HONG KONG (August 10, 1998) - Deswell Industries, Inc. (NASDAQ NM Symbol: DSWLF) today announced its results for the first quarter ended June 30, 1998.

Net sales for the quarter ended June 30, 1998 were $15.4 million, an increase of 6% compared to net sales of $14.5 million for the quarter ended June 30, 1997. Operating income increased 12% to $3.6 million for the most recent quarter, compared to $3.3 million for the same quarter in 1997. Net income for the quarter increased 18% to $3.2 million compared to $2.7 million for the year-ago quarter. Basic earnings per share and diluted earnings per share increased to $0.58 and $0.56 respectively (based on 5,479,000 and 5,623,000 weighted average shares outstanding, respectively), compared to $0.56 and $0.51 respectively (based on 4,821,000 and 5,295,000 weighted average shares outstanding, respectively), in the first quarter ended June 30, 1997.

The earnings per share calculations for the most recent quarter reflect an increase in weighted average common shares outstanding from 4,821,000 in the first quarter ended June 30, 1997 to 5,479,000 in the first quarter ended June 30, 1998. This increase was primarily a result of the exercise of public warrants, representatives' warrants and stock options during the year ended March 31, 1998 and the Warrant Redemption exercise in February 1998.

The Company reported a continued strong financial position. Working capital was $36.0 million as of June 30, 1998. The Company has no short term or long term debt.

The Company also announced that the Company's 1998 Annual General Meeting will be held at 2:30 p.m. (New York time) on September 22, 1998 at Marriott Hotel (East Side), 525 Lexington Avenue, New York.

Mr Lau, Chairman and Chief Executive Officer, commented, "Considering the poor economic environment that we are operating in, we are moderately pleased with the financial performance during this quarter in which revenues increased 6% and income was up 18%. Outstanding performance at Jetcrown, our plastic injection molding division, helped drive growth for Deswell as a whole. Kwanasia, the electronic assembly operation, experienced a decrease in sales, especially in its PCB assembly division, compared to last year. This decline stemmed from a decrease in demand from customers coupled with increased competition from electronic assemblers in other Asian countries due to currency devaluations. Our metals business, while still a relatively small part of our overall revenues, continued to show a healthy increase in sales."

Mr. Lau concluded, "We anticipate that the current difficult economic environment in Asia will continue to impact revenue growth. We remain very focused on effectively managing our business through this slowdown. The strength of our margins this past quarter in spite of reduced growth reflects management's commitment to maximize profits for the benefit of shareholders."

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, Namtai Electronic (Shenzhen) Co. Ltd., Inter-Tel Incorporated, Behringer Holdings (Pte) Ltd., Vtech Communications Ltd., Prod-Art Company Limited and Shakespeare (H.K.) Limited.

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