<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 September 30, 2001

                                       OR

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


         For the transition period from _______________  to __________


                        Commission File Number 000-21507

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

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

                            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

                               _________________


     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 October 26, 2001 the number of outstanding shares of Common Stock,
par value $.0001 per share, of the Registrant was 64,509,127.

===============================================================================

<PAGE>

                          POWERWAVE TECHNOLOGIES, INC.
                                      INDEX

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

         Item 1.  Condensed Financial Statements

                           Condensed Consolidated Balance Sheets at September 30, 2001 (Unaudited) and
                                December 31, 2000                                                                          3

                           Condensed Consolidated Statements of Operations (Unaudited) for the three and
                                nine months ended September 30, 2001 and October 1, 2000                                   4

                           Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
                                for the three and nine months ended September 30, 2001 and October 1, 2000                 5

                           Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months
                                ended September 30, 2001 and October 1, 2000                                               6

                           Notes to Condensed Consolidated Financial Statements (Unaudited)                                7-10

         Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations                   11-28

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                              29

Part II.  Other Information

         Item 6.  Exhibits and Reports on Form 8-K                                                                        30

Signatures                                                                                                                31
</TABLE>

This Quarterly Report on Form 10-Q includes certain forward-looking statements
as defined within Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, relating to
revenue, revenue composition, demand and pricing trends, future expense levels,
trends in average selling prices and gross margins, the level of expected
capital expenditures and 3G product trends. Such forward-looking statements are
based on the beliefs of, and estimates made by and information currently
available to the Company's management and are subject to certain risks,
uncertainties and assumptions. Any statements contained herein (including
without limitation statements to the effect that the Company or management
"estimates," "expects," "anticipates," "plans," "believes," "projects,"
"continues," "may," or "will," or statements concerning "potential" or
"opportunity" or variations thereof or comparable terminology or the negative
thereof) that are not statements of historical fact should be construed as
forward looking statements. The actual results of Powerwave Technologies, Inc.
may vary materially from those expected or anticipated in these forward-looking
statements. The realization of such forward-looking statements may be impacted
by certain important unanticipated factors which are discussed in "Additional
Factors That May Affect Future Results" under Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" at pages 11-28.
Because of these and other factors that may affect Powerwave's operating
results, past performance should not be considered as an indicator of future
performance and investors should not use historical results to anticipate
results or trends in future periods. Powerwave undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Readers should carefully review
the risk factors described in this and other
documents Powerwave files from time to time with the Securities and Exchange
Commission, including subsequent Current Reports on Form 8-K, Quarterly Reports
on Form 10-Q and Annual Reports on Form 10-K.

                                        2

<PAGE>

                          POWERWAVE TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                   September 30,      December 31,
                                                                                        2001              2000
                                                                                   -------------     -------------
                        ASSETS                                                      (Unaudited)
<S>                                                                                <C>               <C>
Current Assets:
     Cash and cash equivalents ..................................................    $ 108,097          $ 128,733
     Accounts receivable, net of allowance for doubtful accounts
     of  $3,337 and $3,021 at September 30, 2001 and December 31,
     2000, respectively .........................................................       54,879             80,006
     Inventories, net ...........................................................       43,956             51,275
     Prepaid expenses and other current assets ..................................        3,541              5,387
     Notes receivable ...........................................................           --                 26
     Deferred tax assets ........................................................        6,766              8,553
                                                                                     ---------          ---------
          Total current assets ..................................................      217,239            273,980

Property, plant and equipment ...................................................      143,310            128,638
Less accumulated depreciation and amortization ..................................      (37,851)           (26,980)
                                                                                     ---------          ---------
     Net property, plant and equipment ..........................................      105,459            101,658
                                                                                     ---------          ---------
Intangible assets, net ..........................................................        8,051             10,777
Deferred tax assets .............................................................       20,931              5,436
Other non-current assets ........................................................        1,465              1,946
                                                                                     ---------          ---------
TOTAL ASSETS ....................................................................    $ 353,145          $ 393,797
                                                                                     =========          =========

                LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
     Accounts payable ...........................................................    $  22,900          $  50,829
     Accrued expenses and other liabilities .....................................       16,713             24,023
     Current portion of long-term debt ..........................................           36                 96
     Income taxes payable .......................................................        2,273              2,299
                                                                                     ---------          ---------
          Total current liabilities .............................................       41,922             77,247

Long-term debt, net of current portion ..........................................           33                 42
Other non-current liabilities ...................................................           66                236
                                                                                     ---------          ---------
          Total liabilities .....................................................       42,021             77,525
                                                                                     ---------          ---------

Commitments and Contingencies ...................................................           --                 --

Shareholders' Equity:
     Preferred Stock, $.0001 par value, 5,000 shares authorized and no shares
        issued and outstanding...................................................           --                 --
     Common Stock, $.0001 par value, 135,000
     shares authorized, 64,479 shares issued and outstanding at September 30,
        2001 and 63,509 shares issued and outstanding at December 31, 2000 ......      233,372            221,349
     Accumulated other comprehensive income .....................................           --                276
     Retained earnings ..........................................................       77,752             94,647
                                                                                     ---------          ---------
          Total shareholders' equity ............................................      311,124            316,272
                                                                                     ---------          ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................................    $ 353,145          $ 393,797
                                                                                     =========          =========
</TABLE>

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

                                        3

<PAGE>

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

<TABLE>
<CAPTION>
                                                  Three Months Ended             Nine Months Ended
                                            ------------------------------   --------------------------
                                             September 30,    October 1,     September 30,   October 1,
                                                 2001            2000            2001           2000
                                            ------------------------------   --------------------------
<S>                                         <C>             <C>              <C>             <C>
Net sales.................................  $       64,667  $      111,877   $    215,891  $    326,190
Cost of sales ............................          60,147          75,337        196,440       221,238
                                            --------------  --------------   ------------  ------------
Gross profit .............................           4,520          36,540         19,451       104,952
Operating expenses:
     Sales and marketing .................           2,565           5,122         11,143        15,569
     Research and development ............           7,719          11,009         26,975        30,644
     General and administrative ..........           2,920           3,980         12,504        11,188
                                            --------------  --------------   ------------  ------------
Total operating expenses .................          13,204          20,111         50,622        57,401
                                            --------------  --------------   ------------  ------------

Operating income (loss) ..................          (8,684)         16,429        (31,171)       47,551
Other income, net ........................             895           1,529          4,773         4,072
                                            --------------  --------------   ------------  ------------

Income (loss) before income taxes ........          (7,789)         17,958        (26,398)       51,623
Provision (benefit) for income taxes .....          (2,804)          6,375         (9,503)       18,326
                                            --------------  --------------   ------------  ------------

Net income (loss) ........................  $       (4,985) $       11,583   $    (16,895) $     33,297
                                            ==============  =============    ============  ============

Basic earnings (loss) per share ..........  $         (.08) $         0.19   $       (.27) $       0.55
                                            ==============  ==============   ============  ============

Diluted earnings (loss) per share ........  $         (.08) $         0.18   $       (.27) $       0.52
                                            ==============  ==============   ============  ============

Basic weighted average common shares .....          64,386          62,230         64,048        61,499
                                            ==============  ==============   ============  ============

Diluted weighted average common shares ...          64,386          65,402         64,048        64,823
                                            ==============  ==============   ============  ============
</TABLE>

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

                                        4

<PAGE>

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

<TABLE>
<CAPTION>
                                                  Three Months Ended            Nine Months Ended
                                              --------------------------    --------------------------
                                              September 30,   October 1,    September 30,   October 1,
                                                  2001          2000           2001           2000
                                              --------------------------    --------------------------
<S>                                           <C>              <C>          <C>             <C>
Net income (loss) ..........................  $  (4,985)       $  11,583    $  (16,895)     $   33,297
                                              ---------        ---------    ----------      ----------
Other comprehensive income (loss), net of
tax:

   Unrealized gain (loss) on available-for-
     sale securities .......................         --             (254)         (276)            555
                                              ---------        ---------    ----------      ----------
Other comprehensive income (loss) ..........         --             (254)         (276)            555
                                              ---------        ---------    ----------      ----------
Comprehensive income (loss) ................  $  (4,985)       $  11,329    $  (17,171)     $   33,852
                                              =========        =========    ==========      ==========
</TABLE>

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

                                        5

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                               Nine Months Ended
                                                                                         -----------------------------
                                                                                         September 30,      October 1,
                                                                                             2001              2000
                                                                                         -------------      ----------
<S>                                                                                      <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss) .................................................................      $ (16,895)      $  33,297
     Adjustments to reconcile net income (loss) to net cash provided by (used in)
     operating activities:
        Depreciation and amortization .................................................         19,988          13,639
        Change in provision for doubtful accounts .....................................            236             523
        Compensation costs related to stock options ...................................             45              64
        Loss on disposal of property, plant and equipment .............................            202              66
        Gain on sale of available-for-sale securities .................................           (568)             --
    Changes in operating assets and liabilities:
        Accounts receivable ...........................................................         24,891         (25,780)
        Inventories ...................................................................          7,320         (11,489)
        Prepaid expenses and other current assets .....................................          1,376            (615)
        Accounts payable ..............................................................        (27,929)            900
        Accrued expenses and other liabilities ........................................         (7,309)          3,551
        Income taxes ..................................................................         (9,104)         17,320
           Other non-current assets ...................................................             31          (2,430)
           Other non-current liabilities ..............................................           (169)           (366)
                                                                                             ---------       ---------
            Net cash provided by (used in) operating activities .......................         (7,885)         28,680

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property, plant and equipment .........................................        (20,692)        (56,814)
    Proceeds from the sale of property, plant and equipment ...........................              4              12
    Proceeds from the sale of available-for-sale securities ...........................            568              --
    Payment received on notes receivable ..............................................             26           7,020
                                                                                             ---------       ---------
            Net cash used in investing activities .....................................        (20,094)        (49,782)

CASH FLOW FROM FINANCING ACTIVITIES:
    Principal payments on long-term debt ..............................................           (197)           (136)
    Proceeds from issuance of Common Stock ............................................             --          61,701
    Proceeds from the sale of stock under employee stock purchase plans ...............          2,857           1,647
    Proceeds from exercise of stock options ...........................................          4,683           5,873
                                                                                             ---------       ---------
            Net cash provided by financing activities .................................          7,343          69,085
                                                                                             ---------       ---------
NET (DECREASE) INCREASE  IN CASH AND CASH EQUIVALENTS .................................        (20,636)         47,983
CASH AND CASH EQUIVALENTS, beginning of period ........................................        128,733          76,671
                                                                                             ---------       ---------
CASH AND CASH EQUIVALENTS, end of period ..............................................      $ 108,097       $ 124,654
                                                                                             =========       =========

SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash paid for:
        Interest ......................................................................      $      60       $      27
                                                                                             =========       =========
        Income taxes ..................................................................      $    (410)      $   1,005
                                                                                             =========       =========

NON CASH ITEMS:
     Tax benefit related to stock option exercises ....................................      $   4,329        $  21,648
                                                                                             =========        =========
     Tax benefit related to the issuance of Common Stock under employee
        stock purchase plans ..........................................................      $     109        $     254
                                                                                             =========        =========
    Acquisition of property and equipment through capital leases ......................      $     128        $     189
                                                                                             =========        =========

    Unrealized gain on available for sale securities, restricted, net of tax of $386...      $      --        $     555
                                                                                             =========        =========
</TABLE>

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

                                        6

<PAGE>


                          POWERWAVE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                 (in thousands, except share and per share data)



Basis of Presentation

     The accompanying condensed consolidated financial statements of Powerwave
Technologies, Inc. ("Powerwave" or the "Company") have been prepared in
accordance with accounting principles generally accepted in the United States
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 for complete financial
reporting. The interim financial information is unaudited, but reflects all
normal adjustments and accruals, which are, in the opinion of management,
considered necessary to provide a fair presentation for the interim periods
presented. The accompanying condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000. Certain prior period amounts in the Condensed Consolidated
Statements of Cash Flows have been reclassified to conform to the current period
financial presentation.

     The results of operations for the nine months ended September 30, 2001, are
not necessarily indicative of the results to be expected for the entire fiscal
year ending December 30, 2001 (fiscal year 2001). For further information on
additional factors that may affect future results, please refer to the
"Management Discussion and Analysis of Financial Condition and Results of
Operations" under Item 2 and the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.



Earnings (loss) Per Share

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128 Earnings 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. Potential common shares include stock
options using the treasury stock method. Potential common shares of 1,396,434
and 1,762,333 have been excluded from diluted weighted average common shares for
the three month and the nine month periods ended September 30, 2001,
respectively, as the effect would be anti-dilutive.

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

<TABLE>
<CAPTION>
                                                        Three Months Ended                  Nine Months Ended
                                                  --------------------------------    ------------------------------
                                                   September 30,    October 1,         September 30,   October 1,
                                                       2001            2000                2001           2000
                                                  --------------------------------    ------------------------------
    <S>                                           <C>               <C>               <C>              <C>
    Basic (share amounts in thousands):
        Basic weighted average common shares.....         64,386         62,230               64,048        61,499
        Net income (loss)........................     $   (4,985)     $  11,583           $  (16,895)    $  33,297
                                                      ----------      ---------           ----------     ---------
        Basic earnings (loss) per share..........     $     (.08)     $    0.19           $     (.27)    $    0.55
                                                      ==========      =========           ==========     =========

    Diluted (share amounts in thousands):
        Basic weighted average common shares.....         64,386         62,230               64,048        61,499
        Potential common shares..................             --          3,172                   --         3,324
                                                      ----------      ---------           ----------     ---------
        Diluted weighted average common shares...         64,386         65,402               64,048        64,823
        Net income (loss)........................     $   (4,985)     $  11,583           $  (16,895)    $  33,297
                                                      ----------      ---------           ----------     ---------
        Diluted earnings (loss) per share........     $     (.08)     $    0.18           $     (.27)    $    0.52
                                                      ==========      =========           ==========     =========
</TABLE>

                                       7

<PAGE>

New Accounting Pronouncements

     SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 as
amended, establishes accounting and reporting standards for derivative
instruments including certain derivative instruments embedded in other contracts
and for hedging activities. Under SFAS No. 133, certain contracts that were not
previously considered derivatives may now meet the definition of a derivative.
The Company adopted SFAS No. 133 effective January 1, 2001 and such adoption did
not have a material impact on the Company's consolidated financial statements.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued two
new pronouncements -- SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the
purchase method of accounting and eliminates the pooling-of-interest method for
business combinations initiated after June 30, 2001. SFAS No. 142 provides for,
among other things, the discontinuance of goodwill amortization, the
reassessment of the useful lives for existing recognized intangibles, the
potential reclassification of amounts between recognized intangibles and
goodwill, and new requirements for the impairment of goodwill. The standard is
effective for fiscal years beginning after December 15, 2001 and applies to all
goodwill and other intangible assets recognized in an entity's statement of
financial position at that date, regardless of when those assets were initially
recognized. The Company is currently evaluating the provisions of SFAS No. 141
and SFAS No. 142 and has not adopted such provisions in its September 30, 2001
financial statements.


Inventories

     Net inventories consist of the following:

<TABLE>
<CAPTION>
                                                        September 30,   December 31,
                                                             2001           2000
                                                          ----------     ----------
          <S>                                           <C>             <C>
          Parts and components........................     $ 18,680       $ 29,023
          Work-in-process.............................       12,691         12,824
          Finished goods..............................       12,585          9,428
                                                           --------       --------
          Total.......................................     $ 43,956       $ 51,275
                                                           ========       ========
</TABLE>

Segment Information

     Subsequent to the quarter ended July 1, 2001, the Company discontinued the
reporting of gross margin information for product segments to the Company's
chief operating decision maker for purposes of evaluating segment performance
and resource allocation. Accordingly the Company now operates in a single
business segment as a designer and manufacturer of radio frequency (RF) power
amplifiers for wireless telecommunications equipment. Net sales are derived
primarily from the sale of RF power amplifiers for use in wireless
communications networks. The Company reviews its revenues based upon the RF
frequency in megahertz ("MHz"), within which its products operate, i.e.,
800-1000 MHz, 1800-2000 MHz and over 2000 MHz. Cost of sales, operating expenses
and specific assets are not tracked or allocated to these RF frequency ranges.
The following schedule presents an analysis of Powerwave's net sales based upon
RF frequency range.

<TABLE>
<CAPTION>
                                                             800-1000      1800-2000     2000+
                                                                MHz           MHz         MHz          Total
                                                           ------------- ------------ ------------ -------------
<S>                                                        <C>           <C>          <C>          <C>
Net sales for the three months ended September 30, 2001...   $ 33,801      $ 13,564      $17,302     $  64,667
Net sales for the three months ended October  1, 2000.....   $ 88,561      $ 23,120      $   196     $ 111,877

Net sales for the nine months ended September 30, 2001....   $132,448      $ 33,587      $49,856     $ 215,891
Net sales for the nine months ended October  1, 2000......   $246,593      $ 79,401      $   196     $ 326,190
</TABLE>

     See previously filed quarterly reports on Form 10-Q for segment disclosures
through July 1, 2001.

                                        8

<PAGE>

The following schedule presents an analysis of Powerwave's net sales based upon
the geographic location of our customers. North American sales include sales to
the United States, Canada and Mexico. Asian sales include sales to South Korea
and all locations in Asia. Europe and Other International sales include sales to
Europe and all other foreign countries. Sales to Canada were $33,806 and
$104,603 for the nine months ended September 30, 2001 and October 1, 2000,
respectively. For the quarters ended September 30, 2001 and October 1, 2000,
sales to Canada were $10,281 and $42,921 respectively. Sales to Mexico were $846
for the nine months ended September 30, 2001, compared to $5,353 for the nine
months ended October 1, 2000. Sales to South Korea were $34,763 for the nine
months ended September 30, 2001, compared to $26,698 for the nine months ended
October 1, 2000. For the quarters ended September 30, 2001 and October 1, 2000,
sales to South Korea were $1,063 and $11,787, respectively.

<TABLE>
<CAPTION>
                                                                  North                Europe and Other
                                                                American       Asia     International       Total
                                                                --------       ----     -------------       -----
   <S>                                                         <C>           <C>       <C>                <C>
   Net sales for the three months ended September 30, 2001...  $   40,260    $  1,063     $   23,344      $  64,667
   Net sales for the three months ended October 1, 2000......  $   83,280    $ 14,912     $   13,685      $ 111,877

   Net sales for the nine months ended September 30, 2001....  $  114,203    $ 39,627     $   62,061      $ 215,891
   Net sales for the nine months ended October 1, 2000.......  $  257,086    $ 29,823     $   39,281      $ 326,190
</TABLE>

     While certain expenses for sales and marketing activities are incurred in,
various geographic regions, substantially all of the Company's assets are
located, and the Company's operating expenses are incurred in the United States.

     Total accounts receivable as of September 30, 2001, include 59% from United
States based customers, 27% from customers located in France and 8% from
customers located in Finland.

     The Company's product sales have historically been concentrated in a small
number of customers. During the quarter ended September 30, 2001, sales to one
customer accounted for approximately 50% of net sales and sales to three other
customers each accounted for 10% or more of net sales. For the quarter ended
October 1, 2000, sales to one customer accounted for approximately 55% of net
sales and sales to one other customer accounted for 10% or more of net sales.

     During the nine months ended September 30, 2001, sales to one customer
accounted for 44% of net sales and sales to two other customers each accounted
for 10% or more of net sales. During the nine months ended October 1, 2000 sales
to one customer accounted for 48% of net sales and sales to one other customer
accounted for 10% or more of net sales.

Employee Stock Purchase Plan

     The ninth offering under Powerwave's Employee Stock Purchase Plan (the
"Purchase Plan") concluded on July 31, 2001, with 84,662 shares of the Company's
Common Stock purchased under the Purchase Plan at a price per share of $14.586.
At September 30, 2001, there were rights to purchase approximately 55,000 shares
of Common Stock outstanding under the Purchase Plan's tenth offering, which will
conclude on January 31, 2002.

Shareholder Rights Plan

     On May 31, 2001, the Board of Directors adopted a Shareholder Rights Plan
to protect shareholder interests against takeover strategies that may not
provide maximum shareholder value. A dividend of one preferred stock
     purchase right ("Right") for each share of the Company's Common Stock was
distributed to shareholders of record on June 18, 2001. The Rights automatically
attached to outstanding shares so no separate certificates were issued. Each
Right allows its holder to purchase one one-hundredth of a share of Series A Jr.
Participating Preferred Stock at an exercise price of $115.00 per share. This
portion of a preferred share gives the shareholder approximately the same
dividend, voting and liquidation rights as one share of Common Stock. The Rights
are not currently exercisable, but will become exercisable if certain events
occur relating to a person or group acquiring or attempting to acquire 15
percent or more of the outstanding shares of Common Stock. The Rights expire on
June 1, 2011, unless redeemed or exchanged by the Company earlier.

                                        9

<PAGE>

Stock Option Plans

     The following is a summary of stock option transactions under Powerwave's
stock option plans, including the 1995 Stock Option Plan, the 1996 Stock
Incentive Plan, 1996 Director Stock Option Plan and the 2000 Stock Option Plan
for the nine months ended September 30, 2001:

<TABLE>
<CAPTION>
                                           Number of                         Number of Options        Weighted
                                         Option Shares      Price Per        Exercisable as of        Average
                                          Outstanding         Share         September 30, 2001     Exercise Price
                                          -----------         -----         ------------------     --------------
    <S>                                  <C>              <C>               <C>                    <C>
    Balance at January 1, 2001.........     8,265,922     $  0.82-$73.56
         Granted.......................     2,162,560     $10.52-$ 50.00
         Exercised.....................      (897,119)    $  0.82-$17.71
         Canceled......................    (1,107,536)    $  2.29-$73.56
                                          -----------
    Balance at September 30, 2001           8,423,827     $  0.82-$73.56          3,163,143             $16.92
                                          ===========                             =========             ======
</TABLE>

     At September 30, 2001 a total of 1,666,575 options were available for grant
under all of the Company's option plans.

     During the quarters ended September 30, 2001 and October 1, 2000, the
Company recorded compensation expense related to stock options of approximately
$15 and $19 respectively. For the nine months ended September 30, 2001 and
October 1, 2000, compensation expense related to stock options was $45 and $64,
respectively. The remaining unamortized compensation expense as of September 30,
2001 was approximately $111 and will be amortized through September 2003.

Contingencies

     The Company is subject to various legal proceedings from time to time as
part of its business. As of September 30, 2001, the Company is not currently
party to any legal proceedings, the adverse outcome of which, individually or in
the aggregate, the Company believes would have a material adverse effect on the
Company's business, financial condition and results of operations.

                                       10

<PAGE>

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

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

Results of Operations

     The following table summarizes our results of operations as a percentage of
net sales for the three and nine months ended September 30, 2001 and October 1,
2000.

<TABLE>
<CAPTION>
                                                                As a Percentage of Net Sales
                                            --------------------------------    -------------------------------
                                                  Three Months Ended                  Nine Months Ended
                                            --------------------------------    -------------------------------
                                             September 30,    October 1,         September 30,   October 1,
                                                  2001           2000                2001           2000
                                            --------------------------------    -------------------------------
<S>                                         <C>               <C>               <C>              <C>
Net sales.................................         100.0%          100.0%              100.0%         100.0%
Cost of sales.............................          93.0            67.3                91.0           67.8
                                                   -----           -----               -----          -----
Gross profit..............................           7.0            32.7                 9.0           32.2
Operating expenses:
     Sales and marketing..................           4.0             4.6                 5.1            4.8
     Research and development.............          11.9             9.8                12.5            9.4
     General and administrative...........           4.5             3.6                 5.8            3.4
                                                   -----           -----               -----          -----
Total operating expenses..................          20.4            18.0                23.4           17.6

Operating income (loss)...................         (13.4)           14.7               (14.4)          14.6
Other income, net.........................           1.4             1.4                 2.2            1.2
                                                   -----           -----               -----          -----

Income (loss) before income taxes.........         (12.0)           16.1               (12.2)          15.8
Provision (benefit) for income taxes......          (4.3)            5.7                (4.4)           5.6
                                                   ------          -----               -----          -----

Net income (loss).........................          (7.7)%          10.4%               (7.8)%         10.2%
                                                   ======          =====               =====          =====
</TABLE>

Three months ended September 30, 2001 and October 1, 2000

Net Sales

     Our net sales are derived primarily from the sale of RF power amplifiers
for use in wireless communications networks. Sales decreased by 42% to $64.7
million for the quarter ended September 30, 2001 from $111.9 million for the
quarter ended October 1, 2000. We believe that the decline in net sales was due
to the continued affects of the global economic recession that has impacted the
wireless communications industry which is continuing to experience delays in
wireless infrastructure spending. We have continued to experience lower demand
for the majority of our products which are sold through our original equipment
manufacturer ("OEM') customers, as well as continued weakness in demand from the
network operator market. The weakness in demand occurred in our products
covering both the 800-1000 MHz and our 1800-2000 MHz ranges. This weakness was
offset partially by an increase in sales of products in the over 2000 MHz bands.
We currently anticipate that the global economic slowdown in the worldwide
wireless communications markets will negatively impact our revenues for the
remainder of the current fiscal year and potentially the next fiscal year. For
the quarter ended September 30, 2001, total sales of products for networks in
the 800-1000 MHz range accounted for approximately 52% of sales or $33.8
million, compared to approximately 79% of sales or $88.6 million for the quarter
ended October 1, 2000. Sales of RF power amplifiers and associated products for
networks in the 1800-2000 MHz range accounted for approximately 21% of sales or
$13.6 million for the third quarter of 2001, compared to approximately 21% or
$23.1 million for the third quarter of 2000. For the quarter ended September 30,
2001, sales of products for use in networks over 2000 MHz

                                       11

<PAGE>

(generally referred to as 3G products) accounted for approximately 27% of
revenues or $17.3 million, as compared less than 1% of revenues for the quarter
ended October 1, 2000.

     We track the geographic location of our sales based upon the location of
our customers. Since many of our customers purchase products from us at central
locations and then reship the product with other base station equipment to
locations throughout the world, we are not able to identify the final
installation location of our products. Sales to customers in North America
accounted for the majority of our sales, comprising approximately 62% of revenue
or $40.3 million for the quarter ended September 30, 2001, compared to
approximately 74% of revenue or $83.3 million for the quarter ended October 1,
2000. Total international sales (excluding North American sales) accounted for
approximately 38% of revenues or $24.4 million for the quarter ended September
30, 2001, compared to approximately 26% or $28.6 million for the quarter ended
October 1, 2000. Total Asian sales decreased to $1.1 million for the quarter
ended September 30, 2001 from $14.9 million for the quarter ended October 1,
2000. Total Asian sales accounted for approximately 2% of revenues in the third
quarter of 2001 compared to approximately 13% of sales in the third quarter of
2000. Total sales to Europe and other international locations increased to 36%
or $23.3 million for the quarter ended September 30, 2001, as compared to 12% or
$13.7 million for the quarter ended October 1, 2000. The mix of sales in
geographic locations is due primarily to orders placed by different customers
and can vary significantly from quarter to quarter based on customer demand. See
"Additional Factors That May Affect Our Future Results--A Significant Amount of
Our Revenues Comes from a Few Customers; --Our Success is Tied to the Growth of
the Wireless Service Market; and --There are Many Risks Associated With
International Operations."

     For the third quarter ended September 30, 2001, total sales to Nortel
Networks Corporation and related entities ("Nortel") accounted for approximately
50% of revenues and sales to ALLTEL Corporation, Cingular Wireless and Nokia
Networks ("Nokia") each accounted for 10% or more of revenues for the quarter.
Total sales to Nortel accounted for approximately 55% of revenues for the
quarter ended October 1, 2000 and sales to LM Ericsson Telephone Company
("Ericsson") accounted for 10% or more of revenues. We cannot guarantee that we
will continue to be successful in attracting new customers or retaining or
increasing business with our existing customers. In addition, we believe that a
significant portion of our business with OEMs, such as Ericsson, Lucent
Technologies, Inc. ("Lucent"), Motorola, Inc. ("Motorola"), Nokia and Nortel, is
dependent upon the deployment schedules of wireless network operators who are
purchasing wireless infrastructure equipment from such OEMs and on such OEMs'
strategy concerning the outsourcing of RF power amplifiers. During fiscal 2001,
several major OEMs have made multiple announcements that they are lowering their
expectations for wireless infrastructure demand for the remainder of 2001 and
for 2002. A number of factors have caused delays and may cause future delays in
wireless infrastructure deployment schedules for both North American and
international deployments, including deployments in Europe, Asia, South America
and other areas. Such factors include economic slowdowns in the wireless
operator's operating region, delays in government approvals required for system
deployment, reduced subscriber demand for wireless services, high prices for new
spectrum licenses, increased competition and bidding between OEMs for
infrastructure contracts and delays in the development and delivery of telephone
handsets and base station equipment that are compatible with new wireless
protocols. In addition, a number of factors may cause OEMs to alter their
outsourcing strategy concerning RF power amplifiers, which could cause such OEMs
to reduce or eliminate their demand for external supplies of RF power amplifiers
or shift their demand to alternative suppliers. Such factors include lower
perceived internal manufacturing costs and competitive reasons to remain
vertically integrated. Due to the uncertainties associated with wireless
infrastructure deployments and OEM demand, we have experienced and expect to
continue to experience significant fluctuations in demand from our OEM
customers. Such fluctuations have caused and may continue to cause significant
reduction in our revenues and/or operating income which has harmed and may
continue to harm our business, financial condition and results of operations.
See "Additional Factors That May Affect Our Future Results --A Significant
Amount of Our Revenues Comes from a Few Customers; --There are Many Risks
Associated With International Operations; and --Our Quarterly Results Fluctuate
Significantly."

Gross Profit

     Cost of sales consists primarily of raw materials, assembly and test labor,
overhead and warranty costs. Gross profit margins for the third quarter of
fiscal 2001 and 2000 were 7.0% and 32.7%, respectively. The decrease in our
gross profit margins during the third quarter of 2001 as compared to the third
quarter of 2000 is due to several factors, the most significant being the large
decline in revenues which resulted in lower absorption of manufacturing

                                       12

<PAGE>

overhead expenses and increased labor costs, when viewed as a percentage of
revenues. Additionally, during the third quarter of 2001, we continued to incur
additional depreciation expenses associated with capital equipment that was
purchased and placed in service during 2001 to support new production lines in
our Santa Ana facility. We anticipate that in the near-term, due to our reduced
sales level, we will continue to experience lower labor and overhead absorption
rates, which increases our cost of sales as a percentage of revenues.

     While we continue to strive for manufacturing and engineering cost
reductions to offset pricing pressures on our products, we cannot guarantee that
these cost reduction or redesign efforts will keep pace with price declines and
cost increases. If we are unable to reduce our costs through our manufacturing
and/or engineering efforts, our gross margins and profitability may be adversely
affected. For a discussion of the effects of declining average sales prices on
our business, see "Additional Factors That May Affect Our Future Results--Our
Average Sales Prices are Declining."

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

Operating Expenses

     Sales and marketing expenses consist primarily of sales commissions,
salaries, other expenses for sales and marketing personnel, travel expenses,
charges for customer demonstration units, provisions for credit losses, and
trade show expenses. Sales and marketing expenses decreased by 49% to $2.6
million for the quarter ended September 30, 2001, from $5.1 million for the
quarter ended October 1, 2000. As a percentage of sales, sales and marketing
expenses were 4.0% and 4.6% for the quarters ended September 30, 2001 and
October 1, 2000, respectively. The decrease in sales and marketing expenses in
absolute dollars was primarily attributable to decreased sales commissions
resulting from lower product sales and reduced personnel costs. For each of the
quarters ended September 30, 2001 and October 1, 2000, approximately $0.2
million in sales and marketing expenses represents the amortization of a
customer list and non-compete agreement acquired as part of our acquisition of
Hewlett-Packard Company's RF power amplifier business in October 1998 (the "HP
Acquisition").

     Research and development expenses include ongoing RF power amplifier design
and development expenses, as well as design expenses associated with reducing
the cost and improving the manufacturability of existing RF power amplifiers.
Current programs include cellular, PCS, and next generation "2.5G" and "3G"
products. Research and development expenses decreased by 30% to $7.7 million for
the quarter ended September 30, 2001 from $11.0 million for the quarter ended
October 1, 2000. Research and development expenses as a percentage of sales for
the quarters ended September 30, 2001 and October 1, 2000 were 11.9% and 9.8%,
respectively. The decrease in research and development expenses in absolute
dollars was primarily due to reductions in material and engineering expenditures
as several of our design projects entered the production stage.

     General and administrative expenses consist primarily of salaries and other
expenses for management, finance, information systems, facilities maintenance
and human resources. General and administrative expenses decreased by 28% to
$2.9 million for the quarter ended September 30, 2001, from $4.0 million for the
quarter ended October 1, 2000. General and administrative expenses as a
percentage of sales for the quarters ended September 30, 2001 and October 1,
2000 were 4.5% and 3.6%, respectively. The decrease in general and
administrative expenses in absolute dollars was primarily attributable to
cost reduction efforts and reduced personnel costs.

     As part of the purchase price allocation of the HP Acquisition, an
allocation of approximately $4.6 million, reflecting the value of goodwill
acquired at the time of the acquisition was capitalized on our balance sheet.
This amount is being amortized over ten years and is included in general and
administrative expenses. For both the quarter ended September 30, 2001 and the
quarter ended October 1, 2000, approximately $0.1 million of goodwill

                                       13

<PAGE>

was amortized and included in general and administrative expenses. The Company
will continue to assess the recoverability of the amounts recorded for goodwill
in future periods.

Other Income (Expense)

     We earned $0.9 million of other income, net, during the third quarter of
2001 compared to $1.5 million of other income, net, earned in the third quarter
of 2000. Other income consists primarily of interest income, net of any interest
expense. The decrease in other income was primarily due to a decline in interest
income resulting from declining interest rate yields on the Company's short-term
cash investments.

Provision (Benefit) for Income Taxes

     During the quarter ended September 30, 2001, we recorded a tax benefit at a
rate of 36.0% as a result of the availability of net operating loss carrybacks
and carryforwards. During the quarter ended October 1, 2000, we recorded a tax
provision at an effective rate of 35.5%.

Nine months ended September 30, 2001 and October 1, 2000

Net Sales

     Net sales decreased by 34% to $215.9 million for the nine months ended
September 30, 2001 from $326.2 million for the nine months ended October 1,
2000. The decrease in revenue was primarily attributed to reduced sales of our
products covering both the 800-1000 MHz and the 1800-2000 MHz ranges resulting
from the significant slowdown in demand within the global wireless
communications market. For the nine months ended September 30, 2001, total sales
of products for networks in the 800-1000 MHz range accounted for approximately
61% of revenues or $132.4 million, compared to approximately 76% of revenues or
$246.6 million for the nine months ended October 1, 2000. Sales of products for
networks in the 1800-2000 MHz range accounted for approximately 16% of revenues
or $33.6 million for the first nine months of 2001, compared to approximately
24% of revenues or $79.4 million for the first nine months of 2000. The decline
in sales of 800-1000 MHz and 1800-2000 MHz products was partially offset by
sales of products for use in networks over 2000 MHz. For the nine months ended
September 30, 2001, sales of such products accounted for approximately 23% of
revenues or $49.9 million, as compared to less than 1% of revenues for the nine
months ended October 1, 2000. Total sales to Europe and other international
locations increased to $62.1 million or approximately 32% of revenues for the
nine months ended September 30, 2001, as compared to $39.3 million or
approximately 12% of revenues for the nine months ended October 1, 2000.

     Total sales to North American customers accounted for approximately 53% or
$114.2 million of revenues for the nine months ended September 30, 2001,
compared with approximately 79% or $257.1 million for the nine months ended
October 1, 2000. Our total international sales (excluding North American sales)
accounted for approximately 47% of revenues or $101.7 million for the nine
months ended September 30, 2001, compared with approximately 21% or $69.1
million for the nine months ended October 1, 2000. Total Asian sales accounted
for approximately 18% or $39.6 million of revenues in the first nine months of
2001 compared to approximately 9% or $29.8 million in the first nine months of
2000.

     For the first nine months of 2001, total sales to Nortel accounted for
approximately 44% of revenues and sales to Cingular Wireless and Samsung
Electronics Co. Ltd. ("Samsung") each accounted for 10% or more of revenues. For
the first nine months of 2000, Nortel accounted for approximately 48% of
revenues and sales to Ericsson accounted for 10% or more of revenues for this
period. See "Additional Factors That May Affect Future Results --A Significant
Amount of Our Revenues Comes from a Few Customers; --There are Many Risks
Associated With International Operations; and --Our Quarterly Results Fluctuate
Significantly."

Gross Profit

     Gross profit margins for the first nine months of fiscal 2001 and 2000 were
9.0% and 32.2%, respectively. The decrease in gross margins during the first
nine months of 2001 as compared to the first nine months of 2000 was primarily
due to the unanticipated reduction in revenues resulting from the global
economic slowdown which led to lower absorption of manufacturing overhead
expenses and increased labor costs, as a percentage of our revenues.

                                       14

<PAGE>

See "Additional Factors That May Affect Future Results - A Significant Amount of
Our Revenues Comes from a Few Customers; and - Our Success is Tied to the Growth
of the Wireless Services Market."

Operating Expenses

     Sales and marketing expenses decreased by 29% to $11.1 million for the nine
months ended September 30, 2001 from $15.6 million for the nine months ended
October 1, 2000. As a percentage of sales, sales and marketing expenses were
5.1% and 4.8% for the nine months ended September 30, 2001 and October 1, 2000,
respectively. The decrease in actual sales and marketing expenses was primarily
attributable to decreased sales commissions resulting from decreased product
sales.

     Research and development expenses decreased by 12% to $27.0 million for the
nine months ended September 30, 2001 from $30.6 million for the nine months
ended October 1, 2000. Research and development expenses as a percentage of
sales for the nine months ended September 30, 2001 and October 1, 2000 were
12.5% and 9.4%, respectively.

     General and administrative expenses increased by 12% to $12.5 million for
the nine months ended September 30, 2001, from $11.2 million for the nine months
ended October 1, 2000. General and administrative expenses as a percentage of
sales were 5.8 % and 3.4%, respectively. The increase in general and
administrative expenses was primarily attributable to approximately $2.2 million
in one-time expenses related to the move to our new Southern California
headquarters and manufacturing facility in March 2001.

Other Income (Expense)

     We earned $4.8 million of other income, net, during the first nine months
of 2001 compared to $4.0 million of other income, net, earned in the first nine
months of 2000. Other income consists primarily of interest income, net of any
interest expense. In addition, during the first quarter of 2001, we recognized a
gain of approximately $0.6 million on the sale of available-for-sale securities.

Provision for Income Taxes

     We recorded a tax benefit at a rate of 36.0% for the nine months ended
September 30, 2001 and a tax provision at a rate of 35.5% for the nine months
ended October 1, 2000.

Liquidity and Capital Resources

     We have historically financed our operations primarily through a
combination of cash on hand, cash provided from operations, equipment lease
financings, available borrowings under bank lines of credit and both private and
public equity offerings. As of September 30, 2001, we had working capital of
$175.3 million as compared to working capital of $196.7 million at December 31,
2000.

     Net accounts receivable decreased to $54.9 million at September 30, 2001
from $80.0 million at December 31, 2000, primarily due to the significant
reduction in revenues during 2001. Net inventories decreased to $43.9 million at
September 30, 2001, as compared to $51.3 million at December 31, 2000, primarily
due to a reduction in purchases as well as a focus on sales of existing products
in inventory. Net cash used by operating activities was approximately $7.9
million for the nine months ended September 30, 2001, compared with net cash
provided by operations of $28.7 million for the nine months ended October 1,
2000. The decrease in cash flow from operating activities is primarily due to
our net loss from operations, as well as the paydown of accounts payable and
accrued expenses.

     Capital expenditures were approximately $20.7 million and $56.8 million for
the first nine months of 2001 and 2000, respectively. For the third quarter of
2001, our total capital spending was $1.8 million, which included tooling,
electronic test equipment and building improvements for our new Santa Ana
facility.

     On May 31, 2001, we renewed our revolving credit agreement with Comerica
Bank-California. The credit facility provides for a revolving line of credit up
to a maximum principal amount outstanding at any one time of $20

                                       15

<PAGE>

million (the "Revolving Commitment Amount"). We are required to pay a commitment
fee of 0.25% per annum on the unused portion of the Revolving Commitment Amount.
The commitment fee is payable quarterly in arrears. The revolving credit
facility allows for borrowings based either upon the bank's prime rate (6.75% at
September 30, 2001) or the bank's LIBOR rate plus an applicable LIBOR Margin of
1.25% or 1.50%, based upon our debt leverage ratio. The revolving credit
facility terminates on May 31, 2002. The revolving credit facility contains
certain standard affirmative and negative covenants, including limitations on
future indebtedness, restricted payments, transactions with affiliates, liens,
dividends, mergers, transfers of assets and leverage ratios. At September 30,
2001 we were in compliance with all covenants contained in the revolving credit
facility. There were no amounts outstanding and the full $20 million of the
Revolving Commitment Amount was available to us at September 30, 2001.

     On April 28, 1998, we purchased $2.5 million of 13.75% Senior Secured
Bridge Notes due April 28, 2000 (the "Notes") from Metawave Communications
Corporation ("Metawave"), a supplier of "smart" antennas to the wireless
communications market and a customer, in a private offering. The total amount
raised in this private offering was $29 million. The Notes initially accrued
interest at a rate of 13.75% per annum and interest was payable semi-annually.
The Notes contained provisions to increase the rate of interest during the life
of the Notes if the Notes were not repaid prior to maturity. The Notes were
secured by certain assets of Metawave and were redeemed in full on April 28,
1999. Upon the issuance of the Notes, we received related warrants to purchase
53,576 shares of Metawave Series D Preferred Stock at a price of $.01 per share.
We exercised these warrants in April 1999. These shares of Series D Preferred
Stock were converted into 51,420 shares of Metawave Common Stock upon Metawave's
initial public offering in May 2000. We sold these shares in February 2001, at
an average price per share, net of commissions of $11.06, and recognized a gain
of approximately $0.6 million. This gain was included in other income, net
during the first quarter of 2001.

     Net cash provided by financing activities was approximately $7.3 million
for the first nine months of 2001 compared to $69.1 million for the first nine
months of 2000. For the nine months ended September 30, 2001, net cash provided
by financing activities primarily represents proceeds from our employee's stock
option exercises as well as proceeds from the issuance of common stock under our
Employee Stock Purchase Plan. On August 23, 2000 we sold 1.5 million shares of
our Common Stock at a price per share of $41.1875 to Deutsche Banc Alex Brown
pursuant to a previously filed shelf registration. Total net proceeds after
offering expenses were approximately $61.7 million.

     We had cash and cash equivalents of $108.1 million at September 30, 2001,
compared with $128.7 million at December 31, 2000. We regularly review our cash
funding requirements and attempt to meet those requirements through a
combination of cash on hand, cash provided by operations, available borrowings
under any credit facilities, financing through equipment lease transactions, and
possible future public or private debt and/or equity offerings. We invest our
excess cash in short-term, investment-grade money market instruments.

     We currently believe that our existing cash balances and funds expected to
be generated from operations will provide us with sufficient funds to finance
our operations for at least the next 12 months. For the remainder of fiscal
2001, we currently anticipate capital spending on property and equipment to be
in the range of $1 to $2 million, and we currently plan to fund these
expenditures from our existing cash balances. In the past, we have occasionally
utilized both operating and capital lease financing for certain equipment
purchases used in our manufacturing and research and development operations and
expect to continue to do so selectively in the future. We may require additional
funds in the future to support our working capital requirements or for other
purposes, and we may seek to raise such additional funds through the sale of
public or private equity and/or debt financings as well as from other sources.
No assurance can be given that additional financing will be available in the
future or that if available, such financing will be obtainable on terms
favorable to us or our shareholders when we may require it.

New Accounting Pronouncements

     SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 as
amended, establishes accounting and reporting standards for derivative
instruments including certain derivative instruments embedded in other contracts
and for hedging activities. Under SFAS No. 133, certain contracts that were not
previously considered derivatives may now meet the

                                       16

<PAGE>

definition of a derivative. We adopted SFAS No. 133 effective January 1, 2001
and such adoption did not have a material impact on our consolidated financial
statements.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued two
new pronouncements -- SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the
purchase method of accounting and eliminates the pooling-of-interest method for
business combinations initiated after June 30, 2001. SFAS No. 142 provides for,
among other things, the discontinuance of goodwill amortization, the
reassessment of the useful lives for existing recognized intangibles, the
potential reclassification of amounts between recognized intangibles and
goodwill, and new requirements for the impairment testing of goodwill. The
standard is effective for fiscal years beginning after December 15, 2001 and
applies to all goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized. The Company is currently evaluating the provisions of
SFAS No. 141 and SFAS No. 142 and has not adopted such provisions in its
September 30, 2001 financial statements.

Disclosure About Foreign Currency Risk

     A significant portion of our revenue is derived from international sources,
with our international customers accounting for approximately 47% of our
revenues for the first nine months of fiscal 2001, 19% of our fiscal 2000
revenues and 33% of our fiscal 1999 revenues. We regularly pursue new customers
in various domestic and international locations where new deployments or
upgrades to existing wireless communication networks are planned. Such
international locations include Asia, Europe and South America. International
locations have a history of instability in the value of their currencies.
Although we currently invoice all of our customers in U.S. Dollars, changes in
the value of the U.S. Dollar versus the local currency in which our products are
sold, along with the economic and political conditions of such foreign
countries, could adversely affect our business, financial condition and results
of operations. In addition, the weakening of an international customer's local
currency and banking market may negatively impact such customer's ability to
meet their payment obligations to us. Although we currently believe that our
international customers have the ability to meet all of their obligations to us,
there can be no assurance that they will continue to be able meet such
obligations. We regularly monitor the credit worthiness of our international
customers and make credit decisions based on both prior sales experience with
such customers as well as current financial performance and overall economic
conditions. We may decide in the future to offer certain foreign customers
extended payment terms and/or sell certain products or services in the local
currency of such customers. If we sell products or services in a foreign
currency, our results of operations and gross margins may be affected by changes
in currency exchange rates.

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

Disclosure About Terrorist Risk

     We did not experience any direct impact from the September 11, 2001
terrorist attacks on the United States other than minor delays in certain
material shipments due to disruptions in the air transportation system. These
delays did not have a material

                                       17

<PAGE>

impact on us. We are not able to estimate or guess what long-term impact these
events will have on our customers, suppliers and market demand for our products.
Since all of our manufacturing capability is located in the State of California,
we may be exposed to risks which could include production delays or shutdowns
due to terrorist attacks. Any reduction in demand or loss of customers could
have a negative impact on our results of operations and future sales.

European Monetary Union

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

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

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

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

Additional Factors That May Affect Our Future Results

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

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

A Significant Amount of Our Revenues Comes from a Few Customers

                                       18

<PAGE>

     We sell most of our products to a small number of customers, and we expect
that this will continue. We believe that our future success depends upon our
ability to broaden our customer base and maintain relationships with major
wireless OEMs, such as Ericsson, LGIC, Lucent, Motorola, Nokia, Nortel and
Samsung, as well as major operators of wireless networks, such as ALLTEL
Corporation, AT&T Wireless, Cingular Wireless and Verizon Wireless.

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

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

     For the nine months ended September 30, 2001, our largest customer, Nortel,
accounted for approximately 44% of our net sales or $94.7 million. For the first
nine months of fiscal 2000, Nortel accounted for approximately 48% of our net
sales or $155.6 million. During fiscal 2001, a number of major OEMs have made
multiple announcements lowering their expectations for wireless infrastructure
demand for the remainder of 2001 as well as for 2002. The resulting significant
reductions in demand by our OEM customers has and will continue to have an
adverse effect on our business, results of operations and financial condition.
For the third quarter of 2001, our next three largest customers (in alphabetical
order), ALLTEL, Cingular and Nokia, each accounted for 10% or more of our net
sales. The loss of any one of these customers, or a significant loss, reduction
or rescheduling of orders from any of our customers, would have a material
adverse effect on our business, results of operations and financial condition.

     There are several examples of the risks related to our customer
concentration. One example is the reduction of over $60 million in our sales to
Nortel for the first nine months of 2001 compared to 2000. A second example was
in 1998 when we had a significant geographic customer concentration in South
Korea, which experienced an economic and financial crisis during 1998. For
fiscal 1998, our South Korean customers accounted for $30.2 million, or
approximately 30% of total net sales. This was a significant drop from 1997,
when our South Korean customers accounted for $99.3 million or approximately 83%
of our total net sales. During fiscal 2000, our South Korean customers accounted
for approximately 8% of total sales or $34.1 million, and in fiscal 1999, they
accounted for approximately 21% of our total net sales or $62.2 million. For the
third quarter of fiscal 2001, our South Korean customers accounted for
approximately 2% of our net sales or $1.1 million.

     We believe that continued purchases of our products by OEMs is dependent
upon many factors, including the OEMs' view of utilizing third party suppliers
of RF power amplifiers. During the third quarter of 2001, Lucent announced that
it had split off its internal power amplifier group to a new private entity
called Celiant Corporation. During fiscal 2000, Ericsson purchased Microwave
Power Devices, one of our competitors. Any shift in demand by an OEM away from
utilizing third party suppliers of RF amplifiers could have a negative impact on
our business, results of operations and financial condition. Additionally, OEM
purchases are impacted by their current view of wireless infrastructure
deployments and could be significantly reduced due to any delays of such
deployments. A number of factors may cause delays in wireless infrastructure
deployments, including the following factors:

     .   economic or political problems in the wireless operator's operating
         region;
     .   delays in government approvals required for system deployment;
     .   higher than anticipated network infrastructure costs;
     .   technical delays in the development of new wireless protocols, such as
         3G, and;
     .   reduced subscriber demand for wireless services.

     In addition, from time to time, OEMs may purchase products from us in large
quantities over a short period of time, which may cause demand for our products
to change rapidly. Due to these and other uncertainties associated with wireless
infrastructure deployments and OEMs' purchasing strategies, we may experience
significant fluctuations in demand from our OEM customers. Such fluctuations
could cause a significant increase in demand which could exceed our production
capacity and could negatively impact our ability to meet customers' demands as
well as potentially impact product quality. Alternatively, such fluctuations
could cause a significant reduction in revenues which could have a material
adverse effect on our business, results of operations and financial condition.

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<PAGE>

We cannot guarantee that a major customer will not reduce, delay or eliminate
purchases from us, which could have a material adverse effect on our business,
results of operations and financial condition.

   Our Quarterly Results Fluctuate Significantly

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

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

     .   variations in manufacturing costs, capacities and efficiencies;

     .   capacity and production constraints, including constraints associated
         with single-source component suppliers;

     .   delays in qualification by customers of new products or redesigns;

     .   product failures and associated in-field service support costs;

     .   cancellations or reductions of customer orders and shipments due to
         economic slowdowns in the customers' operating regions;

     .   cancellations or rescheduling of customer orders and shipments due to
         excess inventory levels caused by changes in demand or deployment
         schedules at the customer;

     .   competitive factors, including pricing, availability and demand for
         competing amplification products;

     .   warranty expenses;

     .   the availability and cost of components;

     .   the timing, availability and sale of new products by us or our
         competitors;

     .   changes in the mix of products having differing gross margins;

     .   changes in average sales prices;

     .   long sales cycles associated with our products;

     .   variations in product development and other operating expenses;

     .   discounts given to certain customers for large volume purchases;

     .   interruptions in the supply of electricity and significant increases in
         the cost of electricity; and

     .   high fixed expenses that increase operating expenses, especially during
         a quarter with a sales shortfall.

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

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

     Due to these factors, our past results are not reliable indicators of our
future performance. Future revenues and operating results may not meet the
expectations of public market analysts and investors. In either case, the price
of our Common Stock could be materially adversely affected. See "--Our Stock
Price Has Been and May Continue to Be Volatile."

                                       20

<PAGE>

   Our Average Sales Prices are Declining

     Our average sales prices have declined, and we anticipate that the average
sales prices for our products will continue to decline and negatively impact our
gross profit margins. Wireless service providers are placing increasing price
pressure on wireless infrastructure manufacturers, which in turn has resulted in
downward pricing pressure on our products. Competition among third-party
suppliers has also increased the downward price pressure on our products. Since
wireless infrastructure manufacturers frequently negotiate supply arrangements
far in advance of delivery dates, we must often commit to price reductions for
our products before we know how, or if, we can obtain such cost reductions. In
addition, average sales prices are affected by price discounts negotiated for
large volume purchases by certain customers. To offset declining average sales
prices, we must reduce manufacturing costs and ultimately develop new products
with lower costs or higher average sales prices. If we cannot achieve such cost
reductions or product improvements, our gross margins will continue to decline.

     Sales of single carrier RF power amplifiers have been subject to intense
price competition and historically have carried lower gross profit margins than
our multi-carrier RF power amplifier products. If we cannot reduce manufacturing
costs on our single carrier RF power amplifiers and such RF power amplifiers
continue to account for a significant percentage of our net sales, our overall
gross profit margins will fall. In addition, we currently expect that 3G
multi-carrier RF power amplifiers will have lower gross margins than our 2G
multi-carrier products. If we are unable to continue to reduce our manufacturing
costs on all of our products, our gross margins will decline.

   Our Facilities are Located in the State of California Which is Experiencing
an Electricity Shortage

     The two largest investor owned electric utility companies in California,
Pacific Gas & Electric and Southern California Edison, have been experiencing
electricity generation shortages due to the collapse of California's
deregulation strategy. Pacific Gas & Electric has declared voluntary bankruptcy
in order to restructure its outstanding obligations, and Southern California
Edison continues to operate with the potential risk of a future bankruptcy
filing. The inability of these companies to continue purchasing electricity has
resulted in rolling blackouts in certain parts of the state. Our Southern
California operation is wholly dependent on Southern California Edison and our
Northern California engineering center is wholly dependent upon Pacific Gas and
Electric. As of October 26, 2001, we have not experienced any significant
interruptions in electrical service to our facilities. We currently do not have
backup power generators or alternate sources of power to support our needs in
the event of a blackout and our current insurance does not provide coverage for
any damages we or our customers may suffer as a result of interruptions of power
supply. We are not able to guarantee that we will not experience any significant
interruptions in electrical service to our facilities in the future. The loss of
electrical service would cause a temporary shutdown of our operations resulting
in lost production and may require us to re-calibrate our production equipment,
resulting in potentially significant unanticipated costs. In addition, many of
our suppliers are located in California and could be similarly affected.
Frequent and continuing shutdowns of our operations and those of our suppliers
could cause us to be unable to manufacture the products required by our
customers in a timely manner. Shipments to our customers could be delayed,
resulting in the delay or loss of product revenues. Such delay or loss of
product revenues could have a material adverse effect on our business, financial
condition and results of operations.

     Furthermore, the deregulation of the energy industry instituted in 1996 by
the California government has caused power prices to increase. Under
deregulation, utilities were encouraged to sell their plants, which
traditionally had produced most of California's power, to independent energy
companies that were expected to compete aggressively on price. Instead, due in
part to a shortage of supply, wholesale prices have skyrocketed over the past
year. As a result, we have begun to incur significant increases in our
electricity costs which are negatively impacting our results of operations. If
wholesale prices continue to increase and these increases are passed on to end
users, the operating expenses associated with our facilities will increase,
which could further harm our results of operations.

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

     Almost all of our revenues come from the sale of RF power amplifiers for
wireless communications networks. Our future success depends to a considerable
extent upon the continued growth and increased availability of wireless
communications services. Wireless communications services may not continue to
grow and create demand for our

                                       21

<PAGE>

products. We believe that continued growth in the use of wireless communications
services depends, in part, on lowering the cost per subscriber by reducing the
costs of the infrastructure capital equipment and thereby enabling reductions in
wireless service pricing. Although FCC regulations require local phone companies
to reduce the rates charged to wireless carriers for connection to their
wireline networks, wireless service rates will probably remain higher than rates
charged by traditional wireline companies.

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

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

     .   failure of local governments or foreign countries to allow construction
         of new wireless communications systems;

     .   lack of demand for new wireless services;

     .   termination or delays by local governments or foreign countries of
         existing construction of wireless communications systems;

     .   imposition of moratoriums by local governments or foreign countries on
         building new base stations for existing wireless communications
         systems; and

     .   foreign authorities may disfavor wireless communications systems
         because of environmental concerns, political unrest, economic
         downturns, favorable prices for other communications services or delays
         in implementing wireless communications systems.

   We Depend on Single Sources for Key Components

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

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

   The Market in Which We Operate is Highly Competitive

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

     .   performance;

                                       22

<PAGE>

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

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

     Our current competitors include Allen Telecom, Inc., Andrew Corporation,
Celiant Corporation, and Spectrian Corporation, in addition to a number of
privately held companies throughout the world, subsidiaries of certain
multinational corporations and the RF power amplifier manufacturing operations
of the leading wireless infrastructure manufacturers such as Ericsson, Motorola,
Nokia and Samsung. Some competitors have significantly greater financial,
technical, manufacturing, sales, marketing and other resources than we do and
have achieved greater name recognition for their products and technologies than
we have. We may not be able to successfully increase our market penetration or
our overall share of the RF power amplifier market. Our results of operations
could be adversely impacted if we are unable to effectively increase our share
of the RF power amplifier market.

     Our future success depends largely upon the rate at which wireless
infrastructure manufacturers incorporate our products into their systems. A
substantial portion of the present worldwide production of RF power amplifiers
is captive within the internal manufacturing operations of leading wireless
infrastructure manufacturers such as Ericsson, Motorola, Nokia and Samsung.
These companies regularly evaluate whether to manufacture their own RF power
amplifiers rather than purchase them from us. During 2000, Ericsson purchased
Microwave Power Devices, one of our competitors. We cannot predict the ultimate
impact this purchase will have on our business with Ericsson. Any potential
reduction in our business with Ericsson could have a negative impact on our
business, financial condition and results of operations. In addition, various
companies could also compete directly with us by selling their RF power
amplifiers to other manufacturers and operators, including our customers. In the
third quarter of 2001, Lucent announced that it had formed a new company called
Celiant Corporation which consisted of its former power amplifier design group
with the intended purpose of competing directly in the independent power
amplifier marketplace. If we are not successful in increasing the use of our
products by the leading wireless infrastructure manufacturers, there would be a
material adverse effect on our business, financial condition and results of
operations.

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

     The markets in which we compete are characterized by:

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

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

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

                                       23

<PAGE>

products we develop may not achieve market acceptance or may not be
manufacturable at competitive prices in sufficient volumes. We cannot guarantee
the success of our research and development efforts.

     We also continue efforts to improve our existing cellular and PCS lines of
RF power amplifier products. Any delays in the shipment of these products may
cause customer dissatisfaction and delay or loss of product revenues. In
addition, it is possible that a significant number of development projects will
not result in manufacturable new products or product improvements.

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

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

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

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

   We Must Retain Key Executives and Personnel

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

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

   There are Many Risks Associated With International Operations

     For the first nine months of fiscal 2001, fiscal years 2000, 1999 and 1998,
international revenues (excluding North American sales) accounted for
approximately 47%, 21%, 33% and 41%, respectively, of our net sales. We
currently expect that international revenues will continue to account for a
significant percentage of our revenues for

                                       24

<PAGE>

the foreseeable future. Therefore, the following risks associated with
international operations could have a material adverse effect on our
performance:

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

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

   Our Failure to Manage Future Growth Could Have Adverse Effects

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

     .   effectively expand, train and manage our work force, particularly in
         response to fluctuations in demand for various products;
     .   manage production and inventory levels to meet product demand and new
         product introductions;
     .   manage and improve production quality;
     .   expand both the range of customers and the geographic scope of our
         customer base;
     .   reduce product costs; and
     .   improve financial and management controls, reporting systems and
         procedures.

     Any failure to manage growth effectively could have a material adverse
effect on our business, financial condition and results of operations.

The Sales Cycle for Our Products is Lengthy

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

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<PAGE>

   Many Wireless Infrastructure Manufacturers have Internal RF Power Amplifier
Production Capabilities

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

     Wireless infrastructure equipment manufacturers with internal manufacturing
capabilities could also sell RF power amplifiers externally to other
manufacturers, thereby competing directly with us. During the third quarter of
2001, Lucent announced the formation of Celiant Corporation for the specific
purpose of competing directly in the independent power amplifier marketplace.
Even if we are successful in selling our products to OEM customers, we believe
that such customers will demand price and other concessions based on their
ability to manufacture RF power amplifiers internally. If, for any reason, our
major customers decide to produce their RF power amplifiers internally or
through joint ventures with other competitors, or require us to participate in
joint venture manufacturing with them, our business, results of operations and
financial condition could be materially adversely affected.

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

     We rely upon trade secrets and patents to protect our intellectual
property. We execute confidentiality and non-disclosure agreements with our
employees and suppliers and limit access to and distribution of our proprietary
information. We have an on-going program to identify and file applications for
both U.S. and international patents for various aspects of our technology. We
have been granted a total of 14 U.S. patents, and we currently have 16 separate
U.S. patent applications filed. All of these efforts, along with the knowledge
and experience of our management and technical personnel, strengthen our ability
to market our existing products and to develop new products. The departure of
any of our management and technical personnel, the breach of their
confidentiality and non-disclosure obligations to us, or the failure to achieve
our intellectual property objectives may have a material adverse effect on our
business, financial condition and results of operations.

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

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

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

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

     Certain of our customers and other wireless communications infrastructure
equipment manufacturers may decide to protect their intellectual property by
deciding not to purchase RF power amplifiers from external sources. The

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appearance of a close working relationship with a particular customer may
adversely affect our ability to establish or maintain a relationship with, or
sell products to, competitors of that particular customer. The failure of our
major customers to purchase products from us due to our relationship with other
customers could have a material adverse effect on our business, financial
condition and results of operations.

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

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

     .   a determination or allegation that systems or devices relying on or
         incorporating our products create a health risk, causing us to be named
         as a defendant, and held liable, in a product liability lawsuit;
     .   delays or prohibitions on the installation of wireless communications
         networks due to alleged health or environmental risks; and
     .   our inability to maintain insurance at an acceptable cost or to
         otherwise protect against potential product liability lawsuits.


   Government Regulation of the Communications Industry

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

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

   Our Stock Price Has Been and May Continue to Be Volatile

     The price of our Common Stock has exhibited high levels of volatility with
significant volume and price fluctuations, which makes our Common Stock
unsuitable for many investors. In addition, the stock market has from time to
time experienced significant price and volume fluctuations. The fluctuations in
the stock market are often unrelated to the operating performance of particular
companies, and the market prices for securities of technology companies have
been especially volatile. These broad market fluctuations may adversely affect
the market price of our Common Stock. Our stock price may be affected by the
factors discussed above as well as:

     .   fluctuations in our results of operations or the operations of our
         competitors;
     .   failure of such results of operations to meet the expectations of stock
         market analysts and investors;
     .   reductions in demand or expectations of future demand by our customers;
     .   delays or postponement of wireless infrastructure deployments,
         including new 3G deployments;
     .   changes in the political or economic outlook of the markets into which
         we sell our products;
     .   changes in stock market analyst recommendations regarding us, our
         competitors or our customers;
     .   the timing and announcements of technological innovations or new
         products by us or our competitors;

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     .   changes in the wireless communications industry; and
     .   general market conditions.

   Risk of Litigation

     We are not currently party to any legal proceedings, the adverse outcome of
which, individually or in the aggregate, we believe would have a material
adverse effect on our business, financial condition and results of operations.
Any potential litigation, regardless of its merits, could result in substantial
costs to us and divert our attention from our operations. Such diversion could
have an adverse impact on our business, results of operations and financial
condition.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Our financial instruments include cash and cash equivalents and long-term
debt. At September 30, 2001, the carrying values of our financial instruments
approximated their fair values based on current market prices and rates.

     Currently, we do not enter into derivative financial instruments and we do
not currently have any significant direct foreign currency exposure. Aside from
operating costs of our South Korean repair operation, we do not transact
business in foreign currencies. As a result , we do not have any significant
direct foreign currency exposure at September 30, 2001.

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

     We currently do not have any material debt outstanding, so we do not have
interest rate risk from a liability perspective. We do have a significant amount
of cash and short-term investments with maturities less than three months. This
cash portfolio exposes us to interest rate risk as short-term investment rates
have fallen significantly during 2001. Given the short-term maturity structure
of our investment portfolio, and the high-grade investment quality of our
portfolio, we believe that we are not subject to principal fluctuations and the
effective interest rate of our portfolio tracks closely to various short-term
money market interest rate benchmarks. During the first nine months of 2001, we
have seen significant interest rate reductions as the U.S. Federal Reserve has
aggressively lowered short-term interest rates. This has contributed to a
significant reduction in interest income from our cash investments. We currently
anticipate that our interest income will continue to decline as a result of this
lower interest rate environment.

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

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

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                           PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

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

None

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

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                                   SIGNATURES

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

                                               POWERWAVE TECHNOLOGIES, INC.


Date:  October 31, 2001                     By: /s/  Kevin T. Michaels
       ----------------                    -------------------------------------
                                                    Kevin T. Michaels
                                            Senior Vice President, Finance and
                                            Chief Financial Officer

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