common
Stock, valuations based on multiples of sales, EBITDA and EBIT, as well as other factors. Based on a comparison of these valuations to the accounting value of the underlying assets and liabilities, the Company concluded that the entire amount of its
recorded goodwill had been impaired and, therefore, recorded a non-cash charge of $4.9 million during the first quarter of fiscal 2003. The Company did not record any similar impairment charge during the nine months ended October 3, 2004.



A summary of the activity that affected the Companys
accrued restructuring and impairment costs for the year ended December 28, 2003 and the nine months ended October 3, 2004 is as follows:



|                                       |  |                     |        |   |                                        |   |        |                                  |  |   |        |   |  |       |        |   |  |   |         |  
|-------------------------------------- |  | ------------------- | ------ | - | -------------------------------------- | - | ------ | -------------------------------- |  | - | ------ | - |  | ----- | ------ | - |  | - | ------- | -
|                                       |  | WorkforceReductions |        |   | FacilityClosures &EquipmentWrite-downs |   |        | Goodwill &Intangible Write-downs |  |   | Other  |   |  | Total |       
|Balance at December 29, 2002           |  | $                   |       |   |                                        | $ |       |                                  |  | $ |       |   |  | $     |       |   |  | $ |        |  
|Amounts expensed                       |  |                     | 4,551  |   |                                        |   | 2,982  |                                  |  |   | 7,927  |   |  |       |       |   |  |   | 15,460  |  
|Amounts paid/incurred                  |  |                     | (4,531 | ) |                                        |   | (2,982 | )                                |  |   | (7,927 | ) |  |       |       |   |  |   | (15,440 | )
|                                       |  |                     |        |   |                                        |   |        |                                  |  |   |        |   |  |       |        |   |  |   |         |  
|Balance at December 28, 2003           |  |                     | 20     |   |                                        |   |       |                                  |  |   |       |   |  |       |       |   |  |   | 20      |  
|Amounts assumed from LGP Allgon        |  |                     | 464    |   |                                        |   | 3,348  |                                  |  |   |       |   |  |       | 863    |   |  |   | 4,675   |  
|Amounts accrued in purchase accounting |  |                     | 11,730 |   |                                        |   | 3,496  |                                  |  |   |       |   |  |       | 1,348  |   |  |   | 16,574  |  
|Amounts expensed                       |  |                     | 2,151  |   |                                        |   | 458    |                                  |  |   |       |   |  |       |       |   |  |   | 2,609   |  
|Amounts paid/incurred                  |  |                     | (3,840 | ) |                                        |   | (1,973 | )                                |  |   |       |   |  |       | (1,772 | ) |  |   | (7,585  | )
|                                       |  |                     |        |   |                                        |   |        |                                  |  |   |        |   |  |       |        |   |  |   |         |  
|Balance at October 3, 2004             |  | $                   | 10,525 |   |                                        | $ | 5,329  |                                  |  | $ |       |   |  | $     | 439    |   |  | $ | 16,293  |  
|                                       |  |                     |        |   |                                        |   |        |                                  |  |   |        |   |  |       |        |   |  |   |         |  



Note 7. Commitments and
Contingencies



Powerwave is subject to various legal
proceedings from time to time as part of its business. As of October 3, 2004, Powerwave was not currently party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, it believes
would have a material adverse effect on its business, financial condition or results of operations.



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Note 8. Warranty Costs



The Company establishes reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with its
customers. The Company also has contractual requirements with various customers that could require the Company to incur costs to repair an epidemic defect with respect to its products outside of the normal warranty period if such defect were to
occur. The Companys warranty reserves are generally established at the time of sale and updated throughout the warranty period based upon numerous factors including historical warranty return rates and expenses over various warranty periods.
The Company also accrues additional warranty liabilities for significant and unusual product performance issues at the time such issues are identified and the associated warranty related costs can be reasonably estimated. A summary of the activity
that affected the Companys accrued warranty costs for the nine months ended October 3, 2004 and September 28, 2003 are as follows:



|                                                         |  |                   |        |   |                   |   |        |  
|-------------------------------------------------------- |  | ----------------- | ------ | - | ----------------- | - | ------ | -
|                                                         |  | Nine Months Ended |       
|Description                                              |  | October 3,2004    |        |   | September 28,2003 |  
|Beginning Balance                                        |  | $                 | 4,829  |   |                   | $ | 5,133  |  
|Reserve balances acquired with LGP Allgon                |  |                   | 7,385  |   |                   |   |       |  
|Reductions for warranty costs incurred                   |  |                   | (3,055 | ) |                   |   | (2,788 | )
|Warranty accrual related to current period sales         |  |                   | 2,130  |   |                   |   | 3,536  |  
|Change in estimate related to previous warranty accruals |  |                   | 451    |   |                   |   | (438   | )
|                                                         |  |                   |        |   |                   |   |        |  
|Ending Balance                                           |  | $                 | 11,740 |   |                   | $ | 5,443  |  
|                                                         |  |                   |        |   |                   |   |        |  



Note 9. Contractual Guarantees and
Indemnities



During the normal course of its business,
Powerwave makes certain contractual guarantees and indemnities pursuant to which the Company may be required to make future payments under specific circumstances. Powerwave has not recorded any liability for these contractual guarantees and
indemnities in the accompanying consolidated financial statements. A description of significant contractual guarantees and indemnities existing as of October 3, 2004 is included below:



Intellectual Property Indemnities



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



Director and Officer Indemnities and Contractual Guarantees



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



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



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General Contractual Indemnities/Products Liability



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



Other Guarantees



The Company occasionally issues guarantees for certain contingent liabilities under various contractual arrangements, including customer contracts,
self-insured retentions under certain insurance policies, and governmental value-added tax compliance programs. These guarantees normally take the form of standby letters of credit issued by the Companys bank, which may be secured by cash
deposits or pledges, or performance bonds issued by an insurance company. Historically, any amounts payable pursuant to such guarantees have not had a material negative effect on Powerwaves business, financial condition or results of
operations.



Note 10. Earnings (Loss) Per Share



In accordance with SFAS No. 128, Earnings Per Share (SFAS
128), basic earnings (loss) per share is computed based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed based upon the weighted average number of common and potential common shares
for each period presented. Potential common shares include stock options under the treasury stock method and convertible subordinated debt under the if-converted method. Potential common shares of 12,392,757 related to the Companys convertible
debt have been excluded from diluted weighted average common shares for the three and nine months ended October 3, 2004, as the effect would be anti-dilutive. Additionally, potential common shares of 957,473 related to the Companys stock
option programs have been excluded from diluted weighted average common shares for the nine months ended October 3, 2004, as the effect would be anti-dilutive. For the three and nine months ended and September 28, 2003, potential common shares of
10,698,122 and 3,699,569 respectively, related to the Companys convertible debt and stock option programs have been excluded from diluted weighted average common shares, as the effect would be anti-dilutive.



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



|                                       |  |                    |         |                   |                   |        |                 |  |   |                   |   |  |   |         |  
|-------------------------------------- |  | ------------------ | ------- | ----------------- | ----------------- | ------ | --------------- |  | - | ----------------- | - |  | - | ------- | -
|                                       |  | Three Months Ended |         |                   | Nine Months Ended |       
|                                       |  | October 3, 2004    |         | September 28,2003 |                   |        | October 3, 2004 |  |   | September 28,2003 |  
|Basic:                                 |  |                    |         |                   |                   |        |                 |  |   |                   |   |  |   |         |  
|Basic weighted average common shares   |  |                    | 104,343 |                   |                   | 63,639 |                 |  |   | 84,467            |   |  |   | 65,164  |  
|Net income (loss)                      |  | $                  | 2,799   |                   | $                 | (5,666 | )               |  | $ | (30,626           | ) |  | $ | (31,471 | )
|                                       |  |                    |         |                   |                   |        |                 |  |   |                   |   |  |   |         |  
|Basic income (loss) per share          |  | $                  | 0.03    |                   | $                 | (0.09  | )               |  | $ | (0.35             | ) |  | $ | (0.48   | )
|                                       |  |                    |         |                   |                   |        |                 |  |   |                   |   |  |   |         |  
|Diluted:                               |  |                    |         |                   |                   |        |                 |  |   |                   |   |  |   |         |  
|Basic weighted average common shares   |  |                    | 104,343 |                   |                   | 63,639 |                 |  |   | 86,467            |   |  |   | 65,164  |  
|Potential common shares                |  |                    | 494     |                   |                   |       |                 |  |   |                  |   |  |   |        |  
|                                       |  |                    |         |                   |                   |        |                 |  |   |                   |   |  |   |         |  
|Diluted weighted average common shares |  |                    | 104,837 |                   |                   | 63,639 |                 |  |   | 86,467            |   |  |   | 65,164  |  
|Net income (loss)                      |  | $                  | 2,799   |                   | $                 | (5,666 | )               |  | $ | (30,626           | ) |  | $ | (31,471 | )
|                                       |  |                    |         |                   |                   |        |                 |  |   |                   |   |  |   |         |  
|Diluted income (loss) per share        |  | $                  | 0.03    |                   | $                 | (0.09  | )               |  | $ | (0.35             | ) |  | $ | (0.48   | )
|                                       |  |                    |         |                   |                   |        |                 |  |   |                   |   |  |   |         |  



Note 11. Segments



As a result of its recent acquisition of LGP Allgon, Powerwave operates
in two reportable business segments: wireless communications and contract manufacturing. Sales in the wireless communications segment are derived primarily from the sale of wireless communications network products and coverage solutions, including
antennas, boosters, combiners, filters, radio frequency power amplifiers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use in wireless communications networks. Sales in the contract manufacturing segment are derived from
the manufacture and sale of advanced industrial components, primarily for the automotive and food industries, under contract manufacturing arrangements with certain Nordic industrial companies. The accounting policies of each reportable segment are
the same as those described in Note 2. Summary of Significant Accounting Policies.



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The following schedule presents an analysis of certain financial information for these two business
segments based on the preliminary purchase price allocation:



|                              |  |                    |         |                   |                   |         |                 |  |   |                   |   |  |   |         |  
|----------------------------- |  | ------------------ | ------- | ----------------- | ----------------- | ------- | --------------- |  | - | ----------------- | - |  | - | ------- | -
|                              |  | Three Months Ended |         |                   | Nine Months Ended |        
|                              |  | October 3,2004     |         | September 28,2003 |                   |         | October 3, 2004 |  |   | September 28,2003 |  
|Net sales:                    |  |                    |         |                   |                   |         |                 |  |   |                   |   |  |   |         |  
|Wireless communications       |  | $                  | 130,943 |                   | $                 | 63,158  |                 |  | $ | 304,222           |   |  | $ | 166,821 |  
|Contract manufacturing        |  |                    | 7,348   |                   |                   |        |                 |  |   | 13,274            |   |  |   |        |  
|                              |  |                    |         |                   |                   |         |                 |  |   |                   |   |  |   |         |  
|Total net sales               |  | $                  | 138,291 |                   | $                 | 63,158  |                 |  | $ | 317,496           |   |  | $ | 166,821 |  
|                              |  |                    |         |                   |                   |         |                 |  |   |                   |   |  |   |         |  
|Operating income (loss):      |  |                    |         |                   |                   |         |                 |  |   |                   |   |  |   |         |  
|Wireless communications       |  | $                  | 2,728   |                   | $                 | (10,819 | )               |  | $ | (32,768           | ) |  | $ | (53,146 | )
|Contract manufacturing        |  |                    | 707     |                   |                   |        |                 |  |   | 355               |   |  |   |        |  
|                              |  |                    |         |                   |                   |         |                 |  |   |                   |   |  |   |         |  
|Total operating income (loss) |  | $                  | 3,435   |                   | $                 | (10,819 | )               |  | $ | (32,413           | ) |  | $ | (53,146 | )
|                              |  |                    |         |                   |                   |         |                 |  |   |                   |   |  |   |         |  



|                        |  |                |         |                   |   |        
|----------------------- |  | -------------- | ------- | ----------------- | - | -------
|                        |  | October 3,2004 |         | December 28, 2003
|Total assets:           |  |                |         |                   |   |        
|Wireless communications |  | $              | 820,446 |                   | $ | 466,257
|Contract manufacturing  |  |                | 32,471  |                   |   |       
|                        |  |                |         |                   |   |        
|Total assets            |  | $              | 852,917 |                   | $ | 466,257
|                        |  |                |         |                   |   |        



Note 12. Customer Concentrations



Powerwaves product sales have historically been
concentrated in a small number of customers. With the completion of the LGP Allgon acquisition, Powerwaves worldwide customer base has become more diversified. However, the Company is still dependent upon the limited number of customers that
comprise the wireless communications industry for the majority of its revenues. During the three months ended October 3, 2004 and September 28, 2003, sales to customers that accounted for 10% or more of revenues totaled $36.1 million and $52.4
million, respectively. Sales to Nortel Networks Corporation and related entities (Nortel) accounted for approximately 16% and 62% of revenues during such quarters, respectively. During the quarter ended October 3, 2004, one customer in
addition to Nortel accounted for approximately 10% of revenues. During the quarter ended September 28, 2003, two customers in addition to Nortel accounted for approximately 12% and 10% of revenues.



During the nine months ended October 3, 2004 and September 28, 2003, sales to
customers that accounted for 10% or more of revenues for the period totaled $117.3 million and $122.7 million, respectively. Sales to Nortel accounted for approximately 27% and 57% of revenues during such periods, respectively. During the nine
months ended October 3, 2004 and September 28, 2003, one customer in addition to Nortel accounted for approximately 10% and 17% of revenues, respectively.



As of October 3, 2004, approximately 26% of total accounts receivable related to the two customers that each accounted for 10% or more of Powerwaves
net sales during the first nine months of 2004. The loss of or reduction in sales, or the inability to collect any outstanding accounts receivable, from any of these customers could have a material adverse effect on the Companys business,
financial condition and results of operations.



Note 13. Subsequent Events



On November 10, 2004, Powerwave completed the private
placement of $150.0 million aggregate principal amount of convertible subordinated notes due November 2024. The notes are convertible into the Common Stock of Powerwave at a conversion price of $11.09 per share and accrue interest at an annual rate
of 1.875%. The notes mature in 2024. Powerwave may redeem the notes beginning on November 21, 2009 until November 20, 2010 and on or after November 21, 2010 until November 20, 2011, if the closing price of Powerwaves Common Stock is more than
$17.74 and $14.42, respectively, for at least 20 trading days within a 30 consecutive trading day period. The notes may be redeemed by Powerwave at any time after November 21, 2011. Holders of the notes may require Powerwave to repurchase all or a
portion of their notes for cash on November 15, 2011, 2014 and 2019 at 100% of the principal amount of the notes, plus accrued and unpaid interest up to but not including the date of such repurchase.



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Powerwave used a portion of the proceeds of the offering to fund the purchase of $40.0 million of its
Common Stock (5,050,505 shares) simultaneously with the issuance of the notes. The Company received net cash proceeds of approximately $105.0 million after the deduction of the amount used for the Common Stock repurchase and placement fees. Such net
proceeds are available for possible future acquisitions and for general corporate purposes. As the Company currently has no specific arrangements with respect to acquisitions, Powerwave intends to invest the net proceeds in short-term money market
instruments, including time deposits, commercial paper, auction rate securities and money market funds with maturities of three months or less, pending specific application.



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



The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included under Item 1,
Financial Statements (Unaudited). This discussion contains forward-looking statements, the realization of which may be impacted by certain important factors including, but not limited to, those discussed in Additional Factors That
May Affect Our Future Results included herein.



Introduction and
Overview



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



We also operate a contract manufacturing business under the tradename of Arkivator. This business manufactures and sells advanced industrial
components, primarily for the automotive and food industries, under contract manufacturing arrangements with certain Nordic industrial companies. This business accounted for approximately five percent of our revenues for the third quarter of 2004.



Our wireless communications business is primarily dependent
upon the worldwide demand for wireless communications and the resulting requirements for infrastructure spending by wireless network operators to support such demand. Today, the majority of the wireless network operators offer wireless voice and
data services on what are commonly referred to as 2G or 2.5G networks. These wireless networks utilize common transmission protocols including Code Division Multiple Access or CDMA, Time Division Multiple Access or TDMA, and Global System for Mobile
or GSM, all of which define different standards for transmitting voice and data within wireless networks. Within these transmission protocols, there are various improvements available to increase the speed of data transmission or to increase the
amount of voice capacity in the network. These types of improvements are generally referred to as 2.5G and include upgrades to GSM such as General Packet Radio Service or GPRS and Enhanced Data rates for Global Evolution or EDGE. For CDMA networks,
various upgrades are referred to as CDMA 1x, CDMA2000 and CDMA EV/DO.



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



During the last three years, demand for wireless communications infrastructure equipment has fluctuated dramatically and there has been significant slowdowns in capital spending by wireless network operators due to
delays in the expected deployment of next generation equipment and financial difficulties on the part of the wireless network operators who have been forced to consolidate and reduce spending to strengthen their balance sheet and improve their
profitability. This has had a significant negative impact on overall demand for wireless infrastructure products, and at various times, has directly reduced demand for our products and increased price competition within our industry which has led to
reductions in our revenues and contributed to our reported operating losses.



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We believe that we have maintained our overall market share within the wireless communications
infrastructure equipment market during this difficult industry period. We continue to invest in the research and development of wireless communications network technology and the diversification of our product offerings, and we believe that we have
one of our industrys leading product portfolios in terms of performance and features. We believe that our proprietary design technology is a further differentiator for our products.



During fiscal 2003, we focused on restructuring Powerwave to lower our operating cost structure while ensuring that we
maintained our operating flexibility to support future growth in the industry. During fiscal 2004, we are striving to continue our focus on cost savings while we expand our market opportunities, as evidenced by our acquisition of LGP Allgon. This
acquisition involves the integration of two companies based in different countries that previously have operated independently, which is a complex, costly and time-consuming process. We have begun to implement our plans to restructure and integrate
LGP Allgons operations, technology and personnel with ours and currently expect that such efforts will continue through the first quarter of fiscal 2005. We believe LGP Allgons product offerings and customer relationships are highly
complimentary with those of Powerwave and that this acquisition provides us with a strong position in the global wireless infrastructure market and improves our ability to provide more complete end-to-end solutions for our customers complex
network requirements. As a result of this acquisition and our integration efforts, we currently expect to realize annual cost saving synergies of at least $30 million beginning in fiscal year 2005. See Note 3. Acquisition of LGP Allgon
and Note 6. Restructuring and Impairment Charges within the Notes to Condensed Consolidated Financial Statements included under Item 1, Financial Statements (Unaudited) for additional information.



We measure our success by monitoring our net sales and gross margins, with a
short-term goal of maintaining a positive operating cash flow while striving to achieve long-term operating profits. We believe that there continues to be long-term growth opportunities within the wireless communications infrastructure marketplace,
and we are focused on positioning Powerwave to benefit from these long-term opportunities.



Critical Accounting Policies and Estimates



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



Revenue Recognition



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



Accounts Receivable



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



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Inventories



We value our inventory at the lower of the actual cost to purchase and/or manufacture the inventory or the current estimated
market value of the inventory. We regularly review inventory quantities on hand and on order and record a provision for excess and obsolete inventory and/or vendor cancellation charges related to purchase commitments. Depending on the product line,
such provisions are established based on historical usage for the preceding twelve months, adjusted for known changes in demands for such products, or the estimated forecast of product demand and production requirements for the next twelve months.
Our industry is characterized by rapid technological change, frequent new product development, and rapid product obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand. As demonstrated during the past
three fiscal years, demand for our products can fluctuate significantly. A significant increase in the demand for our products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could
result in an increase in the amount of excess inventory quantities on hand. In addition, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and
obsolete inventory. Although we make reasonable efforts to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a material effect on the value of our
inventory and our reported operating results.



Income Taxes



We recognize current and deferred tax assets and
liabilities, as well as the associated income statement benefit or expense, based on our reported operating results and the differences between the financial statement carrying values and the tax bases of assets and liabilities in each separate tax
jurisdiction within which we conduct business. We do not provide deferred U.S. income taxes on undistributed earnings from certain foreign subsidiaries where we consider such earnings to be permanently reinvested. Given the increased global scope of
our operations and the complexity of global tax and transfer pricing rules and regulations, it has become increasingly difficult to predict and manage our earnings within each tax jurisdiction. This has resulted in, and could continue to result in,
significant fluctuations in our effective tax rate.



As of
October 3, 2004, we had a consolidated net tax deferred asset of approximately $44.4 million, primarily related to U.S. domestic operations. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on
historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences within each taxing jurisdiction. During 2003 and for the first nine months of 2004, we generated losses in certain
tax jurisdictions, including the U.S., and profits in others, resulting in a consolidated operating loss. If we continue to operate at a loss in any specific tax jurisdiction for an extended period of time and/or are unable to generate sufficient
future taxable income in such jurisdiction, we could be required to increase the valuation allowance against all or a significant portion of our deferred tax assets related to such tax jurisdiction, which could have a material adverse impact on our
effective tax rate, the value of our deferred tax assets and liabilities, and our reported financial results.



Goodwill, Intangible Assets and Other Long-Lived Assets



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



We review the recoverability of the carrying value of goodwill on an annual basis or more frequently when an event occurs or circumstances change to
indicate that an impairment of goodwill has possibly occurred. The determination of whether any potential impairment of goodwill exists is based upon a comparison of the fair value of a reporting unit to the accounting value of the underlying net
assets of such reporting unit. To determine the fair value of a reporting unit, we review the market value of our outstanding Common Stock based upon its average and closing stock prices, as well as subjective valuations for the reporting unit based
on multiples of sales, EBITDA and EBIT, and other valuation metrics. If the fair value of the reporting unit is less than the accounting value of the underlying net assets, goodwill is deemed impaired and an impairment loss is recorded to the extent
that the carrying value of goodwill is less than the difference between the fair value of the reporting unit and the fair value of all its underlying identifiable assets and liabilities. While we do not believe that any portion of our recorded
goodwill is presently impaired, any future impairment of our goodwill could have a material adverse affect on our financial position and results of operations.



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



Warranties



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



Accruals for
Restructuring and Impairment Charges



We recorded $2.6
million and $10.8 million of restructuring and impairment charges during the first nine months of fiscal years 2004 and 2003, respectively. In addition, as a result of the acquisition of LGP Allgon in May 2004, we recorded $16.6 million of
additional restructuring liabilities and asset write-downs under purchase accounting for expected integration and consolidation activities related to their operations. These restructuring and impairment accruals related primarily to workforce
reductions, consolidation of facilities, and the discontinuation of certain product lines, including the associated write-downs of inventory, manufacturing and test equipment, and certain intangible assets. Such accruals were based on estimates and
assumptions made by management about matters which were uncertain at the time, including the timing and amount of sublease income that will be recovered on vacated property and the net realizable value of used equipment that is no longer needed in
our continuing operations. While we used our best current estimates based on facts and circumstances available at the time to quantify these charges, different estimates could reasonably be used in the relevant periods to arrive at different
accruals and/or the actual amounts incurred or recovered may be substantially different from the assumptions utilized, either of which could have a material impact on the presentation of our financial condition or results of operations for a given
period. As a result, we periodically review the estimates and assumptions used and reflect the effects of those revisions in the period that they become known.



Stock-Based Compensation



We account for employee stock-based compensation under the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), as opposed to the fair value method prescribed by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123). Pursuant to the provisions of APB 25, we generally do not record an expense for the value of stock-based awards granted to employees. If proposals currently under consideration by various accounting standard organizations are adopted,
such as the Financial Accounting Standards Board Proposed



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Statement of Financial Accounting Standard, Share-Based Payment, an amendment of FASB Statements No. 123 and
95, we will be required to treat the value of stock-based awards granted to employees as compensation expense in the future, which could have a material adverse effect on our reported operating results and could negatively affect the price
of our Common Stock. If these proposals are adopted, we could decide to reduce the number of stock-based awards granted to employees in the future, which could adversely impact our ability to attract qualified candidates or retain existing employees
without increasing their cash compensation and, therefore, have a material adverse effect on our business, results of operations and financial condition.



Results of Operations



The following table summarizes Powerwaves results of operations as a percentage of net sales for the three and nine months ended October 3, 2004 and
September 28, 2003:



|                                          |  |                    |   |  |                   |    |  |                |    |  |                    |   
|----------------------------------------- |  | ------------------ | - |  | ----------------- | -- |  | -------------- | -- |  | ------------------ | --
|                                          |  | Three Months Ended |   |  | Nine Months Ended |   
|                                          |  | October 3, 2004    |   |  | September 28,2003 |    |  | October 3,2004 |    |  | September 28, 2003 |   
|Net sales                                 |  | 100.0              | % |  | 100.0             | %  |  | 100.0          | %  |  | 100.0              | % 
|Cost of sales                             |  | 74.9               |   |  | 89.9              |    |  | 78.6           |    |  | 98.2               |   
|                                          |  |                    |   |  |                   |    |  |                |    |  |                    |   
|Gross profit                              |  | 25.1               |   |  | 10.1              |    |  | 21.4           |    |  | 1.8                |   
|Operating expenses:                       |  |                    |   |  |                   |    |  |                |    |  |                    |   
|Sales and marketing                       |  | 7.1                |   |  | 5.0               |    |  | 6.2            |    |  | 5.2                |   
|Research and development                  |  | 8.3                |   |  | 15.6              |    |  | 10.7           |    |  | 17.7               |   
|General and administrative                |  | 5.2                |   |  | 6.1               |    |  | 5.3            |    |  | 6.2                |   
|Intangible amortization                   |  | 1.9                |   |  |                  |    |  | 1.3            |    |  |                   |   
|In-process research and development       |  |                   |   |  |                  |    |  | 7.4            |    |  |                   |   
|Restructuring and impairment charges      |  | 0.1                |   |  | 0.6               |    |  | 0.7            |    |  | 4.6                |   
|                                          |  |                    |   |  |                   |    |  |                |    |  |                    |   
|Operating expenses                        |  | 22.6               |   |  | 27.3              |    |  | 31.6           |    |  | 33.7               |   
|                                          |  |                    |   |  |                   |    |  |                |    |  |                    |   
|Operating income (loss)                   |  | 2.5                |   |  | (17.2             | )  |  | (10.2          | )  |  | (31.9              | ) 
|Other income, net                         |  | (0.2               | ) |  | 1.0               |    |  |               |    |  | 1.2                |   
|                                          |  |                    |   |  |                   |    |  |                |    |  |                    |   
|Income (loss) before income taxes         |  | 2.3                |   |  | (16.2             | )  |  | (10.2          | )  |  | (30.7              | ) 
|Provision for (benefit from) income taxes |  | 0.3                |   |  | (7.2              | )  |  | (0.6           | )  |  | (11.8              | ) 
|                                          |  |                    |   |  |                   |    |  |                |    |  |                    |   
|Net income (loss)                         |  | 2.0                | % |  | (9.0              | )% |  | (9.6           | )% |  | (18.9              | )%
|                                          |  |                    |   |  |                   |    |  |                |    |  |                    |   



Three Months ended October 3, 2004
and September 28, 2003



Net Sales



Our sales are derived primarily from the sale of wireless communications
network products and coverage solutions, including antennas, boosters, combiners, filters, radio frequency power amplifiers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use in cellular, PCS, and 3G wireless communications
networks throughout the world. We also manufacture and sell advanced industrial components, primarily for the automotive and food industries, under contract manufacturing arrangements with certain Nordic industrial companies. Sales increased by 119%
to $138.3 million, for the quarter ended October 3, 2004, from $63.2 million, for the quarter ended September 28, 2003. This increase is primarily due to our acquisition of LGP Allgon, which is included in our results from May 2004 forward. The
following table presents an analysis of our net sales based upon business segment:



|                        |  |                    |         |  |                   |   |  |   |        |  |     |  
|----------------------- |  | ------------------ | ------- |  | ----------------- | - |  | - | ------ |  | --- | -
|                        |  | Three Months Ended |        
|Segment                 |  | October 3, 2004    |         |  | September 28,2003 |  
|Wireless communications |  | $                  | 130,943 |  | 95                | % |  | $ | 63,158 |  | 100 | %
|Contract manufacturing  |  |                    | 7,348   |  | 5                 | % |  |   |       |  |    | %
|                        |  |                    |         |  |                   |   |  |   |        |  |     |  
|Total net sales         |  | $                  | 138,291 |  | 100               | % |  | $ | 63,158 |  | 100 | %
|                        |  |                    |         |  |                   |   |  |   |        |  |     |  



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The following table presents a further analysis of our sales within the wireless communications business
segment, based upon product group:



|                                      |  |                    |         |  |                   |   |  |   |        |  |     |  
|------------------------------------- |  | ------------------ | ------- |  | ----------------- | - |  | - | ------ |  | --- | -
|                                      |  | Three Months Ended |        
|Wireless Communications Product
Group |  | October 3, 2004    |         |  | September 28,2003 |  
|Antenna systems                       |  | $                  | 38,860  |  | 30                | % |  | $ |       |  |    | %
|Base station subsystems               |  |                    | 68,762  |  | 52                | % |  |   | 63,158 |  | 100 | %
|Coverage solutions                    |  |                    | 23,321  |  | 18                | % |  |   |       |  |    | %
|                                      |  |                    |         |  |                   |   |  |   |        |  |     |  
|Total                                 |  | $                  | 130,943 |  | 100               | % |  | $ | 63,158 |  | 100 | %
|                                      |  |                    |         |  |                   |   |  |   |        |  |     |  



Antenna systems
consist of base station antennas and tower-mounted amplifiers. Base station subsystems consist of products that are installed into or around the base station of wireless networks and include products such as boosters, combiners, filters and radio
frequency power amplifiers. Coverage solutions consist primarily of repeaters and advanced coverage solutions. The increase in all three product groups during the three months ended October 3, 2004 as compared to the three months ended September 28,
2003 is a result of our acquisition of LGP Allgon.



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



|                               |  |                    |         |  |                   |   |  |   |        |  |     |  
|------------------------------ |  | ------------------ | ------- |  | ----------------- | - |  | - | ------ |  | --- | -
|                               |  | Three Months Ended |        
|Geographic Area                |  | October 3, 2004    |         |  | September 28,2003 |  
|Americas                       |  | $                  | 32,271  |  | 23                | % |  | $ | 29,495 |  | 47  | %
|Asia Pacific                   |  |                    | 15,980  |  | 12                | % |  |   | 10,881 |  | 17  | %
|Europe and other international |  |                    | 90,040  |  | 65                | % |  |   | 22,782 |  | 36  | %
|                               |  |                    |         |  |                   |   |  |   |        |  |     |  
|Total net sales                |  | $                  | 138,291 |  | 100               | % |  | $ | 63,158 |  | 100 | %
|                               |  |                    |         |  |                   |   |  |   |        |  |     |  



Revenues in the
Americas, Asia Pacific and Europe and other international locations increased in the third quarter of fiscal 2004 as compared to the third quarter of 2003, primarily as a result of our acquisition of LGP Allgon. Since wireless network infrastructure
spending is dependent on individual network coverage and capacity demands during a quarter, we do not believe that our revenue fluctuations for any geographic region are necessarily indicative of a predictable trend for our future revenues by
geographic area.



For the quarter ended October 3, 2004, total
sales to Nortel accounted for approximately 16% of sales and sales to Nokia accounted for 10% of sales. For the quarter ended September 28, 2003, total sales to Nortel accounted for approximately 62% of sales and sales to Nokia and Samsung each
accounted for 10% or more of sales. The decrease in the percentage of our sales to Nortel during the quarter ended October 3, 2004 is the result of our acquisition of LGP Allgon, which substantially increased our total revenues and number of
customers, as well as a reduction in demand for products purchased by Nortel. Notwithstanding the acquisition, our business remains largely dependent upon the limited number of customers within the wireless communications market and we cannot
guarantee that we will continue to be successful in attracting new customers or retaining or increasing business with our existing customers.



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



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##### Table of Contents

Cost of Sales and Gross Profit



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



The following table presents an analysis of our gross profit:



|                                     |  |                                           |         |  |                    |   |  |   |        |  |     |  
|------------------------------------ |  | ----------------------------------------- | ------- |  | ------------------ | - |  | - | ------ |  | --- | -
|                                     |  | Three Months Ended (dollars in thousands) |        
|                                     |  | October 3, 2004                           |         |  | September 28, 2003 |  
|Net sales                            |  | $                                         | 138,291 |  | 100                | % |  | $ | 63,158 |  | 100 | %
|Cost of sales:                       |  |                                           |         |  |                    |   |  |   |        |  |     |  
|Cost of sales                        |  |                                           | 101,901 |  | 74                 | % |  |   | 56,154 |  | 89  | %
|Intangible amortization              |  |                                           | 1,643   |  | 1                  | % |  |   | 111    |  |    | %
|Restructuring and impairment charges |  |                                           |        |  |                   | % |  |   | 484    |  | 1   | %
|                                     |  |                                           |         |  |                    |   |  |   |        |  |     |  
|Total cost of sales                  |  |                                           | 103,544 |  | 75                 | % |  |   | 56,749 |  | 90  | %
|                                     |  |                                           |         |  |                    |   |  |   |        |  |     |  
|Gross profit                         |  | $                                         | 34,747  |  | 25                 | % |  | $ | 6,409  |  | 10  | %
|                                     |  |                                           |         |  |                    |   |  |   |        |  |     |  



Our gross profit
margins improved during the third quarter of fiscal 2004 due to the increased revenue and initial cost savings realized from the integration of purchasing activities following our acquisition of LGP Allgon, as well as the cost reductions realized
from the outsourcing of our radio frequency power amplifier production to contract manufacturers during fiscal 2003. This impact was slightly offset by increased amortization of product-related intangibles primarily acquired in connection with the
acquisition of LGP Allgon. In addition, during the quarter ended September 28, 2003, we recorded restructuring charges in cost of sales of approximately $0.5 million related to severance costs incurred in connection with the outsourcing of our radio
frequency power amplifier manufacturing operations. We did not incur any similar restructuring charges within cost of sales for the quarter ended October 3, 2004. See Note 6. Restructuring and Impairment Charges in the Notes to
Condensed Consolidated Financial Statements included in Item 1. Financial Statements (Unaudited) for additional information.



The wireless communications infrastructure equipment industry is extremely competitive and is characterized by rapid technological change, new product
development and product obsolescence, evolving industry standards and significant price erosion over the life of a product. Certain of our competitors have aggressively lowered prices in an attempt to gain market share. Due to these competitive
pressures and the pressures of our customers to continually lower product costs, we expect that the average sales prices of our products will continue to decrease and negatively impact our gross margins. We have introduced new products at lower
sales prices and these lower sales prices have impacted the average sales prices of our products. We have also reduced prices on our existing products in response to our competitors and customer demands. For example, during fiscal 2004, the average
sales price of our radio frequency power amplifier products declined between 2% and 23% from fiscal 2003. We currently expect that pricing pressures will remain strong in our industry. Future pricing actions by our competitors and us may adversely
impact our gross profit margins and profitability, which could result in decreased liquidity and adversely affect our business, financial condition and results of operations.



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



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##### Table of Contents

Operating Expenses



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



|                                     |  |                                           |        |  |                    |   |  |   |        |  |    |  
|------------------------------------ |  | ----------------------------------------- | ------ |  | ------------------ | - |  | - | ------ |  | -- | -
|                                     |  | Three Months Ended (dollars in thousands) |       
|Operating Expenses                   |  | October 3, 2004                           |        |  | September 28, 2003 |  
|Sales and marketing                  |  | $                                         | 9,818  |  | 7                  | % |  | $ | 3,130  |  | 5  | %
|Research and development             |  |                                           | 11,533 |  | 9                  | % |  |   | 9,821  |  | 15 | %
|General and administrative           |  |                                           | 7,193  |  | 5                  | % |  |   | 3,878  |  | 6  | %
|Intangible amortization              |  |                                           | 2,666  |  | 2                  | % |  |   |       |  |   | %
|Restructuring and impairment charges |  |                                           | 102    |  |                   | % |  |   | 399    |  | 1  | %
|                                     |  |                                           |        |  |                    |   |  |   |        |  |    |  
|Total operating expenses             |  | $                                         | 31,312 |  | 23                 | % |  | $ | 17,228 |  | 27 | %
|                                     |  |                                           |        |  |                    |   |  |   |        |  |    |  



Sales and marketing
expenses consist primarily of sales salaries and commissions, travel expenses, charges for customer demonstration units and trade show expenses. Sales and marketing expenses increased by $6.7 million, or 214%, during the quarter ended October 3,
2004 as compared to the quarter ended September 28, 2003. The increase resulted primarily from our acquisition of LGP Allgon, as well as higher personnel costs and professional fees.



Research and development expenses consist primarily of ongoing design and development expenses for new wireless
communications network products, as well as for advanced coverage solutions. We also incur design expenses associated with reducing the cost and improving the manufacturability of our existing products. Research and development expenses can
fluctuate dramatically from period to period depending on numerous factors including new product introduction schedules, prototype developments and hiring patterns. Research and development expenses increased by $1.7 million, or 17%, during the
quarter ended October 3, 2004 as compared to the quarter ended September 28, 2003, as a result of our acquisition of LGP Allgon. This increase was partially offset by a decrease in personnel and material costs for prototype and pre-production builds
related to new product introductions during the third quarter of fiscal 2003.



General and administrative expenses consist primarily of salaries and other expenses for management, finance, information systems, facilities and human resources. General and administrative expenses increased $3.3
million, or 85%, during the quarter ended October 3, 2004 as compared to the quarter ended September 28, 2003 due to our acquisition of LGP Allgon, as well as higher personnel costs and professional fees.



Amortization of customer-related intangibles acquired in the LGP Allgon
acquisition amounted to $2.7 million for the third fiscal quarter of 2004, compared to no such charges during the third fiscal quarter of 2003.



Restructuring and impairment charges amounted to $0.1 million for the quarter ended October 3, 2004 compared to $0.4 million for the quarter ended
September 28, 2003. The charges recorded during the third quarter of fiscal 2004 related primarily to additional severance costs resulting from the rationalization of existing Powerwave operations as part of our integration plans with LGP Allgon.
The charges recorded during the third quarter of fiscal 2003 related primarily to workforce reductions related to the outsourcing of our radio frequency power amplifier manufacturing operations. See Note 6. Restructuring and Impairment
Charges in the Notes to Condensed Consolidated Financial Statements included in Item 1. Financial Statements (Unaudited) for additional information.



Other Income (Expense), net



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



|                            |  |                                           |      |   |                    |    |    |  |   |      |   |  |    |   
|--------------------------- |  | ----------------------------------------- | ---- | - | ------------------ | -- | -- |  | - | ---- | - |  | -- | --
|                            |  | Three Months Ended (dollars in thousands) |     
|                            |  | October 3, 2004                           |      |   | September 28, 2003 |   
|Interest income             |  | $                                         | 435  |   |                    |   | %  |  | $ | 645  |   |  | 1  | % 
|Interest expense            |  |                                           | (907 | ) |                    | ( | )% |  |   | (512 | ) |  | (1 | )%
|Miscellaneous income        |  |                                           | 160  |   |                    |   | %  |  |   | 474  |   |  | 1  | % 
|                            |  |                                           |      |   |                    |    |    |  |   |      |   |  |    |   
|Other income (expense), net |  | $                                         | (312 | ) |                    |   | %  |  | $ | 607  |   |  | 1  | % 
|                            |  |                                           |      |   |                    |    |    |  |   |      |   |  |    |   



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Interest expense increased by $0.4 million during the quarter ended October 3, 2004 primarily due to the
interest expense associated with our 1.25% subordinated convertible notes issued in July 2003 and the interest-bearing debt assumed in our acquisition of LGP Allgon.



Provision for (Benefit from) Income Taxes



Our effective tax rate differs from the U.S. federal statutory tax rate of 35% primarily due to the geographic distribution
of our income, which is taxed at various rates depending upon the country where such earnings are reported, as well as the impact of state taxes on U.S. domestic operations. We recorded a tax provision at the rate of 10.4% during the quarter ended
October 3, 2004 as compared to a tax benefit of 44.5% for the quarter ended September 28, 2003. Our effective tax rate for the quarter reflects a cumulative year-to-date adjustment in our expected annual effective tax rate due to our acquisition of
LGP Allgon and the related impact of the distribution of earnings and losses in various tax jurisdictions. Given the increased global scope of our combined operations after the LGP Allgon acquisition and the difficulty in predicting and managing our
earnings in each tax jurisdiction, we expect that our effective tax rate may fluctuate dramatically in the future.



Net Income (Loss)



Our net income for the quarter ended October 3, 2004 is $2.8 million compared to a net loss of $5.7 million for the quarter ended September 28, 2003. The
increase in net income during the third quarter of fiscal 2004 as compared to the third quarter of 2003 is primarily the result of increased revenue and realized cost synergies from our acquisition of LGP Allgon, as well as the cost reductions
realized by the outsourcing of our radio frequency power amplifier production to contract manufacturers in 2003.



Nine Months ended October 3, 2004 and September 28, 2003



Net Sales



Sales increased by 90% to $317.5 million for the nine months ended October 3, 2004, from $166.8 million for the nine months ended October 3, 2003,
primarily due to our acquisition of LGP Allgon which is included in our results from May 3, 2004 forward. The following table presents an analysis of our net sales based upon segment:



|                        |  |                   |         |  |                    |   |  |   |         |  |     |  
|----------------------- |  | ----------------- | ------- |  | ------------------ | - |  | - | ------- |  | --- | -
|                        |  | Nine Months Ended |        
|Segment                 |  | October 3, 2004   |         |  | September 28, 2003 |  
|Wireless communications |  | $                 | 304,222 |  | 96                 | % |  | $ | 166,821 |  | 100 | %
|Contract manufacturing  |  |                   | 13,274  |  | 4                  | % |  |   |        |  |    | %
|                        |  |                   |         |  |                    |   |  |   |         |  |     |  
|Total net sales         |  | $                 | 317,496 |  | 100                | % |  | $ | 166,821 |  | 100 | %
|                        |  |                   |         |  |                    |   |  |   |         |  |     |  



The following table
presents an analysis of our sales within the wireless communications business segment, based upon product group:



|                                      |  |                   |         |  |                    |   |  |   |         |  |     |  
|------------------------------------- |  | ----------------- | ------- |  | ------------------ | - |  | - | ------- |  | --- | -
|                                      |  | Nine Months Ended |        
|Wireless Communications Product
Group |  | October 3, 2004   |         |  | September 28, 2003 |  
|Antenna systems                       |  | $                 | 69,620  |  | 23                 | % |  | $ |        |  |    | %
|Base station subsystems               |  |                   | 198,197 |  | 65                 | % |  |   | 166,821 |  | 100 | %
|Coverage solutions                    |  |                   | 36,405  |  | 12                 | % |  |   |        |  |    | %
|                                      |  |                   |         |  |                    |   |  |   |         |  |     |  
|Total                                 |  | $                 | 304,222 |  | 100                | % |  | $ | 166,821 |  | 100 | %
|                                      |  |                   |         |  |                    |   |  |   |         |  |     |  



The increase in all
three product groups during the nine months ended October 3, 2004 as compared to the nine months ended September 28, 2003 is primarily the result of our acquisition of LGP Allgon.



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



|                               |  |                   |         |  |                    |   |  |   |         |  |     |  
|------------------------------ |  | ----------------- | ------- |  | ------------------ | - |  | - | ------- |  | --- | -
|                               |  | Nine Months Ended |        
|Geographic Area                |  | October 3, 2004   |         |  | September 28, 2003 |  
|Americas                       |  | $                 | 105,795 |  | 33                 | % |  | $ | 84,368  |  | 51  | %
|Asia Pacific                   |  |                   | 41,335  |  | 13                 | % |  |   | 26,116  |  | 16  | %
|Europe and other international |  |                   | 170,366 |  | 54                 | % |  |   | 56,337  |  | 33  | %
|                               |  |                   |         |  |                    |   |  |   |         |  |     |  
|Total net sales                |  | $                 | 317,496 |  | 100                | % |  | $ | 166,821 |  | 100 | %
|                               |  |                   |         |  |                    |   |  |   |         |  |     |  



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Revenues in the Americas, Asia Pacific and Europe and other international locations increased
substantially during the first nine months of fiscal 2004 as compared to the first nine months of 2003, primarily as a result of the acquisition of LGP Allgon.



For the nine months ended October 3, 2004, sales to Nortel accounted for approximately 27% of sales and sales to Nokia accounted for 10% or more of
sales. For the nine months ended September 28, 2003, sales to Nortel accounted for approximately 57% of sales and sales to Nokia accounted for 10% or more of sales.



Cost of Sales and Gross Profit



The following table presents an analysis of our gross profit:



|                                     |  |                                          |         |  |                    |   |  |   |         |  |     |  
|------------------------------------ |  | ---------------------------------------- | ------- |  | ------------------ | - |  | - | ------- |  | --- | -
|                                     |  | Nine Months Ended (dollars in thousands) |        
|                                     |  | October 3, 2004                          |         |  | September 28, 2003 |  
|Net sales                            |  | $                                        | 317,496 |  | 100                | % |  | $ | 166,821 |  | 100 | %
|Cost of Sales:                       |  |                                          |         |  |                    |   |  |   |         |  |     |  
|Cost of sales                        |  |                                          | 246,422 |  | 78                 | % |  |   | 154,986 |  | 93  | %
|Intangible amortization              |  |                                          | 2,771   |  | 1                  | % |  |   | 708     |  |    | %
|Restructuring and impairment charges |  |                                          | 506     |  |                   | % |  |   | 8,055   |  | 5   | %
|                                     |  |                                          |         |  |                    |   |  |   |         |  |     |  
|Total cost of sales                  |  |                                          | 249,699 |  | 79                 | % |  |   | 163,749 |  | 98  | %
|                                     |  |                                          |         |  |                    |   |  |   |         |  |     |  
|Gross profit                         |  | $                                        | 67,797  |  | 21                 | % |  | $ | 3,072   |  | 2   | %
|                                     |  |                                          |         |  |                    |   |  |   |         |  |     |  



Our gross profit
margins were favorably impacted during the first nine months of fiscal 2004 by the increased revenue and initial cost savings realized from the integration of purchasing activities following our acquisition of LGP Allgon, as well as the cost
reductions realized from the outsourcing of the production of our radio frequency power amplifier products to contract manufacturers during fiscal 2003. This impact was slightly offset by increased amortization of product-related intangibles
primarily acquired in connection with the acquisition of LGP Allgon. In addition, during the nine months ended October 3, 2004, we recorded restructuring and impairment charges within cost of sales of approximately $0.5 million primarily related to
severance costs resulting from the rationalization of Powerwave operations as part of our integration plans with LGP Allgon. This compares to restructuring and impairment charges of $8.1 million during the nine months ended September 28, 2003,
primarily related to the outsourcing of our radio frequency power amplifier manufacturing operations and new product introductions that accelerated the timing of certain technology transitions. See Note 6. Restructuring and Impairment
Charges in the Notes to Condensed Consolidated Financial Statements included in Item 1. Financial Statements (Unaudited) for additional information.



Operating Expenses



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



|                                     |  |                                          |         |  |                    |   |  |   |        |  |    |  
|------------------------------------ |  | ---------------------------------------- | ------- |  | ------------------ | - |  | - | ------ |  | -- | -
|                                     |  | Nine Months Ended (dollars in thousands) |        
|Operating Expenses                   |  | October 3, 2004                          |         |  | September 28, 2003 |  
|Sales and marketing                  |  | $                                        | 19,672  |  | 6                  | % |  | $ | 8,601  |  | 5  | %
|Research and development             |  |                                          | 33,868  |  | 11                 | % |  |   | 29,585 |  | 17 | %
|General and administrative           |  |                                          | 16,683  |  | 5                  | % |  |   | 10,425 |  | 6  | %
|Intangible amortization              |  |                                          | 4,434   |  | 1                  | % |  |   |       |  |   | %
|In-process research and development  |  |                                          | 23,450  |  | 8                  | % |  |   |       |  |   | %
|Restructuring and impairment charges |  |                                          | 2,103   |  | 1                  | % |  |   | 7,607  |  | 5  | %
|                                     |  |                                          |         |  |                    |   |  |   |        |  |    |  
|Total operating expenses             |  | $                                        | 100,210 |  | 32                 | % |  | $ | 56,218 |  | 33 | %
|                                     |  |                                          |         |  |                    |   |  |   |        |  |    |  



Sales and marketing
expenses increased by $11.1 million, or 129%, during the nine months ended October 3, 2004 as compared to the nine months ended September 28, 2003. The increase resulted primarily from our acquisition of LGP Allgon, as well as higher personnel costs
and professional fees.



Research and development expenses
increased by $4.3 million, or 14%, during the nine months ended October 3, 2004 as compared to the nine months ended September 28, 2003, as a result of our acquisition of LGP Allgon. This increase was partially offset by a decrease in personnel and
material costs related to prototype and pre-production builds for new product introductions during the first nine months of fiscal 2003.



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General and administrative expenses increased $6.3 million, or 60%, during the nine months ended October
3, 2004 as compared to the nine months ended September 28, 2003 primarily as a result of our acquisition of LGP Allgon and increased personnel costs and professional fees.



Amortization of customer-related intangibles acquired in the LGP Allgon acquisition amounted to $4.4 million for the first
nine months of 2004, compared to no such charges during the third fiscal quarter of 2003. We also recorded a one-time charge of $23.5 million for purchased in-process research and development that was expensed upon completion of the LGP Allgon
acquisition. This charge related to certain product development activities of LGP Allgon that had not reached technological feasibility such that successful development was uncertain and no future alternative uses existed. No similar in-process
research and development charges were recorded in the first nine months of fiscal 2003.



Restructuring and impairment charges amounted to $2.1 million for the nine months ended October 3, 2004 compared to $7.6 million for the nine months ended September 28, 2003. The charges recorded during the first nine
months of fiscal 2004 related primarily to the rationalization of Powerwave operations as part of our integration plans with LGP Allgon, including workforce reductions and facility consolidations. The charges recorded during the first nine months of
fiscal 2003 related primarily to workforce reductions and the write-down of excess equipment related to the outsourcing of our radio frequency power amplifier manufacturing operations, as well as the write-down of goodwill and certain
customer-related intangibles. See Note 6. Restructuring and Impairment Charges in the Notes to Condensed Consolidated Financial Statements included in Item 1. Financial Statements (Unaudited) for additional
information.



Other Income, net



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



|                     |  |                                          |        |   |                    |    |    |  |   |       |   |  |   |  
|-------------------- |  | ---------------------------------------- | ------ | - | ------------------ | -- | -- |  | - | ----- | - |  | - | -
|                     |  | Nine Months Ended (dollars in thousands) |       
|                     |  | October 3, 2004                          |        |   | September 28, 2003 |   
|Interest income      |  | $                                        | 1,756  |   |                    | 1  | %  |  | $ | 1,722 |   |  | 1 | %
|Interest expense     |  |                                          | (2,458 | ) |                    | (1 | )% |  |   | (539  | ) |  |  | %
|Miscellaneous income |  |                                          | 726    |   |                    |   | %  |  |   | 790   |   |  |  | %
|                     |  |                                          |        |   |                    |    |    |  |   |       |   |  |   |  
|Other income, net    |  | $                                        | 24     |   |                    |   | %  |  | $ | 1,973 |   |  | 1 | %
|                     |  |                                          |        |   |                    |    |    |  |   |       |   |  |   |  



Interest expense
increased by $1.9 million during the nine months ended October 3, 2004 primarily due to the interest expense associated with our 1.25% subordinated convertible notes issued in July 2003.



Benefit from Income Taxes



We recorded a tax benefit at a rate of 5.4% during the nine months ended October 3, 2004 as compared to a tax benefit of 38.5% for the nine months
ended September 28, 2003. The reduction in our effective tax benefit rate for the period reflects the impact of the acquisition of LGP Allgon which substantially increased the number of tax jurisdictions within which we operate, as well as the
related impact of the in-process research and development charge which was not tax deductible.



Net Loss



The net loss
for the nine months ended October 3, 2004 is $30.6 million compared to a net loss of $31.5 million for the nine months ended September 28, 2003. The net loss for the first nine months of fiscal 2004 was lower than the net loss for the first nine
months of 2003 primarily due to cost reductions realized by the outsourcing of our radio frequency power amplifier production to contract manufactures in 2003 and our acquisition of LGP Allgon, including realized cost synergies, which were offset by
the one-time in-process research and development charge, integration-related restructuring charges and intangible amortization charges related to such acquisition.



Liquidity and Capital Resources



We have historically financed our operations through a combination of cash on hand, cash provided from operations, equipment lease financings, available
borrowings under bank lines of credit, private debt placements and both private and public equity offerings. Our principal sources of liquidity consist of existing cash balances and funds expected to be generated from future operations. As of
October 3, 2004, we had working capital of $173.0



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##### Table of Contents

million, including $124.0 million in cash and cash equivalents and $6.2 million of restricted cash, as compared to
working capital of $280.2 million at December 28, 2003, which included $260.0 million in cash and cash equivalents. We currently invest our excess cash in short-term, investment-grade, money-market instruments with maturities of three months or
less. We typically hold such investments until maturity and then reinvest the proceeds in similar money market instruments. We believe that all of our cash investments would be readily available to us should the need arise.



Cash Flows



The following table summarizes Powerwaves cash flows for the nine
months ended October 3, 2004 and September 28, 2003:



|                                                                    |  |                                          |          |   |                   |   |         |  
|------------------------------------------------------------------- |  | ---------------------------------------- | -------- | - | ----------------- | - | ------- | -
|                                                                    |  | Nine Months Ended (dollars in thousands) |         
|                                                                    |  | October 3,2004                           |          |   | September 28,2003 |  
|Net cash provided by (used in):                                     |  |                                          |          |   |                   |   |         |  
|Operating activities                                                |  | $                                        | (18,074  | ) |                   | $ | (233    | )
|Investing activities                                                |  |                                          | (91,096  | ) |                   |   | (11,842 | )
|Financing activities                                                |  |                                          | (25,668  | ) |                   |   | 102,785 |  
|Effect of foreign currency translation on cash and cash equivalents |  |                                          | (1,041   | ) |                   |   |        |  
|                                                                    |  |                                          |          |   |                   |   |         |  
|Net increase (decrease) in cash and cash equivalents                |  | $                                        | (135,879 | ) |                   | $ | 90,710  |  
|                                                                    |  |                                          |          |   |                   |   |         |  



Net cash used in
operations during the nine months ended October 3, 2004 was $18.1 million as compared to $0.2 million during the nine months ended September 28, 2003. The increased use of cash in operations during the first nine months of 2004 primarily resulted
from a $24.4 million reduction in outstanding accounts payable from our pre-existing Powerwave operations related to inventory purchases associated with increased revenue shipments at the end of fiscal year 2003.



Net cash used in investing activities reflects the acquisition of LGP Allgon
as well as capital spending for property, plant and equipment. Total capital expenditures during the nine months ended October 3, 2004 and September 28, 2003 were approximately $10.3 million and $2.3 million, respectively. The majority of the
capital spending during such periods related to computer hardware and test equipment utilized in our manufacturing and research and development areas. We expect our future annual capital spending requirements to range between $10 million and $25
million per year, consisting primarily of test and production equipment, as well as computer hardware and software.



The $128.5 million decrease in net cash provided by financing activities during the first nine months of fiscal 2004 as compared to the first nine months
of fiscal 2003 resulted from the pay-down of debt assumed in our acquisition of LGP Allgon of $28.2 million as well as the prior year issuance of $130 million of 1.25% convertible subordinated notes and simultaneous repurchase of $25 million of our
Common Stock during the third quarter of fiscal 2003.



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



Financing Activities



Our $20 million revolving credit agreement with Comerica Bank-California expired on May 31, 2004. We decided to delay the renewal of this credit facility
in light of our acquisition of LGP Allgon. We are currently evaluating our long-term financing needs and may decide to negotiate a new credit agreement in the future. However, we cannot guarantee that we will be able to establish a new credit
agreement on terms acceptable to us.



As part of our
acquisition of LGP Allgon, we assumed short-term and long-term debt obligations consisting of capital leases, fixed and variable rate bank term loans, and amounts outstanding under bank lines of credit. From the date of acquisition through October
3, 2004, we have repaid a total of $42.9 million of such debt, which includes the entire amount of bank debt assumed in the acquisition, $14.7 million of additional drawdowns under the bank lines of credit, and scheduled payments under the capital
lease obligations.



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On November 10, 2004, subsequent to the end of the quarter, we completed a private placement of $150.0
million aggregate principal amount of 1.875% convertible subordinated notes and simultaneously repurchased $40.0 million worth of our outstanding Common Stock, resulting in approximately $105.0 million in net proceeds after placement fees and costs.
See Note 13. Subsequent Events in our condensed consolidated financial statements under Part I, Item 1, Financial Statements included herein.



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



Off-Balance Sheet Arrangements



Our off-balance sheet arrangements consist primarily of conventional
operating leases, purchase commitments and other commitments arising in the normal course of business, as further discussed below under Contractual Obligations and Commercial Commitments. As of October 3, 2004, we did not have any other
relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.



Contractual Obligations
and Commercial Commitments



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



Short-Term and Long-Term Debt



At October 3, 2004, we had $130.0 million of long-term debt, consisting of our outstanding 1.25% convertible subordinated notes due July 2008. These notes
are convertible into shares of our Common Stock at the option of the holder at a conversion price of $10.49 per share and accrue interest at an annual rate of 1.25%, payable semi-annually on January 15 and July 15. See Note 9. Financing
Arrangements and Long-Term Debt in the Notes to Consolidated Financial Statements included under Part II, Item 8, Financial Statements of the Companys Annual Report on Form 10-K for the fiscal year ended December
28, 2003 for additional information. The remaining short-term and long-term debt of $0.1 million related to capital lease obligations assumed in our acquisition of LGP Allgon.



Capital Lease Obligations



We assumed various capital lease obligations in connection with our acquisition of LGP Allgon. Our current outstanding capital lease obligations of
$0.1 million relate primarily to manufacturing and test equipment and are included as part of short-term and long-term debt, as appropriate, within our condensed consolidated balance sheet.



Operating Lease Obligations



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



Purchase
Commitments with Contract Manufacturers



We generally
issue purchase orders to our contract manufacturers with delivery dates from four to six weeks from the purchase order date. In addition, we regularly provide such contract manufacturers with rolling six-month forecasts of material and finished
goods requirements for planning and long-lead time parts procurement purposes only. We are committed to accept delivery of materials pursuant to our purchase orders subject to various contract



28



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##### Table of Contents

provisions which allow us to delay receipt of such orders or cancel orders beyond certain agreed lead times. Such
cancellations may or may not result in cancellation costs payable by us. In the past, we have been required to take delivery of materials from our suppliers that were in excess of our requirements and we have previously recognized charges and
expenses related to such excess material. If we are unable to adequately manage our contract manufacturers and adjust such commitments for changes in demand, we may incur additional inventory expenses related to excess and obsolete inventory. Such
expenses could have a material adverse effect on our business, financial condition and results of operations.



Other Commitments



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



We have initiated compulsory acquisition proceedings to acquire the remaining outstanding common shares of LGP Allgon that were not tendered in our
exchange offer. We currently expect to pay between $7.0 million and $8.0 million as additional purchase price related to such proceedings within the next six to twelve months.



Guarantees



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



As of
October 3, 2004, expected future cash payments related to contractual obligations and commercial commitments were as follows:



|                                                         |  |                                       |        |           |   |           |  |            |         |       |   |       |  |   |        
|-------------------------------------------------------- |  | ------------------------------------- | ------ | --------- | - | --------- |  | ---------- | ------- | ----- | - | ----- |  | - | -------
|                                                         |  | Payments Due by Period (in thousands)
|                                                         |  | Less than 1 Year                      |        | 1-3 Years |   | 3-5 Years |  | Thereafter |         | Total
|Short-term and long-term debt (including interest)(1)    |  | $                                     | 1,625  |           | $ | 3,250     |  | $          | 131,625 |       | $ |      |  | $ | 136,500
|Capital lease obligations                                |  |                                       | 51     |           |   | 16        |  |            |        |       |   |      |  |   | 67     
|Operating lease obligations                              |  |                                       | 4,695  |           |   | 6,742     |  |            | 2,751   |       |   | 1,283 |  |   | 15,471 
|Purchase commitments with contract manufacturers         |  |                                       | 34,004 |           |   |          |  |            |        |       |   |      |  |   | 34,004 
|Other commitments                                        |  |                                       | 42,804 |           |   |          |  |            |        |       |   |      |  |   | 42,804 
|Guarantees                                               |  |                                       |       |           |   |          |  |            |        |       |   |      |  |   |       
|                                                         |  |                                       |        |           |   |           |  |            |         |       |   |       |  |   |        
|Total contractual obligations and commercial commitments |  | $                                     | 83,179 |           | $ | 10,008    |  | $          | 134,376 |       | $ | 1,283 |  | $ | 228,846
|                                                         |  |                                       |        |           |   |           |  |            |         |       |   |       |  |   |        

---

|(1) | Does not reflect the $150.0 million aggregate principal amount of the 1.875% convertible
subordinated notes that were issued subsequent to the end of the quarter. See Note 13. Subsequent Events in our condensed consolidated financial statements under Part I, Item 1, Financial Statements included
herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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Disclosure About Stock Option Plans



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



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



During the nine months ended October 3, 2004, we granted options to purchase a total of 1,370,500 shares of Common Stock to
employees. After deducting 975,566 shares for options forfeited, the result was net option grants of 394,934. Net option grants during the year represented less than 1% of our total outstanding common shares of 104,428,555 as of October 3, 2004. The
following table summarizes the net stock option grants to our employees, directors and executive officers during the three most recent fiscal periods:



|                                                                                                 |  |                                 |   |  |                            |    |  |                            |  
|------------------------------------------------------------------------------------------------ |  | ------------------------------- | - |  | -------------------------- | -- |  | -------------------------- | -
|                                                                                                 |  | Nine MonthsEndedOctober 3, 2004 |   |  | Year EndedDecember 28,2003 |    |  | Year EndedDecember 29,2002 |  
|Net grants (forfeitures) during the period as a % of total outstanding common shares             |  | 0.4                             | % |  | (0.5                       | )% |  | 3.1                        | %
|Grants to executive officers during the period as a % of total options granted during the period |  | 54.7                            | % |  | 18.0                       | %  |  | 19.0                       | %
|Grants to executive officers during the period as a % of total outstanding common shares         |  | 0.7                             | % |  | 0.4                        | %  |  | 0.9                        | %
|Cumulative options held by executive officers as a % of total options outstanding                |  | 26.2                            | % |  | 16.1                       | %  |  | 19.5                       | %



At October 3, 2004, a
total of 1,562,785 options were available for grant under all of our option plans and a total of 246,774 shares of Common Stock were held in escrow to cover all remaining exercises under the 1995 Stock Option Plan. See Note 12. Stock Option
Plans in the Notes to Consolidated Financial Statements included under Part II, Item 8, and Financial Statements of the Companys Annual Report on Form 10-K for the fiscal year ended December 28, 2003 for further
information regarding the 1995 Stock Option Plan. The following table summarizes activity for outstanding options under all of our stock option plans during the nine months ended October 3, 2004:



|                             |  |                 |   |  |                 |                |                              |   |                             |  |                              |  |   |      
|---------------------------- |  | --------------- | - |  | --------------- | -------------- | ---------------------------- | - | --------------------------- |  | ---------------------------- |  | - | -----
|                             |  | Number ofShares |   |  | Price Per Share |                | WeightedAverageExercisePrice |   | Number ofOptionsExercisable |  | WeightedAverageExercisePrice
|Balance at December 28, 2003 |  | 8,951,996       |   |  | $               | 0.82 - $67.08  |                              | $ | 12.05                       |  | 4,854,867                    |  | $ | 13.91
|Granted                      |  | 1,370,500       |   |  | $               | 5.01 - $ 9.91  |                              | $ | 6.05                        |  |                              |  |   |      
|Exercised                    |  | (217,665        | ) |  | $               | 1.33 - $ 9.80  |                              | $ | 4.50                        |  |                              |  |   |      
|Canceled                     |  | (975,566        | ) |  | $               | 4.58 - $ 66.00 |                              | $ | 14.76                       |  |                              |  |   |      
|                             |  |                 |   |  |                 |                |                              |   |                             |  |                              |  |   |      
|Balance at October 3, 2004   |  | 9,129,265       |   |  | $               | 0.82 - $67.08  |                              | $ | 11.04                       |  | 5,359,525                    |  | $ | 13.36
|                             |  |                 |   |  |                 |                |                              |   |                             |  |                              |  |   |      



The following table
sets forth certain information concerning grants of options to each of Powerwaves Named Executive Officers during the nine months ended October 3, 2004. In addition, in accordance with the rules and regulations of the Securities and Exchange
Commission, the following table sets forth the hypothetical gains that would exist for the options based on the assumption that the stock price were to appreciate annually by 5% and 10%, respectively. The rates do not represent Powerwaves
estimate or projection of future Common Stock prices and no assurance can be given that the share price will appreciate at the rates shown in the table.



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Option Grants During the Nine Months Ended October 3, 2004



|                   |  |                                             |     |  |                                                        |   |  |                            |      |                   |         |                                                                                             |   |         |     |  |   |           |    
|------------------ |  | ------------------------------------------- | --- |  | ------------------------------------------------------ | - |  | -------------------------- | ---- | ----------------- | ------- | ------------------------------------------------------------------------------------------- | - | ------- | --- |  | - | --------- | ---
|Name               |  | Number ofSecuritiesUnderlyingOptionsGranted |     |  | % of TotalOptionsGranted toEmployeesin FiscalPeriod(1) |   |  | ExercisePrice ($/Share)(2) |      | ExpirationDate(3) |         | Potential Realizable Valueat Assumed Annual Rates ofStock Price Appreciationfor Option Term |  
|                   |  |                                             |     |  | 5%                                                     |   |  | 10%                        |     
|Bruce C. Edwards   |  |                                            |     |  |                                                       |   |  |                            |     |                   |        |                                                                                             |   |        |     |  |   |          |    
|Ronald J. Buschur  |  | 200,000                                     | (4) |  | 14.6                                                   | % |  | $                          | 5.01 |                   | 7/21/14 |                                                                                             | $ | 630,152 | (5) |  | $ | 1,596,930 | (5)
|Kevin T. Michaels  |  | 200,000                                     | (4) |  | 14.6                                                   | % |  | $                          | 5.01 |                   | 7/21/14 |                                                                                             | $ | 630,152 | (5) |  | $ | 1,596,930 | (5)
|Johan H. Ek        |  | 150,000                                     | (6) |  | 10.9                                                   | % |  | $                          | 6.98 |                   | 5/03/14 |                                                                                             | $ | 658,453 | (7) |  | $ | 1,668,648 | (7)
|Robert J. Legendre |  | 200,000                                     | (4) |  | 14.6                                                   | % |  | $                          | 5.01 |                   | 7/21/14 |                                                                                             | $ | 630,152 | (5) |  | $ | 1,596,930 | (5)

---

|(1) | Options to purchase an aggregate of 1,370,500 shares of Common Stock were granted to
employees, including the Named Executive Officers, during the nine months ended October 3, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(4) | Subject to continued employment with the Company, the options become exercisable beginning on
July 21, 2005.
|--- | ------------------------------------------------------------------------------------------------------------

|(5) | The amount assumes a Common Stock price of $8.16 at 5% appreciation at $12.99 at 10%
appreciation. There is no guarantee that the Common Stock price will actually appreciate to these levels.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Subject to continued employment with the Company, the options become exercisable beginning on
May 3, 2005.
|--- | ----------------------------------------------------------------------------------------------------------

|(7) | The amount assumes a Common Stock price of $11.37 at 5% appreciation and $18.10 at 10%
appreciation. There is no guarantee that the Common Stock price will actually appreciate to these levels.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table summarizes outstanding stock
options that are in-the-money and out-of the-money as of October 3, 2004. For purposes of this table, in-the-money stock options are those options with an exercise price less than $6.58 per share, the closing price of
Powerwave Common Stock on October 1, 2004, the last trading day of the fiscal quarter, and out-of-the-money stock options are stock options with an exercise price greater than or equal to the $6.58 per share closing price.



|                          |  |             |  |                        |       |        |           |                        |   |             |  |          
|------------------------- |  | ----------- |  | ---------------------- | ----- | ------ | --------- | ---------------------- | - | ----------- |  | ---------
|                          |  | Exercisable |  | Unexercisable          |       |       
|                          |  | Shares      |  | Wtd. Avg.ExercisePrice |       | Shares |           | Wtd. Avg.ExercisePrice |   | TotalShares
|In-the-Money              |  | 2,266,619   |  | $                      | 4.54  |        | 2,338,785 |                        | $ | 5.62        |  | 4,605,404
|Out-of-the-Money          |  | 3,092,906   |  | $                      | 19.82 |        | 1,430,955 |                        | $ | 11.23       |  | 4,523,861
|                          |  |             |  |                        |       |        |           |                        |   |             |  |          
|Total Options Outstanding |  | 5,359,525   |  | $                      | 13.36 |        | 3,769,740 |                        | $ | 7.75        |  | 9,129,265
|                          |  |             |  |                        |       |        |           |                        |   |             |  |          



The following table
sets forth certain information concerning the exercise of options by each of our executive officers during the nine months ended October 3, 2004, including the aggregate value of gains on the date of exercise held by such executive officers, as well
as the number of shares covered by both exercisable and unexercisable stock options as of October 3, 2004. Also reported are the values for the in-the-money options which represent the positive spread between the exercise prices of any such existing
stock options and the closing price of the Companys Common Stock on the last trading day of the fiscal quarter.



|                   |  |                             |             |                |               |                                                                      |             |                                                                 |               |  |   |         |  |   |        
|------------------ |  | --------------------------- | ----------- | -------------- | ------------- | -------------------------------------------------------------------- | ----------- | --------------------------------------------------------------- | ------------- |  | - | ------- |  | - | -------
|Name               |  | Shares Acquired on Exercise |             | Value Realized |               | Number of Securities UnderlyingUnexercised Options atOctober 3, 2004 |             | Value of Unexercised In-the-Money Options at October 3, 2004(1)
|                   |  |                             | Exercisable |                | Unexercisable |                                                                      | Exercisable |                                                                 | Unexercisable
|Bruce C. Edwards   |  |                            |             | $              |              |                                                                      | 166,666     |                                                                 | 183,334       |  | $ | 194,999 |  | $ | 214,501
|Ronald J. Buschur  |  |                            |             | $              |              |                                                                      | 424,999     |                                                                 | 475,001       |  | $ | 63,833  |  | $ | 369,167
|Kevin T. Michaels  |  |                            |             | $              |              |                                                                      | 303,312     |                                                                 | 292,188       |  | $ | 372,281 |  | $ | 354,797
|Johan H. Ek        |  |                            |             | $              |              |                                                                      |            |                                                                 | 150,000       |  | $ |        |  | $ |       
|Robert J. Legendre |  |                            |             | $              |              |                                                                      | 82,187      |                                                                 | 312,813       |  | $ | 2,062   |  | $ | 320,938

---

|(1) | In accordance with the Securities and Exchange Commissions rules, values are calculated
by subtracting the exercise price from the fair market value of the underlying Common Stock. For purposes of this table, fair market value per share is deemed to be $6.58, the Companys closing Common Stock price reported by Nasdaq on October
1, 2004, the last trading day of the fiscal quarter.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Our shareholders have previously approved all stock option plans under which our Common Stock is reserved
for issuance. The following table provides summary information as of October 3, 2004, for all of our stock option plans:



|                             |  |                                                                                                   |  |                                                                          |       |                                                                                                                                           |          
|---------------------------- |  | ------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ----- | ----------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                             |  | Number of Shares ofCommon Stock tobe Issued uponExercise ofOutstandingOptions, Warrantsand Rights |  | Weighted AverageExercise Price ofOutstanding Options,Warrants and Rights |       | Number of Shares ofCommon StockRemaining Availablefor Future Issuanceunder
our Stock Option Plans(Excluding Shares Reflected in Column 1)
|Approved by shareholders     |  | 9,129,965                                                                                         |  | $                                                                        | 11.04 |                                                                                                                                           | 1,562,785
|Not Approved by shareholders |  |                                                                                                  |  |                                                                          |      |                                                                                                                                           |         
|                             |  |                                                                                                   |  |                                                                          |       |                                                                                                                                           |          
|Total                        |  | 9,129,965                                                                                         |  | $                                                                        | 11.04 |                                                                                                                                           | 1,562,785
|                             |  |                                                                                                   |  |                                                                          |       |                                                                                                                                           |          



Additional Factors That May Affect
Our Future Results



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



We sell most of our products to a
small number of customers, and we expect that this will continue. For the quarter ended October 3, 2004, sales to Nortel accounted for approximately 16% of net sales and sales to Nokia accounted for approximately 10% of our net sales. For fiscal
year 2003, Nortel accounted for approximately 57% of our net sales and Nokia accounted for 10% or more of our net sales. Our future success is dependent upon the continued purchases of our products by such customers and any fluctuations in demand
from such customers could negatively impact our results of operations. If we are unable to broaden our customer base and expand relationships with major wireless original equipment manufacturers and major operators of wireless networks, our business
will continue to be impacted by unanticipated demand fluctuations due to our dependence on a small number of customers. Unanticipated demand fluctuations can have a negative impact on our revenues and business, and an adverse effect on our results
of operations and financial condition. In addition, our dependence on a small number of major customers exposes us to numerous other risks, including:



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



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



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



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



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



We may not be able to successfully integrate our business with the business of LGP Allgon.



On May 3, 2004, we completed the exchange offer for the outstanding shares of LGP Allgon. This acquisition involves the integration of two companies based
in different countries that previously have operated independently, which is a complex, costly and time consuming process. Therefore, we may encounter difficulties integrating our operations, technology and personnel with those of LGP Allgon and
this may continue for some time. We have limited experience integrating operations as substantial and geographically diverse as those of LGP Allgon, and as a result, we may not successfully integrate the operations of Powerwave and LGP Allgon in a
timely manner, or at all.



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The failure to successfully integrate the two companies operations could undermine the anticipated
benefits and synergies of the combination, which could adversely affect our business, financial condition and results of operations. The anticipated benefits and synergies relate to cost savings associated with operational efficiencies, greater
economies of scale and revenue enhancement opportunities. However, these anticipated benefits and synergies are based on projections and assumptions, not actual experience, and assume a smooth and successful integration of the two companies.



In addition, the acquisition of LGP Allgon is the largest
acquisition we have completed and the complex process of integrating LGP Allgon requires significant resources. We have incurred and will continue to incur significant costs and commit significant management time in integrating LGP Allgons
operations, information, communications and other systems and personnel, among other items. The integration of these businesses has resulted and will continue to result in cash outflows related to the integration process, such as:



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



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



| |  | integrating technology and personnel; and
| | - | -----------------------------------------



| |  | other transaction costs associated with the acquisition, including financial advisor, attorney, accountant and other fees.
| | - | --------------------------------------------------------------------------------------------------------------------------



There have been significant reductions in customer demand for our
products, and if this continues, our operating results will continue to be adversely impacted.



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



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



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



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



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



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



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



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



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



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



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



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



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



Wireless service providers are continuing to place pricing pressure on wireless infrastructure manufacturers, which in turn, has resulted in lower selling
prices for our products, with certain competitors aggressively reducing prices in an effort to increase their market share. The average sales price for our radio frequency power amplifier products declined by between 2% to 23% from fiscal 2003 to
fiscal 2004. Since wireless infrastructure manufacturers frequently negotiate supply arrangements far in advance of delivery dates, we must often commit to price reductions for our products before we know how, or if, we can obtain such cost
reductions. In addition, average sales prices are affected by price discounts negotiated without firm orders for large volume purchases by certain customers. To offset declining average sales prices, we must reduce manufacturing costs and ultimately
develop new products with lower costs or higher average sales prices. If we cannot achieve such cost reductions or increases in average selling prices, our gross margins will decline.



Our suppliers, contract manufacturers or customers could become competitors.



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



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



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



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



If our contract
manufacturers are unable to timely respond to changes in customer demand, we may be unable to produce enough products to respond to sudden increases in demand resulting in lost revenues, or alternatively, in the case of order cancellations or
decreases in demand, we may be liable for excess or obsolete inventory or cancellation



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charges resulting from contractual purchase commitments that we have with our contract manufacturers. We regularly
provide rolling forecasts of our requirements to our contract manufacturers for planning purposes, pursuant to our agreements, a portion of which is binding upon us. Additionally, we are committed to accept delivery on the forecasted terms for a
portion of the rolling forecast. Cancellations of orders or changes to the forecasts provided to any of our contract manufacturers may result in cancellation costs payable by us. In the past, we have been required to take delivery of materials from
other suppliers and subcontractors that were in excess of our requirements and we have previously recognized charges and expenses related to such excess material.



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



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



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



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



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



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



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



We have had quality problems with our products in the past and may have similar problems in the future. We have replaced components in some products in accordance with our product warranties. We believe that our
customers will demand that our products meet increasingly stringent performance and reliability standards. If we cannot keep pace with technological developments, evolving industry standards and new communications protocols, if we fail to adequately
improve product quality and meet the quality standards of our customers, or if our contract manufacturers fail to achieve the quality standards of our customers, we risk losing business which would negatively



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impact our results of operations. Design problems could also damage relationships with existing and prospective customers
and could limit our ability to market our products to large wireless infrastructure manufacturers, many of which build their own products and have stringent quality control standards.



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



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



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



Future acquisitions or strategic alliances may present risks, and we may be unable to achieve the financial and strategic goals intended at the time of
any acquisition or strategic alliance.



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



For the nine months ended October 3, 2004, and fiscal years 2003, 2002 and
2001, international revenues (excluding North American sales) accounted for approximately 67%, 46%, 33% and 41% of our net sales, respectively. There are many risks that currently impact, and will continue to impact our international business and
multinational operations, including the following:



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



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



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



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



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



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



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



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



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



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



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



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



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



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



Protection of our intellectual property is limited.



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



The
departure of any of our management and technical personnel, the breach of their confidentiality and non-disclosure obligations to us, or the failure to achieve our intellectual property objectives could have a material adverse effect on our
business, results of operations and financial condition. We do not have non-compete agreements with our employees who are generally employed on an at-will basis. Therefore, we have had, and may



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continue to have, employees leave us and go to work for competitors. If we are not successful in prohibiting the
unauthorized use of our proprietary technology or the use of our processes by a competitor, our competitive advantage may be significantly reduced which would result in reduced revenues.



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



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



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



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



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



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



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



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



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



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



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



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



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



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



We may also experience a decline in the price of our Common Stock as a result of our recent acquisition of LGP Allgon if:



| |  | we are not successful in integrating LGP Allgons business with ours;
| | - | ---------------------------------------------------------------------



| |  | we do not achieve the expected benefits of our acquisition of LGP Allgon as rapidly or to the extent anticipated by stock market analysts or investors; or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the effect of our acquisition of LGP Allgon on our financial results is not consistent with the expectations of stock market analysts or investors.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the increase in the number of shares of our outstanding Common
Stock may lead to sales of such shares or the perception that such sales may occur, either of which may adversely affect the market for, and the



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market price of, our Common Stock. This increase, together with our outstanding convertible debt instruments, and any
potential future sale or issuance of shares of our Common Stock or instruments convertible or exchangeable into shares of our Common Stock, or the perception that such sales or transactions could occur, could adversely affect the market price of our
Common Stock.



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



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



We may need to raise additional funds through public or
private debt or equity financings in order to take advantage of opportunities, including more rapid international expansion or acquisitions of complementary businesses or technologies. If we are not successful in integrating our business and
managing the worldwide aspects of the combined company resulting from the LGP Allgon acquisition, our operations may not generate profits and may consume our cash resources faster than we anticipate. Such losses would make it difficult to obtain new
sources of financing. In addition, if we do not generate sufficient cash flow from operations, we may need to raise additional funds to repay our outstanding convertible debt that we issued in 2003. Our ability to secure additional financing or
sources of funding is dependent upon numerous factors, including the current outlook of our business, our credit rating and the market price of our common stock, all of which are directly impacted by our ability to increase revenues and generate
profits. Our ability to increase revenues and generate profits is subject to numerous risks and uncertainties and any significant decrease in our revenues or profitability could reduce our operating cash flows and erode our existing cash balances.
If we are unable to secure additional financing or such financing is not available at acceptable terms, we may not be able to take advantage of such opportunities, or otherwise respond to unanticipated competitive pressures.



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



Our products compete on the basis of the following characteristics:



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



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



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



| |  | pricing;
| | - | --------



| |  | quality;
| | - | --------



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



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



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



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



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



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



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



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



Pursuant to rules adopted by the SEC implementing
Section 404 of the Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of our internal controls over financial reporting and provide a management report on our internal controls over financial reporting in all annual reports,
beginning with our Annual Report on Form 10-K for the fiscal year ending January 2, 2005. This report will contain, among other matters, a statement as to whether or not our internal controls over financial reporting are effective and the disclosure
of any material weaknesses in our internal controls over financial reporting identified by management. Section 404 also requires our independent auditor to attest to, and report on, managements assessment of our internal controls over
financial reporting.



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



While we currently believe our internal controls over financial reporting are effective, we are still performing the system and process documentation and
evaluation needed to comply with Section 404, which is both costly and challenging. If we identify one or more material weaknesses in our internal controls over financial reporting during this documentation and evaluation process, our management
will be unable to assert such internal controls are effective. In addition, although we currently anticipate being able to satisfy the requirements of Section 404 in a timely fashion, we cannot be certain as to the timing of completion of our
evaluation, testing and any required remediation due in large part to the fact that there is no precedent available by which to measure compliance with these new requirements. Therefore, if we are unable to assert that our internal controls over
financial reporting are effective as of January 2, 2005, or if our auditors are unable to attest that our managements report is fairly stated or they are unable to express an opinion on the effectiveness of our internal controls, we could lose
investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our business and the market price of our Common Stock.



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



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



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



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



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



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



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Our financial instruments include cash and cash equivalents, foreign currency forward contracts acquired through our acquisition of LGP Allgon, and both
short-term and long-term debt. At October 3, 2004, the carrying values of our financial instruments approximated their fair values based upon current market prices and rates.



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



Foreign Currency Risk



With the acquisition of LGP Allgon, our international operations represent a
substantial portion of our operating results and asset base. These international operations generally incur local operating costs and generate third party revenues in currencies other than the U.S. dollar. In addition, certain of our international
customers require that we transact business with them in their own local currency, regardless of the location of our operations. While we monitor our international exposures, we do not currently maintain an active foreign currency hedging program.
We may decide in the future to implement an active hedging program utilizing derivative instruments to assist in managing our foreign exchange rate risk. Based on our overall foreign exchange rate exposure at October 3, 2004, we do not believe that
a 10% change in foreign currency rates would have a material effect on our consolidated financial position, results of operations or cash flows.



Interest Rate Risk



As of October 3, 2004, we had a short-term cash investment portfolio of approximately $98.8 million with maturities of three months or less, as well as
cash balances of approximately $25.2 million in both interest and non-interest bearing accounts. We also had $130.0 million of convertible subordinated notes due July 2008 at a fixed annual interest rate of 1.25% and $0.1 million capital lease
obligations with various maturities at fixed interest rates. We are exposed to interest rate risk primarily through our short-term cash investment portfolio. While short-term investment rates remained at historical lows during the third quarter of
2004, we believe that we are not subject to material fluctuations in principal given the short-term maturities and high-grade investment quality of our investment portfolio, and the fact that the effective interest rate of our portfolio tracks
closely to various short-term money market interest rate benchmarks. Therefore, we currently do not use derivative instruments to mange the interest rate risk related to our short-term investment portfolio or our variable rate bank debt. Based on
our overall interest rate exposure at October 3, 2004, we do not believe that a 100 basis point change in interest rates would have a material effect on our consolidated financial position, results of operations or cash flows.



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Commodity Price Risk



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



ITEM 4. CONTROLS AND PROCEDURES



Disclosure
Controls and Procedures



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



Internal Control Over Financial Reporting



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



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##### Table of Contents

PART II  OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



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



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



The Companys 2004 Annual Meeting of Shareholders was held on July 21, 2004 in Santa Ana, California. A quorum was declared present for the meeting. The following matters were submitted to a vote of and approved
by a majority of security holders:



|(1) | The election of the nine nominated directors to hold office until the next annual meeting or until their successors are duly elected and qualified.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



|                      |  |            |  |          
|--------------------- |  | ---------- |  | ---------
|Board Member          |  | For        |  | Withheld 
|Daniel A. Artusi      |  | 94,940,013 |  | 544,346  
|John L. Clendenin     |  | 94,922,519 |  | 561,840  
|Bruce C. Edwards      |  | 94,982,816 |  | 501,543  
|David L. George       |  | 94,911,087 |  | 573,272  
|Eugene L. Goda        |  | 94,907,131 |  | 577,228  
|Mikael R. Gottschlich |  | 94,922,907 |  | 561,452  
|Carl W. Neun          |  | 91,942,480 |  | 3,541,879
|Andrew J. Sukawaty    |  | 94,944,084 |  | 540,275  
|Dag J. Tigerschiöld   |  | 94,930,186 |  | 544,173  



|(2) | The ratification of the appointment of Deloitte & Touche LLP as independent auditors of the Company for the 2004 fiscal year.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|           |  |           |  |          
|---------- |  | --------- |  | ---------
|For        |  | Against   |  | Abstained
|94,208,220 |  | 1,186,289 |  | 89,850   



ITEM 6. EXHIBITS



The following
exhibits are filed as part of this report:



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

---

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



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SIGNATURES



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



|                              |  |                              |  |                                                           
|----------------------------- |  | ---------------------------- |  | ----------------------------------------------------------
|Date:       November 11, 2004 |  | POWERWAVE TECHNOLOGIES, INC.
|                              |  | By:                          |  | /s/ KEVIN T. MICHAELS                                     
|                              |  |                              |  | Kevin T. Michaels                                         
|                              |  |                              |  | Senior Vice President, Finance and Chief Financial Officer



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