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DSP Group, Inc. Reports First Quarter 2004 Earnings

Revenue and Operating Income for the Quarter Increased 33% & 108% YoY, Respectively

SANTA CLARA, Calif., April 21 /PRNewswire-FirstCall/ -- DSP Group, Inc. (Nasdaq: DSPG) today announced its results for the quarter ended March 31, 2004.

Revenues for the first quarter of 2004 were $38,708,000, an increase of 33% from revenues of $29,011,000 for the first quarter of 2003. Net income for the first quarter of 2004 was $20,114,000, as compared to $4,267,000 for the first quarter of 2003. Diluted earnings per share (EPS) for the first quarter of 2004 were $0.66, as compared to $0.15 for the first quarter of 2003.

Results for the first quarter of 2004 included a capital gain of $20,827,000 resulting from the sale of two million shares of the AudioCodes Ltd. stock and a capital gain of $490,000 resulting from the sale of all of the Company's holdings in the Tomen Corporation stock, both during the first quarter of 2004. These capital gains are included under "Other Income (expense)" in the Company's statements of income. DSP Group still holds approximately 2.45 million shares of the AudioCodes stock.

Pro forma net income and diluted EPS for the first quarter of 2004, excluding the effect of the one-time capital gains described above and the related taxes of $8,517,000, would have been $7,314,000 and $0.24, respectively. The Company achieved an increase of 71% and 60% for pro forma net income and diluted EPS, respectively, as compared to the same period in 2003.

Eli Ayalon, Chairman and CEO of DSP Group, stated: "We are very pleased with our financial and business achievements in the first quarter of 2004. We continue to see strong demand for our products, resulting in strong revenues in the first quarter and good visibility into the second quarter of 2004. The outlook for the rest of the year is positive, and we are encouraged by the positive reaction to our new products for the European market."

About DSP Group

DSP Group, Inc. is a fabless semiconductor company, offering complex Integrated Circuit (IC) solutions. DSP Group is a world leader in the short-range wireless communication market, enabling home networking convergence for voice, video & data. By combining its in-house technologies of Digital Signal Processors, portfolio of wireless communication protocols, including DECT and Bluetooth, most advanced Radio Frequency CMOS and SiGe, as well as VoIP ICs, DSP Group is a world leader and a one-stop-shop for a wide range of applications. These applications include: ISM band digital 900MHz, 2.4GHz and 5.8GHz telephony; European DECT (1.9GHz) telephony; and Bluetooth systems for voice, data and video communication, which are employed in residential, SOHO, SME, enterprise and automotive applications. DSP Group's ICs provide solutions for MP3 players, VoIP phones, gateways, and Integrated Access Devices (IADs) and are widely used in Digital Voice Recorders (DVRs). More information about DSP Group is available at www.dspg.com.

Forward-Looking Statements

This press release may contain statements that qualify as "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, including statements made by Mr. Ayalon relating to continuing strong demand for DSP Group's products, the positive outlook for the second quarter of 2004 and the rest of the year, and the positive reaction to DSP Group's new products for the European market. These forward-looking statements are based on current expectations and DSP Group assumes no obligation to update this information. In addition, the events described in these forward-looking statements may not actually arise. DSP Group's actual results could differ materially from those described in this press release as a result of various factors, including unexpected delays in the introduction of new products; failure to achieve broad market acceptance of existing and new products by existing and potential OEM customers; DSP Group's inability to add new customers and develop and produce new products at competitive costs and in a timely manner; decline or fluctuations in gross margins and the effect on revenues and profitability; and general market demand for products that incorporate DSP Group's technology in the market. These factors and other factors which may affect future operating results or DSP Group's stock price are discussed under "RISK FACTORS" in the Form 10-K for the year ended December 31, 2003, as well as other reports, including Form 10-Qs, DSP Group has filed with the Securities and Exchange Commission and which are available on DSP Group's Web site (www.dspg.com) under Investor Relations.

Earnings conference call

DSP Group has scheduled a conference call for 8:30 a.m. EDT today to discuss the financial results for the first quarter of 2004 and invites you to listen to a live broadcast over the Internet. The broadcast can be accessed by all interested parties through the Investor Relations section (investor message board) of DSP Group's Web site at www.dspg.com or link to: http://phx.corporate-ir.net/phoenix.zhtml?c=101665&p=irol-necalendar .

If you cannot join the call, please listen to the replay, which will be available for approximately two weeks after the call on DSP Group's Web site or by calling the following numbers:

-- US Dial-In # 1-888-286-8010 (passcode: 68232467)

-- International Dial-In # 617-801-6888 (passcode: 68232467)

CONTACT: Yaniv Arieli, President of US Operations, Investor Relations of DSP Group Inc., +1-408-986-4423, or yarieli@dspg.com.


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


                                                        Three Months Ended
                                                             March 31,
                                                       2004           2003

    Product revenues and other                       $38,708        $29,011
    Cost of product revenues and other                19,858         16,777

    Gross profit                                      18,850         12,234

    Operating expenses:
      Research and development                         7,554          5,120
      Sales and marketing                              2,803          2,316
      General and administrative                       1,806          1,581

      Total operating expenses                        12,163          9,017

    Operating income                                   6,687          3,217
    Other income:
      Interest and other income, net                   2,125          1,924
      Capital gains                                   21,317             --

    Income before provision for income taxes          30,129          5,141

    Provision for income taxes                        10,015            874

    Net income                                       $20,114         $4,267

    Net earnings per share:
      Basic                                            $0.70          $0.16
      Diluted                                          $0.66          $0.15

    Weighted average number of shares of
     Common Stock used in the computation of:
      Basic                                           28,767         27,324
      Diluted                                         30,698         28,428


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

                                                     March 31,    December 31,
                                                       2004           2003
    Assets                                          (Unaudited)     (Audited)
    Current assets:
      Cash and cash equivalents                      $81,467        $36,812
      Marketable securities and cash deposit          27,324         42,490
      Trade receivables, net                          15,061         15,844
      Inventories                                      9,022          8,466
      Other accounts receivable                        1,106          1,462
      Deferred income taxes                            1,326          1,326

    Total current assets                             135,306        106,400

    Property and equipment, net                        6,959          7,108
    Long term marketable securities                  208,005        197,071
    Investment in equity securities of
     traded companies                                 28,428         47,138
    Severance pay fund                                 2,608          2,360
    Long term pre-paid expenses and lease deposits       544            513
    Goodwill                                           5,804          5,804
    Other intangible assets                            1,923          2,076

    Total assets                                    $389,577       $368,470

    Liabilities and Stockholders' Equity
    Current liabilities:
      Trade payable                                  $17,556        $11,221
      Other current liabilities                       39,267         34,292

    Total current liabilities                         56,823         45,513
    Long term liabilities:
    Accrued severance pay                              2,690          2,555
    Long term liability                                1,429          1,429
    Deferred income taxes                              9,784         14,592

    Total long term liabilities                       13,903         18,576

    Stockholders' equity:
     Common Stock                                         29             29
     Additional paid-in capital                      177,350        174,700
     Accumulated other comprehensive income           14,127         23,045
     Retained earnings                               127,345        107,799
    Loss - Cost of treasury stock                         --        (1,192)
    Total stockholders' equity                       318,851        304,381

    Total liabilities and stockholders' equity      $389,577       $368,470


    (Logo:  http://www.newscom.com/cgi-bin/prnh/20020715/SFM118LOGO )

SOURCE DSP Group, Inc.

CONTACT: Yaniv Arieli, President of US Operations, Investor Relations of DSP Group Inc., +1-408-986-4423, or yarieli@dspg.com