DSP COMMUNICATIONS INC, 10-Q, 1996-08-12

DSP COMMUNICATIONS INC
10-Q, 1996-08-12
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

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<PAGE>

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 1996
-------------
or

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________

Commission File Number 0-25622
-------

DSP COMMUNICATIONS, INC.
------------------------
(Exact name of registrant as specified in its charter)

Delaware 77-0389180
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)

20300 Stevens Creek Boulevard, Cupertino, California 95014
------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code (408) 777-2700
--------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----

As of August 7, 1996, there were 21,999,063 shares of Common Stock ($.001 par
value) outstanding.

<PAGE>

INDEX

DSP COMMUNICATIONS, INC.

PAGE NO.
--------

PART I. FINANCIAL INFORMATION
- -----------------------------

Item 1. Financial Statements (Unaudited)

Condensed consolidated balance sheets - June 30, 1996
and December 31, 1995............................................3

Condensed consolidated income statements-Quarter
ended June 30, 1996 and 1995, and six months
ended June 30, 1996 and 1995.....................................4

Condensed consolidated statements of cash flows - Six months
ended June 30, 1996 and 1995.....................................5

Notes to condensed consolidated financial statements -
June 30, 1996....................................................6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................7

PART II. OTHER INFORMATION
- --------------------------

Item 1. Legal Proceedings................................................15
Item 2. Changes in Securities............................................15
Item 3. Defaults upon Senior Securities..................................15
Item 4. Submission of Matters to a Vote of Security Holders..............15
Item 5. Other Information................................................16
Item 6. Exhibits and Reports on Form 8-K.................................16

SIGNATURE.................................................................17

2
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DSP COMMUNICATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1 9 9 6 1 9 9 5
------- -------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 64,003 $ 10,292
Short term investments 55,578 17,696
Trade accounts receivable 7,708 8,838
Other current assets 2,249 1,448
--------- ---------
Total current assets 129,538 38,274

Property and Equipment, net 3,000 1,823

Goodwill 2,133 2,379

Other Assets 1,473 1,643
--------- ---------
$ 136,144 $ 44,119
--------- ---------
--------- ---------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,157 $ 3,419
Accrued compensation and benefits 1,962 1,711
Other accrued liabilities 5,616 3,478
Deferred income 1,316 473
--------- ---------
Total current liabilities 14,051 9,081

Other Liabilities 230 170

STOCKHOLDERS' EQUITY
Common stock (21,915,275
and 18,105,922 shares issued
and outstanding at June 30, 1996,
and Dec. 31, 1995, respectively) 21 18
Additional paid-in capital 117,261 39,794
Contributed capital 7,232 7,232
Accumulated deficit (2,651) (12,176)
--------- ---------
Total stockholders' equity 121,863 34,868
--------- ---------
$ 136,144 $ 44,119
--------- ---------
--------- ---------
</TABLE>

See Notes to Condensed Consolidated Financial Statements

Note 1: The balance sheet at December 31, 1995 has been derived from audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.

3
<PAGE>

DSP COMMUNICATIONS INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(U.S. DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Product $ 19,595 $ 7,234 $ 35,719 $ 10,711
Technology development 736 788 1,934 1,567
-------- -------- -------- --------
Total revenues 20,331 8,022 37,653 12,278

COST OF REVENUES
Product 10,610 4,178 19,822 5,956
Technology development 816 580 1,674 991
-------- -------- -------- --------
Total cost of revenues 11,426 4,758 21,496 6,947

Gross profit 8,905 3,264 16,157 5,331

OPERATING EXPENSES
Research and development 1,019 640 2,026 1,152
Sales and marketing 746 571 1,626 1,045
General and administrative 1,429 723 3,084 1,268
-------- -------- -------- --------
3,194 1,934 6,736 3,465
-------- -------- -------- --------

Operating income 5,711 1,330 9,421 1,866

Net interest and other income 1,089 194 1,464 379
-------- -------- -------- --------
Income before provision
for income taxes 6,800 1,524 10,885 2,245
Provision for income taxes 850 301 1,360 448
-------- -------- -------- --------
Net income $ 5,950 $ 1,223 $ 9,525 $ 1,797
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share $ 0.26 $ 0.07 $ 0.44 $ 0.11
-------- -------- -------- --------
-------- -------- -------- --------

Shares used in computing
net income per share 22,925 17,892 21,586 15,840
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

See Notes to Condensed Consolidated Financial Statements

4
<PAGE>

DSP COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1 9 9 6 1 9 9 5
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 9,525 $ 1,797
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 794 183

Loss on disposal of equipment 2 2
Other -- (83)

Changes in operating assets and liabilities:
Trade accounts receivable 1,130 (1,741)
Accounts receivable for affiliated companies -- 68
Other current assets (801) (507)
Accounts payable 1,620 1,912
Accrued compensation and benefits 251 105
Deferred income 843 (720)
Other accrued liabilities 1,889 1,262
--------- ---------

Net cash provided by (used in) operating activities 15,253 2,278
--------- ---------

INVESTING ACTIVITIES:
Cash purchases of equipment (1,446) (547)
Proceeds from sales of equipment 7 10
Purchases of short term investments, net (37,994) (19,014)
--------- ---------

Net cash used in investing activities (39,433) (19,551)
--------- ---------

FINANCING ACTIVITIES:
Repayments of lease obligations -- (28)
Issuance of common stock for cash 77,891 30,152
--------- ---------

Net cash provided by financing activities 77,891 30,124
--------- ---------

Increase in cash and cash equivalents 53,711 12,851
Cash and Cash equivalents
at beginning of period 10,292 8,146
--------- ---------

Cash and cash equivalents at
end of period $ 64,003 $ 20,997
--------- ---------
--------- ---------
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

5
<PAGE>

DSP COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of DSP
Communications, Inc. ("DSPC" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim period are not necessarily indicative of the
results that may be expected for the full year. For further information, refer
to the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.

2. FOLLOW-ON OFFERING

On April 24, 1996, the Company closed a follow-on offering of 4,000,000 shares
of common stock at $26 per share, of which 901,368 shares were sold by a selling
shareholder, resulting in net proceeds to the Company of approximately $76
million.

6
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following information should be read in conjunction with the consolidated
condensed interim financial statements and the notes thereto in Part I, Item 1
of this Quarterly Report and with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's Annual
Report for the year ended December 31, 1995.

The results of operations for 1996 include the results of CTP Systems Ltd. ("CTP
Systems"). CTP Systems is presently developing its wireless PBX product for
commercial production, and commercial quantities are expected to be first
shipped in the fourth quarter of 1996. CTP Systems' activities incurred losses
in the first and second quarters and are expected to continue to incur losses in
the following quarters of 1996.

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship of certain items from
the Company's condensed consolidated statements of income as a percentage of
total revenues.

<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---------------- ----------------
<C> <C> <C> <C>
Revenues:
Product 96.4 90.2% 94.9 87.2%
Technology development 3.6 9.8 5.1 12.8
---------------- ----------------
100.0 100.0 100.0 100.0
Cost of revenues:
Product 52.2 52.1 52.6 48.5
Technology development 4.0 7.2 4.4 8.1
---------------- ----------------
56.2 59.3 57.0 56.6
---------------- ----------------
Gross profit 43.8 40.7 43.0 43.4
Operating expenses:
Research and development 5.0 8.0 5.4 9.4
Sales and marketing 3.7 7.1 4.3 8.5
General and administrative 7.0 9.0 8.2 10.3
---------------- ----------------
15.7 24.1 17.9 28.2
---------------- ----------------
Operating income 28.1 16.6 25.1 15.2
Net interest and other income 5.3 2.4 3.8 3.1
---------------- ----------------
Income before provision
for income taxes 33.4 19.0 28.9 18.3
Provision for income taxes (4.2) (3.8) (3.6) (3.6)
---------------- ----------------
Net income 29.2% 15.2% 25.3% 14.7%
---------------- ----------------
---------------- ----------------
</TABLE>

7
<PAGE>

REVENUES

Total revenues increased 153% to $20.3 million in the second quarter of 1996
from $8.0 million in the second quarter of 1995, and 207% to $37.7 million in
the six months ended June 30, 1996 from $12.3 million in the comparable period
in 1995.

Product revenues increased 171% to $19.6 million in the second quarter of 1996
from $7.2 million in the second quarter of 1995, and 233% to $35.7 in the six
months ended June 30, 1996 from $10.7 million in the first six months of 1995.
The demand for the Company's baseband chip sets for the Japanese PDC digital
cellular telephone market has increased significantly. In addition, during the
first six months of 1996 the Company commenced volume shipments sales of its new
half rate chip set.

Technology development revenues were $736,000 in the second quarter of 1996 as
compared to $788,000 in the second quarter of 1995, and $1,934,00 in the six
months ended June 30, 1996 compared to $1,567,000 in the six months ended June
30, 1995. The Company's technology development revenues fluctuate depending on
the number and size of technology development agreements and timing of related
milestones and deliverables.

GROSS PROFIT

Gross profit in the second quarter of 1996 was $8.9 million (43.8% of revenues)
compared to $3.3 million (40.7% of revenues) in the second quarter of 1995.
Gross profit in the first half of 1996 was $16.2 (42.9% of revenues), compared
to $5.3 million (43.4% of revenues) in the first half of 1995. The gross profit
on product revenues increased to 45.9% in the second quarter of 1996 from 42.2%
in the second quarter of 1995. The gross profit on product revenues increased to
44.5% in the first half of 1996 from 44.4% in the first half of 1995. Gross
margins on product revenues increased in the second quarter of 1996 as the
Company completed its obligations to pay royalties to the Chief Scientist of
the Israel Ministry of Trade and Industry, and therefore was not required to
provide for this 3% royalty for all sales recorded during the quarter. Sales of
CTP Systems' Wireless PBX systems to Beta sites were effected in small
quantities. These sales were effected at negative margins, and the Company
expects that it will continue to experience negative margins on low volume
initial systems sales until higher volume sales are achieved. Higher volume
sales are anticipated at the end of 1996. Margins were also positively effected
by a change in the composition of products and customers which yielded a higher
margin. The Company anticipates that the cost of products sold as a percentage
of product revenues may increase in subsequent quarters as the sales price of
chip sets decreases as a result of volume discounts and price pressures. The
costs incurred on technology development varies from quarter to quarter
depending on the similarity or diversity of the products and technologies
developed, and as contractual milestones are achieved. The achievement of
certain contractual milestones was delayed from the second quarter, and as a
result, the related revenues were not recognized and a gross loss resulted on
technology development. The Company believes that these milestones will be
achieved in the third quarter.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses increased to $1,019,000 (5.0% of revenues) in
the second quarter of 1996 from $640,000 (8.0% of revenues) in the second
quarter of 1995, (net of grants from the Chief Scientist of the Israeli Ministry
of Trade and Industry) and to $2,026,000 (5.4% of revenues) in the six months
ended June 30, 1996, compared to $1,152,000 (9.4% of revenues) in the six months
ended June 30, 1995. The increase reflects the growth in engineering personnel
and in projects under development, and the inclusion of CTP Systems' R&D
activities.

8
<PAGE>

SALES AND MARKETING EXPENSES

Sales and marketing expenses increased to $746,000 (3.7% of revenues) in the
second quarter of 1996 from $571,000 (7.1% of revenues) in the second quarter of
1995, and to $1,626,000 (4.3% of revenues) in the six months ended June 30, 1996
compared to $1,045,000 (8.5% of revenues) in the six months ended June 30, 1995.
The increase reflects the growth in the marketing and sales staff at the
Company's Cupertino, California, offices, increased participation at trade
exhibitions, increased promotion and market research expenses, and increased
expenses at the Company's Tokyo offices.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses in the second quarter of 1996 were
$1,429,000 (7.0% of revenues) compared to $723,000 (9% of revenues) in the
second quarter of 1995, and $3,084,000 (8.2% of revenues) in the six months
ended June 30, 1996, compared to $1,268,000 (10.3% of revenues) in the six
months ended June 30, 1995. General and administrative expenses increased
primarily as a result of increased staffing levels at the Company's Cupertino
offices and at the facilities of the Company's Israeli subsidiaries, increased
facility expenses, increased administration expenses and fees, and the
inclusion of CTP Systems' administration expenses and related amortization of
the goodwill recorded with the acquisition of CTP Systems.

OTHER INCOME

Net interest and other income was $1,089,000 in the second quarter of 1996
compared to $194,000 in the second quarter of 1995, and was $1,464,000 in the
six months ended June 30, 1996, compared to $379,000 in the six months ended
June 30, 1995. The 1996 amount was generated primarily from interest on the
Company's cash and investment balances, including the proceeds from the
Company's follow-on public offerings completed in June 1995 and in April 1996.

PROVISIONS FOR INCOME TAX

The tax provision for the quarter and six month period ended June 30, 1996,
reflects Israeli taxes on the portion of the undistributed income which is not
subject to "Approved Enterprise" status and U.S. taxes on U.S. earnings which
are not offset by net operating loss carry forwards. The effective tax rate for
the second quarter of 1996 is approximately 12.5% and may increase in the future
depending on, among other factors, the elimination over time of the tax
benefits awarded with Approved Enterprise status and the possible application of
U.S. tax rules regarding the taxation of controlled foreign corporations.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operating activities provided $15.3 million in the six months
ended June 30, 1996 and $2.3 million in the comparable period in 1995. Net cash
provided from operations in 1996 was composed primarily of net income for the
period, and an increase in current liabilities and a decrease in trade accounts
receivable.

The Company's investing activities, other than purchases of and proceeds from
short-term investments, have consisted primarily of expenditures for fixed
assets, which totaled $1,466,000 in the first six months of 1996 and $547,000 in
the first six months of 1995.

9
<PAGE>

In obtaining approval of the Company's reorganization from Israeli tax
authorities, which was completed immediately before the closing of the Company's
initial public offering in March 1995 ("IPO"), the Company agreed to invest in
activities in Israel not less than $9.0 million out of the proceeds of the IPO
within three years after the IPO.

In October 1995, the Company completed the acquisition of CTP Systems, for $14.1
million. Prior shareholders of CTP Systems who are continuing as employees of
CTP Systems and, under certain circumstances, prior shareholders who have no
continuing role in CTP Systems, may be entitled to receive a contingent earn-out
payment on March 31, 1998. The amount of the contingent earn-out payment will be
determined by a formula based upon the profits and revenues, as defined, of CTP
Systems for fiscal years 1996 and 1997 on a combined basis, and the relationship
between such profits and revenues. The Company has the ability to extinguish the
contingent earn-out obligation by paying an additional $6.0 million by December
1996. Based on the operating results of CTP Systems to date, the Company does
not expect that the prior shareholders of CTP Systems will be entitled to
receive such an earn-out payment. The Company does not currently plan to
extinguish the obligation by making the $6.0 million payment in 1996.

As of June 30, 1996, the Company had $119.6 million of cash, cash equivalents
and short-term investments. The Company believes that existing cash, cash
equivalents and short-term investments balances, will be sufficient to meet its
cash requirements for at least the next twelve months. While operating
activities may provide cash in certain periods, to the extent the Company may
experience growth in the future, the Company anticipates that its operating and
investing activities may use cash and consequently, such growth may require the
Company to obtain additional sources of financing. The Company may also from
time to time consider the acquisition of additional complimentary businesses,
projects or technologies which may require additional financing or require the
use of a significant portion of its existing cash.

On April 24, 1996, the Company closed a follow-on public offering of 4,000,000
shares of Common Stock at $26 per share, of which 901,368 shares were sold by a
selling shareholder. Aggregate net proceeds to the Company from the offering,
exclusive of the Company's expenses associated with the offering, were
$76,536,210.

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

This Form 10-Q contains forward looking statements concerning the Company's
future products, expenses, revenue, liquidity and cash needs as well as the
Company's plans and strategies. These forward looking statements are based on
current expectations, and the Company assumes no obligation to update this
information. Numerous factors could cause actual results to differ
significantly from the results described in these forward looking statements,
including the following risk factors.

RELIANCE ON A SINGLE JAPANESE DISTRIBUTOR AND A SMALL NUMBER OF OEMS.
Substantially all of the Company's sales of baseband chip sets for digital
cellular telephones are to Tomen Electronics Corp. ("Tomen"), the Company's
distributor in Japan. Tomen's sales of the Company's products are
concentrated in a small number of Japanese original equipment manufacturer
("OEM") customers. Although Tomen has recently commenced shipments of the
Company's products to additional Japanese OEMs, prior to 1996, Kenwood
Corporation, Kyocera Corporation and Sanyo Electronic Co., Ltd. accounted for
all of Tomen's sales of the Company's baseband chip sets. The loss of Tomen
as a distributor or the loss of or significant reduction in Tomen's sales to
any of these Japanese OEMs would have a material adverse effect on the
Company's business, financial condition and results of operations. Because
the world-wide cellular subscriber equipment industry is dominated by a small
number of large corporations, the Company expects that a significant portion
of its future product sales will continue to be concentrated in a limited
number of OEMS.

10
<PAGE>

As a result, the Company's performance is likely to depend on relatively
large orders from a limited number of distributors and OEMS. The Company's
performance will also depend significantly on gaining additional OEM
customers, both within existing markets and in new markets. In addition, the
Company believes that the manufacture of subscriber equipment for emerging
telecommunications services, such as personal communications services
("PCS"), will also be concentrated in a limited number of OEMS. The loss of
any existing OEM customer, a significant reduction in the level of sales to
any existing customers, or the failure of the Company to gain additional OEM
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.

RELIANCE ON TEXAS INSTRUMENTS AND OTHER THIRD PARTY MANUFACTURERS. All of the
Company's integrated circuits are currently fabricated by independent third
parties and the Company intends to continue using independent foundries in the
future. To date, the Company has purchased all of the DSP chips for its
baseband chip sets for cellular telephones from Texas Instruments Incorporated
("TI"). The Company also buys all of the DSP chips used in the products of CTP
Systems from TI. The Company purchases standard DSP chips from TI, and TI
embeds the Company's proprietary software algorithms in TI's chips. In
addition, the Company currently purchases its application specific integrated
circuits ("ASICs") for its PDC chip sets from VLSI Technology, Inc. ("VTI") and
Atmel ES2, a wholly-owned subsidiary of Atmel, Inc. ("Atmel ES2"); all of its
ASICs for analog baseband chip sets from TI and its ASICs for CTP Systems'
products from American Microsystems, Inc. ("AMI") and Pacific Communication
Services, Inc. ("PCSI"), a subsidiary of Cirrus Logic, Inc. Accordingly, the
Company is and will remain dependent on independent foundries, including TI,
PCSI, AMI, VTI and Atmel ES2, to achieve acceptable manufacturing yields, to
allocate to the Company a sufficient portion of foundry capacity to meet the
Company's needs and to offer competitive pricing to the Company. Although the
Company has not experienced material quality, allocation or pricing problems to
date, if such problems were to arise in the future, they would have a material
adverse effect on the Company's business, financial condition and results of
operations.

DEPENDENCE ON JAPANESE MARKET. The future performance of the Company will be
dependent, in large part, upon its ability to continue to compete successfully
in the Japanese market. The Company's ability to continue to compete in this
market will be dependent upon several factors, including no deterioration of
existing trade relations between Japan, Israel and the United States or
imposition of tariffs in the wireless personal communications industry, no
adverse changes in the Japanese telecommunications regulatory environment, the
Company's ability to develop products that meet the technical requirements of
its Japanese customers and the Company's ability to maintain satisfactory
relationships with its Japanese customers and its distributor. All of the
Company's sales to its Japanese customers are denominated in United States
dollars and, therefore, fluctuations in the exchange rate for the United States
dollar could materially increase the price of the Company's products to these
customers and require the Company to reduce prices of its products to remain
competitive. Moreover, the expected emergence of Personal HandyPhone Services,
a microcellular technology potentially competitive with today's existing
Japanese analog and digital cellular networks, could reduce sales in Japan of
digital cellular telephones incorporating the Company's baseband chip sets.
There can be no assurance that changes in the political or economic conditions,
trade policy or regulation of telecommunications in Japan will not have a
material adverse effect on the Company's business, financial condition and
results of operations.

DECLINING SALES PRICES. Manufacturers of wireless personal communications
equipment are experiencing, and are likely to continue to experience, intense
price pressure, which has resulted and is expected to continue to result in
downward pricing pressure on the Company's products. As a result, the Company
has experienced, and expects to continue to experience, declining sales prices
for its products. In addition, pricing competition among component suppliers
has increased. There can be no assurance that either increases in unit volume
or reductions in per unit costs will offset declines in per unit sales prices,
in which case the Company's gross profit would be adversely affected. Since
cellular telephone manufacturers frequently negotiate supply arrangements far in
advance of delivery dates, the Company often must commit to price reductions for
its

11
<PAGE>

products before it is aware of how, or if, such cost reductions can be
obtained. As a result, such current or future price reduction commitments
could have, and any inability of the Company to respond to increased price
competition would have, a material adverse effect on the Company's business,
financial condition and results of operations.

RELIANCE ON A SINGLE PRODUCT; INTRODUCTION OF HALF RATE CHIP SET. Since
December 1993, the Company has relied upon sales from a single product, its
baseband chip set for digital cellular telephones for use in Japan, to generate
substantially all of its product sales. The Company is in the process of
developing additional products for digital cellular telephones, PCS and wireless
PBX applications; however, there can be no assurance that it will be successful
in doing so.

During the first six months of 1996, the Company commenced volume shipments of
its new half rate chip set. Although the Company extensively tested the half
rate chip set prior to its introduction, design adjustments may yet be required
which could result in delays in further volume production or recalls of half
rate chip sets already sold. Although the Company has not to date experienced
any errors or the need for any such adjustments with respect to the half rate
chip set, the occurrence of such errors or adjustments could have a material
adverse effect on the Company's business, financial condition or results of
operations.

EXPECTED FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND POTENTIAL QUARTERLY
LOSSES. The Company's quarterly operating results depend on the volume and
timing of product orders received and delivered during the quarter and the
timing of new product introductions by the Company and its customers. The
Company anticipates that for the foreseeable future new product introductions
may cause significant fluctuations in quarterly operating results. The
Company's quarterly operating results may also vary significantly depending on
other factors, including the introduction of new products by the Company's
competitors; market acceptance of new products; the greater number of
manufacturing days in the second and third quarters; adoption of new
technologies and standards; relative prices of the Company's products;
competition; the cost and availability of components; the mix of products sold;
the quality and availability of chip sets manufactured for the Company by third
parties; changes in the Company's distribution arrangements; sales of wireless
subscriber equipment by OEMs and changes in general economic conditions. In
addition, the Company has an obligation to make certain contingent earn-out
payments on March 1988 in connection with its acquisition of CTP Systems;
however, the Company has the right to extinguish this contingent earn-out
obligation by paying $6 million by December 1996. If the Company elects to make
this payment, it will result in the recognition of a substantial one-time charge
against earnings and a material adverse effect on the Company's operating
results in the quarter in which it is paid. In the event the Company does not
elect to make this payment, the Company could be required to pay a substantially
greater amount in March 1998 if CTP Systems exceeds its original projections of
revenues and profits.

RISK OF INCREASED INCOME TAXES. DSPC Israel Ltd. ("DSPCI") and CTP Systems, two
Israeli subsidiaries of the Company, operate as "Approved Enterprises" under
Israel's Law for the Encouragement of Capital Investments, 1959, as amended. An
Approved Enterprise is eligible for significant income tax rate reductions for
several years following the first year in which it has income subject to
taxation in Israel (after consideration of tax losses carried forward). There
can be no assurance that this favorable tax treatment will continue, and any
change in such tax treatment could have a material adverse effect on the
Company's net income and results of operations. As of this date, the Company is
not aware of any circumstances that might cause it to lose its favorable tax
treatment. If Israel's tax incentives or rates applicable to DSPCI or CTP
Systems are rescinded or changed, their income taxes could increase and their
results of operations and cash flow would be adversely affected. In addition,
the Company's income tax rate would increase if all or a portion of the earnings
of DSP Telecom, DSPCI or CTP Systems were to become subject to United States
federal and state income tax as a result of actual or deemed dividends or
through operation of United States tax rules applicable to "controlled foreign
corporations.

12
<PAGE>

MARKETS FOR THE COMPANY'S PRODUCTS ARE HIGHLY COMPETITIVE. The markets for the
Company's products are extremely competitive and the Company expects that
competition will increase. Many of the Company's competitors have entrenched
market positions, established patents, copyrights, tradenames, trademarks and
intellectual property rights and substantial technological capabilities. The
Company's current competitors in the digital cellular market include other
suppliers of DSP-based chip sets and existing cellular telephone manufacturers
that develop chip set solutions internally. Both in the cellular market and in
other wireless personal communications markets, the Company's existing and
potential competitors include large and emerging domestic and international
companies, many of which have significantly greater financial, technical,
manufacturing, marketing, sales and distribution resources and management
expertise than the Company. The Company believes that its ability to compete
successfully in the wireless personal communications market will depend upon a
number of factors both within and outside of its control, including price,
quality, availability, product performance and features; timing of new product
introductions by the Company, its customers and competitors; and customer
service and technical support. There can be no assurance that the Company will
have the financial resources, technical expertise, or marketing, sales,
distribution and customer service and technical support capabilities to compete
successfully.

RELIANCE ON INTENTIONAL OPERATIONS; RISKS OF OPERATIONS IN ISRAEL. The Company
is subject to the risks of doing business internationally, including unexpected
changes in regulatory requirements; fluctuations in the exchange rate for the
United States dollar; imposition of tariffs and other barriers and restrictions;
and the burdens of complying with a variety of foreign laws. The Company is
also subject to general geopolitical risks, such as political and economic
instability and changes in diplomatic and trade relationships, in connection
with its international operations. In particular, the Company's principal
research and development facilities are located in the State of Israel and, as a
result, at June 30, 1996, 109 of the Company's 121 employees were located in
Israel, including all of the Company's research and development personnel.
Therefore, the Company is directly affected by the political, economic and
military conditions to which that country is subject. In addition, many of the
Company's expenses in Israel are paid in Israeli currency, thereby also
subjecting the Company to foreign currency fluctuations and to economic
pressures resulting from Israel's generally high rate of inflation. The rate of
inflation in Israel for 1994 and 1995 was 14.7% and 8.1%, respectively. While
substantially all of the Company's sales and expenses are denominated in United
States dollars, a portion of the Company's expenses are denominated in Israeli
shekels. The Company's primary expense paid in Israeli currency is employee
salaries. As a result, an increase in the value of Israeli currency in
comparison to the United States dollar could increase the cost of technology
development, research and development expenses and general and administrative
expenses. There can be no assurance that currency fluctuations, changes in the
rate of inflation in Israel or any of the other aforementioned factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations.

In the past, the Company has obtained royalty-bearing grants from the Office of
the Chief Scientist in Israel's Ministry of Industry and Trade (the "Chief
Scientist") and the Israel-United States Binational Industrial Research and
Development Foundation to fund research and development. The terms of the
grants from the Chief Scientist prohibit the transfer of technology developed
pursuant to the terms of these grants to any person, without the prior written
consent of the State of Israel. The Company does not expect to apply for such
grants for the development of new products in the future but will continue to
apply for grants for existing products.

OPERATIONAL RISKS ASSOCIATED WITH CTP SYSTEMS. On October 26, 1995, the Company
acquired for $14.1 million CTP Systems, a developer and manufacturer of wireless
private branch exchanges ("PBXs") and other low-mobility wireless communications
applications. CTP Systems' wireless PBX equipment is currently in Beta testing,
which may identify quality or operational problems in the product that require
the Company to incur additional engineering expenses to correct any problems or
redesign the product, and also may result in a delay in making the product
commercially available. CTP Systems intends to manufacture its own products and
will, therefore, be subject to various risks associated with the manufacturing
process, including errors in

13
<PAGE>

the manufacturing process, shortages of required components, manufacturing
equipment failures and disruptions of operations at the manufacturing
facility. Prolonged inability of CTP Systems to deliver products in a timely
manner could result in the loss of customers and a material adverse effect on
its results of operations. In addition, certain of the components included
in CTP Systems' products are obtained from a single source or a limited group
of suppliers. The partial or complete loss or delay of the supply of
components from certain of these sources could result in a significant
reduction in CTP Systems' revenues and could also damage certain customer
relationships.

MANAGEMENT OF GROWTH. The growth in the Company's business has placed, and is
expected to continue TO place, a significant strain on the Company's management
and operations. To manage its growth, the Company must continue to implement
and improve its operational, financial and management information systems and
expand, train and manage its employees. The anticipated increase in product
development and marketing and sales expenses coupled with the Company's reliance
on OEMs to successfully market and develop products that incorporate the
Company's proprietary technologies could have an adverse effect on the Company's
performance in the next several quarters. The Company's failure to manage
growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.

FUTURE ACQUISITIONS. The Company's strategy includes obtaining additional
technologies and will involve, in part, acquisitions of products, technologies
or businesses from third parties. Identifying and negotiating these
acquisitions may divert substantial management resources. An acquisition could
absorb substantial cash resources, could require the Company to incur or assume
debt obligations, or could involve the issuance of additional Common or
Preferred Stock. The issuance of additional equity securities would dilute and
could represent an interest senior to the rights of then outstanding Common
Stock of the Company. An acquisition which is accounted for as a purchase, like
the acquisition of CTP Systems, could involve significant one-time non-cash
write-offs, or could involve the amortisation of goodwill over a number of
years, which would adversely affect earnings in those years. Acquisitions
outside the digital communications area may be viewed by outside market analysts
as a diversion of the Company's focus on digital communications. For these and
other reasons, the market for the Company's stock may react negatively to the
announcement of any acquisition. An acquisition will continue to require
attention from the Company's management to integrate the acquired entity into
the Company's operations, may require the Company to develop expertise in fields
outside its current area of focus and may result in departures of management of
the acquired entity. An acquired entity may have unknown liabilities, and its
business may not achieve the results anticipated at the time of the acquisition.

14
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's annual meeting of stockholders was held on June 4, 1996. At the
annual meeting, the following matters were voted upon:

1. The election of two (2) Class I directors to serve for a three year term
until the 1999 Annual Meeting of Stockholders. The results of the voting were
as follows:

a. DAVIDI GILO:

Number of shares voted FOR 15,449,694
Number of shares voted AGAINST 144,955

b. ANDREW SCHONZEIT:

Number of shares voted FOR 15,449,694
Number of shares voted AGAINST 144,955

2. Proposal to amend and restate the DSP Communications, Inc. 1995 Director
Stock Option Plan to (a) increase the number of shares of common stock reserved
for issuance thereunder from 200,000 shares to 300,000 shares, and (b) change
the vesting schedule of future grants of Subsequent Options under the Plan so
that future Subsequent Options may be exercisable as to 100% of the shares
subject to such options on the first anniversary of the date of the grant rather
than the fourth anniversary. The results of the voting were as follows:

Number of Shares Voted FOR 11,141,406
Number of Shares Voted AGAINST 4,241,883
Number of Shares ABSTAINING 70,440
Number of Broker Non-Votes 140,920

15
<PAGE>

3. Ratification of the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31, 1996. The
results of the voting were as follows:

Number of Shares Voted FOR 15,506,557
Number of Shares Voted AGAINST 2,825
Number of Shares ABSTAINING 70,761
Number of Broker Non-Votes 14,506

ITEM 5. OTHER INFORMATION

On April 24, 1996, the Company effected a follow-on public offering of shares of
its Common Stock. Aggregate net proceeds to the Company, exclusive of the
Company's expenses associated with the offering, were $76,536,210. A complete
description of the terms of the public offering are set forth in the Company's
Registration Statement on Form S-3 (File No. 333-3134), which was declared
effective on April 18, 1996.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.39 Amended and Restated Employment Agreement dated December 19,
1995, between DSP Telecom, Inc. and Davidi Gilo

10.40 Amended and Restated Employment Agreement dated November 1, 1995,
between DSP Telecom, Inc. and Nathan Hod

10.41 1996 Nonstatutory Employee and Consultant Stock Option Plan

11 Statement re: Computation of Net Income Per Share

27 Financial Data Schedule

(b) Reports on Form 8-K: not applicable. The Company did not file any
reports on Form 8-K during the three months ended June 30, 1996.

16
<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated: August 7, 1996

DSP COMMUNICATIONS, INC.

By: /s/Gerald Dogon
- ---------------------------------------------------------------
Gerald Dogon, Senior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)

<PAGE>

EXHIBIT 10.39

AMENDED AND RESTATED EMPLOYMENT AGREEMENT
OF DAVIDI GILO
WITH
DSP TELECOM, INC.

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"), made and
entered into effective as of this 19th day of December, 1995, by and between DSP
TELECOM, INC., a California corporation (hereinafter the "Corporation"), and
DAVIDI GILO (hereinafter "Gilo").

RECITALS

A. On August 1, 1994, Gilo and the Corporation entered into an Employment
Agreement (the "Employment Agreement"), for the provision by Gilo of certain
services to the Corporation.

B. The Corporation and Gilo desire to amend and restate the Employment
Agreement according to the terms and conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, the parties hereto hereby agree as follows:

1. EMPLOYMENT DUTIES.

a. GENERAL. The Corporation hereby agrees to employ Gilo, and Gilo
hereby agrees to accept employment with the Corporation, on the terms and
conditions hereinafter set forth.

b. CORPORATION'S DUTIES. The Corporation shall allow Gilo to, and
Gilo shall, perform responsibilities normally incident to his position as
Chairman, subject to his election by the shareholders as a Director, but
otherwise as the immediate superior to the Chief Executive Officer of the
Corporation, commensurate with his background, education, experience and
professional standing. The Corporation shall provide Gilo with a private
office, stenographic help, office equipment, supplies, customary services and
cooperation suitable for the performance of his duties. These duties shall be
performed primarily in Santa Clara, California.

c. GILO'S DUTIES. Unless otherwise agreed to by the parties, Gilo
shall serve as the Chairman of the Board of the Corporation's parent, DSP
Communications, Inc. ("DSPC"), a Delaware corporation. Gilo shall devote at
least twenty (20) hours per week on

<PAGE>

average to the work of the Corporation. Gilo shall report directly to DSPC's
Board of Directors. Gilo's service for DSPC's subsidiaries, including,
without limitation, the Corporation, DSP Telecommunications, Ltd , CTP
Systems, Ltd, DSPC Israel, Ltd, DSPC Japan, Inc., and CTP Systems, Inc. shall
be credited to the twenty (20) hour requirement. Mr. Gilo shall inform the
Board of any other positions that he takes with any other corporation.

2. TERM. This Agreement shall terminate December 31, 2001, unless (a)
extended as set forth herein, or (b) terminated sooner under the terms of
this Agreement. Thereafter, this Agreement may be renewed by Gilo and the
Board of Directors of this Corporation on such terms as the parties may agree
to in writing. Absent written notice to the contrary, thirty (30) days prior
to the end of the employment term, this Agreement will be renewed for
consecutive one (1) year extensions. As used herein, the term "employment
term" refers to the entire period of employment of Gilo hereunder, including
any extensions.

3. COMPENSATION. Gilo shall be compensated as follows:

a. FIXED SALARY. Gilo shall receive a fixed annual salary of Three
Hundred Thousand Dollars ($300,000). The Corporation agrees to review the fixed
salary following the end of each twelve (12) month period during the employment
term based upon Gilo's services and the Corporation's financial results during
the calendar year, and to make such increases as may be determined appropriate
in the discretion of the Corporation's Board of Directors.

b. PAYMENT. Gilo's fixed salary shall be payable on a semi-monthly
basis.

c. BONUS COMPENSATION. During the employment term, Gilo shall
participate in each bonus plan adopted by the Corporation's Board of Directors.
Commencing in 1996, Gilo shall be entitled to receive an annual bonus equal to
(i) twenty-five percent (25%) of his base salary should this Corporation meet
eighty percent (80%) of its plan as presented to the Board in January of each
year, during the term of Gilo's employment ("Yearly Plan"); (ii) fifty percent
(50%) of his base salary should this Corporation meet its Yearly Plan; and (iii)
one hundred percent (100%) of his base salary should this Corporation meet one
hundred twenty percent (120%) of its Yearly Plan, with the bonus prorated if the
Yearly Plan is met between eighty percent (80%) and one hundred percent (100%);
or between one hundred percent (100%) and one hundred twenty percent (120%).
The meeting of the Yearly Plan for purposes of this Section shall be based upon
the actual revenues and earnings per share for each applicable year (each
weighted fifty percent (50%)) compared to the revenues and

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<PAGE>

earnings per share projected in the Yearly Plan (with each item weighted
fifty percent (50%)) and no item shall be counted if it is not at least
eighty percent (80%) met.

d. VACATION. Gilo shall accrue paid vacation at the rate of
twenty-five (25) days for each twelve (12) months of employment. Gilo shall
be compensated at his usual rate of compensation during any such vacation.
Gilo shall be entitled to ten (10) paid holidays during each twelve (12)
months of employment.

e. BENEFITS. During the employment term, Gilo and his dependents
shall be entitled to participate in any group plans or programs maintained by
the Corporation for any employees relating to group health, disability, life
insurance and other related benefits as in effect from time to time. The level
of benefits shall be based on the salary payable to Gilo. The Corporation shall
provide Gilo with Director and Officer Insurance, if reasonably available to the
Corporation, and all of its officers and directors. Gilo shall in no event
receive less insurance coverage than that available to any other employee. The
Corporation shall, at a minimum, keep in full force and effect its
indemnification agreement previously entered into with Gilo.

4. EXPENSES. The Corporation shall reimburse Gilo for his normal and
reasonable expenses incurred for travel, entertainment and similar items in
promoting and carrying out the business of DSPC in accordance with the
Corporation's general policy as adopted by the Corporation's management from
time to time. As a condition of reimbursement, Gilo agrees to provide the
Corporation with copies of all available invoices and receipts, and otherwise
account to the Corporation in sufficient detail to allow the Corporation to
claim an income tax deduction for such paid item, if such item is deductible.
Reimbursements shall be made on a monthly, or more frequent, basis. The
Corporation shall also reimburse Gilo for all professional membership dues
incurred, if any; all technical books purchased by Gilo; and all moving and
relocation expenses, incurred by Gilo at the Corporation's request.

5. CONFIDENTIALITY AND COMPETITIVE ACTIVITIES. Gilo agrees that during
the employment term he is in a position of special trust and confidence and has
access to confidential and proprietary information about the Corporation's
business and plans. Gilo agrees that he will not directly or indirectly, either
as an employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any similar individual or representative
capacity, engage or participate in any business that is in competition, in any
manner whatsoever, with the Corporation. Notwithstanding anything in the
foregoing to the

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<PAGE>

contrary, Gilo shall be allowed to invest as a shareholder in publicly traded
companies, or through a venture capital firm or an investment pool.

For purposes of this Section 5, the term "Corporation" shall also mean DSPC
or any of its subsidiaries.

6. TRADE SECRETS.

a. SPECIAL TECHNIQUES. It is hereby agreed that the Corporation has
developed or acquired certain products, technology, unique or special methods,
manufacturing and assembly processes and techniques, trade secrets, special
written marketing plans and special customer arrangements, and other proprietary
rights and confidential information and shall during the employment term
continue to develop, compile and acquire said items (all hereinafter
collectively referred to as the "Corporation's Property"). It is expected that
Gilo will gain knowledge of and utilize the Corporation's Property during the
course and scope of his employment with the Corporation, and will be in a
position of trust with respect to the Corporation's Property.

b. CORPORATION'S PROPERTY. It is hereby stipulated and agreed that
the Corporation's Property shall remain the Corporation's sole property. In the
event that Gilo's employment is terminated, for whatever reason, Gilo agrees not
to copy, make known, disclose or use, any of the Corporation's Property without
the Corporation's prior written consent which shall not be unreasonably
withheld. In such event, Gilo further agrees not to endeavor or attempt in any
way to interfere with or induce a breach of any prior proprietary contractual
relationship that the Corporation may have with any employee, customer,
contractor, supplier, representative, or distributor for nine (9) months. Gilo
agrees upon termination of employment to deliver to the Corporation all
confidential papers, documents, records, lists and notes (whether prepared by
Gilo or others) comprising or containing the Corporation's Property. Gilo
recognizes that violation of covenants and agreements contained in this
Section 6 may result in irreparable injury to the Corporation which would not be
fully compensable by way of money damages.

c. COVENANT NOT TO COMPETE. For a period of one (1) year from the
date of any termination of Gilo's employment with the Corporation, provided that
he has sold substantially all of his stock in the Corporation, Gilo shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, Director, or in any other
individual or representative capacity, engage or participate in any

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<PAGE>

activities within the State of California, which are the same as, or
competitive with, the activities in which the Corporation is presently
engaged.

d. CORPORATION DEFINED. For purposes of this Section 6, the term
"Corporation" shall also mean DSPC and any of its subsidiaries.

7. TERMINATION.

a. GENERAL. The Corporation may terminate this Agreement without
cause, by written notice. Gilo may voluntarily terminate his employment
hereunder upon ninety (90) days' advance written notice to the Corporation.

b. TERMINATION FOR CAUSE. The Corporation may immediately terminate
Gilo's employment at any time for cause. Termination for cause shall be
effective from the receipt of written notice thereof to Gilo specifying the
grounds for termination and all relevant facts. Cause shall be deemed to
include: (i) material neglect of his duties or a significant violation of any
of the provisions of this Agreement, which continues after written notice and a
reasonable opportunity (not to exceed thirty (30) days) in which to cure;
(ii) fraud, embezzlement, defalcation or conviction of any felonious offense; or
(iii) intentionally imparting confidential information relating to the
Corporation or DSPC or their business to competitors or to other third parties
other than in the course of carrying out his duties hereunder. The
Corporation's exercise of its rights to terminate with cause shall be without
prejudice to any other remedy it may be entitled at law, in equity, or under
this Agreement.

c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall
automatically terminate upon Gilo's death. In addition, if any disability or
incapacity of Gilo to perform his duties as the result of any injury, sickness,
or physical, mental or emotional condition continues for a period of thirty (30)
business days (excluding any accrued vacation) out of any one hundred twenty
(120) calendar day period, the Corporation may terminate Gilo's employment upon
written notice. Payment of salary to Gilo during any sick leave shall only be
to the extent that Gilo has accrued sick leave or vacation days. Gilo shall
accrue sick leave at the same rate generally available to the Corporation's
employees.

d. SEVERANCE PAY. If this Agreement is terminated without cause
pursuant to Section 7.a. (above), the Corporation shall pay Gilo a
severance/consulting fee equal to the full amount of the compensation that he
could have expected under this Agreement, as and when payable under this
Agreement, without deduction except for tax withholding amounts, through the end
of the term, during which Gilo shall remain as a consultant to the Corporation.

-5-

<PAGE>

The Corporation shall pay Gilo a severance fee equal to his monthly salary at
his then-current rate of fixed salary compensation, multiplied by the number six
(6) if this Agreement is terminated pursuant to Section 7.b (i) (above). The
Corporation shall pay Gilo a severance fee equal to his monthly salary at his
then-current rate of fixed salary compensation, multiplied by the number
eighteen (18), if Gilo voluntarily elects to terminate his employment, unless
the Corporation successfully claims that a termination in accordance with
Section 7. b(ii) and (iii) is in order, or if Gilo or the Corporation elects not
to renew this Agreement. There shall be no severance in the event that this
Agreement is terminated in accordance with Section 7.b (ii) and (iii).

8. CORPORATE OPPORTUNITIES.

a. DUTY TO NOTIFY. In the event that Gilo, during the employment
term, shall become aware of any material and significant business opportunity
directly related to the Corporation's digital signal processing business or the
Corporation's wireless PBX business, or such other businesses that become
significant for the Corporation, Gilo shall promptly notify the Corporation's
Directors of such opportunity. Gilo shall not appropriate for himself or for
any other person other than the Corporation, or any affiliate of the
Corporation, any such opportunity unless, as to any particular opportunity, the
Board of Directors of the Corporation fails to take appropriate action within
thirty (30) days. Gilo's duty to notify the Corporation and to refrain from
appropriating all such opportunities for thirty (30) days shall neither be
limited by, nor shall such duty limit, the application of the general law of
California relating to the fiduciary duties of an agent or employee.

b. FAILURE TO NOTIFY. In the event that Gilo fails to notify the
Corporation of, or so appropriates, any such opportunity without the express
written consent of the Board of Directors, Gilo shall be deemed to have violated
the provisions of this Section notwithstanding the following:

i. The capacity in which Gilo shall have acquired such
opportunity; or

ii. The probable success in the Corporation's hands of such
opportunity.

c. CORPORATION DEFINED. For purposes of this Section 8, the term
"Corporation" shall also mean DSPC or any of its subsidiaries.

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<PAGE>

9. MISCELLANEOUS.

a. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matters herein, and supersedes and replaces any prior agreements and
understandings, whether oral or written between them with respect to such
matters. The provisions of this Agreement may be waived, altered, amended or
repealed in whole or in part only upon the written consent of both parties to
this Agreement.

b. NO IMPLIED WAIVERS. The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the right to require such performance at any time thereafter, nor
shall the waiver by either party of a breach of any provision hereof be taken or
held to be a waiver of any subsequent breach of the same provision or any other
provision.

c. PERSONAL SERVICES. It is understood that the services to be
performed by Gilo hereunder are personal in nature and the obligations to
perform such services and the conditions and covenants of this Agreement cannot
be assigned by Gilo. Subject to the foregoing, and except as otherwise provided
herein, this Agreement shall inure to the benefit of and bind the successors and
assigns of the Corporation.

d. SEVERABILITY. If for any reason any provision of this Agreement
shall be determined to be invalid or inoperative, the validity and effect of the
other provisions hereof shall not be affected thereby, provided that no such
severability shall be effective if it causes a material detriment to any party.

e. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, applicable to
contracts between California residents entered into and to be performed entirely
within the State of California.

f. NOTICES. All notices, requests, demands, instructions or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given upon delivery, if
delivered personally, or if given by prepaid telegram, or mailed first-class,
postage prepaid, registered or certified mail, return receipt requested, shall
be deemed to have been given seventy-two (72) hours after such delivery, if
addressed to the other party at the addresses as set forth on the signature page
below. Either party hereto may change the address to which such communications
are to be

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<PAGE>

directed by giving written notice to the other party hereto of such change in
the manner above provided.

g. MERGER, TRANSFER OF ASSETS, OR DISSOLUTION OF THE CORPORATION.
This Agreement shall not be terminated by any dissolution of the Corporation
resulting from either merger or consolidation in which the Corporation is not
the consolidated or surviving corporation or a transfer of all or substantially
all of the assets of the Corporation. In such event, the rights, benefits and
obligations herein shall automatically be assigned to the surviving or resulting
corporation or to the transferee of the assets.

h. CONFLICT. The parties acknowledge that Pezzola & Reinke, A
Professional Corporation ("P&R") is counsel to each of them. The parties have
been made aware of the conflict and advised to seek independent counsel. Gilo
acknowledges that P&R advised the Corporation and not Gilo. Gilo hereby
acknowledges the conflict and waives it as to P&R's participation in this
Agreement. The Corporation acknowledges the conflict and waives it as to P&R's
participation in this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

DSP TELECOM, INC.
a California corporation
20300 Stevens Creek Blvd., Ste. 465
Cupertino, CA 95014

By: /S/ NATHAN HOD /S/ DAVIDI GILO
----------------------- ---------------------
NATHAN HOD, DAVIDI GILO
Chairman of the Board 100 Why Worry Lane
Woodside, CA 94062

-8-

<PAGE>

EXHIBIT 10.40

AMENDED AND RESTATED EMPLOYMENT AGREEMENT
OF NATHAN HOD
WITH
DSP TELECOM, INC.

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") made and
entered into effective as of this 1st day of November, 1995, by and between DSP
TELECOM, INC., a California corporation (hereinafter the "Corporation"), and
NATHAN HOD (hereinafter "Hod").

RECITALS

A. On May 1, 1994, Hod and the Corporation entered into an Employment
Agreement (the "Employment Agreement"), for the provision by Hod of certain
services to the Corporation.

B. Certain provisions of the Employment Agreement were previously
amended.

C. The Corporation and Hod desire to amend and restate the Employment
Agreement according to the terms and conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, the parties hereto hereby agree as follows:

1. EMPLOYMENT DUTIES.

a. GENERAL. The Corporation hereby agrees to employ Hod, and Hod
hereby agrees to accept employment with the Corporation, on the terms and
conditions hereinafter set forth.

b. CORPORATION'S DUTIES. The Corporation shall allow Hod to, and
Hod shall, perform responsibilities normally incident to his position as Chief
Executive Officer of both the Corporation and DSP Communications, Inc. ("DSPC"),
and Chairman of the Board of the Corporation, commensurate with his background,
education, experience and professional standing. The Corporation shall provide
Hod with a private office, stenographic help, office equipment, supplies,
customary services and cooperation suitable for the performance of his duties.
These duties shall be performed primarily in Santa Clara, California.

c. HOD'S DUTIES. Unless otherwise agreed to by the parties, Hod
shall serve as the Chief Executive Officer of both the Corporation and DSPC, and
Chairman of the Board of the Corporation. Hod shall devote his full productive
time, attention, energy, and skill to the business of the Corporation and DSPC
during the employment term set forth below, and

<PAGE>

shall not become engaged to render similar services on behalf of any other
entity while employed hereunder, without the Corporation's consent, except
that he is allowed to serve as the Chairman of the Board of Nogatech, Inc.
Hod shall report directly to the Corporation's Board of Directors and the
Chairman of the Board. Hod shall inform the Board of Directors of any
positions that he takes in any corporation other than DSPC. Hod, however,
shall be allowed to perform services for the Corporation's affiliates,
including, without limitation, DSP Telecommunications, Ltd, CTP Systems, Ltd,
DSPC Israel, Ltd, DSPC Japan, Inc., and CTP Systems, Inc.

2. TERM. This Agreement shall terminate December 31, 2000, unless
(a) extended as set forth herein, or (b) terminated sooner under the terms of
this Agreement. Thereafter, this Agreement may be renewed by Hod and the Board
of Directors of this Corporation on such terms as the parties may agree to in
writing. Absent written notice to the contrary, thirty (30) days prior to the
end of the employment term, this Agreement will be renewed for consecutive one
(1) year extensions. As used herein, the term "employment term" refers to the
entire period of employment of Hod hereunder, including any agreed-to extension.

3. COMPENSATION. Hod shall be compensated as follows:

a. FIXED SALARY. Hod shall receive a fixed annual salary of Two
Hundred Thousand Dollars ($200,000). The Corporation agrees to review the fixed
salary following the end of each twelve (12) month period during the employment
term based upon Hod's services and the Corporation's financial results during
the calendar year, and to make such increases as may be determined appropriate
in the discretion of the Corporation's Board of Directors.

b. PAYMENT. Hod's fixed salary shall be payable on a semi-monthly
basis.

c. BONUS COMPENSATION. During the employment term, Hod shall
participate in each bonus plan adopted by the Corporation's Board of Directors.
Commencing in 1996, Hod shall be entitled to receive an annual bonus equal to
(i) twenty-five percent (25%) of his base salary should this Corporation meet
eighty percent (80%) of its plan as presented to the Board in January of each
year, during the term of Hod's employment ("Yearly Plan"); (ii) fifty percent
(50%) of his base salary should this Corporation meet its Yearly Plan; and (iii)
one hundred percent (100%) of his base salary should this Corporation meet one
hundred twenty percent (120%) of its Yearly Plan, with the bonus prorated if the
Yearly Plan is met between eighty percent (80%) and one hundred percent (100%);
or between one hundred percent (100%) and one hundred twenty percent (120%).
The meeting of the Yearly Plan for purposes of this Section shall be based upon
the actual revenues and earnings per share for each applicable year (each
weighted fifty percent (50%)) compared to the revenues and

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earnings per share projected in the Yearly Plan (with each item weighted
fifty percent (50%)) and no item shall be counted if it is not at least
eighty percent (80%) met.

d. VACATION. Hod shall accrue paid vacation at the rate of twenty
(20) days for each twelve (12) months of employment. Hod shall be compensated
at his usual rate of compensation during any such vacation. Hod shall be
entitled to ten (10) paid holidays during each twelve (12) months of employment.

e. BENEFITS. During the employment term, Hod and his dependents
shall be entitled to participate in any group plans or programs maintained by
the Corporation for any employees relating to group health, disability, life
insurance and other related benefits as in effect from time to time. The level
of benefits shall be based on the salary payable to Hod. The Corporation and
DSPC shall provide Hod with Director and Officer Insurance, if reasonably
available to the Corporation and DSPC, and all of its officers and directors.
Hod shall in no event receive less insurance coverage than that available to any
other employee. The Corporation shall, at a minimum, keep in full force and
effect its indemnification agreement previously entered into with Hod. Hod
shall be allowed a monthly allowance for apartment rental expense of One
Thousand Seven Hundred and Fifty Dollars ($1,750), so long as his residence
outside of Israel is required by the Corporation and DSPC.

4. EXPENSES. The Corporation shall reimburse Hod for his normal and
reasonable expenses incurred for travel, entertainment and similar items in
promoting and carrying out the business of the Corporation in accordance with
the Corporation's general policy as adopted by the Corporation's management from
time to time. As a condition of reimbursement, Hod agrees to provide the
Corporation with copies of all available invoices and receipts, and otherwise
account to the Corporation in sufficient detail to allow the Corporation to
claim an income tax deduction for such paid item, if such item is deductible.
Reimbursements shall be made on a monthly, or more frequent, basis. The
Corporation shall also reimburse Hod for all professional membership dues
incurred, if any; all technical books purchased by Hod; and all moving and
relocation expenses, incurred by Hod at the Corporation's or DSPC's request.

5. CONFIDENTIALITY AND COMPETITIVE ACTIVITIES. Hod agrees that during
the employment term he is in a position of special trust and confidence and has
access to confidential and proprietary information about the Corporation's
business and plans. Hod agrees that he will not directly or indirectly, either
as an employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, director, or in any similar individual or representative
capacity, engage or participate in any business that is in competition, in any
manner whatsoever, with the Corporation. Notwithstanding anything in the
foregoing to the contrary, Hod

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shall be allowed to invest as a shareholder in publicly traded companies, or
through a venture capital firm or an investment pool.

For purposes of this Section 5, the term "Corporation" shall also mean DSPC
or any of its subsidiaries.

6. TRADE SECRETS.

a. SPECIAL TECHNIQUES. It is hereby agreed that the Corporation has
developed or acquired certain products, technology, unique or special methods,
manufacturing and assembly processes and techniques, trade secrets, special
written marketing plans and special customer arrangements, and other proprietary
rights and confidential information and shall during the employment term
continue to develop, compile and acquire said items (all hereinafter
collectively referred to as the "Corporation's Property"). It is expected that
Hod will gain knowledge of and utilize the Corporation's Property during the
course and scope of his employment with the Corporation, and will be in a
position of trust with respect to the Corporation's Property.

b. CORPORATION'S PROPERTY. It is hereby stipulated and agreed that
the Corporation's Property shall remain the Corporation's sole property. In the
event that Hod's employment is terminated, for whatever reason, Hod agrees not
to copy, make known, disclose or use, any of the Corporation's Property without
the Corporation's prior written consent which shall not be unreasonably
withheld. In such event, Hod further agrees not to endeavor or attempt in any
way to interfere with or induce a breach of any prior proprietary contractual
relationship that the Corporation may have with any employee, customer,
contractor, supplier, representative, or distributor for nine (9) months. Hod
agrees upon termination of employment to deliver to the Corporation all
confidential papers, documents, records, lists and notes (whether prepared by
Hod or others) comprising or containing the Corporation's Property. Hod
recognizes that violation of covenants and agreements contained in this
Section 6 may result in irreparable injury to the Corporation which would not be
fully compensable by way of money damages.

c. COVENANT NOT TO COMPETE. For a period of one (1) year from the
date of any termination of Hod's employment with the Corporation, provided that
he has sold substantially all of his stock in the Corporation, Hod shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, Director, or in any other
individual or representative capacity, engage or participate in any activities
within the State of California, which are the same as, or competitive with, the
activities in which the Corporation is presently engaged.

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d. CORPORATION DEFINED. For purposes of this Section 6, the term
"Corporation" shall also mean DSPC and any of its subsidiaries.

7. TERMINATION.

a. GENERAL. The Corporation may terminate this Agreement without
cause, by written notice. Hod may voluntarily terminate his employment
hereunder upon ninety (90) days' advance written notice to the Corporation.

b. TERMINATION FOR CAUSE. The Corporation may immediately terminate
Hod's employment at any time for cause. Termination for cause shall be
effective from the receipt of written notice thereof to Hod specifying the
grounds for termination and all relevant facts. Cause shall be deemed to
include: (i) material neglect of his duties or a significant violation of any
of the provisions of this Agreement, which continues after written notice and a
reasonable opportunity (not to exceed thirty (30) days) in which to cure;
(ii) fraud, embezzlement, defalcation or conviction of any felonious offense; or
(iii) intentionally imparting confidential information relating to the
Corporation or DSPC or their business to competitors or to other third parties
other than in the course of carrying out his duties hereunder. The
Corporation's exercise of its rights to terminate with cause shall be without
prejudice to any other remedy it may be entitled at law, in equity, or under
this Agreement.

c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall
automatically terminate upon Hod's death. In addition, if any disability or
incapacity of Hod to perform his duties as the result of any injury, sickness,
or physical, mental or emotional condition continues for a period of thirty (30)
business days (excluding any accrued vacation) out of any one hundred twenty
(120) calendar day period, the Corporation may terminate Hod's employment upon
written notice. Payment of salary to Hod during any sick leave shall only be to
the extent that Hod has accrued sick leave or vacation days. Hod shall accrue
sick leave at the same rate generally available to the Corporation's employees.

d. SEVERANCE PAY. If this Agreement is terminated by the
Corporation without cause pursuant to Section 7.a (above), the Corporation
shall pay Hod a severance/consulting fee equal to his monthly salary at his then
current rate of fixed salary compensation, multiplied by the number of full
months left until December 31, 2000, during which time Hod shall remain as a
consultant to the Corporation. The Corporation shall pay Hod a severance fee
equal to his monthly salary at his then-current rate of fixed salary
compensation, multiplied by the number six (6) if this Agreement is terminated
pursuant to Section 7.b (i) (above) or if Hod or the Corporation elects not to
renew this Agreement. The Corporation shall pay Hod a severance fee equal to
his monthly salary at his then-current rate

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of fixed salary compensation, multiplied by the lesser of the number twelve
(12) or the number of months left in the original term of this Agreement as
set forth herein plus six (6), if Hod voluntarily elects to terminate his
employment, unless the Corporation successfully claims that a termination in
accordance with Sections 7.b(ii) and (iii) is in order. There shall be no
severance in the event that this Agreement is terminated in accordance with
Section 7.b (ii) and (iii).

8. CORPORATE OPPORTUNITIES.

a. DUTY TO NOTIFY. In the event that Hod, during the employment
term, shall become aware of any material and significant business opportunity
related to the Corporation's or DSPC's business, Hod shall promptly notify the
Corporation's Directors of such opportunity. Hod shall not appropriate for
himself or for any other person other than the Corporation, or any affiliate of
the Corporation, any such opportunity unless, as to any particular opportunity,
the Board of Directors of the Corporation fails to take appropriate action
within thirty (30) days. Hod's duty to notify the Corporation and to refrain
from appropriating all such opportunities for thirty (30) days shall neither be
limited by, nor shall such duty limit, the application of the general law of
California relating to the fiduciary duties of an agent or employee.

b. FAILURE TO NOTIFY. In the event that Hod fails to notify the
Corporation of, or so appropriates, any such opportunity without the express
written consent of the Board of Directors, Hod shall be deemed to have violated
the provisions of this Section notwithstanding the following:

i. The capacity in which Hod shall have acquired such
opportunity; or

ii. The probable success in the Corporation's hands of such
opportunity.

9. MISCELLANEOUS.

b. NO IMPLIED WAIVERS. The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the right

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to require such performance at any time thereafter, nor shall the waiver by
either party of a breach of any provision hereof be taken or held to be a
waiver of any subsequent breach of the same provision or any other provision.

c. PERSONAL SERVICES. It is understood that the services to be
performed by Hod hereunder are personal in nature and the obligations to perform
such services and the conditions and covenants of this Agreement cannot be
assigned by Hod. Subject to the foregoing, and except as otherwise provided
herein, this Agreement shall inure to the benefit of and bind the successors and
assigns of the Corporation.

(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

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IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Employment Agreement as of the date first written above.

DSP TELECOM, INC.,
a California corporation
20300 Stevens Creek Blvd, 4th Floor
Cupertino, California 95014

By: /S/ GERALD DOGON /S/ NATHAN HOD
------------------------ --------------------
GERALD DOGON, Chief NATHAN HOD
Financial Officer 501 Forrest Avenue
Palo Alto, California

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EXHIBIT 10.41

DSP COMMUNICATIONS, INC.
1996 NONSTATUTORY EMPLOYEE AND CONSULTANT STOCK OPTION PLAN

1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are:

a. To attract and retain the best available personnel for positions
of substantial responsibility;

b. To provide additional incentive to Employees and Consultants to
remain with the Company; and

c. To promote the success of the Company's business.

Options granted under the Plan shall be Nonstatutory Stock Options.

2. DEFINITIONS. As used herein, the following definitions shall apply:

a. "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.

b. "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under state corporate and securities
laws.

c. "BOARD" means the Board of Directors of the Company.

d. "CODE" means the Internal Revenue Code of 1986, as amended.

e. "COMMITTEE" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.

f. "COMMON STOCK" means the Common Stock of the Company.

g. "COMPANY" means DSP COMMUNICATIONS, INC., a Delaware corporation.

h. "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services, and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company, or who
are not compensated by the Company for their services as Directors.

i. "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship is not interrupted or terminated by the
Company, any parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave
of absence approved by the Company, including sick leave, military leave or
any other personal leave; or (ii) transfers between locations of the Company
or between the Company, its Parent, its Subsidiaries or its successor.

j. "DIRECTOR" means a member of the Board.

<PAGE>

k. "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.

l. "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director not payment of a Director's fee by the Company shall be
sufficient to constitute "employment" by the Company.

m. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

n. "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:

i. If the Common Stock is listed on any established stock
exchange or a national market system, including, without limitation, the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("Nasdaq") System, the Fair Market Value of a Share
of Common Stock shall be the closing sales price for such stock (or the
closing bid, if not shares were reported) as quoted on such system or
exchange (or the exchange with the greatest volume of trading in Common
Stock) on the last market trading day prior to the date of determination, as
reported in THE WALL STREET JOURNAL, or such other source as the
Administrator deems reliable;

ii. If the Common Stock is quoted on the Nasdaq System (but not
on the National Market System thereof), or is regularly quoted by a
recognized securities dealer, but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high
bid and low asked prices for the Common Stock on the last market trading day
prior to the day of determination, as reported in THE WALL STREET JOURNAL, or
such other source as the Administrator deems reliable;

iii. In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

o. "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

p. "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

q. "NOTICE OF GRANT" means a written notice evidencing certain terms
and conditions of an individual Option grant. The Notice of Grant is part of
the Option Agreement.

r. "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

s. "OPTION" means a stock option granted pursuant to the Plan.

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t. "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.

u. "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.

v. "OPTIONED STOCK" means the Common Stock subject to an Option.

w. "OPTIONEE" means an Employee or Consultant who holds an
outstanding Option.

x. "PARENT" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.

y. "PLAN" shall mean this 1996 Nonstatutory Employee and Consultant
Stock Option Plan.

z. "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.

aa. "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.

3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 500,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock. However, should the Company reacquire
Shares which were issued pursuant to the exercise of an Option, such Shares
shall not become available for future grant under the Plan.

If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program,
the unpurchased Shares which were subject thereto shall become available for
future grant or sale under the Plan (unless the Plan has been terminated);
PROVIDED, HOWEVER, that Shares that have actually been issued under the Plan
shall not be returned to the Plan and shall not become available for future
distribution under the Plan.

4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by (i)
the Board; or (ii) a committee designated by the Board, which committee shall
be constituted to satisfy Applicable Laws and shall consist of at least two
Directors who are not Employees or Consultants. Once appointed, such
Committee shall serve in its designated capacity and otherwise directed by
the Board. The Board may increase the size of the new Committee and appoint
additional members, remove members (with or without cause), and substitute
new members, fill vacancies (however caused) and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Applicable Laws.

a. POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:

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i. to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;

ii. to select the Consultants and Employees to whom Options may
be granted hereunder;

iii. to determine whether and to what extent Options are granted
hereunder;

iv. to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;

v. to approve forms of agreement for use under the Plan;

vi. to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions and
any restriction or limitation regarding any Option or the shares of Common
Stock relating thereto based in each case on such factors as the
Administrator, in its sole discretion, shall determine;

vii. to reduce the exercise price of any Option to the
then-current Fair Market Value, if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;

viii. to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;

ix. to prescribe, amend and rescind rules and regulations
relating to the Plan;

x. to modify or amend each Option (subject to Section 16 of
the Plan);

xi. to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted
by the Administrator;

xii. to institute an Option Exchange Program;

xiii. to determine the terms and restrictions applicable to
Options; and

xiv. to make all other determinations deemed necessary or
advisable for administering the Plan.

b. EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on
all Optionees and any other holders of Options.

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5. ELIGIBILITY. Options may be granted to Employees and Consultants.
If otherwise eligible, an Employee or Consultant who has been granted an
Option may be granted additional Options.

6. LIMITATIONS.

a. Each Option shall be designated in the Notice of Grant as a
Nonstatutory Stock Option.

b. Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.

c. The following limitation shall apply to grants of Options under
the Plan:

No Employee shall be granted, in any fiscal year of the Company,
Options to purchase more than 200,000 Shares.

The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12.

The limitation set forth in this Section 6.c. is intended to satisfy
the requirements applicable to Options intended to qualify as
"performance-based compensation" (within the meaning of Section 162(m) of the
Code). In the event that the Administrator determines such limitations are
not required to qualify Options as performance-based compensation, the
Administrator may modify or eliminate such limitations.

7. TERM OF PLAN. Subject to Section 16 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years, (unless terminated earlier) under Section 14 of
the Plan.

8. TERM OF OPTION. The term of each Option shall be stated in the
Notice of Grant.

9. OPTION EXERCISE PRICE AND CONSIDERATION.

a. EXERCISE PRICE. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator.

b. WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied
before the Option may be exercised. In so doing, the Administrator may
specify that an Option may not be exercised until the completion of a service
period.

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c. FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. Such consideration may consist of:

i. cash;

ii. check;

iii. promissory note;

iv. other Shares which (i) in the case of Shares acquired upon
exercise of an Option, have been owned by the Optionee for more than six (6)
months on the date of surrender; and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;

v. a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;

vi. any combination of the foregoing methods of payment; or

vii. such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

10. EXERCISE OF OPTION.

a. PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan,
and at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when the Company receives:
(i) written notice of exercise, together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an
exercise of the Option (all in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of
any consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise
of an Option shall be issued in the name of the Optionee, or, if requested by
the Optionee, in the name of the Optionee and his or her spouse. Until the
stock certificate evidencing such Shares is issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a Stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such stock certificate promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 12 of the Plan.

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Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

b. TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Upon
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is determined by
the Administrator, and only to the extent that the Optionee was entitled to
exercise it at the date of such termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant).
If, at the date of termination, the Optionee is not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified by the Administrator,
the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

c. DISABILITY OF OPTIONEE. Except as otherwise determined by the
Administrator, in the event that an Optionee's Continuous Status as an
Employee or Consultant terminates as a result of Optionee's Disability, the
Optionee may exercise his or her Option at any time within twelve (12) months
from the date of such termination, but only to the extent that the Optionee
was entitled to exercise it at the date of such termination (but in no event
later than the expiration of the term of such Option as set forth in the
Notice of Grant). If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

d. DEATH OF OPTIONEE. Except as otherwise determined by the
Administrator, in the event of the death of an Optionee, the Option may be
exercised at any time within twelve (12) months following the date of death
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the
Option by bequest or inheritance does not exercise the Option within the time
specified herein, the Option shall terminate and the Shares covered by such
Option shall revert to the Plan.

11. NONTRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner, other than
by Will or by the laws of descent or distribution, and may be exercised,
during the lifetime of the Optionee, only by the Optionee.

12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER,
ASSET SALE OR CHANGE OF CONTROL.

a. CHANGES IN CAPITALIZATION. Subject to any required action by the
Stockholders of the Company, the number of Shares of Common Stock covered by
each outstanding Option, and the number of Shares of Common Stock which have
been authorized for

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issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued Shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of Shares of Common Stock
subject to an Option.

b. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has
not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate as
of a date fixed by the Board and give each Optionee the right to exercise his
or her Option as to all or any part of the Optioned Stock, including Shares
as to which the Option would not otherwise be exercisable.

c. MERGER OR ASSET SALE. Subject to the provisions of paragraph (d)
hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company,
each outstanding Option shall be assumed or an equivalent option or right
shall be substituted by the successor corporation or a Parent or Subsidiary
of the successor corporation. In the event that the successor corporation
does not agree to assume the Option or to substitute an equivalent option,
the Administrator shall, in lieu of such assumption or substitution, provide
for the Optionee to have the right to exercise the Option as to all or a
portion of the Optioned Stock, including Shares as to which it would not
otherwise be exercisable. If the Administrator makes an Option exercisable
in lieu of assumption or substitution in the event of a merger or sale of
assets, the Administrator shall notify the Optionee that the Option shall be
fully exercisable for a period of fifteen (15) days from the date of such
notice, and the Option will terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed
if, following the merger or sale of assets, the option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding
Shares); PROVIDED, HOWEVER, that if such consideration received in the merger
or sale of assets not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each Share of Optioned Stock subject to the Option, to be solely common
stock of the successor corporation or its Parent equal in fair market value
to the per-share consideration received by holders of Common Stock in the
merger or sale of assets.

-8-

<PAGE>

d. CHANGE IN CONTROL. In the event of a "Change of Control" of the
Company, as defined in paragraph (e) below, then the following acceleration
and valuation provisions shall apply:

i. Except as otherwise determined by the Board, in its
discretion, in the event of an anticipated Change in Control, any Options
outstanding on the date such Change in Control is determined to have occurred
that are not yet exercisable and vested on such date shall become fully
exercisable and vested;

ii. Except as otherwise determined by the Board, in its
discretion, in the event of an anticipated Change in Control, all outstanding
Options, to the extent they are exercisable and vested (including Options
that shall become exercisable and vested pursuant to subparagraph i. above),
shall be terminated in exchange for a cash payment equal to the Change in
Control Price (reduced by the exercise price applicable to such Options).
These cash proceeds shall be paid to the Optionee or, in the event of death
of an Optionee, prior to payment, to the estate of the Optionee or a person
who acquired the right to exercise the Option by bequest or inheritance.

iii. Any payment made pursuant to this paragraph (d) shall not
exceed the maximum amount which could be paid to an Optionee without having
the payment treated as an "excess parachute payment" within the meaning of
Section 280G of the Code.

e. DEFINITION OF "CHANGE IN CONTROL". For purposes of this Section
12, a "Change in Control" means the happening of any of the following:

i. When any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company
employee benefit plan, including any trustee of such plan acting as trustee),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than twenty-five percent (25%) of the combined voting power
of the Company's then-outstanding securities entitled to vote generally in
the election of directors; or

ii. A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least
seventy-five percent (75%) of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the Stockholders of the
Company approve an agreement for the sale or disposition by the Company of
all or substantially all the Company's assets; or

iii. A change in the composition of the Board of Directors of the
Company occurring within a two (2) year period, as a result of which fewer
than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (i) are directors of the Company
as of the date the Plan is approved by the Stockholders; or (ii) are elected,
or nominated for election to the Board of Directors of the Company with the
affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company).

-9-

<PAGE>

f. CHANGE IN CONTROL PRICE. For purposes of this Section 12,
"Change in Control Price" shall be, as determined by the Board: (i) the
highest Fair Market Value of a Share within the 60-day period immediately
preceding the date of determination of the Change of Control Price by the
Board (the "60-Day Period"); or (ii) the highest price paid or offered per
Share, as determined by the Board, in any bona fide transaction or bona fide
offer related to the Change in Control of the Company, at any time within the
60-Day Period; or (iii) some lower price as the Board, in its discretion,
determines to be a reasonable estimate of the fair market value of a Share.

13. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination
granting such Option, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each
Optionee within a reasonable time after the date of such grant.

14. AMENDMENT AND TERMINATION OF THE PLAN.

a. AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.

b. EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company.

15. CONDITIONS UPON ISSUANCE OF SHARES.

a. LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable
Laws, and the requirements of any stock exchange or quotation system upon
which the Shares may then be listed or quoted, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.

b. INVESTMENT REPRESENTATION. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares, if, in the opinion of counsel for the Company,
such a representation is required.

16. LIABILITY OF COMPANY; INABILITY TO OBTAIN AUTHORITY. The inability
of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.

17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.

-10-

<PAGE>

EXHIBIT 11

DSP COMMUNICATIONS, INC.

STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE

(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Quarter ended June 30, Six months ended June 30,
1996 1995 1996 1995
---------------------- -------------------------
<S> <C> <C> <C> <C>
Shares used in calculation
of net income per share:
Average Class B Ordinary shares
and Common shares outstanding 21,124 16,206 19,714 12,486
Net effect of dilutive stock option
and warrants 1,801 1,686 1,872 1,544
Class A Convertible Ordinary shares,
if converted -- -- -- 1,810
---------------------- -------------------------
22,925 17,892 21,586 15,840
---------------------- -------------------------
---------------------- -------------------------
Net income $ 5,950 $ 1,223 $ 9,525 $ 1,797
---------------------- -------------------------
---------------------- -------------------------
Net income per share $ 0.26 $ 0.07 $ 0.44 $ 0.11
---------------------- -------------------------
---------------------- -------------------------
</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF DSP COMMUNICATIONS,
INC. FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000934545
<NAME> DSP COMMUNICATIONS, INC.
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 64,003
<SECURITIES> 55,578
<RECEIVABLES> 7,708
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 129,538
<PP&E> 3,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 136,144
<CURRENT-LIABILITIES> 14,051
<BONDS> 0
21
0
<COMMON> 0
<OTHER-SE> 121,842
<TOTAL-LIABILITY-AND-EQUITY> 136,144
<SALES> 35,719
<TOTAL-REVENUES> 37,653
<CGS> 19,822
<TOTAL-COSTS> 21,496
<OTHER-EXPENSES> 2,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,885
<INCOME-TAX> 1,360
<INCOME-CONTINUING> 9,525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,525
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44

</TABLE>