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DSP Group, Inc. Reports Financial Results for Third Quarter 1997
DSP Group | Corporate Information





FOR IMMEDIATE RELEASE

For more information, contact:
Yizhar Ganor
Director, Investor Relations
DSP Group, Inc.
(408) 986-4424
ir@dspg.com

DSP Group, Inc. Reports Financial Results for Third Quarter 1997

SANTA CLARA, CALIFORNIA October 27, 1997 -- DSP Group, Inc. (NASDAQ: DSPG) today announced its financial results for the third quarter ended September 30, 1997.

Revenues for the quarter increased by 22% to $16,558,000 compared to $13,611,000 in the third quarter of 1996. Revenues for the first three quarters of 1997 increased by 20% to $45,378,000 compared to $37,829,000 in the first three quarters of 1996.

Net income for the quarter amounted to $3,348,000 compared to a loss of $263,000 in the third quarter of 1996. In the third quarter of 1996 the company recorded a charge of $1,529,000 for acquired in process technology. Excluding this one-time charge, net income for the third quarter 1997 increased by 201%. Primary and fully diluted net income per share increased by 167% to $0.32 per share, compared to $0.12 per share (excluding the one-time charge) for the third quarter of 1996. Net income for the first three quarters of 1997 increased by 289% to $7,589,000 compared to net income of $1,953,000 (excluding the one-time charge), in the first three quarters of 1996.

Eli Ayalon, President and CEO of DSP Group stated, "We are very pleased to announce the earnings for our best quarter in the Company's history. Gross profit for the third quarter increased by 61% to $8,050,000 compared to $5,015,000 in the third quarter of 1996. This increase is a result of both higher revenues and improved margins. Gross margin on product sales continued to improve and reached a level of 39% compared to 27% in the third quarter of 1996".

Igal Kohavi, Chairman of DSP Group stated, "During this quarter we signed a significant agreement with National Semiconductor Corporation under which DSP Group has the exclusive right to license National's CompactRISC core technology worldwide".

Kohavi added, "We believe that providing product designers with a seamless integration of National's RISC technology and our proven DSP technology will significantly reduce time to market and prove to be a winning combination. This new agreement underscores the increasing importance of the core licensing business in our Company's strategy".

DSP Group, Inc., is a leader in the development and marketing of high-performance, cost-effective digital signal processing solutions for the consumer telephone, computer telephony and personal computer industries. By combining three key technologies -- speech processing algorithms, telephony algorithms and digital signal processors (DSPs)  -- the Company has delivered a wide range of enabling application-specific DSPs to these markets.

Statements contained in this release concerning the Company's improved growth margins, the impact of the Company's agreement with National Semiconductors, and the Company's leadership in developing and marketing products may constitute forward-looking statements. These statements involve certain risks and uncertainties such as the volume and timing of product orders, recognition of license fee and royalties, the impact of declining average selling prices for TAD speech processors on gross margins, the Company's reliance on independent foundries and dependence on a limited number of OEM customers. These and other risks are detailed in the Company's Form 10K report for 1996.

# # #

TrueSpeech is a registered trademark of DSP Group, Inc.
PineDSPCore, OakDSPCore and PalmDSPCore are trademarks of DSP Group, Inc

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                     (In thousands, except per share amounts)



                                   Three Months Ended     Nine Months Ended

                                      September 30,         September 30,

                                   1997       1996         1997       1996



    Revenues:

     Product sales             $ 13,547   $ 11,403     $ 37,626   $ 29,136

     Royalties, licensing

      and other                    3,011      2,208        7,752      8,693

     Total revenues              16,558     13,611       45,378     37,829

    Cost of revenues:

     Cost of product sales        8,232      8,378       23,306     21,511

     Cost of royalties,

      licensing and other            276        218        1,122        596

     Total cost of revenues       8,508      8,596       24,428     22,107

    Gross profit                  8,050      5,015       20,950     15,722

    Operating expenses

     Research and development     2,084      1,802        6,043      6,584

     Sales and marketing          1,220        941        3,551      3,316

     General and administrative   1,168      1,125        3,372      4,370

     Acquired in-process

      technology                      --      1,529           --      1,529

     Total operating expenses     4,472      5,397       12,966     15,799

    Operating income (loss)       3,578      (382)        7,984       (77)

    Other income (expense):

     Interest and other income      753        331        2,006      1,131

     Interest expense and other    (55)       (48)        (176)      (121)

     Equity in income (loss) of

      unconsolidated

      subsidiaries, net             (42)      (193)        (559)      (287)

    Income (loss) before income

     taxes                        4,234      (292)        9,255        646

    Provision (benefit)for

     income taxes                   886       (29)        1,666         68

    Net income (loss)           $ 3,348    $ (263)      $ 7,589      $ 578

    Net income (loss) per

     share:(a)

     Primary                     $ 0.32   $ (0.03)       $ 0.76     $ 0.06

     Fully diluted               $ 0.32   $ (0.03)       $ 0.73     $ 0.06

    Shares used in per share

     computation:

     Primary                     10,350      9,534       10,018      9,567

     Fully diluted               10,531      9,534       10,441      9,567



      (a) including one-time charge for acquired in-process technology in the

    third quarter of 1996. pro forma earning per common share (primary and

    fully diluted) was $0.12 for Q3/96 and $0.20 for the first nine months of

    1996.





                                 DSP GROUP, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                  (In thousands)



                                            September 30,      December 31,

                                                1997              1996

    ASSETS

    CURRENT ASSETS

     Cash, cash equivalents and

      marketable securities                   $ 61,192          $ 42,934

     Accounts receivable, net                   2,582             4,861

     Inventories                                3,987             2,957

     Deferred income taxes                        500               500

     Prepaid expenses and others                2,349             1,357

     Total current assets                      70,610            52,609

    Property and equipment                      8,745             7,324

    Accumulated depreciation

     and amortization                         (4,976)           (4,033)

                                                3,769             3,291

    Investment in unconsolidated

     subsidiaries, net                          1,856             2,415

    Other assets, net                             150               388

    Deferred income taxes                         504               504

    TOTAL ASSETS                             $ 76,889          $ 59,207



    LIABILITIES AND STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES

     Accounts payable                         $ 4,070           $ 1,428

     Other current liabilities                  6,637             3,330

     Total current liabilities                 10,707             4,758

    STOCKHOLDERS' EQUITY

     Common stock                                  10                10

     Additional paid-in capital                70,925            66,781

     Accumulated deficit                      (4,753)          (12,342)

                                               66,182            54,449

    TOTAL  LIABILITIES

     AND STOCKHOLDERS' EQUITY                $ 76,889          $ 59,207