SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
Commission File Number 0-23006
DSP GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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94-2683643 |
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(State or other jurisdiction of |
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(I.R.S. Employer Identification No.) |
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incorporation and organization) |
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3120 Scott Boulevard, Santa Clara, CA 95054 |
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(Address of principal executive offices, including zip code) |
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(408) 986-4300 |
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(Registrant’s telephone number) |
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Securities registered pursuant to Section 12(b) of the Act: |
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None |
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Securities registered pursuant to Section 12(g) of the Act: |
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Common Stock, $.001 per share |
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(Title of class) |
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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 period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Common Stock on March 14, 2001, as reported on the Nasdaq National Market, was approximately $410,871,768. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 14, 2002, the Registrant had outstanding 26,975,486 shares of Common Stock.
INDEX
DSP GROUP, INC.
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This Annual Report on Form 10-K contains certain forward-looking statements that are based on the beliefs of, and estimates made by and information currently available to, DSP Group’s management. The words “expect,” “anticipate,” “intend,” “plan” and similar expressions identify forward-looking statements. These statements are subject to risks and uncertainties. Actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
This Annual Report on Form 10-K includes trademarks and registered trademarks of DSP Group. Products or service names of other companies mentioned in this Annual Report on Form 10-K may be trademarks or registered trademarks of their respective owners.
Introduction
DSP Group was incorporated in California in 1987 and reincorporated in Delaware in 1994. We have two business segments. In our product business, we design and sell integrated circuits that perform speech related functions in telephone answering machines, cordless telephones, personal computers and other products. In our intellectual property licensing segment we develop and license proprietary digital signal processing (DSP) algorithms or speech related, software-based microprocessor cores that we license to semiconductor companies and original equipment manufacturers (OEMs). See note 5 of the attached Note to the Consolidated Financial Statements for the year ended December 31, 2001 for a description of the revenues, gross margin and assets of each of these two segments.
In January 2000, we announced that we intended to separate our two segments into two companies and, subject to obtaining a favorable revenue ruling from the IRS, market conditions and other factors, expected that we would sell a portion of the intellectual property licensing subsidiary to the public and distribute the remaining shares to our stockholders. The requisite revenue ruling was issued on September 26, 2001. Due to the recent capital market conditions, the intended public offering of our intellectual property licensing business had been deferred.
On March 15, 2002, we confirmed that we were in preliminary discussions regarding a potential combination of its intellectual property licensing business with the business of Parthus Technologies plc, an Irish public company listed on the London Stock Exchange with American Depository Shares traded on the Nasdaq National Market.
This Form 10-K, in particular the description of our business, the risk factors we face, and the forward-looking statements in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are based on the assumption that our intellectual property licensing business segment and our products business segment will continue to be part of a single business. If these two business segments are separated, each will be subject to its own risks and uncertainties, some of which may be material to that segment but not to the
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combined enterprise and some of which may relate to one segment but not to the other. We intend to make appropriate revisions to the description of our business and our published financial information if such a separation occurs.
General Business
DSP Group develops and markets products and technologies that perform digital signal processing — the electronic manipulation of digitized speech and other digital signals. Our products are used in a wide variety of telecom applications.
Digital signal processing based solutions are more cost effective and provide a broader range of features than analog based solutions. Many applications, including digital cellular and wireless communications, broadband modems, Voice over the Internet and digital audio/video, all use digital signal processing techniques extensively.
Our work in the field of digital signal processing has yielded four synergetic product families:
• Digital Signal Processor (DSP) Cores. A family of programmable digital signal processors that, when combined with other hardware elements such as memory and input/output devices, forms a software enabled chip that is targeted for specific applications.
• Integrated Digital Telephony (IDT). A family of chips comprised of the following:
Speech and Telephony. A highly integrated DSP core based chip that handles telephony functions and advanced speech algorithms targeted for the telephony market.
Cordless Telephony. A 900 megahertz / 2.4 gigahertz digital spread spectrum chip set. The chip set is composed of a RF transceiver and a highly integrated DSP based chip. The DSP based chip combines three main functions into one chip: the wireless base band modem, speech processing and telephony functions.
• Voice Over Packet. A DSP based, highly integrated speech processor targeted for the low to medium density Integrated Accesses Device (IAD), residential gateway and IP telephony markets.
• TrueSpeech®. A family of proprietary speech compression algorithms.
DSP-Based Speech and Telephony Processors
DSP Group has developed two lines of speech and telephony processing chips: integrated digital telephony processors, which are designed for use in the consumer telephone market; and Voice over IP (VoIP) speech co-processors, which are designed for use in network telephony and video conferencing products. Both product lines are based upon our DSP core designs and incorporate our TrueSpeech speech compression algorithms.
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Integrated Digital Telephony Speech Processors
Our integrated digital telephony (IDT) speech processors are currently incorporated in more than 120 models of featured phones. These models are being sold in Europe, Japan, Australia and the United States.
Our IDT speech processors are based on our PineDSPCore® and TeakLite DSPCore®, which are more fully described below. Our integrated digital telephony speech processors use our TrueSpeech speech compression technology to provide high quality speech recording and playback. They incorporate the following speech and telephony technologies in various combinations:
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Technology |
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Description |
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Triple Rate Coder™ |
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Instructs the telephone answering system to decide automatically between better voice quality and longer recording time. |
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True Full-Duplex SpeakerPhone™ |
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Allows simultaneous two-way (full-duplex), hand free operation of the telephone and suppresses and cancels acoustic and electrical echoes. |
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G.723.1 |
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Provides speech compression for Voice over IP and video conferencing over standard telephone lines. |
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Caller ID and Call Waiting Caller ID |
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Identifies to the party being called the telephone number of the calling party, whether or not the party being called is already engaged in another call. |
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Call Progress Tone Detection |
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Detects standard telephony signals during the progress of a telephone call. |
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DTMF Signaling |
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Detects and generates touch tone (DTMF) signals that comply with telephone industry frequency standards. |
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Speech Prompts |
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Provides the ability to stamp a message with a time and date and vocal operating instructions prompts. |
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Variable Speed Playback (FlexiSpeech®) |
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Permits playback of recorded speech at different speeds without distorting the natural sound of the speech. |
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Voice Operated Switch (VOX) (Smart-Vox®) |
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Detects human speech and stops recording during periods of silence, thereby conserving available memory. |
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Alpha Least Cost Routing (LCR)/Super LCR |
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Automatically chooses from a number of telephone service providers in order to select the lowest available rates. |
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Voice Recognition |
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Allows a user to operate a telephone or answering machine device by giving voice commands. |
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We introduced the first integrated digital telephony speech processors in 1989. Since then, we have shipped approximately 97 million units of speech processors and RF devices to original equipment manufacturers (OEMs), of which approximately 30 million were shipped in 2001. Our IDT speech and RF processor and RF sales accounted for approximately 73% of our total revenues in 2001.
In 1999, we started the shipment of the D16000 family of fully integrated speech processors, which combines the components of a mixed signal system on a single chip. Each speech processor in the D16000 family contains a DSP core, converters that transform analog signals into digital signals and vice versa, and various signal amplifiers, all embedded on a single chip. In addition to implementing DSP algorithms, including data compression, caller ID and full-duplex speaker phone, these speech processors also perform tasks that would typically be handled by a separate central processing unit (CPU) chip. Our goal was for the D16000 processors to provide high value to telephony product vendors by eliminating the need for almost any other electronic components and thus reducing materials and manufacturing costs.
In 2000, we developed the D36000 family of fully integrated speech processors based on our TeakLite Core, which can support two line telephony as well as cordless base band modems with low power usage. This product, which entered into mass production in the second quarter of 2001, has so far been accepted very well in the market as an upgrade for D16000 family for cordless and corded feature telephony standard.
The following table presents the main features of the primary IDT speech processors that we currently offer:
DSP Group’s IDT Speech Processors
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D36569 |
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D16559 |
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D6571 |
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D6587 |
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Process Geometry (microns) |
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0.25 |
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0.45 |
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0.5 |
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0.5 |
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Minutes Record, 4 Mbit Memory |
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22-25, |
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22-25, |
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22-25, |
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22-25, |
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Memory Type |
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Flash |
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Flash |
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Flash |
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Flash |
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DSP Core: |
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TeakLite |
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Pine |
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Pine |
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Pine |
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Advanced Features: |
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Speech Prompts |
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Yes |
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Yes |
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Yes |
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Yes |
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Variable Speed Playback |
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Yes |
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Yes |
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Yes |
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Yes |
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Full Duplex Speakerphone |
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Yes |
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Yes |
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Yes |
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Yes |
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Caller ID & Call Waiting Caller ID |
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Yes |
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Yes |
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Yes |
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Yes |
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Voice Recognition |
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— |
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Yes |
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System On Chip-Included Peripherals: |
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Microcontroller |
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Yes |
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Yes |
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Line Codec |
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Yes |
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Yes |
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Speaker Codec |
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Yes |
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Yes |
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— |
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Amplifiers |
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Yes |
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Yes |
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— |
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Cordless Telephony
In the beginning of 1999, we acquired two integrated groups of engineers, one located in Israel and the other in the United States. These twenty-five engineers specialize in the design of integrated circuits for wireless communications. In addition, we acquired technology and products, including associated intellectual property, related to 900 megahertz narrow-band cordless telephones (the transmissions between the handset and base unit of these telephones are at or near a frequency of 900 megahertz) and 900 megahertz spread spectrum cordless telephones (the transmissions between the handset and base unit of these telephones are “spread” in a pseudo-random pattern over a range of frequencies).
In 2000, in anticipation of limited growth in the U.S. 900 MHz spread spectrum market, we initiated the development of a new line of cordless products to address this changing market trend.
In 2001, we entered into mass production of 900MHz cordless chip set. The chip-set includes a D36000 fully featured telephony and baseband device and an integrated RF device. During this year, we completed the design for our advanced chip set for 2.4 Ghz single handsets and multi-handsets for the US market. During 2001, we also developed an integrated RF CMOS device which is an important part of the development efforts to integrate the telephony feature, communication modem and RF device into an integrated POC™ (Phone on a Chip).
The following table presents the main features of the cordless chipsets that we currently offer:
DSP Group’s IDT Cordless Speech Processors
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900MHz |
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900MHz |
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2.4GHz |
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2.4Ghz |
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Process Geometry baseband (microns) |
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0.35 |
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0.25 |
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0.25 |
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0.25 |
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RF Process |
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Bipolar |
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Bipolar |