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DSP Group, Inc. Reports Second Quarter 2004 Earnings

Revenue and Diluted EPS for Q2 Increased 14% and 58%, YoY, Respectively

SANTA CLARA, Calif., July 19 /PRNewswire-FirstCall/ -- DSP Group, Inc. (Nasdaq: DSPG) today announced its results for the quarter ended June 30, 2004.

Revenues for the second quarter of 2004 were $44,016,000, an increase of 14% from revenues of $38,550,000 for the second quarter of 2003. Net income for the second quarter of 2004 increased 71% to $9,371,000, as compared to $5,487,000 for the second quarter of 2003. Diluted earnings per share (EPS) for the second quarter of 2004 increased 58% to $0.30, as compared to $0.19 for the second quarter of 2003.

Results for the second quarter of 2004 included a capital gain of $7,671,000 resulting from the sale of 801,000 shares of AudioCodes Ltd. and a one-time goodwill impairment charge of $4,304,000 arising from the GAAP required reevaluation of the remaining goodwill from the acquisition of VoicePump Inc. in March 2000. The capital gain is included under "Other Income (expense)" in the Company's statements of income and the goodwill impairment is included in the Company's operating expenses. Following the aforementioned sale of AudioCodes shares, DSP Group continues to hold approximately 1.65 million shares AudioCodes stock. 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 in May 2003 and a capital gain of $241,000 from the sale of Tower Semiconductor Ltd. stock.

Pro-forma net income for the second quarter of 2004, excluding the effects of the capital gain and related taxes of $3,068,000 as well as the impairment of goodwill, increased by 18% to $9,072,000 from $7,701,000 in the second quarter of 2003 (excluding one time net capital gain and write-off of in-process research and development). Pro-forma diluted earnings per share (EPS) increased by 12% to $0.29 in the second quarter of 2004 from $ 0.26 in the second quarter of 2003.

The Company believes that this pro forma presentation of net income and diluted EPS is useful to investors in comparing results for the quarter ended June 30, 2004 to the same period during 2003, 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 and CEO of DSP Group, stated: "We are very pleased to report another good quarter for DSP Group, in which we continued to grow our revenues and EPS as compared to the same period in 2003. We also advanced in our major R&D projects and in forming up our strategies towards future business expansion".

Moshe Zelnik, CFO of DSP Group said, "In the first weeks of July 2004 we repurchased 210,000 shares of our common stock for a total amount of $4,920,000 at an average price of $23.43 per share. During the year ended December 31, 2003, we repurchased 746,000 shares of our common stock for a total amount of $16,157,000 at an average price of $21.66 per share. As of June 30, 2004, our cash position, consisting of cash, cash equivalents and marketable securities, reached a level of approximately $321.5 million".

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.

Earnings conference call

DSP Group has scheduled a conference call for 5:00 p.m. EDT today to discuss the financial results for the second 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://ir.dspg.com./phoenix.zhtml?c=101665&p=irol-calendar .

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 # 888-286-8010 (passcode: 87994209)

-- International Dial-In # 617-801-6888 (passcode: 87994209)

For more information, please contact Yaniv Arieli, President of US Operations, Investor Relations, DSP Group Inc. at 408-986-4423; or e-mail: yarieli@dspg.com


                               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,
                                  2004        2003        2004        2003

     Product revenues and
      other                     $44,016     $ 38,550     $82,724   $ 67,561
     Cost of product revenues
      and other                  22,918       21,206      42,776     37,983

     Gross profit                21,098       17,344      39,948     29,578

     Operating expenses:
       Research and development   7,310        5,578      14,864     10,698
       Sales and marketing        3,282        2,871       6,085      5,187
       General and administrative 1,734        1,526       3,540      3,107
       Impairment of goodwill     4,304           --       4,304         --
       In-process research
        & development write-off      --        2,727          --      2,727

       Total operating expenses  16,630       12,702      28,793     21,719

     Operating income             4,468        4,642      11,155      7,859
     Other income:
       Interest and other
        income, net               2,159        1,909       4,284      3,833
       Capital gains              7,671          241      28,988        241


     Income before provision
      for income taxes           14,298        6,792      44,427     11,933
     Provision for income taxes   4,927        1,305      14,942      2,179

     Net income                  $9,371       $5,487     $29,485     $9,754


     Net earnings per share:
       Basic                     $ 0.32       $ 0.20      $ 1.02     $ 0.36
       Diluted                   $ 0.30       $ 0.19      $ 0.96     $ 0.34

     Weighted average number
      of shares of Common Stock
      used in the computation of:
        Basic                    29,159       27,541      28,963     27,432
        Diluted                  30,957       29,459      30,827     28,944


                               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,
                                   2004         2003        2004      2003

     Product revenues and
      other                    $ 44,016     $ 38,550    $ 82,724   $ 67,561
     Cost of product revenues
      and other                  22,918       21,206      42,776     37,983

     Gross profit                21,098       17,344      39,948     29,578
     Operating expenses:
       Research and development   7,310        5,578      14,864     10,698
       Sales and marketing        3,282        2,871       6,085      5,187
       General and administrative 1,734        1,526       3,540      3,107

       Total operating expenses  12,326        9,975      24,489     18,992

     Operating income             8,772        7,369      15,459     10,586
     Other income:
       Interest and other
        income, net               2,159        1,909       4,284      3,833

     Income after financial
      and other income           10,931        9,278      19,743     14,419

     Provision for income taxes   1,859        1,577       3,357      2,451

     Net income                  $9,072      $ 7,701    $ 16,386   $ 11,968

     Net earnings per:
       Basic                     $ 0.31       $ 0.28      $ 0.57     $ 0.44
       Diluted                   $ 0.29       $ 0.26      $ 0.53     $ 0.41

     Weighted average number
      of shares of Common Stock
      used in computing of:
       Basic                     29,159       27,541      28,963     27,432
       Diluted                   30,957       29,459      30,827     28,944

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

     Reported net income per
      US GAAP                   $ 9,371      $ 5,487    $ 29,485    $ 9,754
     Adjustments:
       Impairment of goodwill     4,304           --       4,304         --
       In-process research &
       development write-off         --        2,727          --      2,727
       Capital gains            (7,671)        (241)    (28,988)      (241)
       Tax expenses (benefit)     3,068        (272)      11,585      (272)

     Pro forma net income       $ 9,072      $ 7,701    $ 16,386   $ 11,968


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

                                                    June 30,    December 31,
                                                      2004         2003
     Assets                                       (Unaudited)     (Audited)
     Current assets:
       Cash and cash equivalents                  $ 41,614        $36,812
       Marketable securities and cash deposit       39,820         42,490
       Trade receivables, net                       20,303         15,844
       Inventories                                  10,134          8,466
       Other accounts receivable                    10,601          1,462
       Deferred income taxes                         1,326          1,326

     Total current assets                          123,798        106,400

     Property and equipment, net                     6,908          7,108
     Long term marketable securities               240,112        197,071
     Investment in equity securities of
      traded companies                              19,714         47,138
     Severance pay fund                              2,846          2,360
     Long term pre-paid expenses and
      lease deposits                                   549            513
     Goodwill                                        1,500          5,804
     Other intangible assets                         1,770          2,076

     Total assets                                $ 397,197      $ 368,470

     Liabilities and Stockholders' Equity
     Current liabilities:
       Trade payable                               $13,447        $11,221
       Other current liabilities                    41,116         34,292

     Total current liabilities                      54,563         45,513
     Long term liabilities:
       Accrued severance pay                         2,959          2,555
       Long term liability                              --          1,429
       Deferred income taxes                         6,590         14,592

     Total long term liabilities                     9,549         18,576

     Stockholders' equity:
       Common Stock                                     29             29
       Additional paid-in capital                  186,359        174,700
       Accumulated other comprehensive income        9,981         23,045
       Retained earnings                           136,716        107,799
     Less - Cost of treasury stock                      --        (1,192)

     Total stockholders' equity                    333,085        304,381

     Total liabilities and stockholders' equity  $ 397,197      $ 368,470

SOURCE DSP Group Inc.
07/19/2004
CONTACT: Yaniv Arieli, President of US Operations, Investor Relations, DSP Group Inc., +1-408-986-4423, or yarieli@dspg.com/
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