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DSP Group Inc. Reports Second Quarter 2003 Earnings
Revenues for the Second Quarter Increased 21% YoY and 33% Sequentially All-Time Record Gross Margins for a Quarter - 45% from 40% YoY

SANTA CLARA, Calif., Jul 21, 2003 /PRNewswire-FirstCall via COMTEX/ -- DSP Group, Inc. (Nasdaq: DSPG) today announced the results for the quarter ended June 30, 2003.

Revenues for the second quarter of 2003 were $38,550,000, an increase of 21% from revenues of $31,899,000 for the second quarter of 2002. Net income for the second quarter of 2003 was $5,487,000 compared with $77,000 for the second quarter of 2002. Diluted earnings per share (EPS) for the second quarter of 2003 were $0.19, compared with $0.00, for the second quarter of 2002.

Net income and diluted EPS for the second quarter of 2002 included the results of the discontinued operations of the DSP cores licensing business, which amounted to $995,000 and $0.04, respectively.

Results for the second quarter of 2003 included a one-time write-off in the amount of $2,727,000 for in-process research and development related to the Teleman Multimedia Inc. acquisition announced by the Company on May 19, 2003 and a capital gain of $241,000 from the sale of shares of Tower Semiconductor Ltd. Results for the second quarter of 2002 included an unusual loss of $9,815,000 related to the decline in value of the Company's available-for-sale marketable securities of AudioCodes Ltd. and net income of $995,000 attributed to the discontinued operations of the DSP cores licensing business. Excluding the foregoing items, pro-forma net income for the second quarter of 2003 increased 42% to $7,701,000 from $5,430,000 in the second quarter of 2002. Pro-forma diluted earnings per share (EPS) increased 37% to $0.26 in the second quarter of 2003 from $ 0.19 in the second quarter of 2002.

The Company believes that this presentation of pro forma net income and diluted EPS is useful to investors in comparing results for the second quarter of 2003 to the same period during 2002, because it excludes items that management does not consider meaningful for purposes of analyzing the Company's operating results and making budget planning decisions.

Eli Ayalon, Chairman & CEO of DSP Group stated, "We are very pleased with our second quarter results. This is the 8th sequential quarter in which we are reporting quarterly revenue growth on a year-over-year basis. We also succeeded in further improving our profitability levels. DSP Group's unique market position coupled with the successful implementation of yield enhancement and cost optimization projects continue to contribute to improving gross margins (from 40% in the second quarter of 2002 to 45% in the second quarter of 2003) resulting in a significant improvement in our operating profit. During the second quarter, DSP Group began deliveries to new customers utilizing the 2.4GHz technologies, and the level of bookings during the quarter indicates good visibility into the third quarter of 2003."

Mr. Ayalon added: "During the last quarter we substantially achieved our additional hiring goals announced following the Teleman acquisition. We succeeded in hiring top quality professionals who are already contributing to our new research and development activities."

The Company also announced that in light of the Company's strong cash position its Board of Directors has authorized management to repurchase an additional 2.5 million shares of the Company's common stock in open-market and privately negotiated transactions. This is in addition to the repurchase of up to 4 million shares authorized by the Board in March 1999, under which approximately 3.6 million shares had been repurchased through July 18, 2003. During 2003, the Company repurchased 646,000 shares of its Common Stock, at an average price of $21.40 per share, for an aggregate price of approximately $13.8 million.

About DSP Group

DSP Group, Inc. is a fabless semiconductor company that is a leader in the short-range wireless market. By combining its DSP cores technology with advanced RF, communication, video technology and speech-processing algorithms, DSP Group is a worldwide leader in developing and providing short-range communication applications that include digital 900MHz, 2.4GHz, DECT (1.9GHz), 5.8GHz and Bluetooth for voice and data communication in residential, SOHO, SME, enterprise and automotive applications. DSP Group's products include advanced RF CMOS and communications technology. DSP Group also develops and markets embedded, integrated silicon/software solution for Voice-over-Digital-Subscriber Line (VoDSL) and Voice-over-Internet-Protocol (VoIP) applications, as well as other Voice-over-Packet applications for Integrated Access Device (IAD) and IP phone. More information about DSP Group is available at www.dspg.com.

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 good visibility into the third quarter of 2003. 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, the acceptance by customers of DSP Group's products, DSP Group's ability to differentiate its products from those of its competitors in the same market and the general market demand for products that incorporate DSP Group's technology in the market. These factors and other factors which may effect 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, 2002, 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 second quarter results 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-calendar . For more information, please contact Yaniv Arieli, President of US Operations, 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,
                                  2003        2002        2003         2002

    Product revenues
     and other                  $38,550     $31,899     $67,561     $53,025
    Cost of product
     revenues and other          21,206      19,154      37,983      31,766
    Gross profit                 17,344      12,745      29,578      21,259
    Operating expenses:
       Research
        and development           5,578       4,975      10,698       9,879
       Sales and marketing        2,871       2,541       5,187       4,477
       General
        and administrative        1,526         985       3,107       1,915
       In-process research
        & development write-off   2,727          --       2,727          --
       Aborted spin off
        expenses and other           --          --          --         865

       Total operating expenses  12,702       8,501      21,719      17,136

    Operating income              4,642       4,244       7,859       4,123
    Other income:
       Interest and
        other income, net         1,909       2,541       3,833       5,150

    Income after financial
     and other income             6,551       6,785      11,692       9,273
    Impairment of
     available-for-sale
     marketable securities           --      (9,815)(*)      --       (9,815)(*)
    Capital gains                   241          --         241          --

    Income (loss) before
     provision for income taxes   6,792      (3,030)     11,933        (542)
    Provision (benefit)
     for income taxes             1,305      (2,112)(**)  2,179      (1,799)(**)

    Net income (loss)
     from continuing operations   5,487        (918)      9,754       1,257
    Net income from
     discontinued operations(***)    --         995          --       1,510

    Net income                   $5,487         $77      $9,754      $2,767

    Net earnings per share
     for continuing operations:
       Basic                      $0.20      $(0.04)      $0.36       $0.04
       Diluted                    $0.19      $(0.04)      $0.34       $0.04
    Net earnings per share
     for discontinued operations:
       Basic                      $0.00       $0.04       $0.00       $0.06
       Diluted                    $0.00       $0.04       $0.00       $0.06
    Net earnings per share
     (combined):
       Basic                      $0.20       $0.00       $0.36       $0.10
       Diluted                    $0.19       $0.00       $0.34       $0.10

    Weighted average number
     of shares of Common Stock
     used in computing of:
       Basic                     27,541      27,035      27,432      26,993
       Diluted                   29,459      27,896      28,944      27,946


    (*)  Related to impairment of marketable securities

    (**)  Including tax credit related to impairment of marketable securities

    (***)  Related to the DSP cores Licensing business (Ceva) which was
           discontinued in November 2002 following the combination of
           Ceva with Parthus Technologies plc to form ParthusCeva, Inc.


                               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,
                                   2003        2002         2003       2002
    Product revenues
     and other                  $38,550     $31,899      $67,561    $53,025
    Cost of product revenues
     and other                   21,206      19,154       37,983     31,766

    Gross profit                 17,344      12,745       29,578     21,259
    Operating expenses:
       Research and development   5,578       4,975       10,698      9,879
       Sales and marketing        2,871       2,541        5,187      4,477
       General
        and administrative        1,526         985        3,107      1,915

       Total operating expenses   9,975       8,501       18,992     16,271

    Operating income              7,369       4,244       10,586      4,988
    Other income:
       Interest and
        other income, net         1,909       2,541        3,833      5,150

    Income after financial
     and other income             9,278       6,785       14,419     10,138

    Provision for income taxes    1,577       1,355        2,451      1,958

    Net income                   $7,701      $5,430      $11,968     $8,180

    Net earnings per share:
       Basic                      $0.28       $0.20        $0.44      $0.30
       Diluted                    $0.26       $0.19        $0.41      $0.29
    Weighted average number
     of shares of Common Stock
     used in computing of:
       Basic                     27,541      27,035       27,432     26,993
       Diluted                   29,459      27,896       28,944     27,946

    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 adjustments:    $5,487         $77       $9,754     $2,767
       Aborted spin off
        expenses and other           --          --           --        865
       Impairment of
        available-for-sale
        marketable securities        --       9,815           --      9,815
       In-process research &
        development write-off     2,727          --        2,727         --
       Capital Gains               (241)         --         (241)        --
       Net income from
        discontinued operations      --        (995)          --     (1,510)
       Tax benefit                 (272)     (3,467)        (272)    (3,757)

    Pro forma net income         $7,701      $5,430      $11,968     $8,180


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

                                                   June 30,      December 31,
                                                     2003            2002
     Assets                                       (Unaudited)      (Audited)
     Current assets:
       Cash and cash equivalents                     $45,749        $39,919
       Marketable securities                          54,170         45,371
       Trade receivables, net                         11,684          4,873
       Inventories                                     8,029          6,916
       Other accounts receivable                       1,666          1,352
       Deferred income taxes                           1,685          1,685
       Assets of discontinued operation, net           1,453          4,737

     Total current assets                            124,436        104,853

     Property and equipment, net                       4,668          4,690
     Long term marketable securities                 150,176        150,692
     Investment in equity security
      of traded companies                             21,213         12,031
     Severance pay fund                                2,066          1,616
     Long term pre-paid expenses
      and lease deposits                                 434            386
     Goodwill                                          5,804          5,804
     Other intangible assets                           2,383             --

     Total Assets                                   $311,180       $280,072

     Liabilities and Stockholders' Equity
     Current liabilities:
       Trade payable                                 $10,345         $6,745
       Other current liabilities                      28,393         21,552

     Total current liabilities                        38,738         28,297
     Long term liabilities:
     Accrued severance pay                             2,115          1,686
     Deferred income taxes                             5,524          2,371
     Other long term liabilities                       1,421             --
     Total long term liabilities                       9,060          4,057

     Stockholders' equity:
       Common stock                                       27             27
       Additional paid-in capital                    161,513        156,443
       Less cost of treasury stock                   (5,579)             --
       Accumulated other comprehensive income          7,041            476
       Retained earnings                             100,380         90,772
     Total stockholders' equity                      263,382        247,718

     Total liabilities and stockholders' equity     $311,180       $280,072

SOURCE DSP Group Inc.

Yaniv Arieli, President of US Operations, Investor Relations, of DSP Group, +1-408-986-4423

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