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DSP Group, Inc. Reports Second Quarter 2008 Earnings

SAN JOSE, Calif., July 24 /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, 2008.

Second Quarter Results:

Revenues for the second quarter of 2008 were $74,152,000, an increase of 41% from revenues of $52,436,000 for the second quarter of 2007. Net loss for the second quarter of 2008 was $7,355,000 as compared to net income of $2,964,000 for the second quarter of 2007. Diluted earnings per share (EPS) for the second quarter of 2008 were a loss of $0.26 as compared to earnings of $0.10 for the second quarter of 2007.

Non-GAAP Results:

Non-GAAP net income and diluted EPS for the second quarter of 2008 were $1,019,000 and $0.04 per share, respectively; a decrease of 86% from the non-GAAP net income of $7,171,000 and a decrease of 84% from non-GAAP diluted EPS of $0.25 per share for the second quarter of 2007. Non-GAAP net income and diluted EPS for the second quarter of 2008 excluded the impact of amortization of acquired intangible assets of $5,716,000 associated with the acquisition of the Cordless and VoIP Terminals business of NXP B.V.; equity-based compensation expenses of $3,585,000; and the aggregate tax benefits associated with such expenses of $927,000. Non-GAAP net income and diluted EPS for the second quarter of 2007 excluded equity-based compensation expenses of $3,708,000, a loss related to certain marketable securities of $996,000 and aggregate tax benefits associated with such expenses of $497,000.

Eli Ayalon, Chairman and CEO of DSP Group, stated: "Having achieved our financial objectives for the second quarter 2008, the company continues to focus and invest significant resources on its R&D effort to deliver a new generation of products that we believe will ensure our future growth and profitability."

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 R&D investments in a new generation of products that DSP Group believes will ensure its future growth and profitability. 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 greater or lesser than anticipated decrease in sales of DSP Group's 5.8GHz products or growth in sales of DSP Group's DECT 6.0 products; slower than expected change in the nature of the residential communications domain; unexpected delays in the introduction of new products or failure of such products to achieve broad market acceptance; DSP Group's inability develop and produce new products at competitive costs; 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 2007 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 2008 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: 63682958)

-- International Dial-In # 1-617-801-6888 (passcode: 63682958)

For more information, please contact Ofer Elyakim, DSP Group Inc. at +852-9017-5426; or e-mail: ofere@dsp.co.il.

    (Logo:  http://www.newscom.com/cgi-bin/prnh/20020715/SFM118LOGO)



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

                                   Three Months Ended     Six Months Ended
                                        June 30,               June 30,
                                    2008        2007       2008        2007
                                (Unaudited) (Unaudited)(Unaudited) (Unaudited)

    Product revenues and
     other                        $74,152     $52,436   $146,881    $101,723
    Cost of product revenues and
     other                         48,183      31,233     93,959      61,233

    Gross profit                   25,969      21,203     52,922      40,490
    Operating expenses:
      Research and development     18,890      12,465     38,916      25,221
      Sales and marketing           5,621       4,110     11,642       8,307
      General and
       administrative               4,547       3,328      8,798       6,925
      Amortization of intangible
       assets                       5,716           -     11,498           -

      Total operating expenses     34,774      19,903     70,854      40,453

    Operating income/(loss)        (8,805)      1,300    (17,932)         37
    Other income :
      Interest and other
       income, net                    898       2,927      2,132       6,579

    Income/(loss) before
     provision for income taxes    (7,907)      4,227    (15,800)      6,616
    Provision for income taxes/
     (income tax benefit)            (552)      1,263       (838)      2,288

    Net income/(loss)             ($7,355)     $2,964   ($14,962)     $4,328

    Net earnings (loss) per
     share:
        Basic                      ($0.26)      $0.10     ($0.51)      $0.15
        Diluted                    ($0.26)      $0.10     ($0.51)      $0.15

    Weighted average number
     of shares of Common stock
     used in the computation of:
        Basic                      28,352      28,257     29,463      28,356
        Diluted                    28,352      28,469     29,463      28,580



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

                                 Three Months Ended       Six Months Ended
                                       June 30,                June 30,
                                  2008        2007        2008         2007
                              (Unaudited) (Unaudited) (Unaudited)  (Unaudited)

    Product revenues and
     other                       $74,152    $52,436    $146,881     $101,723
    Cost of product revenues
     and other                    47,936     31,066      93,455       60,900

    Gross profit                  26,216     21,370      53,426       40,823
    Operating expenses:
      Research and development    16,998     10,536      34,933       21,205
      Sales and marketing          5,192      3,663      10,706        7,420
      General and
       administrative              3,530      2,163       6,676        4,299

      Total operating expenses    25,720     16,362      52,315       32,924

    Operating income                 496      5,008       1,111        7,899
    Other income :
      Interest and other
       income, net                   898      3,923       2,132        7,575

    Income before provision for
     income taxes                  1,394      8,931       3,243       15,474
    Provision for income taxes       375      1,760         784        2,970

    Net income                    $1,019     $7,171      $2,459      $12,504

    Net earnings per share:
        Basic                      $0.04      $0.25       $0.08        $0.44
        Diluted                    $0.04      $0.25       $0.08        $0.44

    Weighted average number
     of shares of Common stock
     used in the computation of:
        Basic                     28,352     28,257      29,463       28,356
        Diluted                   28,373     28,469      29,565       28,580



  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,
                                    2008        2007       2008        2007
                                 Unaudited   Unaudited  Unaudited   Unaudited
    GAAP net income (loss)        ($7,355)     $2,964   ($14,962)      $4,328
    Equity-based compensation
     expense included in cost of
     product revenues and other       247         167        504          333
    Equity-based compensation
     expense included in R&D        1,892       1,929      3,983        4,016
    Equity-based compensation
     expense included in SG&A       1,446       1,612      3,058        3,513
    Amortization of intangible
     assets related to NXP
     transaction                    5,716           -     11,498            -
    Loss related to certain
     marketable securities              -         996          -          996
    Tax benefit resulting from
     equity-based compensation,
     amortization of intangible
     assets and from loss related
     to certain marketable
     securities                      (927)       (497)    (1,622)        (682)
    Pro Forma net income           $1,019      $7,171     $2,459      $12,504
    Pro Forma diluted earnings
     per share                      $0.04       $0.25      $0.08        $0.44



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

                                                  June 30,        December 31,
                                                    2008              2007
                                                 (Unaudited)        (Audited)
    Assets
    Current assets:
      Cash and cash equivalents                    $56,645           $69,586
      Restricted deposits                              115                 -
      Marketable securities and cash deposits       16,239            63,682
      Trade receivables, net                        46,575            51,636
      Inventories                                   19,514            16,361
      Other accounts receivable                     13,064             8,173
      Deferred income taxes                          2,014             4,011
    Total current assets                           154,166           213,449

    Property and equipment, net                     17,090            14,270

    Long term marketable securities                 48,929            34,469
    Severance pay fund                               8,031             6,883
    Deferred income taxes                            6,548             5,109
    Goodwill and other intangible assets           227,354           237,969
    Other assets                                     1,814               694
    Total assets                                  $463,932          $512,843

    Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                             $33,356           $29,064
      Other current liabilities                     39,088            48,125
    Total current liabilities                       72,444            77,189

     Accrued severance pay                           8,249             7,303
     Accrued pensions                                1,917             1,758
     Deferred tax liability                            871               372
     Other long term liabilities                       455             1,364

    Total long term liabilities                     11,492            10,797

    Stockholders' equity:
     Common stock                                       28                31
     Additional paid-in capital                    308,090           300,542
     Accumulated other comprehensive income          1,327             1,025
     Retained earnings                             171,298           187,063
    Less - Cost of treasury stock                 (100,747)          (63,804)

    Total stockholders' equity                     379,996           424,857
    Total liabilities and stockholders' equity    $463,932          $512,843

SOURCE DSP Group, Inc.
07/24/2008
CONTACT: Ofer Elyakim of DSP Group Inc., +852-9017-5426,
ofere@dsp.co.il