Deswell Industries, Inc. Announces Third Quarter Results; Net Income Increases 37%

Business Wire, Feb 23, 2000

     Business Editors

     HONG KONG--(BUSINESS WIRE)--Feb. 23, 2000--Deswell Industries,
Inc. (NASDAQ NM Symbol: DSWLF) today announced its results for the
third quarter and nine months ended December 31, 1999.
     Net sales for the quarter were $17.8 million, an increase of 41%
compared to sales of $12.6 million in the third quarter ended December
31, 1998. Operating income increased 40% to $3.2 million, compared to
$2.3 million in the previous year, and net income increased 37% to
$2.9 million, compared to $2.1 million in the previous year. Basic
earnings per share and diluted earnings per share increased 40% and
39% to $0.55 and $0.54 respectively (based on 5,348,000 and 5,415,000
weighted average shares outstanding, respectively), compared to $0.39
and $0.39 respectively (based on 5,478,000 and 5,487,000 weighted
average shares outstanding, respectively), in the third quarter ended
December 31, 1998.
     Net sales for the nine months ended December 31, 1999 were $46.0
million, an increase of 5% compared to sales of $43.9 million for the
corresponding period in 1998. Operating income decreased 13% to $8.6
million, compared to $9.9 million in the previous year, and net income
decreased 3% to $8.4 million, compared to $8.6 million in the previous
year. Basic earnings per share and diluted earnings per share
decreased 2% to $1.54 and $1.54 respectively (based on 5,433,000 and
5,451,000 weighted average shares outstanding, respectively), compared
to $1.58 and $1.56 respectively (based on 5,478,000 and 5,525,000
weighted average shares outstanding, respectively), for the nine
months ended December 31, 1998.
     The Company reported a continued strong financial position with
book value per share of $9.56 and cash per share of $5.36. The Company
has no short term or long term debt.
     Mr. Richard Lau, Chief Executive Officer, commented, "The third
quarter ended December 31, 1999 continued to reflect a sustained
recovery in our business. Jetcrown, our plastic division, recorded a
69% and 28% increase in net revenue for the quarter and for the nine
months respectively over the prior year. The substantial improvement
is mainly attributed to expanded business with our existing strong
customer base as well as the increasing business from our new
customers. Though there is an increase in oil prices, management has
securely hedged its resin supply to help ensure that our business will
not be affected by pricing. The purchase of $2 million worth of resin
has resulted in a substantial increase in inventory as of December 31,
1999."
     "With regards to the recent purchase of the 35.1% minority
interest in our metal operation," Mr. Lau continued, "the metal
operation and management was reorganized after the acquisition. We
expect to see an improvement in that business over the next three to
six months. We anticipate expanding capacity at our metallic
manufacturing facility based on our anticipation of increased order
flow to this division. We are pleased to see that the electronic and
metallic business recorded a 9% increase in net revenue for the
quarter despite a decrease of 22% in net revenue for the nine months.
Kwanasia, our electronic operation, has not recovered as substantially
as our plastic operation since it is undergoing a strategic change in
its product mix. While we will continue our OEM and subcontract
business, Kwanasia's research and development team in Shenzhen has
been working on development and production of our own security and
telecommunication products. We anticipate introducing the new products
into the marketplace in the coming year."
     Deswell manufactures injection-molded plastic parts and
components and electronic products and subassemblies and metallic
products for original equipment manufacturers ("OEMs") and contract
manufacturers at its factories in the People's Republic of China. The
Company produces a wide variety of plastic parts and components used
in the manufacture of consumer and industrial products; printed
circuit board assemblies using surface mount ("SMT"), and pin-through
hole ("PHT") interconnection technologies; and finished products such
as telephones, telephone answering machines, sophisticated
studio-quality audio equipment and computer peripherals. The Company's
customers include Mita Industrial (H.K.) Limited, Epson Precision
(H.K.) Ltd., Namtai Electronic (Shenzhen) Co. Ltd., Inter-Tel
Incorporated, Vtech Communications Ltd., Behringer Holdings (Pte) Ltd.
and Shakespeare (H.K.) Limited.
     To learn more about Deswell Industries, Inc., please visit the
Company's web site at www.deswellindustries.com
-0-
*T

DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(U.S. dollars in thousands, except per share data)


                                  Quarter ended     Nine months ended
                                   December 31,          December 31,
                                 1999       1998       1999      1998
                              (Unaudited)          (Unaudited)

Net sales                      $ 17,809  $ 12,612   $ 46,000  $ 43,854
Cost of sales                    11,554     7,802     28,426    25,932

                               --------  --------   --------  --------
Gross profit                      6,255     4,810     17,574    17,922
Selling, general and
  administrative expenses         3,054     2,522      8,998     8,052
                               --------  --------   --------  --------
Operating income                  3,201     2,288      8,576     9,870
Interest expense                      -      (102)         -      (306)

Other income, net                   281       554        926     1,319
                               --------  --------   --------  --------
Income before income taxes        3,482     2,740      9,502    10,883
Income taxes                        339       433        698       635
                               --------  --------   --------  --------
Income before minority
  interests                       3,143     2,307      8,804    10,248
Minority interests                  199       159        411     1,608
                               --------  --------   --------  --------
Net income                     $  2,944   $ 2,148   $  8,393  $  8,640
                               ========  ========   ========  ========

Basic earnings per share        $  0.55   $  0.39    $  1.54   $  1.58
                               ========  ========   ========  ========
Weighted average number
  of shares outstanding
  (in thousands)                  5,348     5,478      5,433     5,478
                               ========  ========   ========  ========

Diluted earnings per share      $  0.54   $  0.39    $  1.54   $  1.56
                               ========  ========   ========  ========
Diluted weighted average
  number of shares outstanding
 (in thousands)                   5,415     5,487      5,451     5,525
                               ========  ========   ========  ========

-0-

DESWELL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
( U.S. dollars in thousands)

                                              December 31,  March 31,
                                                  1999        1999
ASSETS                                        (Unaudited)

Current assets:
       Cash and cash equivalents               $  26,716   $  27,556
       Restricted cash                             1,932       2,376
       Accounts receivable, net                   11,349       7,796
       Trading investment                            -           134
       Inventories                                 8,946       5,902
       Prepaid expenses and other
         current assets                            1,703       4,116
       Income taxes receivable                       164         397
                                               ---------   ---------
             Total current assets                 50,810      48,277

Long term investment                               1,072         -
Property, plant and equipment - net               16,927      15,639
Goodwill                                             558         357
                                               ---------   ---------
                   Total assets                $  69,367   $  64,273
                                               =========   =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
       Accounts payable                        $   4,942   $   2,873
       Customer deposits and accrued expenses      3,861       4,138
       Income taxes payable                          514         200
                                               ---------   ---------
           Total current liabilities               9,317       7,211
                                               ---------   ---------
Minority interests                                 8,909       8,280
                                               ---------   ---------
Deferred income tax                                   15          15
                                               ---------   ---------

Shareholders' equity
       Common stock
       - authorized 20,000,000 shares; issued
         and outstanding 5,347,931 shares at
         December 31, 1999 and 5,476,131
         shares at March 31, 1999                     53          55
       Additional paid-in capital                 24,100      25,355
       Retained earnings                          26,973      23,357
                                               ---------   ---------
            Total shareholders' equity            51,126      48,767
                                               ---------   ---------
            Total liabilities and
            shareholders' equity               $  69,367   $  64,273
                                               =========   =========
     --30--jl/ny*

     CONTACT: John Nesbett, ext. 303
              212-838-3777
              jgn@lhai.com

     KEYWORD: NEW YORK
     INDUSTRY KEYWORD: CHEMICALS/PLASTICS MANUFACTURING EARNINGS