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DSP Group, Inc. Reports Fourth Quarter 2001 Earnings

SANTA CLARA, Calif., Jan. 23 /PRNewswire-FirstCall/ -- DSP Group, Inc. (Nasdaq: DSPG) today announced results for the fourth quarter and year ended December 31, 2001.

Fourth Quarter Results:

The Company announced fourth quarter 2001 revenues of $29,187,000, a decrease of 7% from revenues of $31,425,000 for the fourth quarter 2000. Net income for the fourth quarter of 2001 was $4,043,000 a decrease of 54% from $8,743,000 net income for the fourth quarter of 2000. Diluted earnings per share (EPS) for the fourth quarter of 2001 decreased 52% to $0.15, compared with $0.31, for the fourth quarter of 2000.

Year-end Results:

Revenues for the year ended December 31, 2001, were $114,674,000, an increase of 5% compared with $109,513,000 for 2000. Net income for the year 2001 was $21,916,000 compared to $49,835,000 for the year 2000, a decrease of 56%. Diluted EPS for the year 2001 decreased by 56% to $0.79 compared with $1.74 for the year 2000.

Results for the year 2000 included capital gains of $57,593,000, resulting from the sale of shares of DSP Group's affiliate, AudioCodes Ltd. and two unusual expense items totaling $14,154,000. Net income and EPS, excluding these items, would have been $29,798,000 and $1.04, respectively. Net Income and diluted EPS for the year 2001, compared with the net income and EPS for 2000, excluding capital gains and unusual items, decreased by 26% and 24%, respectively.

Eli Ayalon, Chairman and CEO of DSP Group, stated, "2001 was a defining year for management in all technology sectors. Despite the global economic crisis, the September 11 events and the challenges faced by companies operating in the telecommunication and semiconductors markets, we succeeded to be among the few companies that demonstrated growth in their top line, and recorded operating and net profits of 12% and 19% of revenues, respectively.

"Our cash increased in 2001 by $26,590,000. Our operating expenses for the year were planned originally to sustain a higher growth. Even with slower than expected growth at the top line during the year, we remained confident that DSPG would continue to be profitable, and therefore, deliberately decided not to decrease our R&D expenses in order to maintain and build leading positions in our two lines of business. This longer term strategic decision regarding R&D led to the decrease in our profitability in 2001 compared to 2000."

Mr. Ayalon added: "This achievement was possible because of our managerial culture of "tight resource management" that resulted in $525,000 of revenues per employee for 2001, among the highest in our industry. We shall continue to cultivate this managerial culture at all management levels in the future.

"We are also pleased to announce that in the last quarter of 2001, we have licensed our Teak DSP Core to Tower Semiconductors Ltd. This is a first license based on our new Licensing foundry model.

"We have also released our first RF 2.4GHz CMOS design which in combination with the new 2.4GHz single handset baseband chip, will be shipped to customers in the first quarter of 2002.

"An additional release was the 2.4GHz multihandset chipset, which will be delivered in the second quarter of 2002."

About DSP Group, Inc.

DSP Group, Inc. is a global leader in the development and marketing of high-performance, cost-effective, licensable digital signal processing cores. The Company's family of DSP cores provides solutions for low-power, cost-driven applications, such as cellular, broadband communication, VoIP, multimedia, advanced telecommunication systems, disk drive controllers and many other types of embedded control applications. By combining its DSP core technologies with its proprietary, advanced speech-processing algorithms -- DSP Group also delivers a wide range of enabling, application specific ICs for full-featured integrated telephony products and applications, including 900 MHz and 2.4 GHz wireless technologies. DSP Group, Inc., maintains an international presence with offices located around the globe.

Statements contained in this release, including those concerning the shipment and delivery of new chips, the future growth of the Company's business and the demand for the Company's core technologies may constitute forward-looking statements. These statements involve certain risks and uncertainties such as a slowdown in the U.S consumer market, where most of the products, including the Company's ICs are sold; acceptance of the Company's new products by existing customers and potential customers; and the Company's ability to develop and produce its new products at competitive costs. All forward-looking statements are made pursuant to the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995. These factors and other factors which may effect future operating results or our stock price are discussed under "RISK FACTORS" in our report on form 10-Q for the quarter ended September 30, 2001, which has been filed with the Securities and Exchange Commission and is also available on our Web site (www.dspg.com) under Investor Relations.

Earnings conference call

DSP Group has scheduled a conference call for 5:00 p.m. EST today to discuss fourth quarter results and invites you to listen to a the live broadcast over the Internet. The broadcast can be accessed by all interested parties through the Investor Relations section (investor massage board) of DSP Group's website at www.dspg.com or through PRNewswire's web site at http://www.videonewswire.com/event.asp?id=2730 .

For more information, please contact Yaniv Arieli, Director of Investor Relations, DSP Group at 408-986-4423.

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

                             Three Months Ended             Year Ended
                                December 31,               December 31,
                            2001           2000          2001         2000
    Revenues:
     Product sales         $24,231       $23,915      $88,069       $84,384
     Licensing, royalties
      and other              4,956         7,510       26,605        25,129
                             -----         -----        -----         -----
    Total revenues          29,187        31,425      114,674       109,513

    Cost of revenues:
     Product sales          14,540        13,036       52,782        47,861
     Licensing, royalties
      and other                425           222        1,591         1,047
                             -----         -----        -----         -----
    Total cost of revenues  14,965        13,258       54,373        48,908
                             -----         -----        -----         -----
    Gross profit            14,222        18,167       60,301        60,605

    Operating expenses:
     Research and
      development, net       6,923         5,877       26,161        20,912
     Sales and marketing     3,252         3,811       12,079        12,909
     General and
      administrative         1,956         1,868        7,746         6,515
     Unusual items              --            --           --        14,154
                             -----         -----        -----         -----
    Total operating
     expenses               12,131        11,556       45,986        54,490
                             -----         -----        -----         -----
    Operating income
     (loss)                  2,091         6,611       14,315         6,115
    Other income (expense):
     Interest and
      other income           3,107         3,696       13,255        13,507
     Interest and other
      expenses               (112)          (69)        (271)         (186)
     Equity in income
      of affiliate              --           780          105         2,644
    Minority interest in
     losses of subsidiary       --           274          173           527
    Capital gains from
     realization of
     Investments                --            --           --        57,593
                             -----         -----        -----         -----
    Income before provision
     for income taxes        5,086        11,292       27,577        80,200
    Provision for income
     taxes                   1,043         2,549        5,661        30,365
                             -----         -----        -----         -----
    Net income              $4,043        $8,743      $21,916       $49,835
    Net earnings per share:
     Basic                   $0.15         $0.33        $0.82         $1.87
     Diluted                 $0.15         $0.31        $0.79         $1.74
    Shares used in per
     share computations:
     Basic                  26,834        26,688       26,641        26,616
     Diluted                27,818        27,974       27,606        28,669


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

                                                  December 31,   December 31,
    Assets                                            2001            2000
    Current Assets:
     Cash and cash equivalents, marketable
      securities and short term deposits            $249,791       $223,201
     Trade receivable, net                            14,430         16,932
     Inventories                                       2,098          2,815
     Deferred income taxes                             2,338          4,554
     Other accounts receivable and prepaid
      Expenses                                         1,866          1,445
                                                       -----          -----
    Total current assets                             270,523        248,947
    Property and equipment, net                        7,589          6,451
    Other investments, net of accumulated
     amortization                                     25,536         21,000
    Other assets, net of accumulated
     Amortization                                      6,419          4,259
    Severance pay fund                                 2,312          2,150
                                                       -----          -----
    Total Assets                                    $312,379       $282,807
    Liabilities and Stockholders' Equity
    Current liabilities:
     Trade payable                                    $5,830         $8,092
     Other current liabilities                        17,613         19,934
                                                       -----          -----
    Total current liabilities                         23,443         28,026
    Long term liabilities:
    Accrued severance pay                              2,418          2,147
    Deferred income taxes                              7,541          5,559
    Minority interest                                     --            910
                                                       -----          -----
    Total long term liabilities                        9,959          8,616
    Stockholders' equity:
     Common stock                                         27             27
     Additional paid-in capital                      155,969        151,787
     Other comprehensive income                        2,652             --
     Retained earnings                               128,952        114,291
     Less cost of treasury stock                     (8,623)       (19,940)
                                                       -----          -----
    Total stockholders' equity                       278,977        246,165
                                                       -----          -----
    Total liabilities and stockholders' equity      $312,379       $282,807

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SOURCE DSP Group, Inc.

CONTACT: Yaniv Arieli, Director of Investor Relations of DSP Group, +1-408-986-4423/