HONG KONG (February 20, 1998) - Deswell Industries, Inc. (NASDAQ NM: DSWLF) (the "Company") today announced its results for the third quarter and nine months ended December 31, 1997.

Net sales for the quarter were $19.0 million, an increase of 43% compared to sales of $13.3 million in the third quarter ended December 31, 1996. Operating income increased 65% to $5.3 million, compared to $3.2 million in the previous year, and net income increased 54% to $4.2 million, compared to $2.7 million in the previous year. Basic earnings per share and diluted earnings per share increased 42% and 32% to $0.84 and $0.78 respectively (based on 4,994,000 and 5,357,000 weighted average shares outstanding, respectively), compared to $0.59 and $0.59 respectively (based on 4,601,000 and 4,616,000 weighted average shares outstanding, respectively), in the third quarter ended December 31, 1996.

Net sales for the nine months ended December 31, 1997 were $51.7 million, an increase of 62% compared to sales of $31.9 million for the corresponding period in 1996. Operating income increased 56% to $12.5 million, compared to $8.0 million in the previous year, and net income increased 55% to $10.1 million, compared to $6.5 million in the previous year. Basic earnings per share and diluted earnings per share increased 44% and 33% to $2.05 and $1.88 respectively (based on 4,928,000 and 5,362,000 weighted average shares outstanding, respectively), compared to $1.42 and $1.41 respectively (based on 4,579,000 and 4,610,000 weighted average shares outstanding, respectively), for the nine months ended December 31, 1996.

Mr Richard Lau, Chief Executive Officer commented, "Once again I am pleased to report a quarter of improved financial performance. Our financial performance continues to show substantial quarter over quarter improvement, largely due to the Company's increasing focus on providing unmatched attention to quality and to meeting the needs of our rapidly growing customers. During the quarter, Deswell initiated another facility expansion, providing the increased capacity needed to accommodate continued product orders from our OEM customer. Additionally, during the quarter, the Company redeemed its Common Stock Warrants, which resulted in a 23% increase in cash and cash equivalents to be reflected in our fourth quarter ended March 31, 1998, further strengthening the Company's financial foundation. We intend to use our strong financial position and cash flow to aggressively fund the continued expansion of our business."

Mr Lau continued, "Our financial position continues to be strong. Cash and cash equivalents has increased to 16.8 million at December 31, 1997 compared to $12 million at March 31, 1997. Working capital was $29.5 million as of December 31, 1997, versus $21.4 million as of March 31, 1997, and our current ratio was 4.8, with no long term debt."

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 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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