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DSP Group, Inc. Reports Second Quarter 2002 Earnings
SANTA CLARA, Calif., Jul 17, 2002 /PRNewswire-FirstCall via COMTEX/ --

Revenues for the Quarter Increased 45% Sequentially and 38% YoY

DSP Group, Inc. (Nasdaq: DSPG) today announced results for the second quarter of 2002, ending June 30, 2002.

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

Moshe Zelnik, CFO of DSP Group, noted, "Given the contemplated combination of our DSP Core licensing business with Parthus Technologies plc., under U.S. GAAP, we have begun to report the statements of income of the product business of DSPG (the 'continued operations') as a stand alone company, with one line representing the net profit contribution of our DSP Core licensing business (the 'Discontinued Operations') and, two lines representing the net assets and net liabilities of the 'discontinued operations' in the balance sheets.

"Our statements of income for the second quarter 2002 include an unusual loss item (Impairment of available for sale marketable securities) in the amount of $9,815,000, associated with the decline in value of our holdings of AudioCodes Ltd. shares (Nasdaq: AUDC). To facilitate the analysis of our financial statements, we have supplemented our GAAP financial statement by including a proforma P&L statements that excludes both this unusual loss item and the tax credit related to it, as well as the unusual item related to the 'aborted spin off expenses and others,' in the first quarter 2002.

"For the convenience of our stockholders, we also included a separate carve-out P&L statement for the Discontinued Operations -- Ceva Inc."

The Company previously reported that it has received a favorable ruling from the Internal Revenue Service, which satisfies the final precondition of the proposed combination of its DSP Cores Licensing business with Parthus Technologies plc. announced on April 5th, 2002.

The transaction remains subject to normal closing conditions, including approval by the High Court in Ireland and by the Parthus stockholders.

The Company also announced that it had two significant products launches during this quarter, the Xpert Teak, which is a first silicon platform of its kind offered in a licensing model, merging a DSP Core with a Host of subsystems. An article published in the EE Times on July 8, 2002 quoted Will Strauss, president of market research firm forward concepts (Tempe, Ariz.) saying, "This is the most complete DSP IP System on the street."

During the second quarter 2002, the Company began to ship its new 2.4 GHz Multi hand set chip sets which support up to 8 handsets on one base unit. The chip set also enables direct outdoor communication between handsets (2 way radio).

Eli Ayalon, Chairman & CEO of DSP Group, stated, "We are very proud of our financial results, they reflect the success of our R&D investment strategy in the last 4 years. Our R&D expense increased from $8,400,000 in 1997 to $26,100,000 in 2001. This effort resulted in a series of new products that drive our growth despite a very tough business environment. Our traditional policy of tight control of headcount and company expenses, enabled us to achieve a high degree of profitability during the second quarter, despite market conditions."

Ayalon also stated, "The separate reports of our two business lines unveil a sizeable and profitable fabless semiconductor company that has achieved a gross margin of 40% and operating profit of 13%, demonstrating significant and continuous growth.

"Our DSP Core Licensing business, despite the top line pressure due to the crisis in the communications technology sector, has shown continued profitability, with a gross margin of 93% and operating profit of 27.5% for the second quarter 2002. We believe that the combination of this business with Parthus will create a company that will play a major role in the Silicon IP market and will demonstrate both growth and profitability."

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.

This press release contains statements that qualify as "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, including statements concerning the role of the combination of our DSP Cores licensing business and Parthus in the Silicon IP market and its potential for growth and profitability. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. In addition, the events anticipated in these forward-looking statements, including the proposed combination with Parthus, may not actually arise. The Company's actual results could differ materially from those described in this press release if for any reason the spin-off of our DSP Cores licensing business does not occur. Other factors which may affect future operating results or our stock price are discussed under "RISK FACTORS" in our reports on form 10-K for the year ended December 31, 2001 and form 10-Q for the quarter ended March 31, 2002, both of which have been filed with the Securities and Exchange Commission and are available on our Web site (http://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 second 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 message board) of DSP Group's website at www.dspg.com or through PRNewswire's web site at http://www.videonewswire.com/event.asp?id=6006 .

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

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

                             Three Months Ended          Six Months Ended
                                  June 30,                   June 30,
                              2002         2001          2002         2001

    Product revenues
     and other             $31,899       $19,338      $53,025       $37,544
    Cost of product
     revenues and other     19,154        11,416       31,766        21,157

    Gross profit            12,745         7,922       21,259        16,387
    Operating expenses:
      Research and
       development           4,975         4,921        9,879         9,986
      Sales and marketing    2,541         2,325        4,477         4,432
      General and
       administrative          985         1,220        1,915         2,236
      Aborted spin off
       expenses and other       --            --          865            --

      Total operating
       expenses              8,501         8,466       17,136        16,654

    Operating income (loss)  4,244         (544)        4,123          (267)
    Other income (expense):
      Interest and other
       income, net           2,541         3,344        5,150         6,621
      Equity in gain of
       unconsolidated
       subsidiaries             --            --           --           105
      Minority interest in
       loss of subsidiary       --            --          ---           173

    Income after
     financial and other     6,785         2,800        9,273         6,632
    Impairment of
     available-for-sale
     marketable
     securities          (*)(9,815)           --    (*)(9,815)           --

    Income (loss) before
     provision for
     income taxes           (3,030)        2,800         (542)        6,632

    Provision (benefit)
     for (from) income
     taxes              (**)(2,112)        1,115   (**)(1,799)        1,720

    Net income (loss)
     from continued
     operations              (918)         1,685        1,257         4,912
    Net income from
     discontinued
     operations (***)          995         3,672        1,510         6,107

    Net income                 $77        $5,357       $2,767       $11,019

    Net earnings
     per share:
      Basic                  $0.00         $0.20        $0.10         $0.42
      Diluted                $0.00         $0.20        $0.10         $0.40
    Shares used in per
     share computations:
      Basic                 27,035        26,574       26,993        26,495
      Diluted               27,896        27,445       27,946        27,427

     (*)    Related to AudioCodes Ltd. Stock amortization
     (**)   Including tax credit related to AudioCodes Ltd.
     (***)  Related to the DSP Licensing activities which are planned
            to be discontinued following the merger with Parthus

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

                             Three Months Ended          Six Months Ended
                                  June 30,                   June 30,
                             2002         2001           2002         2001

    Product revenues
     and other             $31,899       $19,338      $53,025       $37,544
    Cost of product
     revenues and other     19,154        11,416       31,766        21,157

    Gross profit            12,745         7,922       21,259        16,387

    Operating expenses:
      Research and
       development           4,975         4,921        9,879         9,986
      Sales and marketing    2,541         2,325        4,477         4,432
      General and
       administrative          985         1,220        1,915         2,236

      Total operating
       expenses              8,501         8,466       16,271        16,654

    Operating income (loss)  4,244         (544)        4,988          (267)

    Other income (expense):
      Interest and other
       income, net           2,541         3,344        5,150         6,621
      Equity in gain of
       unconsolidated
       subsidiaries             --            --           --           105
      Minority interest in
       loss of subsidiary       --            --           --           173

    Income after financial
     and other               6,785         2,800       10,138         6,632

    Provision for
     income taxes            1,355         1,115        1,958         1,720

    Net income (loss)
     from continued
     operations              5,430         1,685        8,180         4,912

    Net income from
     discontinued
     operations                995         3,672        1,510         6,107

    Net income              $6,425        $5,357       $9,690       $11,019

    Net earnings
     per share:
      Basic                  $0.24         $0.20        $0.36         $0.42
      Diluted                $0.23         $0.20        $0.35         $0.40
    Shares used in per
     share computations:
      Basic                 27,035        26,574       26,993        26,495
      Diluted               27,896        27,445       27,946        27,427

        The above pro forma consolidated statements of income have been
        adjusted to exclude the following items to US GAAP reported net
        income:

    Reported net
     income per US GAAP        $77        $5,357       $2,767       $11,019
    Adjustments:
      Aborted spin off
       expenses and other       --            --          865            --
      Impairment of
       available-for-sale
       marketable securities
       (AudioCodes Ltd.)     9,815            --        9,815            --
      Tax benefit           (3,467)           --        (3,757)          --

    Pro forma net income    $6,425        $5,357       $9,690       $11,019


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

                                                     June 30,    December 31,
    Assets                                             2002           2001
    Current Assets:
      Cash and cash equivalents                      $30,969        $39,146
      Cash designated to combination                  40,000
      Marketable securities and
       short term bank deposits                       56,133         70,893
      Trade receivable, net                           13,550          6,315
      Inventories                                      9,747          2,048
      Deferred income taxes                            2,098          2,098
      Other accounts receivable and prepaid
       Expenses                                          964          1,547
    Assets of discontinued operation                  14,544         12,197
    Total current assets                             168,005        134,244

    Property and equipment, net                        5,027          5,390
    Long term marketable securities                  126,795        139,752
    Other investments                                 11,557         25,536
    Other assets, net                                  6,263          6,229
    Severance pay fund                                 1,252          1,228

    Total Assets                                    $318,899       $312,379

    Liabilities and Stockholders' Equity
    Current liabilities:
      Trade payable                                  $13,603         $5,123
      Other current liabilities                       15,114         11,592
      Liabilities of discontinued operation            5,806          7,852
    Total current liabilities                         34,523         24,567
    Long term liabilities:
    Accrued severance pay                              1,287          1,294
    Deferred income taxes                              2,205          7,541
    Total long term liabilities                        3,492          8,835

    Stockholders' equity:
     Common stock                                         27             27
     Additional paid-in capital                      155,969        155,969
     Less cost of treasury stock                      (4,209)        (8,623)
     Accumulated other comprehensive
      income (loss)                                    (200)          2,652
     Retained earnings                               129,297        128,952
     Total stockholders' equity                      280,884        278,977

     Total liabilities and
      stockholders' equity                          $318,899       $312,379


                                  CEVA INC.
                 CONSOLIDATED STATEMENTS OF INCOME - US GAAP
                                (In thousands)

                             Three Months Ended           Six Months Ended
                                   June 30,                    June 30,
                              2002         2001          2002          2001

    License and royalties   $3,782        $5,856       $6,995       $10,666
    Technical support,
     maintenance and other     804         1,164        1,687         2,322

    Total revenues           4,586         7,020        8,682        12,988
    Cost of revenues           305           341          616           607

    Gross profit             4,281         6,679        8,066        12,381
    Operating expenses:
      Research and
       development, net      1,566         1,481        3,216         2,688
      Sales and marketing      790           702        1,493         1,330
      General and
       administrative          662           674        1,355         1,354

      Total operating
       expenses              3,018         2,857        6,064         5,372

    Operating income         1,263         3,822        2,002         7,009
    Financial income, net       32           115           50           221

    Income before provision
     for income taxes        1,295         3,937        2,052         7,230
    Provision for
     income taxes              300           265          542         1,123

    Net income                $995        $3,672       $1,510        $6,107

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SOURCE DSP Group, Inc.

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