DSP Group, Inc. Reports Third Quarter 2005 Earnings

Record High Revenues and 20% Revenue Increase YoY

SANTA CLARA, Calif., Oct. 27, 2005 -- 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 third quarter of 2005.

Revenues for the third quarter of 2005 were $55,614,000, an increase of 20% from revenues of $46,232,000 for the third quarter of 2004. Net income for the third quarter of 2005 decreased 48% to $10,510,000, as compared to $20,380,000 for the third quarter of 2004. Diluted earnings per share (EPS) for the third quarter of 2005 decreased 49% to $0.35, as compared to $0.69 for the third quarter of 2004.

Results for the third quarter of 2004 included a capital gain of $15,460,000 resulting from the sale of 1,650,000 shares of AudioCodes Ltd.

Pro-forma net income and diluted EPS for the third quarter of 2004, excluding the effects of the capital gain and related taxes of $4,865,000, would have been $9,785,000 and $0.33, respectively.

Net income and diluted EPS for the third quarter of 2005, in accordance with US GAAP, increased 7% and 6%, respectively, as compared to the pro-forma net income and diluted EPS for the third quarter of 2004.

Eli Ayalon, Executive Chairman of DSP Group, stated: "We are very pleased with our third quarter results. Our decision last year to expand our long term R&D activities in order to secure our future growth, coupled with our traditional tight management control of expenses and top line growth, enabled us to increase our operating profit compared to the third quarter of 2004."

Inon Beracha, CEO of DSP Group, stated: "Record high revenues were achieved by the company in the third quarter of 2005, reflecting increased demand and market share in North America for our products as well as a ramp up in our shipments of DECT products and products targeted at the Japanese domestic market. During the third quarter of 2005 we also delivered commercial shipments to our second DECT customer. These trends in the third quarter of 2005 provide us with good visibility into the last quarter of 2005."

Moshe Zelnik, CFO of DSP Group, stated: "In the third quarter of 2005 the Company repurchased 385,200 shares of its Common Stock, at an average price of $24.72 per share, for an aggregate price of approximately $9.5 million. We have strong confidence in our future business prospects and our ability to capitalize on new market opportunities. We believe that the buyback program that we have in place, with 3.3 million shares that remain authorized for future repurchase, is a wise use of our cash and a good return on investment to our shareholders."

The company believes that the above pro forma presentation of net income and diluted EPS is useful to investors in comparing results for the quarter ended September 30, 2005 to the same period during 2004, because it excludes items that management does not consider meaningful for purposes of analyzing the company's core operating results and making budget-planning decisions.

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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.