WJ COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		94-1402710 (I.R.S. Employer Identification No.)
401 River Oaks Parkway, San Jose, California (Address of principal executive offices)		95134 (Zip Code)

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, and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

As of May 10, 2002 there were 56,536,489 shares outstanding of the registrant's common stock, $0.01 par value.

This quarterly report on Form 10-Q, the Annual Report on Form 10-K, the annual report, press releases and certain information provided periodically in writing or orally by the Company's officers, directors or agents contain certain forward-looking statements within the meaning of the federal securities laws that also involve substantial uncertainties and risks. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as "may," "will," "anticipates," "expects," "intends," "plans," "believes," "seeks" and "estimates" and variations of these words and similar expressions, are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed, implied or forecasted in the forward-looking statements. In addition, the forward-looking events discussed in this quarterly report might not occur. These risks and uncertainties include, among others, those described in the section of this report entitled "Risk Factors that May Affect Future Results." Readers should also carefully review the risk factors described in the other documents that we file from time to time with the Securities and Exchange Commission. We assume no obligation to update or revise the forward-looking statements or risks and uncertainties to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

		Page
PART I FINANCIAL INFORMATION	4
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and April 1, 2001	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2002 and April 1, 2001	5
	Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and April 1, 2001	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosure About Market Risks	25
PART II OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 2.	Changes In Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Submission of Matters to a Vote of Security Holders	36
Item 5.	Other Information	36
Item 6.	Exhibits and Reports on Form 8-K	36

WJ COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

WJ COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

WJ COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

WJ COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

WJ COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of WJ Communications, Inc. (the "Company") for the fiscal year ended December 31, 2001, which are included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2002.

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

WJ Communications, Inc. (formerly Watkins-Johnson Company, the "Company") was founded in 1957 in Palo Alto, California. The Company was originally incorporated in California and reincorporated in Delaware in August 2000. For more than 30 years, the Company developed and manufactured microwave devices for government electronics and space communications systems used for intelligence gathering and communication. In 1996, the Company began to develop commercial applications for its military technologies. The Company's continuing operations design, develop and manufacture innovative, high quality broadband communications products that enable voice, data and image transport over fiber optic, broadband cable and wireless communications networks around the world. The Company's products are comprised of advanced, highly functional components and integrated assemblies which address the radio frequency challenges faced by both current and next generation broadband communications networks. The Company's products are used in the network infrastructure supporting and facilitating mobile communications, broadband high speed data transmission and enhanced voice services. The Company previously operated through other segments and has treated its former Government Electronics, Semiconductor Equipment and Telecommunication segments as discontinued operations. All segments classified as discontinued operations were divested by March 31, 2000.

On October 25, 1999, an affiliate of Fox Paine entered into a recapitalization merger transaction with the Company. The recapitalization merger transaction was the culmination of a strategy implemented by the predecessor Board of Directors in February 1999 to seek to maximize shareholder value by pursuing the sale of the Company in its entirety or as separate business groups. The predecessor Board decided to divest the microwave products group in 1997, the semiconductor equipment group in 1999 and the telecommunications group in early 2000, in some cases along with associated real estate assets. The Company replaced the majority of its senior management and its entire Board of Directors upon the closing of the recapitalization merger on January 31, 2000. Since the recapitalization merger, the Company has been focused exclusively on providing product solutions

that enable and facilitate the development of fiber optic, broadband cable and wireless network infrastructure. In April 2000, the Company changed its name from Watkins-Johnson Company to WJ Communications, Inc. to highlight its focus on the commercial broadband communications markets. The Company reincorporated in Delaware and effected a 3-for-2 stock split on August 15, 2000. The Company completed its initial public offering ("IPO") on August 18, 2000. Net proceeds from the IPO were approximately $88.4 million after deducting underwriters' discounts and commissions and expenses.

In the recapitalization merger, FP-WJ Acquisition Corp., a newly-formed corporation wholly-owned by Fox Paine, merged into the Company. All of our pre-recapitalization shareholders except, with respect to a portion of its shares, a family trust of which Dean A. Watkins is a co-trustee and beneficiary, became entitled to receive cash in exchange for their shares of the pre-recapitalization common stock. Dr. Watkins is the Company's co-founder and was the Chairman of its Board of Directors at the time of the recapitalization merger. As a result of the rollover of a portion of the interest in the Company's equity held by Dr. Watkins' trust pursuant to an agreement entered into with the trust at the time the Company entered into the merger agreement, the Company was able to account for the merger as a recapitalization for financial accounting purposes. As a result of the continuing significant ownership interest of the pre-recapitalization stockholders, no adjustments were made to the historical carrying amounts of the Company's assets and liabilities as a result of the recapitalization merger. Furthermore, the premium paid in cash to stockholders in excess of that historical cost was accounted for as a reduction of stockholders' equity in 2000.

PRINCIPLES OF CONSOLIDATION—The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all intercompany balances and transactions.

RECLASSIFICATIONS—Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS—Cash and equivalents consist of money market funds and commercial paper acquired with remaining maturity periods of 90 days or less and are stated at cost plus accrued interest which approximates market value. Short-term investments consist primarily of high-grade debt securities (A rating or better) with maturity greater than 90 days from the date of acquisition and are classified as available-for-sale. Short-term investments classified as available-for-sale are reported at fair market value with unrealized gains or losses excluded from earnings and reported as other comprehensive income (loss), a separate component of stockholders' equity, net of tax, until realized.

INVENTORIES—Inventories are stated at the lower of cost, using average-cost basis, or market. Cost of inventory items is based on purchase and production cost including labor and overhead. Provisions, when required, are made to reduce excess inventories to their estimated net realizable values. It is possible that estimates of net realizable values can change in the near term. Inventories,

net of provisions for excess and obsolete amounts, at March 31, 2002 and December 31, 2001 consisted of the following (in thousands):

	March 31, 2002		December 31, 2001
Finished goods	$	1,433	$	3,665
Work in progress		2,100		595
Raw materials and parts		3,076		5,998

	$	6,609	$	10,258

PROPERTY, PLANT AND EQUIPMENT—Property, plant and equipment are stated at cost. Provision for depreciation and amortization is primarily based on the straight-line method over the assets' estimated useful lives ranging from four to ten years. Costs incurred to maintain property, plant and equipment that do not increase the useful life of the underlying asset are expensed as incurred.

IMPAIRMENT OF LONG-LIVED ASSETS—In accordance with Statement of Financial Accounting Standards ("SFAS") No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets", we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Factors we consider that could trigger an impairment review include the following: significant underperformance relative to expected historical or projected, future operating results; significant changes in the manner of our use of the acquired assets or the strategy for our overall business; significant negative industry or economic trends; or significant technological changes, which would render equipment and manufacturing processes obsolete. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of these assets to future undiscounted cash flows expected to be generated by these assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Through March 31, 2002, we have not experienced any such impairments.

REVENUE RECOGNITION—Revenues from product sales are recognized when all of the following conditions are met: the product has been shipped, the Company has the right to invoice the customer at a fixed price, the collection of the receivable is probable and there are no significant obligations remaining. Generally, title passes upon shipment of the Company's products. Certain contracts are under a consignment arrangement under which title to our products does not pass until the customer utilizes these products in its production processes. Consequently, revenue is recognized on these contracts only when these customers notify the Company of product consumption. In addition to the internal sales efforts, we use distributors to sell semiconductor products. Revenues from these distributors are recognized upon shipment based on the following factors: the sales price is fixed or determinable by contract at the time of shipment, payment terms are fixed at shipment and are consistent with terms granted to other customers, the distributor has full risk of physical loss, the distributors have separate economic substance, the Company has no obligation with respect to the resale of the distributors' inventory, and the Company believes it can reasonably estimate the potential returns from its distributors based on their history and its visibility in the distributors' success with its products and into the market place in general. During the quarter ending July 1, 2001, the Company began using two distributors for sales of certain fixed wireless products. Lacking history with these new distributors, the Company recorded revenue on these fixed wireless products at the time of the distributors' sale to the ultimate end customer. During the quarter ending March 31, 2002, the

Company terminated its agreement with these two distributors as part of its exit from the fixed wireless CPE market.

Any anticipated losses on contracts are charged to earnings when identified. The Company provides a warranty on standard products and components and products developed for specific customers or program applications. Such warranty generally ranges from 12 to 24 months. The Company estimates the cost of warranty based on its historical field return rates.

INCOME TAXES—In accordance with SFAS No. 109, "Accounting for Income Taxes", the condensed consolidated financial statements include provisions for deferred income taxes using the liability method for transactions that are reported in one period for financial accounting purposes and in another period for income tax purposes. Deferred tax assets are recognized when management believes realization of future tax benefits of temporary differences is more likely than not. In estimating future tax consequences, generally all expected future events are considered (including available carryback claims), other than enactment of changes in the tax law or rates. Valuation allowances are established for those deferred tax assets where management believes it is not more likely than not such assets will be realized.

PER SHARE INFORMATION—Basic earnings per share is computed using the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if stock options were exercised or converted into common stock and shares related to contributions under the Employee Stock Purchase Plan for pending purchases, however, such adjustments are excluded when they are considered anti-dilutive.

FISCAL YEAR—The Company's fiscal year consists of 52 or 53 weeks ending on December 31^st of each year. The three months ended March 31, 2002 and April 1, 2001 each included 13 weeks.

CONCENTRATION OF RISK—The success of the Company is dependent on a number of factors. These factors include the ability to manage and adequately finance anticipated growth, the need to satisfy changing and increasingly complex customer requirements especially in the fiber optics and wireless markets, dependency on a small number of customers and a limited number of key personnel, and suppliers, and competition from companies with greater resources.

USE OF ESTIMATES—The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

STOCK-BASED COMPENSATION—The Company accounts for stock-based compensation granted to employees and directors under the intrinsic value method as defined in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."

RECENT ACCOUNTING PRONOUNCEMENTS—On June 29, 2001, Financial Accounting Standards Board, or FASB, approved for issuance SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Intangible Assets." Major provisions of these Statements are as follows: all business combinations initiated after June 30, 2001 must use the purchase method of accounting; the pooling of interest method of accounting is prohibited except for transactions initiated before July 1, 2001; intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract,

asset or liability; goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually using a fair value approach, except in certain circumstances, and whenever there is an impairment indicator; other intangible assets will continue to be valued and amortized over their estimated lives; in-process research and development will continue to be written off immediately; all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting; effective January 1, 2002, existing goodwill will no longer be subject to amortization. Goodwill arising between July 1, 2001 and December 31, 2001 will not be subject to amortization. The adoption of SFAS No. 142 on January 1, 2002 did not have an impact on the Company's consolidated financial statements.

On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. SFAS No. 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions of APB Opinion No. 30. SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 with early applications permitted. The adoption of this statement on January 1, 2002 did not have a material impact on the Company's consolidated financial statements.

Per share amounts are computed based on the weighted average number of basic and diluted common and common equivalent shares outstanding during the respective periods. The net loss per share calculation is as follows (in thousands, except per share amounts):

		Three Months Ended
		March 31, 2002			April 1, 2001
Net loss		$	(4,722	)	$	(7,085	)

Denominator for basic net loss per share:
	Weighted average shares outstanding		56,098			55,298
	Less weighted average shares subject to repurchase		(103	)		—

	Weighted average shares outstanding		55,995			55,298
Denominator for diluted net loss per share:
	Weighted average shares outstanding		55,995			55,298
	Effect of dilutive stock options		—			—

	Diluted weighted average common shares		55,995			55,298

Basic net loss per share		$	(0.08	)	$	(0.13	)

Diluted net loss per share		$	(0.08	)	$	(0.13	)

For the three months ended March 31, 2002, the incremental shares from the assumed exercise of 8,216,055 stock options and 41,093 shares related to contributions under the Employee Stock Purchase Plan for pending purchases, were not included in computing the diluted per share amounts the effect of

such assumed conversion would be anti-dilutive. For the three months ended April 1, 2001, the incremental shares from the assumed exercise of 7,548,308 stock options were not included in computing the diluted per share amounts because the effect of such assumed conversion would be anti-dilutive.

In conjunction with the issuance of certain stock options in 2000, 14,277,795 options were granted at an average exercise price of $1.37 per share which was equal to the weighted average fair value of common stock $1.37 per share at the date of grant. This fair value was determined by using the same fair value used in the recapitalization merger transaction which was completed in January, 2000. Additionally, the Company granted 791,000 options where the weighted average exercise price of $5.31 per share was less than the deemed weighted average fair value of common stock $10.08 per share. The Company also sold 81,000 shares of common stock where the weighted average sales price of $3.82 per common share was less than the deemed weighted average fair value of common stock $9.51 per share. In February, 2002 the Company granted 300,000 shares of restricted common stock for a purchase price of $0.01 per share which was less than the fair value of common stock of $2.90. The Company has recorded deferred stock compensation in the aggregate amount of $3,203,000, net of forfeitures, representing the differential between the deemed fair value of the Company's common stock and the exercise price at the date of grant for options or date of sale for stock purchases. The Company is amortizing this amount using the straight line method over the vesting period of the options granted. The Company recorded $102,000 of deferred stock compensation expense for the three months ended March 31, 2002 in the accompanying financial statements. Subsequent to the Company's IPO, the fair market value of the stock for purposes of issuing common stock options is based upon the market price of the Company's stock on the date of grant. The Company's stock option plans ("Plans") provide that options granted under the Plans will have a term of no more than 10 years. Options granted under the Plans have vesting periods ranging from immediate to 9 years. The provisions of the Plans provide that under certain circumstances, such as a change in control, the achievement of certain performance objectives, or certain liquidity events, the outstanding option may be subject to accelerated vesting. The Company has granted 3,856,900 options at a weighted average fair value of $2.22 per share subsequent to the IPO.

In December of 2000, the Company entered into a $25.0 million revolving credit facility ("Revolving Facility") with a bank. The Revolving Facility matures on December 31, 2003 and contains a $15.0 million sub-limit to support letters of credit. Interest rates on outstanding borrowings are periodically adjusted based on certain financial ratios and are initially set, at the Company's option, at LIBOR plus 1.0% or Prime minus 0.5%. The Revolving Facility requires that the Company maintain certain financial ratios and contains limitations on, among other things, the Company's ability to incur indebtedness, pay dividends and make acquisitions without the bank's permission. The Company was in compliance with these covenants as of March 31, 2002. The Revolving Facility is secured by substantially all of the Company's assets. As of March 31, 2002, there were no outstanding borrowings under the Revolving Facility.

In September 2001, the Company decided to abandon a leased facility based on revised anticipated demand for its products and current market conditions. This excess facility, for which the Company has a ten year commitment, is located adjacent to the Company's current corporate headquarters and was originally developed to house additional administrative and corporate offices to accommodate planned expansion. This decision has resulted in a pre-tax lease loss of $7.2 million, comprised of future lease payments net of anticipated sublease income, broker commissions and other facility costs, and a pre-tax asset impairment charge of $2.6 million on tenant improvements deemed no longer realizable.

In determining this estimate, the Company has made certain assumptions with regards to its ability to sub-lease the space and has reflected offsetting assumed sub-lease income in line with the Company's best estimate of current market conditions. The Company has signed two tenants to cover approximately 52% of the excess leased space. Any sub-lease tenants are subject to the landlord's consent.

The following table summarizes restructuring accrual activity recorded during the first quarter of 2002 (in thousands):

	Lease Loss
Accrual balance as of December 31, 2001	$	6,831
Cash charges		(271	)
Non-cash charges		16

Accrual balance as of March 31, 2002	$	6,576

Of the balance in accrued liabilities as of March 31, 2001, the Company expects approximately $520,000 of the lease loss to be paid out over the next twelve months, and the remaining $6.1 million to be paid out over the remaining life of the lease of approximately nine years.

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

Special Notice Regarding Forward-Looking Statements. The following discussion and analysis contains forward-looking statements including financial projections, statements as to the plans and objectives of management for future operations, and statements as to our future economic performance, financial condition or results of operations. These forward-looking statements are not historical facts but rather are based on current expectations, estimates, projections about our industry, our beliefs and our assumptions. Words such as "may," "will," "anticipates," "expects," "intends," "plans," "believes," "seeks" and "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from those projected in these forward-looking statements as a result of a number of factors, including, but not limited to, the continuation or worsening of poor economic and market conditions in our industry and in general, technological innovation in the wireless and fiber optic communications markets, the availability and the price of raw materials and components used in our products, the demand for wireless and fiber optic systems and products generally as well as those of our customers and changes in our customer's product designs. Readers of this report are cautioned not to place undue reliance on these forward-looking statements.

The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes and other disclosures included elsewhere in this Form 10-Q and our Annual Report filed on Form 10-K for the year ended December 31, 2001. Except for historic actual results reported, the following discussion may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties. See "Special Notice Regarding Forward-looking Statements" above and "Risk Factors That May Affect Future Results" below for a discussion of certain factors that could cause future actual results to differ from those described in the following discussion.

We design, develop and manufacture innovative, high quality broadband communications products that enable voice, data and image transport over fiber optic, broadband cable and wireless communications networks around the world. Our products are comprised of advanced, highly functional components and integrated assemblies which address the Radio Frequency ("RF") challenges of both current and next generation broadband communications networks. These products are used in the network infrastructure supporting and facilitating mobile communications, broadband high-speed data transmission and enhanced voice services. We believe our core expertise in gallium arsenide semiconductor and thin-film technology, coupled with our exceptional RF design, integration, and manufacturing capabilities, have enabled us to obtain a competitive advantage in these broadband communications markets.

When we began our operations in the broadband commercial communications market, we initially benefited from significant increases in spending on capital equipment by communications service providers. However, during 2001 and throughout the first quarter of 2002, the demand for telecom equipment has been very soft. This weakness in demand is currently projected to continue during the second quarter of the year 2002 and potentially beyond based on customer forecasts for the purchase of our products. The primary reason for these delays and reductions in their recent and forecasted demand is an overall slowdown in capital spending by communication service providers. We believe that this slow down relates to two primary causes. First, our customers have indicated that there has been a significant build up of their inventory as well as a significant build up of uninstalled equipment at communication service providers. We believe that numerous service providers have reduced their capital expenditures until they have installed their excess inventory of equipment, which they have already purchased, and begin generating revenue from this uninstalled equipment. In addition, based on the slow down in capital expenditures, our customers are attempting to reduce their inventory levels. Secondly, we believe that numerous early stage communication service providers, who have previously

been able to access the capital markets, are having difficulties in finding new sources of capital and in certain instances these companies have filed for bankruptcy. In addition, several of the more established service providers financed the build out of their networks with debt. Many of these service providers have shifted their focus to debt reduction and profitability enhancement. As a result, we believe that these companies have had to greatly reduce their capital expenditures. This reduction in capital expenditures is being accentuated by the general economic slowdown, which is having a negative impact on communication service providers' revenues and profitability.

On a long-term basis, we believe that the demand for broadband communications equipment and our products will rebound. During the first quarter of 2002 and throughout 2001, we have introduced several new products in each of our three product categories. These new products will further position us to benefit from the roll-out of the following broadband communications technologies: 2.5G and 3G wireless, and OC-192 and OC-768 for both the metro and long haul fiber optics markets. In the first quarter of 2002, we introduced over ten new RF semiconductor products primarily targeted at wireless infrastructure applications. During 2001, we introduced over twenty new RF semiconductor products. In the first quarter of 2002, we had over fifteen new socket wins at major OEMs expanding on the over thirty design wins we achieved during 2001. During 2002, we are concentrating our resources on the development of RF semiconductors and expect to maintain our accelerated pace of new product introductions and design wins. During 2001, we also introduced over ten new fiber products including OC-192 modulator drivers, clock amplifiers and filter products. These new product introductions have allowed us to greatly increase our customer base, moving from selling a limited product line to a few customers in 2000, to selling over ten products to more than a dozen customers in 2001. During the fourth quarter of 2001, we announced an alliance with Fujitsu Quantum Devices Ltd. for joint development of 40 Gb/s Optical products for OC-768 applications. While customer interest, new product introductions, additional design wins, strategic alliances and new orders are encouraging, there is no assurance that they will have a positive impact on our overall sales.

Our manufacturing operations are highly automated which has required us to make significant investments in equipment and fixed overhead. As a result, the volume of product we produce and sell has a significant impact on our gross profit margin. Until demand increases, the slow down in spending on broadband communications equipment will negatively impact our gross margin. In addition, we typically generate lower gross margin on new product introductions. Over time, we typically become more efficient relative to new products through learning and increased volumes as well as through introducing lower cost elements to the product designs. We expect our new product introductions to continue to be a higher percentage of our sales mix, which will continue to have a temporary negative impact on our gross margin. As we broaden our product lines we must purchase a wider variety of components to utilize in our manufacturing processes. In addition, new product lines contain a greater degree of uncertainty due to a lack of visibility and predictability of customer demand and potential competition. Both of these factors will contribute to a higher level of inventory risk in our near future.

Over the course of 2001, we began taking aggressive steps designed to more closely align our production costs with our customers' current forecasted demand for our products. As part of this effort, we reduced our workforce by approximately 48% and reduced non-employee costs including sales and marketing, general and administrative, and overhead expenses. Our cost reduction initiatives have also included temporary shutdowns of our manufacturing facilities and significant reductions in capital spending. We plan to continue to take steps to reduce our cost structure, including aggressively managing our capital equipment. While our continuing efforts are expected to further reduce our expense levels, we still have a significant amount of fixed manufacturing cost that these efforts will not impact and our expense reduction initiatives alone will not return us to profitability. We expect that reduced end-customer demand, underutilization of our manufacturing capacity and other factors will continue to adversely affect our operating results in the near term and we anticipate incurring additional losses in 2002. In order to return to profitability, we must achieve substantial revenue growth

and we currently face an environment of uncertain demand in the markets our products address. We cannot assure you as to whether or when we will return to profitability or whether we will be able to sustain such profitability, if achieved.

We sell our products predominantly to a few large equipment manufacturers and service providers in the fiber optic, broadband cable and wireless network infrastructure markets. Our major customers provide forecasted demand on at least a monthly basis, which assists us in allocating our manufacturing capacity. These forecasts, however, are subject to changes, including changes as a result of changes in market conditions, and could fluctuate from quarter to quarter.

We depend on a small number of customers for a majority of our sales. During the three months ended March 31, 2002, we had three customers which each accounted for more than 10% of our sales and in aggregate accounted for 65% of our sales, including sales to their respective manufacturing subcontractors. For the three months ended April 1, 2001, we had four customers which each accounted for more than 10% of our sales and in aggregate accounted for 65% of our sales. We have diversified our customer base over the last few years and we have expanded our product offering to address all of the following markets: wireless mobile infrastructure, fiber optic, broadband cable and fixed wireless. We intend to further diversify our customer base and product offering in the future, however, we anticipate that we will continue to sell a majority of our products to a relatively small group of customers. In addition, most of our sales result from purchase orders or contracts that can be cancelled on short-term notice. Delays in manufacturing or supply procurement or other factors, including general market slow downs, have and could potentially cause cancellation, reduction or delay in orders by or in shipments to a significant customer. During 2001 and throughout the first quarter of 2002, the demand for telecom equipment has been very soft. This weakness in demand is currently projected to continue during the second quarter of the year 2002 and potentially beyond based on customer forecasts for the purchase of our products. If the markets for our products in fiber optic, broadband cable or wireless communications decline, fail to grow, or grow more slowly than we anticipate, the use of our products may be reduced with a significant negative impact on our sales, earnings, inventory valuations and cash flow.

Revenues from product sales are recognized when all of the following conditions are met: the product has been shipped, we have the right to invoice the customer at a fixed price, the collection of the receivable is probable and there are no significant obligations remaining. Generally, title passes upon shipment of our products. Certain contracts are under a consignment arrangement under which title to our products does not pass until the customer utilizes these products in its production processes. As a consequence, we recognize revenue on these contracts only when the customer notifies us of product consumption. In addition to our internal sales efforts, we use distributors to sell semiconductor products. Revenues from distributors are recognized upon shipment based on the following factors: our sales price is fixed and determinable by contract at the time of shipment, payment terms are fixed at shipment and are consistent with terms granted to other customers, the distributor has full risk of physical loss, the distributors have separate economic substance, we have no obligation with respect to the resale of the distributors' inventory, and we believe we can reasonably estimate the potential returns from our distributors based on their history and our visibility in the distributors' success with its products and into the market place in general. During the quarter ending July 1, 2001, we began using two distributors for sales of certain fixed wireless products. Lacking history with these new distributors, we recorded revenue on these fixed wireless products at the time of the distributors' sale to the ultimate end customer. During the quarter ending March 31, 2002, we terminated its agreement with these two distributors as part of its exit from the fixed wireless CPE market.

Based on specific terms of the customer contract or purchase order, we may negotiate a final delivery and settlement in connection with cancellations. Due to the uncertain and lengthy nature of

these negotiations, a substantial portion, if not all, of the inventory subject to the cancellation may be written off as part of our excess and obsolete inventory provision. In the fourth quarter of 2001, we reached final agreement with one customer and recognized revenue of $3.5 million related to the delivery of specific fixed wireless products that have previously been written off. In the first quarter of 2002, we completed a second fixed wireless contract resulting in $3.0 million of sales for final product delivery. Substantially all of this inventory had been written off in 2001. In the future, we anticipate that similar arrangements for final deliveries could be made with other customers upon completion of major contracts, however there can be no assurance that this will occur.

We provide a warranty on standard products and components and products developed for specific customer or program applications. Such warranty generally ranges from 12 to 24 months. We estimate the warranty cost based on our historical field return rates. We include warranty expense related to these products in cost of goods sold.

Generally, the selling prices of our products decrease over time as a result of increased volumes or general competitive pressures. We expect that prices will continue to decline as a result of volume increases or these competitive pressures.

We recognize cost of goods sold upon recognition of revenue. We recognize losses on contracts, including purchase order commitments, when identified.

Our operating expenses are classified into two general categories: research and development, and selling and administrative. We classify all charges to these two categories based on the nature of the expenditures. Although each of these two categories includes expenses that are unique to the category type, there are commonly recurring expenditures that are typically included in these categories, such as wages, fringe benefit costs, depreciation and allocated overhead.

Research and development expense represents wages, supplies and allocated overhead costs to design, develop and improve products and processes. These costs are expensed as incurred.

Selling and administrative expense consists primarily of wages, travel and facility costs incurred by and other expenses allocated to our selling and administrative departments. Selling and administrative expense also includes manufacturer representatives and distributor sales commissions, trade show and advertising expenses and fees and expenses of legal, accounting, and other professional consultants.

We have recorded deferred stock compensation representing the differential between the deemed fair value of our common stock and the exercise price at the date of grant for options or date of sale for stock purchases. We are amortizing this amount using the straight line method over the vesting period of the equity instruments granted.

The restructuring charge reflects our decision to abandon a leased facility based on revised anticipated demand for our products and current market conditions. It is comprised of future lease payments net of anticipated sublease income, broker commissions and other facility costs, and an asset impairment charge on tenant improvements. In determining this estimate, we have made certain assumptions with regards to our ability to sub-lease the space and have reflected off-setting assumed sub-lease income in line with our best estimate of current market conditions.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a continuous basis, we evaluate all our significant estimates including those related to doubtful accounts receivable, inventory valuation, impairment of long-lived assets, income taxes, restructuring including accruals for abandoned lease properties, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstance, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and such differences could be material.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. See Note 3 to the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for a detailed discussion of all our significant accounting policies.

We recognize revenue in accordance with SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements", as amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected. In addition, failure to obtain anticipated orders or

delays or cancellations of orders or significant pressure to reduce prices from key customers could have a material adverse effect on our revenue.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Management specifically analyzes accounts receivable and historic bad debts, customer credit-worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Material differences may result in the amount and timing of expenses for any period if management made different judgments or utilized different estimates. Our allowance for doubtful accounts was approximately $919,000 as of March 31, 2002. Approximately 69% of our accounts receivable as of March 31, 2002 was concentrated with our top three customers, each, including their respective manufacturing subcontractors, accounting for more than 10% of our sales and in aggregate accounting for 65% of our sales.

We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Management specifically identifies obsolete products and analyzes historical usage, forecasted production based on demand forecasts, current economic trends and historical write-offs when evaluating the adequacy of the provision for excess and obsolete inventory. Due to rapidly changing customer forecast and orders, additional provisions for excess or obsolete inventory, while not currently expected, could be required in the future. In addition, the sale of previously written down inventory could result from significant unforeseen increases in customer demand. Material differences in estimates of excess and obsolete inventory may result in the amount and timing of cost of sales for any period if management made different judgments or utilized different estimates. Our provision for excess and obsolete inventory was $7.9 million as of March 31, 2002.

As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax provision (benefit) in each of the jurisdictions in which we operate. This process involves us estimating our current income tax provision (benefit) together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Management believes that it is more likely than not that its deferred tax assets will be realized through refunds from the carryback of any projected net operating loss for 2002.

In September 2001, we decided not to occupy a new leased facility based on revised anticipated demand for our products and current market conditions. This excess facility, for which we have a ten year commitment, is located adjacent to our current corporate headquarters and was originally developed to house additional administrative and corporate offices to accommodate planned expansion. This decision has resulted in a pre-tax lease loss of $7.2 million, comprised of future lease payments net of anticipated sub-lease income, broker commissions and other facility costs, and a pre-tax asset impairment charge of $2.6 million on tenant improvements deemed no longer realizable. In determining this estimate, we have made certain assumptions with regards to our ability to sub-lease the space and have reflected offsetting assumed sub-lease income in line with our best estimate of current market conditions. Should there be a significant change in those market conditions, the ultimate loss could be higher and such amount could be material. We have signed two tenants to cover approximately 52% of the excess leased space. Any sub-lease tenants are subject to the landlord's consent. As of March 31, 2002, our restructuring accrual was $6.6 million.

In accordance with SFAS No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets", we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Factors we consider that could trigger an impairment review include the following: significant underperformance relative to expected historical or projected, future operating results; significant changes in the manner of our use of the acquired assets or the strategy for our overall business; significant negative industry or economic trends; or significant technological changes, which would render equipment and manufacturing process, obsolete. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of these assets to future undiscounted cash flows expected to be generated by these assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Through March 31, 2002, we have not experienced any such impairments.

Significant management judgment is required in the forecasting of future operating results which are used in the preparation of projected cash flows and should different conditions prevail, material write downs of our long-lived assets could occur.

Three Months Ended March 31, 2002 Compared to Three Months Ended April 1, 2001

Sales—We recognized $13.1 million and $16.0 million in sales for the three months ended March 31, 2002 and April 1, 2001, respectively. This $2.9 million or 18% decrease in sales resulted primarily from a decrease in RF semiconductor sales. RF semiconductor sales during the first quarter of 2002 totaled $3.8 million, representing 29% of total sales and a decrease of 49% over the first quarter of 2001. Our RF semiconductor sales in the first quarter of 2001 benefitted from carryover demand from the strong Telecommunications market of 2000. Fiber optic sales increased 22% to $2.7 million and represented 21% of total sales for the first quarter of 2002. Wireless product sales during the first quarter of 2002 totaled $6.6 million, representing 50% of total sales and an increase of 3% over the first quarter of 2001. Wireless product sales for the first quarter of 2002 included $3.0 million for final product delivery of our last major fixed wireless contract. We do not expect significant revenues from fixed wireless CPE products in future quarters. In addition, we expect to complete our largest long-haul fiber optic contract for our OC-192 DRO within the next two quarters. Given the outlook for the long-haul fiber optic market, we believe it will be very difficult to replace this revenue and, as such, we expect that our fiber optic revenues will decline. Moving forward, we believe

that revenues from our RF semiconductor products will increase sequentially, but that this increase will be overshadowed in the near term by the decrease in market demand for our long-haul fiber optics products. Based on customer feedback, we also expect some near term weakness in sales for our CDMA and TDMA wireless assemblies, with some recovery in the second half of 2002. Considering all of the preceding factors, we believe our revenue in the second quarter of 2002 will be in a range of $7.0 million to $9.0 million.

Cost of Goods Sold—Our cost of goods sold for the three months ended March 31, 2002 was $10.1 million, a decrease of $10.7 million or 51% as compared with cost of goods sold of $20.8 million in the three months ended April 1, 2001. As a percentage of sales, our cost of goods sold decreased to 77% of sales in the three months ended March 31, 2002 from 130% in the three months ended April 1, 2001. The decrease in our cost of goods sold as a percentage of sales primarily relates to the following costs which were incurred in the first quarter of 2001: a $6.6 million provision for excess and obsolete inventory, approximately $118,000 of severance expenses related to manufacturing personnel, and high variable costs on fixed wireless products which were being transitioned into manufacturing. The $6.6 million provision for excess and obsolete inventory largely related to inventory ordered to build base station products for our largest mobile wireless customer. Inventory levels of this product were purchased based on this customer's forecasted demand which had since been revised downward. In addition, given the overall slowdown in market demand, we made provisions for other product lines where customer forecasts have significantly declined. During the first quarter of 2002, our cost of goods sold benefited from the sale of $5.9 million of fixed wireless CPE inventory of which $3.1 million had been previously written off in 2001. These benefits were mainly offset by an increase in our provision of excess and obsolete inventory of $2.9 million related to our fiber optic product line. Due to rapidly changing customer forecasts and orders, additional provisions for excess or obsolete inventory, while not currently expected, could be required in the future. In addition, the sale of previously written down inventory could result from significant unforeseen increases in customer demand. We have a significant amount of unabsorbed overhead costs related to the increased manufacturing infrastructure we put in place to support our customers' demand in the second half of 2000. This increased infrastructure includes, among other things, a new manufacturing facility and investments in machinery and equipment. Given the current economic slowdown, increased capacity may not be fully utilized and the ongoing costs thereof will still be incurred until such time as the market demand for our products increases.

Research and Development—Our research and development expense for the three months ended March 31, 2002 was $4.4 million, a decrease of approximately $400,000 or 8% as compared with research and development expense of $4.8 million in the three months ended April 1, 2001. Research and development efforts in the first quarter of 2001 were attributable to increased spending on the development of fixed wireless broadband CPE, new RF semiconductor and new fiber optic products. As of the first quarter of 2002, we have greatly increased our expenditure on RF semiconductor development projects while selectively reducing development efforts for fiber optic products and eliminating fixed wireless broadband CPE development. As a percentage of sales, research and development expenses increased to 34% of sales in three months ended March 31, 2002 from 30% of sales in the three months ended April 1, 2001. The increase in research and development expense as a percentage of sales primarily relates to our decline in sales. Product research and development is essential to our future success and we expect to continue to make investments in new product development and engineering talent. In particular, we will continue to focus our research efforts and resources on RF semiconductor development.

Selling and Administrative—Selling and administrative expense for the three months ended March 31, 2002 was $3.4 million or 26% of sales, a decrease of approximately $73,000 or 2% as compared with selling and administrative expense of $3.5 million or 22% of sales in the three months ended April 1, 2001. The decrease in absolute dollars is primarily related to reduced commission,

outside services expenses, and rent expense along with a $225,000 reduction in our allowance for doubtful accounts partially offset by an increase of approximately $450,000 in severance expenses. The reduced rent expense is related to our decision to abandon our new leased facility in September, 2001 (see Note 7 to the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q). Until that time, the rent expense for that excess office space was included in selling and administrative expense. The reduction in our allowance for doubtful accounts relates to the collection of accounts receivable previously considered uncollectible. As a percentage of sales, the increase in selling and administrative expense reflects the decrease in sales during the first quarter of 2002.

Amortization of Deferred Stock Compensation—Amortization of deferred stock compensation expense in the three months ended March 31, 2002 includes approximately $102,000 related to the sale during the first quarter of 2002 of restricted stock at a price below fair market value and the issuance of stock options during 2000 at prices deemed below fair market value. Amortization of deferred stock compensation expense in the three months ended April 1, 2001 includes approximately $186,000 related to the issuance of stock options during 2000 at prices deemed below fair market value. As of March 31, 2002, the balance of our remaining unamortized deferred stock compensation was $1.5 million to be amortized over the next 39 months.

Interest Income—Interest income primarily represents interest earned on cash equivalents and short-term available-for-sale investments. Our interest income in the three months ended March 31, 2002 was approximately $300,000, a decrease of $1.0 million or 77% as compared with interest income of $1.3 million in the three months ended April 1, 2001. This decrease primarily resulted from decreased average amounts of funds available for investment and a decrease in interest rates. To the extent we continue to utilize our cash in the operation of our business, interest income is expected to decrease going forward. Additionally, our interest income will be impacted by changes in the market interest rates of our investments, which are generally lower than they were a year ago.

Interest Expense—Our interest expense for the three months ended March 31, 2002 was approximately $22,000, a decrease of approximately $84,000 or 79% as compared with interest expense of approximately $106,000 for the three months ended April 1, 2001. Interest expense for both periods relates to fees associated with our revolving credit facility and outstanding letters of credit. The three months ended April 1, 2001 included an additional $75,000 of fees as we transitioned from our former credit facility with CIBC World Markets Corp. to our current credit facility.

Other Income (Expense)-Net—The other income realized in the three months ended April 1, 2001 was approximately $3,000.

Gain on Dispositions of Real Property—During the three months ended April 1, 2001, we recorded a gain on dispositions of real property related to the release of $500,000 of escrow funds related to our sale of leasehold interests in our Palo Alto site during the fourth quarter of 2000. This gain was partially offset by $175,000 of residual expenses from the sale of the property.

Income Tax Benefit—Beginning in 2002, it was determined that it was not more likely than not that any additional deferred tax assets would be realized through the application of carryforward claims, thus we will not benefit on-going future net operating losses. Our effective tax rate in the three months ended April 1, 2001 was a tax benefit of 40% approximating our combined federal and state effective tax rates.

On March 31, 2002, cash and equivalents and short-term investments totaled $67.5 million, an increase of $11.9 million from the December 31, 2001 balance of $55.6 million.

In December of 2000, we entered into a $25.0 million revolving credit facility ("Revolving Facility") with a bank. The Revolving Facility matures on December 31, 2003 and contains a

$15.0 million sub-limit to support letters of credit. Interest rates on outstanding borrowings are periodically adjusted based on certain financial ratios and are initially set, at our option, at LIBOR plus 1.0% or Prime minus 0.5%. The Revolving Facility requires that we maintain certain financial ratios and contains limitations on, among other things, our ability to incur indebtedness, pay dividends and make acquisitions without the bank's permission. We were in compliance with the covenants as of March 31, 2002. The Revolving Facility is secured by substantially all of our assets. As of March 31, 2002, there were no outstanding borrowings under the Revolving Facility.

Net Cash Provided (Used) by Operating Activities—Net cash provided (used) by operations was $12.7 million and ($17.3) million in the three months ended March 31, 2002 and April 1, 2001, respectively. Net loss in the three months ended March 31, 2002 and April 1, 2001 was ($4.7) million and ($7.1) million from operations, respectively. Significant items impacting the difference between net loss from operations and cash flows from operations in the first quarter of 2002 were $5.3 million provided by working capital and $8.2 million provided by the utilization of deferred tax assets. The $5.3 million provided by working capital primarily relates to a $784,000 decrease in inventories and a $3.3 million decrease in receivables. The $8.2 million provided by the utilization of deferred tax assets relates to the receipt of an income tax refund generated by the carryback of our 2001 net operating loss. Significant items impacting the difference between net loss from operations and cash flows from operations in first quarter of 2001 were $13.0 million used by working capital, a $6.6 million increase in our reserve for excess and obsolete inventory and a $4.7 million increase in deferred income taxes. The $13.0 million used in working capital relates to a $19.5 million decrease in accruals and payables and a $6.1 million increase in inventories which were partially offset by a $12.4 million decrease in receivables. The $19.5 million decrease in accruals and payables was primarily related to a $9.6 million income tax payment generated primarily from the approximately $30.1 million pre-tax gain from the sale of our remaining Palo Alto leasehold interest during our fourth quarter of 2000. The deferred income taxes included an anticipated refund of $3.2 million related to the carryback of our then projected 2001 net operating loss.

Net Cash Provided by Investing Activities—Net cash provided by investing activities was $1.9 million and $7.1 million in the three months ended March 31, 2002 and April 1, 2001, respectively. In the first quarter of 2002, we received $15.2 million from the sale of short-term investments which was partially offset by $12.3 million used to purchase short-term investments and $1.0 million to invest in property, plant and equipment. In the first quarter of 2001, we realized $17.2 million in proceeds from the sale of short-term investments which was partially offset by $7.2 million used to purchase short-term investments and $3.4 million to invest in property, plant and equipment. During 2002, we expect to invest approximately $3.0 to $5.0 million in capital expenditures of which approximately $1.0 million was purchased in the first quarter. We have funded our capital expenditures from cash, cash equivalents and short-term investments and expect to continue to do so throughout 2002.

Net Cash Provided by Financing Activities—Net cash provided by financing activities totaled $99,000 and $172,000 in the three months ended March 31, 2002 and April 1, 2001, respectively. In the first quarter of 2002, we received net cash of approximately $99,000 from the sale of our common stock to employees through our employee stock purchase and option plans. In the first quarter of 2001, we received net cash of approximately $215,000 from the sale of our common stock to employees through our employee option plans which was partially offset by $43,000 of financing costs associated with our revolving credit facility.

Based on our current plans and business conditions, we believe that our existing cash, cash equivalents and short-term investments, together with our expected cash flows from operations and anticipated available borrowings under our line of credit, will be sufficient to meet our liquidity and capital spending requirements for at least the next twelve months. Thereafter, we will utilize our cash, cash flows and borrowings to the extent available and, if desirable or necessary, we may seek to raise additional capital through the sale of debt or equity. There can be no assurances, however, that future borrowings and capital resources will be available on favorable terms or at all. Our cash flows are highly dependent on demand for our products, timing of orders and shipments with key customers and our ability to manage our working capital, especially inventory and accounts receivable, as well as controlling our production and operating costs in line with our revenue.

The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates. We do not use derivative financial instruments for speculative or trading purposes.

Cash Equivalents and Investments—Cash equivalents consist of money market funds and commercial paper acquired with remaining maturity periods of 90 days or less at purchase and are stated at cost plus accrued interest which approximates market value. Short-term investments consist primarily of high-grade debt securities (A rating or better) with maturities greater than 90 days from the date of acquisition and are classified as available-for-sale. Short-term investments classified as available-for-sale are reported at fair market value with unrealized gains or losses excluded from earnings and reported as a separate component of stockholders' equity, net of tax, until realized. These available-for-sale securities are subject to interest rate risk and will rise or fall in value if market interest rates change. They are also subject to short-term market risk. We have the ability to hold our fixed income investments until maturity, and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio.

The following table provides information about our investment portfolio and constitutes a "forward-looking statement." For investment securities, the table presents principal cash flows and related weighted average interest rates by expected maturity dates.

You should carefully consider the risks described below and all other information contained in this report and in our other filings with the SEC, including but not limited to information under the heading "Risk Factors That May Affect Future Results" in our most recently filed Form 10-K in evaluating us and our business before making an investment decision. If any of the following risks, or other risks and uncertainties that we have not yet identified or that we currently think are immaterial, actually occur and are material, our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading price of our common stock could decline and you may lose part or all of your investment.

We have recently incurred substantial operating losses and we anticipate additional future losses.

In our first quarter ending March 31, 2002, our sales were $13.1 million and we incurred an operating loss of $4.7 million. In addition, our sales for 2001 were $62.2 million compared to $115.8 million for 2000 due to sharply reduced end-customer demand in many of the communications end-markets which our products address. We incurred a net loss of $21.7 million for 2001.

We expect that reduced end-customer demand, underutilization of our manufacturing capacity and other factors will continue to adversely affect our operating results in the near term and we anticipate incurring additional losses in 2002. In order to return to profitability, we must achieve substantial revenue growth and we currently face an environment of uncertain demand in the markets our products address. We cannot assure you as to whether or when we will return to profitability or whether we will be able to sustain such profitability, if achieved.

We are exposed to the risks associated with the recent worldwide economic slow down and related uncertainties.

Slower economic activity, concerns about inflation, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in the telecommunications and related industries, and recent international conflicts and terrorist and military activity have resulted in a downturn in worldwide economic conditions, particularly in the United States. As a result of these unfavorable economic conditions, during 2001 we experienced a significant slow down in customer orders, an increase in the number of cancellations and reschedulings of backlog and higher overhead costs as a percentage of our reduced net sales. Entering the second quarter of 2002, concerns remain regarding the timing, strength and duration of economic recovery in the semiconductor industry and broadband communications and Internet infrastructure markets. In addition, recent political and social turmoil related to international conflicts and terrorist acts can be expected to place further pressure on economic conditions in the U.S. and to accurately forecast and plan future business activities. If such conditions continue or worsen, our business, financial condition and results of operations will likely be materially and adversely affected.

Several customers account for a high percentage of our sales and the loss of, or a reduction in orders from, a significant customer could result in a loss of sales.

that our key customers will continue to account for a substantial portion of our revenue in 2002 and in the foreseeable future. The loss of or a reduction in orders from a significant customer for any reason could cause our sales to decrease.

Our future success depends significantly on strategic relationships with certain of our customers. If we cannot maintain these relationships or if these customers develop their own solution or adopt a competitor's solutions instead of buying our products, our operating results would be adversely affected.

In the past, we have relied on our strategic relationships with certain customers who are technology leaders in our target markets. We intend to pursue and continue to form these strategic relationships in the future but we cannot assure you that we will be able to do so. These relationships often require us to develop new products that typically involve significant technological challenges. Our partners frequently place considerable pressure on us to meet their tight development schedules. Accordingly, we may have to devote a substantial amount of our limited resources to our strategic relationships, which could detract from or delay our completion of other important development projects. Delays in development could impair our relationships with our strategic partners and negatively impact sales of the products under development. Moreover, it is possible that our customers may develop their own solutions or adopt a competitor's solution for products that they currently buy from us. If that happens, our business, financial condition and results of operations could be materially and adversely affected.

Our quarterly operating results may fluctuate significantly. As a result, we may fail to meet or exceed the expectations of securities analysts and investors, which could cause our stock price to decline.

Our quarterly revenues and operating results have fluctuated significantly in the past and may continue to vary from quarter to quarter due to a number of factors, many of which are not within our control. If our operating results do not meet our publicly stated guidance or the expectations of securities analysts or investors, our stock price may decline. Fluctuations in our operating results may be due to a number of factors, including the following:

Due to all of the foregoing factors, and the other risks discussed in this report, you should not rely on period-to-period comparisons of our operating results as an indication of future performance.

If we are unable to respond to the rapid technological changes taking place in our industry, our existing products could become obsolete and we could face difficulties making future sales.

The markets in which we compete are characterized by rapidly changing technologies, evolving industry standards and frequent improvements in products and services. If the technologies supported by our products become obsolete or fail to gain widespread acceptance, as a result of a change in industry standards or otherwise, we could face difficulties making future sales.

We must continue to make significant investments in research and development to seek to develop product enhancements, new designs and technologies on a cost effective basis. If we are unable to develop and introduce new products or enhancements in a timely manner in response to changing market conditions or customer requirements, or if our new products do not achieve market acceptance, our sales could decline. Additionally, initial lower margins are typically experienced with new products under development.

Our existing and potential customers operate in an intensely competitive environment and our success will depend on the success of our customers.

The companies in our target markets, communications equipment companies and service providers, face an extremely competitive environment. Most of the fiber optic and wireless products we design and sell are customized to work with specific customers' systems. If the companies with whom we establish business relations are not successful in building their systems, promoting their products, including new revenue-generating services, receiving requisite approvals and accomplishing the many other requirements for the success of their businesses, our growth will be limited. Furthermore, our customers may have difficulty obtaining parts from other suppliers causing these customers to cancel or delay orders for our products. In addition, we have limited ability to foresee the competitive success of our customers and to plan accordingly.

If the fiber optic, broadband cable and wireless communications markets fail to grow or they decline, our sales may not grow or may decline.

Our future growth depends on the success of the fiber optic, broadband cable and wireless communications markets. The rate at which these markets will grow is difficult to predict. These markets may fail to grow or decline for many reasons, including:

During 2001 and throughout the first quarter of 2002, the demand for telecom equipment has been very soft. This weakness in demand is currently projected to continue during the second quarter of the year 2002 and potentially beyond based on customer forecasts for the purchase of our products. If the markets for our products in fiber optic, broadband cable or wireless communications decline, fail to grow, or grow more slowly than we anticipate, the use of our products may be reduced and our sales could suffer.

If we fail to accurately forecast component and material requirements for our manufacturing facilities, we could incur additional costs or experience manufacturing delays.

We use rolling forecasts based on anticipated product orders to determine our component requirements. It is very important that we accurately predict both the demand for our products and the lead times required to obtain the necessary components and materials. Lead times for components and materials that we order vary significantly and depend on factors such as specific supplier requirements, the size of the order, contract terms and current market demand for the components. For substantial increases in production levels, some suppliers may need six months or more lead time. As a result, we may be required to make financial commitments in the form of purchase commitments. We lack visibility into the finished goods inventories of our customers and the end-users. This lack of visibility impacts our ability to accurately forecast our requirements. If we overestimate our component and material requirements, we may have excess inventory, which would increase our costs. An additional risk for potential excess inventory results from our volume purchase commitments with certain material suppliers, which can only be reduced in certain circumstances. Additionally, if we underestimate our component and material requirements, we may have inadequate inventory, which could interrupt our manufacturing and delay delivery of our products to our customers. Any of these occurrences would negatively impact our sales and profitability. We have incurred, and may in the future incur, charges related to excess and obsolete inventory. While these charges may be partially offset by subsequent sales of previously written-down inventory, there can be no assurance that any such sales will be significant. As we broaden our product lines we must purchase a wider variety of components to utilize in our manufacturing processes. In addition, new product lines contain a greater degree of uncertainty due to a lack of visibility of customer acceptance and potential competition. Both of these factors will contribute a higher level of inventory risk in our near future.

We depend on single or limited source suppliers for some of the key components and materials in our products, which makes us susceptible to supply shortages or price fluctuations that could adversely affect our operating results.

We typically purchase our components and materials through purchase orders, and we have no guaranteed supply arrangements with any of our suppliers. We currently purchase several key components and materials used in the manufacture of our products from single or limited source suppliers. In the event one of our sole source suppliers is unable or unwilling to sell us material components this could have a significant adverse effect on the Company. Additionally, we may fail to obtain required components in a timely manner in the future. We may also experience difficulty identifying alternative sources of supply for the components used in our products. We would experience delays if we were required to test and evaluate products of potential alternative suppliers. Furthermore, financial or other difficulties faced by our suppliers or significant changes in demand for the components or materials they supply to us could limit the availability of those components or materials to us. In addition, the majority of our semiconductor products are packaged in The Philippines and Hong Kong. Political and economic instability and changes in governmental regulations in these areas as well as the United States could affect the ability of our overseas vendors to package our products. Any interruption or delay in the supply of our required components, materials or services, or our inability to obtain these components, materials or services from alternate sources at acceptable prices and within a reasonable amount of time, could impair our ability to meet scheduled product deliveries to our customers and could cause customers to cancel orders.

We rely on the significant experience and specialized expertise of our senior management in the RF industry and must retain and attract qualified engineers and other highly skilled personnel in a highly competitive job environment to maintain and grow our business.

Our performance is substantially dependent on the continued services and on the performance of our senior management and our highly qualified team of engineers, who have many years of experience and specialized expertise in our business. Our performance also depends on our ability to retain and motivate our other executive officers and key employees. The loss of the services of any of our executive officers or of a number of our engineers could harm our ability to maintain and build our business. We have no "key man" life insurance policies.

Our future success also depends on our ability to identify, attract, hire, train, retain and motivate highly skilled technical, managerial, marketing and customer service personnel. If we fail to attract, integrate and retain the necessary personnel, our ability to maintain and build our business could suffer significantly. Additionally, California State law can create unique difficulties for a California based company attempting to enforce convenants not to compete with employees which could be a factor in our future ability to retain key management and employees in a competitive environment.

Our business is subject to the risks of product returns, product liability and product defects.

Products as complex as ours frequently contain undetected errors or defects, especially when first introduced or when new versions are released. The occurrence of errors could result in product returns from and reduced product shipments to our customers. In addition, any failure by our products to properly perform could result in claims against us by our customers. Such failure also could result in the loss of or delay in market acceptance of our products or harm our reputation. Due to the recent introduction of some of our products, we have limited experience with the problems that could arise with these products.

Our purchase agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. However, the limitation of liability provision contained in these agreements may not be effective as a result of federal, state or local laws or ordinances or

unfavorable judicial decisions in the United States or other countries. Although we maintain $25.0 million of insurance to protect against claims associated with the use of our products, our insurance coverage may not adequately cover all claims asserted against us. In addition, even ultimately unsuccessful claims could result in costly litigation, divert our management's time and resources and damage our customer relationships.

We use a number of specialized technologies, some of which are patented, to design, develop and manufacture our products. Infringement of our intellectual property rights could hurt our competitive position, harm our reputation and cost us money.

We regard the protection of our copyrights, patents, service marks, trademarks, trade dress and trade secrets as critical to our future success and plan to rely on a combination of copyright, patent, trademark and trade secret law, as well as on confidentiality procedures and contractual provisions, to protect our proprietary rights. We seek patent protection for our unique developments in circuit designs, processes and algorithms. Adequate protection of our intellectual property rights may not be available in every country where our products and services are made available. We intend, as a general policy, to enter into confidentiality and invention assignment agreements with all of our employees and contractors, as well as into nondisclosure agreements with parties with which we conduct business, to limit access to and disclosure of our proprietary information; however, we have not done so on a uniform basis. As a result, we may not have adequate remedies to preserve our trade secrets or prevent third parties from using our technology without authorization. We cannot assure you that all future employees, contractors and business partners will agree to these contracts, or that, even if agreed to, these contractual arrangements or the other steps we have taken to protect our intellectual property will prove sufficient to prevent misappropriation of our technology or to deter independent third-party development of similar technologies. If we are unable to execute these agreements or take other steps to prevent misappropriation of our technology or to deter independent development of similar technologies, our competitive position and reputation could suffer and we could be forced to make significant expenditures.

We regularly file patent applications with the U.S. Patent and Trademark Office and in selected foreign countries covering particular aspects of our technology and intend to prosecute such applications to the fullest extent of the law. Based upon our assessment of our current and future technology, we may decide to file additional patent applications in the future, and may decide to abandon current patent applications. We cannot assure you that any patent application we have filed or will file will result in an issued patent, or, if patents are issued to us, that such patents will provide us with any competitive advantages and will not be challenged by third parties or invalidated by the U.S. Patent and Trademark Office or foreign patent office. Any failure to protect our existing patents or to secure new patents may limit our ability to protect the intellectual property rights that such patents or patent applications were intended to cover. Furthermore, the patents of others may impair our ability to do business.

We have several registered trademarks and service marks, in the United States and abroad, and are in the process of registering others in the United States. Nevertheless, we can not assure you that the U.S. Patent and Trademark Office will grant us these registrations. Should we decide to apply to register additional trademarks or service marks in foreign countries, there is no guarantee that we will be able to secure such registrations. The inability to register or decision not to register in certain foreign countries and adequately protect our trademarks and service marks could harm our competitive position, harm our reputation and negatively impact our future profitability.

If we are unable to develop and introduce new semiconductors successfully and in a cost-effective and timely manner or to achieve market acceptance of our new semiconductors, our operating results would be adversely affected.

The future success of our semiconductor business will depend on our ability to develop new semiconductor solutions for existing and new markets, introduce these products in a cost-effective and timely manner and convince leading equipment manufacturers to select these products for design into their own new products. Our quarterly results in the past have been, and are expected in the future to continue to be, dependent on the introduction of a relatively small number of new products and the timely completion and delivery of those products to customers. The development of new semiconductor devices is highly complex, and from time to time we have experienced delays in completing the development and introduction of new products and lower than anticipated manufacturing yields in the early production of such products. Our ability to develop and deliver new semiconductor products successfully will depend on various factors, including our ability to:

If we are not able to develop and introduce new products successfully and in a cost-effective and timely manner, our business, financial condition and results of operations would be materially and adversely affected.

Our new semiconductor products generally are incorporated into our customers' products at the design stage. We often incur significant expenditures on the development of a new product without any assurance that an equipment manufacturer will select our product for design into its own product. The value of our semiconductors largely depends on the commercial success of our customers' products and on the extent to which those products accommodate components manufactured by our competitors. We cannot assure you that we will continue to achieve design wins or that equipment that incorporates our products will ever be commercially successful.

The amount and timing of revenue from newly designed semiconductors is often uncertain.

We have announced a significant number of new semiconductor products and design wins for new and existing semiconductors. Achieving a design win with a customer does not create a binding commitment from that customer to purchase our products. Rather, a design win is solely an expression of interest by potential customers in purchasing our products and is not supported by binding commitments of any nature. Accordingly, a customer may choose at any time to discontinue using our products in their designs or product development efforts. Even if our products are chosen to be incorporated in our customer's products, we still may not realize significant revenues from that customer if their products are not commercially successful. A design win may not generate revenue if the customer's product is rejected by their end market. Typically, most new products or design wins

have very little impact on near-term revenue. It may take well over a year before a new product or design win generates meaningful revenue.

Once a manufacturer of communications equipment has designed a supplier's semiconductor into its products, the manufacturer may be reluctant to change its source of semiconductors due to the significant costs associated with qualifying a new supplier and potentially redesigning its product. Accordingly, our failure to achieve design wins with equipment manufacturers, which have chosen a competitor's semiconductor, could create barriers to future sales opportunities with these manufacturers.

Our semiconductor products typically have lengthy sales cycles and we may ultimately be unable to recover our investment in new products.

After we have developed and delivered a semiconductor product to a customer, the customer will usually test and evaluate our product prior to designing its own equipment to incorporate our product. Our customer may need three to six months or longer to test, evaluate and adopt our semiconductors and an additional three to nine months or more to begin volume production of equipment that incorporates our semiconductors. Moreover, in light of the recent significant economic slow down in the telecommunications sector, it may take significantly longer than three to nine months before customers commence volume production of equipment incorporating some of our semiconductors. Due to this lengthy sales cycle, we may experience significant delays from the time we increase our expenses for research and development and sales and marketing efforts and make investments in inventory until the time that we generate revenue from these products. It is possible that we may never generate any revenue from these products after incurring such expenditures. Even if a customer selects our semiconductors to incorporate into its equipment, we have no assurances that the customer will ultimately market and sell its equipment or that such efforts by our customer will be successful. The delays inherent in our lengthy sales cycle increase the risk that a customer will decide to cancel or change its product plans. Such a cancellation or change in plans by a customer could cause us to lose sales that we had anticipated. In addition, our business, financial condition and results of operations could be materially and adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle or chooses not to release equipment that contains our products.

The resources devoted to product research and development and sales and marketing may not generate material revenue for us, and from time to time, we may need to write off excess and obsolete inventory. If we incur significant marketing and inventory expenses in the future that we are not able to recover, and we are not able to compensate for those expenses, our operating results could be adversely affected. In addition, if we sell our products at reduced prices in anticipation of cost reductions and we still have higher cost products in inventory, our operating results would be harmed.

For our semiconductor products, our future success will depend upon our ability to continue to improve existing process technologies, to develop or acquire new process technologies, and to adapt our process technologies to emerging industry standards. In the future, we may be required to transition one or more of our products to process technologies with smaller geometries, other materials or higher speed in order to reduce costs and/or improve product performance. We may not be able to improve our process technologies and develop or otherwise gain access to new process technologies in a timely or affordable manner. In addition, products based on these technologies may not achieve market acceptance.

We have also identified the following additional risks which are described in detail in our Form 10-K for the year ended December 31, 2001:

We currently are involved in litigation and regulatory proceedings incidental to the conduct of our business and expect that we will be involved in other litigation and regulatory proceedings from time to time. While we believe that any adverse outcome of such pending matters will not materially affect our business or financial condition, there can be no assurance that this will be the case.

On April 12, 2002 the Company dismissed Arthur Andersen LLP as independent public accountant. This event was reported in the Company's report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2002.

On May 8, 2002 the Company appointed Deloitte & Touche LLP as independent public accountant. This event was reported in the Company's report on Form 8-K filed with the Securities and Exchange Commission on May 14, 2002.

On March 5, 2002 the Company filed a report on Form 8-K with the Securities and Exchange Commission related to the appointment of Michael R. Farese, Ph.D. as the new Chief Executive Officer, replacing Malcolm J. Caraballo who resigned from the Company.

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, in the City of San Jose, State of California, on the 15th day of May 2002.

			Three Months Ended
			March 31, 2002			April 1, 2001
Sales
	Fiber optics		$	2,662		$	2,187
	Wireless			6,613			6,430
	Semiconductor			3,787			7,407

Total sales				13,062			16,024
Cost of goods sold				10,076			20,793

Gross profit (loss)				2,986			(4,769	)
Operating expenses:
	Research and development			4,440			4,830
	Selling and administrative			3,443			3,516
	Amortization of deferred stock compensation (*)			102			186

		Total operating expenses		7,985			8,532

Loss from operations				(4,999	)		(13,301	)
Interest income				299			1,269
Interest expense				(22	)		(106	)
Other income (expense) — net				—			3
Gain on dispositions of real property				—			326

Loss from operations before income taxes				(4,722	)		(11,809	)
Income tax benefit				—			(4,724	)

Net loss			$	(4,722	)	$	(7,085	)

Basic and diluted net loss per share			$	(0.08	)	$	(0.13	)

Basic and diluted average shares				55,995			55,298
(*) Amortization of deferred stock compensation excluded from the following expenses
	Cost of goods sold		$	11		$	10
	Research and development			29			36
	Selling and administrative			62			140

			$	102		$	186

			Three Months Ended
			March 31, 2002			April 1, 2001
Net loss			$	(4,722	)	$	(7,085	)
Other comprehensive loss:
	Unrealized holding losses on securities arising during period			(23	)		(1	)
		Less: reclassification adjustment for losses included in net loss		(9	)		—

	Net unrealized holding losses on securities			(14	)		(1	)

Comprehensive loss			$	(4,736	)	$	(7,086	)

		March 31, 2002			December 31, 2001
		(Unaudited)			(See Note 1)
ASSETS
CURRENT ASSETS:
	Cash and equivalents	$	39,944		$	25,216
	Short-term investments		27,594			30,457
	Receivables, net		8,901			11,748
	Inventories		6,609			10,258
	Deferred income taxes		6,053			14,202
	Other		1,956			2,701

	Total current assets		91,057			94,582
PROPERTY, PLANT AND EQUIPMENT, net			31,739			32,214
OTHER ASSETS			309			220

		$	123,105		$	127,016

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable	$	3,699		$	3,849
	Accrued liabilities		6,847			5,911

	Total current liabilities		10,546			9,760
Restructuring accrual			6,057			6,338
Other long-term obligations			11,316			11,196

	Total liabilities		27,919			27,294
STOCKHOLDERS' EQUITY:
	Common stock		563			560
	Additional paid-in capital		179,202			178,241
	Retained deficit		(83,095	)		(78,373	)
	Deferred stock compensation		(1,466	)		(702	)
	Other comprehensive loss		(18	)		(4	)

	Total stockholders' equity		95,186			99,722

		$	123,105		$	127,016

				Three Months Ended
				March 31, 2002			April 1, 2001
OPERATING ACTIVITIES:
	Net loss			$	(4,722	)	$	(7,085	)
	Adjustments to reconcile net loss to net cash provided (used) by operating activities:
		Depreciation and amortization			1,487			1,283
		Amortization of deferred financing costs			8			5
		Net gain on disposals of property, plant and equipment			—			(398	)
		Deferred income taxes			8,158			(4,724	)
		Amortization of deferred stock compensation			102			186
		Reduction in allowance for doubtful accounts			(225	)		(159	)
		Write-offs of uncollectible accounts to allowance			(254	)		—
		Provision for excess and obsolete inventory			2,865			6,567
		Net changes in:
			Receivables		3,326			12,432
			Inventories		784			(6,133	)
			Other assets		579			177
			Accruals, payables and income taxes		624			(19,482	)

	Net cash provided (used) by operating activities				12,732			(17,331	)

INVESTING ACTIVITIES:
	Purchases of property, plant and equipment				(1,011	)		(3,393	)
	Purchase of short-term investments				(12,268	)		(7,207	)
	Proceeds from sale of short-term investments				15,176			17,233
	Proceeds on real property sales and asset retirements				—			500

	Net cash provided by investing activities				1,897			7,133

FINANCING ACTIVITIES:
	Payments on long-term borrowings and financing costs				—			(43	)
	Net proceeds from issuances of common stock				99			215

	Net cash provided by financing activities				99			172

Net increase (decrease) in cash and equivalents					14,728			(10,026	)
Cash and equivalents at beginning of period					25,216			48,970

Cash and equivalents at end of period				$	39,944		$	38,944

Other cash flow information:
	Income taxes paid (received), net				(8,158	)		9,600
	Interest paid				14			134

Expected Maturity Dates		Expected Maturity Amounts (in thousands)		Weighted Average Interest Rate
Cash equivalents:
	2002	$	39,895	1.85	%
Short-term investments:
	2002		27,594	2.08	%

Fair value at March 31, 2002		$	67,489

		WJ COMMUNICATIONS, INC. (Registrant)
Date	May 15, 2002	By:	/s/ MICHAEL R. FARESE, Ph.D. Michael R. Farese, Ph.D. President and Chief Executive Officer (principal executive officer)
Date	May 15, 2002	By:	/s/ WILLIAM R. SLAKEY William R. Slakey Chief Financial Officer (principal financial officer)