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Deswell Announces Third Quarter Results

The Company reported a net loss of $3.6 million for the third quarter ended December 31, 2010 compared to net loss of $0.4 million for the quarter ended December 31, 2009. Basic and diluted net loss per share was ($0.22), (based on 16,195,000 and 16,203,000 weighted average shares outstanding, respectively) compared to basic and diluted net loss per share of ($0.03), (based on 16,003,000 and 16,017,000 weighted average shares outstanding, respectively) for the same quarter ended December 31, 2009.

Net sales for the nine months ended December 31, 2010 were $68.0 million, an increase of 4.8%, compared to sales of $64.9 million for the corresponding period in fiscal 2010. Operating loss for the nine months ended December 31, 2010 was $8.4 million, compared to operating income of $3.0 million for the first nine months of fiscal 2010. The Company reported a net loss of $7.5 million in the first nine months of fiscal 2011, compared to net income of $2.4 million for the nine months ended December 31, 2009. Deswell reported basic and diluted net loss per share of ($0.46) for the first nine months of fiscal 2011, (based on 16,193,000 and 16,201,000 weighted average share outstanding, respectively), compared to income per share of $0.15, (based on 15,892,000 and 15,962,000 weighted average shares outstanding, respectively), for the prior corresponding period.

The Company's financial position remained strong at the end of the third quarter of fiscal year 2011, with $34.8 million in cash and cash equivalents at December 31, 2010 compared to $35.1 million at March 31, 2010. Working capital totaled $59.9 million as of December 31, 2010 versus $59.8 million as of March 31, 2010. Furthermore, the Company has no long-term or short-term borrowings at December 31, 2010.

Mr. Franki Tse, chief executive officer, commented, “During the quarter we saw a significant improvement in our sales, particularly in the electronics and metal segment, due to strong Christmas demand in the professional audio industry. We have reduced our headcount from 4,100 as of the second quarter end to 2,900 as of this quarter end, but the cost benefit of this significant reduction has been offset by increased labor cost, RMB appreciation, provisioning of excess materials and impairments of fixed assets. Price negotiation with customers are undergoing and we believe it will help us to improve our performance in the coming quarters, although once again the China labor rate increases another 20% on March 1, 2011, the second 20% increase within 10 months. Nonetheless, we have maintained a very strong balance sheet with no short or long term debt, enabling us to declared a third quarter dividend of $0.05 per share for our shareholders. “

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