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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------

                                    FORM 10-Q

(MARK ONE)

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

        For the quarterly period ended December 31, 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: 0-23576


                                 CELERITEK, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


             CALIFORNIA                                      77-0057484
    (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NUMBER)

             3236 SCOTT BLVD.
             SANTA CLARA, CA                                     95054
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                     (ZIP CODE)


                                 (408) 986-5060
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


                                 NOT APPLICABLE
         (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
                               SINCE LAST REPORT)

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


        Yes [X] No [ ]

        Applicable only to corporate issuers:

        Indicate the number of shares outstanding of each of the issuer's
classes of stock, as of the latest practicable date.

        COMMON STOCK, NO PAR VALUE: 12,171,451 SHARES AS OF JANUARY 31, 2001


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

<PAGE>

                                 CELERITEK, INC.

                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                                                Page No.
                                                                                                                --------
<S>                                                                                                                <C>
PART I:  FINANCIAL INFORMATION......................................................................................1
         Item 1.  Financial Statements (Unaudited)..................................................................1
                  Condensed Consolidated Balance Sheets:  December 31, 2001 and March 31, 2001......................1
                  Condensed Consolidated Statements of Operations:  Three and nine months ended
                      December 31, 2001 and 2000....................................................................2
                  Consolidated Statements of Cash Flows:  Nine months ended December 31, 2001 and 2000..............3
                  Notes to Condensed Consolidated Financial Statements..............................................4
         Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.............7
         Item 3.  Quantitative and Qualitative Disclosures About Market Risk.......................................20
PART II:  OTHER INFORMATION........................................................................................20
         Item 6.  Exhibits and Reports on Form 8-K.................................................................20
SIGNATURES.........................................................................................................21
</TABLE>



                                      -i-

<PAGE>

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


                                 CELERITEK, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)



<TABLE>
<CAPTION>
                                                                 DECEMBER 31,        MARCH 31,
                                                                    2001               2001
                                                                 ------------        ---------
                                                                  (UNAUDITED)         (NOTE)
<S>                                                               <C>                 <C>
ASSETS
Current assets:
   Cash and cash equivalents .........................            $ 13,201            $  3,515
   Short-term investments ............................              89,268             103,998
   Accounts receivable, net ..........................               8,323              16,495
   Inventories .......................................              11,682              15,361
   Prepaid expenses and other current assets .........               2,828               3,446
                                                                  --------            --------
      Total current assets ...........................             125,302             142,815
Property and equipment, net ..........................              15,631              23,998
Other assets .........................................               4,892               3,712
                                                                  --------            --------
Total assets .........................................            $145,825            $170,525
                                                                  ========            ========

LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:

   Accounts payable ..................................            $  7,002            $ 13,413
   Accrued payroll ...................................               1,575               2,679
   Accrued liabilities ...............................               3,714               3,912
   Current portion of long-term debt .................               2,256               1,380
   Current obligations under capital leases ..........                 804                 754
                                                                  --------            --------
      Total current liabilities ......................              15,351              22,138
Long-term debt, less current portion .................               5,277               3,686
Non-current obligations under capital leases .........               1,483               1,892
Shareholders' equity .................................             123,714             142,809
                                                                  --------            --------
Total liabilities and shareholders' equity ...........            $145,825            $170,525
                                                                  ========            ========
</TABLE>

Note:   The balance sheet at March 31, 2001 has been derived from the audited
        financial statements at that date but does not include all of the
        information and footnotes required by generally accepted accounting
        principles for complete financial statements.


                             See accompanying notes.



                                      -1-
<PAGE>

                                 CELERITEK, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                        DECEMBER 31,                         DECEMBER 31,
                                                                ---------------------------          ---------------------------
                                                                  2001               2000              2001               2000
                                                                --------           --------          --------           --------
<S>                                                             <C>                <C>               <C>                <C>
Net sales ............................................          $ 14,680           $ 24,245          $ 43,823           $ 67,043
Cost of goods sold ...................................            11,811             18,505            41,306             49,195
                                                                --------           --------          --------           --------

Gross profit .........................................             2,869              5,740             2,517             17,848
Operating expenses:
   Research and development ..........................             2,279              2,613             6,853              7,322
   Selling, general and administrative ...............             2,281              2,198             7,425              7,687
   Impairment charge .................................            10,891                 --            10,960                 --
                                                                --------           --------          --------           --------
Total operating expenses .............................            15,451              4,811            25,238             15,009

Income (loss) from operations ........................           (12,582)               929           (22,721)             2,839
Interest income (expense) and other, net..............               663              2,141             2,951              4,138
                                                                --------           --------          --------           --------

Income (loss) before income tax ......................           (11,919)             3,070           (19,770)             6,977
Provision for income taxes ...........................                --                461                --              1,047
                                                                --------           --------          --------           --------
Net income (loss) ....................................          $(11,919)          $  2,609          $(19,770)          $  5,930
                                                                ========           ========          ========           ========

Basic earnings (loss) per share ......................          $  (0.99)          $   0.22          $  (1.64)          $   0.54
                                                                ========           ========          ========           ========
Diluted earnings (loss) per share ....................          $  (0.99)          $   0.21          $  (1.64)          $   0.50
                                                                ========           ========          ========           ========

Weighted average common shares outstanding ...........            12,097             11,842            12,043             11,061
Weighted average common shares outstanding,
   assuming dilution .................................            12,097             12,667            12,043             11,916
</TABLE>


                             See accompanying notes.



                                      -2-
<PAGE>

                                 CELERITEK, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                   NINE MONTHS ENDED
                                                                             --------------------------------
                                                                             DECEMBER 31         DECEMBER 31,
                                                                                2001                 2000
                                                                             -----------         ------------
<S>                                                                           <C>                 <C>
OPERATING ACTIVITIES
Net (loss) income ..................................................          $ (19,770)          $   5,930
Adjustment to reconcile net (loss) income to net
  cash used in operating activities:
   Depreciation, amortization, impairment charge and other .........             15,595               2,703
   Changes in operating assets and liabilities .....................              3,744             (14,724)
                                                                              ---------           ---------
Net cash used in operating activities ..............................               (431)             (6,091)

INVESTING ACTIVITIES
Purchase of property and equipment .................................             (6,091)             (9,313)
Increase in other assets ...........................................               (512)             (2,362)
Sale of property and equipment .....................................                  4                  --
Purchases of short-term investments ................................           (131,784)           (150,134)
Maturities and sale of short-term investments ......................            145,495              65,260
                                                                              ---------           ---------
Net cash provided (used) by investing activities ...................              7,112             (96,549)

FINANCING ACTIVITIES
Payments on long-term debt .........................................             (1,241)               (721)
Borrowings on long-term debt .......................................              3,708               5,314
Payments on obligations under capital leases .......................               (509)               (821)
Proceeds from issuance of common stock .............................              1,047             101,511
                                                                              ---------           ---------
Net cash provided by financing activities ..........................              3,005             105,283
Increase in cash and cash equivalents ..............................              9,686               2,643
Cash and cash equivalents at beginning of period ...................              3,515               8,707
                                                                              ---------           ---------
Cash and cash equivalents at end of period .........................          $  13,201           $  11,350
                                                                              =========           =========
Supplemental disclosures of cash flow information:
   Cash paid during the period for:
      Income taxes .................................................          $      27           $       1
      Interest .....................................................                484                 256
Capital lease obligations incurred to acquire equipment ............          $     150           $     714
</TABLE>


                             See accompanying notes.


                                      -3-
<PAGE>

                                 CELERITEK, INC.

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

                                December 31, 2001


1.      BASIS OF PRESENTATION

        The accompanying unaudited condensed consolidated financial statements
        have been prepared in accordance with generally accepted accounting
        principles for interim financial information and with the instructions
        to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
        include all of the information and footnotes required by generally
        accepted accounting principles for complete financial statements. In the
        opinion of management, all adjustments (consisting of normal recurring
        accruals) considered necessary for a fair presentation have been
        included.

        The Company's reporting period consisted of a thirteen-week period
        ending on the Sunday closest to the calendar month end. The third
        quarters of fiscal 2002 and fiscal 2001 ended December 30, 2001 and
        December 31, 2000, respectively. For convenience, the accompanying
        financial statements have been shown as ending on the last day of the
        calendar month.

        Operating results for the three and nine months ended December 31, 2001
        are not necessarily indicative of the results that may be expected for
        the fiscal year ending March 31, 2002. This financial information should
        be read in conjunction with the consolidated financial statements and
        notes thereto included in the Company's annual report on Form 10-K for
        the year ended March 31, 2001.

2.      INVENTORIES

        The components of inventory consist of the following:


<TABLE>
<CAPTION>
                                            DECEMBER 31,        MARCH 31,
                                               2001               2001
                                            ------------        ---------
                                                     (IN THOUSANDS)
<S>                                          <C>                <C>
        Raw materials ...........            $ 2,272            $ 4,903
        Work-in-process .........              9,410             10,458
                                             -------            -------
                                             $11,682            $15,361
                                             =======            =======
</TABLE>



                                      -4-
<PAGE>

3.      EARNINGS PER SHARE

        Basic earnings (loss) per common share is computed using the weighted
        average common shares outstanding during the period. Diluted earnings
        per common share incorporates the incremental shares issuable upon the
        assumed exercise of stock options when dilutive.

        The following table sets forth the computation of basic and diluted
        earnings (loss) per share (in thousands, except per share data):


<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED                NINE MONTHS ENDED
                                                                         DECEMBER 31,                     DECEMBER 31,
                                                                 ---------------------------      ---------------------------
                                                                    2001              2000           2001               2000
                                                                 ----------          -------      ----------          -------
<S>                                                              <C>                 <C>          <C>                 <C>
        BASIC
        Net income (loss) ................................       $  (11,919)         $ 2,609      $  (19,770)         $ 5,930
                                                                 ==========          =======      ==========          =======
        Weighted common shares outstanding ...............           12,097           11,842          12,043           11,061
                                                                 ==========          =======      ==========          =======
        Basic earnings (loss) per common share ...........       $    (0.99)         $  0.22      $    (1.64)         $  0.54
                                                                 ==========          =======      ==========          =======
        DILUTED
        Net income (loss) ................................       $  (11,919)         $ 2,609      $  (19,770)         $ 5,930
                                                                 ==========          =======      ==========          =======
        Weighted common shares outstanding ...............           12,097           11,842          12,043           11,061
        Dilutive effect of stock options .................               --              825              --              855
                                                                 ----------          -------      ----------          -------
        Weighted common shares outstanding,
           assuming dilution .............................           12,097           12,667          12,043           11,916
                                                                 ==========          =======      ==========          =======
        Diluted earnings (loss) per common share .........       $    (0.99)         $  0.21      $    (1.64)         $  0.50
                                                                 ==========          =======      ==========          =======
</TABLE>


                                      -5-
<PAGE>


4.      COMPREHENSIVE INCOME (LOSS)

        The components of comprehensive income (loss) for the three and nine
        month periods ended December 31, 2001 and 2000 are as follows (in
        thousands):


<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                                  DECEMBER 31,                      DECEMBER 31,
                                                            ------------------------         -------------------------
                                                              2001             2000            2001             2000
                                                            --------          ------         --------          -------
<S>                                                         <C>               <C>            <C>               <C>
        Net income (loss) .........................         $(11,919)         $2,609         $(19,770)         $5,930
        Other comprehensive income (loss)
           Unrealized gains (losses)
           on marketable securities ...............             (117)            216             (372)            216
                                                            --------          ------         --------          ------
        Other comprehensive income (loss) .........             (117)            216             (372)            216
                                                            --------          ------         --------          ------
        Comprehensive income (loss) ...............         $(12,036)         $2,825         $(20,142)         $6,146
                                                            ========          ======         ========          ======
</TABLE>

5.      RECENT ACCOUNTING PRONOUNCEMENTS

        In June 2001, the FASB issued Statement of Financial Accounting
        Standards No. 141, "Business Combinations" (SFAS 141). This statement
        addresses financial accounting and reporting for business combinations.
        SFAS 141 supersedes APB Opinion No. 16, Business Combinations, and
        amends or supersedes a number of interpretations of that Opinion. SFAS
        141 also applies to all business combinations accounted for using the
        purchase method for which the date of acquisition is July 1, 2001 or
        later. The Company will adopt the provisions of SFAS 141 for any
        business combinations initiated after June 30, 2001.

        In June 2001, the FASB issued Statement of Financial Accounting
        Standards No. 142, "Goodwill and Other Intangibles" (SFAS 142). Under
        SFAS 142, goodwill and indefinite lived intangible assets are no longer
        amortized but are reviewed annually (or more frequently if impairment
        indicators arise) for impairment. Separable intangible assets that are
        not deemed to have an indefinite life will continue to be amortized over
        their estimated useful lives. The Company has not recorded any goodwill
        or indefinite lived intangible assets prior to December 31, 2001.

        In October 2001, the FASB issued Statement of Financial Accounting
        Standards No. 144, "Accounting for the Impairment or Disposal of
        Long-Lived Assets" (SFAS 144). This statement supersedes SFAS No. 121,
        "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
        Assets to be Disposed Of", and provides a single accounting model for
        long-lived assets to be disposed of. SFAS 144 is effective for fiscal
        years beginning after December 15, 2001, and interim periods within
        those fiscal years, with early application encouraged. This statement
        becomes effective for the Company's 2003 fiscal year beginning April 1,
        2002. The adoption of this statement is not expected to have a material
        impact on the Company's financial position, results of operations or
        cash flow.



                                      -6-
<PAGE>

6.      IMPAIRMENT CHARGE

        In response to a decline in the wireless infrastructure and mobile
        handset markets, which included several semiconductor customers reducing
        their forecasted demand in the third quarter of fiscal 2002, we
        evaluated the ongoing value of our semiconductor capital assets. As a
        result of this analysis, we recorded an impairment charge of $10.9
        million in the third quarter of fiscal 2002 related to certain assets
        for which expected future cash flows are insufficient to cover their
        carrying value. Of this charge, $10.5 million was a result of the
        write-down of capital assets related to excess capacity due to
        un-utilized wafer fabrication equipment and leasehold improvements
        undertaken to increase the wafer fabrication area. The $10.5 million
        write-down is comprised of $5.4 million related to abandoned leasehold
        improvements originally intended to expand our wafer fabrication
        facility and $5.1 million related to un-utilized wafer fabrication
        equipment. The fair value used to calculate the equipment impairment was
        obtained from third party sources.

        The remaining impairment charge of $433,000 and $502,000 recorded in the
        three and nine months ended December 31, 2001, respectively, was the
        result of a further impairment with respect to certain capital assets
        initially written down in the fourth quarter of fiscal 2001. The capital
        assets were initially written down to an estimated fair market value in
        the fourth quarter of fiscal 2001 due to delayed and cancelled contracts
        as a result of the declining wireless market. We reassessed the fair
        market value based on the current resale market for this type of
        equipment during the respective three and nine months ended December 31,
        2001 and adjusted the capital assets carrying value accordingly.

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

FORWARD-LOOKING STATEMENTS

        This Management's Discussion and Analysis of Financial Condition and
Results of Operations of Celeritek, Inc. contains forward-looking statements
within the meaning of the Private-Securities Litigation Reform Act of 1995.
These forward-looking statements include, without limitation, statements
regarding our expectation that sales of GaAs-based subsystems for wireless
infrastructure applications will continue to decline, our expectation that
research and development will increase, our belief that the NewGen investment
will increase our market opportunities in Korea and China and our belief that
current cash and available borrowings should be sufficient to meet our liquidity
requirements through at least the next twelve months, as well as other
statements including words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend" and other similar expressions. These forward-looking
statements are subject to business and economic risks and uncertainties, and our
actual results of operations may differ materially from those contained in the
forward-looking statements. Unless required by law, we undertake no obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events, or otherwise. However, readers should carefully
review the risk factors set forth in this Form 10-Q and other reports or
documents we file from time to time with the Securities and Exchange Commission.

RESULTS OF OPERATIONS--THIRD QUARTER OF FISCAL 2001 COMPARED TO THIRD QUARTER OF
FISCAL 2002:

        Total net sales decreased 39% from $24.2 million for the third quarter
of fiscal 2001 to $14.7 million for the third quarter of fiscal 2002. GaAs
semiconductor component sales decreased 50% from $13.0 million in the third
quarter of fiscal 2001 to $6.5 million in the third quarter of fiscal 2002. The
decrease in semiconductor component sales was the result of a decrease in sales
of semiconductor components for



                                      -7-
<PAGE>

wireless infrastructure applications, partially offset by an increase in the
sales of InGaP HBT power amplifier modules used in mobile handsets.

        Net sales of GaAs-based subsystems decreased 70% from $8.0 million in
the third quarter of fiscal 2001 to $2.4 million in the third quarter of fiscal
2002, primarily due to the continuing weakness in demand in the wireless
infrastructure market. We expect the level of sales of GaAs-based subsystems for
wireless infrastructure applications to continue to decline. Total net sales to
defense customers increased 81% from $3.2 million in the third quarter of fiscal
2001 to $5.8 million for third quarter of fiscal 2002, primarily as a result of
increased government spending in defense programs that utilize our products.

        In the fourth quarter of fiscal 2001, many of our customers in the
wireless market delayed, and then cancelled long-standing contracts in response
to declining market demand. The build out of wireless infrastructure is capital
intensive. As the capital markets rapidly softened in late 2000, a number of the
providers of voice and data services were unable to secure necessary capital and
in some cases, filed for Chapter 11 bankruptcy protection. Our customers, the
equipment suppliers to these service providers, responded by first delaying and
then canceling orders associated with this market. As a result of the
cancellations and delays, we evaluated the impact on our business and determined
additional reserves and write-downs were required for our accounts receivable,
inventory and fixed assets at the end of fiscal 2001. In the event we are able
to secure any cancellation charges, cost of goods sold for these revenues will
be zero because of the write-downs we have already taken in the fourth quarter
of fiscal 2001. To date, the wireless market has not recovered, and we have been
unsuccessful in securing any cancellation charges. In the second quarter of
fiscal 2002, we took additional inventory reserves due to the continued weakness
in the wireless infrastructure market. In addition, during the first quarter of
fiscal 2002, we reduced our number of employees by approximately 30% to adjust
for our current business condition.

        Gross margin decreased from 24% of net sales in the third quarter of
fiscal 2001 to 20% of net sales in the third quarter of fiscal 2002. The
decrease in gross margin was primarily due to decreased market demand for
products used in wireless infrastructure applications and the consequent
reduction in our sales. Despite a reduction in headcount and other cost control
measures, we have been unable to reduce our expenses to the same extent that
sales have been reduced because of fixed expenses for property, plant and
equipment.

        Research and development expenses decreased 12% from $2.6 million in the
third quarter of fiscal 2001 to $2.3 million in the third quarter of fiscal
2002. The decrease in research and development expenses was primarily due to
decreased headcount in the subsystem engineering area as well as other cost
control measures. We expect the dollar level of research and development
spending to increase in the future because we are developing a broad range of
new semiconductor products to position ourselves for market recovery.

        Selling, general and administrative expenses increased 5% from $2.2
million, or 9% of net sales, in the third quarter of fiscal 2001 to $2.3
million, or 16% of net sales, in the third quarter of fiscal 2002. Commission
rates vary as a function of the sales mix. The increase in selling, general and
administrative expenses was primarily due to higher commission rates as a result
of defense sales comprising a larger percentage of total sales than the previous
quarter.

        In response to a decline in the wireless infrastructure and mobile
handset markets, which included several semiconductor customers reducing their
forecasted demand in the third quarter of fiscal 2002, we evaluated the ongoing
value of our semiconductor capital assets. As a result of this analysis, we
recorded an impairment charge of $10.9 million in the third quarter of fiscal
2002 related to certain assets for which expected future cash flows are
insufficient to cover their carrying value. Of this charge, $10.5 million was a
result of the write-down of capital assets related to excess capacity due to
un-utilized wafer fabrication



                                      -8-
<PAGE>

equipment and leasehold improvements undertaken to increase the wafer
fabrication area. The $10.5 million write-down is comprised of $5.4 million
related to abandoned leasehold improvements originally intended to expand our
wafer fabrication facility and $5.1 million related to un-utilized wafer
fabrication equipment. The fair value used to calculate the equipment impairment
was obtained from third party sources.

        The remaining $433,000 impairment was the result of a further impairment
with respect to certain capital assets initially written down in the fourth
quarter of fiscal 2001. The capital assets were initially written down to an
estimated fair market value in the fourth quarter of fiscal 2001 due to delayed
and cancelled contracts as a result of the declining wireless market. We
reassessed the fair market value based on the current resale market for this
type of equipment during the third quarter of fiscal 2002 and adjusted the
capital assets carrying value accordingly.

        Interest income (expense) and other, net decreased from $2.1 million in
the third quarter of fiscal 2001 to $663,000 in the third quarter of fiscal
2002. The decrease in interest income (expense) and other, net, was primarily
due to lower interest rates.

RESULTS OF OPERATIONS--FIRST NINE MONTHS OF FISCAL 2001 COMPARED TO FIRST NINE
MONTHS OF FISCAL 2002:

        Total net sales decreased 35% from $67.0 million for the first nine
months of fiscal 2001 to $43.8 million for the first nine months of fiscal 2002.
GaAs semiconductor component sales decreased 29% from $33.3 million in the first
nine months of fiscal 2001 to $23.7 million in the first nine months of fiscal
2002. The decrease in semiconductor component sales was the result of a decrease
in sales of semiconductor components for wireless infrastructure applications,
partially offset by an increase in the sales of InGaP HBT power amplifier
modules for use in mobile handsets.

        Net sales of GaAs-based subsystems decreased 77% from $23.8 million in
the first nine months of fiscal 2001 to $5.5 million in the first nine months of
fiscal 2002, primarily due to the continuing weakness in demand in the wireless
infrastructure market. Total net sales to defense customers increased 47% from
$9.9 million in the first nine months of fiscal 2001 to $14.6 million for first
nine months of fiscal 2002, primarily as a result of increased government
spending in defense programs that use our products.

        Gross margin decreased from 27% of net sales in the first nine months of
fiscal 2001 to 6% of net sales in the first nine months of fiscal 2002. The
decrease in gross margin was primarily due to decreased market demand for
products for wireless infrastructure applications and the consequent reduction
in our sales. Despite a reduction in headcount and other cost control measures,
we have been unable to reduce our expenses to the same extent that sales have
been reduced because of fixed expenses for property, plant and equipment.
Additionally, in the first quarter of fiscal 2002, we incurred termination
expenses when we reduced the number of employees by approximately 30%, primarily
in our manufacturing areas.

        Research and development expenses decreased 5% from $7.3 million in the
first nine months of fiscal 2001 to $6.9 million in the first nine months of
fiscal 2002. The decrease in research and development expenses was primarily due
to decreased headcount in the subsystem engineering area as well as other cost
control measures. This decrease was partially offset by increased spending in
semiconductor development. We expect the dollar level of research and
development spending to increase in the future because we are developing a broad
range of new semiconductor products to position ourselves for market recovery.

        Selling, general and administrative expenses decreased 4% from $7.7
million in the first nine months of fiscal 2001 to $7.4 million in the first
nine months of fiscal 2002. The decrease was primarily due to lower commissions
and payroll expenses due to our reduced business level in the first nine months
of the fiscal year.



                                      -9-
<PAGE>

        In response to a decline in the wireless infrastructure and mobile
handset markets, which included several semiconductor customers reducing their
forecasted demand in the third quarter of fiscal 2002, we evaluated the ongoing
value of our semiconductor capital assets. As a result of this analysis, we
recorded an impairment charge of $11.0 million in the first nine months of
fiscal 2002 related to certain assets for which expected future cash flows are
insufficient to cover their carrying value. Of this charge, $10.5 million was a
result of the write-down of capital assets related to excess capacity due to
un-utilized wafer fabrication equipment and leasehold improvements undertaken to
increase the wafer fabrication area. The $10.5 million write-down is comprised
of $5.4 million related to abandoned leasehold improvements originally intended
to expand our wafer fabrication facility and $5.1 million related to un-utilized
wafer fabrication equipment. The fair value used to calculate the equipment
impairment was obtained from third party sources.

        The remaining $502,000 impairment charge was the result of a further
impairment with respect to certain capital assets used in the subsystem
production area, which were initially written down in the fourth quarter of
fiscal 2001 due to delayed and cancelled contracts as a result of the declining
wireless market. We reassessed the fair market value based on the current resale
market for this type of equipment.

        Interest income (expense) and other, net decreased from $4.1 million in
the first nine months of fiscal 2001 to $3.0 million in the first nine months of
fiscal 2002. The decrease in interest income (expense) and other, net was
primarily due to lower interest rates.

LIQUIDITY AND CAPITAL RESOURCES

        We have funded our operations to date primarily through cash flows from
operations and sales of equity securities. As of December 31, 2001, we had $13.2
million in cash and cash equivalents, $89.3 million in short-term investments
and $110.0 million in working capital.

        In December 2001, we invested approximately $500,000 in return for
approximately 10% of the outstanding shares of NewGen Telecom Co., a Korean
handset design company. We believe this investment will increase our market
opportunities in Korea and China. We have accounted for this investment using
the cost basis.

        As of December 31, 2001, we had $500,000 in outstanding letters of
credit, which are secured by certificates of deposits.

        We have various equipment notes outstanding, which are secured by the
equipment. These notes have various covenants attached pertaining to the
maintenance of financial ratios, liquidity levels and minimum tangible net worth
and prohibit the payment of dividends. As of December 31, 2001 we were in
compliance with all covenants.

        We believe that our current cash resources and borrowings available from
our equipment financing sources should be sufficient to meet our liquidity
requirements through at least the next twelve months.

        We do not have any off-balance sheet arrangements other than operating
leases for capital equipment used for our business. We are not involved in any
special purpose entities.



                                      -10-
<PAGE>

RISKS, TRENDS AND UNCERTAINTIES

OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST AND WE EXPECT
THESE FLUCTUATIONS TO CONTINUE. IF OUR RESULTS ARE WORSE THAN EXPECTED, OUR
STOCK PRICE COULD FALL.

        Our operating results have fluctuated in the past, and may continue to
fluctuate in the future. These fluctuations may cause our stock price to
decline. Some of the factors that may cause our operating results to fluctuate
include:

        -       the timing, cancellation or delay of customer orders or
                shipments;

        -       the mix of products that we sell;

        -       our ability to secure manufacturing capacity and effectively
                utilize the capacity;

        -       the availability and cost of components;

        -       GaAs semiconductor component and GaAs-based subsystem failures
                and associated support costs;

        -       variations in our manufacturing yields related to our GaAs
                semiconductor components;

        -       the timing of our introduction of new products and the
                introduction of new products by our competitors;

        -       market acceptance of our products;

        -       variations in average selling prices of our products; and

        -       changes in our inventory levels.

        Any unfavorable changes in the factors listed above or general industry
and global economic conditions could significantly harm our business, operating
results and financial condition. For example, during the fourth quarter of
fiscal 2001, a number of our GaAs-based subsystems contracts were either
terminated or delayed and our net sales declined substantially from the prior
quarter. We cannot assure you that additional customers will not terminate
contracts, that customer orders will not be delayed, or that customers will ever
reinstate orders under contracts that have been delayed. We cannot assure you
that we will be able to achieve or maintain quarterly profitability in the
future.

        Due to fluctuations in our net sales and operating expenses, we believe
that period to period comparisons of our results of operations is not a good
indication of our future performance. It is possible that in some future quarter
or quarters, our operating results will be below the expectations of securities
analysts or investors. In that case, our stock price could decline.

WE DEPEND ON A SMALL NUMBER OF ORIGINAL EQUIPMENT MANUFACTURERS AS CUSTOMERS. IF
WE LOSE ONE OR MORE OF OUR SIGNIFICANT CUSTOMERS, OR IF PURCHASES BY ANY ONE OF
OUR KEY CUSTOMERS DECREASE, OUR NET SALES WILL DECLINE AND OUR BUSINESS WILL BE
HARMED.

        A substantial portion of our sales is derived from sales to a small
number of original equipment manufacturers. For example, in the fiscal year
ended March 31, 2001, sales to our top ten customers accounted for approximately
72% of our net sales. Motorola accounted for approximately 21% of our net sales
and DMC Stratex Networks accounted for approximately 10% of our net sales during
fiscal 2001. For the first nine months of fiscal 2002, sales to our top ten
customers accounted for approximately 78% of our net sales, with Motorola making
up approximately 43% of those net sales. We expect that sales to a limited
number of customers will continue to account for a large percentage of our net
sales in the future. Motorola accounted for approximately 46% of our backlog at
December 31, 2001. If we lose a major customer or if anticipated sales to a
major customer do not materialize, our operating results and business would be
harmed.



                                      -11-
<PAGE>

For example, in the third quarter of fiscal 2002, our net sales were adversely
affected when Motorola delayed shipment of semiconductor products.

WE DEPEND ON SINGLE AND LIMITED SOURCES FOR KEY COMPONENTS. IF WE LOSE ONE OR
MORE OF THESE SOURCES, DELIVERY OF OUR PRODUCTS COULD BE DELAYED OR PREVENTED
AND OUR BUSINESS COULD SUFFER.

        We acquire some of the components for our existing products from single
sources, and some of the other components for our products are presently
available or acquired only from a limited number of suppliers. Our
single-sourced components include substrates, millimeter wave components and
semiconductor packages. Some of these components are critical to the products we
sell to our major customers. In the event that any of these suppliers are unable
to fulfill our requirements in a timely manner, we may experience an
interruption in production until we locate alternative sources of supply. If we
encounter shortages in component supply, we may be forced to adjust our product
designs and production schedules. The failure of one or more of our key
suppliers or vendors to fulfill our orders in a timely manner and with
acceptable quality and yields could cause us to not meet our contractual
obligations, could damage our customer relationships (including relationships
with major customers) and could harm our business. For example, a single-sourced
supplier of substrates ceased operations at the end of the second quarter of
fiscal 2002, but we were able to find a replacement supplier. Even though we
were able to find another supplier, the delivery of our products to our
customers, including our major customers, may be delayed and our relationship
with such customers might be harmed and our business would suffer.

WE ARE EXPOSED TO GENERAL ECONOMIC AND MARKET CONDITIONS.

        Our business is subject to the effects of general economic conditions in
the United States and globally, and, in particular, market conditions in the
telecommunications industry. In recent quarters, our operating results have been
adversely affected as a result of unfavorable economic conditions and reduced
capital spending in the United States, Europe and Asia. In particular, sales to
customers who supply equipment to service providers of voice and data services
have been adversely affected due to significant decline in demand in the
telecommunications infrastructure markets. If the economic conditions in the
United States and globally do not improve, if we experience a worsening in the
global economic slowdown or if the telecommunications infrastructure markets do
not recover, we may continue to experience material adverse impacts on our
business, operating results and financial condition.

BECAUSE MANY OF OUR EXPENSES ARE FIXED, OUR EARNINGS WILL DECLINE IF WE DO NOT
MEET OUR PROJECTED SALES.

        Our business requires us to invest heavily in manufacturing equipment
and related support infrastructure that we must pay for regardless of our level
of sales. To support our manufacturing capacity we also incur costs for
maintenance and repairs and employ personnel for manufacturing and process
engineering functions. These expenses, along with depreciation costs, do not
vary greatly, if at all, as our net sales decrease. In addition, the lead time
for developing and manufacturing our products often requires us to invest in
manufacturing capacity in anticipation of future demand. We committed to
significant expenditures in capital equipment and facilities in fiscal 2001
based on customer demand. The recent decline in market demand has resulted in
infrastructure costs in excess of current needs and has resulted in lower
earnings. In the third quarter of fiscal 2002, we wrote down fixed assets in
response to the decline in the wireless infrastructure and mobile handset
markets. If future demand does not increase or if our net sales decline further,
our results will continue to suffer. If our net sales projections are inaccurate
or we experience declines in demand for our products, we may not be able to
reduce many of our costs rapidly, if at all, and our business, operating results
and financial condition may be harmed.



                                      -12-
<PAGE>

        We are currently reviewing the feasibility of consolidating our
operations into one facility. If we do consolidate our operations, the fourth
quarter results will include a restructuring charge of up to $2.5 million.
Subsequently, we may not be able to sublease the abandoned building, which may
negatively impact our cash flow and financial condition. Conversely, if we
consolidate into one facility and if our business improves in the future, we may
not have sufficient capacity to meet customer demand and our business operating
results and financial condition may be significantly harmed.

OUR BACKLOG MAY NOT RESULT IN SALES.

        Our backlog primarily represents signed purchase orders for products due
to ship within the next year. As of December 31, 2001, our backlog was
approximately $33 million. Backlog is not necessarily indicative of future sales
as our customers may cancel or defer orders without penalty. Nevertheless, we
make a number of management decisions based on our backlog, including purchasing
materials, hiring personnel and other matters that may increase our production
capabilities and costs. Cancellation of pending purchase orders or termination
or reduction of purchase orders in progress could significantly harm our
business. We do not believe that our backlog as of any particular date is
representative of actual sales for any succeeding period, and we do not know
whether our current order backlog will necessarily lead to sales in any future
period.

        In the fourth quarter of fiscal 2001, some of our customers in the
wireless market delayed and cancelled long-standing contracts in response to
declining market demand. The build out of wireless infrastructure is capital
intensive. As the capital markets rapidly softened in late 2000, a number of the
providers of voice and data services were unable to secure necessary capital and
in some cases, filed for Chapter 11 bankruptcy protection. Our customers, the
equipment suppliers to these service providers, responded by first delaying and
then canceling orders associated with this market.

        Of our current backlog, approximately 46% is attributable to orders
received from Motorola. If we lose this customer or any other major customer, or
if orders by a major customer were to otherwise decrease or be delayed,
including reductions due to market or competitive conditions in the wireless
communications markets or further decreases in government defense spending, our
business, operating results and financial condition would be harmed.

THE VARIABILITY OF OUR MANUFACTURING YIELDS MAY AFFECT OUR GROSS MARGINS.

        The success of our business depends largely on our ability to make our
products efficiently through a manufacturing process that results in a large
number of usable products, or yields, from any particular production run. In the
past we have experienced significant delays in our product shipments due to
lower than expected production yields. Due to the rigid technical requirements
for our products and manufacturing processes, our production yields can be
negatively affected for a variety of reasons, some of which are beyond our
control. For instance, yields may be reduced by:

        -       defects in masks that are used to transfer circuit patterns onto
                wafers;

        -       impurities in materials used;

        -       contamination of the manufacturing environment; and

        -       equipment failures.

        Our manufacturing yields also vary significantly among our products due
to product complexity and the depth of our experience in manufacturing a
particular product. For example, in the fourth quarter of fiscal 2001, we began
volume production of a new product, HBT modules. We experienced lower than
expected yields and start-up quality issues with the subcontractor who is
assembling the modules. These issues resulted in lower gross margins than
expected. We cannot assure you that we will not experience problems



                                      -13-
<PAGE>

with our production yields in the future. Decreases in our yields can result in
substantially higher costs for our products. If we cannot maintain acceptable
yields in the future, our business, operating results and financial condition
will suffer.

DECREASES IN OUR CUSTOMERS' SALES VOLUMES COULD RESULT IN DECREASES IN OUR SALES
VOLUMES.

        A significant number of our products are designed to address the
specific needs of individual original equipment manufacturer customers. Where
our products are designed into an original equipment manufacturer's product, our
sales volumes depend upon the commercial success of the original equipment
manufacturer's product. Sales of our major customers' products can vary
significantly from quarter to quarter. Accordingly, our sales could be adversely
affected by a reduction in demand for mobile handsets and for wireless subsystem
infrastructure equipment. Our operating results have been significantly harmed
in the past by the failure of anticipated orders to be realized and by deferrals
or cancellations of orders as a result of changes in demand for our customers'
products. For example, in 2001, our operating results were adversely affected
when major customers experienced a reduction in anticipated demand for wireless
communications networks.

WE EXPECT OUR PRODUCTS TO EXPERIENCE RAPIDLY DECLINING AVERAGE SALES PRICES, AND
IF WE DO NOT DECREASE COSTS OR DEVELOP NEW OR ENHANCED PRODUCTS, OUR MARGINS
WILL SUFFER.

        In each of the markets where we compete, average sales prices of
established products have been significantly declining, and we anticipate that
prices will continue to decline and negatively impact our gross profit margins.
Accordingly, to remain competitive, we believe that we must continue to develop
product enhancements and new technologies that will either slow the price
declines of our products or reduce the cost of producing and delivering our
products. If we fail to do so, our results of operations would be seriously
harmed.

INTENSE COMPETITION IN OUR INDUSTRY COULD RESULT IN THE LOSS OF CUSTOMERS OR AN
INABILITY TO ATTRACT NEW CUSTOMERS.

        We compete in an intensely competitive industry and we expect our
competition to increase. A number of companies produce products that compete
with ours or could enter into competition with us. These competitors, or
potential future competitors, include ANADIGICS, Conexant Systems, CTT, EndWave,
Litton Industries, MTI (Taiwan), New Japan Radio Corporation, REMEC, RF Micro
Devices, SPC America, Telaxis and TriQuint Semiconductor. In addition, a number
of smaller companies may introduce competing products. Many of our current and
potential competitors have significantly greater financial, technical,
manufacturing and marketing resources than we have and have achieved market
acceptance of their existing technologies. Our ability to compete successfully
depends upon a number of factors, including:

        -       the willingness of our customers to incorporate our products
                into their products;

        -       product quality, performance and price;

        -       the effectiveness of our sales and marketing personnel;

        -       the ability to rapidly develop new products with desirable
                features;

        -       the ability to produce and deliver products that meet our
                customers' requested shipment dates;

        -       the capability to evolve as industry standards change; and

        -       the number and nature of our competitors.

        We cannot assure you that we will be able to compete successfully with
our existing or new competitors. If we are unable to compete successfully in the
future, our business, operating results and financial condition will be harmed.



                                      -14-
<PAGE>

OUR BUSINESS WILL BE HARMED IF POTENTIAL CUSTOMERS DO NOT USE GALLIUM ARSENIDE
COMPONENTS.

        Silicon semiconductor technologies are the dominant process technologies
for integrated circuits and the performance of silicon integrated circuits
continues to improve. Our prospective customers may be systems designers and
manufacturers who are evaluating these silicon technologies and, in particular,
silicon germanium versus gallium arsenide integrated circuits for use in their
next generation high performance systems. Customers may be reluctant to adopt
our gallium arsenide products because of:

        -       unfamiliarity with designing systems with gallium arsenide
                products;

        -       concerns related to relatively higher manufacturing costs and
                lower yields; and

        -       uncertainties about the relative cost effectiveness of our
                products compared to high performance silicon components.

        In addition, potential customers may be reluctant to rely on a smaller
company like us for critical components. We cannot be certain that prospective
customers will design our products into their systems, that current customers
will continue to integrate our components into their systems or that gallium
arsenide technology will continue to achieve widespread market acceptance.

WE NEED TO KEEP PACE WITH RAPID PRODUCT AND PROCESS DEVELOPMENT AND
TECHNOLOGICAL CHANGES TO BE COMPETITIVE.

        We compete in markets with rapidly changing technologies, evolving
industry standards and continuous improvements in products. To be competitive we
will need to continually improve our products and keep abreast of new
technology. For example, our ability to grow will depend substantially on our
ability to continue to apply our GaAs semiconductor components and GaAs-based
subsystems processing expertise to existing and emerging wireless communications
markets. New process technologies could be developed that have characteristics
that are superior to our current processes. If we are unable to develop
competitive processes or design products using new technologies, our business
and operating results will suffer. We cannot assure you that we will be able to
respond to technological advances, changes in customer requirements or changes
in regulatory requirements or industry standards. Any significant delays in our
development, introduction or shipment of products could seriously harm our
business, operating results and financial condition.

OUR PRODUCTS MAY NOT PERFORM AS DESIGNED AND MAY HAVE ERRORS OR DEFECTS THAT
COULD RESULT IN A DECREASE IN NET SALES OR LIABILITY CLAIMS AGAINST US.

        Our customers establish demanding specifications for product performance
and reliability. Our standard product warranty period is one year. Problems may
occur in the future with respect to the performance and reliability of our
products in conforming to customer specifications. If these problems do occur,
we could experience increased costs, delays in or reductions, cancellations or
rescheduling of orders and shipments, product returns and discounts and product
redesigns, any of which would have a negative impact on our business, operating
results and financial condition. In addition, errors or defects in our products
may result in legal claims that could damage our reputation and our business,
increase our expenses and impair our operating results.

THE SALES CYCLE OF OUR PRODUCTS IS LENGTHY AND THE LIFE CYCLE OF OUR PRODUCTS IS
SHORT, MAKING IT DIFFICULT TO MANAGE OUR INVENTORY EFFICIENTLY.

        Most of our products are components in mobile handsets or wireless
subsystem infrastructure equipment. The sales cycle associated with our products
is typically lengthy, and can be as long as two years,



                                      -15-
<PAGE>

due to the fact that our customers conduct significant technical evaluations of
our products before making purchase commitments. This qualification process
involves a significant investment of time and resources from us and our
customers to ensure that our product designs are fully qualified to perform with
the customers' equipment. The qualification process may result in the
cancellation or delay of anticipated product shipments, thereby harming our
operating results.

        In addition, our inventory can rapidly become out of date due to the
short life cycle of the end products that incorporate our products. For example,
the life cycle of mobile handsets has been and is expected to continue to be
relatively short with models, features and functionality evolving rapidly. In
fiscal 1999, we wrote off out of date inventory when one of our customers
stopped producing the mobile handset that incorporated our power amplifier. Our
business, operating results and financial condition could be harmed by excess or
out of date inventory levels if our customers' products evolve more rapidly than
anticipated or if demand for a product does not materialize.

WE ARE SUBJECT TO STRINGENT ENVIRONMENTAL REGULATIONS THAT COULD NEGATIVELY
IMPACT OUR BUSINESS.

        We are subject to a variety of federal, state and local laws, rules and
regulations related to the discharge and disposal of toxic, volatile and other
hazardous chemicals used in our manufacturing process. Our failure to comply
with present or future regulations could result in fines being imposed on us,
suspension of our production or a cessation of our operations. The regulations
could require us to acquire significant equipment or to incur substantial other
expenses in order to comply with environmental regulations. Any past or future
failure by us to control the use of or to restrict adequately the discharge of
hazardous substances could subject us to future liabilities and could cause our
business, operating results and financial condition to suffer. In addition,
under some environmental laws and regulations we could be held financially
responsible for remedial measures if our properties are contaminated, even if we
did not cause the contamination.

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND AN ENERGY
CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

        In early 2001, California experienced an energy crisis that caused power
outages throughout the State of California, disrupted the operations of numerous
businesses in California and resulted in significantly increased prices for
power. In the event of an acute power shortage, that is, when power reserves for
the State of California fall below 1.5%, California has on some occasions
implemented, and may in the future continue to implement, rolling blackouts
throughout California. We currently do not have backup generators or alternate
sources of power in the event of a blackout, and our current insurance does not
provide coverage for any damages our customers or we may suffer as a result of
any interruption in our power supply. If blackouts interrupt our power supply,
we would be temporarily unable to continue operations at our facilities. Any
such interruption in our ability to continue operations at our facilities could
damage our reputation, harm our ability to retain existing customers and to
obtain new customers, and could result in lost revenue, any of which could
substantially harm our business and results of operations.



                                      -16-
<PAGE>

         Furthermore, the deregulation of the energy industry instituted in 1996
by the California government caused power prices to increase in early 2001.
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. If wholesale
prices continue to increase, our operating expenses will likely increase,
because all of our facilities are located in California.

A DISASTER COULD SEVERELY DAMAGE OUR OPERATIONS.

        A disaster could severely damage our ability to deliver our products to
our customers. Our products depend on our ability to maintain and protect our
computer systems, which are primarily located in or near our principal
headquarters in Santa Clara, California. Santa Clara exists on or near a known
earthquake fault zone. Although the facilities in which we host our computer
systems are designed to be fault tolerant, the systems are susceptible to damage
from fire, floods, earthquakes, power loss, telecommunications failures, and
similar events. Although we maintain general business insurance against fires,
floods and some general business interruptions, there can be no assurance that
the amount of coverage will be adequate in any particular case.

IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, OR IF IT WERE
DETERMINED THAT WE INFRINGED THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, OUR
ABILITY TO COMPETE IN THE MARKET MAY BE IMPAIRED.

        Our success depends in part on our ability to obtain patents, trademarks
and copyrights, maintain trade secret protection and operate our business
without infringing the intellectual property rights of other parties. Although
there are no pending lawsuits against us, from time to time we have been
notified in the past and may be notified in the future that we are infringing
another party's intellectual property rights.

        In the event of any adverse determination of litigation alleging that
our products infringe the intellectual property rights of others, we may be
unable to obtain licenses on commercially reasonable terms, if at all. If we
were unable to obtain necessary licenses, we could incur substantial liabilities
and be forced to suspend manufacture of our products. Litigation arising out of
infringement claims could be costly and divert the effort of our management and
technical personnel.

        In addition to patent and copyright protection, we also rely on trade
secrets, technical know-how and other unpatented proprietary information
relating to our product development and manufacturing activities. We try to
protect this information with confidentiality agreements with our employees and
other parties. We cannot be sure that these agreements will not be breached,
that we would have adequate remedies for any breach or that our trade secrets
and proprietary know-how will not otherwise become known or independently
discovered by others.

        In addition, to retain our intellectual property rights we may be
required to seek legal action against infringing parties. This legal action may
be costly and may result in a negative outcome. An adverse outcome in litigation
could subject us to significant liability to third parties, could put our
patents at risk of being invalidated or narrowly interpreted and could put our
patent applications at risk of not issuing. The steps taken by us may be
inadequate to deter misappropriation or impede third party development of our
technology. In addition, the laws of some foreign countries in which our
products are or may be sold do not protect our intellectual property rights to
the same extent, as do the laws on the United States. If we are not successful
in protecting our intellectual property our business will suffer.



                                      -17-
<PAGE>

OUR MANUFACTURING CAPACITY AND OUR ABILITY TO MAINTAIN SALES VOLUME IS DEPENDENT
ON THE SUCCESSFUL RETENTION OF QUALIFIED DESIGN, ASSEMBLY AND TEST PERSONNEL AND
OUR ABILITY TO INSTALL CRITICAL ASSEMBLY AND TEST EQUIPMENT ON A TIMELY BASIS.

        Our ability to satisfy our current backlog and any additional orders we
may receive in the future will depend on our ability to successfully retain
qualified design engineers, assembly and test personnel. Our design engineers
reside at our headquarters in Santa Clara, California and at our two design
centers in the United Kingdom. We contract with third parties located primarily
in Asia for many of our assembly and test requirements. Our need to successfully
manage and retain these personnel will intensify if in the future our production
volumes are required to increase significantly from expected levels. Demand for
people with these skills is intense and we cannot assure you that we will be
successful in retaining sufficient personnel with these critical skills. Our
business has been harmed in the past by our inability to hire and retain people
with these critical skills, and we cannot assure you that similar problems will
not reoccur. For example, in 1997 we experienced manufacturing capacity
constraints that resulted from our inability to hire a sufficient number of test
personnel. We also lost an order from a major customer in fiscal 2000 due to a
shortage we experienced in design engineers.

        Our ability to maintain manufacturing capacity also depends on our
ability to install additional assembly and test equipment at our Santa Clara
facility and at our Asian subcontractors' facilities on a timely basis. We rely
on third party providers of this equipment to deliver and install it on a timely
basis. If there is a delay in the delivery and installation of this equipment,
our planned increased production capacity will be reduced or delayed. This could
result in delayed or lost sales to customers, adversely affect our customer
relationships and harm our business.

PAST IN-HOUSE FOUNDRY CAPACITY LIMITATIONS FORCED US INTO RELATIONSHIPS WITH
OTHER FOUNDRIES. WE MAY INCUR EXTRA COSTS AS A RESULT OF THESE THIRD PARTY
FOUNDRY RELATIONSHIPS, WHICH COULD NEGATIVELY IMPACT OUR FINANCIAL CONDITION.

        We currently operate our own foundry located in Santa Clara, California
to produce GaAs semiconductor components for sale as well as for use in our
GaAs-based subsystems products. In the past, our in-house capacity was not
sufficient by itself to satisfy the demand and our growth objectives.
Accordingly, in order to meet increasing customer demand, we entered into an
arrangement in February 2000 with a third party foundry located in Los Angeles,
California. Our agreement with this foundry required us to commit to a certain
volume of production based on a rolling forecast. Our requirements have fallen
below this level, however, we are still contractually obligated to pay for the
forecast level of service.

        In addition, in December 2000, we invested approximately $2.4 million in
Suntek Compound Semiconductor Co. LTD, a GaAs foundry under construction in
Taiwan. This foundry is scheduled to be in production at the end of calendar
2002. We believe this investment will assist in securing a portion of Suntek's
capacity for our use although we have not yet entered into a written agreement
for the purchase of product. We have accounted for this investment on a cost
basis.

        Reliance on third party foundries means we have less control over
delivery schedules, manufacturing yields and costs. Our relationship with
outside foundries will also require us to successfully manage and coordinate our
production through third parties over which we have limited or no control. If we
are not successful in effectively managing and coordinating our in-house
manufacturing capabilities with the independent foundries, our integrated
component production could be disrupted and fail to meet our requirements which
could severely harm our business.



                                      -18-
<PAGE>

WE DEPEND HEAVILY ON OUR KEY MANAGERIAL AND TECHNICAL PERSONNEL. IF WE CANNOT
ATTRACT AND RETAIN PERSONS FOR OUR CRITICAL MANAGEMENT AND TECHNICAL FUNCTIONS
WE MAY BE UNABLE TO COMPETE EFFECTIVELY.

        Our success depends in significant part upon the continued service of
our key technical, marketing, sales and senior management personnel and our
continuing ability to attract and retain highly qualified technical, marketing,
sales and managerial personnel. In particular, we have experienced and continue
to experience difficulty attracting and retaining qualified engineers, which has
harmed our ability to meet some GaAs-based subsystem orders in a timely manner.
Competition for these kinds of experienced personnel is intense, and we cannot
assure you that we can retain our key technical and managerial employees or that
we can attract, assimilate or retain other highly qualified technical and
managerial personnel in the future. Our failure to attract, assimilate or retain
key personnel could significantly harm our business, operating results and
financial condition.

OUR CUSTOMERS' FAILURE TO ADHERE TO GOVERNMENTAL REGULATIONS COULD HARM OUR
BUSINESS.

        A significant portion of our products is integrated into the wireless
communications subsystems of our clients. These subsystems are regulated
domestically by the Federal Communications Commission and internationally by
other government agencies. With regard to equipment in which our products are
integrated, it is typically our customers' responsibility, and not ours, to
ensure compliance with governmental regulations. Our net sales will be harmed if
our customers' products fail to comply with all applicable domestic and
international regulations.

OUR SALES TO INTERNATIONAL CUSTOMERS EXPOSE US TO RISKS THAT MAY HARM OUR
BUSINESS.

        During the first nine months of fiscal 2002, sales to international
customers accounted for 34% of our net sales. In fiscal 2001, sales to
international customers accounted for 41% of our net sales. We expect that
international sales will continue to account for a significant portion of our
net sales in the future. In addition, many of our domestic customers sell their
products outside of the United States. These sales expose us to a number of
inherent risks, including:

        -       the need for export licenses;

        -       unexpected changes in regulatory requirements;

        -       tariffs and other potential trade barriers and restrictions;

        -       reduced protection for intellectual property rights in some
                countries;

        -       fluctuations in foreign currency exchange rates;

        -       the burdens of complying with a variety of foreign laws;

        -       the impact of recessionary or inflationary environments in
                economies outside the United States; and

        -       generally longer accounts receivable collection periods.

        We are also subject to general geopolitical risks, such as political and
economic instability and changes in diplomatic and trade relationships, in
connection with our international operations. Potential markets for our products
exist in developing countries that may deploy wireless communications networks.
These countries may decline to construct wireless communications networks,
experience delays in the construction of these networks or use the products of
one of our competitors to construct their networks. As a result, any demand for
our products in these countries will be similarly limited or delayed. If we
experience significant disruptions to our international sales, our business,
operating results and financial condition could be harmed.



                                      -19-
<PAGE>

ANTITAKEOVER PROVISIONS COULD AFFECT THE PRICE OF OUR COMMON STOCK.

        The ability of our board of directors to issue preferred stock at any
time with rights preferential to those of our common stock and the presence of
our shareholder rights plan may deter or prevent a takeover attempt, including a
takeover attempt in which the potential purchaser offers to pay a per share
price greater than the current market price for our common stock. The practical
effect of these provisions is to require a party seeking control of us to
negotiate with our board, which could delay or prevent a change in control.
These provisions could limit the price that investors might be willing to pay in
the future for our common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

        Our exposure to market risk is principally confined to our cash, cash
equivalents and investments which have maturities of less than two years. We
maintain a non-trading investment portfolio of investment grade, liquid, debt
securities that limits the amount of credit exposure to any one issue, issuer or
type of instrument. At December 31, 2001, our investment portfolio comprised
approximately $13.7 million in money market funds and certificate of deposits
and $88.8 million of money market auction rate preferred stocks, corporate debt
securities and municipal bonds. The securities in our investment portfolio are
not leveraged, are classified as available for sale and are therefore subject to
interest rate risk. We currently do not hedge interest rate exposure. If market
interest rates were to increase by 100 basis points, or 1%, from December 31,
2001 levels, the fair value of our portfolio would decline by approximately
$440,000. The modeling technique used measures the change in fair values arising
from an immediate hypothetical shift in market interest rates.

FOREIGN CURRENCY EXCHANGE RISK

        The current foreign exchange exposure in all international operations is
deemed to be immaterial since all of our net sales and the majority of
liabilities are receivable and payable in U.S. dollars. A 10% change in exchange
rates would not be material to our financial condition and results from
operations. Accordingly, we do not use derivative financial instruments to hedge
against foreign exchange exposure.

PART II OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)     Exhibits.

                10.1    Joint Venture Agreement, dated as of December 20, 2001,
                        by and among Celeritek, Inc., UBE Electronics, Ltd. and
                        Newgen Co., Ltd.

        (b)     Reports on Form 8-K.

                No reports on Form 8-K were filed during the three months ended
                December 31, 2001.



                                      -20-
<PAGE>

                                   SIGNATURES


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



CELERITEK, INC.


Date: February 11, 2002                   /s/  MARGARET E. SMITH
                                          -------------------------------------
                                          Margaret E. Smith, Vice President,
                                          Chief Financial Officer and
                                          Assistant Secretary





                                      -21-
<PAGE>

                                  EXHIBIT INDEX



<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                   DESCRIPTION
-------                                   -----------
<S>           <C>
  10.1        Joint Venture Agreement, dated as of December 20, 2001, by and
              among Celeritek, Inc., UBE Electronics, Ltd. and Newgen Co., Ltd.
</TABLE>