DSP (DSPG) 8-K DSP Group, Inc. Reports Third Quarter 2006 Earnings

Exhibit 99.1

DSP Group, Inc. Reports Third Quarter 2006 Earnings

Quarterly Revenues Increased 15% YoY

SANTA CLARA, Calif., October 23, 2006—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 ended September 30, 2006.

Third Quarter Results:

Revenues for the third quarter of 2006 were $63,875,000, an increase of 15% from revenues of $55,614,000 for the third quarter of 2005. Net income for the third quarter was $8,052,000, a decline of 23% from net income of $10,510,000 for the third quarter of 2005. Diluted earnings per share (EPS) for the third quarter of 2006 were $0.27, a decline of 23% from $0.35 for the third quarter of 2005.

Pro Forma Results:

Pro forma net income and diluted EPS for the third 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 $10,903,000 and $0.37, respectively, representing an increase of 4% and 6%, respectively, from the third quarter of 2005.

Share Buyback:

During the third quarter of 2006, DSP Group repurchased approximately 270,000 shares of its Common Stock at an average price of $24 per share, for an aggregate price of approximately $6.5 million.

After giving effect to the most recent repurchases, approximately 1.8 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 third quarter of 2006 was another quarter of growth for DSP Group. Our revenues increased by 15% as compared to 2005, and the overall financial results of the Company for the third quarter of 2006 reflected solid execution in a challenging environment. As a result of reduced projections of revenues for the fourth quarter of 2006, the Company now expects revenues for the year to range from $213 million to $217 million, and annual growth of between 14% to 16% over 2005. We expect revenue will continue to grow during 2007.”

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 September 30, 2006 to the same period during 2005, because results for the third 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 5:00 p.m. EDT today to discuss the financial results for the third 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 atwww.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: 16662441)

—International Dial-In # 1-617-801-6888 (passcode: 16662441)

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

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 DSP Group’s anticipated ranges of revenues for the full year 2006 and ranges of annual growth for 2006 in comparison to 2005, as well as anticipated continued growth in 2007. 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 slower than expected change in the nature of the home communications domain, unexpected delays in the introduction of new products, especially DECT products; changes in demand of existing OEM customers, failure to achieve broad market acceptance of existing and new products by existing and potential OEM customers; DSP Group’s inability to add new customers and develop and produce new products at competitive costs and in a timely manner; 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 2005 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 (www.dspg.com) under Investor Relations.

DSP GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Product revenues and other	$	63,875	$	55,614	$	176,565	$	144,824
Cost of product revenues and other		37,689		29,420		103,676		77,654
Gross profit		26,186		26,194		72,889		67,170
Operating expenses:
Research and development		12,242		10,487		35,553		30,428
Sales and marketing		4,357		3,706		12,233		9,882
General and administrative		2,771		1,904		8,466		5,552
Total operating expenses		19,370		16,097		56,252		45,862
Operating income		6,816		10,097		16,637		21,308
Other income:
Interest and other income, net		3,372		2,565		9,832		7,336
Income before provision for income taxes		10,188		12,662		26,469		28,644
Provision for income taxes		2,136		2,152		5,691		4,879
Net income	$	8,052	$	10,510	$	20,778	$	23,765
Net earnings per share:
Basic	$	0.28	$	0.37	$	0.70	$	0.84
Diluted	$	0.27	$	0.35	$	0.68	$	0.80
Weighted average number of shares of Common Stock used in the computation of:
Basic		29,279		28,663		29,543		28,368
Diluted		29,748		30,079		30,388		29,801

DSP GROUP, INC.

CONSOLIDATED PRO FORMA STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Product revenues and other	$	63,875	$	55,614	$	176,565	$	144,824
Cost of product revenues and other		37,563		29,420		103,342		77,654
Gross profit		26,312		26,194		73,223		67,170
Operating expenses:
Research and development		10,589		10,487		30,975		30,428
Sales and marketing		4,013		3,706		11,267		9,882
General and administrative		1,917		1,904		5,516		5,552
Total operating expenses		16,519		16,097		47,758		45,862
Operating income		9,793		10,097		25,465		21,308
Other income:
Interest and other income, net		3,372		2,565		9,832		7,336
Income before provision for income taxes		13,165		12,662		35,297		28,644
Provision for income taxes		2,262		2,152		6,025		4,879
Net income	$	10,903	$	10,510	$	29,272	$	23,765
Net earnings per share:
Basic	$	0.37	$	0.37	$	0.99	$	0.84
Diluted	$	0.37	$	0.35	$	0.96	$	0.80
Weighted average number of shares of Common Stock used in the computation of:
Basic		29,279		28,663		29,543		28,368
Diluted		29,748		30,079		30,388		29,801

The above pro forma consolidated statements of income have been adjusted to exclude the

following to US GAAP reported net income:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2006			2005		2006			��	2005
	(Unaudited)			(Unaudited)		(Unaudited)				(Unaudited)
Reported net income per US GAAP	$	8,052		$	10,510	$	20,778			$	23,765
Adjustments:
Equity-based compensation expense included in cost of product revenues and other		126			—		334				—
Equity-based compensation expense included in research and development		1,653			—		4,578				—
Equity-based compensation expense included in sales and marketing		344			—		966				—
Equity-based compensation expense included in general and administrative		854			—		2,950				—
Tax benefit resulting from equity-based compensation		(126	)		—		(334	)			—
Pro forma net income	$	10,903		$	10,510	$	29,272			$	23,765

DSP GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2006			December 31, 2005
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	36,877		$	50,460
Marketable securities and cash deposits		129,082			108,928
Trade receivables, net		26,525			16,991
Inventories		15,404			12,686
Other accounts receivable		2,723			1,617
Deferred income taxes		1,560			1,227
Total current assets		212,171			191,909
Property and equipment, net		13,578			11,704
Long term marketable securities		197,887			185,828
Severance pay fund		5,290			4,419
Deferred income taxes		1,638			1,638
Other assets		3,690			4,507
Total assets	$	434,254		$	400,005
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	18,863		$	12,753
Other current liabilities		28,293			33,411
Total current liabilities		47,156			46,164
Accrued severance pay		5,713			4,707
Stockholders’ equity:
Common Stock		29			29
Additional paid-in capital		212,070			188,539
Accumulated other comprehensive income		252			45
Retained earnings		194,071			179,968
Less – Cost of treasury stock		(25,037	)		(19,447	)
Total stockholders’ equity		381,385			349,134
Total liabilities and stockholders’ equity	$	434,254		$	400,005