WESTELL TECHNOLOGIES INC, 10-K405, 1998-06-29

WESTELL TECHNOLOGIES INC
10-K405, 1998-06-29
TELEPHONE & TELEGRAPH APPARATUS

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

FORM 10-K
(Mark One)

X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended March 31, 1998 or

__ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to .

Commission file number: 0-27266

WESTELL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 36-3154957
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

750 N. COMMONS DRIVE
AURORA, ILLINOIS 60504
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (630) 898-2500

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

CLASS A COMMON STOCK, $.01 PAR VALUE
(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. _X_

The registrant estimates that the aggregate market value of the registrant's
Class A Common Stock (including Class B Common Stock which automatically
converts into Class A Common Stock upon a transfer of such stock except
transfers to certain permitted transferees) held by non-affiliates (within the
meaning of the term under the applicable regulations of the Securities and
Exchange Commission) on June 22, 1998 (based upon an estimate that 41.4% of the
shares are so owned by non-affiliates and upon the average of the closing bid
and asked prices for the Class A Common Stock on the NASDAQ National Market on
that date) was approximately $134,832,921. Determination of stock ownership by
non-affiliates was made solely for the purpose of responding to this requirement
and registrant is not bound by this determination for any other purpose.

As of June 22, 1998, 15,687,230 shares of the registrant's Class A Common Stock
were outstanding and 20,726,357 shares of registrant's Class B Common Stock
(which automatically converts into Class A Common Stock upon a transfer of such
stock except transfers to certain permitted transferees) were outstanding.

The following documents are incorporated into this Form 10-K by reference:

Proxy Statement for 1998 Annual Meeting of Stockholders (Part III).

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," such as those concerning future
product sales and gross margins, certain statements contained under "Business,"
such as statements concerning the development and introduction of new products
and the development of alternative Digital Subscriber Line ("DSL") technology,
and other statements contained in this Annual Report on Form 10-K for the fiscal
year ended March 31, 1998 (the "Form 10-K") regarding matters that are not
historical facts are forward-looking statements (as such term is defined in the
rules promulgated pursuant to the Securities Act of 1933, as amended (the
"Securities Act")). Because such forward-looking statements include risks and
uncertainties, actual results may differ materially from those expressed in or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those discussed
herein under "Risk Factors" beginning on page 31. Westell Technologies, Inc.
("Westell" or the "Company") undertakes no obligation to release publicly the
result of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

PART I

ITEM 1. BUSINESS

Since 1980, Westell has developed telecommunications products that address
the needs of telephone companies ("telcos") to upgrade their existing network
infrastructures continually in order to deliver advanced data and voice services
to their customers. The Company designs, manufactures, markets and services a
broad range of digital and analog products used by telcos to deliver services
primarily over existing copper telephone wires that connect end users to a
telco's central office (the "local access network"). The Company also markets
its products and services to other telecommunications and information service
providers seeking direct access to end-user customers. The Company's principal
customers include all seven Regional Bell Operating Companies (the "RBOCs") as
well as GTE. In addition, Westell sells products to several other entities,
including public telephone administrations located outside the U.S., independent
domestic local exchange carriers, competitive access providers, inter exchange
carriers, Internet service providers and the U.S. federal government.

Westell is a leading worldwide innovator and developer of broadband
telecommunications access systems using Asymmetric Digital Subscriber Line
("ADSL"). ADSL systems allow telcos and other local access providers to provide
interactive multimedia services over existing copper wire, thus offering a more
cost-effective and faster deployment alternative to fiber optic cable in the
"last mile" of the local access network. ADSL systems enable interactive
multimedia services supporting advanced data applications including high speed
Internet access, local area network ("LAN") extension, telecommuting virtual
libraries, news and information distribution, etc. See "Products" and
"Marketing, Sales and Distribution."

INDUSTRY OVERVIEW

Since the early 1980s, the telecommunications industry has experienced an
increased demand for the number of services provided to end users. Not only has
traditional telephone voice traffic increased, but the growth of personal
computers and modems has created significant data traffic from a wide variety of
services such as fax, e-mail and on-line access. For example, businesses with
multiple locations increasingly require geographically dispersed LANs to be
linked in sophisticated wide area networks ("WANs") that must handle large
volumes of telecommunications traffic. In addition, the Internet continues to
expand beyond its traditional data transmission and file-sharing functions to
offer e-mail, video and graphically rich content over the World Wide Web,
commercial services, transaction processing, independent bulletin boards, and
voice transmission. Business and residential based end-user demand for
telecommunications services is expected to continue to grow as telcos and
information service providers increase their offerings of new interactive
multimedia services, including data applications such as high speed Internet
access, LAN extension, medical imaging and telecommuting, and video applications
such as video-on-demand, distance learning, video conferencing and work at home.
These applications require longer holding times than the telephone switches were
originally designed to handle. Also, the size and burstiness of the content
demands more bandwidth on the backbone and access circuits. To handle the
growing volume of data communications traffic and to provide faster and higher
quality transmission, telcos and information service providers have continually
upgraded the capacity and speed of their networks typically by installing more
trunk ports on the switches and adding additional bandwidth to their backbones.
In addition, the telephone companies are provisioning enormous numbers of second
lines to support this demand for access.

Deregulation. Deregulation of the telecommunications industry has increased
the number of competitors in the local access network and has further placed
pressure on telcos to upgrade their networks and increase their
telecommunications service offerings. For example, alternative access providers
have deployed fiber and wireless systems for high volume data transmission to
business centers and other high density metropolitan areas. As alternative
access providers' costs decline and deregulation continues, alternative access
providers are likely to create additional competition for telcos by developing
new products and services for end users. Deregulation allows inter exchange
carriers, information service providers and cable operators to deploy
competitive services in the local access network leading to a new class of
service providers known as a Competitive Local Exchange Carrier or "CLEC". Cable
operators are seeking to compete with telcos in the delivery of high speed
digital transmission as well as traditional local telephone service. Currently
available high speed cable modems enable cable operators to provide data
transmission services to customers in addition to standard television services.
In addition, this trend toward continued deregulation of the telecommunications
industry may further decrease the current restrictions and regulations affecting
telcos' ability to provide high bandwidth services such as high speed Internet
access and corporate LAN extensions.

Existing Telco Infrastructure. Traditionally, telcos have provided local
access services using analog technology, which does not have the bandwidth or
functionality to support the growing demand for new services over telephone
wires. In contrast, digital technology permits high speed, high volume and more
reliable data transmission by reducing all forms of images, sounds and data to
digital signals, thereby increasing the variety and bandwidth of services that
can be provided in the local access network. To handle the growing demand for
digital traffic, telcos have deployed broadband optical fiber in their network
"backbone" interconnecting their geographically dispersed central offices.
Telcos have also used fiber to interconnect their central offices to high
density telecommunications traffic areas. Deployment of fiber in the local
access network connecting end users to a telco's central office, however, has
proven labor intensive, complicated, time consuming and expensive.
Consequently, this "last mile" of the telco's network still predominantly
consists of low speed analog transmission over copper wire.

Given the challenges of widespread replacement of copper wire in the local
access network, telcos have turned to systems suppliers for cost-effective
technology that can expand the ability of the existing copper wire
infrastructure to accommodate high speed digital transmission. Digital
conversion of the analog network has been built on the multiplexing format known
as T-1 (E-1 in most countries outside of the U.S.). T-1/E-1 transmission
utilizes a data rate of 1.544 (2.048 outside the U.S.) Megabits per second
("Mbps"), which can be aggregated or subdivided into channels to deliver data
communication services tailored to specific end-user requirements. However,
these technologies have typically required extensive engineering and
provisioning which make them cost prohibitive for residential and small business
use. In addition, circuit switched technology is not ideally suited for the
variety of applications that are expected to be demanded by customers.

Existing and Emerging Technologies. Systems suppliers have developed, and
are currently developing, numerous products that have increased the quality,
speed and cost-effectiveness of digital transmission over copper wire. These
products include:

ISDN. In the early 1980s, telcos introduced basic rate Integrated Service
Digital Network ("ISDN") technology, which provides digital transmission at
rates up to 144 Kilobits per second ("Kbps") as well as a means to
aggregate multiple channels into a single high speed link over copper wire.
Telcos have only recently begun to deploy basic rate ISDN technology widely
with the emergence of nationwide standards and a decline in costs for basic
rate ISDN service. The market penetration of existing basic rate ISDN
technology, however, may be constrained due to its limited bandwidth (which
does not allow telcos to offer advanced data and video services), its
inability to provide existing telephone service over the same wire and its
relatively high installation costs. In addition, as a switched service,
ISDN deployment will place greater demands on central office switches,
thereby requiring telcos to increase their central office switch capacity
to maintain network reliability.

HDSL. In 1992, telcos introduced High bit-rate Digital Subscriber Line
("HDSL") technology, which reduces the costs of installing and upgrading
T-1/E-1 service. Traditional T-1/E-1 service requires the installation of
one or more mid-span repeaters for line lengths greater than 6,000 feet and
the expensive and time consuming "conditioning" of copper wire. HDSL
increases the non-repeater distance of T-1/E-1 transmission (1.544/2.048
Mbps) over two pairs of copper wires to approximately 12,000 feet, which
reduces the need for repeaters and conditioning. As a result, telcos are
deploying HDSL technology in their local access networks where the end user
requires a high-speed symmetrical digital communication stream and does
not require a telephone channel to run on the same wire.

ADSL. The DSL technology known as Asymmetric Digital Subscriber Line
("ADSL") permits even greater digital transmission capacity over copper
wire than is possible with existing HDSL and ISDN products. ADSL technology
allows the simultaneous transmission of data at speeds up to 8.0 Mbps in
one direction and up to 1 Mbps in the reverse direction, while also
providing standard analog telephone service (plain old telephone service or
"POTS") over a single pair of copper wires at distances of up to 18,000
feet, depending on the transmission rate. ADSL products enable telcos to
provide interactive multimedia services over copper wire, such as high
speed Internet access, and corporate LAN access, while simultaneously
carrying traditional telephone services, thus mitigating the need for the
telephone companies to provision second lines to support these services..

To increase utilization of broadband copper wire transmission,
manufacturers have introduced an ADSL technology, Rate Adaptive DSL
("RADSL"). This technology will automatically adjust the digital
transmission rate based upon the quality of the copper telephone wire and
the distance transmitted in order to maximize the digital capacity of the
wire and to facilitate the installation of ADSL systems. Symmetric Digital
Subscriber Line ("SDSL") technology is being offered by configuring RADSL
to a symmetrical service offering which can provide both a symmetrical
digital and an analog channel over a single pair of copper wires.

VDSL. Very High Speed Digital Subscriber Line ("VDSL") is currently being
developed which will increase the data transmission capacity to up to 52.0
Mbps.

DSLAM. A Subscriber Line Access Multiplexer ("DSLAM") is an ATM based
multiplexer that consolidates multiple DSL access lines into a higher speed
line back to the switching network interfaces (typically OC-3c, STM-1, DS-3
or E3), reducing cost and operational complexity at the central site. As
network service providers begin deploying DSL based services the need for
DSL line concentration at copper hub points arise. ATM allows DSLAM access
platforms to provide support for current services as well as future
services that require even greater levels of bandwidth management and
quality of service.

Integrated DLC DSL. Digital loop carrier ("DLC"), a remote mini switch
extending central office functionality, is a hubbing point for copper lines
in the local access network. DSL and DSLAM technology can be integrated
into the DLC (with narrowband functions) to provide a cost effective
mechanism for delivering integrated services in a more incremental manner
than deployment directly from the telco central office site where DLC's are
already deployed in the local access network.

G.Lite. This technology is a version of ADSL that supports a lower set of
speeds and can be deployed (in most instances) without a POTS splitter at
the premises, thus facilitating "plug-and-play" access for consumers,
thereby allowing the consumers to install the technology themselves, and
potentially lowering the telcos' initial installation costs.

DSL Routers. (or DSL LAN modems) Similar to ISDN routers (or LAN modems),
these devices allow multiple computers to be networked together on a LAN
(local area network) and share access to the wide area network (WAN) DSL
line.

PPP over ATM. Through the use of network protocols such as point-to-point
protocol (PPP) over ATM, broadband access using DSL can deliver data much
like narrowband (dial-up or ISDN) access today, but at much faster speeds.
Unlike with dial-up or ISDN systems telcos do not have to manage Internet
Protocol ("IP") addresses, and end users can work with existing operating
systems and protocol stacks on their PCs. Service providers can continue to
provide security through authentication with the same billing support.

PRODUCTS

The Company offers a broad range of products that facilitate the
transmission of high speed digital and analog data between a telco's central
office and end-user customers. These products can be categorized into three
groups: (i) products based on DSL technologies, including ADSL, RADSL, SDSL,
HDSL and DSLAM systems ("DSL products"), (ii) Digital Signal Hierarchy Level 1
based products, which are used by telcos to enable high speed digital T-1
transmission at approximately 1.5 Mbps and E-1 transmission at approximately 2.0
Mbps ("DS1 products"), and (iii) Digital Signal Hierarchy Level 0 based
products, which are used by telcos to deliver digital services at speeds ranging
from approximately 2.4 to 64 Kbps and analog services over a 4 Kilohertz
bandwidth ("DS0 products").

The prices for the products within each of the product groups of the Company
vary based upon volume, customer specifications and other criteria and are
subject to change due to competition among telecommunications manufacturers. The
Company's DSL products typically command higher average sales prices than its
DS0 and DS1 products but represent fewer of the units sold by the Company. The
following table sets forth the revenues from Westell's three product groups for
the periods indicated (see Management's Discussion and Analysis of Financial
Condition and Results of Operations):

<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
1996 1997 1998
(in thousands)
<S> <C> <C> <C>
DSL products . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,299 $ 8,665 $12,448
DS1 products . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,027 49,353 52,481
DS0 products . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,332 8,963 5,235

</TABLE>

DSL Products. The Company is a leading developer and provider of DSL
products and transmission systems that utilize ADSL technology. DSL technology
is also used for RADSL, SDSL and HDSL products. Products based upon DSL
technology can be used by telcos and other local access providers to provide
interactive multimedia services, including data and video applications, while
simultaneously providing traditional telephone services over existing copper
wire. Products based upon DSL technology enable customers to deliver these
interactive multimedia services more quickly and cost-effectively than deploying
broadband fiber networks in the "last mile" of the local access network.

The following table sets forth a representative list of the Company's current
DSL products and their applications:

Product Description Applications Year Introduced
<S> <C> <C> <C>

InterAccess 2 HDSL system (replaces InterAccess T-1 or E-1 services provisioning. 1998
....................... introduced in 1994) that supports Increases repeaterless distance to up
....................... 1.5 or 2.0 Mbps bi-directional to 12,000 feet over two pairs of copper
....................... services over two pairs of copper wires
wires.

AccessVision(R) Element management system for DSL Scaleable, distributed, management and 1995
....................... transport control of DSL transport systems.
.......................

SuperVision(R) Broadband platform that consolidates Multiple services and applications 1996
DSLAM DSL access lines into a single including high-speed Internet access,
....................... network interface. SuperVision remote LAN access, work at home,
....................... currently supports using OC-3c (or corporate training and distance
....................... STM-1) and DS-3 interfaces back to learning, while providing simultaneous
....................... the switching network. The access standard telephone service.
....................... line cards operate at rates up to 8
....................... Mbps downstream and up to 1 Mbps
upstream.

FlexCap2(TM) Rate Adaptive DSL (replaces fixed Provides similar applications as DSLAM 1997
....................... rate generation FlexCap(TM) system in non ATM environment. In addition,
....................... introduced in 1993) modem to modem RADSL system can be configured to near
....................... system that operates at up to 2.24 symmetrical rates to support some SDSL
....................... Mbps downstream and up to 1 Mbps applications.
....................... upstream. The rate adaptive
....................... capability enables the operating
....................... speed to be automatically
....................... provisioned based on signal quality.
Uses CAP technology.
</TABLE>

ADSL technology permits the transmission of multiple communication streams
of varying speeds over existing copper wire. The non-repeater transmission
distances of current ADSL systems vary based upon the data rate and line
condition, with a maximum distance of 18,000 feet.

Westell's rate adaptive FlexCap2(TM) ADSL systems introduced in 1997, using
RADSL technology provides a bi-directional capacity of up to 1 Mbps with maximum
uni-directional rate of 2.24 Mbps. RADSL allows telcos to automatically adjust
the digital transmission rate based upon the quality of the copper telephone
wire and the transmission distance. This rate adaptability allows telcos to
maximize the digital capacity of copper wire and facilitates installation of
ADSL systems, thereby increasing the utilization of poor quality copper
telephone wires which traditionally have required extensive installation and
monitoring.

During fiscal 1998, Westell introduced its next generation SuperVision
access multiplexer. This SuperVision system included enhancements of the beta
version released in 1996 and facilitates the connection between copper wire
digital transmission used in the local access network and the optical fiber
transmission in the network "backbone." In addition, the Company introduced
SuperVision line cards to provide up to 8.0 Mbps of bandwidth supporting
multiple simultaneous video-on-demand channels of information. Westell's current
FlexCap(TM) and SuperVision systems are based on CAP technology. Westell has
also developed a similar SuperVision line card which utilizes DMT technology
which also provides up to 8.0 Mbps of downstream data and 1 Mbps upstream as
well as traditional telephone service.

The Company also offers other products that facilitate incorporation of DSL
technology into their network infrastructures such as AccessVision, which is an
open systems standards-based software management system capability that monitors
and controls DSL equipment and the interactive services transmitted through DSL
technology. See Strategic Alliance - System Level Alliances.

Over 100 customers have purchased the Company's ADSL systems to conduct
technical and marketing trials for interactive multimedia applications. ADSL
applications in these trials include interactive video-on-demand,
music-on-demand, catalog shopping, financial services, games-on-demand,
television-on-demand and long distance learning services. Internationally,
Westell's DSL systems have been purchased by telephone administrations in 40
countries including Australia, Belgium, Canada, Hong Kong, Italy, Japan, Norway,
Singapore, South Korea, Spain, Switzerland, Taiwan and the United Kingdom.
Westell continues to be active in market and field trials as well as initial
service deployments. Most recently, in June 1998, Bell Atlantic announced its
plans to launch initial ADSL availability in the third calendar quarter of 1998.
Westell will be supplying certain equipment in this initial service launch
through Digital Switch Corporation - see "Strategic Alliances - System Level
Alliances." In addition, other initial service launches Westell continues to
participate in include Bell Canada, Sask Tel - Canada, CityTel - Prince Rupert,
B. C. and British Telecom in partnership with Fujitsu Telecom (FTEL) - United
Kingdom. Customers using the Company's ADSL systems for initial service
deployments are not contractually bound for future deploymentsor product sales.
The Company is unable to predict whether customer initial service deployments or
other technical or marketing trials will be successful and when significant
commercial deployment will begin, if at all. See Risk Factors - "Reliance on
Emerging Market for ADSL Technology; Losses."

The Company's HDSL systems eliminate the need for telcos to condition the
copper wire and to install line repeaters for distances of up to 12,000 feet.
Westell's HDSL systems also contain performance and monitoring functions with
remote accessibility that may supplant the need for repeaters and NIUs. Westell
currently sells its HDSL systems primarily outside the U.S. and to U.S. federal
government agencies.

The RBOCs and the Company's other customers are significantly larger than,
and are able to exert a high degree of influence over, the Company. Prior to
selling its products to telcos, the Company must undergo lengthy approval and
purchase processes. Evaluation can take a year or more for complex products
based on new technologies such as RADSL. Historically, telcos have been cautious
in implementing new technologies. Telcos' and other customers' deployment of
DSL technology may be prevented or delayed by a number of factors, including
lengthy product approval and purchase processes, decisions to defer product
orders in anticipation of new product developments, cost, regulatory barriers
that prevent or restrict telcos from providing interactive multimedia services,
the lack of demand for interactive multimedia services, the lack of sufficient
programming for interactive multimedia services, the availability of alternative
technologies, such as ISDN, cable modems, optical fiber, wireless local loop and
policies that favor the use of such alternative technologies over ADSL
technology. As a result of these factors, there can be no assurance that
customers will pursue the deployment of products using ADSL technology. Even if
customers adopt policies favoring full-scale implementation of DSL technology,
there is no assurance that sales of the Company's DSL systems will become
significant or that the Company will be able to successfully introduce on a
timely basis or achieve sales of ADSL systems and other products based upon DSL
technology planned for future introduction. Due to increased competition, low
barriers to entry, product pricing pressures and new product introductions in
the Company's core DS0 and DS1 markets, these DS0 and DS1 product groups are not
expected to generate sufficient revenues or profits to offset any losses that
the Company may experience due to a lack of sales of ADSL systems and other DSL
products currently being introduced or under development. As a result, if telcos
fail to deploy the Company's DSL systems, and the Company therefore does not
receive significant revenues from DSL sales, then the Company's business and
results of operations will be materially adversely affected and there can be no
assurance that the Company will achieve profitability in the future.

The market for ADSL-based products is becoming intensely competitive. Bids
for recent field trials and initial commercial deployments of ADSL-based
products implicitly assume "forward pricing," that is, pricing ADSL products
currently to reflect the expectation of large future volumes and anticipated
reductions in manufacturing costs. The Company has offered its ADSL-based
product to telcos and in responses to requests for proposals at prices below
current production costs. Such pricing could cause the Company to incur losses
on a substantial portion of its ADSL product sales unless and until it can
reduce manufacturing costs. The Company's ability to reduce its manufacturing
costs is dependent upon (i) more cost-effective chipset and product design, some
of which is dependent upon the Company's strategic partners, and (ii) the
achievement of economies of scale. The Company believes that, following the
pronouncement of the International Telecommunication Union ("ITU") standard for
G.Lite, competition among DSL vendors will also result in pricing pressure and
"forward pricing" with respect to splitterless ADSL products. See Risk Factors -
Evolving Standards. There can be no assurance that the Company will be able to
secure significant additional orders and reduce per unit manufacturing costs.
Accordingly, the Company could incur losses in connection with sales of ADSL
products that could have a material adverse effect on the Company's business and
results of operations.

DS1 Products. Westell's DS1 products provide telcos with cost-effective
solutions to transport, maintain and improve the reliability of T-1 services
over copper and fiber lines in the local access network.

The following table sets forth a representative list of the Company's DS1
products and their applications:

Product Description Applications Year Introduced

NIU Network Interface Unit providing for Facilitates the maintenance of T-1 1986
......................... maintenance of T-1 facilities. facilities to access services such
......................... as frame relay and primary rate
......................... ISDN.

NIU-PM Network Interface Unit with Performance Facilitates the maintenance and 1992
......................... Monitoring that stores information for provides performance monitoring of
......................... seven days. T-1 facilities to access services
......................... such as frame relay and primary
......................... rate ISDN.

Mountings Mechanical shelves used to house Provides easy installation of end Various
......................... modules for Westell and other companies user electronics.
......................... DS1, DS0 and DSL modules.

QuadJack(TM) Transport system that provides Provides transport and facilitates 1994
......................... transmission medium for one to four DS1 maintenance for high speed digital
......................... signals over fiber. facilities.

SmartLink Automatic Protection System ("APS") for Increases the reliability of T-1 1995
......................... up to 8 T-1 customer lines. and other high speed digital
......................... facilities. Used for critical
......................... circuits such as those used to
......................... provide service to cellular
......................... telephone sites.

</TABLE>

Many of the Company's DS1 products, such as its NIUs, intelligent line
repeaters, office repeaters and SmartLink automatic protection switches,
function to monitor and control the quality of digital transmission over copper
wire. The Company's NIU products allow telcos to monitor transmission conditions
and to detect performance problems in circuits from remote locations. All of the
RBOC's and GTE have purchased the Company's NIUs. During fiscal 1998, Westell
introduced a third generation real time performance monitoring NIU (PROACT(TM)
NIU) which monitors the T1 line and returns status messages once a second
towards the central office. Westell worked with the American National Standards
Institute ("ANSI") standards committee to add this messaging protocol to the
ANSI standards.

In fiscal year 1997, the Company began volume shipments of its newest NIU
platform coined "SlimJack(TM)". These new units are half the size of previous
NIU units and make extensive use of Surface-mount Manufacturing Technology
("SMT"). Sales of NIU products represented 52.5% and 51.2% of the Company's
revenues in fiscal 1997 and 1998, respectively. In addition, the Company
introduced its Multiplexer Termination System ("MTS") to the market in fiscal
1997. The MTS system is used as an adjunct to lightwave fiber optic multiplexers
that are providing DS1 service to the customer premise. The MTS system employs
application optimized NIUs to provide maintenance loopback and testing.

The Company's SmartLink(TM) Automatic Protection Switch system monitors up
to eight customer T-1 channels and allows telcos to provide uninterrupted
service in the event of a fault on any channel. Once the SmartLink detects a
fault in one channel, it automatically places that signal on a protection
channel and generates a notification alarm at the telco's central office,
thereby significantly reducing network downtime and costly data interruption.
During fiscal 1998, the Company introduced a system controller card that
monitors the SmartLink(TM) system and can be connected to the Telco's high level
operating systems. A span powered version of the system that does not require
local power was also introduced during fiscal 1998.

DS0 Products. Westell's DS0 products are used by telcos to deliver digital
and analog service across copper wire in the local access network at speeds
ranging from approximately 2.4 to 64 Kbps for digital transmission or 4
Kilohertz for analog transmission.

The following table sets forth a representative list of the Company's DS0
products and their applications:

Product Description Applications Year Introduced
<S> <C> <C> <C>

DST...................... Data Station Termination unit Point of sale, lottery and other analog 1983
......................... providing maintenance and data.
......................... equalization of data transmission.

Tandem................... Provides DSO and analog channel Special services inter-office cross 1987
......................... cross connections in tandem D4 connections.
environment

</TABLE>

In some circumstances, analog data lines are the only practical way to add a
terminal to an existing analog data network. Consequently, analog transmission
is often the most economical, most easily installed or the only service
available in certain locations. Westell's DST unit provides the interface
between analog transmission and an end user's modem. The Company's other DS0
products include voice frequency channel units and mountings, which are used to
provide dedicated analog data lines, smart repeaters, which boost analog
signals, and other products which incorporate performance testing and monitoring
functions designed to improve the quality of analog transmission over copper
wire.

Revenues from DS0 products have declined in recent years as telcos continue to
move from lower speed analog and digital transmission services to networks that
deliver higher speed services. The Company expects revenues in the DS0 product
category to continue to decline as a result of this migration.

___________________________

FlexCap, FlexCap2, FlexPak, QuadJack, SlimJack, SmartLink and PROACT are
trademarks of Westell Technologies, Inc. AccessVision and SuperVision are
registered trademarks of Westell Technologies, Inc. All other names indicated by
(R) or (TM) are registered trademarks or trademarks of their respective owners.
___________________________

RESEARCH AND PRODUCT DEVELOPMENT

The Company believes that its future success depends on its ability to maintain
its technological leadership through enhancements of its existing products and
development of new products that meet customer needs. Westell works closely with
its current and potential customers as part of the product development process.
Research and development expenses for fiscal 1996, 1997 and 1998 were $12.6
million $22.0 million and $26.6 million, respectively. The fiscal 1996 research
and development costs included an offset of $2.6 million for reimbursements
related to research and development expenses reimbursed for a customer sponsored
project. To date, all research and development costs have been charged to
operating expense as incurred. From time to time, development programs are
conducted by other firms under contract with the Company, and related costs are
also charged to operations as incurred.

The following table sets forth some of the products under development by the
Company:

Product Description Applications
<S> <C> <C>

SuperVision DSLAM enhancements Additional hardware and software for the Supports PPP over ATM, DSL routers, DMT
......................... broadband platform that consolidates line code (including G.Lite), and traffic
......................... multiple DSL lines into a single network management and other enhanced
interface. functionality.

SLC(R) 5/2000 stat mux and Hardware and software to integrate ADSL Supports incremental addition of ADSL
ADSL line cards into Lucent subscriber loop carrier integrated with narrowband services on
systems. these platforms

SmartLink(TM) E1 A version of the SmartLink APS system that Loop protection switching in
......................... operates at the 2.048 Mbps (E1) rate. international markets that are based on
......................... the E1 rate standard.

Total Access Total Access is a multi-service access Provides loop access, protection
......................... system that can provide services from switching and multiplexing for various
......................... 56Kbps to over 6Mbps via T1, HDSL, and local loop service and technologies.
......................... fiber optic media.

PROACT(TM) NIU family Various enhancements to the PROACT family Performance monitoring and real-time
of PM-NIUs performance reporting for T1 Hi-cap
circuits.

</TABLE>

To provide a more efficient transport of individual DSL facilities over
telephone networks, Westell is continuing extensive development of its
SuperVision access multiplexer. These SuperVision releases will support
evolving network functionality including traffic management, additional network
interface concentration, DSL router and PPP over ATM support. The Company plans
to add DMT line cards to provide up to 8.0 Mbps of bandwidth supporting multiple
simultaneous channels of information and which will support DMT and CAP line
card capabilities in the same system. The Company's products are also expected
to support G.Lite applications.

The Company currently anticipates that it will introduce the products
listed in the above table in fiscal 1999. However, there can be no assurance
that the Company will be able to introduce such products as planned, and the
failure of the Company to do so would have a material adverse effect on the
Company's business and results of operations. In addition, there can be no
assurance that the Company's future development efforts will result in
commercially successful products or that the Company's products will not be
rendered obsolete by changing technology or new product announcements by
competitors. See Risk Factors - "Competition" and "Rapid Technological Change;
Dependence on New Products"

The Company and products under development are subject to industry wide
standardization organizations which include, the American National standards
Institute ("ANSI") in the United States and the European Telecommunications
Standards Institute ("ETSI") which are responsible for specifying transmission
standards for telecommunications technologies. The industry transmission
standard for ADSL adopted by ANSI and ETSI is based upon DMT technology.
Although DMT has been selected as a standard, another modulation scheme from
GlobeSpan Semiconductor, Inc., CAP, has been widely used in many of the early
trials of ADSL. To date all of the Company's system sales have utilized the CAP
transceiver technology that is not the standard adopted by ANSI and ETSI. CAP's
early success has been a result of its earlier time to market and more mature
semiconductor implementations. The Company has not developed a transceiver
technology for its product offerings and it is dependent transceiver
technologies sourced from third parties. The Company has established multiple
strategic relationships with silicon chipset vendors for DSL chipsets to be used
in ADSL systems by the Company. Absent the proper relationships with key silicon
chipset vendors, the Company's products may not comply with standards set forth
by ANSI and ETSI. Should customers require standards based products that require
transceiver technology not available to the Company under reasonable terms and
conditions, the Company's business and results of operations would be materially
and adversely affected.

Various competitors and industry groups continue to introduce several
variations of DSL, in addition to the two major transceiver technologies of DMT
and CAP. Most recently, in January, 1998, leading companies in the personal
computer, telecommunications and networking industries announced the formation
of the Universal ADSL Working Group (UAWG) to establish splitterless ADSL
specifications ("G.Lite") based upon an open, interoperable, International
Telecommunications Union (ITU) standard. G.Lite is being designed to enable
simple "plug and play" access by consumers, thereby significantly lowering
telcos' initial installation costs. Although the Company is a participating
member of the UAWG, this new DSL standard could delay deployment of the
Company's full rate ADSL offerings. Based upon simpler implementations and the
elimination of the need to install POTS splitter at the Customers premises
and/or at the telcos' central office, G.Lite could enable other companies with
less technological expertise to more readily enter the DSL market and could
place additional pricing pressure on the Company's full rate ADSL products.
Although the UAWG is expected to deliver a set of G.Lite specifications to the
ITU by the end of 1998, there can be no assurance that the working group will
agree upon such specifications in a timely fashion if at all. Additionally,
Rockwell International and Nortel are collaborating on development of consumer
digital subscriber line (CDSL), a 1Mbps digital modem technology. The companies
anticipate that CDSL modems will be priced, sold, and installed similarly to the
way 56Kbps modems are handled today. Alcatel has demonstrated a splitterless
ADSL service that can be offered over its DSLAM and ADSL modems. Other vendors
touting splitterless ADSL solutions include Cisco Systems/Netspeed, and Tut
Systems. Like the major transceiver technologies the Company is dependent on
it's strategic silicon partners for providing "lite" versions of the transceiver
technology and since standards have not been established for these
implementations there can be no assurance that this will be available to the
Company in a timely manner for the purpose of product development. The attempted
introduction of competing standards or alternate implementation specifications
could result in confusion in the market and delay any decisions regarding
deployment of ADSL systems until various specifications are determined by the
various standards bodies. The inability to meet customer requirements or the
continual introduction of new DSL offerings could delay the decision process of
DSL system implementation and adversely impact sales of the Company's ADSL
product offerings and could have a material adverse effect on the Company's
business and results of operations.

The Company's product development programs are carried out by engineers and
engineering support personnel based in Aurora, Illinois and Cambridge, England.
The Company's domestic engineering is conducted in accordance with ISO 9001,
which is the international standard for quality management systems for design,
manufacturing and service. The Company's research and development personnel are
organized into product development teams. Each product development team is
generally responsible for sustaining technical support of existing products,
decreasing manufacturing costs, conceiving new products in cooperation with
other groups within the Company and adapting standard products or technology to
meet new customer needs. In particular, each product development team is charged
with implementing the Company's engineering strategy of reducing product costs
for each succeeding generation of the Company's products in an effort to be a
low cost, high quality provider, without compromising functionality or
serviceability. The Company believes that the key to this strategy is choosing
an initial architecture for each product that enables engineering innovations to
result in future cost reductions. Successful execution of this strategy also
requires that the Company continue to attract and recruit highly qualified
engineers.

Strategic Alliances

The Company's business strategy involves entering into selected strategic
alliances with other companies that are intended to secure complementary
technologies, insure access to chipsets at the lowest possible cost and to
better market its products. These relationships are expected to enable the
Company to more quickly develop products and penetrate markets and be able to
price its products competitively. The success of the Company is, and will be,
dependent on the efforts of its strategic partners.

The Company's strategic alliances relate to sourcing of silicon chipsets
and the development, manufacture and marketing of DSL systems.

Silicon Chipset Alliances

Motorola In 1996, the Company entered into an agreement with Motorola
Semiconductor to be an alpha partner in their CopperGold(TM) DMT chip set
development. This agreement allows Westell to provide technical input into the
development process and to receive design information, sample silicon and
software before non-alpha partners.

GlobeSpan Semiconductor Incorporated Effective December 1996, the
Company received a five year non-royalty bearing DSL platform license for
GlobeSpan's CAP transceiver chip set. Westell has the right to use GlobeSpan's
CAP transceiver chip set in ADSL or HDSL products. The Company also has the
right to license ADSL or HDSL products/designs that include GlobeSpan's CAP
transceiver chip technology to customers provided that the customer obtain a
license from GlobeSpan.

Virata, Incorporated (formally known as ATM Ltd.) Effective December
1996, the Company received a ten year development and technology license for
Virata's hydrogen chip. The Company has been granted a non-royalty bearing
technology license to use the hydrogen chip and software as a "data engine" in
the Company's ADSL products. Virata is the sole owner of the intellectual
property rights with respect to the licensed software.

Texas Instruments (Amati) Effective December 1997, the Company entered
into a joint development agreement with Amati to develop an ANSI category 2 DMT
ADSL chipset using Amati's DMT software and Texas Instruments DSP transceiver to
be incorporated in the Company's ADSL products. It is anticipated that this
platform will support both full rate and G.Lite applications.

System Level Alliances

Atlantech Technologies Effective December 1994, the Company entered into
a development and license agreement for use of Atlantec's AccessVision(R)
software. Westell has engaged Atlantech to develop and license to the Company a
set of element management applications built upon Atlantech's AccessVision
software core and tailored to operate with the Company's ADSL products.

Fujitsu Telecom Effective April 1998, the Company entered into a partner
agreement to design and manufacture ADSL products for Fujitsu Telecom. Fujitsu
Telecom will distribute the product in Europe and other worldwide opportunities.
The Company is subject to receive royalty payments in the event that Fujitsu
chooses to manufacture the products.

Adtran Effective March 1998, the Company entered into an Agreement with
Adtran, Inc. to develop and market certain products as a member of Adtran's
Total Access partner program. Total Access is a multi-service access system that
can provide services from 56Kbps to over 6Mbps via T1, HDSL or fiber optic
media. The Total Access partner program provides for different vendors to supply
components of the Total Access System.

DSC In January 1997, the Company and DSC Telecom L.P. entered into an
agreement for the design and development of an ADSL line card and the licensing
of the Company's ADSL technology for incorporation in DSC's Litespan(R) 2000
digital loop carrier system. In May 1997, the Company and DSC entered into an
agreement for DSC to distribute the Company's ADSL Remote Terminal Unit ("ATU-
R") modem, to its own customers to complement the Litespan ADSL line card. Bell
Atlantic has announced using the DSC Litespan 2000 based ADSL platform to offer
high-speed remote data and Internet services to customers in Bell Atlantic's 13-
state service territory, beginning in the third calendar quarter of 1998. In
June 1998, Alcatel, a competitor, announced its intent to acquire DSC. The
Company is unable to predict what effect this acquisition, if completed, will
have on this alliance. See Risk Factors - "Competitors."

Lucent In September 1997, the Company and Lucent Technologies, Inc.
entered into an agreement for the design and development of a dual ADSL line
card and a ATM multiplexer card incorporating the Company's ADSL technology for
use in Lucent's SLC(R) Series 5 and SLC-2000 digital loop carrier systems. In
November 1997, the Company and Lucent entered into a nonexclusive agreement to
integrate the Company's SuperVision(R) DSLAM capabilities to broadband enable
Lucents' 5ESS(R) switch product. Under this agreement Lucent will market and
sell the ADSL enabled SLC and SuperVision solutions.

CUSTOMERS

The Company's principal customers historically have been U.S. telcos.
Since fiscal 1993, the Company has also marketed its products internationally.
The Company's customers include all five RBOCs, GTE, Bell Canada and British
Telecom. In addition, Westell sells products to several other entities,
including public telephone administrations located outside the U.S., independent
domestic local exchange carriers, competitive access providers, inter exchange
carriers and the U.S. federal government. International revenues represented
approximately $19.8 million, $4.4 million and $8.5 million of the Company's
revenues in fiscal 1996, 1997 and 1998, respectively, accounting for 23.8%, 5.5%
and 9.9% of the Company's revenues in such periods.

The Company depends, and will continue to depend, on the RBOCs and other
independent local exchange carriers for substantially all of its revenues. Sales
to the RBOCs accounted for 53.8%, 61.9% and 51.1% of the Company's revenues in
fiscal 1996, 1997 and 1998, respectively and sales to Ameritech accounted for
17.7% of the Company's revenues in fiscal 1998. Consequently, the Company's
future success will depend significantly upon the timeliness and size of future
purchase orders from the RBOCs, the product requirements of the RBOCs, the
financial and operating success of the RBOCs, and the success of the RBOCs'
services that use the Company's products. Any attempt by an RBOC or other telco
access providers to seek out additional or alternative suppliers or to
undertake, as permitted under applicable regulations, the internal production of
products would have a material adverse effect on the Company's business and
results of operations. In addition, the Company's sales to its largest customers
have in the past fluctuated and in the future are expected to fluctuate
significantly from quarter to quarter and year to year. The loss of such
customers or the occurrence of such sales fluctuations would materially
adversely affect the Company's business and results of operations.

SBC Communications and Pacific Telesis have recently completed a merger and
SBC Communications and Ameritech have recently announced their intent to merge.
The Company is unable to predict what effect the merger or the announced merger,
if completed, will have on the demand for the Company's ADSL systems or other
products.

MARKETING, SALES AND DISTRIBUTION

The Company sells its products in the U.S. through its domestic field sales
organization and selected distributors. The Company markets its products
internationally in over 40 countries under various distribution arrangements
that include strategic partnerships, OEM agreements, technology licenses,
distributors, and internationally based sales personnel. The Company's field
sales organizations and distributors receive support from internal marketing,
sales and customer support groups. As of March 31, 1998, the Company's
marketing, sales and distribution programs were conducted by 132 employees.

International revenues represented 23.8%, 5.5% and 9.9% of the Company's
revenues in fiscal 1996, 1997 and 1998, respectively. The Company's
international operations are based in Aurora, Illinois and are also conducted
through business operations in Cambridge, England, Hong Kong and Singapore, and
a distribution and service network that supports customers in more than 40
countries. The Company expects to continue to pursue international market
opportunities by focusing primarily on sales of DSL products in international
markets. Where market opportunity exists, certain DS1 products such as the
SmartLink APS system can be engineered with modest effort to facilitate
operation as E-1 products for sale in international markets and the Company
expects to pursue these opportunities where feasible.

The Company believes that international revenues will represent a
significant percentage of revenues in the future. Due to its export sales, the
Company is subject to the risks of conducting business internationally,
including unexpected changes in regulatory requirements, foreign currency
fluctuations which could result in reduced revenues or increased operating
expenses, tariffs and trade barriers, potentially longer payment cycles,
difficulty in accounts receivable collection, foreign taxes, and the burdens of
complying with a variety of foreign laws and telecommunications standards. See
Risk Factors - "Risks Due to Expanding International Operations."

Although the telco approval processes may vary to some extent depending on
the customer and the product being evaluated, they generally are conducted as
follows:

Laboratory Evaluation. The product's function and performance are tested
against all relevant industry standards, including those established by
Bellcore.

Technical Trial. A number of telephone lines are equipped with the product
for simulated operation in a field trial. The field trial is used to
evaluate performance, assess ease of installation and establish
troubleshooting procedures.

Marketing Trial. Emerging products such as ADSL are tested for market
acceptance of new services. Marketing trials usually involve a greater
number of systems than technical trials because systems are deployed at
several locations in the telco's network. This stage gives telcos an
opportunity to establish procedures, train employees to install and
maintain the new product and to obtain more feedback on the product from a
wider range of operations personnel.

Commercial Deployment. Commercial deployment usually involves substantially
greater numbers of systems and locations than the marketing trial stage. In
the first phase of commercial deployment, a telco initially installs the
equipment in select locations for select applications. This phase is
followed by general deployment involving greater numbers of systems and
locations. General deployment does not usually mean that one supplier's
product is purchased for all of the telcos' needs throughout the system as
telcos often rely upon multiple suppliers to ensure that their needs can be
met. Subsequent orders, if any, are generally placed under single or
multi-year supply agreements that are generally not subject to minimum
volume commitments.

In most international markets, there is one major telco per country with
limited or few alternate carriers or independent telcos. Typically, these telcos
are highly regulated, government-owned agencies that have approval and purchase
processes similar to those followed by the RBOCs.

CUSTOMER SERVICE AND SUPPORT

Westell maintains 24-hour, 7-day-a-week telephone support and provides
on-site support. The Company also provides technical consulting, research
assistance and training to its customers with respect to the installation,
operation and maintenance of its products.

MANUFACTURING

The Company purchases parts and components for its products from a number
of suppliers through a worldwide sourcing program. Certain key components, such
as integrated circuits and other electronic components, used in the Company's
products are currently available from only one source or a limited number of
suppliers. For instance, the Company currently depends on GlobeSpan
Technologies to provide critical integrated circuits used in the Company's ADSL
products. In addition, certain electronic components are currently in short
supply and are provided on an allocation basis to the Company and other users,
based upon past usage. There can be no assurance that the Company will be able
to continue to obtain sufficient quantities of integrated circuits or other
electronic components as required, or that such components, if obtained, will be
available to the Company on commercially reasonable terms. The Company purchases
integrated circuits from GlobeSpan Technologies on a purchase order basis under
a formal supply arrangement. GlobeSpan Technologies in turn sources these
integrated circuits from a third party supplier. The Company anticipates that
integrated circuit production capacity and availability of certain electronic
components of its suppliers may be insufficient to meet demand for such
components in the future. Integrated circuits and electronic components are key
components in all of the Company's products and are fundamental to the Company's
business strategy of developing new and succeeding generations of products at
reduced unit costs without compromising functionality or serviceability. In the
past, however, the Company has experienced delays in the receipt of certain of
its key components, such as integrated circuits, which have resulted in delays
in related product deliveries. There can be no assurance that delays in key
components or product deliveries will not occur in the future due to shortages
resulting from the limited number of suppliers, financial or other difficulties
of such suppliers or the possible limitations in integrated circuit production
capacity or electronic component availability because of significant worldwide
demand for these components. The inability to obtain sufficient key components
or to develop alternative sources for such components, if and as required in the
future, could result in delays or reductions in product shipments, which in turn
could have a material adverse effect on the Company's customer relationships,
its business and results of operations.

The Company currently manufactures most of its products internally while
relying on a few subcontractors in the U.S. and the United Kingdom for various
assemblies. As part of its strategic plan to meet the potential worldwide demand
for its DSL systems, the Company currently is in the process of developing the
manufacturing capabilities necessary to supply and support large volumes of ADSL
systems and in the future may become increasingly dependent on subcontractors.
In fiscal 1998 the Company entered into a subcontracting relationship with
Dovatron International for the assembly of its DSL printed circuit boards.
Reliance on third-party subcontractors involves several risks, including the
potential absence of adequate capacity and reduced control over product quality,
delivery schedules, manufacturing yields and costs. The use of subcontractors
could result in material delays or interruption of supply as a consequence of
required re-tooling, retraining and other activities related to establishing a
new subcontractor relationship. Any material delays or difficulties in
connection with increased manufacturing production or the use of subcontractors
could have a material adverse effect on the Company's business and results of
operations. There can be no assurance that the Company will be successful in
increasing its manufacturing capacity in a timely and cost-effective manner or
that the transition to subcontracting will not materially adversely affect the
Company's business and results of operations. The Company's failure to
effectively manage its growth would have a material adverse effect on the
Company's business and results of operations.

A substantial portion of the Company's shipments in any fiscal period
relate to orders for certain products received in that period. Further, a
significant percentage of orders, such as NIUs, require delivery within 48
hours. To meet this demand, the Company maintains raw materials inventory and
limited finished goods inventory at its manufacturing facility. In addition, the
Company maintains some finished goods inventory at the customer's site pursuant
to an agreement that the customer will eventually purchase such inventory. Final
testing and shipment of products to customers occurs in the Company's Aurora,
Illinois facilities. The Company's domestic facilities are certified pursuant to
ISO 9001.

The Company's backlog for its DS1 and DS0 products at March 31, 1998 was
$945,000. The Company believes that because a substantial portion of customer
orders for DS1 and DS0 products are filled within the quarter of receipt, the
Company's backlog is not a meaningful indicator of actual revenues for these
products for any succeeding period. At March 31, 1998, backlog for its DSL
products was $1.3 million. In general, customers purchasing DSL products may
reschedule orders without penalty to the customer. As a result, the quantities
of the Company's products to be delivered and their delivery schedules may be
revised by customers to reflect changes in their DSL product needs. Since
backlog of DSL products can be rescheduled without penalty, the Company does not
believe that its backlog of DSL products is a meaningful indicator of future
revenues from DSL products.

COMPETITION

The markets for the Company's products are intensely competitive and the
Company expects competition to increase in the future, especially in the
emerging ADSL market. Westell's principal competitors in the DS0 market are
Adtran, Inc., Pulsecom, Tellabs, Inc. and Teltrend, Inc. Westell's principal
competitors in the DS1 market are ADC Telecommunications Inc., Applied Digital
Access Inc., PairGain Technologies, Inc. and Teltrend, Inc. The Company's
current competitors in the ADSL market include Alcatel Network Systems, AGCS,
Cabletron, Diamond Lane Communications, Digital Switch Corporation ("DSC"), ECI
Telecom, Ltd., Ericsson, Cisco Systems/Netspeed, Lucent Technologies, Inc.,
Nortel, Orckit Communications, Ltd. PairGain Technologies, Inc., Paradyne, 3Com,
and Siemens. Certain of our competitors are large network level system suppliers
who are much larger than the Company and can offer all elements of a network
solution. The Company has addressed this by entering into strategic alliances to
offer integrated solutions in addition to our overlay ADSL product offering. The
Company's ability to compete with these larger system suppliers will depend on
the success of the alliances we form and the system solutions created to meet
customers needs. The inability to form successful alliances and develop systems
that meet customers requirements will materially adversely affect the Company's
business and results of operations.

The Company expects competition in the ADSL market in the near future from
numerous other companies. In addition, the Telecommunications Act which was
signed into law in February 1996, permits the RBOCs to engage in manufacturing
activities. An RBOC must first meet specific statutory and regulatory tests
demonstrating that its monopoly market for local exchange services is open to
competition before it will be permitted to engage in manufacturing activities.
Therefore, RBOCs, which are the Company's largest customers, may potentially
become the Company's competitors as well. Many of the Company's competitors and
potential competitors have greater financial, technological, manufacturing,
marketing and human resources than the Company. Any increase in competition
could reduce the Company's gross margin, require increased spending by the
Company on research and development and sales and marketing, and otherwise
materially adversely affect the Company's business and results of operations.

Products that increase the efficiency of digital transmission over copper
wire face competition from fiber, wireless, cable modems and other products
delivering broadband digital transmission. Many telcos and other local access
providers have adopted policies that favor the deployment of fiber. To the
extent that customers choose to install fiber and other transmission media
between the central office and the end user, the Company expects that demand for
its copper wire-based products will decline. Telcos face competition from cable
operators, new local access providers and wireless service providers that are
capable of providing high speed digital transmission to end users. To the extent
telcos decide not to aggressively respond to this competition and fail to offer
high speed digital transmission, the overall demand for ADSL products could
decline. In addition, the deployment of certain products and technologies for
copper wire may also reduce the demand for the types of products currently
manufactured by the Company. Specifically, the deployment of HDSL systems in the
U.S., which reduces telcos' need for T-1 repeaters and NIUs, may result in a
decrease in demand for Westell's DS1-based products. Further, the Company
believes that the domestic market for many of its DS0-based products is
decreasing, and will likely continue to decrease, as high capacity digital
transmission becomes less expensive and more widely deployed. See Risk Factors -
"Reliance on Emerging Market for ADSL Technology; Losses" and "Competition."

TELECONFERENCE SERVICES

Conference Plus, Inc. ("CPI"), founded in 1988, is a leading provider of
fully managed, multi-point electronic meeting services utilizing
teleconferencing technologies. The Company is a 88.2% owned subsidiary of
Westell Technologies, Inc. and manages its teleconferencing services through its
operations center located in Schaumburg, Illinois. CPI enables its customers to
share information via the telecommunications based mediums of audio, video and
document conferencing, thus allowing customers to increase productivity and save
money by reducing travel time, bringing down travel costs, and making it easier
for people in remote locations to work together. Teleconferencing technologies
also allow organizations and individuals to collect and disseminate information
faster, more accurately and without the associated costs of face-to-face
meetings.

Revenues from CPI services generated $7.7 million, $10.3 million and $14.1
million in revenues in fiscal 1996, 1997 and 1998, respectively. A majority of
CPI's revenues are derived from private label commercial teleconferencing
services where customers market CPI services under their own brand name. Such
companies choose to private label audio and video teleconferencing because it
provides a complete outsource of internal and commercial services. The
outsourcing of private label conference services is also desired by network
carriers and RBOCs because it fundamentally differs from the core products of
these providers. Audio and video teleconferencing is a people-intensive
service, requiring high levels of concentration on the execution of each and
every call. In addition to privately branded teleconferencing services, CPI
offers a wide range of direct commercial teleconferencing services and multi
point video conference bridging. The audio conferencing services include; 1)
operator initiated calls where the CPI operator calls the participants, 2)
operator assisted calls where the customer dials in on their own network ("meet-
me") or the customers call into a toll free network ("800 meet-me") and, 3)
fully automated services ("pass code") where the customers use a pre-assigned
code to access the conference call without the assistance of an operator.
Expanded capabilities also provide for advanced meeting service optioning which
include, call polling, questions & answer queuing, broadcast/listen only,
integrated voice response digital playback, conference call tape recording and
playback, transcription and reservation/resource management services.

Conference Plus has been distinguished by receiving the first ISO 9002
certification in the audio and video conferencing services industry. Receiving
ISO 9002 certification means that Conference Plus meets the standards set by the
International Organization for Standardization to define world class service and
has set the benchmark for quality in the teleconferencing service industry.

CPI's strategic focus includes the following key objectives:

Private Label Services - Leverage leadership in private label services
through offering flexibility in network carrier arrangements, superior
tailored reservations, confirmation, billing and customer service
optioning and extensive experience in the design, implementation and
ongoing management of private label programs.

Automated Conferencing - Deliver solutions for automated conferencing
through promoting, electronic and Internet access to reservation and
billing systems, and improved, convenient and cost effective use of
automated (pass code) teleconferencing systems.

International Expansion - CPI currently serves its teleconferencing needs
of customers headquartered in the United States from its Schaumburg,
Illinois facility. As these customers globalize their telecommunications
services, CPI will be required to expand its operational presence
internationally to meet these needs. In addition, the international
market for teleconferencing is expected to grow substantially as a
result of deregulation and improved networks with associated reductions
in end user costs which will allow for increased opportunity to service
foreign based companies in need of teleconferencing technologies and
services.

Commitment to Service Quality, Customer Service and Low-Cost Operations -
CPI recognizes that providing high quality service is an important
aspect affecting CPI's ability to compete in both the domestic and
international teleconferencing markets. The Company's commitment to
continuous improvement and total customer satisfaction is evidenced by
its use of a total quality management program which has resulted in CPI
becoming ISO 9002 certified in November 1997. CPI will continue to focus
on total quality management and continuous improvement to meet and
exceed customer expectations. In addition, CPI's focus will also include
implementation of cost improvements to allow the Company to offer world
class services at low cost to remain competitive in its teleconference
service offerings.

CPI sells its services in the U.S. principally through its domestic in-
house sales organization, through agents under contract to CPI and through the
efforts of the Company's Private Label customers. As of March 31, 1998, the
Company's sales, service representatives and agent support programs were
conducted by 28 employees.

The private label customers and many of the Company's other customers are
significantly larger than, and are able to exert a high degree of influence over
CPI. Prior to selling its services, the Company must undergo lengthy approval
and purchase processes. Evaluation can take as little as a few months for
services that vary slightly from existing services used by the prospective
customer to a year or more for services based on technologies such as video or
data teleconferencing or which represent a new strategic direction for the
customer, as in the case with private labeling teleconference services for a
RBOC.

Conference Plus maintains 24 hour, 7 day a week telephone support and
provides on-site support for larger, more complex teleconferences. The Company
also provides technical consulting, call planning assistance and usage analysis
to its customers with respect to the introduction, enhancement and expanded
utilization of its services.

Competition in the teleconferencing business is intense and the Company
expects that competition will increase due to low barriers to entry and recent
entrants into the audio teleconferencing service market. Many of Conference
Plus' competitors, including AT&T, MCI Communications and Sprint Communications,
have much greater name recognition, more extensive customer service and
marketing capabilities and substantially greater financial, technological and
personnel resources than the Company. There can be no assurance that the Company
will be able to successfully compete in this market in the future or that
competitive pressures will not result in price reductions that would materially
adversely affect the Company's business and results of operations.

GOVERNMENT REGULATION

In addition, the Telecommunications Act permits the RBOCs to engage in
manufacturing activities after the FCC authorizes an RBOC to provide long
distance services within its service territory. An RBOC must first meet specific
statutory and regulatory tests demonstrating that its monopoly market for local
exchange services is open to competition before it will be permitted to enter
the long distance market. When these tests are met, an RBOC will be permitted to
engage in manufacturing activities and the RBOCs, which are the Company's
largest customers, may become the Company's competitors as well. See Risk
Factors - "Government Regulation."

PROPRIETARY RIGHTS

Many of the Company's products incorporate technology developed and owned
by third parties. Consequently, the Company must rely upon third parties to
develop and introduce technologies which enhance the Company's current products
and enable the Company, in turn, to develop its own products on a timely and
cost-effective basis to meet changing customer needs and technological trends in
the telecommunications industry. Any impairment or termination of the Company's
relationship with any licensors of third-party technology would force the
Company to find other developers on a timely basis or develop its own
technology. There can be no assurance that the Company will be able to obtain
the third-party technology necessary to continue to develop and introduce new
and enhanced products, that the Company will obtain third-party technology on
commercially reasonable terms or that the Company will be able to replace
third-party technology in the event such technology becomes unavailable,
obsolete or incompatible with future versions of the Company's products. The
absence of or any significant delay in the replacement of third-party technology
would have a material adverse effect on the Company's business and results of
operations.

The Company's ADSL products are dependent upon CAP and DMT transceiver
technology licensed or sourced from third party suppliers. GlobeSpan
Semiconductor, Inc. is currently the sole provider of the CAP transceiver
technology and the Company currently has entered into alliances with Motorola
and Texas Instruments to receive their DMT transceiver technology when
available. These licenses or sourcing alliances are nonexclusive and have been
licensed to numerous other manufacturers or will not require a license to
acquire. Without a third party transceiver technology the Company would not be
able to produce any of its ADSL systems. Consequently, if the Company's third
party transceiver suppliers fail to deliver implementable or standards compliant
transceiver solutions to the Company and other alternative sources of ADSL
transceiver technology are not available to the Company at commercially
acceptable terms, the Company's business and results of operations would be
materially and adversely affected.

Rapid technological evolution has resulted in the need to implement
strategic alliances with customers and technology suppliers in order to
accelerate the time to market for new products. Without such relationships and
due to the lengthy telco product approval and purchase cycles, the technology
may be obsolete by the time it is implemented. Relationships in place with
companies such as Texas Instruments/Amati, GlobeSpan Semiconductors, Inc.,
Motorola, Virata, Inc. (formerly ATM, Ltd.) and certain customers enable the
Company to develop products at the same time that the Company undergoes the
product approval and purchase processes for products in development. This can
result in much quicker introduction of new products while the technology is
still in demand.

EMPLOYEES

As of March 31, 1998, the Company had 795 full-time employees. Westell's
equipment manufacturing business had a total of 649 full-time employees,
consisting of 132 in sales, marketing, distribution and service, 176 in research
and development, 297 in manufacturing and 44 in administration. Conference Plus
had a total of 146 full-time employees. None of the Company's employees are
represented by a collective bargaining agreement nor has the Company ever
experienced any work stoppage. The Company believes its relationship with its
employees is good.

ITEM 2. PROPERTIES

During fiscal 1997 the Company moved into approximately 185,000 square feet
of office, development and manufacturing space in Aurora, Illinois, a suburb of
Chicago. The Company also leases facilities in Schaumburg, Illinois for
Conference Plus, and in Tampa, Florida and Cambridge, England for its
international operations. The Aurora facility that the Company began occupying
in December 1996 was constructed through a majority owned Limited Liability
Corporation ("LLC") with a real estate developer. During the construction
period, the Company advanced the LLC the construction funding which as of March
31, 1997, was $14.4 million. In fiscal 1998 the LLC received proceeds of $16.2
million upon the sale of the Aurora facility at cost. The LLC repaid the
Company the advanced construction funding during the second quarter of fiscal
1998 upon completing the sale of the facility to a third party. The Aurora
facility was subsequently leased back by the Company in a related transaction
with the same third party under a 20 year lease that runs through 2017.

While the Company believes its current facilities are adequate to support
its present level of operations, it believes that additional space for expansion
will be driven by the success of the DSL business. The Company estimates that
its manufacturing facilities are operating at a utilization rate of
approximately 75%.

ITEM 3. LEGAL PROCEEDINGS

The Company has been involved from time to time in litigation in the normal
course of business. The Company is not presently involved in any legal
proceedings that the Company believes are material to its business.

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

On February 28, 1998, the majority stockholder of the Company approved,
by majority written consent, (i) an amendment to the Company's Amended and
Restated Certificate of Incorproation to increase the amount of Class A
Common Stock authorized for issuance from 43,500,000 to 65,500,000, and (ii)
an amendment to increase the number of shares available for issuance under the
Company's 1995 Stock Incentive Plan to 5,000,000. Action with respect to the
Stock Incentive Plan was taken on April 20, 1998.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company effected its initial public offering on November 30, 1995 at a
price to the public of $6.50 per share. The Company's Class A Common Stock is
quoted on the NASDAQ National Market under the symbol "WSTL." The following
table sets forth for the periods indicated the high and low closing sale prices
for the Class A Common Stock as reported on the NASDAQ National Market, which
prices reflect the two-for-one Stock Split of the Company's Class A and Class B
Common Stock to holders of record on May 20, 1996 and paid on June 7, 1996 (the
"Stock Split").

<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal Year 1996
Third Quarter (from December 1, 1995) . . . . . . . . . . . . . . . . . $13 13/16 $ 9 3/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9 5/8
Fiscal Year 1997
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 18 5/8
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 1/4 19 1/4
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3/8 21
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7/8 8 5/8
Fiscal Year 1998
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7/8 10 3/4
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5/8 17 1/4
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7/8 10 1/2
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1/4 10 3/4
Fiscal Year 1999
First Quarter (through June 22, 1998) . . . . . . . . . . . . . . . . . 13 7/8 8 21/32

</TABLE>

As of June 22, 1998, there were approximately 597 holders of record of the
outstanding shares of Class A Common Stock.

Issuance of Class A Common Stock

On June 26, 1996, the Company completed a public offering in which
1,665,000 shares of Class A Common Stock were sold by the Company and 335,000
shares of Class A Common Stock were sold by certain stockholders of the Company
for a price to the public of $39.00 per share. Net proceeds to the Company from
the sale of the Class A Common Stock were approximately $61.6 million and will
be used to fund capital equipment purchases and for general corporate purposes
including working capital funding.

Dividends

The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain any future earnings to finance
the growth and development of its business.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected consolidated financial data as of March 31, 1994,
1995, 1996, 1997 and 1998 and for each of the five fiscal years in the period
ended March 31, 1998 have been derived from the Company's consolidated financial
statements, which have been audited by Arthur Andersen LLP, independent public
accountants. The data set forth below is qualified by reference to, and should
be read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements and
the related Notes thereto and other financial information appearing elsewhere in
this Form 10-K

<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
1994 1995 1996 1997 1998
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues . . . . . . . . . . . . . . . . . . . . $51,051 $74,029 $83,236 $79,385 $86,351

Cost of goods sold . . . . . . . . . . . . . . . 30,250 44,494 50,779 57,832 58,859
Gross margin . . . . . . . . . . . . . . . . 20,801 29,535 32,457 21,553 27,492
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . 8,068 12,169 13,744 16,214 19,296
Research and development . . . . . . . . . . . 7,695 10,843 12,603 21,994 26,558
General and administrative . . . . . . . . . . 5,502 6,701 8,364 9,757 13,151
Restructuring charge . . . . . . . . . . . . . -- -- -- -- 1,383
Total operating expenses . . . . . . . . . . 21,265 29,713 34,711 47,965 60,388
Operating loss from continuing
operations . . . . . . . . . . . . . . . . . . (464) (178) (2,254) (26,412) (32,896)
Other income (expense), net . . . . . . . . . . . (36) 34 (226) 2,221 14,290
Interest expense . . . . . . . . . . . . . . . . 176 769 859 330 502
Loss from continuing operations before
income taxes . . . . . . . . . . . . . . . . . (676) (913) (3,339) (24,521) (19,108)
Benefit for income taxes . . . . . . . . . . . . (989) (788) (1,886) (9,820) (5,137)
Income (loss) from continuing operations . . . . 313 (125) (1,453) (14,701) (13,971)
Discontinued operations (loss) . . . . . . . . . (100) (383) (622) (5) ----
Net income (loss) . . . . . . . . . . . . . . . . $ 213 $ (508) $(2,075) $(14,706) $(13,971)
Net income (loss) per share: (1)
Continuing operations . . . . . . . . . . . . . $ 0.01 $ (0.01) $ (0.05) $ (0.41) $ (0.38)
Discontinued operations . . . . . . . . . . . . (0.00) (0.01) (0.02) (0.00) (0.00)
Net income (loss) per share . . . . . . . . . . . $ 0.01 $ (0.02) $ (0.07) $ (0.41) $ (0.38)
Dividends declared per share . . . . . . . . . . $ -- $ -- $ -- $ -- $ --
Average number of basic and diluted
common shares outstanding (1) . . . . . . . . 28,486 28,952 30,846 35,940 36,348

March 31,
1994 1995 1996 1997 1998

Balance Sheet Data:
Working capital . . . . . . . . . . . . . . . . . $ 3,053 $ 1,280 $28,741 $65,105 $44,983
Total assets . . . . . . . . . . . . . . . . . . 29,327 40,276 64,448 108,049 98,405
Revolving promissory notes . . . . . . . . . . . 1,700 11,089 -- -- --
Long-term debt, including current portion . . . . 3,339 4,129 4,427 6,487 4,420
Total stockholders' equity . . . . . . . . . . . 8,002 7,558 38,985 86,188 73,141

(1) Adjusted to reflect the Stock Split. See Notes 1 and 6 of Notes to
Consolidated Financial Statements.

</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

OVERVIEW

The Company commenced operations in 1980 as a provider of
telecommunications network transmission products that enable advanced
telecommunications services over copper telephone wires. Until fiscal 1994, the
Company derived substantially all of its revenues from its DS0 and DS1 product
lines, particularly the sale of NIUs and related products, which accounted for
at least 45% of revenues in each of the last three fiscal years. The Company
introduced its first DSL products in fiscal 1993 and these products represented
24.4%, 10.9% and 14.4% of revenues in fiscal 1996, 1997 and 1998, respectively.
The Company has also provided audio teleconferencing services since fiscal 1989
which constituted 9.2%, 13.0% and 16.4% of the Company's revenues in fiscal
1996, 1997 and 1998, respectively. In July 1996, the Company completed the
disposition of KPINS, its consumer products claims processing subsidiary, which
is presented in the results of operations as a discontinued operation.

The Company's customer base is comprised primarily of the RBOCs,
independent domestic local exchange carriers and public telephone
administrations located outside the U.S. Due to the stringent quality
specifications of its customers and the regulated environment in which its
customers operate, the Company must undergo lengthy approval and procurement
processes prior to selling its products. Accordingly, the Company must make
significant up front investments in product and market development prior to
actual commencement of sales of new products. In late fiscal 1992, the Company
significantly increased its investment in new product development based on
emerging technologies, particularly ADSL, and began expanding its sales and
marketing efforts to cover new product lines and planned expansion into
international markets. International operations accounted for 23.8%, 5.5% and
9.9% of the Company's revenues in fiscal 1996, 1997 and 1998, respectively. As a
result of the significant increases in research and development and sales and
marketing expenses related to new product and market development, the Company's
results of operations were adversely impacted in fiscal 1996, 1997 and 1998.

The Company expects to continue to evaluate new product opportunities and
engage in extensive research and development activities. This will require the
Company to continue to invest heavily in research and development and sales and
marketing, which is expected to adversely affect short-term results of
operations. Due to the Company's significant ongoing investment in DSL
technology, the Company anticipates losses in each of the fiscal 1999 quarters.
The Company believes that its future revenue growth and profitability will
principally depend on its success in increasing sales of ADSL products and
developing new and enhanced DS1 and other DSL products. In view of the
Company's reliance on the emerging ADSL market for growth and the
unpredictability of orders and subsequent revenues, the Company believes that
period to period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
Revenues from DS0 products have declined in recent years as telcos continue to
move to networks that deliver higher speed from analog to digital transmission
services. The Company also expects that revenues from NIU products in its DS1
product group may decline as telcos increase the use of alternative technologies
such as HDSL. Failure to increase revenues from new products, whether due to
lack of market acceptance, competition, technological change or otherwise, would
have a material adverse effect on the Company's business and results of
operations.

RESULTS OF OPERATIONS

The following table sets forth the percentage of revenues represented by
certain items in the Company's statements of operations for the periods
indicated:

<TABLE>
<CAPTION>
Fiscal Year Ended March 31,

1996 1997 1998

<S> <C> <C> <C>
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90.7% 87.0% 83.6%
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 13.0 16.4
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0

Cost of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 55.5 64.9 59.9
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 8.0 8.3
Total cost of goods sold . . . . . . . . . . . . . . . . . . . . . 61.0 72.9 68.2

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . 39.0 27.1 31.8

Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . 16.5 20.4 22.3
Research and development . . . . . . . . . . . . . . . . . . . . . 15.2 27.7 30.8
General and administrative . . . . . . . . . . . . . . . . . . . . 10.0 12.3 15.2
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 1.6

Total operating expenses . . . . . . . . . . . . . . . . . . . . 41.7 60.4 69.9

Operating loss from continuing operations . . . . . . . . . . . . . . (2.7) (33.3) (38.1)
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . (0.3) 2.8 16.6
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 0.4 0.6

Income loss from continuing operations before income taxes . . . . . (4.0) (30.9) (22.1)
Benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . (2.3) (12.4) (5.9)

Loss from continuing operations . . . . . . . . . . . . . . . . . . . (1.7) (18.5) (16.2)
Discontinued operations (loss) . . . . . . . . . . . . . . . . . . . (0.8) (0.0) (0.0)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.5)% (18.5)% (16.2)%

</TABLE>

FISCAL YEARS ENDED MARCH 31, 1996, 1997 AND 1998

Revenues. Revenues were $83.2 million, $79.4 million and $86.4 million in
fiscal 1996, 1997 and 1998 respectively. Revenues decreased 4.6% from 1996 to
1997 and increased 8.8% from 1997 to 1998. The fiscal 1997 decrease in equipment
revenue of $6.5 million was primarily due to a $11.6 million decrease in DSL
equipment revenues offset by an increase in DS1 equipment revenues of $5.3
million. The fiscal 1997 decrease in DSL revenue was more than accounted for by
the absence of $14.0 million in trial shipments for video applications to two
foreign telephone operators as telephone operators in general migrated their
focus from video application trial activity (video on demand) to data
application trials (Internet access) of DSL equipment. DSL shipments in fiscal
1997 consisted primarily of data application product shipments for field and
marketing trials. Unit shipments of DSL products increased in fiscal 1997, but
had a lower average sales price when compared to the DSL products made in fiscal
1996. The lower average sales price of DSL equipment is primarily a result of
market forces and competitive pricing pressures. The fiscal 1997 increase in DS1
sales was caused by overall unit volume increases and slightly higher average
unit sales prices as a result of change in product mix which was offset in part
by continued competitive pricing pressures on unit sales prices when compared to
fiscal 1996. The fiscal 1998 increase of $7.0 million was primarily due to
increases of $3.8 million and $3.1 million in DSL and DS1 equipment revenues,
respectively. Higher unit shipments were offset in part by lower average unit
selling prices due to changes in product mix and competitive pressures. These
equipment revenue increases were partially offset by a $3.7 million decrease in
DS0 equipment revenue. The decrease in DS0 revenue was due to lower unit
shipments and lower average unit sale prices as a result of changes in product
mix as network providers continue their transition to digital products and
continued competitive pricing pressures. Service revenues increased $2.6
million and $3.8 million in fiscal 1997 and 1998, respectively, from the
preceding years due primarily to increased audio conference calling volume from
the Company's Conference Plus, Inc. subsidiary.

Gross Margin. Gross margin as a percentage of revenues was 39.0%, 27.1% and
31.8% in fiscal 1996, 1997 and 1998, respectively. The fiscal 1997 decrease from
fiscal 1996 was primarily due to product pricing pressures and changes in
product mix within the Company's DS1 and DS0 product lines. The fiscal 1997
decrease in gross profit margin was also significantly effected by a reserve
taken for ADSL Phase III piece part inventories in the amount of $5.0 million
during the third quarter of 1997. This inventory reserve was the result of the
new generation RADSL platform reducing demand for the prior generation FlexCap
III ADSL products. Excluding the impact of this inventory reserve, the gross
profit margin would have been 33.4% for fiscal 1997. The gross margin for fiscal
1997 was additionally impacted by a large video teleconference equipment OEM
sale with a lower margin than the Company's other equipment sales. Fiscal 1998
gross margin decreased to 31.8% from the adjusted fiscal 1997 gross margin of
33.4%. The decrease in gross margin was primarily the result of continued
pricing pressures and product mix changes for the DS0 and DS1 products as well
as aggressive pricing of the DSL trial systems to capture and stimulate early
market activity prior to volume orders and further product integration.

Sales and Marketing. Sales and marketing expenses were $13.7 million, $16.2
million and $19.3 million in fiscal 1996, 1997 and 1998, respectively,
constituting 16.5%, 20.4% and 22.3% of revenues, respectively. These increases
in sales and marketing expenses were primarily due to staff additions, in both
domestic and international markets, to support and promote the Company's product
lines, particularly ADSL products. The Company believes that continued
investment in sales and marketing will be required to expand its product lines,
bring new products to market and service customers

Research and Development. Research and development expenses were $12.6
million, $22.0 million and $26.6 million in fiscal 1996, 1997 and 1998,
respectively, constituting 15.2%, 27.7% and 30.8% of revenues, respectively.
These increases in research and development expenses were due primarily to costs
associated with additional personnel and increased contract development expenses
to support new and existing product development such as the DSLAM, RADSL, ADSL
functionality for the DSC Litespan and the Lucent SLC-5 and SLC-2000 Digital
Loop Carrier systems and increased prototype material costs to support
development activities. Furthermore, the Company had received non-recurring
engineering project funding of $2.6 million in fiscal 1996 for a customer
sponsored research and development project that was not present in fiscal 1997.
The Company believes that a continued commitment to research and development
will be required for the Company to remain competitive.

General and Administrative. General and administrative expenses were $8.4
million, $9.8 million and $13.2 million in fiscal 1996, 1997 and 1998,
respectively, constituting 10.0%, 12.3% and 15.2% of revenues, respectively. The
dollar increases in general and administration expenses were due primarily to
additional personnel to handle expanded corporate infrastructure in domestic and
international markets. The increase in fiscal 1998 general and administrative
expenses also included a one time charge of approximately $600,000 related to
retirement benefits granted to Gary F. Seamans, former Chairman and CEO.

Restructuring charge. The Company recognized a restructuring charge of
$1.4 million in the three months ended December 31, 1997. This charge included
personnel, facility, and certain development contract costs related to
restructuring global operations.

Other income, net. In fiscal 1998, the Company recognized other income of
$12.0 million, net of expenses, related to a one time fee received from Texas
Instruments for the break-up of the proposed Westell/Amati merger. Excluding
the effect of this one time benefit, Other income, net would have been $2.3
million for fiscal year ended March 31, 1998. Excluding the one time item, Other
income, net for the years ended March 31, 1996, 1997 and 1998 was primarily due
to interest income earned on temporary cash investments made as a result of
investing available funds.

Interest Expense. Interest expense was $859,000, $330,000 and $502,000 for
fiscal 1996, 1997 and 1998, respectively. Interest expense decreased in fiscal
1997 as a result of the Company utilizing approximately $11.1 million of the
proceeds generated in the Company's initial public offering of Class A Common
Stock in November 1995 to repay amounts outstanding under the Company's
revolving promissory notes. The fiscal 1998 increase in interest expense was a
result of additional borrowings under equipment notes made during fiscal 1997 to
finance property and equipment purchases.

Benefit for Income Taxes. Benefit for income taxes was $1.9 million, $9.8
million and $5.1 million in fiscal 1996, 1997 and 1998, respectively. In each of
these fiscal years, in addition to the tax benefit generated by the loss before
income taxes, the Company was able to utilize $790,000, $398,000 and $700,000
respectively, in tax credits primarily generated by increasing research and
development activities. In the fourth quarter of fiscal 1998, the Company
recorded a valuation allowance of $2.9 million which represents the amount that
the deferred tax benefit exceeded the value of the tax planning strategy
available to the Company. The Company has approximately $3.5 million in income
tax credit carry forwards and a tax benefit of $15.6 million related to a net
operating loss carryforward that is available to offset future taxable income.
The tax credit carryforwards begin to expire in 2008 and the net operating loss
carryforward begins to expire in 2012.

QUARTERLY RESULTS OF OPERATIONS

The following tables present the Company's results of operations for each
of the last eight fiscal quarters and the percentage relationship of certain
items to revenues for the respective periods. The Company believes that the
information regarding each of these quarters is prepared on the same basis as
the audited Consolidated Financial Statements of the Company appearing elsewhere
in this Form 10-K. In the opinion of management, all necessary adjustments
(consisting only of normal recurring adjustments) have been included to present
fairly the unaudited quarterly results when read in conjunction with the audited
Consolidated Financial Statements of the Company and the Notes thereto appearing
elsewhere in this Form 10-K. These quarterly results of operations are not
necessarily indicative of the results for any future period.

<TABLE>
<CAPTION>
Quarter Ended
Fiscal 1997 Fiscal 1998

June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1996 1996 1996 1997 1997 1997 1997 1998
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equipment . . . . . . $17,412 $18,677 $15,670 $17,307 $16,336 $18,439 $18,082 $19,349
Services . . . . . . . 2,846 2,375 2,387 2,711 3,001 3,251 3,540 4,353
Total revenues . . . 20,258 21,052 18,057 20,018 19,337 21,690 21,622 23,702

Cost of equipment . . . 11,220 12,830 15,363 12,130 11,367 13,418 13,154 13,804
Cost of services . . . 1,779 1,251 1,557 1,702 1,558 1,436 2,004 2,118
Total cost of goods sold 12,999 14,081 16,920 13,832 12,925 14,854 15,158 15,922
Gross margin . . . 7,259 6,971 1,137 6,186 6,412 6,836 6,464 7,780

Operating expenses:
Sales and marketing . 3,922 3,627 4,200 4,465 5,419 4,703 5,052 4,122
Research and
development . . . . 4,222 4,737 5,851 7,184 6,087 6,680 7,111 6,680
General and
administrative . . 2,021 2,065 2,730 2,688 2,947 3,099 3,294 3,811
Restructuring charge -- -- -- -- -- -- 1,383 --

Total operating
expenses . . . . 10,368 10,479 12,781 14,337 14,453 14,482 16,840 14,613

Operating loss from
continuing operations (3,109) (3,508) (11,644) (8,151) (8,041) (7,646) (10,376) (6,833)

Other income, net . . . 228 473 631 889 494 362 12,714 720
Interest expense . . . 97 100 30 103 63 62 122 255

Income (loss) from
continuing operations
before income taxes . (2,978) (3,135) (11,043) (7,365) (7,610) (7,346) 2,216 (6,368)
Provision (benefit) for
income taxes . . . . (1,290) (1,205) (4,295) (3,030 (3,090) (2,830) 783 --

Income (loss) from
continuing operations (1,688) (1,930) (6,748) (4,335) (4,520) (4,516) 1,433 (6,368)

Income (loss) from
discontinued operations (7) 3 (0) (1) -- -- -- --

Net income (loss) . . . $ (1,695) $ (1,927) $ (6,748) $ (4,336) $ (4,520) $ (4,516) $ 1,433 $ (6,368)

Quarter Ended
Fiscal 1997 Fiscal 1998

June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1996 1996 1996 1997 1997 1997 1997 1998
<S> . . . . . . . . . . <C> <C> <C> <C> <C> <C> <C> <C>
Equipment . . . . . . . 86.0% 88.7% 86.8% 86.5% 84.5% 85.0% 83.6% 81.6%
Service . . . . . . . . 14.0 11.3 13.2 13.5 15.5 15.0 16.4 18.4
Total revenues . . . 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Cost of equipment sales 55.4 60.9 85.1 60.6 58.8 61.9 60.8 58.2
Cost of services . . . 8.8 6.0 8.6 8.5 8.0 6.6 9.3 8.9
Total cost of goods sold 64.2 66.9 93.7 69.1 66.8 68.5 70.1 67.2
Gross margin . . . . 35.8 33.1 6.3 30.9 33.2 31.5 29.9 32.8

Operating expenses:
Sales and marketing . 19.4 17.2 23.3 22.3 28.0 21.7 23.4 17.4
Research and
development . . . . 20.8 22.5 32.4 35.9 31.5 30.8 32.9 28.2
General and
administrative . . 11.0 10.0 15.1 13.4 15.3 14.3 15.2 16.1
Restructuring charge 0.0 0.0 0.0 0.0 0.0 0.0 6.4 0.0

Total operating
expenses . . . . 51.2 49.7 70.8 71.6 74.8 66.8 77.9 61.7

Operating loss from
continuing operations (15.3) (16.7) (64.5) (40.7) (41.6) (35.3) (48.0) (28.8)

Other income, net . . . 1.1 2.2 3.5 4.4 2.5 1.7 58.8 3.0
Interest expense . . . 0.5 0.5 0.2 0.5 0.3 0.3 0.6 1.1

Income (loss) from
continuing operations
before income taxes . (14.7) (14.9) (61.2) (36.8) (39.4) (33.9) 10.2 (26.9)
Provision (benefit) for
income taxes . . . . (6.4) (5.7) (23.8) (15.1) (16.0) (13.0) 3.6 (0.0)

Income (loss) from
continuing operations (8.3) (9.2) (37.4) (21.7) (23.4) (20.8) 6.6 (26.9)
Discontinued operations
(loss) . . . . . . . 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net income (loss) . . . (8.3)% (9.2)% (37.4)% (21.7)% (23.4)% (20.8)% 6.6% (26.9)%

</TABLE>

The Company's quarterly equipment revenues have varied from quarter to
quarter with total equipment revenue decreasing from the June 30, 1996 level in
3 of the 7 subsequent quarters presented in fiscal 1997 and 1998. DSL revenues
have created quarterly fluctuations due to varying levels of DSL trials and
deployments. A majority of DSL shipments made in fiscal 1997 and 1998 were for
trials and initial service deployments and therefore have not created steady or
predictable demand for these products on a quarter to quarter basis. DS1
revenues have increased fairly steadily in fiscal 1997 and 1998 due to a
combination of changes in product mix and increased unit shipments offset in
part by continued competitive pricing pressures. Revenues in the DS0 product
family have declined steadily from levels at June 30, 1997 as telcos migrate
from lower signal level analog networks to local access networks based upon
higher signal level digital products. Service revenues have seen steady growth
throughout the eight quarters presented due primarily to increased audio
conference calling traffic volume.

Gross margin as a percentage of revenues has decreased in each quarter
since the June 30, 1996. These decreases result primarily from competitive
product pricing pressures and product mix changes in each of the Company's
product lines as well as investments in manufacturing infrastructure made in
advance of anticipated DSL production. In the third quarter of fiscal 1997, the
gross margin was negatively effected by a reserve taken for ADSL Phase III piece
part inventories in the amount of $5.0 million. This inventory reserve was the
result of the new generation RADSL platform reducing demand for the prior
generation FlexCap III ADSL products. Excluding the impact of this inventory
reserve, the gross profit margin would have been 34.0% for the quarter. The
Company believes that its gross margin in future periods will depend on a number
of factors, including market demand for the Company's DSL products, pricing
pressures, competitive technologies and manufacturing expenses. There can be no
assurance that the Company will be able to increase gross margins in future
periods even if its DSL products achieve market acceptance due to these factors.

Operating expenses increased in each quarter of fiscal 1997 and the first
three quarters of fiscal 1998 as the Company continued to increase operating
expenses, primarily the hiring of additional personnel, to support the
development, introduction and promotion of DSL systems and other new products.
In the fourth quarter of fiscal 1997, research and development costs were up
significantly due to prototyping expenses related to the RADSL and Access
Multiplexer platforms. In the third quarter of fiscal 1998 the Company took a
one time restructuring charge of $1.4 million for personnel, facility and
certain development contract costs related to restructuring global operations.
Operating expenses in the fourth quarter of fiscal 1998 decreased as a result of
restructuring actions taken in the previous quarter. As a result of fluctuations
in the timing of revenues of DSL products and research and development and sales
and marketing expenses, the Company currently anticipates net losses in each of
the quarters of fiscal 1999.

The Company expects to continue to experience significant fluctuations in
quarterly results of operations. The Company believes that fluctuations in
quarterly results may cause the market price of the Class A Common Stock to
fluctuate, perhaps substantially. Factors which have had an influence on and may
continue to influence the Company's results of operations in a particular
quarter include the size and timing of customer orders and subsequent shipments,
customer order deferrals in anticipation of new products, timing of product
introductions or enhancements by the Company or its competitors, market
acceptance of new products, technological changes in the telecommunications
industry, competitive pricing pressures, accuracy of customer forecasts of
end-user demand, write-offs for obsolete inventory, changes in the Company's
operating expenses, personnel changes, foreign currency fluctuations, changes in
the mix of products sold, quality control of products sold, disruption in
sources of supply, regulatory changes, capital spending, delays of payments by
customers and general economic conditions. Sales to the Company's customers
typically involve long approval and procurement cycles and can involve large
purchase commitments. Accordingly, cancellation or deferral of one or a small
number of orders could cause significant fluctuations in the Company's quarterly
results of operations. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance.

Because the Company generally ships products within a short period after
receipt of an order, the Company typically does not have a material backlog of
unfilled orders, and revenues in any quarter are substantially dependent on
orders booked in that quarter. The Company's expense levels are based in large
part on anticipated future revenues and are relatively fixed in the short-term.
Therefore, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall of orders. Accordingly, any significant
shortfall of demand in relation to the Company's expectations or any material
delay of customer orders would have an almost immediate adverse impact on the
Company's business and results of operations and on its ability to achieve
profitability.

LIQUIDITY AND CAPITAL RESOURCES

In June 1996, the Company completed a secondary public offering of Class A
Common Stock which generated $61.6 million. At March 31, 1998 the Company had
$44.2 million in cash and short term investments consisting primarily of federal
government agency instruments and the highest rated grade corporate commercial
paper. As of March 31, 1998, the Company had no amounts outstanding under its
secured revolving promissory notes and $4.2 million outstanding under its
equipment borrowing facility. As of March 31, 1998, the Company had
approximately $12.0 million available under the secured revolving promissory
note facility. The revolving promissory notes and the equipment borrowing
facility required the maintenance of a minimum cash to current maturity ratio, a
current ratio and a maximum debt to net worth ratio. The Company is currently in
compliance with all such covenants.

The Company's operating activities generated cash of $6.5 million in fiscal
1996 and used cash of $22.5 million and $4.2 million in fiscal 1997 and 1998,
respectively. Cash generated from operating activities in fiscal 1996 was
primarily a result of decreases in receivables and inventory and an increase in
customer deposits offset in part by an increase in short term investments and a
decrease in accounts payable. Cash used by operations in fiscal 1997 resulted
primarily from a loss from continuing operations before income tax of $18.3
million (net of depreciation) and working capital required by an increase in
short term investments and receivables, and a decrease in customer deposits.
Cash used by operations in fiscal 1998 resulted primarily from a loss from
continuing operations before income tax of $12.1 million (net of depreciation)
offset by increases in accounts payable and accrued compensation and a decrease
in prepaid expenses.

Capital expenditures in fiscal 1996, 1997 and 1998 were $6.3 million, $9.4
million and $5.8 million, respectively. These expenditures were principally for
machinery, computer and research equipment purchases. The Company expects to
spend approximately $6.0 million in fiscal 1999 for capital equipment.

In September 1995, the Company entered into an agreement to form a limited
liability company, Westell-Meridian LLC ("LLC"), for the purpose of developing a
16.4 acre site in Aurora, Illinois into a 185,000 square foot corporate facility
to house manufacturing, engineering, sales, marketing and administration. In
connection therewith, the Company has a majority equity ownership interest in
the LLC. In December 1996, the Company began occupying the constructed facility
owned by the LLC (the "Aurora facility"). During the construction period, the
Company advanced the LLC the construction funding which as of March 31, 1997,
was $14.4 million. In fiscal 1998 the LLC received proceeds of $16.2 million
upon the sale of the Aurora facility at cost. The LLC repaid the Company the
advanced construction funding during the second quarter of fiscal 1998 upon
completing the sale of the Aurora facility to a third party. The Aurora
facility was subsequently leased back by the Company in a related transaction
with the same third party, whereby, the Company entered into a 20 year lease
that runs through 2017.

At March 31, 1998, the Company's principal sources of liquidity were $43.5
million of cash and cash equivalents, $684,000 in short term investments and
$12.0 million under its secured revolving promissory notes facility. Borrowings
under the secured revolving promissory notes facility (which was unused at March
31, 1998) bear interest at the bank's prime rate (8.5% at March 31, 1998). The
revolving promissory note facility expired on May 15, 1998. The Company is in
negotiations for replacing this facility and believes it will obtain a similar
facility on no less favorable terms.

The Company had a deferred tax asset of approximately $18.5 million at
March 31, 1998. This deferred tax asset relates to (i) tax credit carryforwards
of approximately $3.5 million, (ii) a net operating loss carryforward tax
benefit of approximately $15.6 million and (iii) temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts measured by tax laws. Of such tax credit carryforwards, the first
$243,000 of credits expire in 2008 and $722,000 of credits may be carried
forward indefinitely. The net operating loss carryforward begins to expire in
2012. Realization of deferred tax assets associated with the Company's future
deductible temporary differences, net operating loss carryforwards and tax
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration.

Realization of deferred tax assets associated with the Company's future
deductible temporary differences, net operating loss carryforwards and tax
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Although realization of the deferred tax asset is
not assured and the Company has incurred operating losses for the 1996, 1997,
and 1998 fiscal years, management believes that it is more likely than not that
it will generate taxable income sufficient to realize the majority of the tax
benefit associated with future temporary differences, NOL carryforwards and tax
credit carryforwards prior to their expiration through a tax planning strategy
available to the Company. At March 31, 1998, management determined that the
strategy was no longer sufficient to realize all of the deferred tax asset and
as such the Company recorded a valuation allowance of $2.9 million. On a
quarterly basis, management will assess whether it remains more likely than not
that the deferred tax asset will be realized. If the tax planning strategy is
not sufficient to generate taxable income to recover the deferred tax benefit
recorded, an increase in the valuation allowance will be required through a
charge to the income tax provision. However, if the Company achieves sufficient
profitability or has available additional tax planning strategies to utilize a
greater portion of the deferred tax asset, an income tax benefit would be
recorded to decrease the valuation allowance.

YEAR 2000 COMPLIANCE ISSUE

Based on a recent assessment, the Company determined that it is required to
modify portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. The Company believes that with upgrades
or modifications to existing software and conversion to new software, the impact
of the Year 2000 Issue can be mitigated. However, if the upgrades,
modifications and conversions are not made, or are not made in a timely manner,
the Year 2000 Issue could have a material impact on the Company's operations.

The Company will utilize both internal and external resources to reprogram,
or replace, and test software for Year 2000 compliance. The Company has a full-
time manager dedicated to addressing Year 2000 compliance for the Company. The
Company plans to complete the Year 2000 project not later than June 30, 1999.
The total Year 2000 project cost is estimated to be $1 million to $1.5 million.
Amounts incurred are expected to be expensed as incurred, unless new software is
purchased which will be capitalized. The Company has not incurred significant
costs prior to March 31, 1998 other than internal costs to evaluate the extent
of Year 2000 compliance and to develop a remediation plan.

The costs of the Year 2000 project and the date on which the Company plans
to complete Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans.

______________________

RISK FACTORS

The following risk factors relate to the Company's business environment.
Before making an investment decision in the Company, investors should review the
following Risk Factors section which identifies certain risk factors that the
occurrence of any one or some combination thereof could have a material adverse
effect on the Company's business, financial condition and results of operations.

RELIANCE ON EMERGING MARKET FOR ADSL TECHNOLOGY; LOSSES

The Company's future growth is substantially dependent upon whether DSL
technology, particularly as it relates to ADSL systems, gains widespread
commercial acceptance by telcos. Since 1992, the Company has invested, and
expects to continue to invest, significant resources in the development of DSL
technology. However, the market for products using ADSL technology is only now
emerging as customers have recently begun to consider implementing ADSL
technology in their networks. As a result, revenues from DSL systems have been
difficult for the Company to forecast, and the Company's overall results of
operations have experienced substantial fluctuations in recent periods. The
timing of orders and shipments of DSL systems can have a significant impact on
the Company's revenues and results of operations. For example, during each of
the quarters during fiscal 1998 the Company has generated DSL revenue but at
varying levels. In addition, during the third quarter of fiscal 1997 the Company
reserved for $5 million in piece part inventory primarily as a result of a new
generation RADSL product reducing demand for prior generation FlexCap Phase III
ADSL products. Due to the Company's significant ongoing investment in DSL
technology, the Company anticipates losses in each of the fiscal 1999 quarters.
The Company's ability to achieve profitability or revenue growth in the future
will depend upon market acceptance of the Company's ADSL systems and the
development and market acceptance of other DSL products introduced by the
Company. The Company has shipped most of its' ADSL systems primarily for
technical and marketing trials. Customers using the Company's ADSL systems for
initial service deployments are not contractually bound for future deployments
or product sales. The Company is unable to predict whether these initial service
deployments or other technical or marketing trials will be successful and when
significant commercial deployment will begin, if at all.

Prior to selling its products to telcos, the Company must undergo lengthy
approval and purchase processes. Evaluation can take a year or more for complex
products based on technologies such as RADSL. Historically, telcos have been
cautious in implementing new technologies. Telcos' and other customers'
deployment of ADSL technology may be prevented or delayed by a number of
factors, including lengthy product approval and purchase processes, decisions to
defer product orders in anticipation of new product developments, cost,
regulatory barriers that prevent or restrict telcos from providing interactive
multimedia services, the lack of demand for interactive multimedia services, the
lack of sufficient programming for interactive multimedia services, the
availability of alternative technologies, such as ISDN, cable modems and optical
fiber, and policies that favor the use of such alternative technologies over
ADSL technology. As a result of these factors, there can be no assurance that
customers will pursue the deployment of products using ADSL technology. Even if
customers adopt policies favoring full-scale implementation of DSL technology,
there is no assurance that sales of the Company's DSL systems will become
significant or that the Company will be able to successfully introduce on a
timely basis or achieve sales of ADSL systems and other products based upon DSL
technology planned for future introduction. The Company's core DS0 and DS1
products are not expected to generate sufficient revenues or profits to offset
any losses that the Company may experience due to a lack of sales of ADSL
systems and other DSL products currently under development. As a result, if
telcos fail to deploy the Company's DSL systems, and the Company therefore does
not receive significant revenues from DSL sales, then the Company's business and
results of operations will be materially adversely affected and there can be no
assurance that the Company will achieve profitability in the future.

PRICING PRESSURE ON PRODUCTS

The market for ADSL-based products is becoming intensely competitive. Bids
for recent field trials of ADSL-based products implicitly assume "forward
pricing," that is, pricing ADSL products to reflect the expectation of large
future volumes and corresponding reductions in manufacturing costs. The Company
has offered its ADSL-based product to telcos at prices below current production
costs. Such pricing could cause the Company to incur losses on a substantial
portion of its ADSL product sales unless and until it can reduce manufacturing
costs. The Company's ability to reduce its manufacturing costs is dependent
upon (i) more cost-effective chipset and product design, some of which is
dependent upon the Company's strategic partners, and (ii) the achievement of
economies of scale. The Company believes that, following the pronouncement of
the International Telecommunication Union ("ITU") standard for G.Lite,
competition among DSL vendors will also result in pricing pressure and "forward
pricing" with respect to splitterless ADSL products. There can be no assurance
that the Company will be able to secure significant additional orders and reduce
per unit manufacturing costs that the Company has factored into its forward
pricing of ADSL products. Accordingly, the Company could incur losses in
connection with sales of ADSL products that could have a material adverse effect
on the Company's business and results of operations.

FLUCTUATIONS IN QUARTERLY RESULTS; LACK OF BACKLOG

The Company expects to continue to experience significant fluctuations in
quarterly results of operations. Factors which have had an influence on and may
continue to influence the Company's results of operations in a particular
quarter include the size and timing of customer orders and subsequent shipments,
customer order deferrals in anticipation of new products, timing of product
introductions or enhancements by the Company or its competitors, market
acceptance of new products, technological changes in the telecommunications
industry, competitive pricing pressures, accuracy of customer forecasts of
end-user demand, write-offs for obsolete inventory, changes in the Company's
operating expenses, personnel changes, foreign currency fluctuations, changes in
the mix of products sold, quality control of products sold, disruption in
sources of supply, regulatory changes, capital spending, delays of payments by
customers and general economic conditions. Sales to the Company's customers
typically involve long approval and procurement cycles and can involve large
purchase commitments. Accordingly, cancellation or deferral of one or a small
number of orders could cause significant fluctuations in the Company's quarterly
results of operations. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance.

The Company expects to continue to evaluate new product opportunities and
engage in extensive research and development activities. This will require the
Company to continue to invest heavily in research and development and sales and
marketing, which is expected to adversely affect short-term results of
operations. Due to the Company's significant ongoing investment in DSL
technology, the Company anticipates losses in each of the fiscal 1999 quarters.
The Company believes that its future revenue growth and profitability will
principally depend on its success in increasing sales of ADSL products and
developing new and enhanced DS1 and other DSL products. In view of the Company's
reliance on the emerging ADSL market for growth and the unpredictability of
orders and subsequent revenues, the Company believes that period to period
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance. Revenues from DS0
products have declined in recent years as telcos continue to move to networks
that deliver higher speed digital transmission services. The Company also
expects that revenues from NIU products in its DS1 product group may decline as
telcos increase the use of alternative technologies such as HDSL. Failure to
increase revenues from new products, whether due to lack of market acceptance,
competition, technological change or otherwise, would have a material adverse
effect on the Company's business and quarterly results of operations.

EVOLVING INDUSTRY STANDARDS

Industry wide standardization organizations which include, the American
National standards Institute ("ANSI") in the United States and the European
Telecommunications Standards Institute ("ETSI") are responsible for specifying
transmission standards for telecommunications technologies. The industry
transmission standard for ADSL adopted by ANSI and ETSI is based upon DMT
technology. Although DMT has been selected as a standard, another modulation
scheme from GlobeSpan Semiconductor, Inc., CAP, has been widely used in many of
the early trials of ADSL. To date all of the Company's system sales have
utilized the CAP transceiver technology that is not the standard adopted by ANSI
and ETSI. CAP's early success has been a result of its earlier time to market
and more mature semiconductor implementations. The Company has not developed a
transceiver technology for its product offerings and it is dependent transceiver
technologies sourced from third parties. The Company has established multiple
strategic relationships with silicon chipset vendors for DSL chipsets to be used
in ADSL systems by the Company. Absent the proper relationships with key silicon
chipset vendors, the Company's products may not comply with standards set forth
by ANSI and ETSI. Should customers require standards based products that require
transceiver technology not available to the Company under reasonable terms and
conditions, the Company's business and results of operations would be materially
and adversely affected.

RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS

There can be no assurance that the Company's future development efforts
will result in commercially successful products or that the Company's products
will not be rendered obsolete by changing technology or new product
announcements by competitors. The markets for the Company's products are
characterized by intense competition, rapid technological advances, evolving
industry standards, changes in end-user requirements, frequent new product
introductions and enhancements, and evolving telco service offerings. If
technologies applicable to the Company's products (or telco service offerings
based on the Company's products) become obsolete or fail to gain widespread
commercial acceptance, then the Company's business and results of operations
will be materially adversely affected. Moreover, the introduction of products
embodying new technology or changes in telco services could render the Company's
existing products, as well as products under development, obsolete and
unmarketable. For instance, during the third quarter of fiscal 1997, the Company
reserved for $5 million in piece part inventory primarily as a the result of a
new generation RADSL product reducing demand for prior generation FlexCap Phase
III ADSL products. In addition, the Company believes that the continued
deployment of new technologies in the U.S., such as HDSL, in the local access
network will adversely affect demand for certain of its existing products such
as NIUs, which accounted for 45.5% and 52.5% of the Company's revenues in fiscal
1996 and 1997, respectively, and that its future success will largely depend
upon its ability to continue to enhance its existing products and to
successfully develop and market new products on a cost-effective and timely
basis. In this regard, most of the Company's current product offerings apply
primarily to the delivery of digital communications over copper wire in the
local access network. While the Company has competed successfully to date by
developing high performance products for transmission over copper wire, it
expects that the increasing deployment of fiber and wireless broadband
transmission in the local access network (each of which uses a significantly
different process of delivery) will require the Company to develop new products
to meet the demands of these emerging transmission media.

The Company's past sales and profitability have resulted, to a significant
extent, from its ability to anticipate changes in technology, industry standards
and telco service offerings, and to develop and introduce new and enhanced
products. The Company's continued ability to adapt to such changes will be a
significant factor in maintaining or improving its competitive position and its
prospects for growth. Due to rapid technological changes in the
telecommunications industry, the RBOCs' lengthy product approval and purchase
processes and the Company's reliance on third-party technology for the
development of new products, however, there can be no assurance that the Company
will successfully introduce new products on a timely basis or achieve sales of
new products in the future. In addition, there can be no assurance that the
Company will have the financial and manufacturing resources necessary to
continue to successfully develop new products based on emerging technology or to
otherwise successfully respond to changing technology, industry standards and
telco service offerings.

COMPETITION

The markets for the Company's products are intensely competitive and the
Company expects competition to increase in the future, especially in the
emerging ADSL market. Westell's principal competitors in the DS0 market are
Adtran, Inc., Pulsecom, Tellabs, Inc. and Teltrend, Inc. Westell's principal
competitors in the DS1 market are ADC Telecommunications Inc., Applied Digital
Access Inc., PairGain Technologies, Inc. and Teltrend, Inc. The Company's
current competitors in the ADSL market include Alcatel Network Systems, AGCS,
Cabletron, Diamond Lane Communications, Digital Switch Corporation ("DSC"), ECI
Telecom, Ltd., Ericsson, Cisco Systems/Netspeed, Lucent Technologies, Inc.,
Nortel, Orckit Communications, Ltd. PairGain Technologies, Inc., Paradyne, 3Com,
and Siemens. Certain of our competitors are large network level system suppliers
who are much larger than the Company and can offer all elements of a network
solution. The Company has addressed this by entering into strategic alliances to
offer integrated solutions in addition to our overlay ADSL product offering. The
Company's ability to compete with these larger system suppliers will depend on
the success of the alliances formed and the system solutions created to meet
customers needs. The inability to form successful alliances and develop systems
that meet customers requirements will materially adversely affect the Company's
business and results of operations.

Products that increase the efficiency of digital transmission over copper
wire face competition from fiber, wireless, cable modems and other products
delivering broadband digital transmission. Many telcos and other local access
providers have adopted policies that favor the deployment of fiber. To the
extent that telcos choose to install fiber and other transmission media between
the central office and the end user, the Company expects that demand for its
copper wire-based products will decline. Telcos face competition from cable
operators, new local access providers and wireless service providers that are
capable of providing high speed digital transmission to end users. To the extent
telcos decide not to aggressively respond to this competition and fail to offer
high speed digital transmission, the overall demand for ADSL products could
decline. In addition, the deployment of certain products and technologies for
copper wire may also reduce the demand for the types of products currently
manufactured by the Company. Specifically, the deployment of HDSL in the U.S.,
which reduces telcos' need for T-1 repeaters and NIUs, may result in a decrease
in demand for Westell's DS1-based products. Further, the Company believes that
the domestic market for many of its DS0-based products is decreasing, and will
likely continue to decrease, as high capacity digital transmission becomes less
expensive and more widely deployed.

DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS; LENGTHY SALES CYCLES

The Company depends, and will continue to depend, on the RBOCs and other
independent local exchange carriers for substantially all of its revenues. Sales
to the RBOCs accounted for 53.8%, 61.9% and 51.1% of the Company's revenues in
fiscal 1996, 1997 and 1998, respectively. Consequently, the Company's future
success will depend significantly upon the timeliness and size of future
purchase orders from the RBOCs, the product requirements of the RBOCs, the
financial and operating success of the RBOCs, and the success of the RBOCs'
services that use the Company's products. Any attempt by an RBOC or other telco
access providers to seek out additional or alternative suppliers or to
undertake, as permitted under applicable regulations, the internal production of
products would have a material adverse effect on the Company's business and
results of operations. In addition, the Company's sales to its largest customers
have in the past fluctuated and in the future are expected to fluctuate
significantly from quarter to quarter and year to year. The loss of such
customers or the occurrence of such sales fluctuations would materially
adversely affect the Company's business and results of operations. SBC
Communications and Pacific Telesis have recently completed a merger and SBC
Communications and Ameritech have recently announced their intent to merge. The
Company is unable to predict what effect the merger or the announced merger, if
completed, will have on the demand for the Company's ADSL systems or other
products.

DEPENDENCE ON THIRD-PARTY TECHNOLOGY; TRANSCEIVER LICENSES

Many of the Company's products incorporate technology developed and owned
by third parties. Consequently, the Company must rely upon third parties to
develop and introduce technologies which enhance the Company's current products
and enable the Company, in turn, to develop its own products on a timely and
cost-effective basis to meet changing customer needs and technological trends in
the telecommunications industry. Any impairment or termination of the Company's
relationship with any licensers of third-party technology would force the
Company to find other developers on a timely basis or develop its own
technology. There can be no assurance that the Company will be able to obtain
the third-party technology necessary to continue to develop and introduce new
and enhanced products, that the Company will obtain third-party technology on
commercially reasonable terms or that the Company will be able to replace
third-party technology in the event such technology becomes unavailable,
obsolete or incompatible with future versions of the Company's products. The
absence of or any significant delay in the replacement of third-party technology
would have a material adverse effect on the Company's business and results of
operations.

The Company's ADSL products are dependent upon CAP and DMT transceiver
technologies licensed or sourced from third party suppliers. GlobeSpan
Semiconductor, Inc. is currently the sole provider of the CAP transceiver
technology and the Company currently has entered into alliances with Motorola
and Texas Instruments to receive their DMT transceiver technology when
available. These licenses or sourcing alliances are nonexclusive and have been
licensed to numerous other manufacturers or will not require a license to
acquire. Without a third party transceiver technology the Company would not be
able to produce any of its ADSL systems. Consequently, if the Company's third
party transceiver suppliers fail to deliver implementable or standards compliant
transceiver solutions to the Company and other alternative sources of ADSL
transceiver technology are not available to the Company at commercially
acceptable terms, the Company's business and results of operations would be
materially and adversely affected..

DEPENDENCE ON SOLE OR LIMITED SOURCE SUPPLIERS

Certain key components, such as integrated circuits and other electronic
components, used in the Company's products are currently available from only one
source or a limited number of suppliers. For instance, the Company currently
depends on GlobeSpan Technologies to provide critical integrated circuits used
in the Company's ADSL products. In addition, certain electronic components are
currently in short supply and are provided on an allocation basis to the Company
and other users, based upon past usage. There can be no assurance that the
Company will be able to continue to obtain sufficient quantities of integrated
circuits or other electronic components as required, or that such components, if
obtained, will be available to the Company on commercially reasonable terms. The
Company purchases integrated circuits from GlobeSpan Technologies on a purchase
order basis under a formal supply arrangement who in turn sources the integrated
circuits from Lucent Technologies. The Company anticipates that integrated
circuit production capacity and availability of certain electronic components of
its suppliers may be insufficient to meet demand for such components in the
future. Integrated circuits and electronic components are key components in all
of the Company's products and are fundamental to the Company's business strategy
of developing new and succeeding generations of products at reduced unit costs
without compromising functionality or serviceability. In the past, however, the
Company has experienced delays in the receipt of certain of its key components,
such as integrated circuits, which have resulted in delays in related product
deliveries. There can be no assurance that delays in key components or product
deliveries will not occur in the future due to shortages resulting from the
limited number of suppliers, the financial or other difficulties of such
suppliers or the possible limitations in integrated circuit production capacity
or electronic component availability because of significant worldwide demand for
these components. The inability to obtain sufficient key components or to
develop alternative sources for such components, if and as required in the
future, could result in delays or reductions in product shipments, which in turn
could have a material adverse effect on the Company's customer relationships,
its business and results of operations.

GOVERNMENT REGULATION

The telecommunications industry, including most of the Company's customers,
is subject to regulation from federal and state agencies, including the FCC and
various state public utility and service commissions. While such regulation does
not affect the Company directly, the effects of such regulations on the
Company's customers may, in turn, adversely impact the Company's business and
results of operations. For example, FCC regulatory policies affecting the
availability of telco services and other terms on which telcos conduct their
business may impede the Company's penetration of certain markets. The
Telecommunications Act lifted certain restrictions on telcos' ability to provide
interactive multimedia services including video on demand. The
Telecommunications Act establishes new regulations whereby telcos may provide
various types of video services. Rules to implement these new statutory
provisions are now being considered by the FCC. While the statutory and
regulatory framework for telcos providing video products has become more
favorable, it is uncertain at this time how this will affect telcos' demand for
products based upon ADSL technology. In addition, the Company's business and
operating results may also be adversely affected by the imposition of certain
tariffs, duties and other import restrictions on components that the Company
obtains from non-domestic suppliers or by the imposition of export restrictions
on products that the Company sells internationally. Internationally, governments
of the United Kingdom, Canada, Australia and numerous other countries actively
promote and create competition in the telecommunications industry. Changes in
current or future laws or regulations, in the U.S. or elsewhere, could
materially and adversely affect the Company's business and results of
operations.

POTENTIAL PRODUCT RECALLS; WARRANTY EXPENSES

The Company has supply contracts with most of its major customers. These
contracts typically do not establish minimum purchase commitments, and they may
require the Company to accept returns of products or indemnify such customers
against certain liabilities arising out of the use of the Company's products.
Although, to date, the Company has not experienced any significant product
returns or indemnification claims under these contracts, any such claims or
returns could have a material adverse effect on the Company's business and
results of operations. While the Company maintains a comprehensive quality
control program, there can be no assurance that the Company's products will not
suffer from defects or other deficiencies or that the Company will not
experience a material product recall in the future. Complex products such as
those offered by the Company may contain undetected errors or failures when
first introduced or as new versions are released. Any product recall as a result
of such errors or failures, and the associated negative publicity, could result
in the loss of or delay in market acceptance of the Company's products and have
a material adverse effect on the Company's business and results of operations.

The Company's products are required to meet rigorous standards imposed by
its customers. Most of the Company's products carry a limited warranty ranging
from one to seven years, which generally covers defects in materials or
workmanship and failure to meet published specifications, but excludes damages
caused by improper use and all other express or implied warranties. In the event
there are material deficiencies or defects in the design or manufacture of the
Company's products, the affected products could be subject to recall. For the
past five fiscal years, the Company's warranty expenses have been relatively
insignificant. Although the Company maintains a comprehensive quality control
program, there can be no assurance that the Company's products will not suffer
from defects or other deficiencies or that the Company will not experience a
material product recall in the future. Complex products such as those offered by
the Company may contain undetected errors or failures when first introduced or
as new versions are released. Any product recall as a result of such errors or
failures, and the associated negative publicity, could result in the loss of or
delay in market acceptance of the Company's products and have a material adverse
effect on the Company's business and results of operations. The Company's
standard limited warranty for its ADSL products ranges from one to five years.
Since the Company's DSL products are new, with limited time in service, the
Company cannot predict the level of warranty claims that it will experience for
these products. Despite testing by the Company and its customers, there can be
no assurance that existing or future products based on DSL or other technology
will not contain undetected errors or failures when first introduced or as new
versions are released. Such errors or failures could result in warranty returns
in excess of those historically experienced by the Company and have a material
adverse effect on the Company's business and results of operations.

RISKS DUE TO EXPANDING INTERNATIONAL OPERATIONS

International revenues represented 23.8%, 5.5% and 9.9% of the Company's
revenues in fiscal 1996, 1997 and 1998, respectively. The Company believes that
international revenues will represent a significant percentage of revenues in
the future. Due to its export sales, the Company is subject to the risks of
conducting business internationally, including unexpected changes in regulatory
requirements, foreign currency fluctuations which could result in reduced
revenues or increased operating expenses, tariffs and trade barriers,
potentially longer payment cycles, difficulty in accounts receivable collection,
foreign taxes, and the burdens of complying with a variety of foreign laws and
telecommunications standards. The Company's contracts with its international
customers are typically denominated in foreign currency and any decline in the
value of such currency could have a significant impact on the Company's business
and results of operations. For example, in fiscal 1996, the Company incurred a
$270,000 transaction loss on receivable due to foreign currency fluctuations. To
date, the Company has not engaged in hedging with respect to its foreign
currency exposure but may do so in the future. The Company also is subject to
general geopolitical risks, such as political and economic instability and
changes in diplomatic and trade relationships, in connection with its
international operations. In addition, the laws of certain foreign countries may
not protect the Company's proprietary technology to the same extent as do the
laws of the U.S. There can be no assurance that the risks associated with the
Company's international operations will not materially adversely affect the
Company's business and results of operations in the future or require the
Company to modify significantly its current business practices.

FACTORS AFFECTING ABILITY TO MANAGE AND SUSTAIN GROWTH

The Company is in the process of developing the manufacturing capabilities
necessary to supply and support large volumes of DSL systems and in the future
may become increasingly dependent on subcontractors. In fiscal 1998, the Company
entered into a subcontracting relationship with Dovatron International for the
assembly of its DSL printed circuit boards. Reliance on third-party
subcontractors involves several risks, including the potential absence of
adequate capacity and reduced control over product quality, delivery schedules,
manufacturing yields and costs. Although the Company believes that alternative
subcontractors or sources could be developed if necessary, the use of
subcontractors could result in material delays or interruption of supply as a
consequence of required re-tooling, retraining and other activities related to
establishing and developing a new subcontractor or supplier relationship. Any
material delays or difficulties in connection with increased manufacturing
production or the use of subcontractors could have a material adverse effect on
the Company's business and results of operations. There can be no assurance that
the Company will be successful in increasing its manufacturing capacity in a
timely and cost-effective manner or that the possible transition to
subcontracting will not materially adversely affect the Company's business and
results of operations. The Company's failure to effectively manage its growth
would have a material adverse effect on the Company's business and results of
operations.

PROPRIETARY TECHNOLOGY; RISK OF THIRD-PARTY CLAIMS OF INFRINGEMENT

The Company's success and future revenue growth will depend, in part, on its
ability to protect trade secrets, obtain or license patents and operate without
infringing on the rights of others. Although the Company regards its technology
as proprietary, it has only one patent on such technology related to NIUs. The
Company expects to seek additional patents from time to time related to its
research and development activities. The Company relies on a combination of
technical leadership, trade secrets, copyright and trademark law and
nondisclosure agreements to protect its unpatented proprietary know-how. There
can be no assurance, however, that these measures will provide meaningful
protection for the Company's trade secrets or other proprietary information.
Moreover, the Company's business and results of operations may be materially
adversely affected by competitors who independently develop substantially
equivalent technology. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as U.S. law. The
telecommunications industry is also characterized by the existence of an
increasing number of patents and frequent litigation based on allegations of
patent and other intellectual property infringement. From time to time, the
Company receives communications from third parties alleging infringement of
exclusive patent, copyright and other intellectual property rights to
technologies that are important to the Company. There can be no assurance that
third parties will not assert infringement claims against the Company in the
future, that assertions by such parties will not result in costly litigation, or
that the Company would prevail in any such litigation or be able to license any
valid and infringed patents from third parties on commercially reasonable terms.
Further, such litigation, regardless of its outcome, could result in substantial
costs to and diversion of effort by the Company. Any infringement claim or other
litigation against or by the Company could have a material adverse effect on the
Company's business and results of operations.

DEPENDENCE ON KEY PERSONNEL

The success of the Company is dependent, in part, on its ability to attract
and retain qualified technical, marketing, sales and management personnel.
Competition for such personnel is intense and the Company's inability to attract
and retain additional key employees or the loss of one or more of its current
key employees could materially adversely affect the Company's business and
results of operations. The Company does not have employment contracts or
noncompete agreements with any of its executive officers except Richard Riviere,
the Vice President of Transaction Services and President of Conference Plus,
Inc., a subsidiary of the Company. Mr. Riviere has agreed not to compete with
the Company for two years after the termination of his employment with the
Company. There can be no assurance that the Company will be successful in
hiring or retaining key personnel.

EXPECTED VOLATILITY OF STOCK PRICE

The market price of the Company's Class A Common Stock has been highly
volatile and has experienced extreme price fluctuations. The Class A Common
Stock is quoted on the NASDAQ National Market, which market has experienced and
is likely to experience in the future significant price and volume fluctuations.
This volitility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to the operating performance of
these companies.

Market fluctuations may adversely affect the market price of the Company's
Class A Common Stock without regard to the operating performance of the Company.
In addition, the Company believes that factors such as announcements of
developments related to the Company's business, fluctuations in the Company's
results of operations, sales of substantial amounts of securities of the Company
into the marketplace, general conditions in the telecommunications industry or
the worldwide economy, an outbreak of hostilities, a shortfall in revenues or
earnings compared to analysts' expectations, changes in analysts'
recommendations or projections, announcements of new products by the Company or
its competitors or developments in the Company's relationships with its
suppliers or customers could cause the price of the Class A Common Stock to
fluctuate in the future, perhaps substantially. There can be no assurance that
the market price of the Company's Class A Common Stock will not experience
significant fluctuations in the future, including fluctuations that are
unrelated to the Company's performance. General market price declines or market
volatility in the future could adversely affect the market price of the Class A
Common Stock, and the current market price of the Class A Common Stock may not
be indicative of future market prices.

CONTROL BY PRINCIPAL STOCKHOLDERS

The Company's capital stock consists of Class A Common Stock and Class B
Common Stock (collectively, the "Common Stock"). Holders of Class A Common
Stock are entitled to one vote per share and holders of the Class B Common Stock
are entitled to four votes per share. At June 22, 1998, as Trustees of the
Voting Trust, Robert C. Penny III and Melvin J. Simon have the exclusive power
to vote over 75% of the votes entitled to be cast by the holders of the
Company's Common Stock, according to the mutual determination by Messrs. Penny
and Simon as to the best interests of the beneficiaries of the Voting Trust,
consisting of the Penny family and the Simon family. In addition, all members
of the Penny family who are beneficiaries under the Voting Trust are parties to
a Stock Transfer Restriction Agreement which prohibits such beneficiaries from
transferring any Common Stock or their beneficial interests in the Voting Trust
acquired prior to November 30, 1995 without first offering such Common Stock to
the other members of the Penny family. Consequently, Messrs. Penny and Simon,
as Trustees, will effectively control the Company and generally have sufficient
voting power to elect all of the directors and to determine the outcome of any
corporate transaction or other matter submitted to the stockholders for
approval. Such control may have the effect of discouraging certain types of
transactions involving an actual or potential change of control of the Company,
including transactions in which the holders of Class A Common Stock might
otherwise receive a premium for their shares over the then-current market price.

ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock and to determine the relative preferences, limitations
and relative rights of those shares with respect to dividends, redemption,
payments on liquidation, sinking fund provisions, conversion privileges and
voting rights without any further vote or action by the stockholders. The
rights of the holders of Class A Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. While the Company has no present intention to issue
shares of Preferred Stock, any such issuance could have the effect of making it
more difficult for a third party to acquire control of the Company. In
addition, the Company is subject to the anti-takeover provisions of Section 203
of the Delaware General Corporation Law, which could have the effect of delaying
or preventing a change of control of the Company. Furthermore, certain
provisions of the Company's Amended and Restated Certificate of Incorporation
(the "Amended Certificate of Incorporation") and By-laws may individually or
collectively have the effect of delaying or preventing changes in control or
management of the Company and could have a depressive effect on the market price
of the Company's Class A Common Stock. For example, the Company's Amended
Certificate of Incorporation and By-laws contain provisions that limit the right
of stockholders to call special stockholders meetings and require that
stockholders follow an advance notification procedure for certain stockholder
nominations of candidates to the Board of Directors and for new business to be
conducted at stockholders meetings.

NO DIVIDENDS

The Company intends to retain all future earnings for use in the
development of its business and does not anticipate paying any cash dividends in
the foreseeable future.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's financial statements required by Item 8, together with the
report thereon of the independent accountants dated May 14, 1998 are set forth
on pages 47 - 66 of this report. The financial statement schedules listed under
Item 14(a)2, together with the report thereon of the independent accountants
dated May 14, 1998 are set forth on pages 67 and 68 of this report and should be
read in conjunction with the financial statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Directors of the Company

The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on September 9,
1998 under the caption "Election of Directors," which information is herein
by reference.

(b) Executive officers of the Company

The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on September 9,
1998 under the caption "Executive Officers," which information is herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on September 9,
1998 under the caption "Compensation of Directors and Executive Officers,"
and "Report of the Compensation of the Board of Directors," which
information is herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on September 9,
1998 under the caption "Ownership of the Capital Stock of the Company,"
which information is herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on September 9,
1998 under the caption "Certain Relationships and Related Transactions,"
which information is herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) Financial Statements

The consolidated financial statements of Westell
Technologies, Inc. for the fiscal year ended March 31, 1998,
together with the Report of Independent Public Accountants,
are set forth on pages 47 through 66 of this Report.

The supplemental financial information listed and appearing
hereafter should be read in conjunction with the consolidated
financial statements included in the report.

(2) Financial Statement Schedules

The following are included in Part IV of this Report for each of
the years ended March 31, 1996, 1997 and 1998 as applicable:

Report of Independent Public Accountants - page 67

Schedule II - Valuation and Qualifying Accounts - page 68

Financial statement schedules not included in this report have
been omitted either because they are not applicable or because
the required information is shown in the consolidated financial
statements or notes thereto, included in this report.

(3) Exhibits

3.1 Amended and Restated Certificate of Incorporation, as
amended (incorporated herein by reference to Exhibit 3.2 to
Westell Technologies, Inc.'s Registration Statement on Form
S-1, as amended, Registration No. 33-98024).
3.2 Amended and Restated By-laws (incorporated herein by
reference to Exhibit 3.3 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended, Registration
No. 33-98024).
9.1 Voting Trust Agreement dated February 23, 1994, as amended
(incorporated herein by reference to Exhibit 9.1 to Westell
Technologies, Inc.'s Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
*10.1 Form of Restricted Stock Award granted by the Company to its
officers and directors other than Gary F. Seamans and Melvin
J. Simon (incorporated herein by reference to Exhibit 10.1
to the Westell Technologies, Inc.'s Registration Statement
on Form S-1, as amended, Registration No. 33-98024).
*10.2 Restricted Stock Award granted December 17, 1991 by the
Company to Gary F. Seamans (incorporated herein by reference
to Exhibit 10.2 to Westell Technologies, Inc.'s Registration
Statement on Form S-1, as amended, Registration No.
33-98024).
*10.3 Form of Restricted Stock Awards granted by the Company to
Gary F. Seamans and Melvin J. Simon (incorporated herein by
reference to Exhibit 10.3 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended, Registration
No. 33-98024).
10.4 Stock Transfer Restriction Agreement entered into by members
of the Penny family, as amended, (incorporated herein by
reference to Exhibits 10.4 and 10.16 to Westell
Technologies, Inc.'s Registration Statement on Form S-1, as
amended, Registration No. 33-98024).
10.5 Form of Registration Rights Agreement among the Company and
Robert C. Penny III and Melvin J. Simon, as trustees of the
Voting Trust dated February 23, 1994 (incorporated herein by
reference to Exhibit 10.5 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended, Registration
No. 33-98024).
*10.6 1995 Stock Incentive Plan (incorporated herein by reference
to Exhibit 10.6 to Westell Technologies, Inc.'s Registration
Statement on Form S-1, as amended, Registration No.
33-98024).
*10.7 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.7 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended, Registration
No. 33-98024).
10.8 (Intentionally omitted).
10.9 Lease Agreement dated July 15, 1986 between Kendall Point
Associates, Ltd. and Westell, Inc., as amended on August 26,
1991 (incorporated herein by reference to Exhibit 10.9 to
Westell Technologies, Inc.'s Registration Statement on Form
S-1, as amended, Registration No. 33-98024).
10.10 Limited Liability Company Operating Agreement dated as of
September 23, 1995 by Westell, Inc. and Kingsland
Properties, Ltd. (incorporated herein by reference to
Exhibit 10.10 to Westell Technologies, Inc.'s Registration
Statement on Form S-1, as amended, Registration No.
33-98024).
10.11 Lease dated September 25, 1995 between Westell-Meridian
LLC and Westell, Inc. (incorporated herein by reference to
Exhibit 10.11 to Westell Technologies, Inc.'s Registration
Statement on Form S-1, as amended, Registration No.
33-98024).
10.12 Credit Agreement dated March 7, 1995 between the Company
and Bank One Chicago, N.A. (incorporated herein by reference
to Exhibit 10.12 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended, Registration
No. 33-98024).
+10.13 Cooperation and Development Agreement between Westell,
Inc. and GlobeSpan Technologies Inc.
10.14 Agreement dated September 13, 1988 between Richard
Riviere and Westell Technologies, Inc., as amended
(incorporated herein by reference to Exhibit 10.14 to
Westell Technologies, Inc.'s Registration Statement on Form
S-1, as amended, Registration No. 33-98024).
10.15 (Intentionally omitted).
10.16 Credit Agreement dated April 30, 1996 between the Company
and Bank One Chicago, N.A. (incorporated herein by
reference to the exhibit of equivalent number to the
Company's Registration Statement on Form S-1, as amended,
Registration No. 333-4973).
10.17 Lease for Three National Plaza at Woodfield dated
December 24, 1991 by and between the First National Bank of
Boston, as Trustee pursuant to that certain Pooling and
Security Agreement dated April 1, 1988, and Conference Plus,
Inc., as amended and modified. (incorporated herein by
reference to the exhibit of equal number to the Company's
form 10-K for fiscal year ended March 21, 1996).
10.18 Lease dated December 10, 1993 between LaSalle National
Trust, N.A., as Trustee under Trust Agreement dated August
1, 1979, known as Trust No. 101293, and Westell
Incorporated, as amended and modified. (incorporated herein
by reference to the exhibit of equal number to the Company's
form 10-K for fiscal year ended March 21, 1996).
21.1 Subsidiaries of the Registrant (incorporated herein by
reference to Exhibit 21.1 to Westell Technologies, Inc.'s
Registration Statement on Form S-1, as amended, Registration
No. 33-98024).
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.

+ Confidential treatment granted requested for certain portions of this
document. Certain portions of this document are being filed separately
with the Securities and Exchange Commission.
* Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

There were no reports on Form 8-K filed for the three months ended
March 31, 1998. Subsequent to year end, on April 8, 1998, a Form 8-K was
filed which included a press release announcing the retirement of Gary F.
Seamans - CEO dated April 2, 1998.

The exhibits filed as part of this Annual Report on Form 10-K are as
specified in Item 14(a)(3) herein.

(d) Financial Statement Schedules

The financial statement schedules filed as part of this Annual Report on
Form 10-K are as specified in item 14(a)(2) herein.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on June 29, 1998.

WESTELL TECHNOLOGIES, INC.

By /s/ ROBERT H. GAYNOR
Robert H. Gaynor,
Chairman of the Board of Directors,
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

Signature Title Date

/s/ ROBERT H. GAYNOR Chairman of the Board of Directors June 29, 1998
Robert H. Gaynor and Chief Executive Officer

/s/ MELVIN J. SIMON Assistant Secretary and Treasurer and June 29, 1998
Melvin J. Simon Director

/s/ STEPHEN J. HAWRYSZ Chief Financial Officer, Vice President, June 29, 1998
Stephen J. Hawrysz Secretary and Treasurer (Principal
Financial Officer and Principal Accounting
Officer)

/s/ STEFAN D. ABRAMS Director June 29, 1998
Stefan D. Abrams

/s/ MICHAEL A. BRUNNER Director June 29, 1998
Michael A. Brunner

/s/ PAUL A. DWYER Director June 29, 1998
Paul A. Dwyer

/s/ JOHN W. SEAZHOLTZ Director June 29, 1998
John W. Seazholtz

/s/ ORMAND J. WADE Director June 29, 1998
Ormand J. Wade

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA

Item Page

Consolidated Financial Statements:

Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . 47
Consolidated Balance Sheets -- March 31, 1997 and 1998 . . . . . . . . . . . 48
Consolidated Statements of Operations for the years ended March 31, 1996, 1997
and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Consolidated Statements of Stockholders' Equity for the years ended March 31,
1996, 1997 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Consolidated Statements of Cash Flows for the years ended March 31, 1996, 1997
and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 53

Financial Statement Schedules:

Report of Independent Public Accountant . . . . . . . . . . . . . . . . . . . 67
Schedule II -- Valuation and Qualifying Accounts . . . . . . . . . . . . . . 68

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Westell Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of Westell
Technologies, Inc. (a Delaware corporation) and Subsidiaries as of March 31,
1997 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Westell Technologies, Inc.
and Subsidiaries as of March 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1998, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois
May 14, 1998

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS

March 31,
1997 1998
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,437 $43,515
Short term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,850 684
Accounts receivable (net of allowance of $521,000 and $730,000 respectively) . . 12,119 12,399
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,416 9,428
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . 1,177 100
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 110
Deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,410 2,498
Land and building construction held for sale . . . . . . . . . . . . . . . . . . 16,203 -

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 81,932 68,734

Property and equipment:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,703 11,631
Office, computer and research equipment . . . . . . . . . . . . . . . . . . . . . 17,951 21,097
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,277 1,576
29,931 34,304

Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . 15,293 20,816

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 14,638 13,488

Deferred income tax asset and other assets . . . . . . . . . . . . . . . . . . . . 11,479 16,183

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 108,049 $ 98,405

The accompanying notes are an integral part of these Consolidated Balance
Sheets.

</TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY

March 31,
1997 1998
(in thousands)
<S> <C> <C>
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,111 $ 7,472
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,049 6,296
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,133 5,664
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 2,121 1,407
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413 414

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 16,827 21,253

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,366 3,013

Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668 998
Commitments and contingencies

Stockholders' equity:
Class A common stock, par $0.01 . . . . . . . . . . . . . . . . . . . . . . . . . . 150 154
Authorized -- 43,500,000 shares
Issued and outstanding -- 14,984,811 at March 31, 1997 and 15,371,900 at March 31,
1998
Class B common stock, par $0.01 . . . . . . . . . . . . . . . . . . . . . . . . . . 213 210
Authorized -- 25,000,000 shares
Issued and outstanding -- 21,335,913 at March 31, 1997 and 21,030,857 at March 31,
1998
Preferred stock, par $0.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Authorized -- 1,000,000 shares
Issued and outstanding -- none
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,285 97,254
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . (167) (213)
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,293) (24,264)

Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 86,188 73,141

Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $ 108,049 $ 98,405

The accompanying notes are an integral part of these Consolidated Balance
Sheets.

</TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Fiscal Year Ended March 31,
1996 1997 1998
(in thousands,
except per share data)

<S> <C> <C> <C>
Equipment revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,519 $69,066 $72,206
Service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,717 10,319 14,145
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,236 79,385 86,351

Cost of equipment sales . . . . . . . . . . . . . . . . . . . . . . . . . 46,162 51,543 51,743
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,617 6,289 7,116
Total cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . 50,779 57,832 58,859

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,457 21,553 27,492
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . 13,744 16,214 19,296
Research and development . . . . . . . . . . . . . . . . . . . . . . . 12,603 21,994 26,558
General and administrative . . . . . . . . . . . . . . . . . . . . . . 8,364 9,757 13,151
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 1,383

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . 34,711 47,965 60,388

Operating loss from continuing operations . . . . . . . . . . . . . . . . (2,254) (26,412) (32,896)
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . (226) 2,221 14,290
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859 330 502

Loss from continuing operations before income taxes . . . . . . . . . . . (3,339) (24,521) (19,108)
Benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . . . (1,886) (9,820) (5,137)

Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . (1,453) (14,701) (13,971)
Loss from discontinued operations (net of tax benefits of
$394,000, $ 3,000 and $ 0, respectively) . . . . . . . . . . . . . . . (622) (5) -
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,075)$(14,706) $(13,971)

Loss per share:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.05) $ (0.41) $ (0.38)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . (0.02) (0.00) (0.00)

Net loss per basic and diluted common share . . . . . . . . . . . . . . . $ (0.07) $ (0.41) $ (0.38)

Average number of basic and diluted common shares outstanding . . . . . 30,846 35,940 36,348

The accompanying notes are an integral part of these Consolidated Financial
Statements.

</TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock
Shares Issued
and Additional Cumulative Retained Total
Outstanding Par Value Paid-in Translation Earnings Stockholders'
Class A Class B Class A Class B Capital Adjustment (Deficit) Equity
(in thousands)

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1995 . . . 28,928 -- 289 -- 781 -- 6,488 7,558
Net loss . . . . . . . . . -- -- -- -- -- -- (2,075) (2,075)
Stock awards . . . . . . . -- -- -- -- 68 -- -- 68
Translation adjustment . . -- -- -- -- -- (59) -- (59)
Class B Stock Converted to
Class A Stock . . . . . 52 (52) 1 (1) -- -- -- --
Issuance of Class A Common
Stock . . . . . . . . . 5,683 -- 57 -- 33,203 -- -- 33,260
Shares granted under Stock
Incentive Plan . . . . . 25 -- -- -- 164 -- -- 164
Shares sold under Employee
Stock Purchase Plan . . 4 -- -- -- 69 -- -- 69
Recapitalization . . . . . (21,890) 21,890 (219) 219 -- -- -- --

Balance, March 31, 1996 . . . 12,802 21,838 128 218 34,285 (59) 4,413 38,985
Net loss . . . . . . . . . -- -- -- -- -- -- (14,706) (14,706)
Stock awards . . . . . . . -- -- -- -- 68 -- -- 68
Translation adjustment . . -- -- -- -- -- (108) -- (108)
Class B Stock Converted to
Class A Stock . . . . . 502 (502) 5 (5) -- -- -- --
Issuance of Class A Common
Stock . . . . . . . . . 1,665 -- 17 -- 61,586 -- -- 61,603
Shares granted under Stock
Incentive Plan . . . . . 1 -- -- -- 30 -- -- 30
Shares sold under Employee
Stock Purchase Plan . . 14 -- -- -- 316 -- -- 316

Balance, March 31, 1997 . . . 14,985 21,336 $ 150 $ 213 $ 96,285 $(167) $(10,293) $ 86,188
Net loss . . . . . . . . . -- -- -- -- -- -- (13,971) (13,971)
Stock awards . . . . . . . -- -- -- -- 48 -- -- 48
Translation adjustment . . -- -- -- -- -- (46) -- (46)
Class B Stock Converted to
Class A Stock . . . . . 305 (305) 3 (3) -- -- -- --
Options Exercised . . . . . 63 -- 1 -- 649 -- -- 650
Shares granted under Stock
Incentive Plan . . . . . 2 -- -- -- 25 -- -- 25
Shares sold under Employee
Stock Purchase Plan . . 17 -- -- -- 247 -- -- 247

Balance, March 31, 1998 . . . 15,372 21,031 $ 154 $ 210 $ 97,254 $(213) $ (24,264) $ 73,141

The accompanying notes are an integral part of these Consolidated Financial
Statements.

</TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Fiscal Year Ended March 31,
1996 1997 1998
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,075)$(14,706) $(13,971)
Reconciliation of net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 4,286 6,175 6,953
Stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 98 73
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (2,080) (9,190) (4,714)
Change in assets and liabilities:
(Increase) decrease in accounts receivable . . . . . . . . . . . . . 2,359 (2,404) (324)
Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . 3,509 177 980
(Increase) decrease in prepaid expenses and other current assets . . (136) (463) 1,077
(Increase) decrease in refundable income taxes . . . . . . . . . . . (249) 124 210
Increase (decrease) in accounts payable and accrued expenses . . . . (667) (513) 2,938
Increase (decrease) in accrued compensation . . . . . . . . . . . . (92) 138 2,531
Increase (decrease) in deferred revenues . . . . . . . . . . . . . . 1,377 (1,928) 1

Net cash provided by (used in) operating activities . . . . . . 6,464 (22,492) (4,246)

Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . (4,529) (5,716) (5,802)
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . 58 4 (78)
(Increase) decrease in short term investments . . . . . . . . . . . . . (3,187) (7,663) 10,166
(Purchase) sale of land and building held for sale . . . . . . . . . . (1,463) (14,741) 16,203

Net cash (used in) provided by investing activities . . . . . . (9,121) (28,116) 20,489

Cash flows from financing activities:
Net repayment under revolving promissory notes . . . . . . . . . . . . (11,089) -- --
Repayment of long-term debt and leases payable . . . . . . . . . . . . (1,425) (1,543) (2,067)
Proceeds from issuance of Common Stock . . . . . . . . . . . . . . . . 33,329 61,919 896

Net cash provided by (used in) financing activities . . . . . . 20,815 60,376 (1,171)

Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . (6) 67 6
Net increase in cash and cash equivalents . . . . . . . . . . . 18,152 9,835 15,078
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . 450 18,602 28,437

Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . $ 18,602 $ 28,437 $ 43,515

The accompanying notes are an integral part of these Consolidated Financial
Statements.

</TABLE>

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Description of Business

Westell Technologies, Inc. (the "Company") is a holding company. Its wholly
owned subsidiary, Westell, Inc., designs, manufactures and distributes
telecommunications equipment which is sold primarily to major telephone
companies. Westell International, Inc., a wholly owned subsidiary of the
Company, and Westell Europe, Ltd., a wholly owned subsidiary of Westell
International, Inc., market and distribute the Westell, Inc. product line in
international markets. Conference Plus, Inc., an 88.2%-owned subsidiary,
provides teleconferencing services, multipoint video conferencing, broadcast
fax and multimedia teleconferencing services to various customers. Prior to its
disposal during fiscal year 1997 (see note 9), KeyPrestige Information Network
Systems, Inc., an 88%-owned subsidiary established in fiscal 1993 ("KPINS"),
utilized electronic networks to process business transactions for various
customers. During fiscal year 1997, the Company has a majority interest in
Westell-Meridian LLC, established in fiscal 1996 for the purpose of developing a
new corporate facility site that was sold and leased back during fiscal 1998(see
Note 5).

Principals of Consolidation

The accompanying Consolidated Financial Statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents generally consist of cash, certificates of
deposit, time deposits, commercial paper, short-term government obligations and
other money market instruments. The Company invests its excess cash in deposits
with major financial institutions, in government securities and the highest
grade commercial paper of companies from a variety of industries. These
securities have original maturity dates not exceeding three months. Such
investments are stated at cost, which approximates fair value, and are
considered cash equivalents for purposes of reporting cash flows.

Short Term Investments

Short term investments generally consist of certificates of deposit, time
deposits, commercial paper and short-term government obligations. These
securities have original maturity dates exceeding three months and less than one
year. Such investments are stated at cost, which approximates fair value.

Inventories

Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. The components of inventories are as follows:

<TABLE>
<CAPTION>
March 31,
1997 1998
(in thousands)
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,874 $ 6,237
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467 582
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,223 5,819
Reserve for excess and obsolete inventory . . . . . . . . . . . . . . . . . (3,148) (3,210)

$10,416 $9,428
</TABLE>

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the assets which range from 2 to 10 years using
the straight-line method for financial reporting purposes and accelerated
methods for tax purposes. Leasehold improvements are amortized over the lives of
the respective leases, or the useful life of the asset, whichever is shorter.

Revenue Recognition

Revenue is generally recognized upon shipment of product. On certain sales
contracts, revenue is not recognized until specific customer product acceptance
terms have been met.

Product Warranties

Most of the Company's products carry a limited warranty ranging from one to
seven years. The Company accrues for estimated warranty costs as products are
shipped.

Deferred Revenue

Deferred revenue represents prepayments for goods or services.

Research and Development Costs

Engineering and product development costs are charged to expense as
incurred.

Supplemental Cash Flow Disclosures

The following represents supplemental disclosures to the consolidated
statements of cash flows:

<TABLE>
<CAPTION>
March 31,
1996 1997 1998
(in thousands)

<S> <C> <C> <C>
Schedule of noncash investing and financing
activities:
Property purchased under equipment notes . . . . . . . . . . . $1,581 $3,669 $ --
Construction held for sale financed with
construction loan . . . . . . . . . . . . . . . . . . . . . 2,968 -- --
Property purchased under capital leases . . . . . . . . . . . . 142 -- --
Cash paid (received) for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,023 350 516
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 419 125 (633)

</TABLE>

Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument held by the Company:

Cash and cash equivalents , short term investments, trade receivables
and trade payables: the carrying amounts approximate fair value because of
the short maturity of these items.

Revolving promissory notes and installment notes payable to a bank:
due to the floating interest rate on these obligations, the carrying
amounts approximate fair value.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used when accounting for
allowance for uncollectible accounts receivable, inventory obsolescence, product
warranty, depreciation, employee benefit plans, taxes, and contingencies, among
other things.

Foreign Currency Translation

The financial position and the results of operations of the Company's
foreign subsidiary are measured using local currency as the functional currency.
Assets and liabilities of this subsidiary are translated at the exchange rate in
effect at the end of each period. Income statement accounts are translated at
the average rate of exchange prevailing during the period. Translation
adjustments arising from differences in exchange rates from period to period are
included in the foreign currency translation adjustments account in
stockholders' equity. Gains and losses attributable to intercompany foreign
accounts anticipated by management to be settled in the foreseeable future have
been included with foreign currency transaction gains or losses in other income.

The Company recorded a transaction loss of $270,000, a gain of $8,000 and a
gain of $13,000 in other income (expense) for fluctuations on foreign currency
rates on accounts receivable in the fiscal years ended March 31, 1996, 1997 and
1998, respectively. The Company also recorded a transaction gain of $284,000 for
fiscal 1998 in Other income (expense) for fluctuations on foreign currency rates
on intercompany accounts anticipated by management to be settled in the
foreseeable future.

Computation of Net Loss Per Share

In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 which requires companies to present basic and diluted earnings per
share effective for financial statements issued for periods ending after
December 15, 1997. The computation of basic earnings per share is computed
using the weighted average number of common shares outstanding during the
period. Diluted earnings per share includes the number of additional common
shares that would have been outstanding if the dilutive potential common shares
had been issued. The effect of this computation on the number of outstanding
shares is antidilutive for the periods ended March 31, 1996, 1997 and 1998, and
therefore the net loss per basic and diluted earnings per share are the same.

New Accounting Pronouncements:

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 requires the reporting and display of comprehensive income and its
components, in a full set of general-purpose financial statements. In addition
to net income, comprehensive income includes all non-owner changes in equity.
SFAS No. 130 is effective for financial statements for fiscal years beginning
after December 15, 1997, and reclassification of financial statements for
earlier periods for comparative purposes is required. The Company will adopt
SFAS No. 130 in fiscal year 1999. The adoption of SFAS No. 130 will require the
display of comprehensive income and its components including net income and
cumulative translation adjustment. Management does not anticipate the adoption
of this statement to have a material impact on the Company's consolidated
financial statements.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 requires publicly held
enterprises to report financial and other information about key revenue
producing segments of the entity for which such information is available and is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. It also establishes standards
for related disclosures about the revenues derived from the enterprise's
products and services, about the countries in which the enterprise earns
revenues and holds assets and about major customers. The Company has elected
early adoption of SFAS No. 131 disclosure requirements under (see note 10).

NOTE 2. REVOLVING PROMISSORY NOTES:

The Company has secured revolving promissory notes with a bank which enable
the Company to borrow up to $15.0 million as of March 31, 1997 and 1998 and are
due on demand. The notes bear interest at the bank's prime rate (8.5% at March
31, 1997 and 1998), and are secured by substantially all of the assets of the
Company. At March 31, 1997 and 1998, the Company had no borrowings outstanding
under the revolving notes. The Company also had an available equipment borrowing
facility $10.0 million with the same bank as of March 31, 1997. Borrowings under
this facility totaled $6.1 million and $4.2 million at March 31, 1997 and 1998,
respectively, and are included as installment notes payable to a bank as
described in Note 3.

The equipment borrowing facility expired on December 15, 1997, and the
revolving promissory note facility that was not being utilized at March 31,
1998, expires on May 15, 1998. The Company is in negotiations for replacing
these facilities and believes it will obtain similar facilities on no less
favorable terms. The previous facilities required the maintenance of a minimum
cash to current maturity ratio, a current ratio and a maximum debt to net worth
ratio. The Company was in compliance with all such covenants prior to
expiration. Any new facility will have similar covenants that the Company will
need to maintain.

Borrowings under the expired revolving promissory notes facility were
limited to 80% of eligible accounts receivable and 40% of eligible inventory.
Given these limitations, the Company had available borrowings of $12.0 million
under the revolving promissory notes facility as of March 31, 1998

NOTE 3. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
March 31,
1997 1998
(in thousands)

<S> <C> <C>
Note payable to Kendall County, 5%, secured by substantially
all assets of the Company, due through 1998 . . . . . . . . . . . . . . . $ 37 $ --
Capitalized lease obligations secured by related equipment . . . . . . . . 332 213
Installment notes payable to a bank, interest at prime, secured by substantially
all assets of the Company, due through April 2002 . . . . . . . . . . . 6,118 4,207
6,487 4,420

Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,121) (1,407)

$4,366 $3,013

Future maturities of long-term debt at March 31, 1998 are as follows (in thousands):
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,407
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,136
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,001
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 876

$4,420
</TABLE>

NOTE 4. INCOME TAXES:

The Company follows the provisions of SFAS No. 109, "Accounting for Income
Taxes." SFAS No. 109 utilizes the liability method and deferred taxes are
determined based on the differences between the financial statements and tax
basis of assets and liabilities given the provisions of the enacted tax laws.
The income tax benefits charged to net income are summarized as follows:

<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
1996 1997 1998
(in thousands)
<S> <C> <C> <C>
Federal:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (200) $ (540) $ (374)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,793) (8,012) (4,098)

(1,993) (8,552) (4,472)

State:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (93) (49)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . (287) (1,178) (616)

(287) (1,271) (665)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,280) $(9,823) $ (5,137)

</TABLE>

The Company utilizes the flow-through method to account for tax credits. In
fiscal 1996, 1997 and 1998, the Company recognized approximately $790,000,
$398,000 and $700,000, respectively, of tax credits.

The statutory federal income tax rate is reconciled to the Company's
effective income tax rates below:

<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
1996 1997 1998

<S> <C> <C> <C>
Statutory federal income tax rate . . . . . . . . . . . . . . . (34.0)% (34.0)% (34.0)%
Meals and entertainment . . . . . . . . . . . . . . . . . . . . 1.9 1.0 1.6
State income tax, net of federal tax effect . . . . . . . . . . (4.9) (4.9) (4.9)
Income tax credits recognized . . . . . . . . . . . . . . . . . (18.2) (1.6) (3.7)
Stock option benefit . . . . . . . . . . . . . . . . . . . . . -- -- (2.3)
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . -- -- 15.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 (0.5) 1.2

(52.4)% (40.0)% (26.9)%
</TABLE>

Components of the net deferred income tax asset are as follows:

<TABLE>
<CAPTION>
March 31,
1997 1998
(in thousands)
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . $ 202 $ 283
Alternative minimum tax credit . . . . . . . . . . . . . . . . . . . . . 722 446
Research and development credit carryforward . . . . . . . . . . . . . . 2,335 3,062
Compensation accruals . . . . . . . . . . . . . . . . . . . . . . . . . . 164 247
Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,372 1,245
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440 477
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . 8,947 15,565
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 148

14,504 21,473

Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,900)

Net deferred income tax asset . . . . . . . . . . . . . . . . . . . . $14,504 $18,573

</TABLE>

The Company has approximately $3.5 million in income tax credit
carryforwards and a tax benefit of $15.6 million related to a net operating loss
carryforward that is available to offset taxable income in the future. The tax
credit carryforwards begin to expire in 2008 and the net operating loss
carryforward begins to expire in 2012.

NOTE 5. LEASE COMMITMENTS:
In September 1995, the Company entered into an agreement to form a limited
liability company, Westell-Meridian LLC ("LLC"), for the purpose of developing a
16.4 acre site in Aurora, Illinois into a 185,000 square foot corporate facility
to house manufacturing, engineering, sales, marketing and administration. In
connection therewith, the Company has a majority equity ownership interest in
the LLC. In December 1996, the Company began occupying the constructed facility
owned by the LLC (the "Aurora facility"). During the construction period, the
Company advanced the LLC the construction funding which as of March 31, 1997,
was $14.4 million. In fiscal 1998 the LLC received proceeds of $16.2 million
upon the sale of the Aurora facility at cost. The LLC repaid the Company the
advanced construction funding during the second quarter of fiscal 1998 upon
completing the sale of the Aurora facility to a third party. The Aurora
facility was leased back in a related transaction with the same third party,
whereby, the Company entered into a 20 year lease that runs through 2017.

The Company also has lease commitments to lease other office facilities at
various locations. All of the leases require the Company to pay utilities,
insurance and real estate taxes on the facilities.

Total minimum future rental payments at March 31, 1998 are as follows (in
thousands):

1999 . . . . . . . . . . . . . . . . . . $2,350
2000 . . . . . . . . . . . . . . . . . . 2,348
2001 . . . . . . . . . . . . . . . . . . 2,110
2002 . . . . . . . . . . . . . . . . . . 2,114
2003 . . . . . . . . . . . . . . . . . . 2,080
Thereafter . . . . . . . . . . . . . . . 29,999

$41,001

NOTE 6. CAPITAL STOCK AND STOCK RESTRICTION AGREEMENTS:

Capital Stock Activity:

In July 1995, the Company recapitalized its common stock to increase the
number of authorized shares from 14,500,000 shares of common stock to 17,400,000
shares of Class A Common Stock and 11,605,858 shares of Class B Common Stock and
created Class A Common Stock with voting rights of one vote per share and Class
B Common Stock with voting rights of four votes per share. On November 30, 1995,
the Company filed an Amended and Restated Certificate of Incorporation that
increased the amount of authorized capital stock to 43,500,000 shares of Class A
Common Stock, par value $0.01 per share, 25,000,000 shares of Class B Common
Stock, par value $0.01 per share, and 1,000,000 shares of undesignated Preferred
Stock, par value $0.01 per share, and effected a 29-for-1 stock split of the
Class A and Class B Common Stock.

The Board of Directors has the authority to issue the newly authorized
Preferred Stock up to 1,000,000 shares in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series, without any further vote or action by
stockholders.

Prior to the Company's initial public offering in November 1995, restricted
common shares were granted to certain employees. The number of restricted shares
vested at March 31, 1996, 1997 and 1998 for these stock awards was 1,481,614,
1,613,780 and 1,706,894 shares, respectively. The Company valued the stock
awards based on independent appraisals done at the approximate date of the
grants. Compensation expense of $68,000, $68,000 and $48,000 was recognized in
fiscal 1996, 1997 and 1998, respectively, based on the fair market value of the
shares granted.

On May 8, 1996, the Board of Directors authorized a two-for-one stock split
in the form of a dividend to be distributed on June 7, 1996, to stockholders of
record on May 20, 1996. All references in the financial statements to number of
shares and per share amounts of the Company's common stock have been
retroactively restated to reflect the two-for-one stock split.

On March 24, 1998 the Company filed a 14(c) information statement to amend
the Company's Amended and Restated Certificate of Incorporation to increase the
number of shares of Class A Common Stock authorized for issuance from 43,500,000
to 65,500,000. In the same filing the Company amended the Westell Technologies,
Inc. 1995 Stock Incentive Plan to increase the number of shares of Class A
Common Stock available for grant thereunder by 5,000,000 shares of Class A
Common Stock. This was adopted through a consent of the majority shareholder on
April 20, 1998.

Stock Restriction Agreements:

The members of the Penny family (major stockholders) have a Stock Transfer
Restriction Agreement which prohibits, with limited exceptions, such members
from transferring their Common Stock acquired prior to November 30, 1995,
without first offering such stock to the other members of the Penny family. A
total of 18,749,587 shares of Common Stock are subject to this Stock Transfer
Restriction Agreement.

NOTE 7. EMPLOYEE BENEFIT PLANS:

401(k) Benefit Plan:

The Company sponsors a 401(k) benefit plan (the "Plan") which covers
substantially all of its employees. The Plan is a salary reduction plan which
allows employees to defer up to 15% of wages subject to Internal Revenue Service
allowed limits. The Plan also allows for Company discretionary contributions.
The Company provided for discretionary and matching contributions to the Plan
totaling approximately $229,000, $190,000 and $208,000 for fiscal 1996, 1997 and
1998, respectively.

Employee Stock Purchase Plan:

In October 1995, the Company adopted a stock purchase plan that allows
participating employees to purchase, through payroll deductions, shares of the
Company's Class A Common Stock for 85% of the average of the high and low
reported sales prices at specified dates. Under the stock purchase plan, 217,950
shares are authorized. As of March 31, 1996, 1997 and 1998 there were 213,532,
199,060 and 182,068 shares, respectively, available for future issuance.

Employee Stock Incentive Plan:

In October 1995, the Company adopted a stock incentive plan that permits
the issuance of Class A Common Stock, restricted shares of Class A Common Stock,
nonqualified stock options and incentive stock options to purchase Class A
Common Stock, performance awards and stock appreciation rights to selected
employees, officers, and non-employee directors of the Company. Under the stock
incentive plan 2,688,050 shares were authorized and there were no shares
available for future issuance at March 31, 1998. This condition was cured
through an amendment by summary consent on April 20, 1998. The Company issued
24,624, 1,270 and 1,561 shares for stock awards under this plan in fiscal 1996,
1997 and 1998, respectively. Compensation expense of $164,000, $30,000, and
$25,000 was recognized in fiscal 1996, 1997 and 1998, respectively, for the
stock awards granted. In addition, the Company granted additional compensation
to reimburse employees for the related income taxes on stock awards granted
during fiscal 1996 in the amount of $73,000.

The stock option activity under the Company's Stock Incentive Plan are as
follows:

<TABLE>
<CAPTION>
Year ended March 31,
1997 1998

Weighted Weighted
Average Average
Outstanding Exercise Outstanding Exercise
Options Price Options Price

<S> <C> <C> <C> <C>
Outstanding at beginning of year 89,900 $6.50 1,107,650 9.45

. . . . . . . . . . . . Granted 2,104,250 16.98 2,079,450 14.55
. . . . . . . . . . . . Exercised -- -- (63,480) 10.25
. . . . . . . . . . . . Expired -- -- -- --
. . . . . . . . . . . . Canceled (1,086,500) 22.08 (458,200) 12.29
. . . . . . . . . . . .
Outstanding at end of year . . 1,107,650 9.45 2,665,420 12.92

</TABLE>

The exercise price of the stock options granted is generally established at
the market price on the date of the grant. During fiscal 1997, nonqualified
stock options issued previously during fiscal 1997 were canceled and reissued on
July 24, 1996 at the then current market price of $21.625. On March 12, 1997,
options issued during fiscal 1997 were repriced to the then current market price
of $9.6875. The Company has reserved Common Stock for issuance upon exercise of
these options granted.

The Company accounts for employee stock options under APB Opinion 25, as
permitted under generally accepted accounting principles. Accordingly, no
compensation cost has been recognized in the accompanying financial statements
related to these options. Had compensation cost for these options been
determined consistent with Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"), which is an accounting
alternative that is permitted but not required, the Company's net loss and net
loss per share would have been $(2,090,000), $(16,963,000) and $(17,742,000) and
$(0.07), $(0.47) and $(0.49) for 1996, 1997 and 1998, respectively.

The following table summarizes information about all stock options outstanding
as of March 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable

Range of Number Weighted- Number Weighted
Exercise Outstanding at Remaining Average Exercisable at Average
Prices 3/31/98 Life Exercise Price 3/31/98 Exercise Price

<S> <C> <C> <C> <C> <C>
$6.50 - $9.69 853,520 8.31 yrs $ 9.35 192,691 $ 8.88
10.19 - 15.69 1,476,350 9.46 yrs 13.77 23,801 14.25
16.00 - 26.63 335,550 9.52 yrs 18.26 2,500 16.00

$6.50 - 26.63 2,665,420 9.10 yrs $ 12.92 218,992 $ 9.55

</TABLE>

The fair value of each option is estimated on the date of grant based on
the Black-Scholes option pricing model assuming, among other things, a risk-free
interest rate of 6.5% and no dividend yield; expected volatility of 73% and an
expected life of 7 years. A majority of the options granted to employees in 1997
and 1998 vest ratably over five years. Certain options vest upon the earlier of
the achievement of individual goals established or 8 years. The weighted average
fair value of the options granted during the years ended March 31, 1996, 1997
and 1998 were $4.33, $8.44 and $9.7, respectively.

NOTE 8. COMMITMENTS AND CONTINGENCIES:

In January 1995, a former officer of a subsidiary of the Company filed a
suit against the Company alleging damages suffered as a result of wrongful
termination and breach of contract. During fiscal 1997, a settlement was reached
with the plaintiff and the Company received a partial reimbursement from their
insurance carrier. The net settlement expense of approximately $400,000 is
included in Other income (expense) in the accompanying Statements of Operations
for the year ending March 31, 1997.

NOTE 9. DISCONTINUED OPERATIONS:

In August 1995, the Board of Directors approved a plan for the disposition
of KPINS. The net losses of KPINS have been segregated in the consolidated
statements of operations as "discontinued operations." The Company sold KPINS
during fiscal 1997. The components of the loss from discontinued operations for
the year ended March 31, 1996 and the four month period ended July 31, 1996 (the
date of disposition) are as follows:

<TABLE>
<CAPTION>
Fiscal For the 4 month
Year Period Ended
1996 July 31, 1996
<S> <C> <C>
Loss from operations of KPINS for the year ended March 31, 1996 and
the 4 month period ended July 31, 1996 (net of tax benefits of
$65,000 and $3,000 respectively) . . . . . . . . . . . . . . . . . $102,000 $5,000

Estimated loss of disposal of KPINS (net of tax benefits of $329,000) 520,000 -

Loss from discontinued operations . . . . . . . . . . . . . . . . . . $622,000 $5,000

</TABLE>

On July 31, 1996, the Company sold the net assets of this subsidiary to an
executive officer of KPINS in exchange for a $1,000,000 note receivable. Due to
the discontinued nature of this operation, the assets of the Company were fully
reserved for at March 31, 1996. The note receivable related to the sale will be
realized as payment is received since repayment is contingent on future revenues
of KPINS. During fiscal 1997 and 1998, in accordance with the agreement, the
Company received approximately $116,000 and $195,000, respectively, on the note
receivable. This amount is included in Other income (expense) in the
accompanying Statements of Operations for the years ended March 31, 1997 and
1998.

Summarized financial information of KPINS is as follows:

<TABLE>
<CAPTION>
For the 4 month
Fiscal Year Ended Period Ended
March 31, 1996 July 31, 1996
(in thousands)

<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,263 $7
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 731 860
Net property, plant and equipment . . . . . . . . . . . . . . . . . 301 223
Total liabilities, excluding intercompany payables . . . . . . . . 366 306

</TABLE>

NOTE 10. SEGMENT AND RELATED INFORMATION:

Operating Segments:

Westell's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and market strategy. They consist of:

1) A telecommunications equipment manufacturer of local loop access
products, and

2) A multi-point telecommunications service bureau specializing in
audio teleconferencing, multi-point video conferencing, broadcast
fax and multimedia teleconference services.

Performance of these segments are evaluated utilizing, revenue, operating
income and total asset measurements. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies. Segment information for the fiscal years ended March 31, are as
follows:

<TABLE>
<CAPTION>
Telecom Telecom
Equipment Services Total
1996
<S> <C> <C>
Revenues . . . . . . . . . . . . . . $75,519 $ 7,717 $ 83,236
Operating income (loss) . . . . . . . (2,694) 440 (2,254)
Depreciation and amortization . . . . 3,536 750 4,286
Total assets . . . . . . . . . . . . 60,175 4,273 64,448

1997
Revenues . . . . . . . . . . . . . 69,066 10,319 79,385
Operating income (loss) . . . . . (28,269) 1,857 (26,412)
Depreciation and amortization . . 5,056 1,119 6,175
Total assets . . . . . . . . . . . 102,348 5,701 108,049

1998
Revenues . . . . . . . . . . . . . 72,206 14,145 86,351
Operating income (loss) . . . . . (36,522) 3,626 (32,896)
Depreciation and amortization . . 5,641 1,312 6,953
Total assets . . . . . . . . . . . 90,509 7,896 98,405

</TABLE>

Enterprise-wide Information:

The Company's revenues are primarily generated in the United States. More
than 75% of all revenues were generated in the United States for each period
presented.

Significant Customers and Concentration of Credit:

The Company is dependent on certain major telephone companies that
represent more than 10% of the total revenue. Sales to major customers that
exceed 10% of total revenue are as follows:

<TABLE>
<CAPTION> Fiscal Year Ended March 31,
1996 1997 1998
<S> <C> <C> <C>
Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . 12.0% 18.3% 17.7%
Customer B . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 11.1 9.0
Customer C (International) . . . . . . . . . . . . . . . . . . 11.1 .8 .1

</TABLE>

Major telephone companies comprise a significant portion of the Company's
trade receivables. Two customers represented 22.9% of the trade receivables
balance at March 31, 1997 and one customer represented 15.2% of the trade
receivables balance at March 31, 1998.

Geographic Information

The Company's financial information by geographic area was as follows for
the years ended March 31:

<TABLE>
<CAPTION>
Domestic International Total
(in thousands)
<S> <C> <C> <C>
1996
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,445 $ 19,791 $83,236
Operating income (loss) from continuing operations . . . . . . (6,191) 3,937 (2,254)
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . 57,623 6,825 64,448

1997
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,032 $ 4,353 $79,385
Operating loss from continuing operations . . . . . . . . . . . (15,606) (10,806) (26,412)
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . 103,008 5,041 108,049

1998
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,802 $ 8,549 $86,351
Operating loss from continuing operations . . . . . . . . . . . (23,568) (9,328) (32,896)
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . 95,849 2,556 98,405

</TABLE>

International identifiable assets are related to Westell Europe, LTD operations,
located in the United Kingdom.

NOTE 11. RESTRUCTURING CHARGE:

The Company recognized a restructuring charge of $1.4 million in the three
months ended December 31, 1997. This charge included personnel, facility, and
certain development contract costs related to restructuring global operations.
As of March 31, 1998, the Company has paid $957,000 of these restructuring
costs.

NOTE 12. OTHER INCOME, NET:

In fiscal 1998, the Company recognized other income of $12.0 million, net
of expenses, related to a one time fee received from Texas Instruments for the
break-up of the proposed Westell/Amati merger. Excluding the effect of this one
time benefit, Other income, net would have been $2.3 million for fiscal year
ended March 31, 1998. Excluding the one time item, Other income, net for the
years ended March 31, 1996, 1997 and 1998 was primarily due to interest income
earned on temporary cash investments made as a result of investing available
funds.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Westell Technologies, Inc.

We have audited, in accordance with generally accepted auditing standards,
the financial statements of Westell Technologies, Inc. and its Subsidiaries
included in this Annual Report on Form 10-K and have issued our report thereon
dated May 14, 1998. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. Schedule II, Valuation and
Qualifying Accounts, included herein is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Chicago, Illinois
May 14, 1998

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCES
(IN THOUSANDS)
<CAPTION>

1996 1997 1998

<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . $364 $462 $521
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . 274 305 371
Provision for discounts, allowances and rebates . . . . . . . . . . . . . -- -- --
Write-offs of doubtful accounts, net of recoveries . . . . . . . . . . . (176) (246) (162)
Discounts, allowances and rebates taken . . . . . . . . . . . . . . . . . -- -- --

Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . $462 $521 $730

</TABLE>

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports dated May 14, 1998 on the financial statements of Westell Technologies,
Inc. and Subsidiaries (and to all references to our Firm) included in or made
part of this Form 10-K, into the Company's previously filed Registration
Statement File No. 33-99914.

ARTHUR ANDERSEN LLP

Chicago, Illinois
June 29, 1997

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 43,515
<SECURITIES> 684<F1>
<RECEIVABLES> 12,399
<ALLOWANCES> (730)
<INVENTORY> 9,428
<CURRENT-ASSETS> 68,734
<PP&E> 34,304
<DEPRECIATION> (20,816)
<TOTAL-ASSETS> 98,405
<CURRENT-LIABILITIES> 21,253
<BONDS> 0
0
0
<COMMON> 364
<OTHER-SE> 72,777
<TOTAL-LIABILITY-AND-EQUITY> 98,405
<SALES> 0
<TOTAL-REVENUES> 86,351
<CGS> 58,859
<TOTAL-COSTS> 60,388
<OTHER-EXPENSES> (14,290)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 502
<INCOME-PRETAX> (19,108)
<INCOME-TAX> (5,137)
<INCOME-CONTINUING> (13,971)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,971)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> 0
<FN>
<F1>Short term investments
</FN>

</TABLE>