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Deswell Announces Third Quarter Results

Deswell Industries, Inc. (Nasdaq: DSWL) today announced its financial results for the fiscal third quarter ended December 31, 2010.

Net sales for the third quarter ended December 31, 2010 were $24 million, an increase of 10.2% compared to net sales of $21.3 million for the same quarter ended December 31, 2009. Net sales decreased by 12.6% to $11.5 million in the plastic segment and increased by 46.4% to $12.1 million in the Company’s electronic and metallic segment. The operating loss in the third quarter of fiscal 2011 was $4.0 million, compared to operating income of $0.3 million for the same quarter of fiscal 2010.

Total gross margin decreased to 14.1% in the third quarter ended December 31, 2010 compared to 19.0% in the same quarter last year. Gross profit margin in the plastic segment decreased to 24.8% of net sales for the third quarter of fiscal 2011 compared to 25.5% of net sales for the same quarter of last fiscal year. The decreased gross margin in the plastic segment was mainly due to an increase in labor costs resulting from a raise in the minimum wage rate and increases in overtime allowance, offsetting a decrease in raw material cost as a percentage of sales during the quarter. Gross profit margin in the electronic and metallic segment decreased to 3.9% of net sales for the third quarter ended December 31, 2010, compared to 8.5% of net sales for the year-ago quarter. The decrease in gross margin in the electronic and metallic segment was mainly attributable to an increase in raw materials cost, resulting from an additional provision for excess materials relating to end-of-life models, and increased labor costs which were driven by increases in the minimum wage rate and headcount, as compared to the prior year quarter.

Management makes an assessment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In this quarter, the company has made a provision of $3.6 million for the impairment of fixed assets.

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