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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

Amendment No. 2



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

For the quarterly period ended July 2, 2006

OR



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

For the transition period from  to

Commission
File Number 000-21507

POWERWAVE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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

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

(Address of principal executive offices, zip code)

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

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

Large accelerated
filer  x                    Accelerated filer ̈Non-accelerated filer ̈

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

As of August 4, 2006, the number of outstanding shares of Common Stock, par value $0.0001 per share,
of the Registrant was 112,540,830.



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EXPLANATORY NOTE

Powerwave Technologies, Inc. is filing this Amendment on Form 10-Q/A to amend and correct four errors in Note 14, Segments and Geographic Data to its
financial statements contained in Part I  Financial Information, Item 1 of its Form 10-Q for its second quarter ending July 2, 2006. This amendment includes the entire text of Item 1 of Part I and required certifications. For the three and six
months ended July 2, 2006, operating income for the wireless communications segment should be $12,789,000 and $8,887,000, respectively, not $13,527,000 and $15,340,000. For the three and six months ended July 2, 2006, operating income for the
contract manufacturing segment should be $347,000 and $1,389,000, respectively, not ($391,000) and ($5,064,000). A corrected version of all of Item 1 of Part I is set forth below:



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PART I  FINANCIAL INFORMATION



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

POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)



|                                                                                                                                                                               |  |             |           |                |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | --------- | -------------- | - | --------- | -
|                                                                                                                                                                               |  | July 2,2006 |           | January 1,2006 |  
|                                                                                                                                                                               |  | (Unaudited) |           | (See Note)     |  
|ASSETS                                                                                                                                                                         |  |             |           |                |   |           |  
|Current assets:                                                                                                                                                                |  |             |           |                |   |           |  
|Cash and cash equivalents                                                                                                                                                      |  | $           | 208,456   |                | $ | 232,519   |  
|Restricted cash                                                                                                                                                                |  |             | 11,763    |                |   | 5,002     |  
|Accounts receivable, net of allowance for sales returns and doubtful accounts of $7,823 and $8,558 at July 2, 2006 and January 1,
2006, respectively                           |  |             | 253,749   |                |   | 233,726   |  
|Inventories, net                                                                                                                                                               |  |             | 132,051   |                |   | 100,453   |  
|Prepaid expenses and other current assets                                                                                                                                      |  |             | 27,523    |                |   | 23,490    |  
|Deferred tax assets                                                                                                                                                            |  |             | 3,431     |                |   | 4,768     |  
|                                                                                                                                                                               |  |             |           |                |   |           |  
|Total current assets                                                                                                                                                           |  |             | 636,973   |                |   | 599,958   |  
|Property, plant and equipment, net                                                                                                                                             |  |             | 152,126   |                |   | 172,426   |  
|Assets held for sale                                                                                                                                                           |  |             | 9,969     |                |   |          |  
|Goodwill                                                                                                                                                                       |  |             | 309,770   |                |   | 280,127   |  
|Intangible assets, net                                                                                                                                                         |  |             | 68,021    |                |   | 69,374    |  
|Other non-current assets                                                                                                                                                       |  |             | 11,311    |                |   | 8,365     |  
|                                                                                                                                                                               |  |             |           |                |   |           |  
|TOTAL ASSETS                                                                                                                                                                   |  | $           | 1,188,170 |                | $ | 1,130,250 |  
|                                                                                                                                                                               |  |             |           |                |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                           |  |             |           |                |   |           |  
|Current liabilities:                                                                                                                                                           |  |             |           |                |   |           |  
|Accounts payable                                                                                                                                                               |  | $           | 107,705   |                | $ | 106,864   |  
|Accrued income taxes                                                                                                                                                           |  |             | 16,509    |                |   | 14,952    |  
|Accrued expenses and other current liabilities                                                                                                                                 |  |             | 91,707    |                |   | 93,399    |  
|                                                                                                                                                                               |  |             |           |                |   |           |  
|Total current liabilities                                                                                                                                                      |  |             | 215,921   |                |   | 215,215   |  
|Long-term debt                                                                                                                                                                 |  |             | 330,000   |                |   | 330,000   |  
|Deferred tax liabilities                                                                                                                                                       |  |             | 10,090    |                |   | 3,249     |  
|Other non-current liabilities                                                                                                                                                  |  |             | 5,232     |                |   | 525       |  
|                                                                                                                                                                               |  |             |           |                |   |           |  
|Total liabilities                                                                                                                                                              |  |             | 561,243   |                |   | 548,989   |  
|                                                                                                                                                                               |  |             |           |                |   |           |  
|Commitments and contingencies (Notes 9 and 10)                                                                                                                                 |  |             |          |                |   |          |  
|Shareholders equity:                                                                                                                                                          |  |             |           |                |   |           |  
|Preferred stock, $0.0001 par value, 5,000 shares authorized and no shares issued or outstanding                                                                                |  |             |          |                |   |          |  
|Common stock, $0.0001 par value, 250,000 shares authorized, 112,207 shares issued and outstanding at July 2, 2006 and 111,138 shares
issued and outstanding at January 1, 2006 |  |             | 585,012   |                |   | 575,038   |  
|Accumulated other comprehensive income (loss)                                                                                                                                  |  |             | 7,662     |                |   | (17,688   | )
|Retained earnings                                                                                                                                                              |  |             | 34,253    |                |   | 23,911    |  
|                                                                                                                                                                               |  |             |           |                |   |           |  
|Total shareholders equity                                                                                                                                                     |  |             | 626,927   |                |   | 581,261   |  
|                                                                                                                                                                               |  |             |           |                |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                     |  | $           | 1,188,170 |                | $ | 1,130,250 |  
|                                                                                                                                                                               |  |             |           |                |   |           |  

Note: January 1, 2006 balances were derived from the audited consolidated financial statements of Powerwave
Technologies, Inc.

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



3



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POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except
per share data)



|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|-------------------------------------- |  | ------------------ | ------- | ---------------- | - | ----------- |  | ------------ | ------- |  | - | -------
|                                       |  | Three Months Ended |         | Six Months Ended
|                                       |  | July 2,2006        |         | July 3, 2005     |   | July 2,2006 |  | July 3, 2005
|Net sales                              |  | $                  | 232,394 |                  | $ | 186,334     |  | $            | 425,459 |  | $ | 348,513
|Cost of sales:                         |  |                    |         |                  |   |             |  |              |         |  |   |        
|Cost of goods                          |  |                    | 176,624 |                  |   | 136,857     |  |              | 328,675 |  |   | 255,893
|Intangible asset amortization          |  |                    | 3,183   |                  |   | 1,820       |  |              | 6,225   |  |   | 3,741  
|Acquired inventory incremental costs   |  |                    | 235     |                  |   |            |  |              | 235     |  |   |       
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|Total cost of sales                    |  |                    | 180,042 |                  |   | 138,677     |  |              | 335,135 |  |   | 259,634
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|Gross profit                           |  |                    | 52,352  |                  |   | 47,657      |  |              | 90,324  |  |   | 88,879 
|Operating expenses:                    |  |                    |         |                  |   |             |  |              |         |  |   |        
|Sales and marketing                    |  |                    | 8,859   |                  |   | 9,150       |  |              | 17,670  |  |   | 18,644 
|Research and development               |  |                    | 15,237  |                  |   | 15,425      |  |              | 30,701  |  |   | 30,054 
|General and administrative             |  |                    | 12,945  |                  |   | 10,079      |  |              | 27,255  |  |   | 18,694 
|Intangible asset amortization          |  |                    | 2,175   |                  |   | 1,875       |  |              | 4,251   |  |   | 3,861  
|In-process research and development    |  |                    |        |                  |   |            |  |              |        |  |   | 350    
|Restructuring and impairment charges   |  |                    |        |                  |   |            |  |              | 171     |  |   |       
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|Total operating expenses               |  |                    | 39,216  |                  |   | 36,529      |  |              | 80,048  |  |   | 71,603 
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|Operating income                       |  |                    | 13,136  |                  |   | 11,128      |  |              | 10,276  |  |   | 17,276 
|Other income, net                      |  |                    | 1,386   |                  |   | 2,919       |  |              | 2,241   |  |   | 3,152  
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|Income before income taxes             |  |                    | 14,522  |                  |   | 14,047      |  |              | 12,517  |  |   | 20,428 
|Provision for income taxes             |  |                    | 1,900   |                  |   | 1,033       |  |              | 2,175   |  |   | 2,043  
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|Net income                             |  | $                  | 12,622  |                  | $ | 13,014      |  | $            | 10,342  |  | $ | 18,385 
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|Basic income per share                 |  | $                  | 0.11    |                  | $ | 0.13        |  | $            | 0.09    |  | $ | 0.18   
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|Diluted income per share               |  | $                  | 0.10    |                  | $ | 0.11        |  | $            | 0.09    |  | $ | 0.16   
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|Basic weighted average common shares   |  |                    | 112,166 |                  |   | 99,734      |  |              | 111,913 |  |   | 99,654 
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        
|Diluted weighted average common shares |  |                    | 144,007 |                  |   | 131,908     |  |              | 144,212 |  |   | 131,590
|                                       |  |                    |         |                  |   |             |  |              |         |  |   |        

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



4



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POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)

(In thousands)



|                                         |  |                    |        |              |                  |         |             |  |              |        |  |   |         |  
|---------------------------------------- |  | ------------------ | ------ | ------------ | ---------------- | ------- | ----------- |  | ------------ | ------ |  | - | ------- | -
|                                         |  | Three Months Ended |        |              | Six Months Ended |        
|                                         |  | July 2,2006        |        | July 3, 2005 |                  |         | July 2,2006 |  | July 3, 2005 |       
|Net income                               |  | $                  | 12,622 |              | $                | 13,014  |             |  | $            | 10,342 |  | $ | 18,385  |  
|Other comprehensive income (loss):       |  |                    |        |              |                  |         |             |  |              |        |  |   |         |  
|Foreign currency translation adjustments |  |                    | 6,597  |              |                  | (39,763 | )           |  |              | 10,027 |  |   | (68,455 | )
|                                         |  |                    |        |              |                  |         |             |  |              |        |  |   |         |  
|Comprehensive income (loss)              |  | $                  | 19,219 |              | $                | (26,749 | )           |  | $            | 20,369 |  | $ | (50,070 | )
|                                         |  |                    |        |              |                  |         |             |  |              |        |  |   |         |  

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



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POWERWAVE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



|                                                                                            |  |                  |         |   |              |   |         |  
|------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------ | - | ------- | -
|                                                                                            |  | Six Months Ended |        
|                                                                                            |  | July 2,2006      |         |   | July 3, 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |  |                  |         |   |              |   |         |  
|Net income                                                                                  |  | $                | 10,342  |   |              | $ | 18,385  |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                  |         |   |              |   |         |  
|Depreciation and amortization                                                               |  |                  | 24,998  |   |              |   | 22,396  |  
|In-process research and development charges                                                 |  |                  |        |   |              |   | 350     |  
|Provision for sales returns and doubtful accounts                                           |  |                  | 805     |   |              |   | 818     |  
|Provision for excess and obsolete inventories                                               |  |                  | 4,363   |   |              |   | 7,195   |  
|Compensation costs related to stock-based awards                                            |  |                  | 1,983   |   |              |   |        |  
|Deferred income taxes                                                                       |  |                  | (8,681  | ) |              |   | (942    | )
|Gain on disposal of property, plant and equipment                                           |  |                  | (89     | ) |              |   | (1,049  | )
|Changes in operating assets and liabilities, net of effects of acquisition:                 |  |                  |         |   |              |   |         |  
|Accounts receivable                                                                         |  |                  | (11,999 | ) |              |   | (49,912 | )
|Inventories                                                                                 |  |                  | (37,846 | ) |              |   | (8,358  | )
|Prepaid expenses and other current assets                                                   |  |                  | (4,499  | ) |              |   | 7,329   |  
|Accounts payable                                                                            |  |                  | (2,305  | ) |              |   | 27,536  |  
|Accrued expenses and other current liabilities                                              |  |                  | (10,838 | ) |              |   | (8,934  | )
|Other non-current assets                                                                    |  |                  | (681    | ) |              |   | (1,097  | )
|Other non-current liabilities                                                               |  |                  | (567    | ) |              |   | (352    | )
|                                                                                            |  |                  |         |   |              |   |         |  
|Net cash provided by (used in) operating activities                                         |  |                  | (35,014 | ) |              |   | 13,365  |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |  |                  |         |   |              |   |         |  
|Purchase of property, plant and equipment                                                   |  |                  | (5,388  | ) |              |   | (12,396 | )
|Restricted cash                                                                             |  |                  | (6,284  | ) |              |   | (653    | )
|Maturities of short-term investments                                                        |  |                  |        |   |              |   | 135,200 |  
|Proceeds from the sale of property, plant and equipment                                     |  |                  |        |   |              |   | 607     |  
|Proceeds from sale of assets held for sale                                                  |  |                  | 19,119  |   |              |   | 4,260   |  
|Acquisition, net of cash acquired                                                           |  |                  | (7,350  | ) |              |   | (10,850 | )
|                                                                                            |  |                  |         |   |              |   |         |  
|Net cash provided by investing activities                                                   |  |                  | 97      |   |              |   | 116,168 |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |  |                  |         |   |              |   |         |  
|Proceeds from stock-based compensation arrangements                                         |  |                  | 7,991   |   |              |   | 2,161   |  
|                                                                                            |  |                  |         |   |              |   |         |  
|Net cash provided by financing activities                                                   |  |                  | 7,991   |   |              |   | 2,161   |  
|                                                                                            |  |                  |         |   |              |   |         |  
|EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                                       |  |                  | 2,863   |   |              |   | (1,624  | )
|                                                                                            |  |                  |         |   |              |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                        |  |                  | (24,063 | ) |              |   | 130,070 |  
|CASH AND CASH EQUIVALENTS, beginning of period                                              |  |                  | 232,519 |   |              |   | 147,451 |  
|                                                                                            |  |                  |         |   |              |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                                    |  | $                | 208,456 |   |              | $ | 277,521 |  
|                                                                                            |  |                  |         |   |              |   |         |  

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



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POWERWAVE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Tabular amounts in
thousands, except per share data)

Note 1. Nature of Operations

Powerwave is a global supplier of end-to-end wireless solutions for wireless communications networks. Powerwave designs, manufactures and markets antennas, boosters, combiners, filters, radio frequency power
amplifiers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use in cellular, PCS and 3G networks throughout the world. Powerwave also manufactures and sells advanced industrial components, primarily for the automotive and
food industries, under contract manufacturing arrangements.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

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

The
results of operations for the three and six months ended July 2, 2006 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2006 (fiscal 2006.) The accompanying condensed
consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the fiscal year ended January 1, 2006.

On September 2, 2005, Powerwave completed the acquisition of selected assets and liabilities of REMEC, Inc.s Wireless Systems Business (the
REMEC Wireless Acquisition.) Therefore, these condensed consolidated financial statements include the operations of the REMEC Wireless Acquisition for the three and six months ended July 2, 2006, but such results are not included
for the three and six months ended July 3, 2005.

Stock-Based Compensation

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

Prior to the adoption of SFAS 123R, we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (or SFAS 123). Under the intrinsic value method, employee stock-based compensation expense was not recognized in our consolidated statements of operations for
any period prior to our adoption of SFAS 123R on January 2, 2006, as long as the exercise price of the stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.

Prior to the adoption of SFAS 123R, we presented all tax benefits resulting from the exercise of stock options as operating cash flows in our
consolidated statements of cash flows. SFAS 123R requires that the realized tax benefit related to the excess of the deductible amount over the compensation cost recognized (excess tax benefits) be



7



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classified in the statement of cash flow as a cash inflow from financing activities and a cash outflow from operating activities. At the end of 2004 we took
a 100% valuation allowance against our deferred tax assets. This valuation allowance is still in place. Accordingly we have booked no tax benefit related to stock-based compensation as financing cash inflows and operating cash
outflows on our accompanying condensed consolidated statements of cash flows for the six months ended July 2, 2006. In addition, we previously presented unearned compensation as a separate component of stockholders equity. In accordance
with the provisions of SFAS 123R, upon adoption, we also reclassified the balance in unearned compensation to common stock on our accompanying condensed consolidated balance sheet.

In November 2005, the Financial Accounting Standards Board (the FASB), issued FASB Staff Position FAS123R-3, Transition Election to
Accounting for the Tax Effects of Share-Based Payment Awards,(FSP). This FSP requires an entity to follow either the transition guidance for the additional paid-in-capital pool as prescribed in SFAS 123R or the alternative
transition method as described in the FSP. An entity that adopts SFAS 123R using the modified prospective method may make a one-time election to adopt the transition method described in this FSP. An entity may take up to one year from the later of
its initial adoption of SFAS 123R or the effective date of this FSP to evaluate its available transition alternatives and make its one-time election. This FSP became effective in November 2005. We are still evaluating whether we will adopt the
alternative method for calculating our additional paid-in-capital pool described in the FSP.

During the three and six months ended
July 2, 2006, the Company recognized total compensation expense of $1.0 million and $2.0, respectively, which consists of $0.8 million and $1.6 million for stock options and $0.2 and $0.4 million for employee stock purchase plan awards in its
consolidated statement of operations.

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



|                                                              |  |                                |      |   |                             |   |       |  
|------------------------------------------------------------- |  | ------------------------------ | ---- | - | --------------------------- | - | ----- | -
|                                                              |  | Three MonthsEnded July 2, 2006 |      |   | Six MonthsEndedJuly 2, 2006 |  
|Cost of sales                                                 |  | $                              | 45   |   |                             | $ | 95    |  
|Sales and marketing expenses                                  |  |                                | 71   |   |                             |   | 142   |  
|Research and development expenses                             |  |                                | 133  |   |                             |   | 254   |  
|General and administrative expenses                           |  |                                | 701  |   |                             |   | 1,492 |  
|                                                              |  |                                |      |   |                             |   |       |  
|Reduction in operating income before income taxes             |  |                                | 950  |   |                             |   | 1,983 |  
|Income tax effect using the current period effective tax rate |  |                                | (124 | ) |                             |   | (345  | )
|                                                              |  |                                |      |   |                             |   |       |  
|Reduction in net income                                       |  | $                              | 826  |   |                             | $ | 1,638 |  
|                                                              |  |                                |      |   |                             |   |       |  
|Reduction in net income per share:                            |  |                                |      |   |                             |   |       |  
|Basic                                                         |  | $                              | 0.01 |   |                             | $ | 0.01  |  
|                                                              |  |                                |      |   |                             |   |       |  
|Diluted                                                       |  | $                              | 0.01 |   |                             | $ | 0.01  |  
|                                                              |  |                                |      |   |                             |   |       |  

As of July 2, 2006, unrecognized compensation expense related to the unvested portion of the
Companys stock options and employee stock purchase plan awards was approximately $3.3 million, which is expected to be recognized over a weighted-average period of 1.3 years.



8



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The Black-Scholes option valuation model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. Option valuation methods require the input of highly subjective assumptions including the weighted average risk-free interest rate, the expected life, and the expected stock price
volatility. The weighted average risk-free interest rate was determined based upon actual U.S. treasury rates over the actual vesting periods of the grants. The expected life was determined based upon actual option grant lives over a 10 year period.
We have utilized various market sources to calculate the implied volatility factor utilized in the Black-Scholes option valuation model. These included the implied volatility utilized in the pricing of options on the Companys common stock as
well as the implied volatility utilized in determining market prices of the Companys outstanding convertible notes. Using the Black-Scholes option valuation model, the estimated weighted average fair value of options granted during the second
quarter of fiscal years 2006 and 2005 were $3.56 per share and $3.21 per share, respectively. Had compensation cost for the Companys stock option plans and its stock purchase plans been determined based on the estimated fair value at the grant
dates for awards under those plans consistent with the fair value method of SFAS 123R utilizing the Black-Scholes option-pricing model, the Companys net income and basic and diluted earnings per share for the three and six months ended
July 3, 2005 would have approximated the pro forma amounts indicated below:



|                                                              |  |                                |        |   |                            |   |        |  
|------------------------------------------------------------- |  | ------------------------------ | ------ | - | -------------------------- | - | ------ | -
|                                                              |  | Three MonthsEnded July 3, 2005 |        |   | Six MonthsEndedJuly 3,2005 |  
|Net income:                                                   |  |                                |        |   |                            |   |        |  
|As reported                                                   |  | $                              | 13,014 |   |                            | $ | 18,385 |  
|Deduct: Additional expense from fair value method, net of tax |  |                                | (740   | ) |                            |   | (1,579 | )
|                                                              |  |                                |        |   |                            |   |        |  
|Basic pro forma net income                                    |  |                                | 12,274 |   |                            |   | 16,806 |  
|Add: Interest expense of convertible debt, net of tax         |  |                                | 1,595  |   |                            |   | 3,191  |  
|                                                              |  |                                |        |   |                            |   |        |  
|Diluted pro forma net income                                  |  | $                              | 13,869 |   |                            | $ | 19,997 |  
|                                                              |  |                                |        |   |                            |   |        |  
|Basic income per share:                                       |  |                                |        |   |                            |   |        |  
|As reported                                                   |  | $                              | 0.13   |   |                            | $ | 0.18   |  
|Pro forma                                                     |  | $                              | 0.12   |   |                            | $ | 0.17   |  
|Diluted income per share:                                     |  |                                |        |   |                            |   |        |  
|As reported                                                   |  | $                              | 0.11   |   |                            | $ | 0.16   |  
|Pro forma                                                     |  | $                              | 0.11   |   |                            | $ | 0.15   |  

The fair value of options granted under the Companys stock incentive plans during the first six months of
fiscal 2006 and 2005 was estimated on the date of grant using the Black-Scholes option-pricing model utilizing the multiple option approach and the following weighted-average assumptions:



|                                         |  |                  |  |             
|---------------------------------------- |  | ---------------- |  | ------------
|                                         |  | Six Months Ended
|                                         |  | July 2, 2006     |  | July 3, 2005
|Weighted average risk-free interest rate |  | 4.9% -5.2%       |  | 3.6% -3.9%  
|Expected life (in years)                 |  | 4.65             |  | 5.6         
|Expected stock volatility                |  | 38% - 43%        |  | 49% - 50%   
|Dividend yield                           |  | None             |  | None        

The following table represents stock option activity for the six months ended July 2, 2006:



|                                           |  |                 |   |  |                              |       |                                                    |      |                                            |   |       
|------------------------------------------ |  | --------------- | - |  | ---------------------------- | ----- | -------------------------------------------------- | ---- | ------------------------------------------ | - | ------
|                                           |  | Number ofShares |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractual Life(in years) |      | AggregateIntrinsic Value(in thousands) (1)
|Outstanding at January 1, 2006             |  | 7,142,723       |   |  | $                            | 10.63 |                                                    |      |                                            |   |       
|Granted                                    |  | 106,000         |   |  | $                            | 10.86 |                                                    |      |                                            |   |       
|Exercised                                  |  | (1,031,007      | ) |  | $                            | 6.84  |                                                    |      |                                            |   |       
|Canceled                                   |  | (409,654        | ) |  | $                            | 20.25 |                                                    |      |                                            |   |       
|                                           |  |                 |   |  |                              |       |                                                    |      |                                            |   |       
|Outstanding at July 2, 2006                |  | 5,808,062       |   |  | $                            | 10.63 |                                                    | 4.84 |                                            | $ | 12,247
|                                           |  |                 |   |  |                              |       |                                                    |      |                                            |   |       
|Vested or expected to vest at July 2, 2006 |  | 5,548,542       |   |  | $                            | 10.74 |                                                    | 4.75 |                                            | $ | 11,816
|                                           |  |                 |   |  |                              |       |                                                    |      |                                            |   |       
|Exercisable at July 2, 2006                |  | 4,319,513       |   |  | $                            | 11.71 |                                                    | 4.23 |                                            | $ | 9,079 
|                                           |  |                 |   |  |                              |       |                                                    |      |                                            |   |       



|(1) | These amounts represent the difference between the exercise price and $9.12, the
Companys closing Common Stock price reported by Nasdaq on June 30, 2006, the last trading day of the fiscal quarter, for all in-the-money options outstanding.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

New Accounting Pronouncement

In June
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (or FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial
statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (or SFAS 109). This Interpretation defines the minimum recognition threshold a tax position is required
to meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after



9



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December 15, 2006. The Company is currently evaluating the effect that the adoption of FIN 48 will have on its financial position and results of
operations.

Note 3. Inventories

Net
inventories consist of the following:



|                       |  |              |         |                 |   |        
|---------------------- |  | ------------ | ------- | --------------- | - | -------
|                       |  | July 2, 2006 |         | January 1, 2006
|Parts and components   |  | $            | 53,645  |                 | $ | 42,634 
|Work-in-process        |  |              | 5,190   |                 |   | 5,544  
|Finished goods         |  |              | 73,216  |                 |   | 52,275 
|                       |  |              |         |                 |   |        
|Total inventories, net |  | $            | 132,051 |                 | $ | 100,453
|                       |  |              |         |                 |   |        

Inventories are net of an allowance for excess and obsolete inventory of approximately $20.2
million and $17.9 million as of July 2, 2006 and January 1, 2006, respectively.

Note 4. Assets Held For Sale

As part of the restructuring plan related to our acquisition of LGP Allgon, we have moved production of certain wireless communications equipment out of
Sweden primarily to Asia. As part of that plan, we have vacated two buildings in Tullinge, Sweden. In April 2006, we completed the final consolidation of the buildings and made them available for sale. The Company expects that the final sale and
disposal of the buildings will be completed in 2006. The carrying value of the buildings has been separately presented in the accompanying balance sheet in the caption Assets held for sale, and effective May 1, 2006, these assets are no
longer depreciated.

Note 5. Goodwill

The changes in the carrying amount of goodwill by reportable operating segment for the six months ended July 2, 2006 is as follows:



|                           |  |         |         |                       |   |        |  |   |        
|-------------------------- |  | ------- | ------- | --------------------- | - | ------ |  | - | -------
|                           |  | Telecom |         | ContractManufacturing |   | Total 
|Balance, January 1, 2006   |  | $       | 261,956 |                       | $ | 18,171 |  | $ | 280,127
|Goodwill from acquisitions |  |         | 10,624  |                       |   |       |  |   | 10,624 
|Effect of exchange rates   |  |         | 17,510  |                       |   | 1,509  |  |   | 19,019 
|                           |  |         |         |                       |   |        |  |   |        
|Balance, July 2, 2006      |  | $       | 290,090 |                       | $ | 19,680 |  | $ | 309,770
|                           |  |         |         |                       |   |        |  |   |        

Note 6. Other Income, Net

Other income, net, includes interest income, interest expense, gains and losses on foreign currency transactions, and other miscellaneous income and expense. The components of other income, net, are as follows:



|                           |  |                    |        |   |                  |   |        |             |  |   |              |   |  |   |        |  
|-------------------------- |  | ------------------ | ------ | - | ---------------- | - | ------ | ----------- |  | - | ------------ | - |  | - | ------ | -
|                           |  | Three Months Ended |        |   | Six Months Ended |  
|                           |  | July 2,2006        |        |   | July 3, 2005     |   |        | July 2,2006 |  |   | July 3, 2005 |  
|Interest income            |  | $                  | 2,099  |   |                  | $ | 1,903  |             |  | $ | 4,288        |   |  | $ | 3,485  |  
|Interest expense           |  |                    | (1,927 | ) |                  |   | (1,935 | )           |  |   | (3,983       | ) |  |   | (3,870 | )
|Foreign currency gain, net |  |                    | 874    |   |                  |   | 2,655  |             |  |   | 1,038        |   |  |   | 2,901  |  
|Other income, net          |  |                    | 340    |   |                  |   | 296    |             |  |   | 898          |   |  |   | 636    |  
|                           |  |                    |        |   |                  |   |        |             |  |   |              |   |  |   |        |  
|Total                      |  | $                  | 1,386  |   |                  | $ | 2,919  |             |  | $ | 2,241        |   |  | $ | 3,152  |  
|                           |  |                    |        |   |                  |   |        |             |  |   |              |   |  |   |        |  

Note 7. Restructuring and Impairment Charges

Integration of REMECs Wireless Systems Business

In connection with the REMEC Wireless Acquisition during the third quarter of fiscal 2005, we formulated and began to implement our plan to restructure and integrate the combined operations. As a result, we recorded
restructuring charges related to our operations of approximately $0.2 million for the six months ended July 2, 2006, which amounts to aggregate restructuring charges totaling $0.6 million since the acquisition date. The six month period charges
are included in restructuring and impairment charges within operating expenses in the accompanying condensed consolidated statement of operations. Additionally, since the acquisition date we have recognized $12.6 million as liabilities in connection
with the acquisition for estimated restructuring and integration costs related to the consolidation of REMECs Wireless operations, including severance and future lease obligations on excess



10



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facilities. These estimated costs were included in the allocation of the purchase consideration and resulted in additional goodwill pursuant to Emerging
Issues Task Force Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination(or ETIF 95-3). The implementation of the restructuring and integration plan is underway and further actions are
expected pending the further assessment of workforce and facility related requirements and certain product related decisions with respect to duplicate technology, product defects and inventory for which there will no longer be an active market for
the combined company. Our restructuring and integration plan is subject to continued future refinement as additional information becomes available. During the first six months of fiscal 2006, we recorded an additional warranty accrual of
approximately $9.5 million related to product defects in connection with pre-acquisition shipments (see Note 10) that also increased our goodwill related to the acquisition by the same amount. We are assessing our ability to pursue remedies against
REMEC for these product defects. Integration activities related to this restructuring plan are currently expected to continue through the fourth quarter of fiscal 2006.

Integration with LGP Allgon

In connection with our acquisition of LGP Allgon during the second
quarter of fiscal 2004, we formulated and began to implement a plan to restructure and integrate LGP Allgons operations with Powerwaves operations. During fiscal 2005, we finalized our restructuring and integration plan with respect to
the consolidation of LGP Allgons legacy operations bringing the total costs recognized as liabilities and additional asset fair value adjustments related to such restructuring and integration plan to $26.6 million. These estimated costs were
included in the allocation of the purchase price and resulted in additional goodwill pursuant to EITF 95-3. The final integration activities related to this restructuring plan are currently expected to be completed by the end of the fourth quarter
of fiscal 2006.

A summary of the activity that affected the Companys restructuring and impairment charges and accrued restructuring
liability for the year ended January 1, 2006 and the six months ended July 2, 2006 is as follows:



|                                       |  |                     |         |   |                                        |   |        |       |  |   |       |   |  |   |         |  
|-------------------------------------- |  | ------------------- | ------- | - | -------------------------------------- | - | ------ | ----- |  | - | ----- | - |  | - | ------- | -
|                                       |  | WorkforceReductions |         |   | FacilityClosures &EquipmentWrite-downs |   |        | Other |  |   | Total |  
|Balance at January 2, 2005             |  | $                   | 12,754  |   |                                        | $ | 4,001  |       |  | $ | 599   |   |  | $ | 17,354  |  
|Amounts assumed from REMEC             |  |                     | 63      |   |                                        |   |       |       |  |   | 252   |   |  |   | 315     |  
|Amounts accrued in purchase accounting |  |                     | 12,743  |   |                                        |   | 3,580  |       |  |   | 29    |   |  |   | 16,352  |  
|Amounts expensed                       |  |                     | 402     |   |                                        |   | 929    |       |  |   |      |   |  |   | 1,331   |  
|Amounts paid/incurred                  |  |                     | (15,270 | ) |                                        |   | (1,075 | )     |  |   | (590  | ) |  |   | (16,935 | )
|Effect of exchange rates               |  |                     | (1,905  | ) |                                        |   | (76    | )     |  |   | (47   | ) |  |   | (2,028  | )
|                                       |  |                     |         |   |                                        |   |        |       |  |   |       |   |  |   |         |  
|Balance at January 1, 2006             |  |                     | 8,787   |   |                                        |   | 7,359  |       |  |   | 243   |   |  |   | 16,389  |  
|Amounts accrued in purchase accounting |  |                     |        |   |                                        |   | 188    |       |  |   |      |   |  |   | 188     |  
|Amounts expensed                       |  |                     | 116     |   |                                        |   | 55     |       |  |   |      |   |  |   | 171     |  
|Amounts paid/incurred                  |  |                     | (2,774  | ) |                                        |   | (1,778 | )     |  |   | (50   | ) |  |   | (4,602  | )
|Effect of exchange rates               |  |                     | 339     |   |                                        |   | (101   | )     |  |   | 2     |   |  |   | 240     |  
|                                       |  |                     |         |   |                                        |   |        |       |  |   |       |   |  |   |         |  
|Balance at July 2, 2006                |  | $                   | 6,468   |   |                                        | $ | 5,723  |       |  | $ | 195   |   |  | $ | 12,386  |  
|                                       |  |                     |         |   |                                        |   |        |       |  |   |       |   |  |   |         |  

Note 8. Income Taxes

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

Powerwave recorded an effective tax rate of 17.4% for the six months ended July 2, 2006. The rate differs from the U.S. federal statutory tax rate of 35% primarily due to the utilization of net operating loss carryforwards that had a
full valuation allowance; the impact of the distribution of earnings and losses in various tax jurisdictions; and the impact of the in-process research and development charge which was not tax deductible. Given the increased global scope of
Powerwaves operations and the complexity of global tax and transfer pricing rules and regulations, it has



11



---

become increasingly difficult to predict and thereafter realize our earnings within each tax jurisdiction. This has resulted in, and could continue to result
in, significant fluctuations in Powerwaves effective tax rate.

As of July 2, 2006, Powerwave had a consolidated net deferred
tax asset of approximately $3.1 million related to certain foreign jurisdictions. The Company continually assesses the recoverability of its deferred tax assets and records a valuation allowance when it is more likely than not that some or all or
such deferred tax assets will not be realized. Recoverability of its deferred tax assets is dependent upon continued profitability from operations, as well as the geographic region generating the profits.

Note 9. Commitments and Contingencies

Powerwave is
subject to various legal proceedings from time to time as part of its business. As of July 2, 2006, Powerwave was not currently party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the
aggregate, it believes would have a material adverse effect on its business, financial condition or results of operations.

Note 10. Contractual
Guarantees and Indemnities

Warranty Reserves

The Company establishes reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with its customers. The Company also has contractual requirements with
various customers that could require the Company to incur costs to repair an epidemic defect with respect to its products outside of the normal warranty period if such defect were to occur. The Companys warranty reserves are generally
established at the time of sale and updated throughout the warranty period based upon numerous factors including historical warranty return rates and expenses over various warranty periods. The Company also accrues additional warranty liabilities
for significant and unusual product performance issues at the time such issues are identified and the associated warranty related costs can be reasonably estimated. A summary of the activity that affected the Companys accrued warranty costs
for the six months ended July 2, 2006 and July 3, 2005 are as follows:



|                                                    |  |                  |        |   |              |   |        |  
|--------------------------------------------------- |  | ---------------- | ------ | - | ------------ | - | ------ | -
|                                                    |  | Six Months Ended |       
|Description                                         |  | July 2, 2006     |        |   | July 3, 2005 |  
|Warranty reserve beginning balance                  |  | $                | 20,321 |   |              | $ | 10,164 |  
|Reserve balances recorded or assumed by acquisition |  |                  | 9,500  |   |              |   | 83     |  
|Reductions for warranty costs incurred              |  |                  | (4,419 | ) |              |   | (1,766 | )
|Warranty accrual related to current period sales    |  |                  | 4,648  |   |              |   | 1,171  |  
|Effect of exchange rates                            |  |                  | 436    |   |              |   | (835   | )
|                                                    |  |                  |        |   |              |   |        |  
|Warranty reserve ending balance                     |  | $                | 30,486 |   |              | $ | 8,817  |  
|                                                    |  |                  |        |   |              |   |        |  

During the normal course of its business, Powerwave makes certain contractual guarantees and
indemnities pursuant to which the Company may be required to make future payments under specific circumstances. Powerwave has not recorded any liability for these contractual guarantees and indemnities in the accompanying condensed consolidated
financial statements. A description of significant contractual guarantees and indemnities existing as of July 2, 2006 is included below:

Intellectual Property Indemnities

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

Director and Officer Indemnities
and Contractual Guarantees

The Company has entered into indemnification agreements with its directors and executive officers which
require the Company to indemnify such individuals to the fullest extent permitted by Delaware law. The



12



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

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

General Contractual Indemnities/Products Liability

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

Other Guarantees and Indemnities

The Company occasionally issues guarantees for certain contingent liabilities under various contractual arrangements, including customer contracts,
self-insured retentions under certain insurance policies, and governmental value-added tax compliance programs. These guarantees normally take the form of standby letters of credit issued by the Companys bank, which may be secured by cash
deposits or pledges, or performance bonds issued by an insurance company. Historically, any amounts payable pursuant to such guarantees have not had a material negative effect on Powerwaves business, financial condition or results of
operations. In addition, the Company, as part of the agreements to register the convertible notes it issued in November 2004 and July 2003, agreed to indemnify the selling security holders against certain liabilities, including liabilities under the
Securities Act of 1933. The Companys indemnification obligations under such agreements are not limited in duration and generally not limited in amount.

Note 11. Earnings (Loss) Per Share

In accordance with SFAS No. 128, Earning Per Share, basic earnings (loss)
per share is based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based upon the weighted average number of common and potential common shares for each period presented and income available to
common stockholders is adjusted to reflect any changes in income or loss that would result from the issuance of the dilutive common shares. The Companys potential common shares include stock options under the treasury stock method and
convertible subordinated debt under the if-converted method. Diluted earnings per share for the three and six months ended July 2, 2006 includes the add-back of interest expense (net of tax) of approximately $1.4 million and $2.8 million
associated with the assumed conversion of the Companys outstanding convertible subordinated debt with the addition of 30,427,017 and 30,427,017 shares, respectively, as well as stock options under the treasury stock method of 1,414,330 and
1,872,379 shares, respectively. Diluted earnings per share for the three and six months ended July 3, 2005 includes the add-back of interest expense (net of tax) of approximately $1.6 million and $3.2 million associated with the assumed
conversion of the Companys outstanding convertible subordinated debt with the addition of 30,427,017 and 30,427,017 shares, respectively, as well as stock options under the treasury stock method of 1,747,482 and 1,509,114 shares, respectively.



13



---

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



|                                                 |  |                    |         |                  |   |             |  |              |         |  |   |        
|------------------------------------------------ |  | ------------------ | ------- | ---------------- | - | ----------- |  | ------------ | ------- |  | - | -------
|                                                 |  | Three Months Ended |         | Six Months Ended
|                                                 |  | July 2,2006        |         | July 3, 2005     |   | July 2,2006 |  | July 3, 2005
|Basic:                                           |  |                    |         |                  |   |             |  |              |         |  |   |        
|Net income                                       |  | $                  | 12,622  |                  | $ | 13,014      |  | $            | 10,342  |  | $ | 18,385 
|Weighted average common shares                   |  |                    | 112,166 |                  |   | 99,734      |  |              | 111,913 |  |   | 99,654 
|Basic income per share                           |  | $                  | 0.11    |                  | $ | 0.13        |  | $            | 0.09    |  | $ | 0.18   
|                                                 |  |                    |         |                  |   |             |  |              |         |  |   |        
|Diluted:                                         |  |                    |         |                  |   |             |  |              |         |  |   |        
|Net income                                       |  | $                  | 12,622  |                  | $ | 13,014      |  | $            | 10,342  |  | $ | 18,385 
|Interest expense of convertible debt, net of tax |  |                    | 1,447   |                  |   | 1,595       |  |              | 2,843   |  |   | 3,191  
|                                                 |  |                    |         |                  |   |             |  |              |         |  |   |        
|Net income, as adjusted                          |  | $                  | 14,069  |                  | $ | 14,609      |  | $            | 13,185  |  | $ | 21,576 
|                                                 |  |                    |         |                  |   |             |  |              |         |  |   |        
|Weighted average common shares                   |  |                    | 112,166 |                  |   | 99,734      |  |              | 111,913 |  |   | 99,654 
|Potential common shares                          |  |                    | 31,841  |                  |   | 32,174      |  |              | 32,299  |  |   | 31,936 
|                                                 |  |                    |         |                  |   |             |  |              |         |  |   |        
|Weighted average common shares, as adjusted      |  |                    | 144,007 |                  |   | 131,908     |  |              | 144,212 |  |   | 131,590
|                                                 |  |                    |         |                  |   |             |  |              |         |  |   |        
|Diluted income per share                         |  | $                  | 0.10    |                  | $ | 0.11        |  | $            | 0.09    |  | $ | 0.16   
|                                                 |  |                    |         |                  |   |             |  |              |         |  |   |        

Note 12. Customer Concentrations

Powerwaves product sales have historically been concentrated in a small number of customers. During the six months ended July 2, 2006 and
July 3, 2005, sales to customers that accounted for 10% or more of revenues totaled $126.5 million and $134.5 million, respectively. During the six months ended July 2, 2006, sales to Nokia and Siemens accounted for approximately 18% and
12% of total revenues, respectively. During the six months ended July 3, 2005, sales to Nortel, Nokia and Ericsson accounted for approximately 14%, 13% and 12% of total revenues, respectively.

As of July 2, 2006, approximately 20% of total accounts receivable related to two customers that each accounted for 10% or more of Powerwaves
total revenue during the first six months of 2006. The inability to collect outstanding receivables from these customers or the loss of, or reduction in, sales to any of these customers could have a material adverse effect on the Companys
business, financial condition and results of operations.

Note 13. Supplier Concentrations

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

Note 14. Segments and Geographic Data

Powerwave
operates in two reportable business segments: Wireless Communications and Contract Manufacturing. Sales in the wireless communications segment are derived primarily from the sale of wireless communications network products
and coverage solutions, including antennas, boosters, combiners, filters, radio frequency power amplifiers, repeaters, tower-mounted amplifiers and advanced coverage solutions for use in cellular, PCS, and 3G wireless communications networks
throughout the world. Sales in the contract manufacturing segment are derived primarily from the sale of advanced industrial components, primarily for the automotive and food industries, under contract manufacturing arrangements. These two
reportable segments are regularly evaluated by the Companys executive management in deciding how to allocate resources and in assessing performance. The accounting policies for each reportable segment are the same as those described in
Note 2. Summary of Significant Accounting Policies.



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The following schedule presents an analysis of certain financial information for these two business segments:



|                        |  |                    |         |              |                  |         |             |  |              |         |  |   |        
|----------------------- |  | ------------------ | ------- | ------------ | ---------------- | ------- | ----------- |  | ------------ | ------- |  | - | -------
|                        |  | Three Months Ended |         |              | Six Months Ended
|                        |  | July 2,2006        |         | July 3, 2005 |                  |         | July 2,2006 |  | July 3, 2005
|Net sales:              |  |                    |         |              |                  |         |             |  |              |         |  |   |        
|Wireless communications |  | $                  | 219,555 |              | $                | 174,538 |             |  | $            | 401,366 |  | $ | 326,926
|Contract manufacturing  |  |                    | 12,839  |              |                  | 11,796  |             |  |              | 24,093  |  |   | 21,587 
|                        |  |                    |         |              |                  |         |             |  |              |         |  |   |        
|Total net sales         |  | $                  | 232,394 |              | $                | 186,334 |             |  | $            | 425,459 |  | $ | 348,513
|                        |  |                    |         |              |                  |         |             |  |              |         |  |   |        
|Operating income:       |  |                    |         |              |                  |         |             |  |              |         |  |   |        
|Wireless communications |  | $                  | 12,789  |              | $                | 11,564  |             |  | $            | 8,887   |  | $ | 16,663 
|Contract manufacturing  |  |                    | 347     |              |                  | (436    | )           |  |              | 1,389   |  |   | 613    
|                        |  |                    |         |              |                  |         |             |  |              |         |  |   |        
|Total operating income  |  | $                  | 13,136  |              | $                | 11,128  |             |  | $            | 10,276  |  | $ | 17,276 
|                        |  |                    |         |              |                  |         |             |  |              |         |  |   |        



|                        |  |              |           |                 |   |          
|----------------------- |  | ------------ | --------- | --------------- | - | ---------
|                        |  | July 2, 2006 |           | January 1, 2006
|Total assets:           |  |              |           |                 |   |          
|Wireless communications |  | $            | 1,143,039 |                 | $ | 1,095,670
|Contract manufacturing  |  |              | 45,131    |                 |   | 34,580   
|                        |  |              |           |                 |   |          
|Total assets            |  | $            | 1,188,170 |                 | $ | 1,130,250
|                        |  |              |           |                 |   |          

Note 15. Pending Acquisition

On June 12, 2006, Powerwave Technologies, Inc., Filtronic plc and Filtronic Comtek (UK) Limited entered into an Agreement pursuant to which Powerwave will acquire the majority of Filtronics Wireless
Infrastructure division business for a combination of 20.7 million newly issued shares of Powerwave common stock and $150 million in cash. The transaction is subject to the approval of Filtronic plc shareholders, as well as customary closing
conditions and certain regulatory approvals. As of August 1, 2006, all regulatory approvals have been received. The date for the shareholder meeting of Filtronic plc has not been set. The transaction is expected to close in the third quarter of
fiscal 2006.



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

The following exhibits are filed as part
of this report:



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



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



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SIGNATURES

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



|      |  |                 |  |                              |  |     |  |                        
|----- |  | --------------- |  | ---------------------------- |  | --- |  | -----------------------
|      |  |                 |  | POWERWAVE TECHNOLOGIES, INC.
|      |  |                 |  |                             
|Date: |  | August 29, 2006 |  |                              |  | By: |  | /s/ KEVIN T. MICHAELS  
|      |  |                 |  |                              |  |     |  | Kevin T. Michaels      
|      |  |                 |  |                              |  |     |  | Chief Financial Officer



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