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DSP Group, Inc. Reports Financial Results For Third Quarter 1998
DSP Group, Inc.



FOR IMMEDIATE RELEASE

For more information, contact:
Michael Cohen
Investor Relations
DSP Group, Inc.
408-986-4300
mcohen@dspg.com

DSP Group, Inc. Reports Financial Results

Financial Results For Third Quarter 1998

SANTA CLARA, CALIFORNIA -- October 19, 1998-- DSP Group, Inc. (NASDAQ: DSPG) announced higher revenues and earnings per share for the third quarter ending September 30, 1998. Revenues were $17,308,000 compared to $16,558,000 in the same period of 1997, which represent an increase of 5%. Revenues for the first three quarters of 1998 were $49,733,000, an increase of 10% compared to $45,378,000 in the same period in 1997.

Net income for the third quarter of 1998 was $3,475,000 compared to $3,348,000 for the third quarter of 1997, an increase of 4%. The earnings per share increased by 8% to $0.35 in Q3/98 compared to $0.32 in Q3/97. Net income for the first three quarters of 1998 reached a record level of $10,133,000 (excluding a one time gain in the second quarter of 1998 of $814,000), an increase of 34% over the net income of $7,589,000 in the first three quarters of 1997.

Since initiation of its stock repurchase plan in January 1998, the company has repurchased 764,000 of its common shares for a total amount of $13,627,000, as of September 30, 1998.

During the third quarter of 1998 DSP Group announced that the Seiko Epson Corporation in Japan joined its distinguished family of licensees after signing a license agreement for the OakDSPCore®.

Eli Ayalon, President and CEO of DSP Group stated, "We are very pleased that despite the worldwide economic crisis and the turmoil in Southeast Asia, the company succeeded to present once again increasing revenues and net income, and solid financial results".

Ayalon continued, "We are specifically proud of our achievements in the licensing business. Revenues from the intellectual property and licensing business reached a level of $3,804,000 for this quarter, an increase of 26% over the third quarter of 1997. An additional remarkable achievement was the recent launch of the PalmDSPCore at the DSP World convention, which took place in Toronto in September 1998. The PalmDSPCore opens a new era in the DSP 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.

The statement in this press release that relates to the significance of the company's PalmDSPCore product may be a forward-looking statement. This statement is based on current expectations and the company assumes no obligation to update this information. The company's actual results could differ materially from those anticipated by this statement as a result of certain factors, including the customer acceptance of the PalmDSPCore, volume and timing of orders for the PalmDSPCore products, competition in the market place, and general economic conditions. For a more detailed discussion of such factors, see "Factors That May Affect Future Financial Results" in the company's Report on Form 10-K filed with the SEC for the company's fiscal year ended December 31, 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.

For more information, please contact Michael Cohen, DSP Group at Santa Clara, CA. (408) 986-4300.

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

# # #

DSP GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)


    Three Months Ended Nine Months Ended
    September 30, September 30,
    1998 1997 1998 1997
Revenues:          
Product sales   $ 13,504 $ 13,547 $ 39,950 $ 37,626
Licensing, royalties and other   3,804 3,011 9,783 7,752
    _ _ _ _ _ _ _ _ _ _ _ _
Total revenues   17,308 16,558 49,733 45,378
           
Cost of revenues:          
Cost of product sales   8,110 8,232 23,698 23,306
Cost of licensing, royalties and

Other

  157 276 355 1,122
    _ _ _ _ _ _ _ _ _ _ _ _
Total cost of revenues   8,267 8,508 24,053 24,428
    _ _ _ _ _ _ _ _ _ _ _ _
Gross profit   9,041 8,050 25,680 20,950
           
Operating expenses:          
Research and development   2,806 2,084 7,334 6,043
Sales and marketing   1,243 1,220 3,834 3,551
General and administrative   1,248 1,168 3,529 3,372
    _ _ _ _ _ _ _ _ _ _ _ _
Total operating expenses   5,297 4,472 14,697 12,966
    _ _ _ _ _ _ _ _ _ _ _ _
Operating income   3,744 3,578 10,983 7,984
           
Other income (expense):          
Interest and other income   926 753 2,784 2,006
Interest expense and other   (26) (55) (132) (176)

Gain on sale of marketable

equity security

  --- --- 1,086 ---

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

  (8) (42) (123) (559)
    _ _ _ _ _ _ _ _ _ _ _ _
Income before provision for

income taxes

  4,636 4,234 14,598 9,255
Provision for income taxes   1,161 886 3,651 1,666
    _ _ _ _ _ _ _ _ _ _ _ _
Net income   $ 3,475 $ 3,348 $ 10,947 $ 7,589
           
Net income per share:          
Basic   $ 0.36 $ 0.34 $ 1.11 $ 0.79
Diluted   $ 0.35 $ 0.32 $ 1.08 $ 0.76
           
Number of shares used in per

share computations:

         
Basic   9,716 9,773 9,892 9,641
Diluted   9,936 10,350 10,161 10,018


DSP GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) 

    September 30, December 31,
    1998 1997
    (Unaudited)  
Assets      
Current Assets:      

Cash, cash equivalents and marketable securities

  $ 62,589 $ 65,944
Accounts receivable, net   8,410 3,594
Inventories   2,226 4,116
Deferred income taxes   2,850 2,850
Prepaid expenses and others   2,478 1,441
    _ _ _ _ _ _
Total current assets   78,553 77,945
       
Property and equipment, net   4,115 3,488
       

Other investments, net of accumulated amortization

  1,586 2,935
Other assets, net   280 150
Deferred income taxes   650 650
    _ _ _ _ _ _
Total Assets   $ 85,184 $ 85,168
       
       
       
Liabilities and Stockholders' Equity  
   
Current liabilities:      
Accounts payable   $ 3,242 $ 3,319
Other current liabilities   10,460 7,679
    _ _ _ _ _ _
Total current liabilities   13,702 10,998
       
Stockholders' equity:
Common stock   9 10
Additional paid-in capital   73,614 74,418
Unrealized gain on marketable

equity security

  --- 1,050
Retained earning (deficit)   9,639 (1,308)
Treasury stock at cost   (11,780) ---
    _ _ _ _ _ _
Total stockholders' equity   71,482 74,170
    _ _ _ _ _ _
Total liabilities and

stockholders' equity

  $ 85,184 $ 85,168