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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                        

                                   FORM 10-Q
                                        

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


     For the quarterly period ended June 29, 1997

                                       OR
                                        

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


     For the transition period from ______  to _______

                                        
                       Commission File Number 000-21507
                                        

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

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


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

       Registrant's telephone number, including area code: (714) 757-0530
                                        
                            ______________________
 

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

     As of July 23, 1997, the number of outstanding shares of Common Stock, par
value $.0001 per share, of the Registrant was 17,615,080.

================================================================================
<PAGE>
 
                          POWERWAVE TECHNOLOGIES, INC.
                                     INDEX

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

         Item 1.   Financial Statements

                   Consolidated Balance Sheets at June 29, 1997 (Unaudited)
                     and December 29, 1996                                                 3
 
                   Consolidated Statements of Income (Unaudited)
                     for the three and six months ended June 29, 1997 and June 30, 1996    4
 
                   Consolidated Statements of Cash Flows (Unaudited)
                     for the six months ended June 29, 1997 and June 30, 1996              5
 
                   Notes to Consolidated Financial Statements (Unaudited)                  6-7
 

          Item 2.  Management's Discussion and Analysis of Financial Condition
                     and Results of Operations                                             8-18


Part II.  Other Information

          Item 4.  Submission of Matters to a Vote of Security Holders                     22

          Item 6.  Exhibits and Reports on Form 8-K                                        22


Signatures                                                                                 23

Exhibit 11.1  Computation of Pro Forma Net Income and Net Income per Share                 24

</TABLE> 

This Quarterly Report on Form 10-Q includes certain forward-looking statements
as defined within the Private Securities Litigation Reform Act of 1995.  Such
forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ materially from those projected or implied.  The
realization of such forward-looking statements may be impacted by certain
important factors which are discussed in "Additional Factors That May Affect
Future Results" under Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."  The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

                                       2
<PAGE>
 
                          POWERWAVE TECHNOLOGIES, INC.
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
 
                                                                   June 29,      December 29,
ASSETS:                                                              1997            1996
                                                                 -------------   -------------
<S>                                                              <C>             <C>
Current Assets:                                                   (Unaudited)
 
     Cash and cash equivalents                                   $ 42,575,890    $ 32,386,331
     Accounts receivable, net of allowance for doubtful
       accounts of $315,000 and $485,368 at June 29,
       1997 and December 29, 1996, respectively                     5,761,948       3,324,699
     Inventories, net                                               6,327,396       4,707,545
     Prepaid expenses and other current assets                        999,770         327,816
     Deferred tax assets                                            1,875,572       1,875,572
                                                                 ------------    ------------
          Total current assets                                     57,540,576      42,621,963
 
Property and equipment                                              7,982,834       5,211,764
Accumulated depreciation and amortization                          (1,693,473)     (1,011,132)
                                                                 ------------    ------------
     Net property and equipment                                     6,289,361       4,200,632
                                                                 ------------    ------------
Other assets                                                          346,174         109,606
                                                                 ------------    ------------
TOTAL ASSETS                                                     $ 64,176,111    $ 46,932,201
                                                                 ============    ============
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
     Accounts payable                                            $  6,165,639    $  3,588,885
     Accrued expenses and other liabilities                         5,915,589       3,878,396
     Current portion of long-term debt                                391,751         253,747
     Income taxes payable                                           1,272,004       1,658,019
                                                                 ------------    ------------
          Total current liabilities                                13,744,983       9,379,047
 
Deferred tax liabilities                                              189,432         189,432
Other non-current liabilities                                          96,305               -
Long-term debt                                                      1,034,706         520,399
                                                                 ------------    ------------
TOTAL LIABILITIES                                                  15,065,426      10,088,878
                                                                 ------------    ------------
 
Commitments and contingency
 
Shareholders' Equity:
Preferred Stock, $.0001 par value, 5,000,000 shares
     authorized and no shares outstanding                                   -               -
Common Stock, $.0001 par value, 40,000,000 shares
     authorized and 16,454,526 and 15,862,500 shares issued
     and outstanding at June 29, 1997 and December 29, 1996        39,649,130      33,570,573
Retained earnings                                                  21,692,935      15,504,130
Less treasury stock at cost                                       (12,231,380)    (12,231,380)
                                                                 ------------    ------------
     Total shareholders' equity                                    49,110,685      36,843,323
                                                                 ------------    ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                       $ 64,176,111    $ 46,932,201
                                                                 ============    ============
 </TABLE>


   The accompanying notes are an integral part of these financial statements
 

                                       3
<PAGE>
 
                         POWERWAVE TECHNOLOGIES, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)
<TABLE>
<CAPTION>
 
                                            Three Months Ended           Six Months Ended
                                         -------------------------   -------------------------
                                          June 29,      June 30,      June 29,      June 30,
                                            1997          1996          1997          1996
                                         -----------   -----------   -----------   -----------
<S>                                      <C>           <C>           <C>           <C>
 
Net sales                                $27,359,581   $15,300,151   $47,602,321   $29,107,550
Cost of sales                             16,856,949     8,999,494    28,384,868    17,228,747
                                         -----------   -----------   -----------   -----------
Gross profit                              10,502,632     6,300,657    19,217,453    11,878,803
Operating expenses:
     Sales and marketing                   2,141,191     1,102,970     3,721,816     2,158,569
     Research and development              2,384,848     1,375,870     4,596,253     2,450,533
     General and administrative            1,018,428       671,251     1,961,316     1,282,794
                                         -----------   -----------   -----------   -----------
Total operating expenses                   5,544,467     3,150,091    10,279,385     5,891,896
                                         -----------   -----------   -----------   -----------
 
Operating income                           4,958,165     3,150,566     8,938,068     5,986,907
Other income, net                            571,104       120,061     1,043,881       178,606
 
Income before income taxes                 5,529,269     3,270,627     9,981,949     6,165,513
Provision for income taxes                 2,101,119     1,340,961     3,793,142     2,527,861
                                         -----------   -----------   -----------   -----------
 
Net income                               $ 3,428,150   $ 1,929,666   $ 6,188,807   $ 3,637,652
                                         ===========   ===========   ===========   ===========
 
Net income and pro forma net
     income per share                    $       .20   $       .13   $       .37   $       .25
 
Weighted average and pro forma
     weighted average common shares       16,855,583    14,475,481    16,791,796    14,475,481
 
</TABLE>


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

                                       4
<PAGE>
 
                          POWERWAVE TECHNOLOGIES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                Six Months Ended
                                                       --------------------------------
                                                           June 29,          June 30,
                                                             1997              1996
                                                       -----------------   ------------
<S>                                                    <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                $ 6,188,807    $ 3,637,652
  Adjustments to reconcile net income to net
   cash provided by operating activities:
  Depreciation and amortization                                 706,760        241,563
  Changes in assets and liabilities:
   Accounts receivable                                       (2,437,249)       711,962
   Inventories                                               (1,619,851)      (562,030)
   Income tax refund receivable                                       -        609,550
   Prepaid expenses and other current assets                   (671,955)       504,183
   Accounts payable                                           2,576,753       (192,601)
   Accrued expenses and other liabilities                     2,133,498      3,846,420
   Compensation costs related to stock options                   23,493              -
   Other assets                                                (236,568)      (310,304)
   Income taxes payable                                       1,108,142       (980,239)
                                                            -----------    -----------
  Net cash provided by operating activities                   7,771,830      7,506,156
                                                            -----------    -----------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                         (3,821,764)    (1,371,939)
                                                            -----------    -----------
  Net cash used in investing activities                      (3,821,764)    (1,371,939)
                                                            -----------    -----------
 
CASH FLOW FROM FINANCING ACTIVITIES:
  Principal payments on long-term debt                         (152,280)       (85,787)
  Proceeds from sale of assets                                1,830,866              -
  Issuance of Common Stock                                    3,884,019        300,000
  Proceeds from exercise of stock options                       676,888              -
                                                            -----------    -----------
  Net cash provided by financing activities                   6,239,493        214,213
                                                            -----------    -----------
 
NET INCREASE IN CASH AND
   CASH EQUIVALENTS                                          10,189,559      6,348,430
CASH AND CASH EQUIVALENTS, beginning                         32,386,331      5,841,456
                                                            -----------    -----------
CASH AND CASH EQUIVALENTS, ending                           $42,575,890    $12,189,886
                                                            ===========    ===========
 
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid for:
   Interest                                                 $    43,037    $     9,164
                                                            ===========    ===========
   Income taxes                                             $ 2,685,000    $ 2,289,000
                                                            ===========    ===========
NON-CASH ITEMS:
   Tax benefit related to stock options                     $ 1,494,157    $         -
                                                            ===========    ===========
   Acquisition of property through capital leases           $   804,591    $         -
                                                            ===========    ===========
   Preferred dividends payable                              $              $   450,000
                                                            ===========    ===========
</TABLE>

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

                                       5
<PAGE>
 
                         POWERWAVE TECHNOLOGIES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
                                 June 29, 1997

Basis of Presentation

  The accompanying consolidated financial statements have been prepared by the
Company without audit (except for balance sheet information as of December 29,
1996) in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X.  In the opinion of management, all adjustments (consisting only
of normal recurring accruals) considered necessary for a fair presentation have
been included.  The accompanying consolidated financial statements do not
include certain footnotes and financial presentations normally required under
generally accepted accounting principles and, therefore, should be read in
conjunction with the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 29,
1996.  The accounting policies followed by the Company are set forth in Note 2
of the Notes to Consolidated Financial Statements in the Company's Annual Report
on Form 10-K for the fiscal year ended December 29, 1996.

  The results of operations for the three and six months ended June 29, 1997,
are not necessarily indicative of the results to be expected for the entire
fiscal year ended December 28, 1997 (fiscal year 1997).  For further information
on additional factors that may affect future results, please refer to the
"Management Discussion and Analysis of Financial Condition and Results of
Operations" under Item 2, the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1996, and the Company's Form S-1 filed with the Securities
and Exchange Commission on July 1, 1997.

Net Income and Pro Forma Net Income Per Share and Shareholders' Equity

   Net income and pro forma net income per share amounts are based upon the
weighted average number of common shares and dilutive common equivalent shares
for each period presented and the pro forma conversion of preferred stock into
common stock up to the date of such conversion.  Weighted average and pro forma
weighted average common and common equivalent shares include common stock, stock
options using the treasury stock method and the conversion of outstanding shares
of Series A Preferred Stock into shares of common stock.  Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin Topic 4D, stock options
granted during the twelve months prior to the date of the initial filing of the
Company's Form S-1 Registration Statement relating to the Company's initial
public offering have been included in the calculation of common equivalent
shares using the treasury stock method.

New Accounting Pronouncement

  In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share, which is effective
for financial statements for both interim and annual periods ending after
December 15, 1997, and replaces the presentation of "primary" earnings per share
with "basic" earnings per share and the presentation of "fully diluted" earnings
per share with "diluted" earnings per share.  Early adoption of the statement is
not permitted.  When adopted, all previously reported earnings per share amounts
must be restated based on the provisions of the new standard.  Pro forma basic
and diluted earnings per share calculated in accordance with SFAS No. 128 are
provided below:
<TABLE>
<CAPTION>
 
                                     Three Months Ended             Six Months Ended
                                   ---------------------         ---------------------
                                    June 29,   June 30,            June 29,   June 30,
                                      1997       1996               1997       1996
                                   ---------   --------          ---------   --------
<S>                                <C>         <C>               <C>         <C>
 
Basic earnings per share             $ .21      $ .14              $ .38      $ .26
                                     =====      =====              =====      =====
Diluted earnings per share           $ .20      $ .13              $ .37      $ .25
                                     =====      =====              =====      =====
 
</TABLE>

                                       6
<PAGE>
 
Stock Option Plans

  The following is a summary of stock option transactions under the Company's
stock option plans, including the 1995 Stock Option, the 1996 Stock Incentive
Plan, and the 1996 Director Stock Option Plan, for the six months ended June 29,
1997:

<TABLE>
<CAPTION>
                                                                       Number of
                                                                       Options
                                                                       Exercisable
                                  Number of       Price per            as of
                                    Shares        Share                June 29, 1997
                                  ---------      -------------         -------------
<S>                               <C>            <C>                   <C>
Balance at December 29, 1996      1,919,252      $  2.47-11.50
Granted                             216,255      $14.50-17.875
Exercised                          (232,029)     $  2.47-11.50
Canceled                           (135,496)     $  4.00-17.00
                                  ---------      -------------
Balance at June 29, 1997          1,767,982                                  458,433
                                  =========                            =============
</TABLE>

                                       7
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations.

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

Results of Operations

  The following table summarizes the Company's results of operations as a
percentage of net sales for the three and six months ended June 29, 1997 and
June 30, 1996.
<TABLE>
<CAPTION>
 
                                                  Percentage of Total Revenue
                                        Three Months Ended              Six Months Ended
                                     -----------------------      ---------------------------
                                     June 29,       June 30,        June 29,       June 30,
                                       1997          1996            1997           1996
                                     ---------   -----------      ---------    --------------
<S>                                  <C>         <C>              <C>          <C>
Net sales                               100.0%        100.0%         100.0%            100.0%
Cost of sales                            61.6          58.8           59.6              59.2
                                        -----         -----          -----             -----
Gross profit                             38.4          41.2           40.4              40.8
Operating expenses:
     Sales and marketing                  7.8           7.2            7.8               7.4
     Research and development             8.7           9.0            9.7               8.4
     General and administrative           3.8           4.4            4.1               4.4
                                        -----          ----          -----             -----
Total operating expenses                 20.3          20.6           21.6              20.2
                                        -----          ----          -----             -----
 
Operating income                         18.1          20.6           18.8              20.6
Other income, net                         2.1           0.8            2.2               0.6
                                        -----          ----          -----             -----
 
Income before income taxes               20.2          21.4           21.0              21.2
Provision for income taxes                7.7           8.8            8.0               8.7
                                        -----          ----          -----             -----

Net income                               12.5%         12.6%          13.0%             12.5%
                                        =====          ====          =====              ====
</TABLE>
Three months ended June 29, 1997 and June 30, 1996

Net Sales

  The Company's net sales are derived primarily from the sale of RF power
amplifiers for use in wireless communications networks.  Sales increased by
78.8% to $27.4 million for the quarter ended June 29, 1997 from $15.3 million
for the quarter ended June 30, 1996.  The growth in revenue was primarily
attributable to volume shipments of the Company's new single carrier PCS
amplifier products.  The second quarter of fiscal 1997 also experienced
continued demand for cellular multi-carrier amplifiers by the Company's South
Korean customers as well as continued deployment of the digital cellular CDMA
system in South Korea along with initial deployment of the new PCS network in
South Korea.

  For the quarter ended June 29, 1997, cellular multi-carrier amplifiers
(including racks) accounted for approximately 45.7% of revenues or $12.5
million, compared to approximately 76.7% or $11.7 million for the quarter ended
June 30, 1996. PCS products accounted for approximately 47.9% of revenues or
$13.1 million for the second quarter of 1997, compared to none for the second
quarter in 1996.  SMR (including paging) amplifiers accounted for approximately
6.4% or $1.8 million of revenues for the quarter ended June 29, 1997, compared
to approximately 10.0% or $1.5 million of revenues for the quarter ended June
30, 1996.  There were no sales of air-to-ground amplifiers for the quarter ended
June 29, 1997 compared to approximately $2.0 million or 13.3% of sales for the
quarter ended June 30, 1996.  International sales, primarily to a small number
of customers in South Korea, accounted for 89.7% of revenues for the quarter
ended June 29, 1997, compared with 78.0% for the quarter ended June 30, 1996.
See "Additional Factors That May Affect Future Results - Customer
Concentration."

                                       8
<PAGE>
 
Gross Profit

  Cost of sales consists primarily of raw materials, assembly and test labor,
overhead, warranty costs and royalties.  Gross profit margins for the second
quarter of fiscal 1997 and 1996 were 38.4% and 41.2%, respectively.  The
decrease in gross margins is primarily due to increased shipments of lower
priced single carrier PCS amplifiers which also have lower gross margins.  While
the Company continues to strive for manufacturing cost reductions to offset
pricing pressures on its products, there can be no assurance that these cost
reduction efforts will continue to keep pace with price declines.  If the
Company is unable to continue to obtain cost reductions, its gross margins and
profitability will be adversely affected.  For a discussion of the effects of
declining average sales prices on the Company's business, see "Additional
Factors That May Affect Future Results - Declining Average Sales Prices."

  The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product.  Due to these competitive
pressures, the Company expects that the average sales prices of its products
will continue to decrease.  The Company has introduced new products at lower
sales prices which has impacted the average sales prices of the Company's
products. Future pricing actions by the Company and its competitors may also
adversely impact the Company's gross profit margins and profitability, which
could also result in decreased liquidity and adversely affect the Company's
business, results of operations and financial condition. For a discussion of the
impact of new products on the Company's business, see "Additional Factors That
May Affect Future Results - Rapid Technological Change; Dependence on New
Products."

Operating Expenses

  Sales and marketing expenses consist primarily of sales commissions, salaries
and other expenses for sales and marketing personnel, travel expenses, reserves
for credit losses and trade show expenses.  Sales and marketing expenses
increased by 94.1% to $2.1 million for the quarter ended June 29, 1997 from $1.1
million for the quarter ended June 30, 1996.  As a percentage of sales, sales
and marketing expenses were 7.8% and 7.2%, respectively.  The increase in sales
and marketing expenses was primarily attributable to increases in the sales and
marketing staff, sales commissions related to increased product sales and
increased cost of providing sample units to customers.  The Company intends to
continue increasing its actual investment in sales and marketing in future
periods.

  Research and development expenses include ongoing amplifier design and
development expenses, as well as those design expenses associated with reducing
the cost and improving the manufacturability of existing amplifiers.  Research
and development expenses increased by 73.3% to $2.4 million for the quarter
ended June 29, 1997 from $1.4 million for the quarter ended June 30, 1996.
Research and development expenses as a percentage of sales were 8.7% and 9.0%,
respectively.  The increase in actual research and development expenses was
primarily attributable to increased staffing and associated engineering costs
related to continued new and existing product development, including the
continued development of amplifiers for PCS networks which began during the
third quarter of 1996.  There was no PCS development during the second quarter
of 1996.  The Company intends to continue to emphasize investment in research
and development programs in future periods with current programs covering both
PCS and cellular products.

  General and administrative expenses consist primarily of salaries and other
expenses for management, finance, facilities maintenance and human resources.
General and administrative expenses increased by 51.7% to $1.0 million for the
quarter ended June 29, 1997, from $.7 million for the quarter ended June 30,
1996.  General and administrative expenses as a percentage of sales were 3.8%
and 4.4%, respectively.  The increase in actual general and administrative
expenses was primarily attributable to increased staffing costs associated with
supporting the Company's increased revenues.

Other Income

  The Company earned other income, net, of $571,104 in the second quarter of
1997 compared to $120,061 for the second quarter of 1996.  Other income consists
primarily of interest income, net of any interest expense.  The increase in
other income is attributable to the Company's increased cash position maintained
during the second quarter of 1997 compared to the cash balances maintained
during the second

                                       9
<PAGE>
 
quarter of 1996. The larger cash balances are due to both the Company's initial
public offering which was completed in December 1996, as well as cash flow
generated from operations. The larger cash balances were invested in short-term
money market instruments.

Provision for Income Taxes

  The Company's effective tax rate was 38.0% and 41.0% for the quarters ended
June 29, 1997 and June 30, 1996, respectively.  The Company anticipates that its
tax rate for the remainder of fiscal 1997 will be 37%.

Six months ended June 29, 1997 and June 30, 1996

Net Sales

  Sales increased by 63.5% to $47.6 million for the six months ended June 29,
1997 from $29.1 million for the six months ended June 30, 1996.  The growth in
revenue was primarily attributable to increased demand by the Company's South
Korean customers for multi-carrier cellular amplifiers and the introduction and
volume shipments of the Company's new single carrier PCS product line, which was
partially offset by a decline in sales of SMR and paging amplifiers and by a
decline in average sales prices of multi-channel cellular amplifiers.  For the
first six months of 1997, multi-carrier cellular amplifiers accounted for
approximately 62.0% or $29.5 million of revenues, compared to approximately
70.6% or $20.6 million for the first six months of 1996.  PCS amplifiers
accounted for 31.2% of revenue or $14.9 million for the first six months of
1997, compared to no sales in the first six months of 1996.  SMR and paging
amplifiers accounted for approximately 6.8% of revenue or $3.2 million for the
first six months of 1997, compared to 14.5% or $4.2 million for the first six
months of 1996.  There were no shipments of air-to-ground amplifiers for the
first six months of 1997, compared to 14.9% of revenue or $4.3 million for the
first six months of 1996.

Gross Profit

  The gross profit margin as a percentage of sales for the six months ended June
29, 1997 and June 30, 1996 was 40.4% and 40.8%, respectively.  The decrease in
gross margins during the first six months of 1997 was primarily attributable to
the introduction and volume shipments of the new single carrier PCS product line
which has lower prices and gross margins.

Operating Expenses

  Sales and marketing expenses increased by 72.4% to $3.7 million for the six
months ended June 29, 1997 from $2.2 million for the six months ended June 30,
1996.  Sales and marketing expenses as a percentage of sales for the six months
ended June 29, 1997 and June 30, 1996 were 7.8% and 7.4%, respectively.  The
increase in sales and marketing expenses was primarily attributable to increases
in the sales and marketing staff, sales commissions related to increased product
sales and increased cost of providing sample units to customers.

  Research and development expenses increased by 87.6% to $4.6 million for the
six months ended June 29, 1997 from $2.5 million for the six months ended June
30, 1996.  Research and development expenses as a percentage of sales were 9.7%
and 8.4%, respectively.  The increase in research and development expenses was
primarily attributable to increased staffing and associated engineering costs
related to continued new and existing product development, including the
continued development of amplifiers for PCS networks which began during the
third quarter of 1996.  There was no PCS development efforts during the first
six months of 1996.

  General and administrative expenses increased by 52.9% to $2.0 million for the
six months ended June 29, 1997 from $1.3 million for the six months ended June
30, 1996.  General and administrative expenses as a percentage of sales were
4.1% and 4.4%, respectively.  The increase in general and administrative
expenses during the first six months of 1997 was primarily attributable to
increased staffing costs associated with supporting the Company's increased
revenues.

                                       10
<PAGE>
 
Other Income

  Other income, net, increased by 484.5% to $1.0 million for the six months
ended June 29, 1997 from $178,606 for the six months ended June 30, 1996.  Other
income consists primarily of interest income, net of any interest expense.  The
increase in other income is attributed to the Company's increased cash position
maintained during the first six months of 1997 compared to the cash balances
maintained during the first six months of 1996.  The larger cash balances are
due to both the Company's initial public offering which was completed in
December, 1996, as well as cash flow generated from operations.  The cash
balances were invested in short-term money market instruments.

Provision for Income Taxes

  The Company's effective tax rate was 38.0% and 41.0% for the six month periods
ended June 29, 1997 and June 30, 1996, respectively.


Liquidity and Capital Resources

  The Company has historically financed its operations primarily through a
combination of cash on hand, cash provided from operations, equipment lease
financings, available borrowings under its bank line of credit and both private
and public equity offerings.  As of June 29, 1997, the Company had working
capital of $43.8 million, including $42.6 million in cash and cash equivalents
as compared with working capital of $33.2 million at December 29, 1996.  Net
accounts receivable were approximately $5.8 million at June 29, 1997 compared
with $3.3 million at December 29, 1996.  The increase in accounts receivable is
primarily due to increased revenues from the fourth quarter of 1996 to the
second quarter of 1997.  Net inventory increased to $6.3 million at June 29,
1997, from $4.7 million at December 29, 1996.  This increase is largely
attributed to the ramp-up of the new single carrier PCS product line and
increased production of multi-carrier cellular amplifiers.  Inventory turns as
of June 29, 1997 were 10.7 compared to 8.0 at the end of fiscal 1996.  Accounts
payable increased to $6.2 million at June 29, 1997, from $3.6 million at
December 29, 1996.  The increase in accounts payable is primarily due to
increased inventory levels and increased production levels.

  Cash provided by operations was approximately $7.8 million for the six months
ended June 29, 1997, compared to $7.5 million for the six months ended June 30,
1996. Cash provided by financing activities was approximately $6.2 million for
the first six months of 1997 compared with $.2 million used in financing
activities for the first six months of 1996.  The majority of the increase in
cash provided by financing activities resulted from the January 1997 sale of
360,000 shares of Common Stock by the Company to the underwriters to cover the
over-allotment of common shares associated with the Company's December 1996
initial public offering of Common Stock.  This sale of Common Stock provided the
Company with net proceeds of $3.9 million.  During the first six months of 1997,
the Company sold $1.8 million of purchased test equipment to a bank leasing
company, which leased the equipment back to the Company for a three year period.

  Capital expenditures were approximately $3.8 million for  the first six months
1997 compared with $1.4 million in the first six months of 1996.  Approximately
$.8 million of capital expenditures for the first six months of 1997 were
financed through capital leases.  The majority of the capital spending during
the first six months of 1997 represents spending on electronic test equipment
utilized in both the Company's manufacturing and research and development areas.
This reflects the increased investment the Company has made in its research and
development efforts as well as increasing its production capacity.

  The Company had cash and cash equivalents of $42.6 million at June 29, 1997,
compared with $32.4 million at December 29, 1996.  The Company regularly reviews
its cash funding requirements and attempts to meet those requirements through a
combination of cash on hand, cash provided by operations, available borrowings
under any credit facilities, financing through equipment lease transactions, and
possible future public or private debt and/or equity offerings.  The Company
invests its excess cash in investment grade short-term money market instruments.

                                       11
<PAGE>
 
  On May 30, 1996, the Company entered into a $5 million unsecured committed
revolving credit agreement which was never utilized by the Company and which
expired on May 31, 1997.  The Company is in the process of negotiating a new
unsecured revolving credit facility and expects to have a new facility in place
by the end of the third quarter of 1997.

  During the second quarter of 1997, Powerwave filed a registration statement
with the Securities and Exchange Commission under which the Company planned to
sell 3 million shares of its Common Stock, of which 2,250,000 shares would come
from selling shareholders.  Subsequent to the end of the second quarter and
after increasing the number of shares for sale to 3,250,000 (with 2,500,000
shares being sold by selling shareholders), this sale of shares was completed on
July 7, 1997, at a price of $22 per share of Common Stock.  The underwriters of
this transaction have also exercised the over-allotment option to purchase an
additional 487,500 shares of Common Stock, of which 250,000 shares were issued
by the Company, with the balance coming from the selling shareholders.  These
transactions will all be accounted for in the third quarter of fiscal 1997.  Net
proceeds to the Company were approximately $20.4 million.

     The Company believes that existing cash balances, funds expected to be
generated from operations and proceeds from the secondary common stock offering
which was completed on June 30, 1997, will provide the Company with sufficient
funds to finance its operations for at least the next 12 months.  The Company
has utilized both operating and capital lease financing for equipment used in
its manufacturing and research and development operations and expects to
continue to do so in the future. The Company may in the future require
additional funds to support its working capital requirements or for other
purposes, and may seek to raise such additional funds through the sale of public
or private equity and/or debt financings or from other sources.  No assurance
can be given that additional financing will be available or that, if available,
such financing will be obtainable on terms favorable to the Company or its
shareholders when the Company may require it.

Additional Factors That May Affect Future Results

  Future operating results may be impacted by a number of factors that could
cause actual results to differ materially from those stated herein, which
reflect management's current expectations.  These factors include worldwide
economic and political conditions, industry specific factors, the Company's
ability to finance its activities and maintain its financial liquidity, the
Company's ability to timely develop and produce commercially viable products at
competitive prices, the availability and cost of components, the Company's
ability to produce products which meet the quality standards of both existing
and potential new customers, the ability of the Company's products to operate
and be compatible with various OEMs base station equipment, the Company's
ability to manage expense levels, and the Company's ability to accurately
anticipate customer demand.

Customer Concentration

  A small number of customers account for a substantial majority of the
Company's net sales.  Although the Company is attempting to expand its customer
base, the Company expects that a limited number of customers will continue to
represent a substantial portion of the Company's net sales for the foreseeable
future.  The Company believes that its future success depends upon its ability
to broaden its customer base.  The Company's three largest customers include, in
alphabetical order, Hyundai Electronics Industries Co., Ltd. ("Hyundai"), LG
Information & Communications Co., Ltd. ("LGIC") and Samsung Electronics Co. Ltd.
("Samsung").  For the six months ended June 29, 1997, these customers, each of
which accounted for more than 10% of the Company's net sales for such period,
accounted for approximately 86% of the Company's net sales in the aggregate.
For fiscal 1996, these customers accounted for approximately 75% of the
Company's net sales.  Hyundai, LGIC and Samsung currently purchase products
primarily for implementation in the South Korean digital cellular telephone
network.  During the fourth quarter of 1996, they began purchasing PCS products
for the planned the implementation in South Korea of a new digital PCS network
with initial operation targeted for January 1998.  The Company expects that
these three customers will account for a substantial majority of the Company's
PCS product sales for the foreseeable future.  In addition, the Company
currently believes that the South Korean digital cellular network is more that
60% competed and that the build-out phase of this network will begin declining
during 1997 with full deployment estimated to be completed by the end of 1998.
The delay, termination or early completion of the implementation of the South

                                       12
<PAGE>
 
Korean digital cellular or PCS communications networks would have a material
adverse effect on the Company's business, results of operations and financial
condition.

  A limited number of large OEMs account for a majority of RF power amplifier
purchasers in the wireless infrastructure market, and the Company's success will
be dependent upon its ability to establish and maintain relationships with these
types of customers.  There can be no assurance that a major customer will not
reduce, delay or eliminate its purchases from the Company, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.  In addition, major customers also have significant
leverage and may attempt to change the terms, including pricing and product
delivery schedules, upon which the Company and such customers do business,
thereby adversely affecting the Company's business, results of operations and
financial condition.  Further, one or more of these customers may determine to
manufacture amplifiers internally, thus reducing or eliminating its purchases
from the Company and possibly becoming a direct competitor of the Company. See
"--Internal Amplifier Production Capabilities of OEMs."  As a result, the
Company's success will depend upon its ability to expand its customer base and,
in particular, to successfully market its products to OEMs for wireless networks
and have its products chosen over any internally designed or manufactured
products.

  The Company currently sells to its major customers under purchase orders which
are usually placed with short delivery requirements.  As such, while the Company
receives periodic order forecasts from its major customers, such customers have
no obligation to purchase the forecasted amounts and may cancel orders, change
delivery schedules or change the mix of products ordered with minimal notice.
Nonetheless, the Company maintains significant work-in-progress and raw
materials inventory as well as maintaining increased levels of technical
production staff to meet order forecasts.  To the extent its major customers
purchase less than the forecasted amounts, the Company will have higher levels
of inventory than otherwise needed, increasing the risk of obsolescence, and the
Company will have increased levels of production staff to support such
forecasted orders.  Such higher levels of inventory and increased employee
levels would reduce the Company's liquidity and could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, in the event the Company's major customers desire to purchase
products in excess of the forecasted amounts, the Company may not have
sufficient inventory or manufacturing capacity to fill such increased orders,
which could have a material adverse effect on the Company's relationships and
future business with its customers.

Reliance upon South Korean Market and Growth of Wireless Services Market

  Three of the Company's customers, Hyundai, LGIC and Samsung, collectively
accounted for approximately 86% of the Company's net sales for the six months
ended June 29, 1997, and approximately 75% of the Company's net sales for fiscal
1996.  These customers are expected to continue to account for a substantial
majority of the Company's sales during the remainder of 1997.  These customers
supply equipment for implementation in the South Korean digital cellular and PCS
networks.  During fiscal 1995, 1996 and the first six months of 1997, Hyundai,
LGIC and Samsung purchased multi-carrier linear RF power amplifiers for
installation in the build-out of the South Korean digital cellular network.  The
delay or termination of the South Korean digital cellular network would have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company currently believes that the South
Korean digital cellular network is more than 60% completed and that the build-
out phase of this network will begin declining during 1997 with full deployment
estimated to be completed by the end of 1998.  Accordingly, the Company's sales
directly related to the South Korean digital cellular network are anticipated to
decrease significantly over the same time period.

  In contrast to the South Korean digital cellular network, the build-out of the
South Korean PCS network is in its initial stages.  During the first six months
of 1997, the Company began shipping in volume PCS single carrier amplifiers for
use in the new PCS network being built in South Korea.  The delay, termination
or early completion of the infrastructure build-out of the South Korean PCS
network would have a material adverse effect on the Company's business, results
of operations and financial condition.  Further, even if this network is
developed as anticipated, there can be no assurance that the Company's PCS
products will achieve market acceptance, or be capable of being manufactured at
competitive prices in sufficient volumes.  In the event that the Company's PCS
products are not developed in a timely manner or do not gain market acceptance
or are not capable of being manufactured at competitive costs, the Company's
business, results of operations and financial condition would be materially
adversely affected.

                                       13
<PAGE>
 
  Hyundai, LGIC and Samsung also have begun marketing wireless infrastructure
equipment for installation in networks outside of the South Korean market.
There can be no assurance that such customers will be successful in obtaining
new business outside of South Korea or that, if successful, they will continue
to purchase amplifiers from the Company.  Any significant decrease in the
Company's sale of amplifiers to these customers, without an offsetting increase
in sales to other customers, would have a material adverse effect on the
Company's business, results of operations and financial condition.

  A substantial majority of the Company's revenues are derived from the sale of
RF power amplifiers for wireless communications networks, and the future success
of the Company depends to a considerable extent upon the continued growth and
increased availability of cellular and other wireless communications services,
including PCS, in the United States and internationally.  There can be no
assurance that either subscriber use or the implementation of wireless
communications services will continue to grow, or that such factors will create
demand for the Company's products.  The Company believes that continued growth
in the use of wireless communications services depends on significant reductions
in infrastructure capital equipment cost per subscriber and corresponding
reductions in wireless service pricing.  While in the United States the Federal
Communications Commission ("FCC") has adopted regulations requiring local phone
companies to reduce the rates charged to cellular carriers for connection to
their wireline networks, it is anticipated that wireless service rates will
remain higher than rates charged by traditional wireline companies.  The growth
in the implementation of wireless communications services is dependent upon both
developed countries, such as the United States, allowing continued deployment of
new networks, and less developed foreign countries deploying wireless
communications networks as opposed to constructing wireline infrastructures.
Foreign countries or local government authorities may decline to construct
wireless communications systems, place moratoriums on building base stations or
terminate or delay construction of such systems for a variety of reasons,
including environmental issues, political unrest, economic downturns, the
availability of favorable pricing for other communications services, the
availability and cost of related equipment or other delays in the implementation
of these systems, in which event demand for the Company's products will be
similarly reduced or delayed, which would materially adversely affect the
Company's business, results of operations and financial condition.  See "--Risks
of Doing Business in International Markets."

Fluctuations in Quarterly Results

  The Company experiences, and expects to continue to experience, significant
fluctuations in sales and operating results from quarter to quarter.  Quarterly
results fluctuate due to a number of factors, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.  In particular, the Company's quarterly results of operations can
vary due to the timing, cancellation, or rescheduling of customer orders and
shipments; variations in manufacturing capacities, efficiencies and costs; the
availability and cost of components; capacity and production constraints
associated with single source component suppliers; the timing, availability and
sale of new products by the Company; product failures and associated in-field
service support costs; changes in the mix of products having differing gross
margins; warranty expenses; changes in average sales prices; long sales cycles
associated with the Company's products; and variations in product development
and other operating expenses.  The Company's quarterly revenues are also
affected by volume discounts given to certain customers for large volume
purchases over a given period of time.  In addition, the Company's quarterly
results of operations are influenced by competitive factors, including pricing,
availability and demand for the Company's and competing amplification products.
A large portion of the Company's expenses are fixed  and difficult to reduce in
a short period of time.  If net sales do not meet the Company's expectations,
the Company's fixed expenses would exacerbate the effect of such net sales
shortfall.  Furthermore, announcements by the Company or its competitors
regarding new products and technologies could cause customers to defer purchases
of the Company's products.  In addition, while the Company receives periodic
order forecasts from its major customers, such customers have no binding
obligation to purchase the forecasted amounts.  See "--Customer Concentration."
Order deferrals and cancellations by the Company's customers, declining average
sales prices, changes in the mix of products sold, delays in the Company's
introduction of new products and longer than anticipated sales cycles for the
Company's products have in the past adversely affected the Company's quarterly
results of operations.  There can be no assurance that the Company's quarterly
results of operations will not be similarly adversely affected in the future.

  Due to the foregoing factors, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.

                                       14
<PAGE>
 
There can be no assurance that the Company will maintain its current
profitability in the future or that future revenues and operating results will
not be below the expectations of public market analysts and investors.  In
either case, the price of the Company's Common Stock could be materially
adversely affected.  See "--Possible Volatility of Stock Price."

Declining Average Sales Prices

  The Company has experienced, and expects to continue to experience, declining
average sales prices for its products.  Wireless infrastructure OEMs have come
under increasing price pressure from cellular service providers, which in turn
has resulted in downward pricing pressure on the Company's products.  In
addition, competition among third-party suppliers has increased the downward
pricing pressure on the Company's products.  Since wireless infrastructure OEMs
frequently negotiate supply arrangements far in advance of delivery dates, the
Company must often commit to price reductions for its products before it knows
how, or if, cost reductions can be obtained.  In addition, average sales prices
are affected by price discounts negotiated for large volume purchases by certain
customers over a given period of time.  To offset declining average sales
prices, the Company believes that in the near term it must achieve manufacturing
cost reductions, and in the longer term the Company must develop new products
that incorporate advanced features and that can be manufactured at lower cost or
sold at higher average sales prices.  If, however, the Company is unable to
achieve such cost reductions or product improvements, the Company's gross
margins could decline, and such decline could have a material adverse effect on
the Company's business, results of operations and financial condition.

  In the fourth quarter of 1996, the Company introduced single carrier
amplifiers for PCS networks, and during the first six months of 1997 these
products accounted for an increasing percentage of the Company's net sales.
Sales of single carrier amplifiers are subject to intense price competition and
tend to carry lower gross margins than multi-carrier amplifier products.  In
addition, during the second quarter of 1997 the Company significantly increased
the production level of its single carrier PCS products and, as a result, has
had difficulty reducing the cost of materials for such products during this
ramp-up.  The lower gross profit margins associated with the sales of the
Company's single carrier PCS products resulted in the decrease in the Company's
overall gross profit margin as a percentage of sales for the three months ended
June 29, 1997.  In the event that the Company is unable to reduce the
manufacturing costs of its single carrier amplifiers and such amplifiers account
for an increased percentage of net sales, the Company's overall gross margins
would be materially adversely affected.

Management of Growth; Dependence Upon Key Personnel

  The growth in the Company's business has placed, and is expected to continue
to place, a significant strain on the Company's management and operations.  The
Company's ability to compete effectively and to manage future expansion of its
operations, if any, will require the Company to continue to improve its
financial and management controls, reporting systems and procedures on a timely
basis and effectively expand, train and manage its work force.  In particular,
the Company must carefully manage production and inventory levels and product
quality to meet increasing product demand and new product introductions.
Inaccuracies in demand forecasts in the environment in which the Company
operates can quickly result in either insufficient or excessive inventories and
disproportionate overhead expenses.  Any degradation in product quality could
adversely impact production rates, product delivery schedules and overhead
expenses associated with product support.  The Company continues to implement a
number of new financial and management controls, reporting systems and
procedures.  The Company has recently hired a significant number of employees,
including engineers, production technicians and sales and marketing employees,
and plans to further increase its total employee base to meet demand forecasts.
In the event that the Company's new personnel are unable to work effectively as
a team or achieve desired production levels and product quality or if the
Company's demand forecasts are incorrect, the Company's business, results of
operations and financial condition could be materially adversely affected.
There can be no assurance that the Company will be able to continue to attract
and retain qualified personnel necessary for the development of its business.
The Company's failure to manage growth effectively would have a material adverse
effect on the Company's business, results of operations and financial condition.

  Due to the specialized nature of the Company's business, the Company is highly
dependent on the continued services of, and on its ability to attract and
retain, qualified technical, marketing and managerial personnel.

                                       15
<PAGE>
 
Competition for such personnel, particularly qualified engineers, is intense,
and the loss of a significant number of such persons, as well as the failure to
recruit and train additional technical personnel in a timely manner, could have
a material adverse effect on the Company's business, results of operations and
financial condition.


Dependence on Single Sources for Key Components

  The Company currently procures, and expects to continue to procure, certain
components from single source manufacturers due to unique component designs as
well as certain quality and performance requirements.  In addition, in order to
take advantage of volume pricing discounts, the Company purchases certain
customized components for its products from single sources.  The Company has
experienced, and may in the future experience, shortages of single-sourced
components.  In such event, the Company may have to make adjustments to both
product designs and production schedules.  If such single-sourced components
were to become unavailable in sufficient quantities or were to become available
only on terms unsatisfactory to the Company, the Company would be required to
purchase comparable components from other sources and "retune" its products to
function properly with the replacement components or redesign its products to
use other components, either of which could result in delays in production and
delivery.  If for any reason the Company could not obtain comparable replacement
components in sufficient volume from other sources or could not expeditiously
retune its products to operate with the replacement components, or redesign its
products to use other components, the Company's business, results of operations
and financial condition could be adversely affected.  In addition, if the
Company were unable to obtain sufficient quantities of single-sourced components
used in the manufacture of its RF power amplifiers, resulting delays or
reductions in product shipments could occur and could have a material adverse
affect on the Company's business, results of operations and financial condition,
including a material adverse effect on the Company's relationships with its
customers as well as potential customers.


Competition

  The wireless infrastructure equipment industry is extremely competitive and is
characterized by rapid technological change, new product development, product
obsolescence, evolving industry standards and significant price erosion over the
life of a product.  The principal elements of competition in the Company's
market include performance, functionality, reliability, pricing, quality, the
ability to design products which can be efficiently manufactured in volume
production, time-to-market delivery capabilities and standards compliance.

  The Company's success depends in part upon the rate at which wireless
infrastructure OEMs incorporate the Company's products into their systems.  The
Company believes that a substantial portion of the present worldwide production
of amplifiers is captive within the internal manufacturing operations of a small
number of wireless infrastructure OEMs and that the amplifiers manufactured by
these OEMs are offered for sale as part of their wireless systems.  These OEMs
include, among others, LM Ericsson Telephone Company ("Ericsson"), Lucent
Technologies Incorporated ("Lucent"), Motorola Corporation ("Motorola"), Nokia
Corporation ("Nokia") and Northern Telecom Limited ("Nortel").  In addition,
Samsung, a significant customer of the Company, manufacturers power amplifiers
in addition to purchasing such components from the Company.  The Company
believes that these OEMs, as well as other customers of the Company,
continuously evaluate whether to manufacture their own RF power amplifiers
rather than purchase them from third-party vendors such as the Company.  These
and other large manufacturers of wireless infrastructure equipment could also
determine to offer and sell their power amplifiers to other OEMs or customers of
the Company and compete directly with the Company.  In addition, these or other
OEMs may enter into joint ventures or strategic relationships with the Company's
competitors, in which event the Company's ability to sell products to such OEMs
could be reduced or eliminated.  See "--Internal Amplifier Production
Capabilities of OEMs."

  The Company has experienced significant price competition and expects price
competition in the sale of RF power amplifiers to increase.  No assurance can be
given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
superior price or performance features.  The Company expects its competitors to
offer new and existing products at prices necessary to gain or retain market
share.  Several of the Company's competitors have substantial financial
resources, which may enable them to withstand sustained price competition or a
downturn in the market.  There can be no assurance that the Company will be able
to compete successfully in the pricing of its products, or otherwise, in the
future.

                                       16
<PAGE>
 
Rapid Technological Change; Dependence on New Products

  The markets in which the Company and its customers compete are characterized
by rapidly changing technology, evolving industry standards and communications
protocols, and continuous improvements in products and services.  The Company's
future success depends on its ability to enhance its current products and to
develop and introduce in a timely manner new products that keep pace with
technological developments, industry standards and communications protocols,
compete effectively on the basis of price, performance and quality, adequately
address OEM customer and end-user customer requirements and achieve market
acceptance.  The Company believes that to remain competitive in the future it
will need to continue to develop new products, which will require the investment
of significant financial resources in new product development.  During the first
six months of 1997, the Company continued to invest significant resources in the
development and manufacture of RF power amplifiers for PCS networks and expects
to continue to invest significant resources in this area.  There can be no
assurance that the deployment of PCS networks will not be delayed or that the
Company's PCS-based products will achieve widespread market acceptance or be
capable of being manufactured at competitive prices in sufficient volumes.  In
the event the Company's PCS products are not timely and economically developed
and are not produced in sufficient quantities or do not gain widespread market
acceptance, the Company's business, results of operations and financial
condition would be materially adversely affected.

  In addition to its PCS development efforts, the Company continues to develop
improvements and additions to its cellular line of amplifier products, including
the Company's next-generation multi-carrier linear cellular amplifier. Any
delays in commencement of commercial shipments of these products may result in
customer dissatisfaction and delay or loss of product revenues, which could have
a material adverse effect on the Company's business, results of operations and
financial condition.  No assurance can be given that the Company's product
development efforts will be successful, or that its new products will achieve
customer acceptance or that its customers' products and services will achieve
market acceptance.  If a significant number of development projects do not
result in manufacturable new products or product enhancements within anticipated
time-frames, the Company's business, results of operations and financial
condition could be materially adversely affected.  Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development, introduction or
deliveries, could result in a loss of competitiveness and reduced net sales.
While the Company maintains an active development program to attempt to improve
its product offerings, there can be no assurance that such efforts will be
successful or that other companies or institutions will not develop and
commercialize products based on new technologies that are superior in
performance or cost-effectiveness to the Company's products.  There can also be
no assurance that the Company's products will not be rendered obsolete by the
introduction and acceptance of new communications protocols.

No Assurance of Product Manufacturability, Quality or Reliability

  Manufacturing the Company's products is an extremely complex process and
requires significant time and expertise to tune the products to meet customers'
specifications.  The ability of the Company to cost-effectively manufacture its
RF power amplifier products in volume is substantially dependent upon the
Company's ability to tune these products to meet specifications in an efficient
manner.  In this regard, the Company is dependent upon its staff of trained
technicians and engineers.  If the Company is unable to design its products to
minimize the manual tuning process or if the Company were unable to attract
additional trained technicians, or were to lose the services of a number of its
trained technicians, the Company's business, results of operations and financial
condition would be materially adversely affected.  The Company has been required
to replace certain components in some of its products in accordance with
warranty provisions under which the products were sold.  The Company recently
introduced single carrier RF power amplifiers for PCS networks and anticipates
that it will continue to introduce new-generation RF power amplifiers products
for both cellular and PCS networks.  Companies involved in the development and
manufacture of new products which contain complex technologies often encounter
difficulties in performance and reliability and encounter delays in product
introduction and volume shipments.  The Company believes that customers will
demand increasingly stringent product performance, quality and reliability.  The
Company has in the past experienced, and may from time to time in the future
experience, quality problems with its products.  If any of these problems were
to occur on a significant level, the Company could experience increased costs,
delays in or cancellations of, or rescheduling of, orders or deliveries and
product returns, any of which could

                                       17
<PAGE>
 
damage relationships with current customers and have a material adverse effect
on the Company's business, results of operations and financial condition. There
can be no assurance that the Company's product designs will continue to be
successful or will keep pace with technological developments, evolving industry
standards and communications protocols, and allow for continuous improvements in
product quality and meet the quality standards of customers. Any potential
design problems could damage relationships with both existing and prospective
customers and, in particular, could limit the Company's ability to market its
products to large OEMs, many of which manufacture power amplifiers internally
and have stringent quality control standards. See "--Internal Amplifier
Production Capabilities of OEMs."


Internal Amplifier Production Capabilities of OEMs

  Many of the leading wireless infrastructure equipment manufacturers internally
manufacture their own RF power amplifiers, and the Company believes that its
existing customers continuously evaluate whether to manufacture their own
amplifiers.  Certain customers of the Company have produced internally designed
amplifiers in an attempt to replace products manufactured by the Company.  The
Company expects that this practice will continue.  In addition, LGIC, one of the
Company's customers, has entered into a joint venture manufacturing arrangement
with one of the Company's competitors.  In the event that customers of the
Company do manufacture their own amplifiers, such customers could eliminate or
reduce their purchases of the Company's products.  There can be no assurance
that the Company's current customers will continue to rely, or expand their
reliance, on the Company as an external source of supply for their RF power
amplifiers, or that other wireless telecommunications OEMs such as Lucent,
Ericsson, Motorola, Nokia and Nortel will become and remain customers of the
Company.  OEMs with internal manufacturing capabilities could also sell
amplifiers externally to other OEMs, thereby competing directly with the
Company.  In addition, even if the Company were successful in selling its
products to these OEMs, it is anticipated that such OEMs would demand price and
other concessions based on their ability to manufacture amplifiers internally.
There can be no assurance that the Company will continue to enter into supply
contracts with OEMs on terms that are acceptable to the Company, if at all, or
that such contracts will not be terminated on short notice.  Any significant
loss of sales to current customers, not offset by sales to other customers,
would have a material adverse effect on the Company's business, results of
operations and financial condition.  If, for any reason, the Company's major
customers decide to produce their RF power amplifiers internally or through
joint ventures with other competitors, the Company's business, results of
operations and financial condition could be materially adversely affected.

  The Company's customers and other wireless infrastructure equipment
manufacturers are protective of their intellectual property, which may
contribute to certain manufacturers deciding to not seek RF power amplifiers
from external sources.  While the Company takes measures to ensure the
confidentiality of intellectual property disclosed to the Company by its
customers or developed by the Company for such customers, the appearance of a
close working relationship with a particular customer may adversely affect the
Company's ability to establish or maintain a relationship with, or sell products
to, competitors of the particular customer.  If the Company's major customers
decide not to purchase products from the Company due to the Company's
relationship to other customers, the Company's business, results of operations
and financial condition could be materially adversely affected.


Risks of Doing Business in International Markets

  For the fiscal years 1995 ,1996 and the six months ended June 29, 1997,
international revenues accounted for approximately 67%, 77% and 88%,
respectively, of the Company's net sales.  The Company expects that
international revenues will continue to account for a significant percentage of
the Company's net sales for the foreseeable future.  As a result, the Company is
subject to various risks, including a greater difficulty of administering
business globally, compliance with multiple and potentially conflicting
regulatory requirements such as export requirements, tariffs and other barriers,
differences in intellectual property protections, health and safety
requirements, difficulties in staffing and managing foreign operations, longer
accounts receivable cycles, currency fluctuations, restrictions against the
repatriation of earnings, export control restrictions, overlapping or differing
tax structures, political and economic instability and general trade
restrictions.  If any of these risks materializes, it could have a material
adverse effect on the Company's business, results of operations and financial
condition.  In particular, a large portion of the Company's existing customers
and potential new customers are servicing new markets in developing countries
that the Company's customers expect will deploy wireless communications

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<PAGE>
 
networks as an alternative to the construction of a wireline infrastructure. If
such countries decline to construct wireless communication systems, or
construction of such systems are delayed for a variety of reasons, including
business and economic conditions and changes in economic stability due to
factors such as increased inflation and political turmoil, such delays could
have a material adverse effect on the Company's business, results of operations
and financial condition. In recent years, a substantial majority of the
Company's net sales resulted from the sale of products to a small number of
companies in South Korea, where future sales may be dependent upon continuing
favorable trade relations with the United States and a lack of political
conflicts with North Korea. There have been recent press reports of
deteriorating living conditions within North Korea, which could lead to civil
unrest possibly resulting in potential military conflicts with South Korea.
There have also been recent press reports of military conflicts between North
and South Korea, which could potentially escalate into a large scale conflict.
Any conflict, either political or military, between North and South Korea could
have a material adverse impact on the Company's business, results of operations
and financial condition. Any significant change in United States trade relations
or the economic or political stability of foreign locations in which the Company
sells its products could have a material adverse effect on the Company's
business, results of operations and financial condition.

  The Company's foreign sales are generally invoiced in U.S. dollars.
Accordingly, the Company does not currently engage in foreign currency hedging
transactions.  However, as the Company continues to expand its international
operations, the Company may be paid in foreign currencies and exposure to losses
in foreign currency transactions may increase.  The Company may choose to limit
such exposure by the purchase of forward foreign exchange contracts or similar
hedging strategies.  There can be no assurance that a currency hedging strategy
would be successful in avoiding exchange-related losses.  In addition, if the
relative value of the U.S. dollar in comparison to the currency of the Company's
foreign customers should increase, the resulting effective price increase of the
Company's products to such foreign customers could result in decreased sales
which could have a material adverse impact on the Company's business, results of
operations and financial condition.


Proprietary Technology; Risk of Third-Party Claims of Infringement

  The Company relies primarily upon trade secrets to protect its intellectual
property.  The Company generally enters into confidentiality and non-disclosure
agreements with its employees and limits access to and distribution of its
proprietary information.  In addition, the Company has applied for a U.S. patent
for its proprietary implementation of feedforward technology and regularly
examines various aspects of its technology for possible patent applications.
The Company believes that its success depends upon the knowledge and experience
of its management and technical personnel and its ability to market its existing
products and to develop new products.

  The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing upon the rights of others.  There can
be no assurance that the Company will be able to successfully protect its
intellectual property or that the Company's intellectual property or proprietary
technology will not otherwise become known or be independently developed by
competitors.  In addition, the laws of certain countries in which the Company's
products are or may be sold may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States.  The inability of the Company to protect its intellectual property and
proprietary technology could have a material adverse effect on its business,
results of operations and financial condition.  As the number of patents,
copyrights and other intellectual property rights in the Company's industry
increases, and as the coverage of these rights and the functionability of the
products in the market further overlap, the Company believes that its products
may increasingly become the subject of infringement claims.  The Company may in
the future be notified that it is infringing upon certain patent or other
intellectual property rights of others.  Although the Company has not received
any such notification to date and there are no pending or threatened
intellectual property lawsuits against the Company, there can be no assurance
that such litigation or infringement claims will not occur in the future.  Such
litigation or claims could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
results of operations and financial condition.  A third party claiming
infringement may also be able to obtain an injunction or other equitable relief,
which could effectively block the ability of the Company or its customers to
distribute, sell or import into the United States allegedly infringing products.
If it appears necessary or desirable, the Company may seek licenses under
patents or other rights from third parties covering intellectual property that
the Company is allegedly infringing.  No assurance can be given, however, that
any such licenses could be obtained on terms acceptable to the Company, if at
all.  The failure to

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<PAGE>
 
obtain the necessary licenses or other rights could have a material adverse
effect on the Company's business, results of operations and financial condition.


Risks Associated with Developing Technologies; Product Liability

  If wireless telecommunications systems or other systems or devices that rely
on or incorporate the Company's products are determined, perceived or alleged to
create a health risk, the Company could be named as a defendant, and held
liable, in product liability lawsuits commenced by individuals alleging that the
Company's products harmed them.  The occurrence of any such event could have a
material adverse effect on the Company's business, results of operations and
financial condition.  Any alleged health or environmental risk could also lead
to a delay or prohibition against the installation of wireless networks which
could have a material adverse effect on the Company's business, results of
operations and financial condition.  In addition, an inability to maintain
insurance at an acceptable cost or to otherwise protect against potential
product liability could inhibit the commercialization of the Company's products
and have a material adverse effect on the Company's business, results of
operations and financial condition.  Further, the installation of base stations
for wireless networks may be delayed or prohibited by various environmental
regulations.  Any such delay or prohibition would have a material adverse effect
on the Company's business, results of operations and financial condition.


Environmental Regulations

  The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic or other hazardous substances used to
manufacture the Company's products.  Certain of the Company's products are also
subject to regulation of emissions by the FCC and similar government agencies.
The Company believes that it is currently in compliance in all material respects
with such regulations and that it has obtained all necessary environmental
permits and licenses to conduct its business.  The failure to comply with
current or future regulations could result in the imposition of substantial
fines on the Company, suspension of production, alteration of its manufacturing
processes or cessation of operations.  Corrective action may require the Company
to acquire expensive remediation equipment or to incur substantial expenses.
Any failure by the Company to control the use, disposal, removal or storage of,
or to adequately restrict the discharge of, or assist in the cleanup up,
hazardous or toxic substances, could subject the Company to significant
liabilities, including joint and several liability under certain statutes.  The
imposition of such liabilities could materially adversely affect the Company's
business, results of operations and financial condition.  In addition, the
installation of base stations by wireless service providers may be delayed or
restricted by various environmental regulations, land use restrictions and
zoning ordinances.  Any such delay or restriction could have a material adverse
effect on the Company's business, results of operations and financial condition.


Government Regulation of Communications Industry

  Radio frequency transmissions and emissions, and certain equipment used in
connection therewith, are regulated in the United States, Canada and
internationally.  Regulatory approvals generally must be obtained by the Company
in connection with the manufacture and sale of its products, and by the
Company's customers to operate the Company's products.  The FCC has adopted new
regulations that impose more stringent radio frequency emissions standards on
the communications industry and there can be no assurance that the Company and
its customers will not be required to alter the manner in which radio signals
are transmitted or otherwise alter the equipment transmitting such signals,
which could materially adversely affect the Company's products and markets. The
Company is also subject to regulatory requirements in international markets
where the Company is less prominent than local competitors and may have fewer
opportunities to participate in the formation of regulatory and standards
policies.  The enactment by federal, state, local or international governments
of new laws or regulations or a change in the interpretation of existing
regulations could adversely affect the market for the Company's products.
Although recent liberalization of international communications industries along
with recent radio frequency spectrum allocations made by the FCC have increased
the potential demand for the Company's products by providing users of those
products with opportunities to establish new PCS networks, there can be no
assurance that the trend toward deregulation and current regulatory developments
favorable to the promotion of new and expanded wireless services will continue
or that other future regulatory changes will have a positive impact on the
Company. The increasing demand for wireless communications has exerted pressure
on regulatory bodies worldwide to adopt

                                       20
<PAGE>
 
new standards for such products, generally following extensive investigation and
deliberation over competing technologies. The delays inherent in this
governmental approval process have in the past caused, and may in the future
cause, the cancellation, postponement or rescheduling of the installation of
communications systems by the Company's customers. These delays could have a
material adverse effect on the Company's business, results of operations and
financial condition.


Possible Volatility of Stock Price

  The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies, and the market prices for securities of technology
companies have been especially volatile.  These broad market fluctuations may
adversely affect the market price of the Company's Common Stock.  Factors such
as fluctuations in the Company's results of operations, failure of such results
of operations to meet the expectations of stock market analysts and investors,
change in stock market analyst recommendations regarding the Company, timing and
announcements of technological innovations or new products by the Company or its
competitors, developments with respect to patents and proprietary rights, timing
and announcements of developments related to the Company's customers, results of
operations of certain of the Company's competitors, government regulation,
political instability in countries in which the Company sells its products,
changes in the wireless communications industry generally and general market
conditions may have a significant adverse effect on the market price of the
Company's Common Stock.

                                       21
<PAGE>
 
                          PART II.  OTHER INFORMATION
                                        

Item 4.  Submission of Matters to a Vote of Security Holders

The Company's 1997 Annual Meeting of Shareholders was held on May 15, 1997 in
Irvine, California.  The following matter was submitted to a vote of security
holders:

   (1) The election of the following seven directors to hold office until the
       next annual meeting and until their successors are elected and duly
       qualified.
          Alfonso G. Cordero    Eugene L. Goda
          Bruce C. Edwards      David L. George
          Gregory M. Avis       Sam Yau
          Rich Shapero
       There were 15,652,318 votes cast in favor of all Directors named, no
votes opposed and 3,604 votes abstaining.

Item 6.  Exhibits and Reports on Form 8-K

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

Exhibit
Number                      Description
-------                     -----------
 11.1    Computation of pro forma net income and net income per share.

 27.1    Financial Data Schedule.

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

                                       22
<PAGE>
 
                                   SIGNATURES
                                        
  Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                            POWERWAVE TECHNOLOGIES, INC.

Date:  July 30, 1997        By: /s/ KEVIN T. MICHAELS
                            ----------------------------------------------------
                                    Kevin T. Michaels
                            Vice President, Finance and Chief Financial Officer
 

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