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Deswell Announces First Quarter Results

Deswell Industries, Inc. (Nasdaq: DSWL) today announced its financial results for the fiscal first quarter ended June 30, 2010.

Net sales for the first quarter ended June 30, 2010 were $20.5 million, a decrease of 9.9% compared to net sales of $22.7 million for the same quarter ended June 30, 2009. Net sales decreased by 13.2% to $10.8 million in the plastic segment and by 5.9% to $9.7 million in the Company’s electronic and metallic segment. The operating loss in the first quarter was $2.7 million, compared to an operating loss of $0.3 million for the same quarter of fiscal 2010.

Total gross margin decreased to 4.4% in the first quarter ended June 30, 2010 compared to 15.8% in the same quarter last year. Gross profit margin in the plastic segment decreased to 1.6% of net sales for the first quarter of fiscal 2011 compared to 20.8% of net sales for the same quarter of last fiscal year. The decreased gross margin in the plastic segment was mainly due to reduction of sales in higher profit margin items, as well as an increase in labor costs resulting from a raise in the minimum wage rate, increases in overtime allowance and headcount. The decreased gross margin was also driven by an increase in factory overhead as a percentage of sales during the quarter. Gross profit margin in the electronic and metallic segment decreased to 7.5% of net sales for the first quarter ended June 30, 2010, compared to 10.0% of net sales for the year-ago quarter. The decrease in gross margin in the electronic and metallic segment was mainly attributable to a decline in sales revenues resulting from long lead time in completing sales order due to material shortages and supply slippage, increased labor costs as a percentage of sales driven by increases in the minimum wage rate and a knock on effect from overtime payments and increases in headcount during the quarter.

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