DSP (DSPG) 8-K DSP Group, Inc. Reports Fourth Quarter 2008 Earnings

Exhibit 99.1

DSP Group, Inc. Reports Fourth Quarter 2008 Earnings

SAN JOSE, Calif., February 2, 2009—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 fourth quarter ended December 31, 2008.

Fourth Quarter Results:

Revenues for the fourth quarter of 2008 were $71,551,000, a decline of 16% from revenues of $85,198,000 for the fourth quarter of 2007. Net loss for the fourth quarter was $194,405,000, as compared to a net loss of $1,586,000 for the fourth quarter of 2007. Earnings per share (EPS) for the fourth quarter of 2008 were a loss of $7.23 per share vs. a loss of $0.05 per share for the fourth quarter of 2007.

Year End Results:

Revenues for the year ended December 31, 2008 were $305,800,000, an increase of 23% over 2007 revenues of $248,788,000. Net loss for 2008 was $212,394,000, compared to a net loss of $4,753,000 for 2007. Diluted EPS for 2008 was a loss of $7.48 per share, compared to a loss of $0.16 per share in 2007.

Non-GAAP Results:

Non-GAAP net income and diluted EPS for the fourth quarter of 2008 were $3,987,000 and $0.15 per share, respectively, representing a decrease of 56% from the non-GAAP net income of $9,111,000 and a decrease of 48% from the non-GAAP diluted EPS of $0.29 per share for the fourth quarter of 2007. Non-GAAP net income and diluted EPS for the fourth quarter of 2008 excluded the impact of amortization of acquired intangible assets of $5,654,000, associated with the acquisition of the Cordless and VoIP Terminals business of NXP B.V.; equity-based compensation expenses of $3,188,000; impairment of goodwill and other intangible assets of

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$181,534,000; unrealized loss related to certain available-for-sale marketable securities of $2,290,000 and the net tax effect of all items cited above along with valuation allowance of deferred tax assets of $5,726,000. Non-GAAP net income and diluted EPS for the fourth quarter of 2007 excluded the impact of the amortization of acquired intangibles and other acquisition-related assets of $8,244,000, associated with the acquisition; equity-based compensation expenses of $3,281,000 and the aggregate tax benefits associated with such expenses.

Non-GAAP net income and diluted EPS for the year ended December 31, 2008 were $13,816,000 and $0.49 per share, respectively, representing a decrease of 53% from the non-GAAP net income of $29,230,000 and a decrease of 51% from the non-GAAP diluted EPS of $0.99 per share for the year ended December 31, 2007. Non-GAAP net income and diluted EPS for the year ended December 31, 2008 excluded the impact of amortization of acquired intangible assets of $22,853,000, associated with the acquisition; equity-based compensation expenses of $13,938,000; impairment of goodwill and other intangible assets of $181,534,000; unrealized loss related to certain available-for- sale marketable securities of $2,961,000; restructuring expenses of $1,870,000 associated with our cost cutting measures at various operating sites and the net tax effect of all items cited above along with valuation allowance of deferred tax assets of $3,054,000. Non-GAAP net income and diluted EPS for the year ended December 31, 2007 excluded the impact of an in-process R&D expense of $10,120,000 and amortization of acquired intangible assets of $11,948,000, both associated with the acquisition, as well as equity-based compensation expenses of $ 14,022,000, a loss related to certain marketable securities of $997,000 and the aggregate tax benefits associated with such expenses.

Impairment of Goodwill and Other Intangible Assets

Consistent with accounting rules, the Company performed an impairment analysis. This impairment analysis, which is based on a forecasted discounted cash flows model, indicated a $181,534,000 non-cash impairment of goodwill and other intangible assets. Factors within the analysis that led to this outcome include an extended decline in the market capitalization of the Company’s shares at December 31, 2008 combined with a decline in the Company’s forecasted business outlook, which management attributes to the impact of a weakening macroeconomic environment for consumer electronics market.

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Share Buyback

During the fourth quarter of 2008, the Company repurchased 847,596 shares of its Common Stock at an average price of $6.23 per share, for an aggregate price of approximately $5.3 million.

For the full year ended December 31, 2008, the Company repurchased 4,798,224 shares of its Common Stock at an average price of $10.21 per share, for an aggregate price of approximately $49.0 million

Share Repurchase

On January 27, 2009, the Company and NXP entered into a Stock Repurchase Agreement pursuant to which the Company agreed to repurchase all of the Company’s shares held by NXP, approximately 4.2 million shares or roughly 16% of the outstanding shares of the Company, that were issued to NXP in connection with the acquisition of the of the Cordless and VoIP Terminals business. The per share purchase price for the shares to be repurchased will be the average closing price per share of the Company’s Common Stock on the NASDAQ Global Market during the 20 business days commencing on February 5, 2009, less fifteen percent of such average. The share repurchase will occur on the fifth business day following the pricing period.

Eli Ayalon, Chairman and CEO of DSP Group, stated: “Despite the world economic downturn and challenging market conditions, we generated positive operating cash flow of $8.2 million in the fourth quarter. The ongoing concerns related to the underlying global economy place limitations on our visibility for 2009. In light of the uncertain market conditions in 2009 and our objective to generate positive operating cash flows in the second half of 2009, we will continue to closely monitor trends in our markets and, where appropriate, take additional measures and implement further synergies to meet our goals. “Nevertheless, we are excited that following the recent Consumer Electronics Show in Las Vegas we successfully secured several design wins for XpandR, our new line of multimedia products.”

Mr. Ayalon further added: “We are pleased to have the opportunity to repurchase NXP’s equity stake in the Company; we consider this to be a very positive act for the Company and its shareholders.”

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The Company believes that the non-GAAP presentation of net income and diluted EPS presented in this press release is useful to investors in comparing results for the quarter and year ended December 31, 2008 to the same periods during 2007, because the exclusion of the above noted expenses may provide a more meaningful analysis of the Company’s core operating results. Also, the results for the quarter and year ended December 31, 2007 did not include the impairment of goodwill and other intangible assets, the unrealized loss related to certain available-for- sale marketable securities and the valuation allowance of deferred tax assets. Further, the Company believes it is useful to investors to understand how the expenses associated with equity-based compensations expenses are reflected on its statements of income.

About DSP Group

DSP Group, Inc. (Nasdaq: DSPG) is a leading global provider of wireless chipset solutions for converged communications at home. Delivering system solutions that combine semiconductors and software with reference designs, DSP Group enables world-leading consumer electronics (CE) manufacturers to cost-effectively develop innovative revenue-generating applications with fast time to market. At the forefront of wireless semiconductor development and operational excellence for over two decades, DSP Group provides a broad portfolio of chipsets integrating DECT, Wi-Fi, PSTN and VoIP/CoIP technologies with state-of-the-art application processors. Enabling converged voice, audio, video and data connectivity across diverse consumer products – from cordless and VoIP phones to home gateways and infotainment centers – DSP Group proactively partners with CE manufacturers to shape the future of residential converged communications. For more information, visitwww.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 Mr. Ayalon’s statements about the company’s objective to generate positive operating cash flows in the second half of 2009 and where appropriate, implement further synergies to meet the company’s goals. 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 gross margin fluctuations; the impact of reductions in lead times and inventory levels by our customers and their customers; our ability to obtain better pricing from our suppliers and improve yields; the timing and success of implementation of restructuring efforts to reduce 2009 operating expenses; slower than expected change in the nature of 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; 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 (www.dspg.com) under Investor Relations.

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Earnings conference call

DSP Group has scheduled a conference call for 8:30 a.m. EDT today to discuss the financial results for the fourth 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 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: 52517576)

—International Dial-In # 1-617-801-6888 (passcode: 52517576)

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

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DSP GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Three Months Ended December 31,						Twelve Months Ended December 31,
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Audited)
Product revenues and other	$	71,551		$	85,198		$	305,800		$	248,788
Cost of product revenues and other		43,350			49,641			191,811			148,075
Gross profit		28,201			35,557			113,989			100,713
Operating expenses:
Research and development		17,032			19,394			73,856			58,488
Sales and marketing		5,587			6,073			22,712			19,060
General and administrative		4,535			4,418			17,871			14,614
In-process R&D		—			—			—			10,120
Amortization of intangible assets		5,654			8,275			22,853			11,332
Impairment of goodwill and other intangible assets		181,534			—			181,534			—
Restructuring costs		—			—			1,870			—
Total operating expenses		214,342			38,160			320,696			113,614
Operating loss		(186,141	)		(2,603	)		(206,707	)		(12,901	)
Other income :
Interest and other income (loss), net		(1,787	)		1,394			160			10,541
Loss before provision for income taxes		(187,928	)		(1,209	)		(206,547	)		(2,360	)
Provision for income taxes		6,477			377			5,847			2,393
Net loss	$	(194,405	)	$	(1,586	)	$	(212,394	)	$	(4,753	)
Net loss per share:
Basic	$	(7.23	)	$	(0.05	)	$	(7.48	)	$	(0.16	)
Diluted	$	(7.23	)	$	(0.05	)	$	(7.48	)	$	(0.16	)
Weighted average number of shares of Common stock used in the computation of:
Basic		26,892			31,832			28,387			29,495
Diluted		26,892			31,832			28,387			29,495

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DSP GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (NON-GAAP)

(In thousands, except per share amounts)

	Three Months Ended December 31,				Twelve Months Ended December 31,
	2008		2007		2008		2007
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Product revenues and other	$	71,551	$	85,198	$	305,800	$	248,788
Cost of product revenues and other		43,143		49,484		190,892		146,796
Gross profit		28,408		35,714		114,908		101,992
Operating expenses:
Research and development		15,409		17,718		66,608		51,345
Sales and marketing		5,183		5,673		21,017		17,444
General and administrative		3,581		3,401		13,795		10,014
Total operating expenses		24,173		26,792		101,420		78,803
Operating income		4,235		8,922		13,488		23,189
Other income :
Interest and other income, net		503		1,394		3,121		11,538
Income before provision for income taxes		4,738		10,316		16,609		34,727
Provision for income taxes		751		1,205		2,793		5,497
Net income	$	3,987	$	9,111	$	13,816	$	29,230
Net earnings per share:
Basic	$	0.15	$	0.29	$	0.49	$	0.99
Diluted	$	0.15	$	0.29	$	0.49	$	0.99
Weighted average number of shares of Common stock used in the computation of:
Basic		26,892		31,832		28,387		29,495
Diluted		26,897		31,876		28,442		29,646

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Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share amounts

	Three Months Ended December 31,						Twelve Months Ended December 31,
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
GAAP net loss	$	(194,405	)	$	(1,586	)	$	(212,394	)	$	(4,753	)
Equity-based compensation expense included in cost of product revenues		207			188			919			663
Amortization of adjustment of inventories to market values included in cost of product revenues		—			(31	)		—			616
Equity-based compensation expense included in R&D		1,623			1,676			7,248			7,143
Equity-based compensation expense included in SG&A		1,358			1,417			5,771			6,216
Loss related to certain available-for-sale marketable securities		2,290			—			2,961			997
In-process R&D		—			—			—			10,120
Amortization of intangible assets related to NXP transaction		5,654			8,275			22,853			11,332
Impairment of goodwill and other intangible assets		181,534						181,534
Restructuring costs		—						1,870
Tax (benefit) expenses ,net ,resulting from equity-based compensation, loss related to certain marketable securities, in- process R&D , amortization and impairment of goodwill and other intangibles assets, restructuring costs and valuation allowance of deferred taxes.		5,726			(828	)		3,054			(3,104	)
Non-GAAP net income	$	3,987		$	9,111		$	13,816		$	29,230
Non-GAAP basic earnings per share	$	0.15		$	0.29		$	0.49		$	0.99
Non-GAAP diluted earnings per share	$	0.15		$	0.29		$	0.49		$	0.99

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DSP GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	December 31, 2008			December 31, 2007
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	71,404		$	69,586
Restricted deposits		115
Marketable securities and cash deposits		9,931			63,682
Trade receivables, net		39,603			51,636
Inventories		14,098			16,361
Other accounts receivable		17,367			7,582
Deferred income taxes		306			4,011
Total current assets		152,824			212,858
Property and equipment, net		14,822			14,270
Long term marketable securities		40,051			34,469
Severance pay fund		7,286			6,883
Deferred income taxes		212			5,109
Goodwill and other intangible assets		32,728			237,969
Other assets		1,331			694
Total assets	$	249,254		$	512,252
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	20,136		$	30,428
Other current liabilities		40,329			47,906
Total current liabilities		60,465			78,334
Accrued severance pay		8,008			7,303
Accrued pensions		1,675			1,758
Deferred tax liability		24			—
Other long term liabilities		455			—
Total long term liabilities		10,162			9,061
Stockholders’ equity:
Common stock		27			31
Additional paid-in capital		314,484			300,542
Accumulated other comprehensive income		51			1,025
Retained earnings (loss)		(28,186	)		187,063
Less – Cost of treasury stock		(107,749	)		(63,804	)
Total stockholders’ equity		178,627			424,857
Total liabilities and stockholders’ equity	$	249,254		$	512,252

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