HONG KONG (January 27, 1997) - Deswell Industries, Inc. (NASDAQ NM: DSWLF and DSWWF) (the "Company") today announced its results for the third quarter ended December 31, 1996. Net sales were $13.3 million, an increase of 71% compared to sales of $7.8 million in the third quarter ended December 31, 1995. Operating income increased 53% to $3.2 million, compared to $2.1 million in the previous year, and net income increased 51% to $2.7 million, compared to $1.8 million in the previous year. Earnings per share increased 50% to $0.59 (based on 4,601,000 weighted average shares outstanding), compared to $0.40 (based on 4,550,000 weighted average shares outstanding) in the third quarter ended December 31, 1995.

Net sales for the nine months ended December 31, 1996 were $31.9 million, an increase of 38% compared to sales of $23.1 million for the corresponding period in 1995. Operating income increased 48% to $8.0 million, compared to $5.4 million in the previous year, and net income increased 47% to $6.5 million, compared to $4.4 million in the previous year. Earnings per share increased 31% to $1.42 (based on 4,579,000 weighted average shares outstanding), compared to $1.09 (based on 4,082,000 weighted average shares outstanding) for the nine months ended December 1995.

Mr. Richard Lau, Chief Executive Officer commented, "I am pleased to report that Deswell's strong earnings growth continued during the third quarter. In addition to increased volume from existing customers, this quarter's results begin to show the benefits of our Kwanta Precision Metal Products Co. Ltd. acquisition. In its first three months as a subsidiary of Deswell, Kwanta has already contributed $790,000 in revenues. Moreover, the construction of the 60,000 square foot new factory of Kwanta in Douggan, China and the installation of new machinery in it will be completed by March 1997. This acquisition provides us with new business opportunities and will accelerate Deswell's expansion. Furthermore, during the quarter we leased an additional 40,000 square feet of factory space in Shenzhen, China to meet the demand for our injection molded plastic products, bringing our total production space to 225,000 square feet and providing us with the capacity to carry us through 1997."

Mr. Lau continued, "Our financial position continues to be strong. Working capital was $16.4 million as of December 31, 1996, versus $15.4 million as of March 31, 1996, and our current ratio was 3.2, with no long term debt."

Mr. Lau concluded, "Our strong financial performance continues to be driven by increasing customer demand, the successful Kwanta acquisition and additional production capacity. We are optimistic that Deswell will achieve all of its goals for the remainder of the year."

Deswell manufactures injection-molded plastic parts and components and electronic products and subassemblies 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 ("PTH") 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 Industries (H.K.) Limited, Nam Tai Electronics (Shenzhen) Co. Ltd., Inter-Tel Incorporated, Behringer spezeiller studiotechnik GmbH, Prod-Art Company Limited and Shakespeare (H.K.) Limited.

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