DSP Group Inc. Reports Fourth Quarter 2002 Earnings

SANTA CLARA, Calif., January 21, 2003 -- DSP Group Inc. (NASDAQ: DSPG) today announced results for the fourth quarter and year ending December 31, 2002.

Fourth Quarter Results:
The company announced fourth quarter 2002 revenues of $28,128,000, an increase of 14% from revenues of $24,744,000 for the fourth quarter of 2001. Net income from continuing operations for the fourth quarter of 2002 was $3,626,000 an increase of 22% from $2,970,000 in the fourth quarter of 2001. However, net income for the fourth quarter of 2002 was $3,604,000 a decrease of 11% from net income of $4,043,000 for the fourth quarter of 2001. Diluted earnings per share (EPS) for the fourth quarter of 2002 decreased 13% to $0.13, compared with $0.15, for the fourth quarter of 2001. Net income and diluted EPS for the fourth quarter of 2001 and one month of the fourth quarter of 2002 included the spun off DSP Core licensing activity.

Year-end Results:
Revenues for the year ended December 31, 2002, were $125,158,000, an increase of 40% over 2001 revenues of $89,430,000. Net income from continuing operations for 2002 was $12,672,000 an increase of 10% compared to $11,561,000 for 2001. Net income for the year 2002 was $15,142,000 compared to $21,916,000 for the year 2001, a decrease of 31%. Diluted EPS for the year 2002 decreased by 32% to $0.54 from $0.79 for the year 2001. Net income and diluted EPS for 2001 and for the first ten months of 2002 included the spun off DSP Core licensing activity.

Proforma Results:
Results for the fourth quarter of 2002 and for the year ended December 31, 2002 include an unusual loss item for impairment of available for sale marketable securities of $414,000 and $10,229,000 respectively, mainly associated with the decline in value of our holdings in AudioCodes Ltd. shares (NASDAQ: AUDC) in the second quarter of 2002. In addition, we recorded in the first quarter of 2002, an amount of $865,000 as an unusual expense related to the abandoned IPO expenses of the "Ceva" DSP Core licensing business.

The results of operations of the company for the fourth quarter of 2002 and the year December 31, 2002 include a net loss from the discontinued operations of $22,000 and net income from the discontinued operations of $2,470,000 compared to a net income of $1,073,000 and $10,355,000 for the fourth quarter and year ended December 31, 2001.

Proforma net income and EPS for the company excluding the discontinued operations, and the unusual loss and expense items described above, for the fourth quarter of 2002 would have been $3,961,000 and $0.14 , respectively. An increase of 33% and 27% of net income and EPS, respectively, compared to the fourth quarter 2001. Proforma net income and EPS for year ended December 31, 2002 would have been, $19,930,000 and $0.71 respectively. An increase of 72% and 69% of net income and EPS, respectively compared to 2001.

Eli Ayalon, Chairman & CEO of DSP Group Inc. stated: "We are very proud of our achievements this year, our fourth quarter results conclude a year of success for DSP Group. Despite facing a challenging business environment and severe contraction in the semiconductor industry, we succeeded to significantly grow our revenues and proforma net income.

A remarkable year over year growth of 40% in our product business and a three years CAGR of 29% (from 1999), are the result of paying close attention to the needs of our customers and our investment policy in R&D that gave birth to a series of new products, which aided our OEM customers to increase their market share and spearheaded our growth."

Mr. Ayalon added: "Despite, and in large part due to, a significant increase of our R&D from approximately $12,000,000 in 1999 to approximately $20,000,000 in 2002, our proforma net income for the semiconductor business also increased. Our management spirit of tight control on expenses, and high productivity of each individual employee allowed us to achieve these results. In 2002 we surpassed our own productivity records with an average revenue per employee of approximately $840,000 (among the highest in our industry), an increase of 41% over 2001.

We reached a level of average proforma net income per employee (excluding the one time charges described above) of $134,000, an increase of 74% over 2001." Mr. Ayalon went on saying: "In 2002, we completed the separation of the DSP Core Licensing business from the company.

DSP Group has now a clear and focused fabless semiconductor model which we intend to develop and enhance through strong cooperation with our customers and suppliers and which will continue to be implemented and executed by the Company's dedicated employees and experienced management team."

Boaz Edan, COO of DSP Group said: "we continue to have a strong demand for our 2.4GHz line of Products. The company plans to launch new products in 2003 (including the DECT (1.9GHz), Bluetooth solutions and DVR's with MP3 applications). These new developments, among others are on schedule. We continue to invest efforts of our marketing and R&D teams to work closely with key customers to define the future generations of products and solutions to be launched in 2004 and 2005."

Click here for the Consolidated Statements of Operations and Consolidated Balance Sheet.

About DSP Group
DSP Group, Inc. is a semiconductor fabless company that is a leader in the short-range wireless market. By combining its DSP cores technology with advanced RF, communication technology and speech-processing algorithms, DSP Group is a worldwide leader in developing and providing Total Telephony Solutions™. These applications include digital 900MHz, 2.4GHz, DECT (1.9GHz), 5.8GHz and Bluetooth for voice and data communication in residential, SOHO, SME, enterprise and automotive applications. DSP Group's advanced CMOS RF and communications technology provides the company with a clear path to a Phone-on-a-Chip™ solution. DSP Group also develops and markets embedded, integrated silicon/software solution for Voice-over-Digital-Subscriber Line (VoDSL), Voice-over-Internet-Protocol (VoIP) applications, and other Voice over Packet applications for Integrated Access Device (IAD) and IP Phone. More information about DSP Group is available at www.dspg.com

Total Telephony Solutions and Phone-on-a-Chip are trademarks of DSP Group, Inc.
This press release may contains statements that qualify as "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, including statements made by Mr. Edan concerning continued demand for our 2.4GHz line of products and our corporate plans to develop and launch new products. 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, the acceptance by customers in the digital voice recorder market of DSP Group's products, DSP Group's ability to differentiate its products from those of its competitors in the same market and the general market demand for products that incorporate DSP Group's technology in the market. These factors and other factors which may effect future operating results or DSP Group's stock price are discussed under "RISK FACTORS" in the Form 10-K for the year ended December 31, 2001 as well as other report, including Form 10-Qs, DSP Group has filed with the Securities and Exchange Commission and which are available on DSP Group's Web site (www.dspg.com) under Investor Relations.

Earnings conference call
DSP Group has scheduled a conference call for 8:00 a.m. EDT today to discuss fourth quarter results 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 website at www.dspg.com or link to: http://www.dspg.com/website/ir/investor_messageb.html.

For more information, please contact Yaniv Arieli, President of US Operations, Investor Relations, DSP Group at (408) 986-4423.

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