DSP (DSPG) 8-K DSP Group, Inc. Reports Third Quarter 2010 Earnings

Exhibit 99.1

DSP Group, Inc. Reports Third Quarter 2010 Earnings

SAN JOSE, Calif., October 25, 2010—DSP Group, Inc. (NASDAQ: DSPG), a leading global provider of wireless chipset solutions for converged communications at home, announced today its results for the third quarter ended September 30, 2010.

Third Quarter Results:

Revenues for the third quarter of 2010 were $65,154,000, a decrease of 1% from revenues of $65,532,000 for the third quarter of 2009. Net income for the third quarter of 2010 was $1,917,000, as compared to net income of $6,803,000 for the third quarter of 2009. Diluted earnings per share (EPS) for the third quarter of 2010 was $0.08 per share, as compared to a diluted EPS of $0.29 per share for the third quarter of 2009

Non-GAAP Results:

Non-GAAP net income and diluted EPS for the third quarter of 2010 were $6,501,000 and $0.27 per share, respectively, as compared to non-GAAP net income of $4,336,000 and diluted EPS of $0.18 per share for the third quarter of 2009. Non-GAAP net income and diluted EPS for the third quarter of 2010 excluded the impact of amortization of acquired intangible assets of $2,494,000 associated with the acquisition of NXP’s CIPT business; equity-based compensation expenses of $2,267,000; restructuring expenses of $394,000 associated with the reorganization of our operations; and a tax benefit of $571,000 resulting from the reversal of an income tax contingency reserve that was determined to be no longer needed due to the expiration of applicable statute of limitations. 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 NXP’s CIPT business; 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 an income tax

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contingency reserve that was determined to be no longer needed due to the expiration of applicable statute of limitations.

Ofer Elyakim, CEO of DSP Group, stated: “The third quarter was another strong quarter for DSP Group. We ended the quarter with non-GAAP operating profit of $5.7 million, or 9% of revenues, representing an increase of 50% from non-GAAP operating profit of $3.8 million, or 6% of revenues, in the third quarter of 2009, and our cash balance increased by $11 million to $132 million. In addition, we began shipments of our XpandR ICs for the anticipated Android cordless phone and other telephony products, such as Wi-Fi phones.”

Mr. Elyakim also added: “Following a capacity shortage during the first nine months of this year, many customers were prompted to procure materials earlier in order to secure capacity. Now with capacity stabilizing, we are seeing a depletion of this safety stock inventory which according to our checks, should be mostly exhausted during the fourth quarter. As a result of that inventory buildup, our customers’ projections for the fourth quarter have decreased. The Company now expects revenues for the year to be in the range of $222 million to $226 million, representing an annual growth rate in the range of 5% to 7% in comparison to 2009.”

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, 2010 to the same period in 2009 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.

Forward-Looking Statements

This press release contains statements that qualify as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995, including Mr. Elyakim’s statements about the fourth quarter 2010 financial guidance the capacity shortage condition and the depletion of the safety stock inventory. 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 as a result of various factors, including the impact of reductions in lead times and inventory levels by DSP Group customers and their customers; the supply chain capacity conditions for the remainder of 2010; the sustainability of the market recovery; unexpected delays in the introduction of new products, especially the new generation of multimedia products; fluctuations in gross margins associated with the sale of

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existing products; slower than expected change in the nature of residential communications domain; DSP Group’s inability to develop and produce new products at competitive costs and in a timely manner or failure of such products to achieve broad market acceptance; 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 2009 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.

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 growing 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 AM ET today to discuss the financial results for the third quarter of 2010 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://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=101665&eventID=3413969.

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

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—US Dial-In # 1-888-286-8010 (passcode: 28323028)

—International Dial-In # 1-617-801-6888 (passcode: 28323028)

For more information, please contact Orly Garini-Dil, +1-408-240-6839, or email: orly.garini@dspg.com

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DSP GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010		2009			2010			2009
	(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)
Product revenues and other	$	65,154	$	65,532		$	182,110		$	157,466
Cost of product revenues and other		39,806		40,807			109,919			100,251
Gross profit		25,348		24,725			72,191			57,215
Operating expenses:
Research and development		14,066		15,221			41,098			42,590
Sales and marketing		4,332		4,666			13,003			13,466
General and administrative		3,487		3,655			10,864			11,395
Amortization of intangible assets		2,494		3,072			7,479			9,177
Restructuring costs		394		—			394			—
Total operating expenses		24,773		26,614			72,838			76,628
Operating income (loss)		575		(1,889	)		(647	)		(19,413	)
Other income:
Interest and other income , net		382		1,113			1,070			2,297
Income (loss) before income tax benefit		957		(776	)		423			(17,116	)
Income tax benefit		960		7,579			943			11,551
Net income (loss)	$	1,917	$	6,803		$	1,366		$	(5,565	)
Net earnings (loss) per share:
Basic	$	0.08	$	0.30			0.06			(0.23	)
Diluted	$	0.08	$	0.29			0.06			(0.23	)
Weighted average number of shares of common stock used in the computation of:
Basic		23,352		22,901			23,202			23,906
Diluted		23,420		23,662			23,225			23,906

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DSP GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (NON-GAAP)

(In thousands, except per share amounts)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010			2009		2010			2009
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
Product revenues and other	$	65,154		$	65,532	$	182,110		$	157,466
Cost of product revenues and other		39,638			40,596		111,882			99,637
Gross profit		25,516			24,936		70,228			57,829
Operating expenses:
Research and development		12,950			14,093		37,481			38,484
Sales and marketing		3,962			4,213		11,865			12,087
General and administrative		2,874			2,810		8,813			9,011
Total operating expenses		19,786			21,116		58,159			59,582
Operating income (loss)		5,730			3,820		12,069			(1,753	)
Other income:
Interest and other income, net		382			582		1,070			1,766
Income before provision for income taxes		6,112			4,402		13,139			13
Provision for income taxes (income tax benefit)		(389	)		66		(373	)		(417	)
Net income	$	6,501		$	4,336	$	13,512		$	430
Net earnings per share:
Basic	$	0.28		$	0.19	$	0.58		$	0.02
Diluted	$	0.27		$	0.18	$	0.57		$	0.02
Weighted average number of shares of common stock used in the computation of:
Basic		23,352			22,901		23,202			23,906
Diluted		23,650			23,662		23,728			24,215

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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,
	2010			2009			2010			2009
	Unaudited			Unaudited			Unaudited			Unaudited
GAAP net income (loss)	$	1,917		$	6,803		$	1,366		$	(5,565	)
Equity-based compensation expense included in cost of product revenues		168			211			538			614
Equity-based compensation expense included in R&D		1,116			1,128			3,617			4,106
Equity-based compensation expense included in SG&A		983			1,298			3,189			3,763
Amortization of intangible assets related to NXP transaction		2,494			3,072			7,479			9,177
Restructuring costs		394			—			394			—
Realized gain related to certain available-for-sale marketable securities		—			(531	)		—			(531	)
Reversal of income tax contingency reserve that was determined to be no longer needed due to the expiration of applicable statute of limitations included in tax		(571	)		(7,645	)		(571	)		(7,645	)
Reversal of a reserve that was determined to be no longer needed due to the expiration of applicable statute of limitations included in costs of goods sold		—			—			(2,500	)		—
Tax benefit resulting from settlement agreement with tax authorities		—			—			—			(3,489	)
Non-GAAP net income	$	6,501		$	4,336		$	13,512		$	430
Non-GAAP diluted earnings per share	$	0.27		$	0.18		$	0.57		$	0.02

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DSP GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2010			December 31, 2009
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents Restricted deposits	$	30,106 121		$	37,986 120
Marketable securities and short term deposits		31,064			19,567
Trade receivables, net		44,497			28,352
Inventories		17,315			12,427
Other accounts receivable and prepaid expenses		8,826			12,162
Deferred income taxes		—			178
Total current assets		131,929			110,792
Property and equipment, net		8,411			10,090
Long term marketable securities and deposits		70,623			65,392
Severance pay fund		10,432			9,521
Deferred income taxes		172			15
Intangible assets, net		12,940			20,473
Investment in other companies		2,200			2,200
Long term prepaid expenses and lease deposits		643			1,286
		97,010			98,887
Total assets	$	237,350		$	219,769
Liabilities and Stockholders’ Equity
Current liabilities:
Trade payables	$	26,495		$	18,309
Other current liabilities		22,205			24,470
Total current liabilities		48,700			42,779
Accrued severance pay		11,584			10,572
Accrued pensions		964			929
Total long term liabilities		12,548			11,501
Stockholders’ equity:
Common stock		23			23
Additional paid-in capital		332,922			325,579
Accumulated other comprehensive income		1,949			2,174
Less – Cost of treasury stock		(118,528	)		(123,350	)
Accumulated deficit		(40,264	)		(38,937	)
Total stockholders’ equity		176,102			165,489
Total liabilities and stockholders’ equity	$	237,350		$	219,769

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