DESWELL INDUSTRIES, INC. ANNOUNCES FOURTH QUARTER AND YEAR-END RESULTS

- FINAL DIVIDEND $0.55 PER SHARE -

HONG KONG (June 1, 1999) - Deswell Industries, Inc. (NASDAQ NM Symbol: DSWL) (the "Company") today announced its results for the fourth quarter and year ended March 31, 1999.

Net sales for the year ended March 31, 1999 were $53.4 million, a decrease of 19% compared to sales of $66.2 million for the year ended March 31, 1998. Operating income decreased 31% to $10.9 million, compared to $15.9 million in the previous year, and net income decreased 25% to $9.7 million, compared to $13.0 million in the previous year. Basic earnings per share and diluted earnings per share decreased to $1.77 and $1.76 respectively (based on 5,478,000 and 5,524,000 weighted average shares outstanding, respectively), compared to $2.59 and $2.40 respectively (based on 5,006,000 and 5,394,000 weighted average shares outstanding, respectively), for the year ended March 31, 1998.

Net sales for the fourth quarter decreased 34% to $9.6 million compared to sales of $14.6 million in the fourth quarter ended March 31, 1998. Operating income decreased 70% to $1.0 million for the most recent quarter, compared to $3.4 million for the year-ago quarter. Net income for the fourth quarter decreased 62% to $1.1 million compared to $2.9 million for the year-ago quarter. Basic earnings per share and diluted earnings per share decreased to $0.19 and $0.19 respectively (based on 5,476,000 and 5,476,000 weighted average shares outstanding, respectively), compared to $0.55 and $0.52 respectively (based on 5,244,000 and 5,504,000 weighted average shares outstanding, respectively), in the fourth quarter ended March 31, 1998.

The Company reported cash and cash equivalents increased to $27.6 million at March 31, 1999 compared to $21.9 million as of March 31, 1998. Working capital was $41.3 million as of March 31, 1999, versus $36.0 million as of March 31, 1998. The Company has no short term and long term debt.

The Company also announced that on May 28, 1999 its board of director declared a final dividend of $0.55 per share (compared to $0.50 per share in 1998). The dividends will be payable on June 30 to shareholders of record as of June 15, 1999.

Mr. Lau, Chairman and Chief Executive Officer, commented, "Given the competitive market conditions resulting from the Asian turmoil, we are pleased that we could maintain an overall operating profit margin of 20.4% for the year. The Asian market downturn has affected the company's performance particularly in the last two quarters. Fiscal 1999 was the first time that the Company recorded a revenue decreased in the past ten years. We currently face keen pricing pressure, and it was unavoidable that we had to lower our prices to support our customers. Moreover, the impact of economic turmoil on the electronic operation was most significant; OEM assembly & subcontracted sale operations, especially the SMT business, experienced significant sales decreases compared with the extremely favorable results in prior year."

"In the coming year, we see that both the plastic and metal operations are relatively stable and have a good chance to experience unit growth. There will be increases in plastic product orders from our customers Mita and Vtech Communications. New tooling machines of approximately $700,000 will be purchased in July to meet new orders. However, pricing pressure will most likely continue. For the electronic operation, we are working hard to improve its financial performance and estimate that this business will need at least two or three more quarters to recover." Mr. Lau added.

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.) Limited, Namtai Electronics (Shenzhen) Co. Ltd., Inter-Tel Incorporated, Behringer Holdings (Pte) Ltd., Vtech Communications Ltd. 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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