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Deswell Announces Second Quarter Results

Net sales for the six months ended September 30, 2010 were $44.5 million, an increase of 2.1%, compared to sales of $43.6 million for the corresponding period in fiscal 2010. Operating loss for the six months ended September 30, 2010 was $4.4 million, compared to operating income of $2.7 million for the first six months of fiscal 2010. The Company reported net loss of $3.9 million in the first half of fiscal 2011, compared to net income of $2.9 million for the six months ended September 30, 2009. Deswell reported basic and diluted net loss per share of ($0.24) for the first six months of fiscal 2011, (based on 16,194,000 and 16,200,000 weighted average share outstanding, respectively), compared to income per share of $0.18, (based on 15,836,000 and 15,902,000 weighted average shares outstanding, respectively), for the prior corresponding period.

The Company's financial position remained strong at the end of the second quarter of fiscal year 2011, with $32.6 million in cash and cash equivalents at September 30, 2010, compared to $35.1 million at March 31, 2010. Working capital totaled $58.3 million as of September 30, 2010, versus $59.8 million as of March 31, 2010. Furthermore, the Company has no long-term or short-term borrowings at September 30, 2010.

Mr. Franki Tse, Chief Executive Officer, commented, “We were pleased to see sales increase during the quarter, particularly in the electronics and metallic segment of our business. We experienced a steadier component supply which helped the electronics division report enhanced margins. Nonetheless, our overall profitability was impacted by inflation, RMB appreciation and labor wage increases. Our SG&A for the quarter was below last year, reflecting our keen focus on cost control, and we are continuing to reduce headcount and working out a more flexible and cost effective structure to maximize the profitability of our business. The balance sheet remains extremely strong and we are very focused on continuing to develop the Company’s strong customer base. Given our loss for the quarter, we have not declared dividends to maintain cash reserves. “

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