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DSP Group Inc. Reports Financial Results for the Second Quarter 1998
DSP Group, Inc.



FOR IMMEDIATE RELEASE

DSP Group, Inc. Reports Financial Results

For the Second Quarter 1998

  • Record high revenues per quarter - $16,749,000
  • Record high EPS per quarter - $0.34 (excluding one time capital gain)

SANTA CLARA, CALIFORNIA - July 21, 1998. DSP Group, Inc. (NASDAQ: DSPG) today announced its financial results for the second quarter ended June 30, 1998.

Second quarter revenues increased by 14% to $16,749,000 compared to $14,642,000 in the second quarter of 1997. In the first half of 1998, revenues increased by 13% to $32,425,000 compared to $28,820,000 in the first half of 1997.

Net income for the second quarter increased by 91% to $4,261,000, or $0.42 per share (diluted) compared to net income of $2,225,000 or $0.23 per share (diluted), for the second quarter of 1997. Net income for the first half of 1998 increased by 76% to $7,472,000 compared to net income of $4,241,000 in the first half of 1997.

Results for the second quarter of 1998 include a one time capital gain of $1,086,000 on the sale of its equity share in Nexus Telecommunication Systems Ltd. (NASDAQ: NXUSF). This gain is included under "Other income (expenses)" in the company's statement of income.

Excluding the effect of the one time gain on marketable equity security from the sale of Nexus stock and using a 25% tax rate (1998 effective rate), pro forma net income for the second quarter of 1998 and for the first half of 1998 was $3,446,000 or $0.34 (diluted) per share and $6,657,000 or $0.65 (diluted) per share, respectively.

In the second quarter of 1998 DSP Group concluded two very important licensing agreements - Sony Corporation [NYSE: SNE] licensed the TeakDSPCoreTM and Oki Electric Industry Corporation licensed the OakDSPCore®.

Eli Ayalon, President and CEO of DSP Group stated, "We are very proud of the record results of the company in the second quarter of 1998. Our achievement is enhanced by the increased revenues of our IP business. The Sony Corporation is an important DTAD customer and a strategic partner." Ayalon added "Now that Sony plans to use our advanced DSP Technology in the design of their wireless cellular phone application, the cooperation between DSP Group and this market leading company will expand."

Ayalon continued, " We have also added Oki Electric Industry Corporation to our prestigious list of DSP Core Technology licensees. This is another important step forward in expanding the worldwide use of DSP Group's technology."

DSP Group, Inc. is a leader in the development and marketing of high-performance, cost-effective digital signal processing cores used in a wide range of applications for industries such as wireless communications, telephony and personal computing. By combining its DSP core technology with its advanced speech processing algorithms, DSP Group also delivers a wide range of enabling application-specific DSPs.

Statements contained in this release concerning the plans of Sony Corporation, may constitute forward-looking statements. These statements involve certain risks and uncertainties such as the volume and timing of product orders, the Company's reliance on independent foundries and dependence on a limited number of OEM customers and the turbulent economics in south east Asia. These and other risks are detailed in the Company's Form 10K report for 1997.

This press release is also available through the company's News on Call fax service, which can be reached at (800) 758-5804, company code 112025.

OakDSPcore is a registered trademark of DSP Group, Inc. TeakDSPCore is a trademark of DSP Group, Inc.

DSP GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share amounts)

    Three Months Ended Six Months Ended
    June 30 June 30
    1998 1997 1998 1997
Revenues:          
   Product sales   $ 13,045 $ 12,181 $ 26,446 $ 24,079
   Licensing, royalties and other   3,704 2,461 5,979 4,741
    - - - - - - - - - - - -
   Total revenues   16,749 14,642 32,425 28,820
           
Cost of revenues:          
   Cost of product sales   7,861 7,544 15,588 15,074
   Cost of licensing, royalties and       other   132 503 198 846
    - - - - - - - - - - - -
   Total cost of revenues   7,993 8,047 15,786 15,920
    - - - - - - - - - - - -
Gross profit   8,756 6,595 16,639 12,900
           
Operating expenses:          
   Research and development   2,500 2,018 4,528 3,959
   Sales and marketing   1,278 1,075 2,591 2,331
   General and administrative   1,189 1,125 2,281 2,204
    - - - - - - - - - - - -
   Total operating expenses   4,967 4,218 9,400 8,494
    - - - - - - - - - - - -
Operating income   3,789 2,377 7,239 4,406
           
Other income (expense):          
   Interest and other income   920 642 1,860 1,253
   Interest expense and other   (66) (57) (108) (121)
   Gain on sale of marketable
     equity security
 

1,086

---

1,086

---
   Equity in income (loss) of
     equity method investees, net
 

(49)

(313)

(115)

(517)

    - - - - - - - - - - - -
Income before provision for
  income taxes
  5,680 2,649 9,962 5,021
Provision for income taxes   1,419 424 2,490 780
    - - - - - - - - - - - -
Net income   $ 4,261 $ 2,225 $ 7,472 $ 4,241
           
Net income per share:          
   Basic   $ 0.43 $ 0.23 $ 0.75 $ 0.44
   Diluted   $ 0.42 $ 0.23 $ 0.73 $ 0.44
           
Number of shares used in per share
  computations:
         
   Basic   9,884 9,589 9,981 9,574
   Diluted   10,142 9,745 10,264 9,715


DSP GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

    June 30, December 31,
    1998 1997
    (Unaudited)  
Assets      
Current Assets:      
   Cash, cash equivalents       and marketable
     securities
  $ 64,912 $ 65,944
   Accounts receivable, net   6,153 3,594
   Inventories   3,827 4,116
   Deferred income taxes   2,850 2,850
   Prepaid expenses and
     others
  1,720 1,441
    - - - - - -
Total Current Assets   79,462 77,945
       
Property and equipment, net   3,952 3,488
       
Other investments, net of
  accumulated amortization
  1,594 2,935
Other assets, net   135 150
Deferred income taxes   650 650
    - - - - - -
Total Assets   $ 85,793 $ 85,168
       
Liabilities and Stockholders' Equity  
   
Current Liabilities:      
   Accounts payable   $ 3,980 $ 3,319
   Other current
     liabilities
  8,575 7,679
    - - - - - -
Total current liabilities   12,555 10,988
       
Stockholders' Equity:      
   Common stock   10 10
   Additional paid-in
     capital
  73,968 74,418
   Unrealized capital gain
     on marketable equity
     security
  --- 1,050
   Retained earnings
     (deficit)
  6,164 (1,308)
   Treasury stock at cost   (6,904) ---
    - - - - - -
Total stockholders' equity   73,238 74,170
    - - - - - -
Total liabilities and
  stockholders' equity
  $ 85,793 $ 85,168