DSP (DSPG) 8-K DSP Group, Inc. Reports Third Quarter 2009 Earnings

Exhibit 99.1

DSP Group, Inc. Reports Third Quarter 2009 Earnings

SAN JOSE, Calif., October 27, 2009—DSP Group, Inc.^™ (NASDAQ: DSPG), a leading provider of wireless chipset solutions for converged communications at home, announced today its results for the third quarter ended September 30, 2009.

Third Quarter Results:

Revenues for the third quarter of 2009 were $65,532,000, a decrease of 25% from revenues of $87,368,000 for the third quarter of 2008. Net income for the third quarter of 2009 was $6,803,000, as compared to net loss of $3,030,000 for the third quarter of 2008. Diluted earnings per share (EPS) for the third quarter of 2009 were $0.29, as compared to a loss of $0.11 per share for the third quarter of 2008.

Non-GAAP Results:

Non-GAAP net income and diluted EPS for the third quarter of 2009 were $4,336,000 and $0.18 per share, respectively; a decrease of 41% from the non-GAAP net income of $7,367,000 and a decrease of 33% from the non-GAAP diluted EPS of $0.27 per share for the third quarter of 2008. Non-GAAP net income and diluted EPS for the third quarter of 2009 excluded the impact of amortization of acquired intangible assets of $3,072,000 associated with the acquisition of the Cordless and VoIP Terminals business of NXP B.V.; equity-based compensation expenses of $2,637,000; gains from realization of previously impaired available-for-sale securities of $531,000; and a tax benefit of $7,645,000 resulting from the reversal of income tax contingency reserve that was determined to be no longer needed due to the expiration of applicable limitation statutes. Non-GAAP net income and diluted EPS for the third quarter of 2008 excluded the impact of amortization of acquired intangible assets of $5,702,000 associated with the acquisition of the Cordless and VoIP Terminals business of NXP B.V.; equity-based compensation expenses of $3,205,000; restructuring expenses of $1,870,000 associated with our cost cutting measures at various operating sites; an unrealized loss related to certain available-for-sale marketable securities of $671,000; and the aggregate tax benefits associated with such expenses of $1,051,000.

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Ofer Elyakim, CEO of DSP Group, stated: “Our financial results for the third quarter were at the higher end of our forecast, and reflect solid execution in what remains a challenging environment in which our customers’ visibility remains limited.”

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 ended September 30, 2009 to the same period in 2008 because the exclusion of the above noted expenses may provide a more meaningful analysis of the Company’s core operating results. 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 consumer electronics (CE) manufacturers to cost-effectively develop new revenue-generating applications with fast time to market. At the forefront of semiconductor innovation and operational excellence for over two decades and with a dominant share of the wireless home telephony market, DSP Group provides a broad portfolio of wireless chipsets integrating DECT, Wi-Fi, PSTN and VoIP 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 connected multimedia screens – DSP Group proactively partners with CE manufacturers to shape the future of converged communications at home. For more information, visit 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 third quarter of 2009 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-eventDetails&EventId=2432395.

If you cannot join the call, please listen to the replay, which will be available for approximately one week after the call on DSP Group’s Web site or by calling the following numbers:

—US Dial-In # 1-888-286-8010 (passcode: 31071002)

—International Dial-In # 1-617-801-6888 (passcode: 31071002)

For more information, please contact Orly Garini; Tel: +1-408-240-6839; Email: orly.garini@dspg.com

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DSP GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Product revenues and other	$	65,532		$	87,368		$	157,466		$	234,250
Cost of product revenues and other		40,807			54,503			100,251			148,462
Gross profit		24,725			32,865			57,215			85,788
Operating expenses:
Research and development		15,221			17,908			42,590			56,825
Sales and marketing		4,666			5,483			13,466			17,124
General and administrative		3,655			4,539			11,395			13,336
Amortization of intangible assets		3,072			5,702			9,177			17,200
Restructuring costs		—			1,870			—			1,870
Total operating expenses		26,614			35,502			76,628			106,355
Operating loss		(1,889	)		(2,637	)		(19,413	)		(20,567	)
Other income:
Interest and other income (loss), net		1,113			(185	)		2,297			1,948
Loss before provision for income taxes		(776	)		(2,822	)		(17,116	)		(18,619	)
Provision for income taxes (income tax benefit)		(7,579	)		208			(11,551	)		(630	)
Net income (loss)	$	6,803		$	(3,030	)	$	(5,565	)	$	(17,989	)
Net earnings (loss) per share:
Basic	$	0.30		$	(0.11	)		(0.23	)		(0.62	)
Diluted	$	0.29		$	(0.11	)		(0.23	)		(0.62	)
Weighted average number of shares of common stock used in the computation of:
Basic		22,901			27,728			23,906			28,885
Diluted		23,662			27,728			23,906			28,885

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DSP GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (NON-GAAP)

(In thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009			2008
	(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)
Product revenues and other	$	65,532	$	87,368	$	157,466		$	234,250
Cost of product revenues and other		40,596		54,295		99,637			147,750
Gross profit		24,936		33,073		57,829			86,500
Operating expenses:
Research and development		14,093		16,267		38,484			51,201
Sales and marketing		4,213		5,127		12,087			15,832
General and administrative		2,810		3,539		9,011			10,215
Total operating expenses		21,116		24,933		59,582			77,248
Operating income (loss)		3,820		8,140		(1,753	)		9,252
Other income:
Interest and other income, net		582		486		1,766			2,619
Income before provision for income taxes		4,402		8,626		13			11,871
Provision for income taxes (income tax benefit)		66		1,259		(417	)		2,042
Net income	$	4,336	$	7,367	$	430		$	9,829
Net earnings per share:
Basic	$	0.19	$	0.27	$	0.02		$	0.34
Diluted	$	0.18	$	0.27	$	0.02		$	0.34
Weighted average number of shares of common stock used in the computation of:
Basic		22,901		27,728		23,906			28,885
Diluted		23,662		27,740		24,215			28,957

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Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	Unaudited			Unaudited			Unaudited			Unaudited
GAAP net income (loss)	$	6,803		$	(3,030	)	$	(5,565	)	$	(17,989	)
Equity-based compensation expense included in cost of product revenues		211			208			614			712
Equity-based compensation expense included in R&D		1,128			1,641			4,105			5,624
Equity-based compensation expense included in SG&A		1,298			1,356			3,763			4,413
Amortization of intangible assets related to NXP transaction		3,072			5,702			9,177			17,200
Restructuring costs		—			1,870			—			1,870
Unrealized loss(realized gain) related to certain available-for-sale marketable securities		(531	)		671			(531	)		671
Reversal of income tax contingency reserve		(7,645	)		—			(7,645	)		—
Tax benefit resulting from settlement agreement with tax authorities		—			—			(3,488	)		—
Tax benefit resulting from the above mentioned items		—			(1,051	)		—			(2,672	)
Non-GAAP net income	$	4,336		$	7,367		$	430		$	9,829
Non-GAAP diluted earnings per share	$	0.18		$	0.27		$	0.02		$	0.34

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DSP GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2009			December 31, 2008
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents Restricted deposits	$	37,976 115		$	68,886 115
Marketable securities and cash deposits		17,308			12,449
Trade receivables, net		35,920			39,603
Inventories		13,000			14,098
Other accounts receivable		14,484			17,367
Deferred income taxes		243			306
Total current assets		119,046			152,824
Property and equipment, net		10,883			14,822
Long term marketable securities and cash deposits		58,436			40,051
Severance pay fund		8,743			7,286
Deferred income taxes		16			212
Other intangible assets		23,568			32,728
Other assets		1,475			1,331
Total assets	$	222,167		$	249,254
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	21,941		$	20,136
Other current liabilities		22,630			40,329
Total current liabilities		44,571			60,465
Accrued severance pay		10,188			8,008
Accrued pensions		1,744			1,675
Deferred tax liability		—			24
Other long term liabilities		—			455
Total long term liabilities		11,932			10,162
Stockholders’ equity:
Common stock		23			27
Additional paid-in capital		322,971			314,484
Accumulated other comprehensive income		2,094			51
Less – Cost of treasury stock		(123,359	)		(107,749	)
Retained loss		(36,065	)		(28,186	)
Total stockholders’ equity		165,664			178,627
Total liabilities and stockholders’ equity	$	222,167		$	249,254

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