UPDATE 2-DSP Group sees poor Q3 on weak phone demand

* Non-GAAP net profit $520,000 vs $970,000 loss forecast

* Q2 rev fell 24 percent to $44.2 mln vs $44.7 mln forecast

* Sees Q3 rev $35 mln-$38 mln, net loss $1 mln-$2 mln

* Shares up 2.7 percent in early Nasdaq trade

TEL AVIV, July 30 (Reuters) - Multimedia chip provider DSP Group Inc warned of an even weaker third quarter after second period net profit tumbled 75 percent as weak sales in cordless phone markets in Europe pulled down revenue.

Israel-based DSP makes wireless chips for cordless DECT phones and other consumer telecom products. Its voice over internet chips are incorporated in four of six new phones sold by Panasonic for the office market while Germany's Gigaset also launched a new line of products based on DSP's VoIP chips.

But DSP expects a slowdown in demand for consumer electronics to feed into weak sales of DECT phones in the third quarter in both Europe and the United States.

"The weakness expected in European sales is seen also in landline telephone and home router markets, mainly due to delays in launching new products," DSP Chief Executive Ofer Elyakim said on a conference call.

DSP projects third-quarter revenue of $35 million to $38 million and a net loss excluding one-off items of $1 million to $2 million, compared with sales of $48.4 million and a loss of $850,000 a year earlier.

It is also well below analysts expectations of revenue of $49.6 million and profit of $1.4 million, according to Thomson Reuters I/B/E/S.

In the second quarter, the company made $520,000 net profit on revenues down 24 percent at $44.2 million, ahead of a forecast loss of $970,000 loss, according to Thomson Reuters I/B/E/S, and compared with $2.03 million profit in the same period last year.

DSP said in April it expected second quarter revenue of $41 million to $47 million and a 5 cent loss per share.

Nasdaq-listed DSP's shares were up 2.7 percent at $6.14 in early trading.

A reorganisation of its European operations that included a delay in developing the next generation of some products has helped the company to cut costs by 20 percent.

The company had predicted revenue in the second half of the year would be higher than in the first half.

"Our second quarter results were better than previously expected, driven by higher gross margins and lower operating expenses," Elyakim said.

"Despite current market weakness, we remain on track to meet our objective of generating positive operating cash flows this year."

Operating expenses in the quarter fell 20 percent to $19.3 million. It projects to reduce expenses by another $3 million in the second half of the year.