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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
 
(Mark One)
/ /  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934. FOR THE FISCAL YEAR ENDED MARCH 31, 1997.
 
                                       OR
 
/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM         TO         .
 
                           COMMISSION FILE NUMBER 0-15895
 
                          DIGITAL MICROWAVE CORPORATION
               (Exact name of registrant as specified in its charter)
 
<TABLE>
      <S>                                             <C>
                       DELAWARE                            77-0016028
               (State of incorporation)                 (I.R.S. Employer
                                                       Identification No.)

       170 ROSE ORCHARD WAY SAN JOSE, CALIFORNIA             95134
                (Address of principal                      (Zip Code)
                  executive offices)
</TABLE>
 
Registrant's telephone number, including area code: (408) 943-0777
 
Securities registered pursuant to Section 12 (b) of the Act: NONE
 
Securities registered pursuant to Section 12 (g) of the Act:
 
                    COMMON STOCK--PAR VALUE $0.01 PER SHARE
                                (Title of class)
 
    Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
 
    Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K.  / /
 
    State the aggregate market value of the voting stock held by 
non-affiliates of Registrant (based on the last reported sale price of $31.50 
per share on the Nasdaq National Market) as of June 2, 1997: Approximately 
$574,952,427.
 
    As of June 2, 1997, there were 18,557,148 shares of Common Stock, par value
$0.01 per share, outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    1.  Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended March 31, 1997 are incorporated by reference into Parts I and
II of this Form 10-K Report. With the exception of those portions which are
incorporated by reference, the Registrant's fiscal 1997 Annual Report is not
deemed filed as part of this Report.
 
    2.  Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on August 5, 1997 are incorporated by reference into
Part III of this Form 10-K Report.
 
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<PAGE>
                               TABLE OF CONTENTS
 
                         DIGITAL MICROWAVE CORPORATION
                          1997 FORM 10-K ANNUAL REPORT
 
                                     PART I
 
<TABLE>
<CAPTION>
                                                           PAGE
                                                           ----
<S>    <C>                                                 <C>
Item 1 Business..........................................     3
Item 2 Properties........................................    15
Item 3 Legal Proceedings.................................    15
Item 4 Submission of Matters to a Vote of Security
         Holders.........................................    15
 
                            PART II
 
Item 5 Market for Registrant's Common Equity and Related
         Stockholder Matters.............................    16
Item 6 Selected Financial Data...........................    16
Item 7 Management's Discussion and Analysis of Financial
         Condition and Results of Operations.............    16
Item 8 Financial Statements and Supplementary Data.......    16
Item 9 Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure.............    16
 
                           PART III
 
Item 10 Directors and Executive Officers of the
         Registrant......................................    17
Item 11 Executive Compensation............................   17
Item 12 Security Ownership of Certain Beneficial Owners
         and Management..................................    17
Item 13 Certain Relationships and Related Transactions....   17
 
                            PART IV
 
Item 14 Exhibits, Financial Statement Schedules, and
         Reports on Form 8-K.............................    18
</TABLE>
 
                                       2
<PAGE>
ITEM 1.  BUSINESS
 
    THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "FACTORS THAT MAY
AFFECT FUTURE FINANCIAL RESULTS" AND ELSEWHERE IN, OR INCORPORATED BY REFERENCE
INTO, THIS FORM 10-K.
 
INTRODUCTION
 
    Digital Microwave Corporation ("DMC" or the "Company") designs, manufactures
and markets advanced wireless solutions for worldwide telephone network
interconnection and access. The Company provides its customers with a broad
product line, which contains products that operate using a variety of
transmission frequencies, ranging from 2 GHz to 38 GHz, and a variety of
transmission capacities, typically ranging from T-1 (1.5 Megabits per second) to
DS-3 (45 Megabits per second). The Company's broad product line allows it to
market and sell its products to service providers in many locations worldwide
with varying interconnection and access requirements. The Company designs its
products to meet the requirements of mobile communications networks and fixed
access networks worldwide. The Company's products typically enable its customers
to deploy and expand their wireless infrastructure and market their services
rapidly to subscribers, so that service providers can realize a return on their
investments in frequency allocation licenses and network equipment.
 
    The Company believes that it is well-positioned to address worldwide market
opportunities for wireless infrastructure suppliers. For example, there are
substantial telecommunications infrastructures being built for the first time in
many Asian countries; infrastructures are being expanded in Europe; and PCS
interconnect networks are being constructed in the United States. The Company
believes that maintaining close proximity to its customers provides it with a
competitive advantage in securing orders for its products and in servicing its
customers. Local offices enable the Company to understand the local issues and
requirements of its customers and to address its customers' individual
geographic, regulatory, and infrastructure requirements. As a result, the
Company has developed a global sales, service and support organization, with
offices in North America, South America, Europe, the Middle East and Asia. With
its 16 sales or support offices in 12 countries, the Company can respond quickly
to its customers' needs and provide prompt on-site technical support.
 
    The Company has sold more than 70,000 radios, which have been installed in
over 60 countries. The Company markets its products to service providers
directly, as well as indirectly through its relationships with OEM base station
suppliers, such as Motorola, Inc., Siemens AG, and L.M. Ericsson. The Company
has sold its products to a number of service providers, including Beijing
Telecom, Heibei Unicom, Pilipino Telephone Corp., Sterling Cellular, and SMART
Communications, Inc. in the Asia/Pacific region; Panafon SA, E-Plus Mobilfunk
GmbH, Comviq GSM AB, Jordan Mobile Telephone Services, and IONICA in Europe and
the Middle East; and BellSouth PCS, Pacific Bell Mobile Services, Avantel S.A.
and Rogers Network Services in the Americas.
 
INDUSTRY BACKGROUND
 
    In recent years, there has been increased worldwide demand for high 
performance mobile voice telephony, high speed data communications, fixed and 
mobile cellular communications, video broadcast services and paging services. 
This demand continues to increase due to: (i) changes in the regulatory 
environment in many countries; (ii) the rapid establishment of 
telecommunications infrastructures in many developing countries; (iii) 
technological advances, particularly in the wireless telecommunications 
market; and (iv) the deployment of private communications networks. Given 
their relatively low cost and ease of deployment, wireless solutions are 
attractive to new service providers establishing competing telecommunications 
services in developed countries and to telecommunications service providers 
in developing countries seeking to rapidly increase the availability and 
quality of telecommunications services. The upgrade and expansion of existing 
networks and the deployment of new networks, such as those for PCS, are 
expected to continue to offer growth opportunities for wireless 
infrastructure suppliers. Wireless infrastructure suppliers address the 
requirements of both mobile communications networks and fixed access networks.

                                       3
<PAGE>

    Cellular telephone and other wireless services have grown rapidly over the
past several years due to deregulation, increased competition, technological
advances, and increasing consumer demand for connectivity to telecommunications
services. According to the Office of Telecommunications of the United States
Department of Commerce, from December 1993 to December 1995, the number of
cellular subscribers worldwide increased from 33.4 million to 86.6 million. A
1996 report published by the Personal Communications Industry Association
("PCIA") estimates that there will be approximately 310.8 million cellular and
PCS subscribers worldwide by 2000.
 
    The demand for fixed access networks also continues to increase for many of
the same reasons, including the privatization of public telephone operators,
deregulation and the emergence of new applications, such as wireless local loop,
wireless data transport and alternative local telephone facilities access.
 
    Wireless networks are constructed using microwave radios and other equipment
to connect cell sites, switching systems, other wireline transmission systems
and other fixed facilities. Wireless networks range in size from a single
transmission link connecting two buildings to complex networks comprised of
thousands of wireless connections. The architecture of a network is influenced
by several factors, including the available radio frequency spectrum,
coordination of frequencies with existing infrastructure, application
requirements, environmental factors and local geography. Regulatory authorities
in different jurisdictions allocate different portions of the radio frequency
spectrum for various telecommunications services. In addition, most individual
networks require radio links which operate at several frequencies and the
transmission of voice and data typically requires different transmission
capacities. Moreover, networks in different locations are constructed using
different combinations of frequencies and with different transmission
capacities. No one transmission frequency or transmission capacity predominates
in the global market.
 
    In the case of mobile communications networks, such as PCS, service
providers typically invest significant funds to obtain licenses for allocations
of the authorized radio frequency spectrum and are required to provide services
within a specified time period to retain their licenses. For example, in the
United States, service providers have spent over $17 billion to obtain A, B and
C block licenses for allocations of radio frequency spectrum. In addition,
service providers expend substantial funds to purchase equipment and construct
their networks. Therefore, service providers must put their networks into
service quickly to realize a return on their investment and retain their
licenses.
 
    Whether expanding existing networks or deploying new networks, service
providers must choose between constructing such networks using traditional
wireline infrastructure or wireless infrastructure. Traditional wireline
connectivity solutions typically require significant installation periods and
may be relatively expensive to install. In developed countries where wireline
infrastructure is in place, new service providers may have the option to lease
networks from traditional service providers, but in many instances choose not to
do so because leasing arrangements must be entered into with their competitors,
may be comparatively expensive and do not allow control over the network. In
developing countries, many service providers are initially installing wireless
networks because such networks are generally faster to install and may be less
expensive than traditional wireline networks. As a result, many service
providers are deploying wireless networks as an alternative to the construction
or leasing of traditional wireline networks.
 
THE DMC SOLUTION
 
    DMC designs, manufactures and markets advanced, wireless solutions for 
worldwide telephone network interconnection and access. The Company provides 
its customers with a broad product line, which contains products that operate 
using a variety of transmission frequencies, ranging from 2 GHz to 38 GHz, 
and a variety of transmission capacities, typically ranging from T-1 (1.5 
Megabits per second) to DS-3 (45 Megabits per second), carrying voice, data 
and video signals. The Company's broad product line allows it to market and 
sell its products to service providers in many locations worldwide with 
varying interconnection and access requirements. The Company has sold more 
than 70,000 radios, which have been installed in over 60 countries. During 
the last two years, the Company has sold its products and provided services 
to over 300 customers.

                                       4
<PAGE>

    The Company has established offices worldwide, with locations in North
America, South America, Europe, the Middle East and Asia. These offices enable
the Company to understand the local issues and requirements of its customers and
to address its customers' individual geographic, regulatory and infrastructure
requirements. In addition, its global sales, service and support organization
allows the Company to respond quickly to its customers' needs and to provide
prompt on-site technical support.
 
    The Company believes that the use of standard design platforms for both
hardware and software components in the development of its products enables the
Company to more rapidly introduce and commercially ship new products and product
enhancements to address changing market demands. For example, during the last
eighteen months, the SPECTRUM-TM- II product line has expanded from 23 and 38
GHz to include 7/8, 13, 15, 18 and 26 GHz due to the use of standard design
platforms and software configurable features. The use of standard design
platforms also enables the Company to manufacture its products in a more
cost-effective manner. The software features of the SPECTRUM-TM- II product line
provide the Company's customers with a greater degree of flexibility in
installing, operating and maintaining their networks.
 
    The Company certifies its products to comply with various standards, such as
European Telecom Standards Institute ("ETSI") and International
Telecommunications Union ("ITU") regulations, which allow the Company to market
and sell its products in Europe and other locations worldwide. In addition, the
Company's manufacturing facility in San Jose, California is certified to
International Standards Organization ("ISO") 9001, a recognized international
quality standard.
 
PRODUCTS
 
    The Company's principal product families include the SPECTRUM-TM- II,
QUANTUM-TM-, M Series, and DMC Net. Each product family has characteristics
designed to meet the needs of specific markets or applications and are described
further below.
 
EXISTING PRODUCTS
 
    SPECTRUM-TM- II.  The SPECTRUM-TM- II product line is the latest generation
of products offered by the Company and supersedes the M Series product line. The
SPECTRUM-TM- II product line is smaller in size, less expensive and easier to
install than the M Series product line. In addition, significantly more
functionality is available in the SPECTRUM-TM- II product line because of its
enhanced software configurability which provides the Company's customers with
greater flexibility and control. The SPECTRUM-TM- II family consists of products
that operate at 7/8, 13, 15, 18, 23, 26 and 38 GHz.
 
    QUANTUM-TM-.  The QUANTUM-TM- product line complements the SPECTRUM-TM- II
and M Series products and is used in conjunction with these products. The
QUANTUM-TM- product line is used in trunking applications within a network. The
QUANTUM-TM- product line features lower transmission frequencies (2 to 15 GHz)
and higher transmission capacities (up to 68 Megabits per second) than the
SPECTRUM-TM- II and M Series product lines.
 
    M SERIES.  The M Series product line was the principal product family of the
Company until the second quarter of fiscal 1996 when the Company began
commercial shipment of the SPECTRUM-TM- II product line. As of March 31, 1997,
the Company has sold over 30,000 units in the M Series product line. The M
Series was the first commercialized microwave radio to incorporate multiplexing
of up to 16XE1 or 16XDS-l signals, eliminating the need for standalone
multiplexing equipment to perform the same functions. The M Series product line
covers 7, 10, 13, 15, 18 and 23 GHz applications.
 
    DMC NET-REGISTERED TRADEMARK-.  DMC Net-Registered Trademark- is a 
sophisticated network monitoring and control system that is designed to 
facilitate remote operation and maintenance of microwave radio networks. DMC 
Net-Registered Trademark- contains a Unix-based software system that is 
capable of monitoring up to several thousand radios on a network, as well as 
certain base station functions. DMC Net-Registered Trademark- is currently in 
use in networks ranging in size from small regional systems containing a few 
microwave radio links to large nationwide systems containing several thousand 
microwave radio links. Centralized management and control allows early 
warning of fault conditions and rapid diagnosis of problems, which help to 
reduce down time and lower the cost of maintenance.

                                       5
<PAGE>

NEW PRODUCT DEVELOPMENT
 
    The Company intends to continue to focus significant resources on product
development to maintain its competitiveness and to support its entry into new
wireless opportunities, including those in wireless local loop, wireless data
transport and alternative local telephone facilities access. Programs currently
in progress, if successfully completed, could result in new products which are
both point-to-point and point-to-multipoint and could have the capability to
handle greater amounts of voice and data traffic at increased
cost-effectiveness.
 
    There can be no assurance that the Company will be successful in developing
and marketing any of the products currently being developed, that the Company
will not experience difficulties that could further delay or prevent the
successful development, introduction and sale of future products, or that these
products will adequately meet the requirements of the marketplace and achieve
market acceptance. See "Research and Development."
 
CUSTOMERS
 
    The Company markets its products to customers in the telecommunications
industry worldwide. The Company's customers include service providers, which
incorporate the Company's products into their telecommunications networks to
deliver services directly to consumers, and OEMs, which provide and install
integrated systems to service providers. The following is a representative list
of customers to which the Company has shipped its products for the period from
March 31, 1996 to March 31, 1997:
 
<TABLE>
<CAPTION>
SERVICE PROVIDERS
-----------------------------------------
<S>                                        <C>
AMERICAS
  Avantel S.A.                             BellSouth PCS
  Aydin S.A.                               Pacific Bell Mobile Services
  Baja Celular Mexicana SA de CV           Rogers Network Services
 
EUROPE/MIDDLE EAST/AFRICA
  Comviq GSM AB                            Jordan Mobile Telephone Services
  E-Plus Mobilfunk GmbH                    Libancell
  Hyper-Tech Advanced Systems              Panafon SA
  IONICA                                   Polska Telefonia Komorkowa
 
ASIA/PACIFIC
  Beijing Telecom                          PT Metro Selular Nusantara
  Heibei Unicom                            SMART Communications Inc.
  Philipino Telephone Corp.                Sterling Cellular
  PT Centralindo                           ST Sichuan Xingrong
  PT Kalisutama Perkasa                    Zhejiang Unicom
 
OEMs
-----------------------------------------
 Motorola Inc.                             L.M. Ericsson
  Siemens AG
</TABLE>
 
    Although the Company has a large customer base, during any given quarter, 
a small number of customers account for a significant portion of the 
Company's net sales. In certain circumstances, the Company sells its products 
to service providers through OEMs, which provide the service providers with 
access to financing and the Company, in some instances, with protection from 
fluctuations in foreign currency exchange rates. During fiscal 1997 and 1996, 
Siemens AG accounted for 14% and 22%, respectively, of the Company's net 
sales. At March 31, 1997, five customers collectively accounted for 
approximately 46% of the Company's $92 million backlog. While management 
considers the Company's relationships with each of its major customers to be 
good, there can be no assurance that the Company's current customers will 
continue to place orders with the Company, that orders by existing customers 
will continue to be at levels of previous periods, or that the Company will 
be able to obtain orders from new customers. The Company's customers 
typically are not contractually 

                                       6
<PAGE>

obligated to purchase any quantity of products in a particular period and 
product sales to major customers have varied widely from period to period. 
The loss of any existing customer, a significant reduction in the level of 
sales to any existing customer, or the failure of the Company to gain 
additional customers could have a material adverse effect on the Company's 
business, financial condition and results of operations. See "Factors That 
May Affect Future Financial Results."
 
SALES, MARKETING AND SERVICE
 
    The Company believes that a direct and continuing relationship with service
providers is a competitive advantage in attracting new customers and satisfying
existing ones. As a result, the Company offers its products and services
principally through its own sales, service and support organization, which
allows the Company to closely monitor the needs of its customers. The Company
has offices in the United States, Canada, the United Kingdom, Germany, Jordan,
Mexico, Colombia, India, China, Singapore, and the Philippines. The Company's
local offices provide it with a better understanding of its customers' needs and
enable the Company to respond to local issues and unique local requirements. The
Company has informal relationships with OEM base station suppliers. Such
relationships increase the Company's ability to pursue the limited number of
major contract awards each year. In addition, such relationships provide the
Company's customers with easier access to financing and to integrated system
providers with a variety of equipment and service capabilities. There can be no
assurance that the Company will continue to be able to maintain and develop such
relationships or, if such relationships are developed, they will be successful.
In selected countries, the Company also markets its products through independent
agents and distributors.
 
    The Company considers its ability to create and maintain long-term customer
relationships, an important component of its overall strategy in each of its
markets. As of March 31, 1997, the Company employed approximately 230 people in
its sales, service and support organization. Sales personnel are highly trained
to provide the customer with assistance in selecting and configuring a digital
microwave system suitable for the customer's particular needs. The Company's
customer service and support personnel provide customers with training,
installation, service and maintenance of the Company's systems under contract.
The Company generally offers a standard two-year warranty for all customers. The
Company provides warranty and post-warranty services from its San Jose,
California manufacturing location and its full-service centers in the United
Kingdom and the Philippines.
 
RESEARCH AND DEVELOPMENT
 
    The Company believes that its ability to enhance its current products, 
develop and introduce new products on a timely basis, maintain technological 
competitiveness and meet customer requirements is essential to the Company's 
continued success. Accordingly, the Company allocates, and intends to 
continue to allocate, a significant portion of its resources to research and 
development efforts. During fiscal 1997, fiscal 1996 and fiscal 1995, the 
Company invested $10.6 million, $11.1 million, and $11.4 million, 
respectively, or approximately 5.9% for fiscal 1997, and 7.4% for each of 
fiscal 1996 and fiscal 1995 of net sales on research and development. While 
research and development has decreased both in absolute amounts and as a 
percentage of net sales, the Company believes the efficiency of its efforts 
improved as a result of Operation NewWave, the Company's formal process 
improvement program, which, among other things, focused development efforts. 
The Company expects research and development expenses to increase in fiscal 
year 1998.
 
    The market for the Company's products is characterized by rapidly 
changing technologies and evolving industry standards. Accordingly, the 
Company's future performance depends on a number of factors, including its 
ability to identify emerging technological trends in its target markets, to 
develop and to maintain competitive products, to enhance its products by 
adding innovative features that differentiate its products from those of its 
competitors and to manufacture and to bring products to market quickly at 
cost-effective prices. The Company believes that to remain competitive in the 
future it will need to continue to develop new products, which will require 
the investment of significant financial resources in product development. 
There can be no assurance, however, that the Company will successfully 
complete the development of any future products, that such products will 
achieve market acceptance or that such products will be capable of being 
manufactured at competitive prices in sufficient volumes. In the event that 
such products are not developed in a timely 

                                       7
<PAGE>

manner, do not gain market acceptance or are not manufacturable at 
competitive prices, the Company's business, financial condition and results 
of operations could be materially adversely affected.
 
MANUFACTURING AND SUPPLIERS
 
    The Company's manufacturing operations consist primarily of final assembly,
test and quality control of materials and components. The manufacturing process,
performed at the Company's San Jose, California facility, consists primarily of
materials management, extensive unit and environmental testing of components and
subassemblies at each stage of the manufacturing process, final assembly of the
terminals, and prior to shipment, quality assurance testing and inspection of
all products. The Company's manufacturing operation in San Jose, California is
certified to ISO 9001, a recognized international quality standard.
 
    During 1996, the Company instituted a formal process improvement program,
entitled Operation NewWave, designed in part to improve manufacturing
operations. In connection with Operation NewWave, the Company has implemented a
continuous flow manufacturing system that triggers material requests and sets
the level of work-in-process inventories, resulting in reduced cycle times,
shortened time-to-market, and lower work-in-process inventories. The Company is
also improving its inventory management through better coordination with its
suppliers.
 
    The Company's manufacturing operations are highly dependent upon the timely
delivery of materials and components by outside suppliers. The Company uses
local and offshore subcontractors to assemble major components and subassemblies
used in its microwave products. Certain microwave integrated circuit
subassemblies which are used in all of the Company's microwave radio products
are supplied by a limited number of vendors. The Company believes that most
materials and components are, and will continue to be, available from existing
or alternative suppliers. The inability of the Company to develop alternative
sources of supply quickly and on a cost-effective basis could materially impair
the Company's ability to manufacture and deliver its products. There can be no
assurance that the Company will not experience component delays or other supply
problems.
 
    From time to time, the Company has experienced delays and other supply
problems with vendors, but such delays and other problems have not had a
significant impact on the Company's results of operations. To reduce any future
problems associated with delays, the Company has contracted for component and
subassembly parts from additional sources. The Company and key suppliers
maintain a high level of communication at all levels of their respective
management to ensure that production requirements and constraints are taken into
account in each of their respective production plans.
 
BACKLOG
 
    The Company's backlog at March 31, 1997 was $92 million, as compared with
$84 million at March 31, 1996. The Company includes in backlog only orders
scheduled for delivery within 12 months. Product orders in the Company's current
backlog are subject to changes in delivery schedules or to cancellation at the
option of the purchaser without significant penalty. Accordingly, although
useful for scheduling production, backlog as of any particular date may not be a
reliable measure of sales for any future period.
 
COMPETITION
 
    The microwave interconnection and access business is a specialized segment
of the wireless telecommunications industry and is extremely competitive. The
Company expects such competition to increase in the future. Several established
and emerging companies offer a variety of microwave, fiber optic, and other
connectivity products for applications similar to those of the Company's
products. Many of the Company's competitors have more extensive engineering,
manufacturing and marketing capabilities and substantially greater financial,
technical and personnel resources than the Company. In addition, many of the
Company's competitors have greater name recognition, a larger installed base of
products and longer-standing customer relationships. The Company considers its
primary competitors to be L.M. Ericsson, Siemens AG, California Microwave, Inc.,
P-COM, Inc., and the Farinon Division of Harris Corporation. In addition, other
existing competitors

                                       8
<PAGE>

include Alcatel, Nokia, SIAE, NEC, and NERA. Both L.M. Ericsson and Siemens 
AG have product lines that compete with those of the Company, and are also 
OEMs through which the Company markets and sells its products. Some of the 
Company's largest customers could develop the capability to manufacture 
products similar to those manufactured by the Company. Existing and potential 
competition in the industry has resulted in, and will continue to result in, 
significant price competition. The Company believes that competition in its 
markets is based primarily on customer service and support, breadth of 
product line, price, performance, rapid delivery, and reliability. The 
Company's future success will depend upon its ability to address the 
increasingly sophisticated needs of its customers by enhancing its current 
products, by developing and introducing new products in a timely manner that 
keep pace with technological developments and emerging wireless 
telecommunications services, and by providing such products at competitive 
prices. There can be no assurance that the Company will have the financial 
resources, technical expertise, or marketing, sales, distribution, and 
customer service and support capabilities to compete successfully. See 
"Factors That May Affect Future Financial Results."
 
GOVERNMENT REGULATION
 
    Radio communications are subject to regulation by United States and foreign
laws and international treaties. The Company's equipment must conform to
international requirements established to avoid interference among users of
microwave frequencies and to permit interconnection of telecommunication
equipment. The Company has complied with such rules and regulations with respect
to its existing products. Any delays in compliance with respect to future
products could delay the introduction of such products. In addition, radio
transmission is subject to regulation by foreign laws and international
treaties. Equipment to support these services can be marketed only if permitted
by suitable frequency allocations and regulations.
 
    Radio transmission in the United States is controlled by federal regulation,
and all microwave radio links installed in the United States, except for those
utilizing certain frequencies operating under the United States Federal
Communications Commission ("FCC") Part 15 rules, must be licensed by the FCC.
Since microwave radios all share the same transmission medium, the FCC requires
that every prospective microwave radio licensee assure that it will not
interfere with the operation of any existing system. This requirement, known as
frequency coordination, must be satisfied before permission for operation will
be granted by the FCC.
 
INTELLECTUAL PROPERTY
 
    The Company's ability to compete will depend, in part, on its ability to 
obtain and enforce intellectual property protection for its technology in the 
United States and internationally. The Company relies upon a combination of 
trade secrets, trademarks, copyrights and contractual rights to protect its 
intellectual property. The Company does not have any patents covering its 
products. The Company enters into confidentiality and invention assignment 
agreements with its employees, and enters into non-disclosure agreements with 
its suppliers and appropriate customers so as to limit access to and 
disclosure of its proprietary information. There can be no assurance that any 
steps taken by the Company will be adequate to deter misappropriation or 
impede independent third party development of similar technologies. In the 
event that such intellectual property arrangements are insufficient, the 
Company's business, financial condition and results of operations could be 
materially adversely affected. Moreover, there can be no assurance that the 
protection provided to the Company's intellectual property by the laws and 
courts of foreign nations will be substantially similar to the remedies 
available under United States law or that third parties will not assert 
infringement claims against the Company.
 
    While the Company's ability to compete may be affected by its ability to
protect its intellectual property, the Company believes that, because of the
rapid pace of technological change in the wireless telecommunications industry,
its innovative skills, technical expertise and ability to introduce new products
on a timely basis will be more important in maintaining its competitive position
than protection of its intellectual property. Trade secret, trademark and
copyright protections are important but must be supported by other factors such
as the expanding knowledge, ability and experience of the Company's personnel,
new product introductions and product enhancements. Although the Company
continues to implement protective measures and intends to defend vigorously its
intellectual property rights, there can be no assurance that these measures will
be successful.

                                       9
<PAGE>

    The wireless telecommunications industry is characterized by numerous
allegations of patent infringement among competitors and considerable related
litigation. Accordingly, the Company may in the future be notified that it is
infringing certain patent or other intellectual property rights of others.
Although there are no such pending lawsuits against the Company or unresolved
notices that the Company is infringing upon intellectual property rights of
others, there can be no assurance that litigation or infringement claims will
not occur in the future. Such litigation or claims could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, financial condition and results of operations. The wireless
telecommunications industry is subject to frequent litigation regarding patent
and other intellectual property rights. Certain companies and organizations in
the wireless telecommunications industry have patents that protect their
intellectual property rights in these areas. In the event of an adverse result
of any such litigation, the Company could be required to expend significant
resources to develop non-infringing technology or to obtain licenses to the
technology which is the subject of the litigation. There can be no assurance
that the Company would be successful in such development or that any such
license would be available on commercially reasonable terms.
 
LITIGATION
 
    The Company is a defendant in various suits and is subject to various claims
that arise in the normal course of business. In the opinion of management, the
ultimate disposition of these claims will not have a material effect on the
Company's business, financial condition and results of operations.
 
EMPLOYEES
 
    As of March 31, 1997, the Company employed 665 full-time and temporary
employees. None of the Company's employees is represented by a collective
bargaining agreement. The Company's future performance will depend in large
measure on its ability to attract and retain highly skilled employees. The
Company has never experienced a work stoppage and believes its relationship with
its employees to be good.
 
                                       10
<PAGE>
EXECUTIVE OFFICERS OF DMC
 
    The current executive officers of the Company are as follows:
 
<TABLE>
<CAPTION>
NAME                 AGE                           POSITION
-------------------  --- ------------------------------------------------------------
<S>                  <C> <C>
Charles D. Kissner   50  Chairman of the Board, President and Chief Executive Officer
Frank Carretta, Jr.  52  Senior Vice President, Worldwide Sales, Service and
                           Marketing
Jack Hillson         46  Senior Vice President and General Manager, Operations
Timothy R. Hansen    36  Vice President, Business Development
Paul A. Kennard      46  Vice President, Engineering
Shaun McFall         37  Vice President, Corporate Marketing
John P. O'Neil       59  Vice President, Personnel
Carl A. Thomsen      52  Vice President, Chief Financial Officer and Secretary
Carol A. Goudey      49  Treasurer and Assistant Secretary
</TABLE>
 
    Mr. Charles D. Kissner joined the Company as President, Chief Executive
Officer and was elected Director of the Company in July 1995 and Chairman of the
Board in August 1996. Prior to joining the Company, he served as Vice President
and General Manager of the Microelectronics Division of M/A-COM, Inc., a
manufacturer of radio and microwave communication products, from July 1993 to
July 1995. From February 1990 to July 1993, Mr. Kissner served as President,
Chief Executive Officer, and a Director of Aristacom International, Inc., a
communications software company. Mr. Kissner currently is a director of American
Medical Flight Support, Inc., a non-profit medical transportation company.
 
    Mr. Frank Carretta, Jr. joined the Company as Vice President, Worldwide
Sales and Service in October 1995 and was appointed Senior Vice President,
Worldwide Sales, Service and Marketing in November 1996. Prior to joining DMC,
Mr. Carretta served as Area Sales Director of M/A-COM, Inc., a manufacturer of
radio and microwave communications products, from July 1992 to September 1995.
From 1988 to June 1992, Mr. Carretta was Vice President of Ward Davis
Associates, a manufacturers' representative company selling electronic test
instrumentation and software development tools.
 
    Mr. Jack Hillson was appointed Senior Vice President and General Manager,
Operations in November 1996. He previously served as Vice President and General
Manager, QUANTUM-TM-/Magnum Division of the Company from December 1995 to
November 1996. Prior to joining DMC, Mr. Hillson was with M/A-COM, Inc. for
eleven years, serving in various technical and management positions with the
Semiconductor and Microelectronics Divisions. Most recently, Mr. Hillson served
as the Director of Operations for M/A COM, Inc.'s Power Hybrids Division, which
manufactures transistors and amplifier modules for the wireless communications
market.
 
    Mr. Timothy R. Hansen has served as Vice President, Business Development of
the Company since August 1996. He previously served as Vice President and
General Manager, SPECTRUM-TM- Division of the Company from February 1995 to
August 1996, and as Vice President and Program Manager of the SPECTRUM-TM-
product line. He joined the Company in August 1984 as product manager, and has
held management positions in marketing, planning, sales and order management.
 
    Mr. Paul Kennard joined the Company as Vice President, Engineering in April
1996. From 1989 to March 1996, Mr. Kennard was with California Microwave
Corporation, a satellite and wireless communications company, serving as
Director of the Signal Processing Technology Department until his promotion in
1994 to Vice President of Engineering, and then to Senior Vice President of
Engineering in 1995 for the Microwave Network Systems Division.

                                       11
<PAGE>

    Mr. Shaun McFall has served as Vice President, Corporate Marketing of the
Company since February 1995. He joined the Company's UK operations in January
1989, and has held several management positions in marketing. Prior to joining
DMC, he worked for GEC Telecommunications Ltd. in Germany and Ferranti
Industrial Electronics PLC, in Edinburgh, Scotland, both of which are
telecommunications companies.
 
    Mr. John O'Neil joined the Company as Vice President, Personnel in May 1993.
Mr. O'Neil was Vice President of Personnel and Administration of BEI
Electronics, Inc., a defense electronics firm, from January 1989 to April 1993.
Mr. O'Neil was Vice President, Human Resources at C.P. National Corporation, a
communication and energy company, from 1987 to 1988.
 
    Mr. Carl A. Thomsen joined the Company as Vice President, Chief Financial
Officer and Secretary in February 1995. Prior to joining the Company, he was
Senior Vice President and Chief Financial Officer of Measurex Corporation, a
manufacturer of sensor based process control systems. Mr. Thomsen joined
Measurex Corporation in 1983 as Corporate Controller, was promoted to Vice
President in 1986, to Chief Financial Officer in 1992, and to Senior Vice
President in 1993.
 
    Ms. Carol A. Goudey joined the Company as Treasurer in April 1996 and was 
additionally appointed Assistant Secretary in May 1996. Prior to joining DMC, 
she served as Acting Treasurer of California Micro Devices Corporation, a 
manufacturer of semiconductor devices, since 1994. Ms. Goudey has also 
previously held the position of Corporate Treasurer at both UngermannBass, 
Inc., a network systems company, from 1985 to 1989, and System Industries, 
Inc., a computer peripheral company, from 1984 to 1985.

                                        12

<PAGE>


FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS
 
    The statements in the Annual Report to Stockholders and this Form 10-K
concerning the Company's future products, expenses, revenues, gross margins,
liquidity, and cash needs, as well as the Company's plans and strategies,
contain forward-looking statements concerning the Company's future operations
and financial results. These forward-looking statements are based on current
expectations and the Company assumes no obligation to update this information.
Numerous factors could cause actual results to differ materially from those
described in these statements. In particular, the Company's results can vary due
to the volume and timing of product orders received and delivered during the
quarter, the ability of the Company and its key suppliers to respond to changes
made by customers in their orders, and the timing of new product introductions
by the Company and its competitors. The Company's results may also vary
significantly depending on other factors, including the mix of products sold;
the cost and availability of components and subsystems; relative prices of the
Company's products; adoption of new technologies and industry standards;
competition; fluctuations in foreign currency exchange rates; regulatory
developments; and general economic conditions. Prospective investors and
stockholders should carefully consider the factors discussed above and set forth
below in evaluating these forward-looking statements.
 
    Manufacturers of digital microwave telecommunications equipment are
experiencing, and are likely to continue to experience, intense price pressure,
which has resulted, and is expected to continue to result, in downward pricing
pressure on the Company's products. As a result, the Company has experienced,
and expects to continue to experience, declining average sales prices for its
products. The Company's ability to maintain its gross profit margins is
dependent upon its ability to improve manufacturing efficiencies, lower material
costs of products, and to continue to introduce new products and product
enhancements. Any inability of the Company to respond to increased price
competition would have a material adverse effect on the Company's business,
financial condition and results of operations.
 
    The markets for the Company's products are extremely competitive, and the
Company expects that competition will increase. The Company's existing and
potential competitors include established and emerging companies, such as
California Microwave, L.M. Ericsson, Siemens AG, Farinon Division of Harris
Corporation, P-Com, Alcatel, Nokia, NERA, NEC, and SIAE, many of which have more
extensive engineering, manufacturing and marketing capabilities and
significantly greater financial, technical, and personnel resources than the
Company. The Company believes that its ability to compete successfully will
depend on a number of factors, including customer service and support, breadth
of product line, product performance and features, rapid delivery, reliability,
timing of new product introductions by the Company, its customers and its
competitors, and the ability of its customers to obtain financing. There can be
no assurance that the Company will have the financial resources, technical
expertise, or marketing, sales, distribution, and customer service and support
capabilities to compete successfully.
 
    The Company expects that international sales will continue to account for
the majority of its net product sales for the foreseeable future. As a result,
the Company is subject to the risks of doing business internationally, including
unexpected changes in regulatory requirements; fluctuations in foreign currency
exchange rates; imposition of tariffs and other barriers and restrictions; the
burdens of complying with a variety of foreign laws; and general economic and
geopolitical conditions, including inflation and trade relationships. There can
be no assurance that currency fluctuations, changes in the rate of inflation or
any of the aforementioned factors will not have a material adverse effect on the
Company's business, financial condition and results of operations.
 
    The Company's manufacturing operations are highly dependent upon the
delivery of materials by outside suppliers in a timely manner. In addition, the
Company depends in part upon subcontractors to assemble major components and
subsystems used in its products in a timely and satisfactory manner. From time
to time the Company has experienced delivery delays from key suppliers, which
impacted sales. The Company does not generally enter into long-term or volume
purchase agreements with any of these suppliers, and no assurance can be given
that such materials, components and subsystems will be available in the
quantities required by the Company, if at all. The inability of the Company to
develop alternative sources of supply quickly and on a cost-effective basis
could materially impair the Company's ability to manufacture and deliver its
products in a timely manner. There can be no assurance that the Company will not
experience material supply problems or component or subsystem delays in the
future.
 

                                        13
<PAGE>


    The Company has pursued, and will continue to pursue, growth opportunities
through internal development and acquisitions of complementary business and
technologies. Acquisitions may involve difficulties in the retention of
personnel, diversion of management's attention, unexpected legal liabilities,
and tax and accounting issues. There can be no assurance that the Company will
be able to successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired businesses into its operations, or expand into
new markets. Once integrated, acquired businesses may not achieve comparable
levels of revenues, profitability, or productivity as the existing business of
the Company or otherwise perform as expected.
 
    During any given quarter, a small number of customers account for a
significant portion of the Company's net sales. The Company's customers
typically are not contractually obligated to purchase any quantity of products
in any particular period, and product sales to major customers have varied
widely from period to period. The loss of any existing customer, a significant
reduction in the level of sales to any existing customer, or the failure of the
Company to gain additional customers could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
SUBSEQUENT EVENTS
 
    In May 1997, the Company acquired Granger, Inc., a U.S. manufacturer of
wireless products and provider of installation services. The purchase price of
Granger, Inc., including the assumption of debt and the purchase of certain
product rights, totaled $14.5 million. The acquisition will be accounted for
under the purchase method of accounting.
 
    In addition, concurrent with the acquisition of Granger, Inc., the Company
made a minority investment in Granger Associates, Ltd., a privately held company
based in the United Kingdom, for $4.0 million. This minority investment will be
accounted for under the cost method of accounting.

                                        14

<PAGE>


ITEM 2.  PROPERTIES
 
    The Company's corporate offices and principal research, development and
manufacturing facilities are located in San Jose, California in four leased
buildings aggregating approximately 170,000 square feet. The Company owns 20,000
square feet of office and manufacturing space in East Kilbride, Scotland, 1,500
square feet of which has been sublet until the year 2004. The Company also
leases 17,000 square feet in Coventry, England. The Company leases one sales
office located in Chicago, Illinois and approximately 23,000 aggregate square
feet of international sales and customer service offices. The Company believes
these facilities are adequate to meet its anticipated needs for the foreseeable
future.
 
ITEM 3.  LEGAL PROCEEDINGS
 
    See "Business--Litigation" under Item 1 of this Form 10-K and Note 4 of
"Notes to Consolidated Financial Statements" incorporated herein by reference
from the Company's 1997 Annual Report to Stockholders.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    None.
 
                                       15
<PAGE>
                                    PART II
 
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
  MATTERS
 
    The section appearing on the inside front cover of the Company's 1997 
Annual Report to Stockholders relating to prices of the Company's Common 
Stock is incorporated herein by reference.
 
ITEM 6.  SELECTED FINANCIAL DATA
 
    The section labeled "Selected Consolidated Financial Data" appearing on page
14 of the Company's 1997 Annual Report to Stockholders is incorporated herein by
reference.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS
 
    The information appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 10 through
14 of the Company's 1997 Annual Report to Stockholders is incorporated herein by
reference.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The consolidated financial statements and supplementary data, and related
notes and Report of Independent Public Accountants appearing on pages 15 through
28 of the Company's 1997 Annual Report to Stockholders are incorporated herein
by reference.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE.
 
    None.
 
                                       16
<PAGE>
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    Information concerning directors and executive officers under the caption 
"Election of Directors," "Board Meetings and Committees," "Security Ownership 
of Certain Beneficial Owners and Management" and "Compliance with Section 
16(a) of the Securities Exchange Act of 1934" in the Company's Proxy 
Statement for the Annual Meeting of Stockholders to be held on August 5, 1997 
(the "Proxy Statement"), is incorporated herein by reference. In addition, 
see the discussion under the caption "Business-- Employees-- Executive 
Officers" under Item 1 of this Form 10-K.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
    The information included in the Company's Proxy Statement under the captions
"Compensation of Directors," "Executive Compensation and Other Information,"
"Stock Options," "Option Exercises and Holdings," "Compensation Committee
Interlocks and Insider Participation" and "Employment and Termination
Arrangements" is incorporated by reference herein.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The information is included in the Company's Proxy Statement under the
captions "Security Ownership of Certain Beneficial Owners and Management" and
"Employment and Termination Arrangements" is incorporated by reference herein.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    See "Business-- Manufacturing and Suppliers" under Item 1 of this Form 
10-K and Note 4 of "Notes to Consolidated Financial Statements" of the 
Company's 1997 Annual Report to Stockholders incorporated herein by reference.
 
                                       17
<PAGE>
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
 
    (A) 1.  FINANCIAL STATEMENTS
 
        The following consolidated financial statements are contained in the
       Company's 1997 Annual Report to Stockholders and are incorporated
       herein by reference pursuant to Item 8:
 
           1.  Consolidated Balance Sheets as of March 31, 1997 and 1996.
 
           2.  Consolidated Statements of Operations for each of the three years
               in the period ended March 31, 1997.
 
           3.  Consolidated Statements of Stockholders' Equity for each of the
               three years in the period ended March 31, 1997.
 
           4.  Consolidated Statements of Cash Flows for each of the three years
               in the period ended March 31, 1997.
 
           5.  Notes to Consolidated Financial Statements.
 
           6.  Report of Independent Public Accountants.
 
       2.  FINANCIAL STATEMENT SCHEDULES
 
        The following consolidated financial statement schedule for each of the
       three years in the period ended March 31, 1997 is submitted herewith:
 
           II  Valuation and Qualifying Accounts and Reserves
 
    Schedules not listed above have been omitted because they are not applicable
or required, or information required to be set forth therein is included in the
Consolidated Financial Statements, including the Notes thereto, incorporated
herein by reference.
 
       3.  EXHIBITS
 
           The Exhibit Index begins on Page 23 hereof.
 
    (B) No reports on Form 8-K were filed by the Registrant during the quarter
       ended March 31, 1997.
 
    (C) See Item 14 (a) 3 above.
 
    (D) See Item 14 (a) 2 above.
 
                                       18
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
Date: June 27, 1997.
 
DIGITAL MICROWAVE CORPORATION
 
By: /s/ CHARLES D. KISSNER
-----------------------------------------
Charles D. Kissner
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER

 
                                       19
<PAGE>
                               POWER OF ATTORNEY
 
KNOW ALL PERSONS BY THESE PRESENTS:
 
    That the undersigned officers and directors of Digital Microwave Corporation
do hereby constitute and appoint Charles D. Kissner and Carl A. Thomsen, and
each of them, the lawful attorney and agent or attorneys and agents with power
and authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, determine may be
necessary or advisable or required to enable Digital Microwave Corporation to
comply with the Securities and Exchange Act of 1934, as amended, and any rules
or regulations or requirements of the Securities and Exchange Commission in
connection with this Form 10-K Report. Without limiting the generality of the
foregoing power and authority, the powers include the power and authority to
sign the names of the undersigned officers and directors in the capacities
indicated below to this Form 10-K report or amendment or supplements thereto,
and each of the undersigned hereby ratifies and confirms all that said attorneys
and agents or either of them, shall do or cause to be done by virtue hereof.
This Power of Attorney may be signed in several counterparts.
 
    IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his name.
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
          SIGNATURES                        SIGNING CAPACITY                     DATE
------------------------------  ----------------------------------------  -------------------
 
<C>                             <S>                                       <C>
    /s/ CHARLES D. KISSNER      Chairman of the Board, President             June 27, 1997
------------------------------  and Chief Executive Officer
      Charles D. Kissner
 
     /s/ CARL A. THOMSEN        Vice President, Chief Financial              June 27, 1997
------------------------------  Officer & Secretary (Principal Financial
       Carl A. Thomsen          and Accounting Officer)
 
   /s/ RICHARD C. ALBERDING     Director                                     June 27, 1997
------------------------------
     Richard C. Alberding
 
      /s/ JOHN W. COMBS         Director                                     June 27, 1997
------------------------------
        John W. Combs
 
  /s/ CLIFFORD H. HIGGERSON     Director                                     June 27, 1997
------------------------------
    Clifford H. Higgerson
 
     /s/ JAMES D. MEINDL        Director                                     June 27, 1997
------------------------------
       James D. Meindl
 
     /s/ BILLY B. OLIVER        Director                                     June 27, 1997
------------------------------
       Billy B. Oliver
</TABLE>
 
                                       20
<PAGE>
              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
 
To Digital Microwave Corporation:
 
    We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Digital Microwave
Corporation's Annual Report incorporated by reference in this Form 10-K, and
have issued our report thereon dated April 21, 1997. Our audits were made for
the purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The schedule listed in item 14a(2) is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
consolidated financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
 
                                          /s/ ARTHUR ANDERSEN LLP
 
San Jose, California
 
April 21, 1997
 
                                       21
<PAGE>
                                  SCHEDULE II
 
                         DIGITAL MICROWAVE CORPORATION
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------------------------------------------------------
                                           BALANCE AT    CHARGED TO                  BALANCE
                                          BEGINNING OF   COSTS AND    DEDUCTIONS/    AT END
DESCRIPTION                                   YEAR        EXPENSES     WRITE-OFF     OF YEAR
----------------------------------------  ------------   ----------   -----------    -------
                                                            (IN THOUSANDS)
<S>                                       <C>            <C>          <C>            <C>
Year Ended March 31, 1997
    Allowance for doubtful accounts.....     $1,373        $1,400       $ (589)(A)   $ 3,362
 
Year Ended March 31, 1996
    Allowance for doubtful accounts.....     $1,413        $  580       $  620       $ 1,373
 
Year Ended March 31, 1995
    Allowance for doubtful accounts.....     $3,240        $  276       $2,103       $ 1,413
</TABLE>
 
------------------------
 
(A) Net of transfers of $683 from other reserve accounts.
 
                                       22
<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER     DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<S>          <C>
       3.1   Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's
             Registration Statement on Form S-1 (File No. 33-13431) (reference is also made to Exhibit 4.2).
 
       3.2   Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on
             Form 10-K for the year ended March 31, 1993).
 
       4.1   Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Annual
             Report on Form 10-K for the year ended March 31, 1988).
 
       4.2   Rights Agreement dated as of October 24, 1991 between the Company and Manufacturers Hanover Trust
             Company of California, including the Certificate of Designations for the Series A Junior Participating
             Preferred Stock (incorporated by reference to Exhibit 1 to the Company's Current Report on 8-K filed on
             November 5, 1991).
 
      10.1   Digital Microwave Corporation 1984 Stock Option Plan, as amended and restated on June 11, 1991.
             (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year
             ended March 31, 1991).
 
      10.2   Form of Installment Incentive Stock Option Agreement (incorporated by reference to Exhibit 28.2 to the
             Company's Registration Statement on Form S-8 (File No. 33-43155)).
 
      10.3   Form of installment Non-qualified Stock Option Agreement (incorporated by reference to Exhibit 28.3 to
             the Company's Registration Statement on Form S-8 (File No. 33-43155)).
 
      10.4   Lease of premises located at 170 Rose Orchard Way, San Jose, California (incorporated by reference to
             Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year-ended March 31, 1991).
 
      10.5   Lease of premises located at 130 Rose Orchard Way, San Jose, California. (incorporated by reference to
             Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended March 31, 1991).
 
      10.6   Lease of premises located at 110 Rose Orchard Way, San Jose, California. (incorporated by reference to
             Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended March 31, 1991).
 
      10.7   Microelectronics Technology, Inc. Development Agreement dated as of March 9, 1984 (incorporated by
             reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (File No. 33-13431)).
 
      10.8   Form of Indemnification Agreement between the Company and its directors and certain officers
             (incorporated by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1 (File
             No. 33-13431)).

</TABLE>

                                        23

<PAGE>

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER     DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<S>          <C>
     10.9*   Technology Transfer & Marketing Agreement dated October 2, 1987 between Microelectronics Technology Inc.
             and the Company (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K
             for the year ended March 31, 1988).

     10.10   Loan and Security Agreement dated June 25, 1992 between the Company and CoastFed Business Credit
             Corporation (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for
             the year ended March 31, 1992).

     10.11   Accounts Collateral Security Agreement dated June 25, 1992 between the Company and CoastFed Business
             Credit Corporation (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form
             10-K for the year ended March 31, 1992).

     10.12   Letter of Credit Collateral Agreement dated June 25, 1992 between the Company and CoastFed Business
             Credit Corporation (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form
             10-K for the year ended March 31, 1992).

     10.13   Letter Agreement dated June 23, 1993 between the Company and CoastFed Business Credit Corporation
             (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
             ended March 31, 1993).

    10.14*   Product Acquisition Agreement dated as of September 23, 1992 between the Company and Microelectronics
             Technology, Inc. (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K
             for the year ended March 31, 1993).

    10.15*   Product Acquisition Agreement dated as of December 28, 1992 between the Company and Microelectronics
             Technology, Inc. (incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K
             for the year ended March 31, 1993).
 
    10.16*   Teaming Agreement dated as of November 16, 1993 between the Company and Siemens AG (including the Supply
             Agreement dated November 16, 1993 between Siemens AG and E-Plus Mobilfunk GmbH) (incorporated by
             reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended March 31,
             1994).
 
     10.17   Amendment to Loan Documents between the Company and CoastFed Business Credit Corporation dated as of
             July 28, 1994 (incorporated by reference to Exhibit (1) to the Company's Quarterly Report on Form 10-Q
             for the quarter ended September 30, 1994).
 
     10.18   Amended and Restated Accounts and Inventory Collateral Security Agreement between the Company and
             CoastFed Business Credit Corporation dated as of July 28, 1994 (incorporated by reference to Exhibit (2)
             to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.).
 
     10.19   Loan Agreement dated October 28, 1994 (incorporated by reference to Exhibit 10.1 to the Company's
             Quarterly Report on Form 10-Q for the quarter ended December 31, 1994).
 
     10.20   Agreement on Exchange of Interim Equipment dated October 27, 1994 (incorporated by reference the
             Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994).
 
     10.21   Digital Microwave Corporation 1994 Stock Incentive Plan (incorporated by reference to the Registration
             Statement on Form S-8 filed with the Commission on October 17, 1994).

</TABLE>
 
                                        24

<PAGE>

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER     DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<S>          <C>
     10.22   Loan Agreement dated March 21, 1995 between the Company and Bank of the West (incorporated by reference
             to Exhibit 10.34 of the Company's Annual Report on Form 10-K for the year ended March 31, 1995).
 
     10.23   Amendment to Loan Agreement dated March 31, 1995 between the Company and Heller Financial, Inc.
             (incorporated by reference to Exhibit 10.35 of the Company's Annual Report on Form 10-K for the year
             ended March 31, 1995).
 
     10.24   Employment Agreement dated May 1, 1996 between the Company and Charles D. Kissner (incorporated by
             reference to Exhibit 10.36 of the Company's Annual Report on Form 10-K for the year ended March 31,
             1996).
 
     10.25   Form of Employment Agreement between the Company and certain executive officers (incorporated by
             reference to Exhibit 10.38 of the Company's Annual Report on Form 10-K for the year ended March 31,
             1996).
 
     10.26   Amendment to Loan Agreement dated June 24, 1996 between the Company and the CoastFed Business Credit
             Corporation (incorporated by reference to Exhibit 10.38 of the Company's Quarterly Report on Form 10-Q
             for the quarter ended June 30, 1996).

     10.27   Amendment to Loan Agreement effective as of June 25, 1996 between the Company and the CoastFed Business
             Credit Corporation (incorporated by reference to Exhibit 10.39 of the Company's Quarterly Report on Form
             10-Q for the quarter ended September 30, 1996).

     10.28   Form of Employment Agreement between the Company and certain executive officers.

      13.1   Portions of 1997 Annual Report to Stockholders incorporated herein by reference.

      21.1   List of subsidiaries.

      23.1   Consent of Independent Public Accountants.

      24.1   Power of Attorney (included on page 20 of this Annual Report on Form 10-K).

      27.1   Financial data schedule


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*   Confidential treatment of certain portions of this exhibit has been requested.

</TABLE>
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