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DSP Group, Inc. Reports Fourth Quarter 2007 Earnings

SAN JOSE, Calif., Jan. 30 /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 fourth quarter ended December 31, 2007.

Fourth Quarter Results:

Revenues for the fourth quarter of 2007 were $85,198,000, an increase of 111% from revenues of $40,383,000 for the fourth quarter of 2006. Net loss for the fourth quarter was $1,586,000 as compared to net income of $1,600,000 for the fourth quarter of 2006. Earnings per share (EPS) for the fourth quarter of 2007 were a loss of $0.05 per share, as compared to earnings of $0.06 per share for the fourth quarter of 2006.

Year End Results:

Revenues for the year ended December 31, 2007 were $ 248,788,000, an increase of 15% over 2006 revenues of $ 216,948,000. Net loss for 2007 was $4,753,000 compares to net income of $22,379,000 for 2006. Diluted EPS for 2007 was a loss of $0.16 per share, compared to income of $0.74 per share in 2006.

Non-GAAP Results:

Non-GAAP net income and diluted EPS for the fourth quarter of 2007, excluding the impact of amortization of acquired intangible assets of $8,244,000, associated with the acquisition of the Cordless and VoIP Terminals business of NXP B.V.; equity-based compensation expenses of $3,281,000; and the tax benefits associated with such expenses, were $9,111,000 and $0.29 per share on a diluted basis, representing an increase of 92% from the non-GAAP net income of $4,740,000 and an increase of 81% from non-GAAP diluted EPS of $0.16 per share for the fourth quarter of 2006.

Pro forma net income and diluted EPS for the year ended December 31, 2007, excluding the impact of an in-process R&D expense of $10,120,000, amortization of acquired intangible assets of $11,948,000, equity-based compensation expenses of $ 14,022,000; and the tax benefits associated with such expenses, were $29,230,000 and $0.99, respectively, representing a decrease of 14% and 12%, respectively, from the year ended December 31, 2006.

Share Buyback:

During the fourth quarter of 2007, DSP Group repurchased 1,196,665 shares of its Common Stock at an average price of $15.02 per share, for an aggregate price of approximately $18 million.

For the full year ended December 31, 2007, DSP Group repurchased 1,617,844 shares of its Common Stock at an average price of $15.88 per share, for an aggregate price of approximately $26 million.

The Company 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 2.9 million shares of the Company's common stock in open-market and privately negotiated transactions.

After giving effect to the most recent repurchases and the additional share repurchase authorization, approximately 5.0 million shares of the Company's Common Stock remain authorized for repurchase under the current repurchase program approved by the Company's Board of Directors.

DSP Group may enter into a plan that is compliant with Rule 10b5-1 of the United States Securities Exchange Act of 1934 that is designed to facilitate these purchases. Under the repurchase program, share purchases may be made from time to time depending on market conditions, share price, trading volume and other factors, and such purchases will be made in accordance with the requirements of the Securities and Exchange Commission.

Eli Ayalon, Chairman and CEO of DSP Group, stated: "During the fourth quarter, we demonstrated the positive financial impact the acquisition had on our financial results, our revenues more than doubled as compared to the fourth quarter of 2006, and we significantly improved our non-GAAP operating margins in the fourth quarter to 10.5%."

The Company believes that the non-GAAP presentation of net income and diluted EPS presented in this press release is useful to investors in comparing results for the quarter ended December 31, 2007 to the same period during 2006, because results for the fourth quarter of 2006 did not include the amortization of acquired intangibles and other acquisition-related assets and the in-process R&D expense. Further, the Company believes it is useful to investors to understand how the expenses associated with equity-based compensations expenses are reflected on its statements of income.

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.

Earnings conference call

DSP Group has scheduled a conference call for 8:30 a.m. EDT today to discuss the financial results for the fourth 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: 76314490)
    -- International Dial-In # 1-617-801-6888 (passcode: 76314490)


    For more information, please contact Ofer Elyakim, Vice President of
Business Development, DSP Group Inc. at (408) 240-6839; or e-mail:
ofere@dsp.co.il.



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

                              Three Months Ended        Twelve Months Ended
                                 December 31,              December 31,
                              2007         2006         2007         2006
                          (Unaudited)  (Unaudited)  (Unaudited)    (Audited)

    Product revenues and
     other                $ 85,198      $ 40,383    $ 248,788    $ 216,948
    Cost of product
     revenues and other     49,641       24,883      148,075       128,559

    Gross profit            35,557       15,500      100,713       88,389
    Operating expenses:
      Research and
       development          19,394       11,972       58,488       47,525
      Sales and marketing    6,073        4,074       19,060       16,306
      General and
       administrative        4,418        2,671       14,614       11,137
      In-process R&D             -            -       10,120            -
      Amortization of
       intangible assets     8,275            -       11,332            -

      Total operating
       expenses             38,160       18,717      113,614       74,968

    Operating income (loss) (2,603)      (3,217)     (12,901)      13,421
    Other income :
      Interest and other
       income, net           1,394        3,366       10,541       13,198

    Income (loss) before
     provision for income
     taxes                  (1,209)         149       (2,360)      26,619
    Provision for income
     taxes (benefit)           377       (1,451)       2,393        4,240

    Net income (loss)     $ (1,586)     $ 1,600     $ (4,753)    $ 22,379

    Net earnings (loss)
     per share:
      Basic                $ (0.05)      $ 0.06      $ (0.16)      $ 0.76
      Diluted              $ (0.05)      $ 0.06      $ (0.16)      $ 0.74

    Weighted average
     number of shares
     of Common stock used
     in the computation
     of:
      Basic                 31,832       28,746       29,495       29,343
      Diluted               31,876       29,031       29,646       30,049



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

                              Three Months Ended       Twelve Months Ended
                                 December 31,              December 31,
                              2007         2006         2007         2006
                          (Unaudited)  (Unaudited)  (Unaudited)    (Audited)

    Product revenues
     and other            $ 85,198      $ 40,383    $ 248,788    $ 216,948
    Cost of product
     revenues and other     49,484        24,756      146,796      128,098

    Gross profit            35,714       15,627      101,992       88,850
    Operating expenses:
      Research and
       development          17,718       10,197       51,345       41,172
      Sales and marketing    5,673        3,720       17,444       14,987
      General and
       administrative        3,401        1,631       10,014        7,146

      Total operating
       expenses             26,792       15,548       78,803       63,305

    Operating income         8,922           79       23,189       25,545
    Other income:
      Interest and other
       income, net           1,394        3,366       11,538       13,198

    Income before provision
     for income taxes       10,316        3,445       34,727       38,743
    Provision for income
     taxes (benefit)         1,205       (1,295)       5,497        4,730

    Net income             $ 9,111      $ 4,740     $ 29,230     $ 34,013

    Net earnings per share:
      Basic                 $ 0.29       $ 0.16       $ 0.99       $ 1.16
      Diluted               $ 0.29       $ 0.16       $ 0.99       $ 1.13

    Weighted average
     number of shares
     of Common stock used
     in the computation of:
      Basic                 31,832       28,746       29,495       29,343
      Diluted               31,876       29,031       29,646       30,049



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

                              Three Months Ended        Twelve Months Ended
                                  December 31,              December 31,
                               2007         2006         2007         2006
                           (Unaudited)  (Unaudited)  (Unaudited)    (Audited)

    GAAP net (loss)
     income               $ (1,586)      $ 1,600    $ (4,753)    $ 22,379
    Equity-based
     compensation expense
     Included in cost of
     product revenues          188          127          663          461
    Amortization of
     adjustment of
     inventories to market
     values Included in
     cost of product
     revenues                  (31)           -          616            -
    Equity-based compensation
     expense Included in
     R&D                     1,676        1,775        7,143        6,353
    Equity-based compensation
     expense Included in
     SG&A                    1,417        1,394        6,216        5,310
    Loss related to certain
     marketable securities       -            -          996            -
    In-process R&D               -            -       10,120            -
    Amortization of
     intangible assets
     related to NXP
     transaction             8,275            -       11,332            -
    Tax benefit resulting
     from equity-based
     compensation, loss
     related to certain
     marketable securities,
     in-process R&D and
     amortization of
     intangibles and
     other acquisition
     -related assets          (828)        (156)      (3,103)        (490)
    Non-GAAP net income    $ 9,111      $ 4,740     $ 29,230     $ 34,013

    Non-GAAP basic
     earnings per share     $ 0.29       $ 0.16       $ 0.99       $ 1.16
    Non-GAAP diluted
     earnings per share     $ 0.29       $ 0.16       $ 0.99       $ 1.13



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

                                                December 31,   December 31,
                                                    2007           2006
                                                (Unaudited)      (Audited)
    Assets
    Current assets:
      Cash and cash equivalents                     $ 69,586       $ 37,344
      Marketable securities and cash deposits         63,682        132,170
      Trade receivables, net                          51,636         21,489
      Inventories                                     16,361         14,366
      Other accounts receivable                        7,582          4,049
      Deferred income taxes                            4,011          1,516

    Total current assets                             212,858        210,934

    Property and equipment, net                       14,270         12,644

    Long term marketable securities                   34,469        179,368
    Severance pay fund                                 6,883          5,689
    Deferred income taxes                              5,109          1,987
    Goodwill and other intangible assets             237,969          2,694
    Other assets                                         694            672

    Total assets                                   $ 512,252      $ 413,988

    Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                              $ 30,428       $ 12,205
      Other current liabilities                       47,906         28,969

    Total current liabilities                         78,334         41,174

      Accrued severance pay                            7,303          6,065
      Accrued pensions                                 1,758              -

    Stockholders' equity:
      Common stock                                        31             28
      Additional paid-in capital                     300,542        216,041
      Accumulated other comprehensive income (loss)    1,025             28
      Retained earnings                              187,063        195,198
    Less - Cost of treasury stock                    (63,804)       (44,546)
    Total stockholders' equity                       424,857        366,749

    Total liabilities and stockholders' equity     $ 512,252      $ 413,988

SOURCE DSP Group, Inc.
01/30/2008
CONTACT: Ofer Elyakim, Vice President of Business Development of DSP
Group Inc., +1-408-240-6839, ofere@dsp.co.il
Web site: http://www.dspg.com