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 include, without limitation, statements regarding:

• Our expectation that sales from Digital Enhanced Cordless Telephony ("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 2009;

• Our belief that international sales will continue to account for a significant portion of our net product sales for the foreseeable future;

• Our belief that sales to our Hong Kong-based customers will 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;

• Our belief that our revenues and gross profit will be lower in 2009 as compared to 2008 mainly due to the global economic downturn generally and the significant declines in the semiconductor and consumer electronics industries specifically;

• Our belief that U.S. sales of our 2.4GHz and 5.8GHz products will continue to decrease for the remainder of 2009 with a sharper decrease in sales of our 5.8GHz products;

• Our belief that 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 will continue for the remainder of 2009;

• Our belief 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 our DECT, 2.4GHz and 5.8GHz product, for the long term;

• Our belief that the market will remain price sensitive for the remainder of 2009 and that price erosion will continue;

• Our belief that research and development expenses in absolute dollars will be lower in 2009 as compared to 2008;

• Our belief that interest rate fluctuations will not have a material effect on our financial position on an annual or quarterly basis; and

• Our belief that our available cash, cash equivalents, cash deposits and marketable securities at June 30, 2009 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, our dependence on one primary distributor, our OEM relationships and competition, 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.

Business Overview

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. Our current primary focus is digital cordless telephony with sales of our in-house developed Communications over Internet Protocol (CoIP), 1.9GHz (Digital Enhanced Cordless Telephony (DECT)), 2.4GHz and 5.8GHz chipsets representing approximately 88% of our total revenues for the first half of 2009.

Our business operates in a highly competitive environment. Our revenues were $91.9 million for the first half of 2009, a decrease of 37% in comparison to the same period of 2008. During the first six months of 2009, sales of our DECT 6.0 products in the U.S. market increased from $32.8 million for the first half of 2008 to $39.7 million for the first half of 2009. We believe that sales of our DECT 6.0 products in the U.S. market will continue to increase for the remainder of 2009 on account of the continued decrease in sales of our 2.4GHz and 5.8GHz products. Competition has historically increased pricing pressures for our products and decreased our average selling prices, and we believe this trend will continue for the remainder of 2009. Our gross margin decreased to 35.3% of total revenues for the first half of 2009 from 36% for the first half of 2008, primarily due to the decline in overall revenues, the continued decline in average selling prices of our products, and increased sales of DECT products with lower gross margin in lieu of 5.8GHz and 2.4GHz products with higher gross margin. In addition to the general market competitiveness, the cordless telephony market is 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 2009 and expect price erosion to continue. Moreover, various other factors, including increases in the cost of raw materials and commodities and our suppliers passing such increases onto us, increases in silicon wafer costs and increases in production, assembly and testing costs, all may decrease our gross profit in future periods. Furthermore, the current worldwide economic downturn has resulted in a decrease in product demand, excess customer inventories, accelerated erosion of prices, longer product cycles and decision-making processes at our customers' organizations, reduced corporate profits and capital, liquidity concerns and general adverse business conditions. The downturn also has resulted in a significant downturn of the semiconductor industry, the industry in which we operate. Moreover, our semiconductor OEM customers incorporate our chipsets into consumer electronics products, the demand for which has significantly slowed due to the economic downturn and decreased consumer confidence. We currently anticipate that our revenues and gross profit will be lower in 2009 as compared to 2008 mainly due to the global economic downturn generally and the significant declines in the semiconductor and consumer electronics industries specifically.

Moreover, we believe 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 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. The shift resulted 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 than our 2.4GHz and 5.8GHz products. 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 decreased our operating expenses by 29% to $50 million for the first half of 2009 as compared to the same period of 2008. Our operating loss also decreased to $17.5 million for the first half of 2009 as compared to $17.9 million

for the same period of 2008. In addition to improving operational efficiencies, we continue to expand our presence in the U.S. and European DECT markets to maintain our business. Revenues derived from the sale of DECT products represented 78% of our total revenues for the first half of 2009. In addition to DECT technologies, we are investing in developing CoIP technologies in-house. 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 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 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 June, 2009, our principal source of liquidity consisted of cash and cash equivalents of approximately $46.2 million and marketable securities and short term deposits of approximately $64.5 million, totaling $110.7 million. Our cash, investments and securities decreased during the first half of 2009 mainly due to the repurchase of 4,186,603 shares of our common stock from NXP B.V. for approximately $20,028,000.

RESULTS OF OPERATIONS

Total Revenues. Our total revenues were $52.0 million for the second quarter of 2009, as compared to $74.2 million for the same period in 2008. Our total revenues were $91.9 million for the first six months of 2009, as compared to $146.9 million for the same period in 2008. This decrease of 37% for the first half of 2009 as compared to the first half of 2008 was primarily as a result of decreased sales. Sales of DECT products for the second quarter of 2009 and 2008 were $42.6 million and $52.6 million, representing approximately 82% and 68%, respectively, of total revenues, a decrease of 19% in absolute dollars when comparing sales for the second quarter of 2009 to sales for the second quarter of 2008. Sales of DECT products for the first half of 2009 and 2008 were $71.5 million and $99.5 million, respectively, representing approximately 78% and 68%, respectively, of total revenues, a decrease of 28% in absolute dollars when comparing sales for the second quarter of 2009 to sales for the second quarter of 2008. During the first six months of 2009, sales of our DECT 6.0 products in the U.S. market increased from $32.8 million for the first half of 2008 to $39.7 million for the first half of 2009, representing approximately 22% and 43% of total revenues for the first six months 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 second quarter of 2009 and 2008 were $1.0 million and $4.0 million, respectively, representing approximately 2% and 5%, respectively, of our total revenues, a decrease of 75% in absolute dollars when comparing sales for the second quarter of 2009 to sales for the second quarter of 2008. Sales of 5.8GHz products for the first half of 2009 and 2008 were $1.8 million and $9.5 million, respectively, representing approximately 2% and 6%, respectively, of our total revenues, a decrease of 81% in absolute dollars when comparing sales for the first half of 2009 to the first half of 2008. Sales of 2.4GHz products were $4.6 million and $7.7 million for the second quarter of 2009 and 2008, respectively, represented 9% and 10%, respectively, of our total revenues for the second quarter of 2009 and 2008, representing a decrease of 40% in absolute dollars when comparing sales for the second quarter of 2009 to sales for the second quarter of 2008. Sales of 2.4GHz products for the first half of 2009 and 2008 were $11.4 million and $17.8 million, respectively, representing approximately 12% of our total revenues for both periods and a decrease of 35% in absolute dollars when comparing sales for the first half of 2009 to the first half 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.

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

                       Three months ended June 30,         Six months ended June 30,
                          2009              2008            2009              2008
    United States    $          558    $        2,299   $         946    $        8,965
    Japan                    17,544            24,460          33,351            50,531
    Europe                    3,856             6,447           7,269            16,857
    Hong-Kong                24,256            34,616          41,473            59,527
    Other                     5,806             6,330           8,895            11,001

    Total revenues   $       52,020    $       74,152   $      91,934    $      146,881

Sales to our customers in Hong Kong decreased for the first six months of 2009 as compared to the same period of 2008, representing a 30% decrease in absolute dollars. The decrease in our sales to Hong Kong for the comparable periods resulted from (i) a decrease in sales to VTech, representing a 10% decrease in absolute dollars, and (ii) a decrease in sales to CCT Telecom, representing a 55% decrease in absolute dollars. The decrease in our sales to Japan for the comparable periods resulted from (i) a decrease in sales to Panasonic, representing a 35% decrease in absolute dollars, and (ii) a decrease in sales to the Japanese domestic market and to Uniden, a decline of 34% and 26%, respectively, in absolute dollars. We anticipate that sales to our Hong Kong-based customers will 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.

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. VTech Holdings Limited is a significant OEM customer based in Hong Kong. Sales to VTech represented 33% and 25% of total revenues for the three months ended June 30, 2009 and 2008, respectively. Sales to VTech represented 31% and 21% of total revenues for the six months ended June 30, 2009 and 2008, respectively. The increase was primarily due to the decrease in overall revenues for the first half of 2009, which increased the percentage of revenues attributable to VTech of our total revenues for the first half of 2009.

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, accounted for 21% of our total revenues for both the three months ended June 30, 2009 and 2008. Additionally, Tomen Electronics accounted for 23% of our total revenues for both the six months ended June 30, 2009 and 2008.

Tomen Electronics sells our products to a limited number of customers. One customer, Panasonic Communications Co., Ltd., has continually accounted for a majority of the sales through Tomen Electronics. Sales to Panasonic through Tomen Electronics generated approximately 15% for both the three and six months ended June 30, 2009. Sales to Panasonic through Tomen Electronics generated approximately 12% and 14% of our revenues for the three and six months ended June 30, 2008, respectively. Sales to Uniden through Tomen Electronics or directly to Uniden represented 13% and 12% of our total revenues for the three months ended June 30, 2009 and 2008, respectively. Sales to Uniden represented 13% and 11% of our total revenues for the six months ended June 30, 2009 and 2008, respectively.

The loss of VTech or Tomen Electronics as a distributor and our inability to generate revenues from other sources in a timely manner would harm our results of operations. Additionally, the loss of Panasonic and Tomen Electronics' inability to thereafter effectively market our products would also harm our results of operations.

Significant Products. Revenues from our DECT products represented 82% and 78% of our total revenues for the three and six months ended June 30, 2009, respectively. Revenues from our 5.8GHz and 2.4GHz digital products represented 2% and 9%, respectively, of our total revenues for the second quarter of 2009. Revenues from our 5.8GHz

and 2.4GHz digital products represented 2% and 12%, respectively, of our total revenues for the first half of 2009. 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 remainder of 2009. However, we believe that sales of our 2.4GHz and 5.8GHz products will decrease for the remainder of 2009 with a sharper decrease in sales of our 5.8GHz products. 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 for the long term.

Gross Profit. Gross profit as a percentage of revenues was 36.7% for the second quarter of 2009 and 35% for the second quarter of 2008. Gross profit as a percentage of revenues was 35.3% for the first half of 2009 and 36% for the first half of 2008. The decrease in our gross profit for the first half of 2009 as compared to the first half of 2008 was primarily due to the decline in overall revenues, the continuing decline in the average selling prices of our products and increased sales of DECT products with lower average gross margin on account of 5.8GHz and 2.4GHz products with higher average gross margin. The decrease was offset to some extent by savings realized from the shut down of, or reduction in capacity at, some of our sites as part of our restructuring plans. The increase in our gross margin for the second quarter of 2009 as compared to the second quarter of 2008 was mainly due to savings realized from the shut down of, or reduction in capacity at, some of our sites as part of our restructuring plans and cost reductions achieved from some of our suppliers. 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 cost reductions, roll-out of new products in any given period, our success in introducing new engineering processes to reduce manufacturing costs, increases in the cost of raw materials such as gold and oil and silicon wafers and increases in production, assembly and testing costs. Moreover, our suppliers may pass the increase in the cost of raw materials and commodities 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 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.

Operating Expenses. Our operating expenses decreased by 29% for the first half of 2009 compared to the same period of 2008, reaching a level of $50.0 million. The decrease in operating expenses for the first half of 2009 as compared to the same period of 2008 was primarily attributable to (i) a decrease in the amortization cost for intangibles assets related to the acquisition (the "Acquisition") of the cordless and VoIP terminals business (the "CIPT Business") of NXP B.V. in the amount of $5.4 million, resulting from the recordation of impairment costs related to such intangible assets in 2008 which decreased the original cost of such intangible assets for future amortization measurement,
(ii) a decrease in payroll and facilities expenses related to research and development, resulting from our restructuring plans, which included a reduction in the numbers of employees and the shutdown of some of our sites, (iii) a decrease in IP purchases and tapeout expenses related to research and development, (iv) a decrease in sales commissions due to decreased sales for the first half of 2009, and (v) a decrease in equity-based compensation expenses. Our operating loss was $17.5 million for the first half of 2009, as compared to $17.9 million of operating loss for the same period of 2008. The decrease in operating loss was mainly due to the decrease in operating expenses as noted above, offset to some extent by the decrease in overall revenues and gross margin.

Research and Development Expenses. Our research and development expenses decreased to $13.6 million for the second quarter of 2009 from $18.9 million for the second quarter of 2008. Research and development expenses decreased to $27.4 million for the first six months of 2009 from $38.9 million for the first six months of 2008. The decrease for the

second quarter and the first half of 2009 in research and development expenses, as compared to the same periods in 2008, was mainly attributed to (i) savings of $8.8 million for the first six months of 2009 and $4.2 million for the second 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) savings of $0.9 million for the first six months of 2009 in IP purchases and tapeouts expenses (during the second quarter of 2009 there was an increase of $0.5 million in IP and tapeouts expenses as compared to the same period in 2008), (iii) 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, (iv) a decrease in equity-based compensation expenses of $1.0 million for the first six months of 2009 as compared to the first six months of 2008 and $0.5 million for the second quarter of 2009 as compared to the second quarter of 2008, and (v) a decrease in other expenses such as travel expenses for the first six months and the second quarter of 2009 as compared to 2008.

Our research and development expenses as a percentage of total revenues were 26% and 25% for the three months ended June 30, 2009 and 2008, respectively, and 30% and 26% for the six months ended June 30, 2009 and 2008, respectively. The increase in research and development expenses as a percentage of total revenues for both periods was due to the decrease in absolute dollars of our total revenues in 2009.

As we implemented two restructuring plans following the acquisition of the CIPT Business to improve operational efficiencies at our various sites and reduce our operating expenses for 2009, our research and development expenses in absolute dollars are expected to be lower in 2009 as compared to 2008.

Research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, expenses related to IP purchases, tapeout and mask work, subcontracting, labor contractors and engineering expenses, depreciation and maintenance fees related to equipment and software tools used in research and development, and facilities expenses associated with and allocated to research and development activities.

Sales and Marketing Expenses. Our sales and marketing expenses decreased to $4.3 million for the second quarter of 2009 from $5.6 million for the second quarter of 2008. Our sales and marketing expenses were $8.8 million for the six months ended June 30, 2009, as compared to $11.6 million for the same period in 2008. The decrease in sales and marketing expenses for both periods was mainly attributed to (i) a decrease in sales commissions paid due to a lower level of revenues subject to sales commissions for the second quarter of 2009 and first six month of 2009, as compared to the same periods of 2008, and (ii) a decrease in payroll expenses due to a lower number of sales and marketing employees and contractors, partially as a result of our restructuring plans and the devaluation of the NIS against the U.S. dollar.

Our sales and marketing expenses as a percentage of total revenues were 8% for . . .