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DSP Group, Inc. Reports Second Quarter 2007 Earnings

SANTA CLARA, Calif., July 23 /PRNewswire-FirstCall/ -- DSP Group, Inc. (Nasdaq: DSPG), a worldwide leader in developing and providing chip-set solutions for residential wireless connectivity, announced today its results for the second quarter ended June 30, 2007.

Second Quarter Results:

Revenues for the second quarter of 2007 were $52,436,000, a decrease of 14% from revenues of $60,737,000 for the second quarter of 2006. Net income for the second quarter was $2,964,000, a decrease of 58% from net income of $7,088,000 for the second quarter of 2006. Diluted earnings per share (EPS) for the second quarter of 2007 were $0.10, a decrease of 57% from $0.23 for the second quarter of 2006. Pro forma net income for the second quarter of 2007, which excludes equity-based compensation expenses of $3,707,000 and an anticipated loss of $996,000 related to certain marketable securities, as well as the tax benefit associated with such expenses and anticipated loss, was $7,170,000 or $0.25 per share on a diluted basis.

Eli Ayalon, Chairman and CEO of DSP Group, stated: "As a result of increased price sensitivity in the US market, we are seeing an increase of sales of analog systems on account of digital systems. This trend may continue until the introduction of our next wave of multimedia products in 2008 and as a result of these market conditions, we expect the US market to remain challenging. On the other hand, despite this challenging environment, sales of DECT (including DECT 6.0) are expected to ramp up according to plan, and our R&D efforts to improve the cost effectiveness of our products enabled us to return to a gross margin level of 41%."

Mr. Ayalon added: "During the quarter, we announced the acquisition of NXP's Cordless and VoIP Terminal Business, and currently expect to close the transaction in the third quarter. We are enthusiastic about the fit of the NXP business with our line of business and believe it will put DSP Group firmly in a leadership position in terms of scale and technology in the growing VoIP and DECT markets."

Dror Levy, CFO of DSP Group, stated: "Our operating cash flow during the quarter generated $7.5 million, demonstrating the continued strength of our business. During the quarter we repurchased 421,000 shares of our common stock for a total consideration of $7.7 million as part of our repurchase program. Our cash and marketable securities at the end of the quarter were $353.7 million."

About DSP Group

DSP Group, Inc. is a fabless semiconductor company, offering advanced chip-set solutions for a variety of applications. DSP Group is a worldwide leader in the short-range wireless communication market, enabling home networking convergence for voice, video and data. By combining its in-house technologies of Digital Signal Processors (DSPs), portfolio of wireless communication protocols, including DECT, Bluetooth and Wi-Fi, most advanced Radio Frequency CMOS and SiGe, as well as VoIP ICs, DSP Group is a worldwide 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, Bluetooth systems for voice, video and data communication and deployment in residential, SOHO, SME, enterprise and automotive applications. DSP Group's ICs provide solutions for MP3 players, VoIP Phones, Gateways, and Integrated Access Devices and are widely used in Digital Voice Recorders. More information about DSP Group is available at http://www.dspg.com.

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 ramp up of sales of DECT products and the timetable for and optimism about the acquisition of NXP's Cordless and VoIP Terminal Business. 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 slower than expected change in the nature of the residential communications domain, unexpected delays in the introduction of new products, especially DECT products; failure to achieve broad market acceptance of existing and new products by existing and potential OEM customers; DSP Group's inability to add new customers and develop and produce new products at competitive costs and in a timely manner; decline or fluctuations in gross margins and the effect on revenues and profitability; and general market demand for products that incorporate DSP Group's technology in the market. These factors and other factors which may affect future operating results or DSP Group's stock price are discussed under "RISK FACTORS" in the Form 10-K for fiscal 2006 as well as other reports 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.

Earnings conference call

DSP Group has scheduled a conference call for 8:30 a.m. EDT today to discuss the financial results for the second quarter of 2007 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 # 1-888-286-8010 (passcode: 81662116)

-- International Dial-In # 1-617-801-6888 (passcode: 81662116)


    For more information, please contact Ofer Elyakim, Vice President of
Business Development, DSP Group Inc. at (408) 986-4421; or e-mail:
ofere@dsp.co.il.


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

                                  Three Months Ended      Six Months Ended
                                       June 30,               June 30,
                                    2007      2006         2007       2006
                               (Unaudited) (Unaudited) (Unaudited) (Unaudited)

    Product revenues and other    $ 52,436  $ 60,737   $ 101,723  $ 112,689
    Cost of product revenues and
     other                          31,233    35,632      61,233     65,987

    Gross profit                    21,203    25,105      40,490     46,702
    Operating expenses:
    Research and development        12,465    12,409      25,221     23,310
    Sales and marketing              4,110     4,070       8,307      7,876
    General and administrative       3,328     2,895       6,925      5,695

    Total operating expenses        19,903    19,374      40,453     36,881

    Operating income                 1,300     5,731          37      9,821
    Other income :
    Interest and other income, net   2,927     3,351       6,579      6,460

    Income before provision for
     income taxes                    4,227     9,082       6,616     16,281
    Provision for income taxes       1,263     1,994       2,288      3,555

    Net income                     $ 2,964   $ 7,088     $ 4,328   $ 12,726

    Net earnings per share:
     Basic                          $ 0.10    $ 0.24      $ 0.15     $ 0.43
     Diluted                        $ 0.10    $ 0.23      $ 0.15     $ 0.41

    Weighted average number of
     shares of Common stock used
     in the computation of:
     Basic                          28,257    29,871      28,356     29,674
     Diluted                        28,469    30,632      28,580     30,708


    Unaudited Reconciliation of GAAP to Pro Forma Non-GAAP Financial Measures
                     (In thousands, except per share amounts)

                                         Three Months Ended   Six Months Ended
                                               June 30,          June 30,
                                           2007    2006       2007      2006
                                       Unaudited Unaudited Unaudited Unaudited

    GAAP net income                      $ 2,964  $ 7,088  $ 4,328  $ 12,726
    Equity-based compensation expense
     included in cost of product revenues
     and  other                              166      130      332       208
    Equity-based compensation expense
     included in R&D                       1,929    1,703    4,017     2,925
    Equity-based compensation expense
     included in SG&A                      1,612    1,525    3,512     2,718
    Loss related to certain marketable
     securities                              996       --      996        --
    Tax benefit resulting from
     equity-based compensation and from
     loss related to certain marketable
     securities                             (497)    (121)    (682)     (208)
    Pro Forma net income                 $ 7,170 $ 10,325 $ 12,503  $ 18,369

    Pro Forma diluted earnings per share  $ 0.25   $ 0.34   $ 0.44    $ 0.60


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

                                                       June 30,   December 31,
                                                         2007         2006
                                                      (Unaudited)   (Audited)
    Assets
    Current assets:
     Cash and cash equivalents                           $ 60,365   $ 37,344
     Marketable securities and cash deposits              212,662    132,170
     Trade receivables, net                                30,560     21,489
     Inventories                                           10,908     14,366
     Other accounts receivable                              5,127      4,049
     Deferred income taxes                                  2,520      1,516

    Total current assets                                  322,142    210,934
    Property and equipment, net                            12,831     12,644

    Long term marketable securities                        80,634    179,368
    Severance pay fund                                      5,894      5,689
    Deferred income taxes                                   2,977      1,987
    Other assets                                            2,897      3,366

    Total assets
                                                        $ 427,375  $ 413,988
    Liabilities and Stockholders' Equity
    Current liabilities:
     Accounts payable                                    $ 18,828   $ 12,205
     Other current liabilities                             30,859     28,969

    Total current liabilities                              49,687     41,174

     Accrued severance pay                                  6,198      6,065


    Stockholders' equity:
     Common stock                                              28         28
     Additional paid-in capital                           223,902    216,041
     Accumulated other comprehensive income (loss)         (1,533)        28
     Retained earnings                                    196,637    195,198
    Less - Cost of treasury stock                         (47,544)   (44,546)
    Total stockholders' equity                            371,490    366,749

    Total liabilities and stockholders' equity          $ 427,375  $ 413,988

SOURCE DSP Group, Inc.
07/23/2007
CONTACT: Ofer Elyakim, Vice President of Business Development of DSP
Group Inc., +1-408-986-4421, ofere@dsp.co.il
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Web site: http://www.dspg.com