Ofer Elyakim – VP of Business Development Eli Ayalon – Chairman and CEO Boaz Edan – EVP and COO Dror Levy – VP of Finance and CFO

Daniel Amir – Lazard Capital Markets Shaul Eyal – Oppenheimer & Co. Matt Robison – Ferris, Baker, Watts Irit Jakoby – Susquehanna Financial Group Tom Erhlich [ph] – RBC Capital Markets

Good day, ladies and gentlemen, and welcome to the first quarter 2008 DSP Group earnings conference call. My name is Eric, and I'll be your coordinator for today. (Operator instructions) I'd now like to turn your call over to Ofer Elyakim, Vice President of Business Development. Please proceed.

Thank you. Good morning ladies and gentlemen. I'm Ofer Elyakim, Vice President of Business Development for DSP Group, and welcome to our first-quarter 2008 earnings conference call. On today's conference call, we have with us Mr. Eli Ayalon, Chairman and Chief Executive Officer of DSP Group; Mr. Boaz Edan, Chief Operating Officer; Mr. Brian Robertson, President; and Mr. Dror Levy, Chief Financial Officer. Before we begin, I'd like to remind you that during this conference call, we will be making forward-looking statements about our financial projections for the second quarter of 2008 and fiscal 2008, and prospects relating to our next-generation products, including the XpandR platform. We assume no obligation to update these forward-looking statements. Actual results or trends could differ materially from our forecasts for a variety of factors, including the decrease in the sales of 5.8 GHz products and the growth in sales of our DECT 6.0 products, the risk that the revenue potentials and gross margins may not be fully realized or may take longer to realize than expected, cost savings and other synergies from the acquisition of the CIPT business may not be fully realized or may take longer to realize than expected, slower-than-expected change in the nature of the residential communication domain, and the failure of new products to achieve broad market acceptance. For more information, please refer to the risk factors discussed in our 2007 Form 10-K and other SEC reports we have filed. Now, I'd like to turn to Eli Ayalon, Chairman and Chief Executive Officer of DSP Group. Eli, the floor is yours.

Thank you, Ofer, and thank you all for joining us today. I am glad to open this discussion on the results of the first quarter of 2008. I assume that you had the opportunity to read our press release that was released earlier today. In a short while, Dror Levy, our CFO, will go through the details of our financials. Before that, I'd like to draw your attention to the challenging environment that we continue to face, especially in the U.S. market. The analysis of our revenues in the first quarter show that despite our success in meeting our revenue projections, the trend of decreased sales of 5.8 GHz products, and their replacements with DECT 6.0 products in the U.S., continues at a higher pace than we previously estimated. Our dollar sales of DECT 6.0 in the U.S. more than doubled in the first quarter of 2008, as compared to the fourth quarter of 2007. On the other hand, sales of 5.8 GHz products decreased by almost half. The DECT 6.0 ASPs are lower than the ASPs of 5.8 GHz products, and as a result of this trend, the total dollar volume in the U.S. is decreasing more than previously expected. Our focus for the second quarter of 2008 shows a total decrease in product sales for the U.S. market, as compared to the previous forecast. In addition, one of our OEM customers filed a CCAA protection in Canada. This is similar to the U.S. Chapter 11. Our projections included sales of $17 million [ph] to this customer in the full-year '08. I'd like to state in that respect that we have no cash exposure from this customer. In other words, zero receivable. But sales to this customer will substantially be less than previously projected for the rest of the year. Due to these events, and the situation in the U.S. market, we decided to adjust downward projections for the year 2008. Boaz Edan, our Chief Operating Officer, will give you the updated figures in a short while. During the first quarter of 2008, we kept with our repurchasing activity, and acquired 2.17 million shares at an average price of $11.09 for a total consideration of $25.9 million. This repurchase activity was conducted under a plan adopted by the company in compliance with Rule 10b5-1 under the United States Securities Exchange Act of 1934. During the first quarter, the activity related to our new line of wireless multimedia products, the XpandR platform, continued at full speed. We have completed the manufacturing of evaluations boards, embedding the XpandR chipsets, and sent them to prospective customers, including OEM and ODM customers, and also, fixed line operators. (inaudible) activity conducted by our marketing people with these prospective customers, we will produce design wins this year for deliveries in 2009, that we expect could unlock the present situation, reflected in continuing pricing and volume pressure in the legacy cordless market. Now, I'd like to turn to Dror Levy, our CFO. Dror, the floor is yours.

Thank you, Eli. Good morning, everyone. I'll now review the income statement for the first quarter of 2008, from top to bottom. For each line item, I'll provide the U.S. GAAP results, as well as the equity-based compensation expenses included in that line item, and the expenses related to the acquisition of the cordless and Voice-over-IP business lines from NXP. Revenues for the quarter were $72.7 million. Gross margin for the quarter was 37.1%. Gross margin for the quarter included $0.3 million of equity-based compensation expense. R&D expenses were $20 million, including $2.1 million of equity-based compensation expenses. Operating expenses for the quarter were $36.1 million, including $3.7 million of equity-based compensation expenses. Operating expenses also included amortization of acquired intangible assets of $5.8 million. Interest income for the quarter was $1.2 million. Income tax benefit for the quarter was $0.3 million. This figure includes $0.1 million of tax credit relating to equity-based compensation, and $0.6 million of tax credit associated with amortization of acquired intangible assets. Net loss was $7.6 million, including the net effect of $3.9 million associated with equity-based compensation expenses and $5.2 million associated with amortization of intangible assets, net of tax benefits. Non-GAAP net income, excluding equity-based compensation expenses and amortization of intangible assets, was $1.4 million. Loss per share was $0.25. The net negative impact of equity-based compensation expenses on the EPS was $0.13. The negative impact of the amortization of the acquired intangible assets, net of tax benefit, on the EPS, was $0.17. Non-GAAP EPS, excluding equity-based compensation expenses and amortization of acquired intangible assets, was $0.05 on a diluted basis. Please see the current report on Form 8-K that we filed with the SEC this morning for a reconciliation of the non-GAAP presentation to the GAAP presentation. Now, to the balance sheet. Accounts receivable decreased from last quarter by $6.9 million, to $44.7 million, representing a level of 55 days. Inventory decreased by $0.9 million from last quarter to $17.3 million, representing a level of 34 days. Our cash and marketable securities at the end of the quarter were $135.6 million, representing a decrease of $32.1 million during the quarter. Our cash flow position during the quarter was affected by the following: $0.1 million of cash used for operations, $3.8 million of cash paid for deal expenses related to the NXP acquisition and for restructuring related expenses related in respect to the NXP deal, $23.9 million of cash used for repurchase of 2 million shares, at an average price of $11.95 per share, and $0.1 million of cash received from option exercises, and $4.1 million of cash used for purchase of property and equipment, representing mainly purchase of software tools for development. Now, I'd ask Boaz Edan, our Chief Operating Officer, to present our forecast for the second quarter of the year 2008. Boaz?

Thank you, Dror. Good morning, everybody. I'll now provide you with our projected plan for Q2 '08 and the full year of 2008. Based on the forecasts received from our customers, and our own assessment, our Q2 2008 projections, including the impact of equity-based compensation expenses and acquisition-related amortization expenses, are as follows. Revenues are expected to be in the range of $70 million to $76 million. We expect that our gross margin in the second quarter to be between 34% to 36%. This is a lower gross margin than we previously projected, mainly due to the lower-than-expected yield in the new Vega family of products acquired in the NXP acquisition. R&D will be in the range of $18 million to $20 million. Operating expenses will be in the range of $34 million to $36 million. Interest income will be in the range of $1 million to $1.5 million. And the income tax benefit is expected to be in the range of $0.4 million to $0.5 million. Shares outstanding are expected to be in the range of 29 million to 30 million shares. Our Q2 2008 projection includes the following amounts forecasted for the acquisition-related amortization of intangibles. Operating expenses, $5.5 million to $6 million, and income tax benefit of $0.5 million to $0.6 million. Our Q2 projection, including the following amounts forecasted for equity-based compensation expenses. Cost of goods sold, $0.2 million to $0.3 million; R&D, $1.8 million to $2 million; operating expense of $3.4 million to $3.6 million; and income tax benefit of $0.1 million to $0.2 million. Our revised full-year 2008 projection, including the impact of equity-based compensation expenses and acquisition-related amortization expenses are as follow. Revenues are expected to be in the range of $300 million to $320 million. We expect gross margin to be between 36% and 39%. This is lower than previously expected, due to the delay in yield improvement of the new Vega family of products, and due to the lower-than-expected sales from Japan domestic market. R&D would be in the range of $75 million to $77 million. Operating expenses will be in the range of $139 million to $141 million. And interest income will be in the range of $4.5 million to $5.5 million. Tax provision is expected to be $0.3 million to $0.4 million. Shares outstanding are expected to be in the range of 29 million to 30 million shares. Our 2008 projection includes the following amounts forecasted for the acquisition-related amortization expenses. Operating expenses, $22.5 million to $23 million; Income tax benefit of $2.2 million to $2.3 million. Our 2008 projection includes also the following amounts forecasted for equity-based compensation expenses. Cost of goods sold, $0.9 million to $1 million; R&D, $7 million to $8 million; operating expenses of $13 million to $15 million; and income tax benefit of $0.4 million to $0.5 million. Thank you for your attendance, and we will now open the floor for questions.

(Operator instructions) Your first question comes from the line of Daniel Amir with Lazard. Please proceed. Daniel Amir – Lazard Capital Markets: Good morning. A couple questions, here. First of all, on your revised guidance for the year, I mean, how much is that related to your customer going into bankruptcy, how much is that related more to issues of pricing in the DECT market, or to the Japanese sales that I guess are now expected to be lower as well?

We assume, for the customer, that is now under the kind of Chapter 11 in Canada a reduction of $17 million for the year, minus what we have shipped in Q1. And here, Boaz will help me – how much did we ship to that customer in Q1?

About $1 million.

About $1 million. So, some $16 million of the reduction was related to that customer. And the rest are the trends that we have described. Daniel Amir – Lazard Capital Markets: Okay. Now with regards to the pricing environment, I guess this is not necessarily something new. I guess you have highlighted this in the past couple of quarters. I mean, is the issue that the transformation to DECT 6.0 is much faster than you expected, or is it that ASPs are coming down faster than you had expected on the DECT 6.0?

No. As a matter of fact, if we look at the performance of Q1 in terms of ASPs – so, ASPs basically did not change in Q1, compared to the previous – excuse me, in our projection for Q2, compared to the projection we have given in January. What we see here is that DECT 6.0 – these are the products of DECT that are sold in the U.S. – more than doubled in that period of time, between Q4 and Q1. DECT 6.0 accounted, in Q1, for some 20% of the total sales, and in Q4, they were only 7% of the total sales. On the other hand, 5.8 products were reduced by almost half, something less than half. Now, taking into account, as I explained, the differences in ASPs, this shows an accelerated reduction in the U.S. in the prices. Now, something else, if we analyze the sales of all products, including DECT 6.0, sold to the U.S. market, we see a deviation between the two projections, the one that we had in January, and the one that we have now, of something like $3 million, $3.5 million. This means that the other products sold in the U.S. are expected to grow faster now. Now, these are the trends that we can see, and we have quantified them, comparing the quarters. For that reason, and taking into account the customer that is under the CCAA protection, we decided to update these figures. Daniel Amir – Lazard Capital Markets: Okay. Now, can you expand a bit on the gross margin issue related to the NXP products and the yield there?

Yes. The main issue related to the NXP product is the yield. We are running in a new – to a new set of products, running on a different type of a process. It's the product ramp up, very fast from Q4 to Q1, and we are in the process of improving yields. It's mainly yield and test time, and we did in the past. So, we expect that this process will take us into 2008, in order to stabilize this product. Daniel Amir – Lazard Capital Markets: Yes, but is this something that is new? I mean, I guess you knew that last quarter, but clearly, this is an indication now on your margins right now. So, something has changed, I guess, from this quarter compared to last quarter.

That's correct. As we were not familiar with the NXP facilities before, and we have now introduced ourselves into the facilities of NXP, and this is not the seamless regular device, it's being run as regular foundries, the yield, eventually, is lower than we expected. We took some actions in order to improve it. And we are working on it. In addition to it, we are planning to introduce, in going forward into 2009, a new device that will improve the yield going forward into 2009. Daniel Amir – Lazard Capital Markets: Okay, thanks. I'll go back into the queue. Thanks a lot.

Your next question comes from the line of Shaul Eyal with Oppenheimer. Please proceed. Shaul Eyal – Oppenheimer & Co.: Thank you. Hi, good afternoon guys. I don't know if you can quantify for us the number of units sold under the DECT 6.0 product this quarter?

This is very difficult to do, Shaul, for ourselves also. We could do it in the past, before the acquisition of NXP, because the chips were different. But we have here more than half of the volume shipped with ex-NXP [ph] models, and the chips are the same chips. So it's very difficult to count them. Shaul Eyal – Oppenheimer & Co.: I see. And any other potential clients that you see right now that could be exposed to what the Canadian client is going through?

This is a good question. We, of course, are not inside the stomach of our OEMs, but there is one OEM who we think is facing some difficulties. And we took, already, precautions, and made some provisions that are already included in the results of Q1, and also, going forward for that customer. Now, having said so, Shaul, I'd like to draw your attention that we do not run separate P&Ls in the company for the cordless business and the new generation of multimedia products. But what we can tell you is that in the $68 million or so projected for R&D expenses this year, between $25 million and $30 million relate to the new generation of multimedia products. This means that despite a very tough market environment in cordless, our cordless business runs still with very nice operating profits. If you add, let's say, $27 million to the operating profit of the company, it represents an increase of around $0.75 to the EPS. And the additional $27 million of R&D expenses are done by choice by us, because we believe it will better position us in the changing market as compared to our competition in the years to come. So, with all these pressures that we are describing here, of 5.8 going down, and DECT 6.0 going up with lower prices in the U.S., and so on and so forth, the traditional cordless is not growing, but it has a very nice profit that enables us to finance a significant amount of R&D for a line that still does not produce any revenue. Shaul Eyal – Oppenheimer & Co.: Got it. So, in a way, that leads me to my next, maybe final question for the time being. Some of the R&D, and kind of launch plan of new products, are in a way being postponed into 2009 to some extent, maybe 2008 some sort of a transitional year?

No. As we said in the past, 2008 is a year in which we are working very hard on the marketing side. As we said in the last conference call, we were about to produce evaluation boards, which are not only demos, they can be fully evaluated by our customers. We produce these boards, embedding the XpandR chipset, and deliver them to a number of ODM and OEM and fixed line operators. And we are working very close to these operators. A couple of them are now in a stage of preparing RFQs, Request for Quotations, and working with OEMs. And we really hope very much to secure design wins, so that in '09, we shall begin to see revenues from this line. Shaul Eyal – Oppenheimer & Co.: Got it. Okay, thank you.

Your next question comes from the line of Matt Robison with Ferris, Baker, Watts. Please proceed. Matt Robison – Ferris, Baker, Watts: Hi. My first question is I'm interested to know if your feelings about whether – is DECT 6.0 taking business away from digital 5.8, more than analog 5.8? And I have a couple follow ups.

Well, I'd say that it takes substantial business from the 5.8, that's for sure. We see a decline in the 5.8, and at this stage looking into Q1 of 2008, 5.8 represent only 7% of our sales. So it's taking business from 5.8. I do believe that it also takes business from the analog, to that extent, and we see some decrease in analog as well, to the point that we are selling – and this, as you know, it's only an answering machine device. Matt Robison – Ferris, Baker, Watts: Right, so it's really getting you on the digital. I was just – so the notion that the DECT 6.0 effort to market as an upgrade for clarity and range against the analog is not – from your perspective, is probably not as profound as the cannibalism of the digital 5.8, it sounds like.

That's correct. We are looking into – if you look into end of 2008, in 2009, we will continue to see an increase of DECT 6.0 on the account, and analog as well. And the move from analog to digital in the U.S. will happen in the – I'd say, to a much larger extent, in 2009. Matt Robison – Ferris, Baker, Watts: Do you have the percentages handy for your segments?

Well, I'd say the DECT is about 60% in Q1 – DECT is 63%. 5.8, as I said, is 7%. 2.4 is 12%, and all the rest, moving to Voice-over-IP, answering machine, DVR, and the rest of the products. Matt Robison – Ferris, Baker, Watts: So you can't differentiate between Voice-over-IP and other, at this point?

I'd say that voice over IP, if you want to say, it's about –

It's about 3%, Matt. Matt Robison – Ferris, Baker, Watts: Okay. Do you see, with this company going into bankruptcy here, it sounds like you are kind of treating it like it's a Chapter 7 kind of a bankruptcy, rather than a Chapter 11. Or is that just an effort to be – you know, avoiding the collection exposure?

I wouldn't like to elaborate a lot about that customer, because really, we are not – it's not ethical, and we are not also familiar with all the details. But when they filed, they also issued a press release, and by the date of it, we gave you, you can trace the press release that they have released, and draw your own conclusions there. We took into – we assumed in our plan, the plan that Boaz projected here, zero sales to that customer. So if they keep selling and buying from us, this is an upside. Matt Robison – Ferris, Baker, Watts: Yes, so obviously, if they did business on a cash in advance basis, you'd continue to work with them, it sounds like.

Excuse me? Matt Robison – Ferris, Baker, Watts: If they did business on a cash in advance basis, you are probably continue to work with them, it sounds like.

No, no. At this stage, there's no orders coming from this customer. He is in the process of trying to move this product line to other customers of ours. And this process will take time. Matt Robison – Ferris, Baker, Watts: Okay, so this is a brand that can work with a couple different ODMs?

You can – I wouldn't like to state the name of the company, but they have a public announcement about what they have done, and they are located in Canada. And I'm sure you can find the – Matt Robison – Ferris, Baker, Watts: Yes, okay. So there is some potential, at some point, for some of your other ODMs to obtain that market share.

Yes. The answer is yes. That OEM mainly produced two kinds of products – baby monitors and cordless DECT. Baby monitors, it will take some time for others to pick up, because these are designs that the others do not have yet, and so on. The DECT could be picked up by other customers. It would take some time, but the answer is yes. Matt Robison – Ferris, Baker, Watts: Hey Dror, what did you say the operating cash flow was?

The operating cash flow was a negative cash flow of $100,000. Matt Robison – Ferris, Baker, Watts: Yes. And Boaz, your pace is still too fast for me, I'm afraid. Can you give me the higher end of your OpEx range, including the SBC [ph] for the year?

Just a minute. For the year, the OpEx that we expected is $139 million to $141 million, including ESOP for the year. Matt Robison – Ferris, Baker, Watts: Okay. The high end of amortization?

The high end of the amortization is $23 million. Matt Robison – Ferris, Baker, Watts: Okay, thanks. That's it for me, for now.

Your next question comes from the line of Irit Jakoby with Susquehanna. Please proceed. Irit Jakoby – Susquehanna Financial Group: Hi, thank you. Can you give us an update with respect to potential new design wins for the new products? Can you give us an update from last quarter? I believe that last quarter you mentioned that you had a high level of interest from OEMs and ODMs and also one ODM in Southeast Asia that's already going to be designing on the new platform. I was wondering what you can update us, in the last three months.

The one ODM that we mentioned is working already very hard in defining the product, and in trying to secure his customers for that product. But when we announce a design win, this is a design win, which means that if it's an OEM, he committed already. If it's an ODM, he has his customers, and so on. And this is the reason we did not say that we have already a design win. But we are working on quite a few. Irit Jakoby – Susquehanna Financial Group: And in terms of the environment, given that your core market is maybe a little weaker than you expected, do you expect that to have an effect on design wins, and on OEMs and ODMs looking at new product launches with the new platform?

No. I'd say that the new platform is mainly pushed in Europe by operators. Operators bring to the home today a lot of content through the DSL lines in Europe, and they have a very strong interest to distribute this content wirelessly in the home, so that the subscribers consume more content. This is revenues for them. And they are trying to sort out what kind of product to design, including the new technologies that we are offering them, in order to proceed with this concept, and they are hooking OEMs. Some of the OEMs, in parallel, are working also to try to find out what are the next generations of products that will unlock the volume and the ASP pressure that they face today, in the traditional cordless. So I'd say the opposite. I'd say that the very tough environment in the legacy cordless market is pushing customers to look for other solutions. Irit Jakoby – Susquehanna Financial Group: Okay, that's helpful. Thank you.

(Operator instructions) Your next question comes from the line of Daniel Meron with RBC. Please proceed. Tom Erhlich – RBC Capital Markets: Hi, this is Tom Erhlich [ph]. I'll be taking this one for Daniel. I'd like to ask a couple of questions. One is about the client, your customer that you mentioned, that wasn't safe in Chapter 11, but you thought they had some financial problems. Could you give us a sense on how much of your revenues for this quarter came from this customer?

This quarter, it was a very limited amount. Below $0.5 million. Tom Erhlich – RBC Capital Markets: Okay. And second thing, about foreign exchange. Did you have any foreign exchange impact from the fluctuations this quarter, or could you give us some color on whether you are hedged or not, or can you quantify this?

Yes, we had some effect in this quarter, and also, it's already included in the projections that we gave for the entire year. Basically, we are hedged for the first – for the second quarter, and we are partial hedged for the rest of the year. But as I said, the numbers that Boaz has given as provided for the rest of the year already includes the exchange rates as they are today, and what we expect them to be as of today. Tom Erhlich – RBC Capital Markets: Okay. Could you quantify the impact for this quarter, or –

For this quarter, the impact wasn't significant, because as I said, we were almost fully hedged for this quarter. Tom Erhlich – RBC Capital Markets: Great. Just a last one on maintenance, and your guidance again. Could you repeat the conversion to GAAP for second-quarter '08, on your gross margin and on your cost, please?

Let us read again the projection for – so that it's more – maybe you read it more slowly, Dror.

Okay, I'll . Tom Erhlich – RBC Capital Markets: Thanks. I appreciate it.

So for the second quarter, the revenues are $70 million to $76 million; the gross margins are 34% to 36%; the R&D is $18 million to $20 million; OpEx is $34 million to $36 million; interest income is $1 million to $1.5 million; and the income tax benefit is $0.4 million to $0.5 million; shares outstanding is 29 million to 30 million. Now, in these numbers, we include amortization, which is $5.5 million to $6 million in the second quarter, and income tax benefit as it relates to the amortization of $0.5 million to $0.6 million. And these numbers also include the ESOP expenses, the compensation expenses, that are in the cost of goods we have included, $0.2 million to $0.3 million. In the R&D, included $1.8 million to $2 million. In the OpEx, total OpEx included $3.4 million to $3.6 million, and the income tax benefit is $0.1 million to $0.2 million. You also need the full year again, or do you have it? Tom Erhlich – RBC Capital Markets: That would be great, thanks.

Okay, so the full year, the revenues is $300 million to $320 million; the gross margin, again, now it's including the ESOP and including the amortization, gross margin is 36% to 39%; R&D, $75 million to $77 million; total OpEx, $139 million to $141 million; interest income, $4.5 million to $5.5 million; tax provision, $0.3 million to $0.4 million; and shares outstanding, 29 million to 30 million. Now, in this projection, we have included amortization, which is, for the full year, $22.5 million to $23 million and the related tax benefit, that is $2.2 million to $2.3 million. And the equity-based compensation that is included in the full-year projection is as follows. In the cost of goods, $0.9 million to $1 million; in the R&D, $7 million to $8 million; in the total operating expenses, $13 million to $15 million; and the income tax benefit is $0.4 million to $0.5 million. Tom Erhlich – RBC Capital Markets: Okay, great. Thanks. I'll yield the floor to others.

Your next question is a follow up question from the line of Shaul Eyal. Please proceed. Shaul Eyal – Oppenheimer & Co.: Thank you. My question on foreign exchange was just answered. Thanks.

And we are currently showing no more questions in queue. I'd like to turn the call over to management.

Thank you, everyone, for joining us today, and we look forward to report to you in 90 days.

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Have a good day.