The discussions in this Quarterly Report on Form 10-Q should be read in conjunction with our accompanying financial statements and the related notes thereto. This Quarterly Report on Form 10-Q contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act of 1934, as amended. All statements included or incorporated by reference in this Quarterly Report, other than statements that are purely historical, are forward-looking statements. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and similar expressions also identify forward looking statements. The forward looking statements in this Quarterly Report on Form 10-Q are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward looking statements and include, without limitation, statements regarding:

• Our expectation that sales from DECT and 2.4GHz products and, to a lesser extent, 5.8GHz products, will continue to represent a significant percentage of our revenue for the remainder of 2008 and in future periods;

• Our belief that U.S. sales of our 2.4GHz and 5.8GHz products will continue to decrease during the fourth quarter of 2008 with a sharper decrease in sales of our 5.8GHz products;

• Our belief that for the long term, the rapid deployment of new communication access methods, as well as the projected lack of growth in fixed-line telephony, will reduce our total revenues derived from, and unit sales of, cordless telephony products;

• Our expectation that the shift from 2.4GHz and 5.8GHz products to DECT 6.0 products in the U.S. market will continue at a fast pace during the fourth quarter of 2008;

• Our belief that revenues from our DECT products will continue to increase in absolute number and as a percentage of total revenues in 2008 as compared to 2007;

• Our belief that price sensitivity in the market will continue for the remainder of 2008 and in 2009;

• Our expectation that the cost-cutting measures implemented during the third quarter of 2008 will reduce our operating expenses in 2009;

• Our belief that our future growth will depend on our success in maintaining our presence in the European DECT market, expanding our market share in other developing markets, maintaining our market share during the shift from the traditional 2.4GHz and 5.8 GHz products to DECT 6.0 products in the U.S. market and the general market deployment and acceptance of our DECT and CoIP products;

• Our belief that our Hong Kong-based customers will continue to increase in future periods in absolute dollars and as a percentage of total revenues; and

• Our belief that our available cash and cash equivalents at September 30 2008 should be sufficient to finance our operations for both the short and long term.

All forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement. Many factors may cause actual results to differ materially from those expressed or implied by the forward-looking statements contained in this report. These factors include, but are not limited to, fluctuations in sales of our 5.8GHz and DECT 6.0 products; successful implementation of the restructuring plan to reduce 2009 operating expenses; slower than expected change in the nature of residential communications domain; unexpected delays in the introduction of new products or failure of such products to achieve broad market acceptance; our ability to develop and produce new products at competitive costs; decline or fluctuations in gross margins and the effect on revenues and profitability; and general market demand for products that incorporate our technology in the market, as well as those risks described in Part II - Item 1A
- "Risk Factors" of this Form 10-Q.

Overview

The following discussion and analysis is intended to provide an investor with a narrative of our financial results and an evaluation of our financial condition and results of operations. The discussion should be read in conjunction with our consolidated financial statements and notes thereto.

Acquisition of the Cordless and VoIP Terminals Business of NXP B.V.

On September 4, 2007, we acquired the cordless and VoIP terminals business (the "CIPT Business") of NXP B.V. ("NXP") (the "Acquisition"). In connection with the Acquisition, we paid NXP approximately $200 million in cash and issued 4,186,603 shares of our common stock to NXP. We also agreed to a contingent cash payment of up to $75 million payable based on future revenue performance of the products of the CIPT Business for the first four financial quarters following the closing of the Acquisition. Such revenue milestones were not achieved and no cash payments were made to NXP.

Information contained in this Quarterly Report, including forward looking information and discussions about our business and market trends, should be read in light of the Acquisition.

Business

DSP Group is a fabless semiconductor company that is a leader in providing chipsets to telephone equipment and design manufacturers (OEMs and ODMs) for incorporation into consumer products for the short-range residential wireless communications market.

In recent years, we have become a worldwide leader in developing and marketing Total Telephony Solutions™ for the wireless residential market by taking advantage of the market transformation from analog-based technologies to digital-based technologies for telephony products and the shift from 900MHz to 2.4GHz to 5.8GHz technologies. One additional primary factor that contributed to our success in recent years is our penetration of the DECT market in Europe and our current presence in the U.S. DECT market (known as DECT 6.0).

Our current primary focus is digital cordless telephony with sales of our in-house developed Cordless over Internet Protocol (CoIP), 1.9GHz (Digital Enhanced Cordless Telephony (DECT)), 2.4GHz and 5.8GHz chipsets representing approximately 89% of our total revenues for the first nine months of 2008. Our revenues were $234.3 million for the first nine months of 2008, an increase of 43% in comparison to the same period during 2007. This increase was mainly the result of increased sales of our DECT products, mainly due to the Acquisition, which increase was partially offset by decreased sales of our 2.4GHz and 5.8GHz products. During the first nine months of 2008, we experienced a decrease in sales of 2.4 GHz and 5.8GHz products in the U.S. market, our primary market, where the shift to DECT 6.0 products is occurring faster than anticipated. We believe that U.S. sales of our 2.4GHz and 5.8GHz products will continue to decrease during the fourth quarter of 2008 with a sharper decrease in sales of our 5.8GHz products. We also anticipate that the shift to DECT 6.0 products in the U.S. market to continue at a fast pace during the fourth quarter of 2008.

Notwithstanding our successes to date, our business operates in a highly competitive environment. Competition has historically increased pricing pressures for our products and decreased our average selling prices. To address pricing pressures, we may need to offer our products in the future at lower prices which may result in lower gross profits. Our gross margin decreased to a level of 37% of total revenues for the first nine months of 2008 from 40% for the first nine months of 2007, primarily due to the continued decline in the average selling prices of our products and the increased sales of DECT products with lower gross margin on account of 5.8GHz products with higher gross margin. The cordless telephony market is additionally undergoing a challenging period of transition characterized by stagnation due to the lack of new model launches and market anticipation of next generation products. As a result, we expect the market to remain price sensitive for the remainder of 2008 and in 2009 and expect price erosion to continue. Moreover, various other factors, including increases in raw materials and commodity costs (including gold and oil) and our suppliers passing such increases onto us, increases in silicon wafer costs and increases in production, assembly or testing costs, all may decrease our gross profit in future periods. Furthermore, the current general worldwide economic downturn has resulted in slower economic activity, concerns about inflation and deflation, decreased consumer

confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. We operate in the semiconductor industry, which is cyclical, and the recent worldwide economic downturn may result in a significant downturn of the semiconductor industry. These downturns are characterized by a decrease in product demand, excess customer inventories, and accelerated erosion of prices. These conditions make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and could cause reduced spending on our products and services. Our results and future revenues could be harmed by the worldwide economic downturn and specifically the volatility in the semiconductor industry.

Operating expenses increased by 41% during the first nine months of 2008, as compared to the same period for 2007, reaching a level of $106.4 million. The increase in operating expenses for the first nine months of 2008 was primarily attributable to (i) the inclusion of the operating expenses of the CIPT Business in the amount of $24.5 million for the first nine months of 2008, in comparison to the inclusion of the operating expenses of the CIPT Business in the amount of $2.4 million only from September 4, 2007 for the first nine months of 2007,
(ii) the amortization of intangibles and other assets related to the Acquisition in the amount of $17.2 million for the first nine months of 2008, in comparison to $13.2 million in 2007, and (iii) an increase in IP, tapeout and payroll expenses related to research and development. Our operating loss was $20.6 million for the first nine months of 2008, approximately 9% of revenues, compared to $10.3 million of operating loss for the same period in 2007. The increase in operating loss was mainly due to the same factors as noted above for the increase in operating expenses. An additional factor for the increase in operating loss was the decrease in gross margin for the first nine months of 2008, as compared to the same period in 2007. Notwithstanding the increase in our operating expenses primarily due to the absorption of the operating expenses of the CIPT Business, there are no assurances that the proposed benefits of the Acquisition can be achieved or achieved at the levels currently anticipated, which could materially harm our business. During the third quarter of 2008, we implemented an additional restructuring plan, subsequent to the initial restructuring plan following the Acquisition, to improve operating efficiency at our various operating sites and to reduce our operating expenses for 2009. We recognized an expense of $1.87 million during the third quarter of 2008 associated with the additional restructuring plan.

There are also several emerging market trends that challenge our continued business growth potential. For example, the rapid deployment of new communication access methods, including mobile, wireless broadband, cable and other connectivity, as well as the projected lack of growth in products using fixed-line telephony, may reduce our revenues derived from, and unit sales of, cordless telephony products, which are currently our primary focus. Our business also may be affected by the outcome of the current competition between cellular phone operators and fixed-line operators for the provision of residential communication. Our revenues are currently primarily generated from sales of chipsets used in cordless phones that are based on fixed-line telephony. Another market trend that could affect the results of our operations is the shift in the U.S. digital telephony market, our primary market, from sales of 2.4GHz and 5.8GHz products towards DECT products, a trend that is occurring faster than anticipated. The shift results in an overall decrease in our revenues and gross margin as our DECT 6.0 products are sold at lower average selling prices and gross margin. We also are witnessing a move of manufacturing activities from large systems suppliers in the U.S., Japan and Europe to Southeast Asia, a trend that also could adversely affect our business.

We recognize the competitive landscape and are actively engaged in addressing these market challenges and trends. We continue to expand our presence in the U.S. and European DECT market to grow our business. Revenues derived from the sale of DECT products represented 70% of our total revenues for the first nine months of 2008. We believe that sales of our DECT products will increase in absolute number and as a percentage of total revenues in 2008 in comparison to 2007. In addition to DECT technologies, we are investing in developing CoIP technologies in house. We believe our future growth will depend on our success in maintaining our presence in the European DECT market, expanding our market share in other developing markets, maintaining our market share during the shift from the traditional 2.4GHz and 5.8GHz products to DECT 6.0 products in the U.S. market, and the general market deployment and acceptance of our DECT and CoIP products. Moreover, our strategic focus is to launch next generation products to capitalize on the transition underway in the residential communications market with the move from wireless voice communication to voice communication over IP networks and ultimately the convergence of voice, video and data communication. As an initial step, we have introduced products to facilitate the deployment of residential broadband services. Our long term goal is to leverage the Wi-Fi technology acquired in 2004 from Bermai Inc. to develop and offer products for home communication that integrate voice, data and video with broadband offerings. To that end, we recently introduced to the market the XpandR platform that integrates DECT and Wi-Fi capabilities to enable multimedia and web-related applications in our future products. However, our success in introducing new products and penetrating new markets may not occur and may require us to substantially increase our operating expenses. As a result, our past operating results should not be relied upon as an indication of future performance.

As of September 30, 2008, our principal source of liquidity consisted of cash and cash equivalents of approximately $64.1 million and marketable securities of approximately $56.3 million, totaling $120.4 million. Our cash, investments and securities were materially decreased during the first nine months of 2008 mainly due to the repurchase of 4.0 million shares of our common stock for approximately $43.9 million during the first nine months of 2008 (of which approximately $43.7 million was paid in cash as of September 30, 2008).

RESULTS OF OPERATIONS

Total Revenues.Our total revenues were $87.4 million for the third quarter of 2008 as compared to $61.9 million for the same period in 2007. Our total revenues were $234.3 million for the first nine months of 2008, as compared to 163.6 million for the same period in 2007. This represents an increase in revenues of 41% and 43% for the three months and first nine months ended September 30, 2008, as compared to the same periods in 2007. This increase was primarily as a result of the inclusion of the revenues of the CIPT Business, which is based primarily on sales of DECT products, partially offset by decreased sales of our 2.4GHz and 5.8GHz products. Sales of DECT products were $66.0 million and $165.2 million for the third quarter and first nine months of 2008, respectively, representing 75% and 70% of total revenues, respectively. Sales of DECT products were $25.1 million and $43.1 million for the third quarter and first nine months of 2007, respectively, representing 41% and 26% of total revenues, respectively. The increase in sales of DECT products for the first nine months of 2008, as compared to the same period in 2007, was mainly attributable to the consolidation of the results of the CIPT Business within our combined results beginning on September 4, 2007 and the shift from 2.4GHz and 5.8GHz products to DECT 6.0 products in the U.S. market. Sales of 5.8GHz products for the third quarter of 2008 and 2007 were $4.8 million and $13.8 million, respectively, representing approximately 5% and 22% of our total revenues, respectively, a decrease of 65% in absolute dollars when comparing sales for the third quarter of 2008 to sales for the third quarter of 2007. Sales of 5.8GHz products for the first nine months of 2008 and 2007 were $14.2 million and $51.0 million, respectively, representing approximately 6% and 31% of our total revenues, respectively, a decrease of 72% when comparing sales for the nine months of 2008 in relation to the same period of 2007. Sales of 2.4GHz products for the third quarter of 2008 and 2007 were $8.8 and $11.6 million, respectively, representing approximately 10% and 19% of our total revenues, respectively, a decrease of 24% in absolute dollars when comparing sales for the third quarter of 2008 to sales for the third quarter of 2007. Revenues from 2.4GHz products for the nine months of 2008 and 2007 were $26.6 million and $34.4 million, respectively, representing approximately 11% and 21% of our total revenues, respectively, a decrease of 23% in absolute dollars when comparing sales for the nine months of 2008 to the first nine months of 2007. A factor that may decrease our revenues for future periods is the continued shift from 2.4GHz and 5.8GHz products to DECT 6.0 products in the U.S. market, our primary market, as DECT 6.0 products are being sold at lower average selling prices than our 5.8GHz and 2.4GHz products.

The following table shows the breakdown of revenues for the periods indicated by geographic location (in thousands):

                                 Three months ended       Nine months ended
                                   September 30,            September 30,
                                  2008         2007       2008        2007
              United States    $     7,295   $    331   $  16,260   $     566
              Japan                 32,205     29,838      83,036      99,549
              Europe                 7,996      3,835      24,627       4,046
              Hong Kong             34,866     25,311      94,318      53,100
              Other                  5,006      2,551      16,009       6,329

              Total revenues   $    87,368   $ 61,866   $ 234,250   $ 163,590

Sales to our customers in Hong Kong increased for the first nine month of 2008 as compared to the same period in 2007, representing a 78% increase in absolute dollars ($57 million and $9.7 million of such revenues for the first nine months of 2008 and 2007, respectively, resulted from the inclusion of the CIPT Business in the combined results since

September 4, 2007). The increase in sales to Europe and the United States resulted mainly from the inclusion of the CIPT Business in the combined results since September 4, 2007. We anticipate that sales to our Hong Kong-based customers will continue to increase in future periods in absolute dollars and as a percentage of total revenues as a result of the expansion of our new DECT products, mainly to customers of the CIPT Business, which are sold to original design manufacturers (ODMs) that are mainly located in Hong Kong.

As our products are generally incorporated into consumer products sold by our OEM customers, our revenues are affected by seasonal buying patterns of consumer products sold by our OEM customers that incorporate our products. The fourth quarter in any given year is usually the strongest quarter of sales for our OEM customers and, as a result, the third quarter in any given year is usually the strongest quarter for our revenues as our OEM customers request increased shipments of our products in anticipation of the fourth quarter holiday season. This trend can be generally observed from reviewing our quarterly information and results of operations. However, the magnitude of this trend varies annually.

Significant Customers. The Japanese market and the OEMs that operate in that market are among the largest suppliers of residential wireless products with significant market share in the U.S. market. Revenues derived from sales through our largest distributor, Tomen Electronics Corporation ("Tomen Electronics"), accounted for 22% and 40% of our total revenues for the three months ended September 30, 2008 and 2007, respectively. Additionally, Tomen Electronics accounted for 23% and 46% of our total revenues for the nine months ended September 30, 2008 and 2007, respectively. The sales decrease for the comparable periods was primarily due to a decrease in sales to Panasonic and the Japanese domestic market. In addition, due to the increase in revenues for the first nine months of 2008 (mainly as a result of the inclusion of the revenues of the CIPT Business), the percentage of revenues attributable to Tomen out of our total revenues decreased.

Tomen Electronics sells our products to a limited number of customers. One customer, Panasonic Communications Co., Ltd. ("Panasonic"), has continually accounted for a majority of the sales through Tomen Electronics. Sales to Panasonic through Tomen Electronics generated approximately 12% and 14% of our revenues for the three and nine months ended September 30, 2008, respectively. Sales to Panasonic through Tomen Electronics generated approximately 24% and 29% of our revenues for the three and nine months ended September 30, 2007. Sales to Uniden through Tomen Electronics or directly to Uniden represented 15% and 9% of our total revenues for the three months ended September 30, 2008 and 2007, respectively. Sales to Uniden represented 13% and 16% of our total revenues for the nine months ended September 30, 2008 and 2007. The loss of Tomen Electronics as a distributor and our inability to obtain a satisfactory replacement in a timely manner would harm our sales and results of operations. Additionally, the loss of Panasonic and Tomen Electronics' inability to thereafter effectively market our products would also harm our sales and results of operations.

Other significant customers of the company include various Hong Kong-based OEMs. Sales to VTech represented 20% and 13% of total revenues for the three months ended September 30, 2008 and 2007, respectively. Sales to VTech represented 21% and 5% of total revenues for the nine months ended September 30, 2008 and 2007, respectively. Sales to CCT Telecom represented 9% and 14% of our total revenues for both the three and nine months ended September 30, 2008 and 2007, respectively. Sales to SunCorp represented 6% and 7% of our total revenues for the three months ended September 30, 2008 and 2007, respectively. Sales to SunCorp represented 4% and 10% of our total revenues for the nine months ended September 30, 2008 and 2007, respectively.

Significant Products. Revenues from our DECT products represented 75% and 70% of our total revenues for the three months and nine months ended September 30, 2008, respectively. Revenues from our 5.8GHz and 2.4GHz digital products represented 5% and 10%, respectively, of total revenues for the third quarter of 2008. Revenues from our 5.8GHz and 2.4GHz digital products represented 6% and 11%, respectively, of total revenues for the first nine months of 2008. We believe that sales of DECT and 2.4GHz digital products and, to a lesser extent, 5.8GHz digital products will continue to represent a substantial percentage of our revenues for the reminder of 2008 and in future period. However, we believe that U.S. sales of our 2.4GHz and 5.8GHz products will decrease in the fourth quarter of 2008 with a sharper

decrease in sales of our 5.8GHz products. For the long term, we believe that the rapid deployment of new communication access methods, as well as the projected lack of growth in fixed-line telephony, will reduce our total revenues derived from, and unit sales of, cordless telephony products, including future sales of our DECT, 2.4GHz and 5.8GHz products.

Gross Profit. Gross profit as a percentage of revenues was 38% for the third quarter of 2008 and 40% for the third quarter of 2007. Gross profit as a percentage of revenues was 37% for the first nine months of 2008 and 40% for the first nine months of 2007. The decrease in our gross profit was primarily due to the continuing decline in the average selling prices of our products and the increased sales of DECT products with lower average gross margin on account of 5.8GHz and 2.4GHz products with higher average gross margin. As gross profit reflects the sale of chips and chipsets that have different margins, changes in the mix of products sold have impacted and will continue to impact our gross profit in future periods. Our gross profit may decrease in the future due to a variety of factors, including the continued decline in the average selling prices of our products, changes in the mix of products sold, our failure to achieve the corresponding cost reductions, roll-out of new products in any given period and our failure to introduce new engineering processes, increases in raw materials such as gold and oil and silicon wafer costs and increases in production, assembly or testing costs. Moreover, our suppliers may pass the increase in raw materials and commodity costs onto us which would further reduce the gross margin of our products. We cannot guarantee that our ongoing efforts in cost reduction and yield improvements will be successful or that they will keep pace with the anticipated continuing decline in average selling prices of our products. One approach we are using to offset the expected decrease in gross profit is offering our customers "bare-die" chips that eliminate assembly and testing services in return for lower selling prices to our customers. Other steps we are taking include the implementation of cost improvement plans to reduce testing costs and offer our customers more cost effective products. However, we can provide no assurance that any alternative solutions we provide to our customers will be acceptable to them or that these steps will help us to offset the continued decrease in gross margins of our products.

Cost of goods sold consists primarily of costs of wafer manufacturing and fabrication, assembly and testing of integrated circuit devices and related overhead costs, and compensation and associated expenses related to manufacturing and testing support and logistics personnel.

Research and Development Expenses. Our research and development expenses increased to $17.9 million for the third quarter of 2008 from $13.9 million for the third quarter of 2007. Research and development expenses increased to $56.8 million for the first nine months of 2008 from $39.1 million for the first nine months of 2007. The increase for the third quarter and first nine months of 2008 in research and development expenses, as compared to the same period in 2007, was mainly attributed to (i) an increase in research and development expenses in . . .