915778--3/15/2006--DSP_GROUP_INC

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{product, market, service}

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{property, intellectual, protect}

{stock, price, share}

{system, service, information}

{acquisition, growth, future}

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We rely on a primary distributor for a significant portion of our total revenues and the failure of this distributor to perform as expected would materially reduce our future sales and revenues. Because our products are components of end products, if OEMs do not incorporate our products into their end products or if the end products of our OEM customers do not achieve market acceptance, we may not be able to generate adequate sales of our products. We generate a significant amount of our total revenues from the sale of Integrated Digital Telephony (IDT) products and our business and operating results may be materially adversely affected if we do not continue to succeed in the highly competitive IDT market. Because our quarterly operating results may fluctuate significantly, the price of our common stock may decline. Our gross margins and profitability may be materially adversely affected by the continued decline in average selling prices of our products and other factors, including increases in assembly and testing expenses. Because we depend on independent foundries to manufacture all of our integrated circuit products, we are subject to additional risks that may materially disrupt our business. Because the manufacture of our products is complex, the foundries on which we depend may not achieve the necessary yields or product reliability that our business requires. As we depend on independent subcontractors, located in Asia, to assemble and test our semiconductor products, we are subject to additional risks that may materially disrupt our business. Because we have significant international operations, we may be subject to political, economic and other conditions relating to our international operations that could increase our operating expenses and disrupt our business. In order to sustain the future growth of our business, we must penetrate new markets and our new products, such as our DECT products, must achieve widespread market acceptance. There are several emerging market trends that may challenge our ability to continue to grow our business. The possible emerging trend of our OEM customers outsourcing their production may cause our revenue to decline. Because we have significant operations in Israel, we may be subject to political, economic and other conditions affecting Israel that could increase our operating expenses and disrupt our business. Our future profits may be diminished if the current Israeli tax benefits that we enjoy are reduced or withheld. We may engage in future acquisitions that could dilute our stockholders equity and harm our business, results of operations and financial condition. Third party claims of infringement or other claims against us could adversely affect our ability to market our products, require us to redesign our products or seek licenses from third parties, and seriously harm our operating results and disrupt our business. We may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position. Because our products are complex, the detection of errors in our products may be delayed, and if we deliver products with defects, our credibility will be harmed, the sales and market acceptance of our products may decrease and product liability claims may be made against us. Our executive officers and key personnel are critical to our business, and because there is significant competition for personnel in our industry, we may not be able to attract and retain such qualified personnel. We are exposed to fluctuations in currency exchange rates. Because the markets in which we compete are subject to rapid changes, our products may become obsolete or unmarketable. Because the markets in which we compete are highly competitive, and many of our competitors have greater resources than we do, we cannot be certain that our products will be accepted in the marketplace or capture market share. We may experience difficulties in transitioning to smaller geometry process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses. Newly adopted accounting standard that requires companies to expense stock options will result in a decrease in our earnings and our stock price may decline. Our certificate of incorporation and bylaws contain anti-takeover provisions that could prevent or discourage a third party from acquiring us. Our stock price may be volatile so you may not be able to resell your shares of our common stock at or above the price you paid for them.

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915778--3/15/2006--DSP_GROUP_INC_/DE/