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DSP Group Inc. Reports Operating Results (10-Q)

November 09, 2009 | About:
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10qk

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DSP Group Inc. (DSPG) filed Quarterly Report for the period ended 2009-09-30.

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, 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. DSP Group ICs provide solutions for MP3 players, VoIP Phones, Gateways, and Integrated Access Devices and are widely used in Digital Voice Recorders. Dsp Group Inc. has a market cap of $128.25 million; its shares were traded at around $5.6 with and P/S ratio of 0.42.

Highlight of Business Operations:

Total Revenues. Our total revenues were $65.5 million for the third quarter of 2009, as compared to $87.4 million for the same period in 2008. Our total revenues were $157.5 million for the first nine months of 2009, as compared to $234.3 million for the same period in 2008. This decrease of 33% in revenues for the first nine months of 2009, as compared to the first nine months of 2008, was primarily as a result of decreased sales of all of our products. Sales of DECT products for the third quarter of 2009 and 2008 were $51.6 million and $66.0 million, representing approximately 79% and 75%, respectively, of total revenues, a decrease of 22% in absolute dollars when comparing sales for the third quarter of 2009 to sales for the third quarter of 2008. Sales of DECT products for the first nine months of 2009 and 2008 were $123.7 million and $165.2 million, respectively, representing approximately 79% and 70%, respectively, of total revenues, a decrease of 25% in absolute dollars when comparing sales for the first nine months of 2009 to sales for the first nine months of 2008. Sales of our DECT 6.0 products in the U.S. market increased from $54.4 million for the first nine months of 2008 to $62.4 million for the first nine months of 2009, representing approximately 23% and 40% of total revenues for the first nine months of 2008 and 2009, respectively. Sales of DECT 6.0 products in the U.S. market increased from $21.3 million for the third quarter of 2008 to $23.2 million for the third quarter of 2009, representing approximately 24% and 35% of total revenues for the third quarter of 2008 and 2009, respectively. We believe U.S. sales of our DECT 6.0 products will continue to increase on account of the decrease in sales of our 2.4GHz and 5.8GHz products as a result of the shift to DECT 6.0 products in the U.S. market, a trend which we anticipate will continue for the remainder of 2009. Sales of 5.8GHz products for the third quarter of 2009 and 2008 were $1.0 million and $4.8 million, respectively, representing approximately 2% and 5%, respectively, of our total revenues, a decrease of 79% in absolute dollars when comparing sales for the third quarter of 2009 to sales for the third quarter of 2008. Sales of 5.8GHz products for the first nine months of 2009 and 2008 were $2.8 million and

$14.2 million, respectively, representing approximately 2% and 6%, respectively, of our total revenues, a decrease of 80% in absolute dollars when comparing sales for the first nine months of 2009 to the first nine months of 2008. Sales of 2.4GHz products were $6.7 million and $8.8 million for the third quarter of 2009 and 2008, respectively, representing 10% for both the third quarter of 2009 and 2008, a decrease of 23% in absolute dollars when comparing sales for the third quarter of 2009 to sales for the third quarter of 2008. Sales of 2.4GHz products for the first nine months of 2009 and 2008 were $17.7 million and $26.6 million, respectively, representing approximately 11% of our total revenues for both the nine months of 2009 and 2008, and a decrease of 33% in absolute dollars when comparing sales for the first nine months of 2009 to the sales for the first nine months of 2008. The decrease in revenues on a percentage basis and in absolute dollars generated by our 5.8 GHz and 2.4 GHz products for the comparable periods was mainly attributable to increased sales of our DECT 6.0 products in the U.S. market in lieu of sales of those products as discussed above.

Research and Development Expenses. Our research and development expenses decreased to $15.2 million for the third quarter of 2009 from $17.9 million for the third quarter of 2008. Research and development expenses decreased to $42.6 million for the first nine months of 2009 from $56.8 million for the first nine months of 2008. The decrease for the third quarter and the first nine months of 2009 in research and development expenses, as compared to the same periods in 2008, was mainly attributed to (i) savings of $13.0 million for the first nine months of 2009 and $4.2 million for the third quarter of 2009 as a result of the shut-down of, or reduction in capacity and the number of employees at, some of our sites as part of our restructuring plans, (ii) a devaluation of the New Israeli Shekel (NIS) against the U.S. dollar which reduced the research and development expenses attributable to our Israeli facilities and employees, (iii) a decrease in equity-based compensation expenses of $1.5 million for the first nine months of 2009 as compared to the first nine months of 2008 and $0.5 million for the third quarter of 2009 as compared to the third quarter of 2008, and (iv) a decrease in other expenses such as travel expenses for the first nine months and the third quarter of 2009 as compared to 2008. The above referenced expense decreases were offset to some extent by an increase in IP purchases and tapeout expenses in 2009 when compared to 2008.

General and Administrative Expenses. Our general and administrative expenses were $3.7 million for the three months ended September 30, 2009, as compared to $4.5 million for the three months ended September 30, 2008. For the first nine months of 2009, general and administrative expenses were $11.4 million, as compared to $13.3 million for the same period in 2008. The decrease in general and administrative expenses for both periods was mainly attributed to (i) a decrease in equity-based compensation expenses of $0.7 million for the first nine months of 2009 and $0.2 million for the third quarter of 2009, (ii) operational savings as a result of the shut-down of some of our sites as part of our restructuring plans, (iii) a decrease in other expenses such as accounting and legal expenses for the first nine months and third quarter of 2009 as compared to the same periods of 2008, and (iv) the devaluation of the NIS against the U.S. dollar.

Interest and Other Income, net. Interest and other income, net, for the three months ended September 30, 2009 was $1.1 million, as compared to an expense of $0.2 million for the three months ended September 30, 2008, and increased to $2.3 million for the nine months ended September 30, 2009 from $1.9 million for the nine months ended September 30, 2008. The increase for the three months ended September, 30 2009 was due to a gain from the realization of a previously impaired available-for-sale securities in the amount of $531,000 in the third quarter of 2009, as compared to a loss in the amount of $671,000 in the third quarter of 2008 related to the impairment of available-for-sale securities. The increase for the nine months ended September 30, 2009 was due to the gain from the realization of the available-for-sale securities mentioned above, which was offset to some extent by (i) a decrease in our level of cash, cash equivalents and marketable securities which was attributable to our various share repurchases, and (ii) lower interest rates.

Operating Activities. Our cash flows from operating activities were $13.9 million and $8.2 million for the first nine months of 2009 and 2008, respectively. The increase in net cash provided by operating activities for the first nine months of 2009, as compared to net cash provided by operating activities for the same period in 2008, resulted from changes in working capital as follows: (i) a decrease in inventories by $1.1 million for the first nine months of 2009, as compared to an increase by $5.6 million for the same period in 2008, (ii) a decrease in other accounts receivable and prepaid expenses by $3.4 million during the first nine months of 2009, mainly due to excess tax advances that were refunded from tax authorities, as compared to an increase by $7.6 million during the first nine months of 2008, mainly due to tax advances paid to tax authorities and the payment of other deposits, (iii) a decrease in accrued compensation and benefits by $1.3 million during the first nine months of 2009, as compared to a decrease of $6.6 million during the first nine months of 2008, mainly due to severance payments associated with our restructuring plans that were paid during the first nine months of 2008 and higher employee bonus payments in 2008 as compared to 2009. The above changes in working capital were offset to some extent by an increase in operating losses for the nine months ended September 30, 2009, as compared to the nine months ended September 30, 2008 (after eliminating non-cash charges such as intangible assets amortization and equity-based compensation expense from the operating losses for both periods).

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