HONG KONG (Nov. 9, 1998) - Deswell Industries, Inc. (NASDAQ NM Symbol: DSWLF) today announced results for the second quarter and six months ended September 30, 1998.

Net sales for the quarter were $15.8 million, a decrease of 12.7% compared to sales of $18.1 million in the second quarter ended September 30, 1997. Operating income increased 0.9% to $3.94 million, compared to $3.91 million in the previous year, and net income increased 3.2% to $3.33 million, compared to $3.23 million in the previous year. Basic earnings per share decreased 6% to $0.61 (based on 5,479,000 weighted average shares outstanding), compared to $0.65 (based on 4,969,000 weighted average shares outstanding), in the second quarter ended September 30, 1997. Diluted earnings per share remained at $0.60 (based on 5,511,000 and 5,421,000 weighted average shares outstanding, respectively), in the second quarters ended September 30, 1998 and September 30, 1997.

Net sales for the six months ended September 30, 1998 were $31.2 million, a decrease of 4.4% compared to sales of $32.7 million for the corresponding period in 1997. Operating income increased 5.9% to $7.6 million, compared to $7.2 million in the previous year, and net income increased 9.9% to $6.5 million, compared to $5.9 million in the previous year. Basic earnings per share decreased 2.5% to $1.18 (based on 5,479,000 weighted average shares outstanding), compared to $1.21 (based on 4,895,000 weighted average shares outstanding), for the six months ended September 30, 1997. Diluted earnings per share increased 7.3% to $1.18 (based on 5,523,000 weighted average shares outstanding), compared to $1.10 (based on 5,358,000 weighted average shares outstanding), for the six months ended September 30, 1997.

The Company reported a continued strong financial position. Cash and cash equivalents have increased to $28.6 million at September 30, 1998 compared to $21.9 million at March 31, 1998. Working capital was $39.5 million as of September 30, 1998, versus $36.0 million as of March 31, 1998, and our current ratio was 6.3, with no long-term debt.

The Company also announced that on November 7, 1998, its board of directors declared an interim cash dividend of $0.33 per share (1998 interim dividend $0.30 per share). The dividend will be payable on December 7, 1998 to shareholders of record as of November 23, 1998.

Mr. Richard Lau, Chief Executive Officer, said, "Like most Asian companies, Deswell's financial results are currently being impacted by the difficult economic environment. The 24 percent decrease in revenues at our electronics division resulted primarily from fewer orders from subcontracted PCB assembly customers. Furthermore, orders from Mita Industrial (H.K.) Co. Ltd. were reduced 50 percent in September due to Mita reorganization. Despite the current economic condition, we are still pleased with this quarter financial performance compared to other Asian-based contract manufacturers. Overall net income increased 3.2 percent for the quarter, largely driven by a reduction in our selling, general & administrative expenses to 15.8% of total net sales, as compared to 19.9% last year. Furthermore, for the quarter the Company maintaining 4 percent growth in our core plastic business.

We believe that our business with Mita will stay at current rates through the end of January, after which time we anticipate sales with Mita to reach 70-80 percent of levels just prior to Mita reorganization. However, we will have to wait until early next year to get a clearer picture of our ongoing order rate with Mita for 1999. Furthermore, our electronic subsidiaries are diligently working to solicit a broader customer base to offset the decrease in our subcontracted PCB assembly business. We feel comfortable that 1999 will be a good year for Deswell, Mr. Lau said.

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.) Co. 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. To learn more about Deswell Industries, Inc., please visit the Company's web site at www.deswellindustries.com.

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