DSP Group Issues Letter to Shareholders Regarding Potential Proxy Contest

DSP Group Issues Letter to Shareholders Regarding Potential Proxy Contest

SAN JOSE, Calif., March 8, 2013 (GLOBE NEWSWIRE) -- DSP Group^®, Inc.
(Nasdaq:DSPG), a leading global provider of wireless chipset solutions for
converged communications, issued today the following letter to its
shareholders:

March 8, 2013

Dear Fellow Shareholders:

We are writing to let you know about an important development that is likely
to have a significant impact upon DSP Group and its future.

Over the past twelve months, your board and management have been actively
taking steps to enhance shareholder value. We have restructured the company,
cut expenses, resumed non-GAAP profitability, generated $10 million in cash
flow from operations, continued our stock buyback program (which returned $8
million to shareholders during 2012) and focused on new growth initiatives
that fully leverage the company's core strengths in voice processing and short
range wireless communications.

These actions, which were unanimously supported by your board of directors,
have resulted in significantly improved operating results and have positioned
the company for long-term growth and success. These measures and results have
also been recognized by the investment community, as DSP Group has seen its
stock price increase by almost 25% over the last twelve months and more than
30% year-to-date, outperforming the Russell 2000 Index, PHLX Semiconductor
Index and the S&P Information Technology Index, as well as the stocks of
well-known semiconductor companies as Texas Instruments and Broadcom.

Despite this progress, Starboard Value, a New York-based investment advisor
which owns approximately 10% of the company's shares, has threatened the
company with a proxy fight for control of the board unless its demands are
met. While DSP Group's board and management are doing everything possible to
avoid a costly and distracting proxy contest, the board does not believe that
Starboard's demands are in the best interests of the company or its
shareholders, customers, or employees.

As you may be aware, on April 3, 2012 we entered into an agreement with
Starboard. This agreement allowed Starboard to nominate two directors, while
DSP Group agreed to the resignation of a then-serving director. Starboard also
agreed to a standstill clause that expires 90 days prior to the anniversary of
2012 annual meeting of shareholders (i.e. mid February 2013).

Now that the standstill period has expired, Starboard has made demands, which
if accepted could effectively give Starboard control of the company, despite
Starboard's ownership of only approximately 10% of the company's stock. Even
though they already have their two nominees on your board, Starboard is
demanding extra seats on the board, significant presence on all board
committees, majority on one committee, as well as the formation of a new board
committee, comprised of a majority of Starboard nominees, which may have broad
powers. We are confident that our current board is highly experienced,
diversified and qualified and that there is no need to change the composition
of our board.

Starboard has also called upon the company to cease work on the development of
new products and to focus all of our resources on our legacy technology. We
believe this demand shows a lack of understanding of the technology landscape,
where companies must innovate or perish. The corporate graveyard is littered
with tech companies that failed to improve and develop new products. Starboard
is also demanding that DSP Group put itself up for a quick sale, with a focus
on short-term returns and undermining shareholder value that would be
generated and realized in the mid-term by executing on the existing growth
initiatives.

Up until now, DSP Group's main focus has been on providing wireless
System-on-Chips (SoCs) for cordless DECT phones widely used in homes today, a
market where we have a 70% market share. Recently, we expanded into SoCs
targeting IP phones for office and businesses. We have quickly moved into
third position in this product category, following Texas Instruments and
Broadcom, and we are well positioned for strong revenue growth and market
share expansion in this segment.* Based on market research reports and DSP
Group internal estimates, there are approximately 45-50 million IP terminals
sold each year and the number of units sold annually is growing in the
mid-teens on a percentage basis, as more businesses replace old dual transfer
mode phones with new IP based telephony systems.*

On February 25^th, we unveiled our revolutionary HDClear solution, a
comprehensive voice enhancement product for mobile devices. Incorporating
proprietary, groundbreaking noise cancellation algorithms, HDClear
dramatically improves user experience and delivers unparalleled voice quality
and call intelligibility. This breakthrough technology, which we are very
excited about, will enable people to use their cell phones for conversation in
virtually any conditions, whether in a car, on a train or in other noisy
surroundings. HDClear will also facilitate the use of speech recognition and
voice commands by eliminating background noise.

According to a recent Reuters report, the market research firm International
Data Corporation estimates that 63 percent of all mobile units will have
technology to eliminate background noise by 2015, or about 1.7 billion units,
up from 500 million in 2012.* We intend to be a market leader in this category
and believe that HDClear will help build our mobile business segment to
account for a third of our revenue within three years.*

What's more, we expect noise elimination technology to be increasingly
integrated in mid-range smartphones and feature phones – as opposed to just
high end phones – as well as smart TVs, game consoles, personal computers and
automobiles.* All of this, we believe, bodes well for the future growth and
profitability of your company.*

To be clear, the board of DSP Group is open-minded about incremental and
fundamental changes that could drive shareholder returns and value, and we are
entirely open to working with Starboard and other shareholders who wish to
contribute productively to that end.The board's willingness to work
constructively with Starboard is demonstrated by the board's invitation to
Jeff Smith, Chief Executive Officer and Chief Investment Officer of Starboard,
to personally become a director of the company so that he and Starboard can
more fully understand the company, its business and prospects, and the
initiatives undertaken in response to Starboard's suggestions. This would also
allow Mr. Smith to participate directly in building value for all shareholders
of the company.That invitation remains open.

However, we also remain firm that turning control of the company over to a
board representing a single shareholder holding only approximately 10% of the
company's outstanding shares, would not be in the best interests of the
company, its shareholders or the goal of maximizing shareholder value,
especially when you consider that Starboard's expertise is in investing for
short- to medium-term returns and not in the long-term management of a
technology company with global operations.The present board – joined by Mr.
Smith, if he is willing to serve – has all the necessary experience and
expertise to best serve the company and its shareholders, and is committed to
maximizing shareholder value, and has demonstrated open-mindedness to doing
whatever is necessary to that end.

We firmly believe that the company is on the right track to reach an
inflection point and resume revenue growth by focusing and executing on its
growth drivers and estimate that these growth initiatives could generate
approximately $50 million dollars in 2014, more than enough to offset any
weakness in our DECT business.* We are fully committed to achieve these goals
and will not allow a potential proxy contest with Starboard to have any effect
on our continuing commitments to our customers, employees and suppliers. We
have made great progress to date and are very excited about our new products
and prospects and the future of our company.*

As always, the board and management are committed to create shareholder value
and welcome an open and collaborative dialog with all of the company's
shareholders, and we will keep you informed as these matters develop further.

Truly yours,

Eliyahu
Ayalon,
Ofer Elyakim

Chairman                                of                                 the 
Board
Chief Executive Officer.

Forward-Looking Information

Certain statements in this letter, including those denoted with *, qualify as
"forward-looking statements" under the Private Securities Litigation Reform
Act of 1995. Such 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 DSP Group's inability to develop and
produce new products at competitive costs and in a timely manner, unexpected
delays in the commercial launch of such products or failure of such products
to achieve broad market acceptance; slower than expected changes in the nature
of residential communications domain; DSPG Group's ability to control
operating costs; and other factorsdiscussed under "RISK FACTORS" in DSP
Group's current report on Form 10-K for the fiscal year ended December 31,
2011, which is available on DSP Group's Web site (www.dspg.com) under Investor
Relations.

Non-GAAP Financial Information

This letter contains references to non-GAAP financial measures. See DSP
Group's current report on Form 8-K, filed with the Securities and Exchange
Commission (the "SEC") on January 30, 2013, for a reconciliation of the
company's GAAP and non-GAAP net income (loss) and diluted net income (loss)
per share for the three- and twelve-month periods ended December 31, 2011 and
2012.

Important Additional Information

DSP Group, Inc., its directors and certain of its executive officers may be
deemed to be participants in the solicitation of proxies from DSP Group's
shareholders in connection with the matters to be considered at DSP Group's
2013 Annual Meeting. DSP Group intends to file a proxy statement with the SEC
in connection with any such solicitation of proxies from DSP Group
shareholders. DSP GROUP SHAREHOLDERS ARE STRONGLY ENCOURAGED TO READ ANY SUCH
PROXY STATEMENT AND ACCOMPANYING PROXY CARD WHEN THEY BECOME AVAILABLE AS THEY
WILL CONTAIN IMPORTANT INFORMATION. Information regarding the ownership of DSP
Group's directors and executive officers in DSP Group stock, restricted stock
and options is included in their SEC filings on Forms 3, 4 and 5, which can be
found at the company's investor relations website (www.dspg.com) under
Investor Relations. More detailed information regarding the identity of
potential participants, and their direct or indirect interests, by security
holdings or otherwise, will be set forth in the proxy statement and other
materials to be filed with the SEC in connection with DSP Group's 2013 Annual
Meeting. Information can also be found in DSP Group's Annual Report on Form
10-K for the fiscal year ended December 31, 2011, which is also available on
DSP Group's Web site (www.dspg.com) under Investor Relations. Shareholders
will be able to obtain any proxy statement, any amendments or supplements to
the proxy statement and other documents filed by DSP Group with the SEC for no
charge at the SEC's website at www.sec.gov. Copies will also be available at
no charge at DSP Group's website at www.dspg.com or by writing to DSP Group at
2580 North First Street, Suite 460, San Jose, CA95131.

The DSP Group, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=6171

CONTACT: Investor Relations
         Christopher Basta
         Director of Investor Relations, DSP Group
         Work: 1-408-240-6844
         Cell: 1-631-796-5644
         chris.basta@dspg.com
        
         Daniel H. Burch, CEO
         MacKenzie Partners, Inc.
         Work: 1-212-929-5748
         Cell: 1-516-429-2722
         dburch@mackenziepartners.com
        
         Media Relations
         Mike Sitrick and Jeff Lloyd
         Sitrick And Company
         Work: 1-310-788-2850
         Jeff_Lloyd@sitrick.com
         Mike_Sitrick@sitrick.com

DSP Group