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DSP Group Reports Record Fourth Quarter Revenues of $31 Million and EPS of $0.31-- Revenues for the Year 2000 Increased by 43% and EPS for the Year 2000 Increased by 55%
DSP Group, Inc.


DSP GROUP, INC. REPORTS

RECORD FOURTH QUARTER REVENUES of $31 MILLION and EPS of $0.31
Revenues for the Year 2000 Increased By 43%
EPS for the Year 2000 Increased By 55%

SANTA CLARA, Calif., Jan. 22, 2001 -- DSP Group, Inc. (NASDAQ: DSPG) today announced results for the fourth quarter and year ended December 31, 2000.

Fourth Quarter Results:

The Company announced fourth quarter 2000 revenues of $31,425,000, an increase of 21% over revenues of $25,973,000 for the fourth quarter of 1999. Net income for the fourth quarter of 2000 was $8,743,000 an increase of 27% over net income, excluding capital gains, of $6,867,000 for the same period in 1999. Net income for the fourth quarter of 1999, including capital gains, was $33,918,000. Diluted earnings per share (EPS) for the fourth quarter of 2000 rose 24% to $0.31, compared with $0.25, excluding capital gains, for the fourth quarter of 1999. EPS for the fourth quarter of 1999, including capital gains, was $1.23.

Year-end Results:

Revenues for the year ended December 31, 2000, were $109,513,000 an increase of 43% compared with $76,433,000 for 1999. Net income for the year 2000 was $49,835,000 compared with $54,579,000 for 1999. Net income for the year 2000, excluding capital gains and unusual expense items, was $29,798,000 an increase of 76% compared with $16,948,000 for the year 1999. Diluted EPS for the year 2000 was $1.74, compared with $2.15 for the year 1999. Diluted EPS, excluding capital gains and unusual expense items, was $1.04 for the year 2000, an increase of 55% compared with $0.67 for the year 1999.

Results for the year 2000, the year 1999 and the fourth quarter of 1999 include capital gains of $57,593,000 $58,931,000 and $47,151,000 respectively, resulting from the sale of shares of DSP Group's affiliate, Audiocodes Ltd., during these periods. These capital gains are included under "Other Income (expense)" in the Company's statements of income. DSP Group still holds approximately 4.45 million of Audiocode's shares, representing approximately 11% of the outstanding shares.

Results for the year 2000 include two unusual expense items totaling $14,154,000. The Company wrote off $11,869,000 related to the acquired in-process research and development in connection with the acquisition of approximately 73% of the outstanding shares of VoicePump, Inc. In addition, a one-time expense of $2,225,000 reflected the accelerated amortization of acquired assets and intangibles in connection with the Company's acquisition from Applied Micro Devices, Inc., of RF and baseband technologies.

The Company also announced that in the fourth quarter of 2000, it repurchased 850,000 shares of its common stock for $20,512,000 at an average price of $24.13 per share.

Eli Ayalon, Chairman and CEO of DSP Group, stated, "The past year has seen remarkable achievements for the Company. Our revenues for the year 2000 increased by 43%, while net income and EPS (excluding capital gains and one-time events) rose 76% and 55%, respectively, compared to 1999."

"We are proud of these record results, especially in light of our accelerated research and development activities, as is evidenced by the 36% increase in research and development expenses, compared to 1999. The extended research and development activities and the acquisition of VoicePump Inc., will nurture DSP Group's growth in the year's to come."

Mr. Ayalon continued, "The demand for our DSP Core technology has experienced ongoing growth. Ten new licensing deals for our various cores were signed in the year 2000. During the last quarter, we signed three new licensees, Mobilink Telecom, Inc. (TeakLite® DSPCore), Oki Electronics Industry Co., Ltd. (Teak® DSPCore, a second license, following a previous license of the TeakLite® DSPCore), and a license of the TeakLite® DSPCore by a U.S. - based company."

He concluded, "During the year 2000, we increased our cash and marketable securities position by $62 million to $223 million. We are continuing to explore opportunities to use these funds to accelerate the Company's growth."

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 ideal 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 concerning the effect of the Company's increase in research and development expenses and its acquisition of VoicePump, Inc., 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 OEM customers and potential customers; the Company's ability to integrate the operations of VoicePump and to develop and produce its new products at competitive costs.

Additional information is available on the World Wide Web at www.dspg.com. This press release is also available through the Company's News on Call fax service, which can be reached at (800) 758-5804, company code 112025.

This release and prior releases are available on the KCSA Public Relations Worldwide Web site at www.kcsa.com.


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,
  2000 1999 2000 1999

Revenues:

       

Product sales

$ 23,915 $ 19,923 $ 84,384 $ 57,397

Licensing, royalties and other

7,510 6,050 25,129 19,036
  _ _ _ _ _ _ _ _ _ _ _ _

Total revenues

31,425 25,973 109,513 76,433
         

Cost of revenues:

       

Product sales

13,036 11,506 47,861 33,051

Licensing, royalties and other

222 49 1,047 155
  _ _ _ _ _ _ _ _ _ _ _ _

Total cost of revenues

13,258 11,555 48,908 33,206
  _ _ _ _ _ _ _ _ _ _ _ _

Gross profit

18,167 14,418 60,605 43,227
         

Operating expenses:

       

Research and development

5,877 4,402 20,912 15,404

Sales and marketing

3,811 2,801 12,909 9,309

General and administrative

1,868 1,698 6,515 5,511

Unusual items

---
---
14,154
---
  _ _ _ _ _ _ _ _ _ _ _ _

Total operating expenses

11,556 8,901 54,490 30,224
  _ _ _ _ _ _ _ _ _ _ _ _

Operating income

6,611 5,517 6,115 13,003

Other income (expense):

       

Interest and other income

3,696 2,254 13,507 6,048

Interest expense and other

(69) (70) (186) (232)

Equity in gain of unconsolidated subsidiaries


780

789

2,644
2,475

Minority interest in loss of subsidiary

274 --- 527 ---

Capital gains from realization of Investments

  ---   47,151   57,593   58,931
  _ _ _ _ _ _ _ _ _ _ _ _

Income before provision for income taxes

11,292 55,641 80,200 80,225

Provision for income taxes

2,549 21,723 30,365 25,646
  _ _ _ _ _ _ _ _ _ _ _ _

Net income

$ 8,743 $ 33,918 $ 49,835 $ 54,579

Net earnings per share:

       

Basic

$ 0.33 $ 1.35 $ 1.87 $ 2.33
Diluted $ 0.31 $ 1.23 $ 1.74 $ 2.15

Shares used in per share computations:

       

Basic

26,688 25,086 26,616 23,468
Diluted 27,974 27,606 28,669 25,442



DSP GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands)

  December 31, December 31,
  2000 1999

Assets

   

Current Assets:

   

Cash, cash equivalents, marketable securities and cash deposits


$ 223,201

$ 161,371

Trade receivable, net

16,932 10,435

Inventories

2,815 3,283

Deferred income taxes

4,554 1,707

Other accounts receivable and

prepaid expenses

  1,445   1,362
  _ _ _ _ _ _

Total current assets

248,947 178,158
     

Property and equipment, net

6,451 6,948

Other investments, net of accumulated amortization


21,000

18,433

Other assets, net of accumulated

Amortization


4,259

1,250

Severance pay fund

2,150 1,390
  _ _ _ _ _ _

Total Assets

$ 282,807 $ 206,179
 
Liabilities and Stockholders' Equity
 

Current liabilities:

   

Trade payable

$ 8,092 $ 6,079

Other current liabilities

19,934 8,332
  _ _ _ _ _ _

Total current liabilities


28,026

14,411
 

Long term liabilities:

 

 

Accrued severance pay

2,147 1,431

Deferred income taxes

5,559 6,380

Minority interest

910 _ _ _
     

Stockholders' equity:

   

Common stock

27 12

Additional paid-in capital

151,787 119,163

Retained earnings

114,291 64,782

Less Cost of treasury stock

(19,940) _ _ _

 

_ _ _ _ _ _

Total stockholders' equity

246,165 183,957
  _ _ _ _ _ _

Total liabilities and

stockholders' equity

  $ 282,807   $ 206,179