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DSP Group, Inc. Reports Third Quarter 2004 Earnings
Record Operating Margins of 21% and Pro Forma Net Income of 21.2% of Revenues

SANTA CLARA, Calif., Oct 19, 2004 (PRNewswire-FirstCall via COMTEX) -- DSP Group, Inc. today announced its results for the quarter ended September 30, 2004.

Revenues for the third quarter of 2004 were $46,232,000, a slight decrease of 2% from revenues of $47,178,000 for the third quarter of 2003. Net income for the third quarter of 2004 was $20,380,000, as compared to $9,640,000 for the third quarter of 2003. Diluted earnings per share (EPS) for the third quarter of 2004 were $0.69, as compared to $0.32 for the third quarter of 2003.

Results for the third quarter of 2004 included a capital gain of $15,460,000 under "Other income" in the Company's statements of income, resulting from the sale of 1,650,000 shares of AudioCodes Ltd. stock. Following the aforementioned sale, DSP Group no longer owns any AudioCodes stock. The related taxes on the capital gain were $4,865,000.

Pro-forma net income for the third quarter of 2004, excluding the effects of the capital gain and related taxes associated with the sale of AudioCodes stock, was $9,785,000, a 1% increase compared to $9,640,000 in the third quarter of 2003. Pro-forma diluted earnings per share (EPS) were $0.33 in the third quarter of 2004, a 3% increase over $0.32 in the third 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 September 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: "The second half of 2004 can be characterized as a challenging environment for the consumer electronics industry. The industry is encountering demand and inventory issues across different product lines which impact our business. In spite of this, we managed to provide solid results for the third quarter of 2004, and we reached record high operating margins of 21% of revenues, and pro forma net income of 21.2% of revenues."

Mr. Ayalon added: "In the last few weeks we reached a significant and strategic milestone for the company by introducing our first DECT standard -- 1.9GHz chip sets for the European market -- and by delivering our first shipment of initial quantities to a key customer. We believe that the European market represents meaningful growth opportunities for DSP Group in the years to come. In addition, in the line with the Company's strategy to provide a complete short range residential wireless offering, we anticipate closing today the acquisition of WiFi technology assets developed by Bermai, Inc for approximately $6 Million in cash and expect to add 30 - 40 additional employees in connection with the acquisition. We will provide further details on this acquisition in our conference call scheduled today."

The Company also announced that in light of the Company's strong cash position and its focus on shareholder value, 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. In the third quarter of 2004 the Company repurchased 1,488,000 shares of its common stock at an average price of $ 20.10 per share, representing an aggregate repurchase of approximately $29.9 million worth of company shares. As of September 30, 2004, approximately 1.3 million shares remained available for repurchase from previous Board authorizations. Accordingly, the total number of shares currently authorized for repurchase following the recent Board authorization is approximately 3.8 million shares.

About DSP Group

DSP Group, Inc. is a fabless semiconductor company, offering advanced 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 http://www.dspg.com/.

Earnings conference call

DSP Group has scheduled a conference call for 8:30 a.m. EDT today to discuss the financial results for the third 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 http://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: 21339699)

-- International Dial-In # +1-617-801-6888 (passcode: 21339699)

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 about the European market representing meaningful growth opportunities for DSP Group in the years to come. 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 of DSP Group's new products to achieve broad market acceptance, especially in the European markets; DSP Group's inability to develop and produce new products at competitive costs and in a timely manner; declines or fluctuations in gross margins as a result of entry into new markets; and general market demand for products that incorporate DSP Group's technology. These and other factors which may affect future operating results and 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 (http://www.dspg.com/) under Investor Relations.

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

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


                                 Three Months Ended     Nine Months Ended
                                     September 30,         September 30,
                                   2004      2003         2004      2003

  Product revenues
   and other                     $46,232   $47,178    $128,956   $114,739
  Cost of product
   revenues and other             23,401    25,643      66,177     63,626

  Gross profit                    22,831    21,535      62,779     51,113

  Operating expenses:
    Research and development       8,463     6,704      23,327     17,402
    Sales and marketing            2,929     3,429       9,014      8,616
    General and
     administrative                1,718     1,899       5,258      5,006
    Impairment of goodwill            --        --       4,304         --
    In-process research
     and development
      write-off                       --        --          --      2,727

  Total operating
   expenses                       13,110    12,032      41,903     33,751
  Operating income                 9,721     9,503      20,876     17,362
  Other income:
   Interest and
    other income, net              2,069     2,112       6,353      5,945
   Capital gains                  15,460        --      44,448        241

  Income before
   provision for income
   taxes                          27,250    11,615      71,677     23,548
  Provision for
   income taxes                    6,870     1,975      21,812      4,154
  Net income                    $ 20,380    $9,640     $49,865    $19,394


  Net earnings per share:
    Basic                          $0.72     $0.34       $1.73      $0.70
    Diluted                        $0.69     $0.32       $1.64      $0.66

  Weighted average number
   of shares of Common
   Stock used in
   the computation of:
    Basic                         28,411    28,168      28,779     27,677
    Diluted                       29,358    30,142      30,337     29,343



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

                                   Three Months Ended  Nine Months Ended
                                       September 30,      September 30,
                                     2004     2003      2004      2003

  Product revenues and other       $46,232  $47,178  $128,956   $114,739
  Cost of product revenues
   and other                        23,401   25,643    66,177     63,626
  Gross profit                      22,831   21,535    62,779     51,113
  Operating expenses:
    Research and development         8,463    6,704    23,327     17,402
    Sales and marketing              2,929    3,429     9,014      8,616
    General and administrative       1,718    1,899     5,258      5,006

    Total operating expenses        13,110   12,032    37,599     31,024

  Operating income                   9,721    9,503    25,180     20,089
  Other income:
    Interest and other
     income, net                     2,069    2,112     6,353      5,945

  Income before provision
   for income taxes                 11,790   11,615    31,533     26,034
  Provision for income taxes         2,005    1,975     5,362      4,426

  Net income                        $9,785   $9,640   $26,171    $21,608
  Net earnings per share:
    Basic                            $0.34    $0.34     $0.91      $0.78
    Diluted                          $0.33    $0.32     $0.86      $0.74

  Weighted average number of
   shares of Common Stock
   used in the computation of:
    Basic                           28,411   28,168    28,779     27,677
    Diluted                         29,358   30,142    30,337     29,343

  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                     $20,380   $9,640    $49,865   $19,394
  Adjustments:
    Impairment of goodwill              --       --      4,304        --

  In-process research &
   development write-off                --       --         --     2,727

    Capital gains                  (15,460)      --    (44,448)     (241)
  Tax expenses (benefit)             4,865       --     16,450      (272)

  Pro forma net
   income                           $9,785   $9,640    $26,171   $21,608




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

                                                 September 30,  December 31,
                                                     2004           2003
  Assets                                          (Unaudited)     (Audited)

  Current assets:
    Cash and cash equivalents                      $91,272        $36,812
    Marketable securities and cash deposits         52,252         42,490

    Trade receivables, net                          16,151         15,844
    Inventories                                      8,549          8,466
    Other accounts receivable                        1,440          1,462
    Deferred income taxes                            1,326          1,326

  Total current assets                             170,990        106,400
  Property and equipment, net                        6,556          7,108
  Long term marketable securities                  193,540        197,071

  Investment in equity securities
   of traded companies                                  --         47,138
  Severance pay fund                                 3,019          2,360
  Long term pre-paid expenses and lease deposits       583            513
  Goodwill                                           1,500          5,804
  Deferred income taxes                                641             --
  Other intangible assets                            1,616          2,076

  Total assets                                    $378,445       $368,470
  Liabilities and Stockholders' Equity
  Current liabilities:
    Trade payable                                  $13,937        $11,221
    Other current liabilities                       46,501         34,292

  Total current liabilities                         60,438         45,513
  Long term liabilities:
    Accrued severance pay                            3,353          2,555
    Long term liability                                 --          1,429
    Deferred income taxes                               --         14,592

  Total long term liabilities                        3,353         18,576

  Stockholders' equity:
    Common Stock                                        28             29
    Additional paid-in capital                     186,906        174,700
    Accumulated other comprehensive income              70         23,045
    Retained earnings                              156,968        107,799
  Less - Cost of treasury stock                    (29,318)        (1,192)
  Total stockholders' equity                       314,654        304,381

  Total liabilities and stockholders' equity      $378,445       $368,470

SOURCE DSP Group, Inc.

Yaniv Arieli, President of US Operations, Investor Relations for DSP Group Inc., +1-408-986-4423, oryarieli@dspg.com

http://www.dspg.com/