UPDATE 1-Israel's DSP Group sees better Q2 after Q1 profit slides

Thu May 1, 2014 10:33am EDT

(Adds Q2 outlook, share reaction, CEO comments from conference call)

JERUSALEM May 1 (Reuters) - Multimedia chip maker DSP Group on Thursday reported lower first quarter net profit as excess inventories led to a drop in sales.

DSP said on Thursday it earned 3 cents per diluted share excluding one-time items in the quarter, compared with 11 cents a share a year earlier. Revenue fell 17 percent to $32.9 million, the middle of DSP's own forecast of $30-$35 million.

Israel-based DSP, which makes wireless chips for cordless DECT phones and other consumer telecom products, had also expected earnings per share of 1 cent ex-items.

"We believe that the excess inventory depletion cycle which negatively impacted revenues in the first quarter, as originally expected, is now behind us and we are well positioned for sequential revenue growth in the second quarter," said Ofer Elyakim, DSP's chief executive.

DSP in a conference call with analysts projected second-quarter revenue of $34-$38 million, compared with $40.7 million a year ago. It also estimates EPS of 5-6 cents, versus 15 cents in the second quarter of 2013.

He said the company would soon start benefiting from a new chip that neutralises background noise in mobile phones. The chip, which will be integrated into several models of leading makers of smartphones, will be available later this year, Elyakim said.

"Device manufacturers and cellular operators are working to improve the quality and applications of voice through increased adoption of advanced processing technologies and DSP will benefit from this trend," he said.

DSP's Nasdaq-listed shares were up 1.9 percent at $8.11 in morning trading. (Reporting by Steven Scheer; Editing by Tova Cohen)

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