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Technology

Kevin Dede, CFA 212-218-3714

[email protected]

INITIATION OF COVERAGE

M ORGAN JOSEPH

October 25, 2007

J J

Powerwave Technologies, Inc. (NASDAQ – PWAV – BUY)

The Disclosure section may be found on pages 17-18 of this report.

The Valuation section may be found on page 12 of this report.

Key Metrics PWAV - NASDAQ (10/24/07) $5.83 Price Target $8.00 52-Week Range $4.75-$7.64 Shares Outstanding (mm) 130.3 Market Cap. ($mm) $759.7 3-Mo. Average Daily Volume 4.3mm Institutional Ownership 98% Debt/Total Capital (6/07) 38.2% ROE (6/07) NA Book Value/Share (6/07) $4.35 Price/Book Value 1.3x Dividend Yield NA

EPS FY 12/31

2006A Prior

2007E Curr. 2007E

Prior 2008E

Curr. 2008E

1Q $0.03 -- ($0.20)A -- -- 2Q $0.13 -- ($0.16)A -- -- 3Q ($0.07) -- ($0.07)E -- -- 4Q ($0.22) -- $0.00E -- -- Year ($0.17) -- ($0.43)E -- $0.10E P/E NA NA 58.3x

Revenue ($mm)

2006A Prior

2007E Curr. 2007E

Prior 2008E

Curr. 2008E

1Q $181.8 -- $163.6A -- 2Q $219.6 -- $185.6A -- 3Q $145.8 -- $205.0E -- 4Q $169.8 -- $230.0E -- Year $716.9 -- $784.3E -- $890.0E

Company Description: Powerwave Technologies (www.powerwave.com) is the leading independent manufacturer of wireless subsystems in the world following the successful acquisition of Andrew Corp. by CommScope and it serves both leading carriers directly as well as the major wireless OEMs.

The Last Independent Mobile Subsystem Supplier Left Standing; Mobile Networks Expanding in Scope; Initiating Coverage with a Buy Rating and an $8 Price Target Investment Highlights The last independent. Powerwave provides integrated wireless subsystems to both carriers and telecom OEM customers worldwide, and has strong share in the merchant market. Broad consolidation across the wireless industry, including the announced acquisition of Andrew by CommScope, has left Powerwave as the largest stand-alone, independent wireless-focused subsystem vendor. We believe residing singularly at the pinnacle of the wireless equipment supply chain is a testament to the company’s fine management.

Network traffic and expansion of scope provide longer-term drivers. Worldwide wireless traffic continues to rise at almost exponential rates as subscribers cherish the freedom provided in mobile telephony. We see the traffic trend continuing as newer technologies provide even faster access to the “mobile” Internet; and the strength of the demand piggybacking off the intersection of mobility, location, and the host of Internet applications already available as virtually unfathomable.

Impending resurgence on 2H07 infrastructure spending. Although Ericsson’s 3Q07 results missed expectations, based on Nokia Siemens Networks’ (NSN) release, we expect improved trends in the mobile infrastructure environment through the balance of the year, and specifically, for AT&T and NSN to bode well for Powerwave.

Unique technology deployments offer Powerwave an avenue to demonstrate its skill and flexibility in meeting advanced design specifications. Sprint’s WiMAX and T-Mobile’s 3G in AWS spectrum stand as unique technology implementations, and we see Powerwave’s flexibility outclassing that of its competitors in matching early demand.

We are initiating coverage of Powerwave Technologies Inc. with a Buy rating and an $8 price target. We see PWAV approaching an EV/sales multiple closer to 1.5x on our FY08 $890mm sales estimate as the company returns to growth and profitability. Competitors can trade to much higher multiples depending on both their margin structure and growth prospects; we argue that both look promising for Powerwave.

Powerwave Technologies, Inc. October 25, 2007

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Investment Thesis We are initiating coverage of Powerwave with a Buy rating and an $8 price target. Powerwave designs, manufactures, and sells antennas, filters, repeaters, power amplifiers, and various other subsystems to both mobile network operators and original equipment manufacturers (OEMs) for mobile wireless networks. While we agree with Ericsson’s overall assessment that the mobile infrastructure market is growing at only mid-single digits worldwide, we believe an investment in Powerwave is warranted at current levels given the company’s unique position as the last remaining independent mobile equipment component supplier and its key relationships with both OEM and carrier customers. More importantly, we believe certain Powerwave customers are on the verge of escalating spending efforts, which should boost near- and medium-term Powerwave sales and earnings. In addition, we believe Powerwave is consolidating the tier-two supplier level (beneath the major OEMs), and is in the process of extracting volume efficiencies in addressing a greatly streamlined mobile equipment market. Powerwave generated $716.9mm in sales in FY06, down about 9% from $784.3mm in FY05, primarily due to restrained spending from key customers (some related to industry consolidation) and to a lesser extent, Powerwave’s own restructuring efforts.

Investment Positives Key customer network investment. We expect that the capital expenditure plans of AT&T’s wireless unit should directly benefit Powerwave in the near term. Historically, AT&T has been a 10%-plus customer and Powerwave’s largest direct customer, and the recent merger between Bell South and SBC and the change in technology leadership at the combined firm instigated a pause in wireless spending at AT&T earlier this year, as the graph below reflects. However, AT&T clearly articulated that it expects to carry out most of its planned 2007 high-speed wireless upgrades in October and November, according to Richard Burns, its president for wireless network services, as published in a Reuters’ press release on September 24, 2007. AT&T Wireless Spending Expected to Jump Back Near-Term

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AT&T Wireless Capex Mo Jo Forecast Source: AT&T and MJ estimates


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The crux of our near-term investment thesis rides on the expected return to spending at AT&T and the continued strength Powerwave has seen with Nokia Siemens Networks (NSN) and its related business in India. A 38% customer in 2Q07, NSN has done approximately $125mm worth of business with Powerwave to date, and we believe another $125mm is not outside the realm of possibilities given the contracts NSN is obligated to fill. Nokia’s network business, as reported within Nokia’s September quarter report on October 18, was €3.8bn, up €236mm or 7% sequentially from €3.4bn reported in 2Q07, driven by strong European sales despite the seasonally slower September quarter typically seen in the European theatre. Longer-term, Powerwave should benefit from the introduction of new wireless technologies and an increasing amount of licensed spectrum, as well as from overall demand for both basic voice connectivity and broadband data. Demand for new wireless technologies as networks expand in scope. Given its smaller size and concentrated wireless focus, Powerwave has established a reputation for developing solutions rapidly to address new opportunities. Some of these include the power amplifiers and filters needed to build high-speed voice and data mobile networks in 1700 MHz (T-Mobile’s AWS spectrum) and 2.5 GHz (Sprint’s WiMAX spectrum), both of which must support broadband wireless channels, adding significant complexity to design. We see Powerwave having an advantage and beating its competitors in meeting design specifications. Network demand is driven by a combination of capability and applications (cool devices admittedly play a part as well, but stand outside the realm of this report). Sharing video (whether news, sports, or YouTube) and other data-type functions is both enabled and spurred by expanding network capability. As the demand for functionality increases and operators see a way to capitalize on data-driven ARPU, operators move to expand the scope of networks by employing the next technology iteration or activating new radio spectrum. As a proxy for new technology network launches, we offer GSA’s data on HSDPA (high-speed downlink packet access, a UMTS/WCDMA follow-on technology) network launches in the chart below. Many of the 3GPP-based networks in developing countries have already considered, and are moving on to, HSUPA, which includes a high-speed uplink. It is these network migrations that drive demand for infrastructure equipment. In addition, as carriers move to meet both mobile voice and data demand, existing allocated spectrum is stretched to capacity, and additional frequency allocations are required, also driving demand for network equipment. HSDPA Commercial Network Launches: Total 144 (October 8, 2007)

Source: GSA “3G/HSDPA Operators” Surveys


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Subscriber growth creates demand. As an example of our point on overall industry demand, we present the underlying subscriber trends in India, one of the hottest wireless growth markets in the world. Ceragon Networks’ stated view, a supplier to Nokia, confirms our notion that growth should remain robust there for the foreseeable future, perhaps beyond 2010. Powerwave’s relationship with NSN leaves us confident it should continue to benefit from growth in India for years to come.

Source: SEB Enskilda, TRAI

Company and Industry Overview Powerwave manufactures and sells base station subsystems and components required in the construction and operation of mobile networks. One of the most interesting and compelling investment aspects of Powerwave, in our view, is its evolutionary track. Starting as a family-run business in 1985 and operating under the name of Milcom International, Inc., the company initially manufactured power amplifiers for use in analog wireless networks. Power amplifiers sit on the transmit side of the radio base station between the radio and the antenna and serve to increase the power of the radio signal leaving the base station; greater power translates to greater range of the RF signal. The company’s core capability has been enhanced through a variety of acquisitions it has made as players in the cellular subsystem market have consolidated. An abbreviated outline of Powerwave’s history is presented below: Impressive String of Acquisitions

1985 Founded under the name Milcom International

1993 Expanded into air-to-ground power amplifiers

1995 Multi-carrier RF power amplifiers

1996 IPO under Powerwave Technologies

1999 Acquired Hewlett-Packard's RF amplifier business for GSM & TDMA

2001 Acquired Tracomm, Ltd for transceivers and RF simulation

2003 Acquired Ericsson Amplifier Technologies in NY for multi-carrier

2004 Acquired LGP Allgon for antennas, tower mount amps, and filters

2005 Acquired Kaval Wireless for in-building coverage solutions

2005 Acquired certain assets of REMEC to strengthen customer relationships

2006 Acquired certain assets of Filtronic plc Source: Company reports


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Since 1999, Powerwave has executed on a number of acquisitions, which at first brought competitive technologies, and more recently has eliminated competitive companies from the market. At this point, we believe Powerwave is content on driving synergies from the Filtronic acquisition completed on October 16, 2006, just about a year ago. We think Powerwave would be well-suited to invest in an IP softswitch technology, which could be acquired through any number of the players in that market. Based on a networking transition, we believe IP softswitch technology emerges as switching costs decline exponentially relative to traffic transit costs. These factors would tend to drive switches to the periphery of the network, thereby greatly reducing traffic when call (voice/data) connections can be made at the base station or base station controller versus deep in the network core. Powerwave’s key products play at this network point. Observing Powerwave’s acquisition track record, however, reveals two points: 1) the company has evolved to become the leading international, independent subsystem supplier in mobile networks from just a family-run business in 20 years; and 2) the management team has established itself as acquisition integration experts, in our view, working through the relatively simple REMEC deal as well as the intensity of the more complex LGP Allgon and Filtronic deals. These characteristics leave us ever more confident in the company’s management team, whether or not a play for a softswitch company is pursued. June Quarter 2007 Product Mix

Coverage Solutions

7%

Basestation Subsystems

72%

Antennas21%

Source: Company reports Powerwave’s products can be broken out into three basic categories: 1) antenna systems that include cellular base station antennas and tower mounted amplifiers; 2) base station systems that include power amplifiers, RF filters, combiners and outdoor cabinets and radio transceivers; and 3) coverage systems that include repeaters and the systems used to distribute cellular signals through large indoor complexes, such as convention centers and exhibit halls. Antenna Systems Powerwave provides cellular base station antennas in all forms, including both mono-pole and panel, both of which we have pictured below. This business generates approximately 20% of overall sales. The company’s products support all relevant technology transmission protocols and frequencies, both of which are becoming more challenging as wireless communications evolve. A brief segue discussion on wireless technology should offer meaningful insight into future demand. According to Ericsson, and as shown in the diagram below, the three prevalent mobile wireless technologies should progress in parallel, each reaching “4G” status by the 2010 time frame. We note Ericsson’s negative bias toward WiMAX, and unlike Ericsson, we believe the WiMAX “m” iteration could be market-ready concurrent


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with the 3GPP’s LTE (Long Term Evolution, or the 3GPP’s fourth generation technology). New Air Interface Technologies Drives the Food Chain

Source: LM Ericsson As wireless communication services develop, governments worldwide appear to allocate more spectrum to them, which complicates technical deployment further. 3G services in the U.S. are likely to be offered in 800, 1900, and 1700 MHz bands, and might include extension to the 700 MHz band, depending on the outcome of the upcoming auction. In Europe, 900, 1800, and 2100 MHz are currently in use, but the process to begin allocation of 2500 MHz is expected to begin shortly. As such, base station components must be able to economically allow for the delivery and receipt of signals across both an increasing number of technologies and frequency bands. Component vendors have the opportunity to address the increasing technical demands and perhaps combine newer frequencies and technologies with those of legacy networks. The development of technologies becomes equally complicated on the handset, which in some cases must support 10 to 12 separate radios, including: Bluetooth and Wi-Fi in 2.4 GHz, GSM, GPRS, EDGE in quad band, and UMTS/HSPA in dual band. Delivering multiple-radio support with limited battery power and strict size restrictions makes handset development a tough task. To ease the handset design parameters somewhat, base stations are built to incredibly high specifications for radio performance in an effort to compensate for rougher handset functionality, and therefore, the demands on infrastructure providers are infinitely more difficult. This is part of the explanation for why there are many device vendors for handset applications but far fewer for infrastructure applications. There are obviously much greater scale opportunities in the handset market as it is expected to surpass one billion units this year. Included in Powerwave’s Antenna System’s group is the company’s line of tower-top mounted amplifiers (TMAs). Tower-mounted amps help boost reception of weaker incoming or uplink signals coming from handsets, which are powered by relatively weak batteries. Antennas are typically grouped in order to provide the maximum capacity and coverage in a given area. The picture below of a single panel antenna helps in seeing what Powerwave provides its customers, but to picture these antennas in everyday use, it’s helpful to see a full base station, where perhaps as many as 9 or 12 of these antennas are grouped.


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Standard Panel Antenna Used in Many Base Stations

Source: Powerwave In areas where customer densities are lower, or cell areas are significantly less, a mono-pole antenna similar to the one shown below can be used.

Source: Powerwave Base Station Subsystems Powerwave’s Base Station Subsystems segment generates approximately 72% of sales, while power amplifiers, the company’s key product within this segment, provide about 25% of overall sales. The balance within this segment, almost half of all Powerwave revenues, comes from the manufacture and sale of filters, combiners, radio transceivers, and outdoor cabinets. The full compliment of Powerwave’s products covers all mobile technologies. And as we referenced above, new technologies offer an opportunity, which includes the Sprint Clearwire deployment of WiMAX here in the U.S., T-Mobile’s 3G deployment in 1700


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MHz also in the U.S., and assorted other developments worldwide. For these unique deployments, such as WiMAX and 1700 MHz 3G, we believe Powerwave’s independent standing provides an advantage. While there’s obviously nothing sexy about Powerwave’s products, it’s the tough design specs and the bare bones cost at which Powerwave manufactures that allows for service providers to deliver voice, data, and other mobile applications. A 3G Power Amplifier

Source: Powerwave The VersaFlex enclosure system, pictured below, pushes Powerwave into even closer collaboration with its carrier customers. The VersaFlex incorporates all the shelving and fittings for a complete base station at much less weight but with greater flexibility versus competitive offerings. Potentially More Sexy Products?

Source: Powerwave Coverage Solutions The Coverage Solutions group comprises only 7% of Powerwave’s sales, but could become much more meaningful in the not-so-distant future. This group consists primarily of distributed antenna systems that would be employed in a large building or building complex to enhance coverage within the facility. Other places where coverage solution might be employed include subway systems or tunnels where RF signals cannot normally propagate but where coverage is important to either the facility owner or the service provider.


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We refer our readers to Powerwave’s website for a better view of the individual coverage solutions products, carefully noting that what’s important in this group isn’t the individual products, but instead, the manner in which the products are connected to provide seamless connectivity throughout a large facility. Interestingly enough, coverage solutions could provide a nice growth kicker in developed countries where major networks are established, but coverage is lacking in heavily trafficked areas such as mass transit systems, convention centers, and multi-building office complexes. While we don’t have sufficient data to offer a solid view of prospects, we do expect to see that aspect of Powerwave’s business grow more quickly than its base station subsystem business. On a quarterly basis, Powerwave’s sales have run between $150mm and $225mm, while the historical sales mix over the past six quarters has remained fairly consistent, as shown in the following chart. We see no reason for the company’s mix to shift wildly among the company’s three segments, but we do see sales increasing nicely in 2H07. Segment Mix Fairly Consistent Despite Slow Start to the Year ($ in millions)

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Antennas Basestation Subsystems Coverage Solutions

Source: Powerwave Geographic Strength Follows Recent Acquisitions

On the back of the LGP Allgon and Filtronic plc acquisitions, Powerwave’s sales fall predominantly in Europe, as shown in the chart below. We expect the company’s geographic mix to shift as world demand ebbs and flows; nearer-term, we expect to see Powerwave’s European mix decline as spending returns in North America, while the strength in Asia, driven primarily by the robust market in India, also increases.


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Euro Mix Dominated FY06 Sales

Americas28%

APAC20%

EMEA52%

Source: Powerwave Widespread Geographic Market Opportunities

The mobile equipment market presents a myriad of mobile network development opportunities that vary depending on geography. Developed regions should see extensions of existing networks favor supporting higher data rates, while less-developed economies such those within Latin America, India, and Africa should see strong growth in mobile subscribers as basic coverage improves. The graphic below characterizes these opportunities on a regional basis. Mobile Systems Evolution Is Regional Specific

Source: Andrew Corp. Industry Trends Remain Robust Despite Moderation of Growth

Expectations call for mid-single-digit growth in the mobile equipment market this year, and include some tapering of growth going forward. With continued strong subscriber growth, 3G builds, especially in China, and the potential of WiMAX, and perhaps other new technologies, we believe that in 2008, the mobile equipment market could experience growth in the range we’ve seen over the past few years. Our Buy argument on Powerwave isn’t centered on overall industry growth, but instead, on the specific exposure the company has within the industry. However, it is only fair to our readers to present the underlying industry dynamics, albeit unfavorable, from a “growth investor’s” perspective.


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Could Equipment Sales Taper?

Source: Andrew Corp. Network operator capital spending plans drive equipment sales. Worldwide, wireless capex is also expected to slow somewhat next year, as the chart below attests.

Source: Andrew Corp. Carriers see booming subscriber growth and network use, which spurs the need to spend. Subscriber growth is highest in the less developed regions of Africa, India, and some of the ex-Soviet satellite republics. We see continued market expansion, new technologies, and more licensed spectrum as opportunities for Powerwave going forward.

Financial Review and Forecast Outlook Our estimates are derived from two key trends: 1) the continued use of wireless technology, increased deployment of higher bandwidth, higher speed wireless technologies, and continued penetration in less developed countries; and 2) increased use of merchant suppliers by the larger OEMs. On that basis, we have forecast sales growth in 2007 of 9.4%, increasing in 2008 to 13.5%. Formally, our 2007 estimates stand at $784.3mm and a per share loss of $0.43. Certain factors at AT&T, primarily the result of the merger between SBC and Bell South, which


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retarded the capital spending initiatives, stand as a major reason why Powerwave’s expected revenue growth in 2007 sits within single-digit levels. We see some gross margins improving over the course of the year, although collectively projected at 19.4%, falling below the 2006 level of 19.9%. Manufacturing efficiencies expected in the integration of the Filtronic business should help boost margins in 2H07 and in 2008. Sales and earnings in 2008 are forecast at $890mm and $0.10, respectively. Sales growth next year is expected to step up as new networks from T-Mobile and Sprint contribute, as well as potential sales related to expanding China 3G networks; we have forecast Powerwave’s sales to grow 13.5% in 2008. Given the company has no current stated plans for further acquisitions, we expect to see ongoing operating leverage achieved as further efficiencies are gained from the integration of Filtronic with Powerwave’s existing business. From a balance sheet perspective, Powerwave’s recent completion of the $150mm placement of convertible subordinated notes provided a boost to cash balances to cover the $120mm worth of notes due mid-year next year, and has a minimal effect on earnings. We expect the company to be in a strong cash generation mode through 2008, which may lead Powerwave to alleviate its debt position, or perhaps to acquire other companies.

Valuation Two arguments stand in favor of our Powerwave Buy recommendation: 1) we think estimates are conservative, especially on the back of a 7% sequential increase in NSN’s revenues posted within its 3Q07 report, and increasing spending anticipated at AT&T during 2H07; and 2) we see Powerwave’s current valuation multiple as being overly discounted in the face of improving results, especially in light of the current valuations accorded Alvarion, Ceragon, and CommScope, shown in the table below. In these instances, sustained performance, both in sales and earnings growth, is rewarded by Wall Street, and we think Powerwave is on its way to demonstrating its ability to report results in line with more highly valued comparable companies. Specifically, within 12 months or so, we see Powerwave’s shares trading to $8.00 on an enterprise value-to-sales ratio closer to 1.5x on our FY08 sales estimate of $890mm. Wireless Equipment Companies - Comparable Valuation AnalysisOctober 24, 2007

10/24/07 Market EnterpriseCompany Symbol Rating Price Cap Value (MM) C2007E C2008E C2007E C2008E

Airspan Networks Inc. (see note 3) AIRN BUY(3) $2.35 $176 $152.0 $95 $120 1.6x 1.3xAlvarion Ltd. ALVR BUY $13.25 $852 $732.1 $231 $283 3.2x 2.6xAnaren, Inc. ANEN NR $15.09 $267 $187.7 $132 $146 1.4x 1.3xAndrew Corporation ANDW NR $14.46 $2,256 $2,488.1 $2,170 $2,350 1.1x 1.1xAxesstel, Inc. AFT NR $1.02 $23 $27.7 $110 $119 0.3x 0.2xCeragon Networks LTD. CRNT HOLD $18.63 $606 $570.1 $161 $201 3.5x 2.8xCommScope Inc. CTV NR $52.05 $3,209 $2,986.6 $1,930 $2,080 1.5x 1.4xEMS Technologies, Inc. ELMG NR $25.16 $387 $287.2 $294 $330 1.0x 0.9xEndwave Corporation ENWV NR $24.63 $284 $217.6 $60 $75 3.6x 2.9xHarris Stratex Networks, Inc. HSTX BUY $18.87 $1,089 $1,024.9 $654 $690 1.6x 1.5xNMS Communications Corporation NMSS NR $1.50 $65 $35.1 $85 $96 0.4x 0.4xNovatel Wireless, Inc. NVTL BUY $22.43 $702 $610.9 $419 $490 1.5x 1.2xSierra Wireless, Inc. SWIR BUY $19.19 $512 $422.4 $412 $470 1.0x 0.9x

AVERAGE $802 $749 1.7x 1.4x

Powerwave Technologies, Inc. PWAV BUY $5.83 $760 $1,042.2 $784 $890 1.3x 1.2x

Source: Company reports, First Call, and Morgan Joseph & Co. Inc. estimatesNOTE: Estimates for uncovered companies are based on First Call Consensus estimates.NOTE 2: Estimates for Endwave and GigaBeam are based on Morgan Joseph & Co. Inc. estimatesNOTE 3: The Airspan "BUY" recommendation is a standing MJ recommendation; Kevin Dede has not assumed coverage of Airspan.

Sales EV/Sales

Source: Company reports and First Call


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Competition The wireless base station equipment industry is highly competitive, and one in which leading equipment OEMs such as Ericsson and NEC manufacture almost all of their own equipment and stand as complete vertically integrated behemoths. There are many “merchant” suppliers that sell directly to both OEMs that choose to outsource the manufacture of equipment as well as directly to carrier customers. Powerwave’s chief standalone competitor, Andrew Corporation, is in the process of being acquired by CommScope, a telecoms cable manufacturer. The acquisition, in our minds, is a good one for CommScope, but perhaps tougher for Powerwave, as we believe CommScope’s management team is first rate and could intensify the competitive environment for Powerwave. The upside is that the acquisition might not close until the November-December time frame this year, at which point CommScope should see exactly what bed they’ve made for themselves. On that basis, we don’t see the environment changing on account of CommScope’s operation until sometime in the March 2008 quarter.

Management We consider Powerwave, despite closing on the $1bn sales range, a small capitalization company deeply affected by the decisions of its senior executives on a day-to-day basis. And while its senior management team is feverishly working to streamline procurement, manufacturing, sales, and distribution daily, we point to the great success it has had in establishing Powerwave as the leading independent source for wireless base station equipment. Furthermore, Powerwave’s acquisition track record also speaks for itself, and obviously helped propel the company to its leading market position. President and CEO Ron Buschur has worked at Powerwave since 2001 when he joined as COO. Early in 2005, Ron was promoted to CEO. We think Ron has done a solid job over the past two-and-a-half years in the top spot, continuing the consolidation push that we believe has positioned Powerwave well for the future. With the stock sliding below $6 per share, disgruntled shareholders may beg to differ. The inherent value created through the course of the recent acquisitions, the rough integration and consolidation process, and the employment of new technologies should come to light in Powerwave’s earnings reports over the next few quarters, putting these concerns to bed. We have known Kevin Michaels, Powerwave’s CFO, for years. Kevin joined Powerwave in 1996 as CFO to help manage the IPO process, and we believe Kevin’s skill set has matured in step with Powerwave’s advanced position in the industry.

Investment Risks Sluggish outlook for mobile infrastructure spending. We believe Ericsson’s poor 3Q07 report is indicative of the generally slower pace we expect to see in mobile infrastructure spending. Powerwave is certainly subject to the overall secular trend; however, we see specific customer relationships that should benefit the company as overall market spending eases. Product commoditization and competition. As the major OEMs build to universal specifications for worldwide sales, versus the older regional model where equipment is manufactured for individual market consumption, this trend implies further commoditization of wireless equipment. Commoditization implies that the lowest cost supplier wins. We believe Powerwave is well positioned with manufacturing in China to compete with the lowest cost suppliers in the wireless equipment industry. High customer concentration. Nokia Siemens Network stands as Powerwave’s largest customer, responsible for approximately 38% of the company’s total business in 2Q07, and if combined in 2006, accounted for 34% of Powerwave’s business. AT&T has also been a greater-than-10% customer in the past. Part of our Buy argument is based on


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AT&T spending coming back. However, should Powerwave’s relationship with either of these customers fall in jeopardy, Powerwave’s sales and earnings could be adversely affected. Acquisition integration risk. The wireless equipment industry has witnessed a staggering amount of consolidation since the telecoms’ downturn, and Powerwave has executed on a number of acquisitions of its own. To date, we see Powerwave as doing a good job, especially with LGP Allgon, a tough nut to crack given its European position and the labor laws in those countries. Going forward, we expect Powerwave to maintain its course acquiring companies it believes provide a value within the company’s overall strategic direction. Integrating those acquisitions always poses a risk, but we offer Powerwave’s impressive track record as evidence for a reduced level of investor concern. External economic or telecom-related forces. Obviously affected by the underlying environment, Powerwave, given its loss-making position, could be more negatively impacted by a significant and prolonged downturn than its competitors. Public Companies mentioned in this report: Andrew Corporation (ANDW - $14.46 – NASDAQ) CommScope Inc. (CTV - $52.05 – NYSE) LM Ericsson Telephone Co. (ERIC - $29.80 - NASDAQ) Nokia Corp. (NOK - $38.86 - NYSE) Sprint Nextel Corp. (S - $17.49 – NYSE) AT&T Inc. (T - $41.55 - NYSE) Clearwire Corp. (CLWR - $21.71 – NASDAQ) Alvarion Ltd (ALVR - $13.25 – NASDAQ; Buy) Ceragon Networks (CRNT - $18.63 – NASDAQ; Hold)


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Table 1: Powerwave Technologies Inc. Income Statement 2006-2008E ($ in millions)

Quarterly Income Statement & Forecast($'s millions)

12/31/06 A 12/31/07 E EstimatePWAV -- FYE 12/31 Q1A Q2A Q3A Q4A YEAR Q1A Q2A Q3E Q4E YEAR YEAR-Est.

4/2/06 7/2/06 10/1/06 12/31/06 12/31/06 4/1/07 7/1/07 9/30/07 12/31/07 12/31/07 12/31/08

Sales $181.81 $219.56 $145.77 $169.75 $716.89 $163.64 $185.63 $205.00 $230.00 $784.27 $890.00 Cost of goods 142.61 165.00 121.79 144.58 573.98 134.61 152.20 164.00 181.70 632.51 684.80 Intangible asset amort. Acquired inv. RestructuringTotal COGS 142.61 165.00 121.79 144.58 573.98 134.61 152.20 164.00 181.70 632.51 684.80

Gross Profit 39.21 54.56 23.98 25.17 142.91 29.04 33.43 41.00 48.30 151.77 205.20

Sales & marketing 8.59 8.62 9.56 12.07 38.84 13.60 13.67 13.50 13.50 54.26 55.70Research & devel 15.33 15.11 15.51 25.25 71.19 25.63 22.44 21.00 20.50 89.57 81.00General & admin 13.90 12.45 13.21 18.45 58.02 19.31 18.71 17.50 15.50 71.02 60.70Intangible assetRestruct.Total Expenses 37.82 36.18 38.28 55.77 168.05 58.53 54.81 52.00 49.50 214.85 197.40

Operating Income 1.39 18.38 (14.30) (30.60) (25.13) (29.50) (21.38) (11.00) (1.20) (63.08) 7.80

Other Income 0.63 0.84 2.96 (1.52) 2.91 0.95 (2.16) 0.60 0.60 (0.01) 2.40

Pretax 2.01 19.22 (11.34) (32.12) (22.23) (28.55) (23.54) (10.40) (0.60) (63.08) 10.20Tax Exp. 0.10 1.68 (2.95) (3.85) (2.67) (2.86) (2.35) (1.30) (0.08) (6.58) 1.28

Net 3.61 19.23 (8.39) (28.26) (19.56) (25.69) (21.18) (9.10) (0.53) (56.50) 14.03

EPS $0.03 $0.13 ($0.07) ($0.22) ($0.17) ($0.20) ($0.16) ($0.07) ($0.00) ($0.43) $0.10Reported EPS ($0.02) ($0.34) ($0.26) ($0.91) ($1.19) ($0.36) ($0.34)Shares Outstanding 144.41 144.01 112.31 127.54 115.92 130.16 130.33 130.38 130.43 130.33 141.06

Margin AnalysisGross Margin (op) 21.6% 24.8% 16.5% 14.8% 19.9% 17.7% 18.0% 20.0% 21.0% 19.4% 23.1%S&M Ratio 4.7% 3.9% 6.6% 7.1% 5.4% 8.3% 7.4% 6.6% 5.9% 6.9% 6.3%R&D Ratio 8.4% 6.9% 10.6% 14.9% 9.9% 15.7% 12.1% 10.2% 8.9% 11.4% 9.1%G&A Ratio 7.6% 5.7% 9.1% 10.9% 8.1% 11.8% 10.1% 8.5% 6.7% 9.1% 6.8%Operating Margin 0.8% 8.4% -9.8% -18.0% -3.5% -18.0% -11.5% -5.4% -0.5% -8.0% 0.9%Pretax Margin 1.1% 8.8% -7.8% -18.9% -3.1% -17.4% -12.7% -5.1% -0.3% -8.0% 1.1%Tax Rate 5.0% 8.8% 26.0% 12.0% 12.0% 10.0% 10.0% 12.5% 12.5% 10.4% 12.5%Net Margin 2.0% 8.8% -5.8% -16.6% -2.7% -15.7% -11.4% -4.4% -0.2% -7.2% 1.6%

Percent ChangeTotal Sales 12.1% 17.8% -33.1% -31.9% -8.6% -10.0% -15.5% 40.6% 35.5% 9.4% 13.5%Cost of Revenue 17.9% 19.0% -25.6% -21.3% 0.7% -5.6% -7.8% 34.7% 25.7% 10.2% 8.3%Gross Profit -4.9% 14.5% -55.7% -60.1% -30.2% -25.9% -38.7% 71.0% 91.9% 6.2% 35.2%S&M Expenses -52.6% -55.2% -54.2% 10.5% -0.9% 58.2% 58.6% 41.3% 11.8% 39.7% 2.7%R&D Expenses 4.8% -2.1% 4.9% 57.5% 17.5% 67.2% 48.6% 35.4% -18.8% 25.8% -9.6%G&A Exp 49.9% 42.9% 38.9% 50.2% 32.5% -16.0% 22.4% -14.5%Operating Income -77.4% 65.2% -187.7% -252.5% -146.3% -2226.8% -216.3% -23.1% -96.1% 151.0% -112.4%Pretax Income -68.4% 36.8% -177.9% -256.4% -139.3% -1517.4% -222.5% -8.3% -98.1% 183.8% -116.2%Net Income -49.6% 29.6% -156.3% -225.1% -132.8% -810.9% -210.1% 8.5% -98.1% 188.9% -124.8%Share Count 10.0% 9.2% -17.6% -11.3% -14.7% -9.9% -9.5% 16.1% 2.3% 12.4% 8.2%EPS -54.2% 18.7% -168.3% -241.0% -138.4% -888.7% -221.7% -6.6% -98.2% 156.9% -122.9%Source: MJ estimates & Co. reports Source: Company Reports and Morgan Joseph & Co. Inc.

Po

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werwave Technologies, Inc. October 25, 2007

Table 2: Powerwave Technologies Inc. Balance Sheet 2006-2007A ($ in millions)

12/31/06 A 2007Q1A Q2A Q3A Q4A Q1A Q2A

Balance Sheet 4/2/06 7/2/06 10/1/06 12/31/06 4/1/07 7/1/07

AssetsCash & Equivalents $244.46 $220.22 $242.29 $47.84 $53.13 $59.41Accounts Receivable 213.09 253.75 201.30 211.42 193.87 205.66Inventories 117.27 132.05 139.18 163.75 159.57 146.41Other 29.65 59.69 47.20 45.12Total Current 574.82 606.02 612.41 482.70 453.77 456.60

PP&E 162.83 152.56 107.42 138.67 128.74 116.46Other assets 94.14 108.89 100.38 91.02Goodwill 395.98 429.60 287.69 485.48 481.45 491.90Total assets 1,133.63 1,188.17 1,101.67 1,215.73 1,164.34 1,155.98

LiabilitiesAccounts Payable 99.02 107.71 90.23 115.97 114.07 119.26Accrued expenses 81.13 97.64 94.53 105.80Inc Tax payable 0.00 0.00 17.51 19.63 21.57 19.61Current ST debt 0.00 0.00 12.78

Current Liabs. 99.02 107.71 188.88 233.23 230.17 257.45

L-T LiabilitiesL-T Debt 330.00 330.00 330.00 330.00 330.00 330.00Other non-current 113.49 123.54 3.94 0.90 3.94 1.71Total Liabilities 542.51 561.24 522.81 564.13 564.11 589.17

S.E. 591.12 626.93 578.86 651.60 600.26 566.81

Total L & S.E. 1,133.63 1,188.17 1,101.67 1,215.73 1,164.37 1,155.98 Source: Company Reports and Morgan Joseph & Co. Inc. estimates


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Required Disclosures

For important disclosures and price charts with our historical rating and price target changes go to: http://www.morganjoseph.com/research_equity_reports.php Price Target: Our price target is $8.00. Valuation: On account of the expected swing to positive earnings, we believe relative P/E multiple-based valuations are greatly distorted. We see a fair valuation for Powerwave at an enterprise value-to-sales (EV/sales) in some range well above 1.0x and closer to 1.5x as the company returns to growth and cash generation. At roughly $5.85, or an enterprise value of approximately $1bn, on $890mm in sales projected for next year, our price target of $8.00 is based on an EV/sales ratio of 1.5x. Risks:

♦ Sluggish outlook for mobile infrastructure spending. Ericsson’s poor 3Q07 report is indicative of the generally slower pace we expect to see in mobile infrastructure spending. Powerwave is certainly subject to the overall secular trend; however, we see specific customer relationships that should benefit the company as market spending eases.

♦ Product commoditization and competition. As the major OEMs build to universal specifications for worldwide sales,

versus the older regional model where equipment is manufactured for individual market consumption, this trend implies further commoditization of wireless equipment. Commoditization implies that the lowest cost supplier wins. We believe Powerwave is well-positioned with manufacturing in China to compete with the lowest cost suppliers in the wireless equipment industry.

♦ High customer concentration. Nokia Siemens Network stands as Powerwave’s largest customer, responsible for

approximately 38% of the company’s total business in 2Q07, and if combined in 2006, accounted for 34% of Powerwave’s business. AT&T has also been a greater than 10% customer in the past. Part of our Buy argument is based on AT&T spending coming back. However, should Powerwave’s relationship with either of these customers fall in jeopardy, Powerwave’s sales and earnings could be adversely affected.


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♦ Acquisition integration risk. The wireless equipment industry has witnessed a staggering amount of consolidation since the

telecoms’ downturn, and Powerwave has executed on a number of acquisitions of its own. To date, we see Powerwave as having done a good job, especially with LGP Allgon, a tough nut to crack given its European position and the labor laws in those countries. Going forward, we expect Powerwave to maintain its course acquiring companies it believes provide a value to the company’s overall strategic direction. Integrating those acquisitions always poses a risk, but we offer Powerwave’s impressive track record as evidence for a reduced level of concern.

♦ External economic or telecom-related forces. Obviously affected by the underlying environment, Powerwave, given its

loss making position, could be more negatively impacted by a significant and prolonged downturn than its competitors. I, Kevin Dede, the author of this research report, certify that the views expressed in this report accurately reflect my personal views about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to the specific recommendations or views contained in this research report. Research analyst compensation is dependent, in part, upon investment banking revenues received by Morgan Joseph & Co. Inc. Morgan Joseph & Co. Inc. intends to seek or expects to receive compensation for investment banking services from subject companies within the next three months. Of the securities currently subject to research coverage by Morgan Joseph & Co. Inc., the percentage rated as a “Buy” is 64%; the percentage rated as a “Hold” is 32%; and the percentage rated as a “Sell” is 4%. In the previous 12 months, Morgan Joseph & Co. Inc. has provided investment banking services to 30% of the companies we currently rate as “Buy”; to 14% of the companies we currently rate as “Hold”; and to 0% of the companies we currently rate as “Sell.” Meaning of Ratings: A) Buy means reasonable outperformance relative to the market over 12-18 months. B) Hold means market-type risk adjusted performance; potential source of funds. C) Sell means expected to underperform the market. Other Disclosures The information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not considered to be all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned herein. Morgan Joseph & Co. Inc., its affiliates, shareholders, officers, staff, and/or members of their families, may have a position in the securities mentioned herein, and, before or after your receipt of this report, may make or recommend purchases and/or sales for their own accounts or for the accounts of other customers of the Firm from time to time in the open market or otherwise. Opinions expressed are our present opinions only and are subject to change without notice. Morgan Joseph & Co. Inc. is under no obligation to provide updates to the opinions or information provided herein. Additional information is available upon request. Copyright 2007 by Morgan Joseph & Co. Inc.


Equity Division

Research David B. Kestenbaum Managing Director 212.218.3851 [email protected] Director of Research Richard S. Paget, CFA Senior Vice President 212.218.3894 [email protected] Assistant Director of Research Dean Haskell Senior Vice President 212.218.3856 [email protected] Adam Steinberg, CFA Senior Vice President 212.218.3765 [email protected] Jeffrey Blaeser Vice President 212.218.3739 [email protected] Kevin Dede, CFA Vice President 212.218.3714 [email protected] Michael French Vice President 212.218.3735 [email protected] Eugene Trogan, Ph.D. Vice President 212.218.3839 [email protected] Christopher Bamman Research Associate 212.218.3989 [email protected] Julia Heckman Research Associate 212.218.3772 [email protected] James Leahy Research Associate 212.218.3784 [email protected] Andrew Peters Research Associate 212.218.3992 [email protected] Sales and Trading Michael Weitzner Managing Director 212.218.3871 [email protected] Director of Sales & Sales Trading Matthew DiBiase Managing Director 585.899.6021 [email protected] Director of Trading Tim Bonham Senior Vice President 212.218.3874 [email protected] Ian Burgess Senior Vice President 212.218.3872 [email protected] Frank Gauvain Senior Vice President 617.217.2068 [email protected] John Lombardo Vice President 212.218.3874 [email protected] Andrew Monroy Vice President 212.218.3873 [email protected] Eli Portnoy Vice President 212.218.3283 [email protected] LOCATIONS New York 600 Fifth Avenue, 19th Fl New York, NY 10020 Tel. 212.218.3700 Fax. 212.218.3789

Pittsford 1173 Pittsford-Victor Road, Ste 120 102 Woodmont Boulevard, Suite 405 Pittsford, NY 14534-3841 Tel. 877.237.6542 Fax. 585.899.6029

Nashville

Nashville, TN 37205 Tel. 615.238.2300 Fax. 615.238.2301

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