sc13da206297095_0822011.htm

0000921895-11-001644.txt : 20110822 0000921895-11-001644.hdr.sgml : 20110822 20110822160032 ACCESSION NUMBER: 0000921895-11-001644 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20110822 DATE AS OF CHANGE: 20110822 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DSP GROUP INC /DE/ CENTRAL INDEX KEY: 0000915778 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942683643 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-52997 FILM NUMBER: 111049949 BUSINESS ADDRESS: STREET 1: 2580 NORTH FIRST STREET STREET 2: SUITE 460 CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 408-986-4300 MAIL ADDRESS: STREET 1: 2580 NORTH FIRST STREET STREET 2: SUITE 460 CITY: SAN JOSE STATE: CA ZIP: 95131 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Starboard Value LP CENTRAL INDEX KEY: 0001517137 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 599 LEXINGTON AVENUE, 19TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: (212) 845-7977 MAIL ADDRESS: STREET 1: 599 LEXINGTON AVENUE, 19TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D/A 1 sc13da206297095_0822011.htm AMENDMENT NO. 2 TO THE SCHEDULE 13D sc13da206297095_0822011.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

(Rule 13d-101)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT

TO § 240.13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO

§ 240.13d-2(a)

(Amendment No. 2)1

DSP Group, Inc.

(Name of Issuer)

Common Stock, $0.001 Par Value

(Title of Class of Securities)

23332B106

(CUSIP Number)

JEFFREY C. SMITH

STARBOARD VALUE LP

599 Lexington Avenue, 19th Floor

New York, New York 10022

(212) 845-7977

STEVEN WOLOSKY, ESQ.

OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP

Park Avenue Tower

65 East 55th Street

New York, New York 10022

(212) 451-2300

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)

August 22, 2011

(Date of Event Which Requires Filing of This Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box ¨.

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See § 240.13d-7 for other parties to whom copies are to be sent.

_______________

1 The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP NO. 23332B106

1	NAME OF REPORTING PERSON STARBOARD VALUE AND OPPORTUNITY MASTER FUND LTD
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS WC
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION CAYMAN ISLANDS
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 1,571,127
	8	SHARED VOTING POWER - 0 -
	9	SOLE DISPOSITIVE POWER 1,571,127
	10	SHARED DISPOSITIVE POWER - 0 -
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,571,127
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 6.7%
14	TYPE OF REPORTING PERSON CO

CUSIP NO. 23332B106

1	NAME OF REPORTING PERSON STARBOARD VALUE AND OPPORTUNITY S LLC
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS WC
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 560,873
	8	SHARED VOTING POWER - 0 -
	9	SOLE DISPOSITIVE POWER 560,873
	10	SHARED DISPOSITIVE POWER - 0 -
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 560,873
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 2.4%
14	TYPE OF REPORTING PERSON OO

CUSIP NO. 23332B106

1	NAME OF REPORTING PERSON STARBOARD VALUE LP
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS OO
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 2,132,000
	8	SHARED VOTING POWER - 0 -
	9	SOLE DISPOSITIVE POWER 2,132,000
	10	SHARED DISPOSITIVE POWER - 0 -
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,132,000
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.1%
14	TYPE OF REPORTING PERSON PN

CUSIP NO. 23332B106

1	NAME OF REPORTING PERSON STARBOARD VALUE GP LLC
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS OO
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 2,132,000
	8	SHARED VOTING POWER - 0 -
	9	SOLE DISPOSITIVE POWER 2,132,000
	10	SHARED DISPOSITIVE POWER - 0 -
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,132,000
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.1%
14	TYPE OF REPORTING PERSON OO

CUSIP NO. 23332B106

1	NAME OF REPORTING PERSON STARBOARD PRINCIPAL CO LP
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS OO
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 2,132,000
	8	SHARED VOTING POWER - 0 -
	9	SOLE DISPOSITIVE POWER 2,132,000
	10	SHARED DISPOSITIVE POWER - 0 -
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,132,000
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.1%
14	TYPE OF REPORTING PERSON PN

CUSIP NO. 23332B106

1	NAME OF REPORTING PERSON STARBOARD PRINCIPAL CO GP LLC
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS OO
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 2,132,000
	8	SHARED VOTING POWER - 0 -
	9	SOLE DISPOSITIVE POWER 2,132,000
	10	SHARED DISPOSITIVE POWER - 0 -
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,132,000
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.1%
14	TYPE OF REPORTING PERSON OO

CUSIP NO. 23332B106

1	NAME OF REPORTING PERSON JEFFREY C. SMITH
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS OO
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION USA
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER - 0 -
	8	SHARED VOTING POWER 2,132,000
	9	SOLE DISPOSITIVE POWER - 0 -
	10	SHARED DISPOSITIVE POWER 2,132,000
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,132,000
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.1%
14	TYPE OF REPORTING PERSON IN

CUSIP NO. 23332B106

1	NAME OF REPORTING PERSON MARK MITCHELL
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS OO
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION USA
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER - 0 -
	8	SHARED VOTING POWER 2,132,000
	9	SOLE DISPOSITIVE POWER - 0 -
	10	SHARED DISPOSITIVE POWER 2,132,000
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,132,000
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.1%
14	TYPE OF REPORTING PERSON IN

CUSIP NO. 23332B106

1	NAME OF REPORTING PERSON PETER A. FELD
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS OO
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION USA
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER - 0 -
	8	SHARED VOTING POWER 2,132,000
	9	SOLE DISPOSITIVE POWER - 0 -
	10	SHARED DISPOSITIVE POWER 2,132,000
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,132,000
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.1%
14	TYPE OF REPORTING PERSON IN

CUSIP NO. 23332B106

The following constitutes Amendment No. 2 (“Amendment No. 2”) to the Schedule 13D filed by the undersigned (the “Schedule 13D”). This Amendment No. 2 amends the Schedule 13D as specifically set forth.

Item 3.

Source and Amount of Funds or Other Consideration.

Item 3 is hereby amended and restated to read as follows:

The Shares purchased by each of Starboard V&O Fund and Starboard LLC were purchased with working capital (which may, at any given time, include margin loans made by brokerage firms in the ordinary course of business) in open market purchases, except as otherwise noted, as set forth in Schedule A, which is incorporated by reference herein. The aggregate purchase price of the 1,571,127 Shares beneficially owned by Starboard V&O Fund is approximately $12,090,593, excluding brokerage commissions. The aggregate purchase price of the 560,873 Shares beneficially owned by Starboard LLC is approximately $4,271,183, excluding brokerage commissions.

Item 4. Purpose of Transaction.

Item 4 is hereby amended to add the following:

On August 22, 2011, Starboard Value LP delivered a letter to Ofer Elyakim, the Issuer’s Chief Executive Officer, and to the members of the Issuer’s Board of Directors (the “Board”). In the letter, Starboard Value LP expressed its belief that the Shares are deeply undervalued and that significant opportunities exist to improve shareholder value based on management and the Board’s taking certain actions in accordance with the recommendations set forth in the letter. Starboard Value LP also expressed its belief that the core issue facing the Issuer is excessive spending in pursuit of non-core growth initiatives that have failed to produce expected revenue growth and that have, in turn, severely impacted the Issuer’s profitability. In the letter, Starboard Value LP urged the Issuer to immediately reduce spending on non-core growth initiatives in order to significantly improve profitability as well as hire a reputable investment bank to explore strategic alternatives to maximize value for shareholders. Finally, Starboard Value LP stated its discontent with the Board’s decision to implement a “Poison Pill” Rights Plan with an unreasonably low 10% threshold and called on the Board to redeem the Poison Pill as a matter of good corporate governance. A copy of the letter is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Item 5.

Interest in Securities of the Issuer.

Items 5(a)-(c) are hereby amended and restated to read as follows:

The aggregate percentage of Shares reported owned by each person named herein is based upon 23,529,992 Shares outstanding, as of August 1, 2011, which is the total number of Shares outstanding as reported in the Issuer’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 9, 2011.

A.	Starboard V&O Fund

(a)

As of the close of business on August 19, 2011, Starboard V&O Fund beneficially owned 1,571,127 Shares.

Percentage: Approximately 6.7%.

CUSIP NO. 23332B106

(b)

1. Sole power to vote or direct vote: 1,571,127

2. Shared power to vote or direct vote: 0

3. Sole power to dispose or direct the disposition: 1,571,127

4. Shared power to dispose or direct the disposition: 0

(c)

The transactions in the Shares by Starboard V&O Fund since the filing of Amendment No. 1 to the Schedule 13D are set forth in Schedule A and are incorporated herein by reference.

B.	Starboard LLC

(a)

As of the close of business on August 19, 2011, Starboard LLC beneficially owned 560,873 Shares.

Percentage: Approximately 2.4%.

(b)

1. Sole power to vote or direct vote: 560,873

2. Shared power to vote or direct vote: 0

3. Sole power to dispose or direct the disposition: 560,873

4. Shared power to dispose or direct the disposition: 0

(c)

The transactions in the Shares by Starboard LLC since the filing of Amendment No. 1 to the Schedule 13D are set forth in Schedule A and are incorporated herein by reference.

C.	Starboard Value LP

(a)

Starboard Value LP, as the investment manager of Starboard V&O Fund and the Manager of Starboard LLC, may be deemed the beneficial owner of the (i) 1,571,127 Shares owned by Starboard V&O Fund and (ii) 560,873 Shares owned by Starboard LLC.

Percentage: Approximately 9.1%.

(b)

1. Sole power to vote or direct vote: 2,132,000

2. Shared power to vote or direct vote: 0

3. Sole power to dispose or direct the disposition: 2,132,000

4. Shared power to dispose or direct the disposition: 0

(c)

Starboard Value LP has not entered into any transactions in the Shares since the filing of Amendment No. 1 to the Schedule 13D. The transactions in the Shares on behalf of each of Starboard V&O Fund and Starboard LLC since the filing of Amendment No. 1 to the Schedule 13D are set forth in Schedule A and are incorporated herein by reference.

D.	Starboard Value GP

(a)

Starboard Value GP, as the general partner of Starboard Value LP, may be deemed the beneficial owner of the (i) 1,571,127 Shares owned by Starboard V&O Fund and (ii) 560,873 Shares owned by Starboard LLC.

Percentage: Approximately 9.1%.

CUSIP NO. 23332B106

(b)

1. Sole power to vote or direct vote: 2,132,000

2. Shared power to vote or direct vote: 0

3. Sole power to dispose or direct the disposition: 2,132,000

4. Shared power to dispose or direct the disposition: 0

(c)

Starboard Value GP has not entered into any transactions in the Shares since the filing of Amendment No. 1 to the Schedule 13D. The transactions in the Shares on behalf of each of Starboard V&O Fund and Starboard LLC since the filing of Amendment No. 1 to the Schedule 13D are set forth in Schedule A and are incorporated herein by reference.

E.	Principal Co

(a)

Principal Co, as a member of Starboard Value GP, may be deemed the beneficial owner of the (i) 1,571,127 Shares owned by Starboard V&O Fund and (ii) 560,873 Shares owned by Starboard LLC.

Percentage: Approximately 9.1%.

(b)

1. Sole power to vote or direct vote: 2,132,000

2. Shared power to vote or direct vote: 0

3. Sole power to dispose or direct the disposition: 2,132,000

4. Shared power to dispose or direct the disposition: 0

(c)

Principal Co has not entered into any transactions in the Shares since the filing of Amendment No. 1 to the Schedule 13D. The transactions in the Shares on behalf of each of Starboard V&O Fund and Starboard LLC since the filing of Amendment No. 1 to the Schedule 13D are set forth in Schedule A and are incorporated herein by reference.

F.	Principal GP

(a)

Principal GP, as the general partner of Principal Co, may be deemed the beneficial owner of the (i) 1,571,127 Shares owned by Starboard V&O Fund and (ii) 560,873 Shares owned by Starboard LLC.

Percentage: Approximately 9.1%.

(b)

1. Sole power to vote or direct vote: 2,132,000

2. Shared power to vote or direct vote: 0

3. Sole power to dispose or direct the disposition: 2,132,000

4. Shared power to dispose or direct the disposition: 0

(c)

Principal GP has not entered into any transactions in the Shares since the filing of Amendment No. 1 to the Schedule 13D. The transactions in the Shares on behalf of each of Starboard V&O Fund and Starboard LLC since the filing of Amendment No. 1 to the Schedule 13D are set forth in Schedule A and are incorporated herein by reference.

G.	Messrs. Smith, Mitchell and Feld

(a)

Each of Messrs. Smith, Mitchell and Feld, as a member of Principal GP and as a member of each of the Management Committee of Starboard Value GP and the Management Committee of Principal GP, may be deemed the beneficial owner of the (i) 1,571,127 Shares owned by Starboard V&O Fund and (ii) 560,873 Shares owned by Starboard LLC.

Percentage: Approximately 9.1%.

CUSIP NO. 23332B106

(b)

1. Sole power to vote or direct vote: 0

2. Shared power to vote or direct vote: 2,132,000

3. Sole power to dispose or direct the disposition: 0

4. Shared power to dispose or direct the disposition: 2,132,000

(c)

None of Messrs. Smith, Mitchell or Feld has entered into any transactions in the Shares since the filing of Amendment No. 1 to the Schedule 13D. The transactions in the Shares on behalf of each of Starboard V&O Fund and Starboard LLC since the filing of Amendment No. 1 to the Schedule 13D are set forth in Schedule A and are incorporated herein by reference.

Item 7.

Material to be Filed as Exhibits.

Item 7 is hereby amended to add the following exhibit:

99.1 Letter to the Board, dated August 22, 2011.

CUSIP NO. 23332B106

SIGNATURES

After reasonable inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated: August 22, 2011

STARBOARD VALUE AND OPPORTUNITY MASTER FUND LTD

By: Starboard Value LP,

its investment manager

STARBOARD VALUE AND OPPORTUNITY S LLC

By: Starboard Value LP,

its manager

STARBOARD VALUE LP

By: Starboard Value GP LLC,

its general partner

STARBOARD VALUE GP LLC

By: Starboard Principal Co LP,

its member

STARBOARD PRINCIPAL CO LP

By: Starboard Principal Co GP LLC,

its general partner

STARBOARD PRINCIPAL CO GP LLC



By:	/s/ Jeffrey C. Smith
	Name:	Jeffrey C. Smith
	Title:	Authorized Signatory

/s/ Jeffrey C. Smith

JEFFREY C. SMITH

Individually and as attorney-in-fact for Mark Mitchell and Peter A. Feld

CUSIP NO. 23332B106

SCHEDULE A

Transactions in the Shares Since the Filing of Amendment No. 1 to the Schedule 13D

Shares of Common Stock

Purchased

Price Per

Share($)

Date of

Purchase

STARBOARD VALUE AND OPPORTUNITY MASTER FUND LTD

33,549	6.5186	08/17/11
41,230	6.4841	08/18/11
53,268	6.5896	08/19/11

STARBOARD VALUE AND OPPORTUNITY S LLC

17,907	6.5186	08/17/11
22,006	6.4841	08/18/11
28,432	6.5896	08/19/11

EX-99.1 2 ex991to13da206297095_082211.htm LETTER TO THE BOARD, DATED AUGUST 22, 2011 ex991to13da206297095_082211.htm

Exhibit 99.1

August 22, 2011

Ofer Elyakim

Chief Executive Officer

DSP Group

2580 North First Street

Suite 460

San Jose, CA 95131

CC: Board of Directors

Dear Ofer,

Starboard Value LP, together with its affiliates, beneficially owns 9.1% of the outstanding common stock of DSP Group ("DSP" or "the Company"), making us one of the Company's largest shareholders. We firmly believe that the shares of DSP are deeply undervalued and that significant opportunities exist to improve shareholder value based on management and the Board of Directors (the "Board") taking the necessary actions in accordance with the recommendations we outline below. As stewards of shareholder interests, it is incumbent upon the Board to fully evaluate these opportunities that could significantly enhance value.

The core issue facing DSP is excessive spending in pursuit of non-core growth initiatives that have failed to produce expected revenue growth and, in turn, have severely impacted the profitability of DSP. We believe shareholders have grown increasingly frustrated given the deteriorating financial results and poor short, medium, and long-term stock price performance. To address these issues, we believe the Company should immediately reduce spending on non-core growth initiatives in order to significantly improve profitability as well as hire a reputable investment bank to explore strategic alternatives to maximize value for shareholders.

Over almost any time frame, DSP's stock price has dramatically underperformed. As shown in the table below, over the past one-, three-, and five-year periods, DSP's stock price has declined by 2%, 17%, and 75%, respectively. This performance is significantly worse than both the broader equity indices and the S&P Information Technology Index.


	Share Price Performance (1)
	1 Year			3 Year			5 Year

Russell 2000 Index		8.0	%		-6.9	%		-2.0	%
S&P Information Technology Index		5.9	%		1.4	%		17.6	%

DSP Group		-2.0	%		-16.8	%		-74.7	%
Underperformance vs. Russell		-9.9	%		-9.9	%		-72.7	%
Underperformance vs. S&P IT Index		-7.9	%		-18.2	%		-92.3	%

1. Total Return as of August 19, 2011.

Furthermore, the public market is attributing almost no value to DSP's operating businesses. As shown in the table below, DSP ended the last quarter with $65 million in cash, $73 million in long term investments and no debt, for a total net cash position of $138 million. This implies that at the current price of $6.50 per share, DSP is trading at an enterprise value of only $15 million. DSP is also currently trading at a discount to the Company's Tangible Book Value per share of $6.72, which is primarily comprised of cash, long term investments, and accounts receivable.

Capitalization and Balance Sheet Metrics for DSP Group ($ in millions)

Current Price (8/19/2011)	$6.50
Shares Outstanding	23.5
Market Cap	$152.9

(-) Cash	$64.7
(-) Long Term Investments	$72.5
(+) Debt	$0.0
Enterprise Value	$15.8

Tangible Book Value	$158.1
Tangible Book Value per Share	$6.72
Discount to Tangible Book Value	-3	%

Such a depressed valuation clearly demonstrates that shareholders lack confidence in the current business strategy at DSP. The current strategy of investing heavily in research and development in pursuit of revenue growth in non-core products has failed to produce positive results and has led to significant deterioration in overall profitability. Since 2007, DSP has spent approximately $550 million, or $23.40 per share, on research and development and acquisitions, yet revenue has actually declined by $33 million over that same time period. Unfortunately, the Company has taken little action to reduce spending in light of these failed initiatives and instead continues to spend a staggering 25% of revenues on R&D, driving further operating losses.

DSP Group Operating Metrics
														(1	)	Change
Fiscal Year Ended June	2007			2008			2009			2010			LTM			LTM vs. 2007

Total Revenue	$	249		$	306		$	212		$	225		$	216		$	-33
% Growth		14.7	%		22.9	%		-30.6	%		6.3	%		-9.0	%		-13.3	%

Research & Development Expenses	$	58		$	74		$	56		$	56		$	57		$	-2
% of Revenue		23.5	%		24.2	%		26.5	%		24.7	%		26.4	%		-2.6	%

Operating Income (2)	$	9		$	0		$	-11		$	1		$	-7		$	-16
% Operating Margin		3.4	%		-0.1	%		-5.0	%		0.3	%		-3.4	%		-185.0	%

1. Last twelve months ended June 30, 2011. 2. GAAP operating income as reported in company filings, excluding amortization expense related to acquisitions, restructuring charges, goodwill impairment and in-process research & development write off.

Despite significant losses from these non-core growth initiatives, DSP has a valuable core business that we believe produces significant operating profit and cash flow. DSP is the market leader in providing wireless chipsets for digital cordless phones, commanding approximately 65% to 70% of the worldwide market share. This compares to its two primary competitors, SiTel and Lantiq which account for approximately 25% and 10% of the market, respectively. As an example of the potential profitability of this business, we believe that SiTel, the Company's closest competitor, generated operating margins between 12% and 15% on revenue of $117 million in 2010. Given DSP's larger revenue base, it should be able to generate margins equal to, if not in excess of, those of SiTel. As shown in the table below, if DSP were able to achieve operating margins in-line with SiTel, the Company would generate between $32 million and $38 million of EBITDA. This implies that at the current enterprise value of $15 million, the Company could generate EBITDA in excess of the entire enterprise value in less than six months.

DSP Group Pro Forma Operating Margins

LTM DSP Revenue	$	215.8		$	215.8
SiTel Operating Margin (1)		12.0	%		15.0	%
Implied DSP Operating Income	$	25.9		$	32.4
Estimated Depreciation & Amortization (2)	$	5.7		$	5.7
Implied EBITDA	$	31.6		$	38.1

Current EV / Implied EBITDA		0.5	x		0.4	x

1. Based on Dialog Semiconductor Q1 and Q2 earnings calls. 2. Excludes amortization related to acquisition expense.

Unfortunately, it appears that the Company's current plan is to press ahead with aggressive spending on non-core growth initiatives such as multimedia chipsets and home automation technology with the expectation to burn cash for at least the next two quarters. This is unacceptable to us and should be unacceptable to you.

Instead of continuing down the current path that has contributed to significant deterioration of shareholder value, we believe the Company must change course and execute on the following two initiatives:

·	Implementation of a cost restructuring plan to reduce spending on certain non-core growth initiatives such as multimedia and home automation to drive significant improvements in profitability and cash flow; and

·	Engagement of a reputable investment bank to explore strategic alternatives to maximize value for shareholders, including through a sale of the Company.

We strongly believe that these initiatives will allow shareholders to realize maximum value for their shares. The current plan is not working; it is time for a new course of action.

We also would like to take this opportunity to express our discontent with the Board's decision to implement a Shareholder "Poison Pill" Rights Plan without shareholder approval on July 26, 2011, thereby effectively limiting share ownership to 9.9% of the shares outstanding. The Poison Pill was instituted just 36 days following our initial Schedule 13D filing with the Securities and Exchange Commission. It appears to us that the Company's true intent in implementing a Poison Pill with such a low threshold is entrenchment.

Institutional Shareholder Services (ISS) and other leading governance advisory firms have repeatedly expressed their concerns about Poison Pills given the significant risk of a board and management team using them to entrench themselves at the expense of shareholders. Very few companies have resorted to the drastic step of adopting a non-net operating loss (NOL) Poison Pill with a trigger as low as 10%. In fact, the Poison Pill fails to meet ISS' 2011 Proxy Voting Guidelines, namely a trigger no lower than 20%. By adopting the Poison Pill, the Board has unfortunately embarked on a path of poor corporate governance. As a matter of good corporate governance, the Board should immediately redeem the Poison Pill.

As one of the largest shareholders of DSP, we have a strong vested interest in the performance of the Company. We hope and expect that management and the Board will seriously consider and act on our proposals. We are open to having a constructive dialogue with you and expect that management and the Board will take decisive action to address the issues we have outlined.

Thank you for your attention.

Best Regards,

Jeffrey C. Smith

Managing Member

Starboard Value LP