Deswell Industries, Inc. announces fourth quarter and year-end results; Quarterly sales increase 21%, quarterly net income up 45%.

HONG KONG--(BUSINESS WIRE)--May 28, 1996--Deswell Industries, Inc. (NASDAQ NM: DSWLF and DSWWF) (the "Company") today announced its results for the fourth quarter and year ended March 31, 1996.

Net sales for the quarter were $7.5 million, an increase of 21% compared to sales of $6.2 million in the fourth quarter ended March 31, 1995. Operating income increased 31% to $1.8 million for the most recent quarter, compared to $1.3 million for the year-ago quarter, and net income increased 45% to $1.5 million for the most recent quarter, compared to $1.0 million for the year-ago quarter. Earnings per share increased 6.7% to $0.32 (based on 4,550,000 weighted average shares outstanding) compared to $0.30 (based on 3,400,000 weighted average shares outstanding) in the fourth quarter ended March 31, 1995.

Net sales for the year ended March 31, 1996 were $30.6 million, an increase of 46% compared to sales of $21.0 million for year ended March 31, 1995. Operating income increased 56% to $7.2 million, compared to $4.6 million in the previous year, and net income increased 47% to $5.9 million, compared to $4.0 million in the previous year. Earnings per share increased 19% to $1.41 (based on 4,198,000 weighted average shares outstanding) compared to $1.18 (based on 3,400,000 weighted average shares outstanding) for the year ended March 31, 1995.

Mr. Richard Lau, Chief Executive Officer stated "Management is very pleased with the growth recorded during the quarter despite what is traditionally a slow season for manufacturing companies operating in the People's Republic of China as most factories are closed for the Lunar New Year holidays."

"As previously announced, the Company has utilized approximately $3 million of the proceeds from its July 1995 IPO for the installation of new plant and machinery. The additions of this state-of-the-art machinery is expected to play a vital role in accommodating Deswell's rapid growth. These actions demonstrate management's ongoing commitment to upgrading and expanding our production capacity so that we may continue to meet and exceed the needs of our many customers."

Mr. Lau continued, "As we end 1995, our financial position remains strong. Working capital was $15.4 million as of March 31, 1996 as compared to $4.0 million as of March 31, 1995, and the current ratio was 5.2 with no long term debt."

Mr. Lau concluded, "Looking ahead to 1996, I see year of great opportunity for Deswell and remain confident that the expansions and facility improvements made over the past year ideally position Deswell to service our increasing order flow from existing and new customers."

Deswell manufactures injection-molded plastic parts and components and electronic products and subassemblies 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 ("PTH") 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 Industries (H.K.) Limited, Nam Tai Electronics (Shenzhen) Co. Ltd., Inter-Tel Incorporated, Behringer spezeiller studytechnik GmbH, and Shakespeare (H.K.) Limited. -0-

DESWELL INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF INCOME  (UNAUDITED)
(U.S. dollars in thousands, except per share data)

                                     Quarter ended         Year ended
                                        March 31,           March 31,
                                      1996     1995      1996     1995

Net sales                         $   7,487  $ 6,206 $ 30,580 $ 21,006
Cost of sales                         4,356    3,906   18,032   12,972
Gross profit                          3,131    2,300   12,548    8,034
Selling, general and administrative
  expenses                            1,366      957    5,361    3,425
Operating income                      1,765    1,343    7,187    4,609
Interest expense                        (24)     (87)    (181)    (260)
Other income, net                       136       48      411      134
Income before income taxes            1,877    1,304    7,417    4,483
Income taxes                            107       66      220       92
Income before minority interests      1,770    1,238    7,197    4,391
Minority interests                      296      219    1,286      381
Net income                          $ 1,474  $ 1,019  $ 5,911  $ 4,010

Earnings per share                  $  0.32 $   0.30  $  1.41 $   1.18

Average number of shares outstanding  4,550    3,400    4,198    3,400
  (in thousands)
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DESWELL  INDUSTRIES,  INC.

CONSOLIDATED BALANCE SHEET (Unaudited)
(U.S. dollars in thousands)
                                    March 31,       March 31,
                                      1996            1995
ASSETS

Current assets :
        Cash and cash equivalent   $ 8,920         $ 1,144
        Restricted cash              2,248             905
        Accounts receivable, net     4,142           3,067
        Inventories                  2,932           2,058
        Prepaid expenses and oth       495             418
        Deferred public offering         -             265
        Income taxes receivable        266             216
              Total current assets  19,003           8,073
Property, plant and equipment - net  7,369           3,867
Goodwill                               248             263
        Total assets             $  26,620        $ 12,203

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
        Short-term borrowings    $      81         $ 1,890
        Current portion of long-
          term debt                    395             501
        Accounts payable             2,111           1,281
        Customer deposits and
          accrued expenses           1,017             403
        Income taxes payable            46              34
            Total current
              liabilities            3,650           4,109
Long-term debt                           -             179
Minority interests                   1,884             598
Deferred income tax                     11              46

Shareholders' equity
  Common stock
  - authorized 20,000,000 shares;
    issued and outstanding
    4,550,000 shares at March 31,
    1996 and 3,400,000 shares at
    March 31, 1995                      46              34
  Additional paid-in capital        11,747           1,908
  Retained earnings                  9,282           5,329
    Total shareholders' equity      21,075           7,271
      Total liabilities and
       shareholders' equity       $ 26,620        $ 12,203
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DESWELL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(U.S. dollars in thousands)
                                               Year ended
                                                March 31,
                                          1996            1995
Cash flows from operating activities :
     Net income                         $ 5,911         $ 4,010
     Adjustments to reconcile net
       income to net cash provided by
       operating activities:
        Depreciation and amortization     1,400           1,103
        Gain on sale of property, plant
          and equipment                     (31)            (44)
        Minority interests                1,286             381
        Deferred income tax                 (35)             46
        Changes in current assets and
          liabilities:
           Increase in accounts
             receivable                  (1,075)           (283)
           Increase in inventories         (874)           (935)
           Increase in prepaid expenses
             and other current assets       (77)           (154)
           Increase in income taxes
             receivable                     (50)           (177)
           Increase in accounts
             payable                        830             508
           Increase in customer deposits
             and accrued expenses           614              76
           Increase in income taxes
             payable                         12              34
        Net cash provided by operating
          activities                      7,911           4,565

Cash flows from investing activities
        Purchase of property, plant and
          equipment                      (4,117)         (1,485)
        Proceeds from sale of property,
           plant and equipment               55             366
        Acquisitions, excluding cash
          acquired                            -             (52)
        Repayment by related parties          -           1,444
        Advance to related parties            -            (862)
        Increase in restricted cash      (1,343)           (452)
           Net cash used in investing
             activities                  (5,405)         (1,041)

Cash flows from financing activities
        Issue of Common Stock             9,930               -
        Dividends paid                        -          (1,228)
        Repayment of long-term debt      (1,079)         (1,039)
        Increase in short-term borrowings   458             806
        Repayment of short-term
          borrowings                     (2,267)           (747)
        Repayment to related parties          -            (127)
        Public offering costs            (1,772)           (265)
           Net cash provided by (used
             in) financing activities     5,270          (2,600)

Net increase in cash and cash equivalents 7,776             924
Cash and cash equivalents, at beginning
  of year                                 1,144             220
Cash and cash equivalents, at end of
  year                                  $ 8,920         $ 1,144

Supplementary disclosures of cashflow
  information :
     Acquisitions, excluding cash
       acquired :
     Goodwill                         $       -      $      44
     Minority interests                       -              8
Cash paid, net of cash acquired       $       -      $      52

Cash paid during the year for :
        Interest                       $    181      $     260
        Income taxes                   $    293      $     189

Non cash transactions :
        Property acquired under
          capital leases               $    794       $    659
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DESWELL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(U.S. dollars in thousands except per share data)

1.   Management's Statement

    In the opinion of Management, the accompanying unaudited
financial statements contain all adjustments (all of which are normal
and recurring in nature) necessary to present fairly the financial
position of Deswell Industries, Inc.  (the Company) at March 31, 1996
and March 31, 1995, the results of operations for the quarters and
years ended March 31, 1996 and March 31, 1995, and the cash flows for
the year ended March 31, 1996 and March 31, 1995.  The notes to the
Consolidated Financial Statements which are contained in the Form F-1
Registration Statement filed on July 18, 1995 under the Securities
Act of 1993 should be read in conjunction with these Consolidated
Financial Statements.

2.   Inventories

                                           March 31,   March 31,
                                             1996        1995
Inventories by major categories :
   Raw materials                          $  1,881     $ 1,199
   Work in progress                            340         245
   Finished goods                              711         614
                                        $    2,932     $ 2,058
                                        ==========   =========

3.   Public Offering of Common Shares and Warrants

    In July 1995, the company completed its initial public offering
in the United States (the "IPO") of 1,000,000 Common Shares at $8.625
per share and 1,000,000 Warrants at $0.01 per Warrant and the
issuance in August 1995 of an additional 150,000 Common Shares and
150,000 Warrants upon the exercise of the over-allotment option by
the underwriters in the IPO.  The net proceeds from this offering
aggregated approximately $7,893.

4.   Earnings Per Share

    The primary earnings per share is computed on the net income
divided by the weighted average number of Common Shares in issue
throughout the relevant periods.  The weighted average number of
Common Shares in 1995 takes account of both the IPO 1,000,000 Common
Shares issued in July 1995 and the Over- allotment 150,000 Common
Shares issued in August 1995.
    The Stock Options and Warrants outstanding as at March 31, 1996
did not dilute the primary earnings per share by 3% or more.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Results of Operations

General

    The Company's revenues are derived from the manufacture and sale
of injection-molded plastic parts and components and of electrical
products and subassemblies.  The Company carries out all of its
manufacturing operations in southern China, where it is able to take
advantage of the lower overhead costs and inexpensive labor rates as
compared to Hong Kong.
    Three Months Ended March 31, 1996 Compared to Three Months Ended
March 31, 1995
    The Company's net sales for the three months ended March 31, 1996
were $7,487,000, an increase of $1,281,000 or 20.6% as compared to
corresponding period in 1995.  The increase in sales was mainly
related to additional sales of injection-molded plastic and
electronic products of $500,000 and $781,000 respectively, or
increases of 13.2% and 32.4% as compared with the net sales in the
corresponding period in the prior year.  The Company has generated
higher volume demands from its customers in this year as a result of
the continuous efforts of striving for high quality standards of
products.
    The gross profit for the quarter ended March 31, 1996 was
$3,131,000, representing a gross profit margin of 41.8%.  This
compares with the overall gross profit and gross profit margin of
$2,300,000 or 37.1% for the quarter ended March 31, 1995.
    There was an increase in the overall gross profit margin of 4.7%.
The margin on the sale of plastic parts and components increased to
46.2% for the quarter ended March 31, 1996 as compared to 40.2% in
the previous year.  This is primarily due to the increases in the
price of plastic resins in the corresponding period in prior year
which the Company was not able to pass onto its customers whereas the
resin prices dropped and became steady during the current year.  The
gross profit margin on sales of electronic orders and subassemblies
increased as the Company kept on concentrating its efforts on
securing orders with higher margins.  Gross margins on these products
increased to 36.0% compared to 32.2% in the corresponding period in
prior year, with a total gross profit contribution of $1,148,000,
compared to $776,000 in the previous year.
    Selling, general and administrative expenses for the quarter
ended March 31, 1996 were $1,366,000, amounting to 18.2% of total net
sales, as compared to $957,000 or 15.4% of total net sales for the
quarter ended March 31, 1995.  The increase in selling, general and
administrative expenses of $409,000 over the corresponding period was
largely due to the growth in the Company's operations, additional
expenses incurred for the ISO9002 certification and additional
salaries resulting from salary increments and bonuses to several
senior management (non-directors) as well as new employees joining
the Company.
    As a result of the increase in net sales, operating income was
$1,765,000 for the quarter ended March 31, 1996, an increase of
$422,000 or 31.5% as compared with the corresponding quarter in the
prior year.
    Minority interests represent the 49% minority interest in the
electronics subsidiary and the increase in minority interest to
$296,000 for the quarter ended March 31, 1996 from $219,000 for the
quarter ended March 31, 1995 reflects the fact that the electronic
business generated significant profits in the current period as
compared to the corresponding period in 1995.
    As a result of the above factors, net income was $1,474,000 for
the quarter ended March 31, 1996, an increase of $455,000 or 44.7%,
as compared to the quarter ended March 31, 1995 and net income as a
percentage of net sales increased to 19.7% from 16.4%.

Year Ended March 31, 1996 Compared to Year Ended March 31, 1995

    The Company's net sales for the year ended March 31, 1996 were
$30,580,000, an increase of $9,574,000 or 45.6%, as compared to the
year ended March 31, 1995.  The sales to the Company's six largest
customers represented approximately 85.0% of net sales for the year.
    Sales of plastic parts and components for the year ended March 31,
1996 amounted to $18,675,000, an increase of $4,873,000 or 35.3%, as
compared to the year ended March 31, 1995 and represented 61.1% of
the Company's total sales.  This increase was primarily due to
increases in sales to existing customers, with sales to Nam Tai
Electronics (Shenzhen) Limited ("Nam Tai Shenzhen"), Mita Industries
(H.K.) Limited ("Mita"), Inter-Tel Incorporated ("Inter- Tel") and
Prod-Art Company Limited ("Prod-Art") increasing by $1,493,000,
$1,922,000, $586,000 and $1,425,000, respectively, offset by reduced
sales to Shakespeare (H.K.) Limited ("Shakespeare") by $415,000.  Nam
Tai Shenzhen is a wholly-owned subsidiary of Nam Tai, a principal
shareholder of the Company.  Sales to Nam Tai Shenzhen, Mita,
Inter-Tel and Prod-Art increased as a result of increasing volume of
orders received form their ultimate customers.  As a result of
increased orders from these major customers in the past two years,
the Company had become more selective in accepting orders from its
smaller customers in situations where management believe there is
little potential for significantly increased volumes in the future.
As a consequence, the Company turned down orders from some smaller
customers during the year ended March 31, 1996.  The Company is
generally not able to increase prices to its customers of plastic
products and increases in sales are generally volume-related.
    Sales of electronic products and subassemblies for the year ended
March 31, 1996 amounted to $11,905,000, an increase of $4,701,000, or
65.3% as compared to the year ended March 31, 1995, and represented
38.9% of the Company's total sales.  The increase in sales of such
products was primarily due to increased sales to Behringer spezeiller
studytechnik GmbH ("Behringer"), Inter-Tel and Function
Tele-communications Limited ("Function") by $2,233,000, $3,341,000
and $821,000, respectively, offset by reduced sales to Longshine
Technology Limited ("Longshine") by $1,784,000.  The Company made
significant sales to Longshine in the years ended March 31, 1995 and
March 31, 1994 for the assembly of PCBs in order to more fully
utilize its production facilities at a time when business was slow.
However, the gross profit margin on the Longshine business was lower
than on sales to other electronics customers.  The significant
reduction in sales to Longshine was mainly attributed to the close
down of its operations in Hong Kong by Longshine in July 1995 and
that the Company has turned down the orders from Longshine after
failing to negotiate its prices to improve the margin at the
beginning of the year ended March 31, 1996 and when knowing the close
down intention of Longshine.  Sales to Behringer, Inter-Tel and
Function showed significant increases in the year ended March 31,
1996 as there was increase in sales orders for new OEM products.
    Net sales to customers by geographic area are determined by
reference to shipping destinations as directed by the Company's
customers.  During the year ended March 31, 1996, sales to China,
Hong Kong, U.S.A.  and Europe increased by $2,335,000, $1,765,000,
$3,928,000 and $3,243,000, respectively, over 1995 levels whereas
sales to Taiwan fell by $1,791,000 over the same period.  These
changes were primarily due to (i) increases in sales to Nam Tai
Shenzhen and Prod-Art in the case of China; (ii) increased sales to
Mita in the case of Hong Kong; (iii) increased sales to Inter-Tel in
the case of U.S.A.; (iv) increased sales to Behringer and Function in
the case of Europe; and (v) reduced sales to Longshine in the case of
Taiwan.
    The overall gross profit for the year ended March 31, 1996 was
$12,548,000, representing a gross profit margin of 41.0%.  This
compares with the overall gross profit and gross profit margin of
$8,034,000 or 38.2% for the year ended March 31, 1995.
    The gross profit margin on the sale of plastic parts and
components declined slightly to 41.7%, as compared to 43.3% in the
previous year although the overall gross profit margin contributed by
plastic parts and components was $7,781,000 in the year ended March
31, 1996, an increase of $1,807,000 from the previous year.  The
reduction in gross profit margin was primarily due to increase in
labor cost and factory overheads as a result of the factory and
operation expansion this year.  This partly offset the favorable
steady resin prices as compared with last year.
    The gross profit margin on sales of electronic orders and
subassemblies increased as the Company kept on concentrating its
efforts on securing orders with higher margins, in particular, the
reduced level of sales to Longshine during the year ended March 31,
1996 resulted in the overall improvement in the gross profit margin.
Gross margins on these products increased to 40.0% compared to 28.6%
in the previous year, with a total gross profit contribution of
$4,767,000, compared to $2,060,000 in the previous year.
    Selling, general and administrative expenses for the year ended
March 31, 1996 were $5,361,000, amounting to 17.5% of total net
sales, as compared to $3,425,000 or 16.3% of total net sales for the
year ended March 31, 1995.  The increase in selling, general and
administrative expenses of $1,936,000 over the prior year was largely
due to the growth in the Company's operations, additional expenses
incurred for the ISO9002 certification and additional salaries
resulting from salary increments and bonuses to several senior
management (non-directors) as well as new employees joining the
Company.
    As a result of the increase in net sales, operating income was
$7,187,000 for the year ended March 31, 1996, an increase of
$2,578,000 or 55.9% as compared with the prior year.  However, there
was no material fluctuation in the overall operating margin.  The
operating margin for the year ended March 31, 1996 was 23.5%, as
compared to 21.9% in the previous year.
    Minority interests represent the 49% minority interest in the
electronics subsidiary and the increase in minority interest to
$1,286,000 for the year ended March 31, 1996 from $381,000 in prior
year reflects the fact that the electronic business generated
significant profits in the current year as compared to the year ended
March 31, 1995.
    As a result of the above factors, net income was $5,911,000 for
the year ended March 31, 1996, an increase of $1,901,000 or 47.4%, as
compared to the year ended March 31, 1995.  The net income as a
percentage of net sales increased slightly to 19.3% from 19.1%.

Liquidity and Capital Resources

    Traditionally, the Company has relied primarily upon internally
generated funds and short-term borrowings (including trade finance
facilities) to finance its operations and expansion, although capital
expenditure has been partly financed by long-term debt, including
capital leases.
    At March 31, 1996, the Company had a working capital surplus of
$15,353,000.  This compares with a working capital surplus of
$3,964,000 at March 31, 1995.  The substantial increase in working
capital was mainly attributed to net proceeds generated from the
Initial Public Offering in July 1995 of which approximately
$4,000,000 were temporarily invested as term deposits as of March 31,
1996.
    The Company has historically generated sufficient funds from its
operating activities to finance its operations and there has been
little need for external financing other than short-term borrowings
which are used to finance accounts receivable and are generally paid
from cash generated from operations and long-term debt used to
finance capital expenditure.  The Company has outstanding short- term
borrowings of $81,000 and has total long-term debt (including the
current portion) of $395,000 at March 31, 1996.  The Company's
capital leases are generally repayable over periods of up to two
years, with the capital leases at March 31, 1996 being repayable
through December 1996.  The Company's long-term debt is repayable in
full in the year ending March 31, 1997.  In order to fund equipment
purchases for future expansion of its business, the Company completed
the IPO in July 1995, as referred to above.
    At March 31, 1996, the Company had in place general banking
facilities with four financial institutions aggregating approximately
$7,752,000.  Such facilities, which are subject to annual review,
include overdrafts, letters of credit, import facilities, trust
receipt financing, inward bills financing as well as fixed loans.  At
March 31, 1996, the Company had (i) unused credit facilities of
$7,671,000 (ii) cash and cash equivalents of $8,920,000 and (iii)
restricted cash of $2,248,000, which has been pledged as collateral
for those credit facilities.
    The Company expects that working capital requirements and capital
additions will be funded through a combination of internally
generated funds, existing facilities and the proceeds of IPO.

CONTACT: Lippert/Heilshorn & Associates, Inc.

John Nesbett, ext. 101

212-838-3777