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DSP Group, Inc. Reports Second Quarter 2006 Earnings

Quarterly Revenues Increased 24% YoY

SANTA CLARA, Calif., July 19 /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, 2006.

Second Quarter Results:

Revenues for the second quarter of 2006 were $60,737,000, an increase of 24% from revenues of $49,047,000 for the second quarter of 2005. Net income for the second quarter was $7,088,000, a decline of 14% from net income of $8,248,000 for the second quarter of 2005. Diluted earnings per share (EPS) for the second quarter of 2006 were $0.23, a decline of 18% from $0.28 for the second quarter of 2005.

Pro Forma Results:

Pro forma net income and diluted EPS for the second quarter of 2006, excluding the impact of equity-based compensation expense as required upon adoption of Statement of Financial Accounting Standards No. 123R, "Share Based Payment" ("SFAS 123(R)"), were $10,325,000 and $0.34, respectively, representing an increase of 25% and 21%, respectively, from the second quarter of 2005.

Share Buyback:

During the second quarter of 2006, DSP Group repurchased 976,000 shares of its Common Stock at an average price of $25.58 per share, for an aggregate price of approximately $25.0 million.

After giving effect to the most recent repurchases, approximately 2.0 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.

Eli Ayalon, Chairman and CEO of DSP Group, stated: "The second quarter of 2006 was another strong quarter for DSP Group. Our revenues increased by 24% as compared to 2005, and the overall financial results of the Company for the second quarter of 2006 reflect a successful implementation of our strategy."

The Company believes that the pro forma presentation of net income and diluted EPS presented in this press release is useful to investors in comparing results for the quarter ended June 30, 2006 to the same period during 2005, because results for the second quarter of 2005 did not include equity-based compensation expenses relating to SFAS 123(R). Further, the Company believes it is useful to investors to understand how the expenses associated with the application of SFAS 123(R) 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 & 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, data and video communication and deployment in residential, SOHO, SME, enterprise and automotive applications. DSP Group 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 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 second quarter of 2006 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 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: 45741883)

-- International Dial-In # 1-617-801-6888 (passcode: 45741883)

For more information, please contact Ofer Elyakim, Director of Investor Relations & Business Development, DSP Group Inc. at 408-986-4421; 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,
                                     2006      2005       2006        2005
                                 (Unaudited)(Unaudited)(Unaudited)(Unaudited)

    Product revenues and other     $60,737    $49,047   $112,689     $89,210
    Cost of product revenues        35,632     25,990     65,987      48,234
    and other

    Gross profit                    25,105     23,057     46,702      40,976
    Operating expenses:
    Research and development        12,409     10,542     23,310      19,941
    Sales and marketing              4,070      3,290      7,876       6,176
    General and
     administrative                  2,895      1,783      5,695       3,648

    Total operating expenses        19,374     15,615     36,881      29,765

    Operating income                 5,731      7,442      9,821      11,211
    Other income:
      Interest and other             3,351      2,499      6,460       4,771
        income, net

    Income before provision
     for income taxes                9,082      9,941     16,281      15,982

    Provision for income taxes       1,994      1,693      3,555       2,727

    Net income                      $7,088     $8,248    $12,726     $13,255

    Net earnings per share:
        Basic                        $0.24      $0.29      $0.43       $0.47
        Diluted                      $0.23      $0.28      $0.41       $0.45

    Weighted average number
     of shares of Common Stock
     used in the computation of:
        Basic                       29,871     28,328     29,674      28,221
        Diluted                     30,632     29,718     30,708      29,662



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

                                 Three Months Ended        Six Months Ended
                                       June 30,                June 30,
                                   2006       2005        2006        2005
                               (Unaudited) (Unaudited) (Unaudited) (Unaudited)

    Product revenues and other    $60,737    $49,047     $112,689    $89,210
    Cost of product revenues       35,502     25,990       65,779     48,234
    and other

    Gross profit                   25,235     23,057       46,910     40,976
    Operating expenses:
      Research and development     10,706     10,542       20,385     19,941
      Sales and marketing           3,716      3,290        7,254      6,176
      General and administrative    1,724      1,783        3,599      3,648

    Total operating expenses       16,146     15,615       31,238     29,765

    Operating income                9,089      7,442       15,672     11,211
    Other income:
      Interest and other            3,351      2,499        6,460      4,771
       income, net

    Income before provision
     for income taxes              12,440      9,941       22,132     15,982

    Provision for income taxes      2,115      1,693        3,763      2,727

    Net income                    $10,325     $8,248      $18,369    $13,255

    Net earnings per share:
        Basic                       $0.35      $0.29        $0.62      $0.47
        Diluted                     $0.34      $0.28        $0.60      $0.45

    Weighted average number
     of shares of Common Stock
     used in the computation of:
        Basic                      29,871     28,328       29,674     28,221
        Diluted                    30,632     29,718       30,708     29,662


   The above pro forma consolidated statements of income have been adjusted
           to exclude the following to US GAAP reported net income:

                                  Three Months Ended      Six Months Ended
                                        June 30,               June 30,
                                    2006       2005         2006       2005
                                (Unaudited) (Unaudited) (Unaudited)(Unaudited)
    Reported net income per US
     GAAP                           $7,088     $8,248     $12,726    $13,255

    Adjustments:

    Equity-based compensation
     expense included in cost
     of product revenues and other     130         --         208         --

    Equity-based compensation
     expense included in
     research and development        1,703         --       2,925         --

    Equity-based compensation
     expense included in sales
     and marketing                     354         --         622         --

    Equity-based compensation
     expense included in
     general and administrative      1,171         --       2,096         --

    Tax benefit resulting from
     equity-based compensation        (121)        --        (208)        --

    Pro forma net income           $10,325     $8,248     $18,369    $13,255


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

                                                   June 30,       December 31,
                                                     2006             2005
                                                  (Unaudited)       (Audited)
    Assets
    Current assets:
     Cash and cash equivalents                      $33,019          $50,460
     Marketable securities and cash deposits        134,790          108,928
     Trade receivables, net                          28,216           16,991
     Inventories                                     19,426           12,686
     Other accounts receivable                        1,734            1,617
     Deferred income taxes                            1,434            1,227

    Total current assets                            218,619          191,909

    Property and equipment, net                      11,322           11,704

    Long term marketable securities                 185,016          185,828
    Severance pay fund                                4,944            4,419
    Deferred income taxes                             1,638            1,638
    Other assets                                      3,972            4,507

    Total assets                                   $425,511         $400,005

    Liabilities and Stockholders' Equity
    Current liabilities:
     Accounts payable                               $19,032          $12,753
     Other current liabilities                       28,457           33,411

    Total current liabilities                        47,489           46,164

     Accrued severance pay                            5,170            4,707

    Stockholders' equity:
     Common Stock                                        29               29
     Additional paid-in capital                     209,093          188,539
     Accumulated other comprehensive income             347               45
     Retained earnings                              187,902          179,968
    Less -- Cost of treasury stock                  (24,519)         (19,447)

    Total stockholders' equity                      372,852          349,134

    Total liabilities and stockholders' equity     $425,511         $400,005

SOURCE
DSP Group, Inc.
07/19/2006

CONTACT:
Ofer Elyakim,
Director of Investor Relations & Business Development of DSP Group Inc.,
1-408-986-4421, or ofere@dsp.co.il