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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

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

For the quarterly period ended June 30, 2001

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

For the transition period from _________ to _________

COMMISSION FILE NUMBER 0-26963

NETRO CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 77-0395029
(State of incorporation) (IRS Employer Identification No.)

3860 NORTH FIRST STREET, SAN JOSE, CA 95134
(408) 216-1500
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive
offices)

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

The number of shares outstanding of the Registrant's Common Stock as of August
7, 2001 was 52,196,952.

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INDEX

PAGE NO.
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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed Consolidated Balance Sheets as of June 30, 2001 and
December 31, 2000........................................ 3
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 2001 and 2000.............. 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2001 and 2000...................... 5
Notes to Condensed Consolidated Financial Statements.......... 6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10

Item 3. Quantitative and Qualitative Disclosures About Market Risk... 15

PART II. OTHER INFORMATION

Item 1. Legal Proceedings............................................ 16

Item 2. Changes in Securities and Use of Proceeds.................... 16

Item 3. Defaults Upon Senior Securities.............................. 16

Item 4. Submission of Matters to a Vote of Security Holders.......... 16

Item 5. Other Information............................................ 17

Item 6. Exhibits and Reports on Form 8-K............................. 17

SIGNATURES ........................................................... 18

EXHIBIT INDEX ......................................................... 19

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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

NETRO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
ASSETS (unaudited)

Current Assets:
Cash and cash equivalents ............................. $ 99,320 $ 91,660
Marketable securities ................................. 130,927 185,904
Trade accounts receivable, net ........................ 4,779 13,532
Inventory, net ........................................ 6,381 27,994
Prepaid expenses and other ............................ 3,255 5,527
--------- ---------
Total current assets ............................. 244,662 324,617
Equipment and leasehold improvements ....................... 8,026 6,896
Long-term marketable securities ............................ 106,889 89,351
Other assets ............................................... 2,618 889
--------- ---------
Total assets ..................................... $ 362,195 $ 421,753
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt and capital leases .. $ 1,801 $ 6,183
Trade accounts payable ................................ 3,176 9,116
Accrued liabilities ................................... 20,943 9,159
--------- ---------
Total current liabilities ........................ 25,920 24,458

Long-term debt and capital leases, net of current portion .. 353 1,280
Deferred facilities rent ................................... 9 40
--------- ---------
Total liabilities ................................ 26,282 25,778
--------- ---------
Commitments and contingencies (Note 5)

Shareholders' equity:
Common stock .......................................... 505,534 503,667
Deferred stock compensation ........................... (1,452) (1,933)
Accumulated other comprehensive income ................ 1,223 823
Accumulated deficit ................................... (169,392) (106,582)
--------- ---------
Total shareholders' equity ....................... 335,913 395,975
--------- ---------
Total liabilities and shareholders' equity ....... $ 362,195 $ 421,753
========= =========

See accompanying notes to condensed consolidated financial statements.

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NETRO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------

Revenues ............................................ $ 2,051 $ 15,504 $ 11,182 $ 25,958
Cost of revenues .................................... 21,182 11,393 51,885 19,641
-------- -------- -------- --------
Gross profit (loss) ................................. (19,131) 4,111 (40,703) 6,317
-------- -------- -------- --------
Operating expenses:
Research and development ......................... 6,539 5,692 14,279 11,476
Sales and marketing .............................. 3,588 2,530 7,351 4,570
General and administrative ....................... 4,749 2,373 9,725 4,289
Amortization of deferred stock compensation ...... 227 263 455 560
-------- -------- -------- --------
Total operating expenses ................... 15,103 10,858 31,810 20,895
-------- -------- -------- --------
Loss from operations ................................. (34,234) (6,747) (72,513) (14,578)
Other income, net .................................... 4,396 5,928 9,703 6,689
-------- -------- -------- --------
Net income(loss) ..................................... $(29,838) $ (819) $(62,810) $ (7,889)
======== ======== ======== ========
Basic and diluted net loss per share ................. $ (0.57) $ (0.02) $ (1.21) $ (0.16)
======== ======== ======== ========
Shares used to compute basic and diluted net loss
per share ......................................... 52,074 50,350 51,992 48,117
======== ======== ======== ========

See accompanying notes to condensed consolidated financial statements.

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NETRO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

SIX MONTHS ENDED
JUNE 30,
-------------------------
2001 2000
--------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................... $ (62,810) $ (7,889)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ................................. 1,890 1,175
Inventory provision ........................................... 29,700 525
Provision for doubtful accounts ............................... 2,000 600
Provision for contract losses ................................. 12,000 --
Loss on disposal of fixed assets .............................. 1,078 --
Amortization of deferred stock compensation ................... 455 560
Changes in operating assets and liabilities:
Trade accounts receivable .................................. 6,750 (7,335)
Inventory .................................................. (8,087) (4,771)
Prepaid expenses and other ................................. 3,793 (702)
Trade accounts payable and accrued liabilities ............. (6,141) 4,960
--------- ---------
Net cash used in operating activities ...................... (19,372) (12,877)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements ................ (4,111) (1,857)
Purchase of equity investment .................................... (1,500) --
Purchases of marketable securities ............................... (210,461) (168,244)
Maturities of marketable securities .............................. 246,561 40,785
--------- ---------
Net cash provided by (used in) investing activities ........ 30,489 (129,316)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and sale-leaseback ....... -- 1,070
transactions
Payments on notes payable and capital leases ..................... (5,309) (2,760)
Proceeds from issuance of common stock, net of issuance costs .... 1,893 354,699
Repayments of notes receivable from shareholder .................. -- 800
Repurchases of common stock ...................................... -- (31)
--------- ---------
Net cash provided by (used in) financing activities ........ (3,416) 353,778
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ........ (41) --
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................... 7,660 211,585
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................... 91,660 7,450
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................ $ 99,320 $ 219,035
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest ........................................... $ 497 $ 577
========= =========

See accompanying notes to condensed consolidated financial statements.

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NETRO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

1. DESCRIPTION OF BUSINESS:

Netro Corporation (collectively, with its subsidiaries, the "Company") was
incorporated in California on November 14, 1994 and reincorporated into Delaware
in June 2001. Netro is a leading provider of broadband wireless access equipment
used by telecommunications service providers to provide businesses with
high-speed voice and data access and to provide mobile service operators with
infrastructure applications. Netro's AirStar broadband access system derives its
price-performance benefits from dynamic bandwidth allocation and a
point-to-multipoint architecture that provides integrated voice and high-speed
packet data services. The Company operates in one business segment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information, and in accordance with the rules and
regulations of Form 10-Q and Article 10 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of the management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial statements at June 30, 2001 and 2000 have
been included.

The unaudited condensed consolidated financial statements include the
accounts of Netro Corporation and its subsidiaries in Germany, France and
Israel. All material intercompany accounts and transactions have been eliminated
in consolidation.

Results of operations for the three and six months ended June 30, 2001 are
not necessarily indicative of results that may be expected for any other interim
period or for the full fiscal year ending December 31, 2001. These financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and the accompanying notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 filed with the
Securities and Exchange Commission. The condensed balance sheet at December 31,
2000 is derived from audited financial statements as of that date.

CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES

Cash and cash equivalents consist of short-term, highly liquid investments
with original maturities of less than three months. Investments with maturities
greater than three months and less than one year are classified as short-term
marketable securities. Investments with maturities greater than one year are
classified as long-term marketable securities. The Company's investments, which
mature at various dates through June 2003, consist of government and corporate
debt securities and are classified as either "available-for-sale" or
"held-to-maturity." "Available-for-sale" investments are stated at fair value,
with unrealized gains and losses recorded in Accumulated Other Comprehensive
Income in the balance sheet. "Held-to-maturity" investments are stated at
amortized cost.

INVENTORY

Inventory, which includes materials and labor, is stated at the lower of
cost (first-in, first-out) or market and consists of the following (in
thousands):

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JUNE 30, DECEMBER 31,
2001 2000
-------- ------------

Raw materials ..... $ 1,106 $ 8,118
Work-in-process ... 138 3,840
Finished goods .... 5,137 16,036
------- -------
$ 6,381 $27,994
======= =======

NET LOSS PER SHARE

Basic and diluted net loss per share has been computed using the weighted
average number of shares of common stock outstanding. Shares of common stock
issuable pursuant to warrants and other stock option plans are excluded from
diluted net loss per share for periods in which there is a loss as they would be
antidilutive. The total number of options and warrants excluded from the diluted
net loss per share computation for the three and six months ended June 30, 2001
and 2000 were as follows (in thousands):

2001 2000
----- -----

Shares issuable pursuant to warrants to purchase common stock ..... 57 57
Shares issuable under stock option plans .......................... 6,718 6,685
----- -----
6,775 6,742
===== =====

The following table presents the calculation of basic and diluted net loss
per share (in thousands, except per share data):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
2001 2000 2001 2000
--------- ------- --------- --------

Net loss ................................................... $ (29,838) $ (819) $ (62,810) $ (7,889)
========= ======= ========= ========
Weighted average shares of common stock outstanding
used to compute basic and diluted net loss per share .... 52,074 50,350 51,992 48,117
========= ======= ========= ========
Basic and diluted net loss per share ....................... $ (0.57) $ (0.02) $ (1.21) $ (0.16)
========= ======= ========= ========

COMPREHENSIVE INCOME

Comprehensive income includes unrealized gains and losses on
available-for-sale equity securities and foreign currency translation gains and
losses that have been excluded from net income and reflected instead in
shareholders' equity. For the periods presented, comprehensive income is
calculated as follows (in thousands):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------

Net income (loss) .............................$(29,838) $ (819) $(62,810) $ (7,889)

Unrealized gains on marketable securities ..... (317) -- 428 --
Foreign currency translation adjustments ...... (124) -- (28) --
-------- -------- -------- --------
Comprehensive income (loss) ...................$(30,279) $ (819) $(62,410) $ (7,889)
======== ======== ======== ========

AMORTIZATION OF DEFERRED STOCK COMPENSATION

Amortization of deferred stock compensation results from the granting of
stock options to employees with exercise prices per share determined to be below
the estimated fair values per share of our common stock at dates of grant. For
the periods presented, amortization is classified as follows (in thousands):

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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2001 2000 2001 2000
------ ------ ----- -----

Research and development ...................... $ 44 $ 74 $ 88 $150
Sales and marketing ........................... 118 122 238 258
General and administrative .................... 65 67 129 152
---- ---- ---- ----
Amortization of deferred stock compensation ... $227 $263 $455 $560
==== ==== ==== ====

3. SHAREHOLDERS' EQUITY:

In March 2001, the Company effected a plan, under which employees holding
options to purchase the Company's common stock with exercise prices in excess of
$34.00 per share could choose to cancel those stock option grants in exchange
for a commitment that options to purchase the same number of common shares will
be granted in October 2001, provided that the participant has not terminated
employment prior to such time (the "Cancel and Re-grant Program"). Options
granted under the Cancel and Re-grant Program will have an exercise price equal
to the fair value of the Company's common stock on the date of the new grant,
and will vest according to the original vesting terms, which are typically
1/4(th) after one year and 1/48(th) per month thereafter, beginning at the date
of cancellation. All other terms of options granted under the Cancel and
Re-grant Program will be substantially the same as the cancelled options.

4. DEBT AND CAPITAL LEASES:

The following table summarizes obligations under long-term debt and capital
leases (in thousands):

JUNE 30, DECEMBER 31,
2001 2000
-------- ------------

Borrowings under bank line of credit ................. $ -- $ 3,568
Secured note payable to lender, due in monthly
installments of $90,942 with interest at 12.5% .... -- 975
Capital leases, due through 2003 ..................... 2,154 2,920
------- -------
Total long-term debt and capital leases .............. 2,154 7,463
Less: current portion ............................... (1,801) (6,183)
------- -------
$ 353 $ 1,280
======= =======

In January 1998, the Company entered into a bank line of credit under which
up to $10,000,000 is available for borrowings and letters of credit. This
arrangement was renewed in December 2000 and expires in January 2002. Borrowings
are limited to an aggregate amount equaling approximately 80% and 90% of
domestic and foreign eligible trade accounts receivables, respectively, and 50%
of eligible foreign inventories. The line of credit is secured by the Company's
trade accounts receivable and inventory. The borrowings under the line are due
in January 2002 and accrue interest at the 30-day LIBOR rate plus 1.5% or the
bank's prime rate, at the Company's option. Under the agreement, the Company
must comply with certain financial and other covenants. In April 2001, the
Company paid off the outstanding balance in full. As of June 30, 2001, there
were no borrowings outstanding under this agreement and amounts utilized for
outstanding letters of credit were $240,000.

5. COMMITMENTS AND CONTINGENCIES:

COMMITMENTS

The Company has outstanding a standby letter of credit for $240,000 to
secure certain of the Company's warranty obligations to one customer. The letter
of credit is secured by a certificate of deposit for $80,000. The letter of
credit is subject to draw if the Company fails to meet its obligations to the
customer.

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In July 2001, the Company issued a letter of credit for $2.0 million as a
security deposit for the Company's San Jose, California office space. The letter
of credit is subject to draw if the Company fails to meet its obligations under
the facilities lease.

6. SEGMENT REPORTING:

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company adopted SFAS No. 131 in fiscal 1998. SFAS No. 131 establishes standards
for disclosures about operating segments, products and services, geographic
areas and significant customers. The Company is organized and operates as one
operating segment: the design, development, manufacturing, marketing and selling
of broadband wireless point-to-multipoint access systems.

7. RECENT ACCOUNTING GUIDANCE:

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which, as amended, requires
companies to value derivative financial instruments, including those used for
hedging foreign currency exposures, at current market value with the impact of
any change in market value being recognized either in current earnings or in
other comprehensive income, depending on the use of the derivative and whether
the hedging instrument is effective or ineffective when hedging changes in fair
value or cash flows. The Company adopted SFAS No. 133 effective January 2001. As
the Company, to date, has not entered into any derivative financial instrument
contracts and does not engage in hedging activities, the adoption of SFAS No.
133 did not have a material impact on its financial position or results of
operations.

In July 2001, the FASB issued SFAS No.'s 141 and 142, "Business
Combinations" and "Goodwill and Other Intangibles". SFAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under SFAS 142, goodwill is no longer subject to
amortization over its estimated useful life. Rather, goodwill is subject to at
least an annual assessment for impairment applying a fair-value based test.
Additionally, an acquired intangible asset should be separately recognized if
the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented, or exchanged, regardless of the acquirer's intent to do so. As the
Company has no goodwill recorded on the books, these pronouncements are not
expected to have a material impact on its financial position or results of
operations.

8. SUBSEQUENT EVENTS:

In July 2001, the Company adopted a stockholder rights plan. As a part of
the plan, the Company has declared a dividend distribution of one right for each
outstanding share of common stock to stockholders of record as of August 16,
2001. Each right entitles the holder to purchase one unit consisting of one
one-hundredth of a share of a new series of participating preferred stock at an
initial purchase price of $20.00 per unit. If a person or group acquires 15% or
more of the Company's outstanding common stock, holders of the rights (other
than the person or group triggering their exercise) will be able to purchase, in
exchange for the $20.00 exercise price, shares of the Company's common stock
having twice the value of the exercise price. If, following an acquisition of
15% or more of the Company's common stock by a stockholder, the Company is
involved in certain mergers or other business combinations each right will
entitle the holder to purchase, in exchange for the exercise price, common stock
of the other party to such transaction having twice the value of the exercise
price. Holders who, as of the date of adoption of the plan, already hold more
than 15% of the Company's common stock will not trigger any rights under the
plan so long as neither they nor their affiliates or associates acquire more
than 19.9% of the Company's common stock. The rights expire on July 23, 2011
unless extended by the Company's Board of Directors.

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

This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Form 10-Q contain forward-looking
statements which include, but are not limited to, statements concerning
projected revenues, expenses and gross profit, need for additional capital and
market acceptance of our products. The forward-looking statements are based on
our current expectations, estimates and projections about our industry,
management's beliefs and certain assumptions made by us. Words such as
"anticipates," "expects," "intends," "plans," "believes," or similar expressions
are intended to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to predict. Therefore our actual results
could differ substantially from those anticipated in these forward-looking
statements as a result of many factors. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2000. The following discussion should be read together with our
consolidated financial statements and related notes included elsewhere in this
Form 10-Q.

OVERVIEW

We are a leading provider of broadband wireless access equipment used by
telecommunications service providers to provide businesses with high-speed voice
and data access and to provide mobile service operators with infrastructure
applications. We were incorporated in California in 1994 and reincorporated in
Delaware in 2001. We introduced our first product, the AirMAN system, in 1996.
The AirMAN system was designed to provide a dedicated link to connect two high
traffic nodes in a network. We discontinued AirMAN in September 1998. We began
development of a second system, the AirStar system, in 1996. Currently, all of
our revenues are derived from sales of the AirStar system. Unlike the AirMAN
system, the AirStar system allows multiple subscribers to communicate with a
single hub radio in a point-to-multipoint architecture using packet based
technology.

The AirStar system is comprised of two principal components:

- Customer Premise Equipment, which includes an outdoor radio unit which
sends and receives signals to and from the hub equipment, and an indoor
unit, which connects to the end-user's telecommunications and/or data
network; and

- Hubs, which include several outdoor radio units that send and receive
signals from multiple customer premise equipment units, and an indoor
unit, which aggregates data from the outdoor units and interfaces to the
telecommunications service provider's core network.

We began initial sales of an early AirStar system in Europe in early 1998.
Since then, we have increased our product offering to encompass multiple
frequencies thereby expanding our geographic coverage to include Latin America,
North America and Asia.

We sell our products indirectly through worldwide system integrators and
local resellers in addition to through a direct sales force. Our sales to
systems integrators comprised approximately 51% and 91% for both the three and
six months ended June 30, 2001 and 2000, respectively. Due to ongoing
realignments of our relationships with certain of our system integrator partners
we are uncertain what portion of revenues systems integrators will represent in
future periods. However, in the event of continued significant direct sales, we
will be required to improve and expand our internal sales, customer advocacy and
administration functions. Furthermore, as a result of these realignments we
could experience order delays and order cancellations or fail to secure expected
additional orders and, therefore, revenues during the balance of 2001 could be
adversely affected. We experienced such cancellations and loss of orders during
the first and second quarters of 2001. Overall, our visibility regarding
potential future revenues is unclear.

Sales to our largest system integrator customer represented approximately
49% of our total revenues for both the three and six months ended June 30, 2001.
Sales to two customers represented 49% and 30% of revenues for the three months
ended June 30, 2001. Sales to one customer represented 89% of revenues for the
three months ended June 30, 2000. Sales to two customers represented 49% and 31%
for the six months ended June 30, 2001. Sales to one

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customer represented 90% for the six months ended June 30, 2000. Due to the
nature and size of our equipment sales, we expect that certain customers will
continue to account for a significant portion of our total revenues for the
remaining quarters of 2001 and in the future.

International revenues represented approximately 89% of revenues for the
three months ended June 30, 2001 and 60% for the six months ended June 30, 2001.
However, substantially all of our domestic revenues are related to products sold
to systems integrators which the system integrators have resold, or plan to
resell, to end customers in international locations.

We have adopted a strategy of outsourcing our manufacturing operations.
While we manufactured a small fraction of our products at our San Jose
headquarters from 1998 to early 2000, by the fourth quarter of 2000, we achieved
a goal of outsourcing substantially all of our volume product manufacturing and
assembly to contract manufacturers. We will continue to maintain a small
facility for prototype production in support of our research and development
efforts.

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000

REVENUES. Current revenues primarily consist of product revenues from the
sale of the AirStar system. Revenues decreased to $2.1 million for the three
months ended June 30, 2001 from $15.5 million for the same period in 2000.
Revenues for the six months ended June 30, 2001 decreased to $11.2 million from
$26.0 million for the same period in 2000. The decrease in revenues for each of
the comparative periods was a result of delayed orders from current and
potential service provider customers as well as cancelled orders from some of
our system integrator partners. Substantially all of the revenues for these
periods were generated from installations in international locations.

GROSS PROFIT(LOSS). Gross profit(loss) represents total revenues less the
cost of revenues. Cost of revenues consists of contract manufacturing costs,
material costs, labor costs, manufacturing overhead, warranty reserves and other
direct product costs. Gross profit(loss) decreased to a loss of $19.1 million
for the three months ended June 30, 2001 from a gross profit of $4.1 million for
the same period in 2000. Gross profit(loss) for the six months ended June 30,
2001 decreased to a loss of $40.7 million from a gross profit of $6.3 million
for the same period in 2000. Gross profit as a percentage of revenues decreased
to a negative 933% for the three months ended June 30, 2001 from a positive 27%
for the same period in 2000. Gross profit percentage for the six months ended
June 30, 2001 decreased to a negative 364% from a positive 24% for the same
period in 2000. The decline in gross profit on a dollar basis as well as on a
percentage basis for both of the comparative periods primarily reflects charges
related to excess and obsolete inventory and other material-related commitments
as well as an increase in the proportion of revenues coming from customer
premise equipment as opposed to hub equipment, partially offset by an increase
in the proportion of revenues from direct sales. These charges of $18.5 million
and $41.7 million for the three and six months ended June 30, 2001,
respectively, are related to increased inventory levels and other material
commitments made in anticipation of significantly higher revenue volumes than
those achieved. We have experienced substantial quarterly fluctuations in gross
profit in past quarters. The principal drivers of the quarterly fluctuations,
other than the inventory and material-related commitments in the first two
quarters of 2001, are the product sales mix and the customer sales mix. In
general, customer premise equipment sales result in lower gross profit
percentages than hub sales. The unit ratio of customer premise equipment sales
to hub sales was 32:1 and 37:1 for the three months and six months ended June
30, 2001, respectively. We expect the ratio of unit sales of customer premise
equipment to hub unit sales to continue to be in excess of 20:1 in future
periods. Sales to system integrators generate lower gross profit percentages
than sales to direct customers. Sales to systems integrators represented 51% of
revenues in both the first and second quarters of 2001. In addition, we expect
average selling prices for our products to decline substantially during 2001. To
the extent that we are unable to reduce our product costs at a rate faster than
the rate at which average selling prices decline, gross profit as a percentage
of revenues will continue to decline during the second half of 2001. We expect
that the introduction of new customers, channel mix, product mix and declining
average selling prices will result in fluctuations in our gross profits in
future quarters.

RESEARCH AND DEVELOPMENT. Research and development expenses consist of
compensation costs, the cost of some software development tools, consultant fees
and prototype expenses related to the design, development and testing of our
products. Research and development expenses increased to $6.5 million for the
three months ended June

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30, 2001 from $5.7 million for the same period in 2000. The increase in research
and development expenses was primarily due to an increased investment of
$700,000 in Bungee Communications, our Israeli research and development
subsidiary. Research and development expenses for the six months ended June 30,
2001 increased to $14.3 million from $11.5 million for the same period in 2000.
The increase in research and development expenses was primarily due to an
increased investment of $1.5 million in Bungee Communications and an increase of
$800,000 in third-party engineering charges and expenses related to the release
of new product features for the AirStar system. We expect research and
development expenses to continue to increase on an absolute basis during future
periods, but at a slower rate than in prior periods.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
compensation costs, commissions, travel and related expenses for marketing,
sales, customer advocacy and field service support personnel, as well as product
management, trade show and promotional expenses. Sales and marketing expenses
increased to $3.6 million for the three months ended June 30, 2001 from $2.5
million for the same period in 2000. Sales and marketing expenses for the six
months ended June 30, 2001 increased to $7.4 million from $4.6 million for the
same period in 2000. The increases were primarily due to an increase in
personnel and related compensation costs related to an increase in sales and
marketing personnel from 49 to 56 and increases in promotional expenses of
$900,000 and $650,000 for the three and six months ended June 30, 2001,
respectively.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation costs and related expenses for executive, finance,
management information systems, human resources and administrative personnel.
These expenses also include professional fees, facilities and other general
corporate expenses, such as charges for doubtful accounts. General and
administrative expenses increased to $4.7 million for the three months ended
June 30, 2001 from $2.4 million for the same period in 2000. The increase was
primarily due to increased personnel and related costs related to an increase in
general and administrative personnel from 20 to 26, severance expenses of
$400,000 related to our reduction in work force effected June 30th, fixed assets
disposals of $400,000 and increased facilities expenses of $600,000 associated
with additional leased building space. General and administrative expenses
increased to $9.7 million for the six months ended June 30, 2001 from $4.3
million for the same period in 2000. The increase was primarily due to increased
personnel and related costs related to an increase in general and administrative
personnel from 20 to 26, an increase of $1.6 million for doubtful account
reserves, severance expenses of $400,000 related to our reduction in work force
effected June 30th, fixed assets disposals of $400,000 and increased facilities
expenses of $1,100,000 associated with additional leased building space.

AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred stock
compensation results from the granting of stock options to employees with
exercise prices per share determined to be below the estimated fair values per
share of our common stock at dates of grant. The deferred compensation that
results is being amortized to expense over the vesting periods of the individual
options, generally four years. A total of $4.8 million of deferred stock
compensation was recorded in 1998 and 1999. Amortization of deferred stock
compensation was $227,000 for the three months ended June 30, 2001, compared to
$263,000 for the same period in 2000. Amortization of deferred stock
compensation for the six months ended June 30, 2001 was $455,000, compared to
$560,000 for the same period in 2000. For classification of amortization of
deferred stock compensation, see note 2 of notes to consolidated financial
statements.

OTHER INCOME, NET. Other income, net, consists primarily of interest income
earned on low-risk marketable securities and interest paid on outstanding debt.
Other income, net decreased to $4.4 million for the three months ended June 30,
2001 from $5.9 million for the same period in 2000, due to the decrease in cash
balances and a reduction in interest rates. Other income, net for the six months
ended June 30, 2001 increased to $9.7 million from $6.7 million for the same
period in 2000, due to greater interest earned as a result of higher average
cash balances resulting from the proceeds of the follow-on offering in March
2000 and, to a lesser extent, a decrease in interest expense.

NET INCOME (LOSS). Net loss increased to $29.8 million for the three months
ended June 30, 2001 from $819,000 for the same period in 2000. Net loss for the
six months ended June 30, 2001 increased to $62.8 million from $7.9 million for
the same period in 2000. The increases in net loss are due primarily to the
inventory and other material-related charges, in addition to decreases in
revenues and increases in operating expenses.

We believe that period-to-period comparisons of our operating results are
not necessarily meaningful. You should not rely on them to predict future
performance. The amount and timing of our operating expenses may fluctuate
significantly in the future as a result of a variety of factors. We face a
number of risks and uncertainties encountered by early stage companies,
particularly those in rapidly evolving markets such as the telecommunications
and data communications equipment industries. We may not be able to address
these risks and difficulties successfully.

Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future. It is likely that in some
future quarter our operating results will again fall below the expectations of
securities analysts and investors. In this event, the market price of our common
stock could significantly decline.

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Some of the factors that could affect our quarterly or annual operating
results include the following:

- We have a history of losses, including more significant than expected
losses in the first two quarters of 2001, expect future losses and may
never achieve profitability.

- If we do not reduce our reliance on a single customer for most of our
revenues, our business and results of operations could be adversely
affected.

- If we cannot reduce our product costs, our results of operations will
suffer.

- If we do not succeed in developing relationships directly with
telecommunications service providers and in strengthening our direct
and indirect sales channels, our business will be harmed.

- The majority of service providers using our products are emerging
companies with unproven business models. If these service providers do
not succeed, there will be a more limited market for our products.

- Intense competition in the market for communications equipment could
prevent us from increasing or sustaining revenues or achieving or
sustaining profitability.

- Due to our limited operating history, it is difficult to predict
future operating results or our stock price.

- We have a long sales cycle, which could cause our results of
operations and stock price to fluctuate.

- Many projects that include our products require system integration
expertise and third-party financing, which we are unable to provide.
If sources for system integration or financing cannot be obtained as
needed, service providers may not select our products.

- Our products may contain defects that could harm our reputation, be
costly to correct, expose us to litigation and harm our operating
results.

- Our future operating results are dependent on the sales of a single
product line. If there are unexpected reductions in revenues from this
product, we will not have other products to offset the negative impact
on our operating results.

- Our business is subject to many factors that could cause our quarterly
operating results to fluctuate and our stock price to be volatile.

- We depend on contract manufacturers. If these manufacturers are unable
to fill our orders on a timely basis, and we are unable to find
alternative sources, we may be unable to deliver products to meet
customer orders.

- If we do not develop new products and product features in response to
customer requirements or in a timely way, customers will not buy our
products.

- Because some of our key components are from sole source suppliers or
require long lead times, our business is subject to unexpected
interruptions, which could cause our operating results to suffer.

- If high-speed wireless telecommunications technology or our
implementation of this technology is not accepted by service
providers, we will not be able to sustain or grow our business.

- Because we must sell our products in many countries that have
different regulatory schemes, if we cannot develop products that work
with different standards, we will be unable to sell our products.

- If we are unable to manage our international operations effectively,
our business would be adversely affected.

- Claims that we infringe third-party intellectual property rights could
result in significant expenses or restrictions on our ability to sell
our products in particular markets.

- Line-of-sight limitations inherent to broadband wireless products may
limit deployment options and have an adverse affect on our sales.

- If we are unable to hire or retain our key personnel, we might not be
able to operate our business successfully.

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For more information on the risks related to our Company, see the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section of our Annual Report on Form 10-K for the year ended December
31, 2000.

Most of our expenses, such as employee compensation and lease payments for
facilities and equipment, are relatively fixed in the near term. In addition,
our expense levels are based, in part, on our expectations regarding future
revenues. As a result, any shortfall in revenues relative to our expectations
could cause significant changes in our operating results from quarter to
quarter. Due to the foregoing factors, we believe period-to-period comparisons
of our revenue levels and operating results are not meaningful. You should not
rely on our quarterly revenues and operating results to predict our future
performance.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2001, cash and cash equivalents were $99.3 million,
short-term marketable securities were $130.9 million and long-term marketable
securities were $106.9 million. We have a $10.0 million bank line of credit. As
of June 30, 2001, there were no borrowings outstanding and amounts utilized for
outstanding letters of credit were $240,000 under this agreement. The line of
credit is secured by eligible outstanding accounts receivable and inventory. Any
borrowings under the line would accrue interest at the 30-day LIBOR plus 1.5% or
the bank's prime rate, at our option. Capital lease obligations were $2.2
million at June 30, 2001. Future operating lease obligations were $22.2 million
at June 30, 2001.

Cash used in operating activities was $19.4 million for the six months
ended June 30, 2001 and $12.9 million for the same period in 2000. Cash used in
operations for the six months ended June 30, 2001 was primarily due to the net
loss, adjusted for the inventory and contract loss provisions and increases in
inventory accounts payable and accrued liabilities, partially offset by
decreases in trade accounts receivable and prepaid expenses. Cash used in
operations for the six months ended June 30, 2000 was primarily due to the net
loss and increases in trade accounts receivable and inventory, partially offset
by increases in accounts payable and accrued liabilities.

Cash provided by investing activities was $30.5 million for the six months
ended June 30, 2001, while cash used for investing activities for the same
period in 2000 was $129.3 million. Cash provided by investing activities for the
six months ended June 30, 2001 was due primarily to net maturities of marketable
securities, partially offset by capital equipment purchases. Cash used in
investing activities for the six months ended June 30, 2000 was primarily due to
purchases of marketable securities.

Cash used for financing activities was $3.4 million for the six months
ended June 30, 2001, while cash provided from financing activities was $353.8
million for the same period in 2000. Cash used for financing activities for the
six months ended June 30, 2001 was primarily due to payments on the bank line of
credit and capital leases. Cash provided by financing activities for the six
months ended June 30, 2000 was primarily due to the issuance of common stock in
connection with the follow-on offering.

The capital required for volume manufacturing is being committed by our
contract manufacturers. We provide six or twelve month forecasts to our contract
manufacturers. We generally commit to purchase products to be delivered within
the most recent 60 days covered by these forecasts with cancellation fees. In
addition, in specific instances we may agree to assume liability for limited
quantities of specialized components with lead times beyond this 60-day period.

We have no other material commitments. Our future capital requirements will
depend upon many factors, including the timing of research and product
development efforts and expansion of our marketing efforts. We expect to
continue to expend significant but smaller amounts on property and equipment
related to the expansion of our facilities, and on laboratory and test equipment
for research and development.

We believe that our cash and cash equivalents balances, short-term and
long-term marketable securities and funds available under our existing line of
credit will be sufficient to satisfy our cash requirements for at least the next
twelve months. Our management intends to invest our cash in excess of current
operating requirements in interest-bearing, investment-grade marketable
securities.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY HEDGING INSTRUMENTS. We transact business in various
foreign currencies and, accordingly, we are subject to exposure from adverse
movements in foreign currency exchange rates. To date, the effect of changes in
foreign currency exchange rates on revenues and operating expenses have not been
material. Substantially all of our revenues are earned in U.S. dollars.
Operating expenses incurred by our foreign subsidiaries are denominated
primarily in local currencies. We currently do not use financial instruments to
hedge these operating expenses. We intend to assess the need to utilize
financial instruments to hedge currency exposures on an ongoing basis.

We do not use derivative financial instruments for speculative trading
purposes.

FIXED INCOME INVESTMENTS. Our exposure to market risks from changes in
interest rates relates primarily to corporate debt securities. We place our
investments with high credit quality issuers and, by policy, limit the amount of
the credit exposure to any one issuer.

Our general policy is to limit the risk of principal loss and ensure the
safety of invested funds by limiting market and credit risk. All highly liquid
investments with a maturity of less than three months at the date of purchase
are considered to be cash equivalents; all investments with maturities of three
months or greater and less than one year are considered to be short-term
marketable securities; all investments with maturities greater than one year are
considered to be long-term marketable securities. All investments are classified
as either "available for sale" or "held-to-maturity" and consist of government
and corporate debt securities.

The SEC's rule related to market risk disclosure requires that we describe
and quantify our potential losses from market risk sensitive instruments
attributable to reasonably possible market changes. We are exposed to changes in
interest rates on our investments in marketable securities. All of our
investments are in funds that hold investment grade commercial paper, treasury
bills or other U.S. government obligations. This investment policy reduces our
exposure to long-term interest rate changes. A hypothetical 100 basis point
decline in short-term interest rates would reduce the annualized earnings on our
$322.9 million of marketable securities at June 30, 2001 by approximately $3.2
million.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, the Company is involved in various legal proceedings in
the ordinary course of business. The Company is not currently involved in any
litigation which, in management's opinion, would have a material adverse effect
on its business, operating results or financial condition, however there can be
no assurance that any such proceeding will not escalate or otherwise become
material to the Company's business in the future.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

Effective June 19, 2001, the Company changed its state of incorporation
from California to Delaware. The reincorporation was accomplished through a
merger (the "Merger") of Netro Corporation, a California corporation ("Netro
California"), into its wholly owned Delaware subsidiary of the same name ("Netro
Delaware"). As a result of the Merger, each outstanding share of Netro
California common stock, par value $.001 per share, was automatically converted
into one share of Netro Delaware common stock, par value $.001 per share. The
reincorporation proposal was approved by the Company's shareholders at the
Company's 2001 annual meeting of shareholders, as held on May 31, 2001 and
reconvened on June 1, 2001.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On May 31, 2001, the Company held its annual meeting of shareholders. The
meeting was adjourned and reconvened on June 1, 2001. The following summarizes
the matters submitted to a vote of the shareholders:

1. The election of the following nominees to serve as members of Class II
of the Board of Directors:

NOMINEE IN FAVOR AGAINST WITHHELD ABSTAIN
- --------------------- ----------- ---------- ----------- ----------

Gideon Ben-Efraim 47,150,239 1,039,727 -- --
Richard M. Moley 47,500,546 689,420 -- --
Sanford Robertson 47,503,125 686,841 -- --

The directors who continued after the meeting as members of Class I were
Thomas R. Baruch, Irwin Federman and Robert J. Wynne.

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2. The approval of the change of the Company's state of incorporation from
California to Delaware:

IN FAVOR AGAINST WITHHELD ABSTAIN
------------- ----------- ------------ -----------

26,283,352 7,108,011 14,735,931 62,672

3. The approval of the amendment of the Company's 1996 Stock Option Plan to
increase the number of authorized shares under that plan by 1,500,000
shares, and to increase the automatic annual increase in shares added to
the plan to the least of 1,500,000 shares, 3% of the outstanding common
stock on the last day of the immediately preceding fiscal year or a
number of shares determined by the administrator of the plan.

IN FAVOR AGAINST WITHHELD ABSTAIN
------------- ----------- ----------- -----------

29,665,424 18,373,437 -- 151,105

4. The ratification of the appointment of Arthur Andersen LLP as the
Independent Public Accountants of the Company for the fiscal year ending
December 31, 2001:

IN FAVOR AGAINST WITHHELD ABSTAIN
------------- ----------- ------------ -----------

47,918,098 236,762 -- 35,106

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

3.1 Restated Certificate of Incorporation

3.2 Bylaws

(b) Reports on Form 8-K.

The Company filed a report on Form 8-K with the Securities and Exchange
Commission on July 5, 2001, announcing its completion of the change of its
state of incorporation from California to Delaware.

The Company filed a report on Form 8-K with the Securities and Exchange
Commission on July 24, 2001, announcing that its Board of Directors had
adopted a Stockholder Rights Plan.

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NETRO CORPORATION

SIGNATURES

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

NETRO CORPORATION
Date: August 10, 2001

By: /s/ Sanjay K. Khare
------------------------------------------
Sanjay K. Khare
Vice President and Chief Financial Officer
(Principal Financial Officer)

By: /s/ Lisa A. Evins
------------------------------------------
Lisa A. Evins
Vice President of Finance
(Principal Accounting Officer)

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EXHIBIT INDEX

3.1 Restated Certificate of Incorporation

3.2 Bylaws