<PAGE>

                                    UNITED STATES
                          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, 1997

                            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 Number)
     incorporation or organization)

              20300 Stevens Creek Boulevard, Cupertino, California 95014
             (Address of principal executive offices, including zip code)

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

                                   ----------------

            Securities registered pursuant to Section 12(b) of the Act:

         Title of each class           Name of each exchange on which registered
    Common Stock, $.001 par value              New York Stock Exchange

          Securities registered pursuant to Section 12(g) of the Act:  None

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.  Yes  X   No
                                       ----    ----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) 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. [   ]

The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of March 6, 1998 was approximately $481,520,613.  For purposes of
this calculation only, (i) shares of Common Stock are deemed to have a market
value of $16.0625 per share, the closing sale price of the Common Stock as
reported on the New York Stock Exchange on March 6, 1998, and (ii) each of the
executive officers, directors and persons holding 5% or more of the outstanding
Common Stock is deemed to be an affiliate.

The number of shares of Common Stock outstanding on March 6, 1998 was 39,774,788
shares.

DOCUMENTS INCORPORATED BY REFERENCE: Part III of this Report incorporates
information by reference from the definitive Proxy Statement for the
registrant's annual meeting of stockholders to be held on May 12, 1998.


<PAGE>

                               DSP COMMUNICATIONS, INC.

                             1997 FORM 10-K ANNUAL REPORT

                                  TABLE OF CONTENTS

                                       PART I  
<TABLE>
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                                                                            PAGE
                                                                            ----
<S>                                                                        <C>
Item 1.   Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3

Item 2.   Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Item 3.   Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 11

Item 4.   Submission of Matters to a Vote of Security Holders. . . . . . . . 11

                                       PART II

Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . 12

Item 6.   Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 13

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations. . . . . . . . . . . . . . . . . . . . . 14

Item 8.   Financial Statements and Supplementary Data. . . . . . . . . . . . 26

Item 9.   Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure . . . . . . . . . . . . . . 26

                                       PART III

Item 10.  Directors and Executive Officers of the Registrant . . . . . . . . 27

Item 11.  Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 27

Item 12.  Security Ownership of Certain Beneficial Owners and Management . . 27

Item 13.  Certain Relationships and Related Transactions . . . . . . . . . . 27

                                       PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K . 28

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

</TABLE>

                                          2
<PAGE>

                                        PART I

     The matters addressed in this report on Form 10-K, with the exception of
the historical information presented, contain forward-looking statements
involving risks and uncertainties.  The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under the heading "Certain
Factors That May Affect Future Results" in the Management's Discussion and
Analysis section and elsewhere in this report.

ITEM 1.   BUSINESS

INTRODUCTION


     DSP Communications, Inc., a Delaware corporation ("DSPC" or the "Company"),
applies its expertise in digital signal processing ("DSP") software, algorithms
and VLSI circuit design to develop highly integrated, low power and
cost-effective chip sets for wireless personal communications applications.  The
Company believes that it is the largest independent vendor of baseband chip sets
to original equipment manufacturers ("OEMs") in the Japanese digital cellular
telephone market, with customers such as Kenwood Corporation ("Kenwood"),
Kokusai Electric Corporation ("Kokusai"), Kyocera Corporation ("Kyocera"),
Pioneer Corporation ("Pioneer"), Sanyo Electronic Co. Ltd. ("Sanyo") and Sharp
Corporation ("Sharp").  Based on its core DSP technology, the Company has
developed, and is developing, baseband chip sets that support a broad range of
frequency modulation standards, including the Personal Digital Cellular ("PDC")
and IS-136 Time Division Multiple Access ("TDMA") standards.  In 1997, the
Company completed the development of baseband chip sets jointly with NEC
Electronics ("NEC"), which support both voice and data capabilities, for use in
the IS-136 TDMA market, and commenced commercial shipments during the second
half of 1997.  In addition, the Company has developed baseband chip sets for use
in the IS-95 Code Division Multiple Access ("CDMA") market.  In the fourth
quarter of 1997, the Company made shipments of operational samples of its CDMA
chip set, and in the first quarter of 1998 began commercial volume production of
the CDMA chip sets.

     The Company's subsidiary, CTP Systems, Ltd. ("CTP Systems"), manufactures
and sells a wireless private branch exchange ("PBX") system for the office
environment and other low-mobility and wireless local loop applications.  CTP
Systems has entered into distribution and service agreements with OEMs such as
Harris Corporation, Inc., Tadiran Telecommunications Ltd., Comdial Corporation,
and Executone Information Systems Inc. for its wireless PBX system.

INDUSTRY BACKGROUND

     The demand for wireless personal communications services has grown rapidly
over the past several years as cellular, paging and other emerging wireless
personal communications services have become widely available and increasingly
affordable to growing numbers of consumers and businesses.  Changes in
telecommunications regulations and allocations of additional radio spectrum
frequencies have further stimulated growth for both wireless voice and data
communications.  There has also been a general transition from the use of analog
to digital technologies to improve the reliability and capacity of wireless
networks.  In addition, most new cellular networks being built today utilize
digital technology which is capable of transmitting both voice and data
communications.  Advancements in cellular and paging technology, as well as
recently introduced services such as personal communications services, are
expected to offer subscribers new means of communicating both voice and data
over existing and future wireless networks.

     VOICE COMMUNICATIONS

     Wireless voice communications utilize analog or digital transmission
technology which operate with various transmission standards.  The Company has
developed products that support a variety of standards, such as PDC, IS-136 and
IS-95, and is also developing next generation products for these existing
standards.


                                          3
<PAGE>

     In Japan, cellular services are predominantly provided over digital
networks based on the PDC standard.  The PDC standard is a form of TDMA that
differs from IS-136 in the following respects:  (i) IS-136 uses the 800 MHz.
band, while PDC uses both the 800 MHz. and the 1.5 GHz. frequency bands; (ii)
IS-136 requires more bandwidth than PDC (30 kHz compared to 25 kHz); and (iii)
IS-136 is capable of supporting analog communications using AMPS, while PDC is
only capable of supporting digital communications.  In order to respond to the
increasing demand for capacity in the Japanese domestic cellular market, several
Japanese carriers have announced that they will launch in 1998 a new digital
system based on CDMA technology. The new cellular system will operate in the
Japanese Total Access Communication System ("JTACS") frequency band, and will
offer higher capacity utilization compared to PDC as well as improved voice
quality and advanced data communication capability.  According to the Japanese
Ministry of Posts & Telecommunications, the number of analog and digital
cellular subscribers in Japan increased from 18.2 million in December 1996, to
28.7 million in December 1997, and as of December 1997, approximately 22% of the
total Japanese population subscribed to cellular services.

     In North America, cellular networks primarily rely upon analog technology
and use the AMPS standard; however, in 1997, digital standards (mainly TDMA and
CDMA) began to increase in market share.  According to the Cellular Telephone
Industry Association, in the United States, the number of cellular subscribers
increased from 38.2 million in June 1996 to 48.7 million in June 1997, and as of
June 1997, approximately 18.5% of the total United States population subscribed
to cellular services.  Although analog cellular is the most widely deployed
wireless service available today, it has several limitations, including
inconsistent service quality, limited capacity and, currently, an inability to
transfer data without a modem.  Digital technologies offer improved system
flexibility, efficiency and increased capacity by allowing a given channel of
spectrum to carry multiple calls simultaneously.  As a result, most new cellular
networks being constructed in North America today utilize digital technology,
primarily using IS-136 TDMA and IS-95 CDMA standards.

     New personal communications services ("PCS") in the United States use CDMA
and TDMA technologies for cellular type applications.  Unlike cellular that uses
the 800 MHz. frequency, PCS uses the 1.9 GHz. band.  The Company believes that
the increasing deployment of PCS networks will also accelerate the transition of
the existing cellular service providers from analog technology to digital
technology.  The Company's baseband products for the TDMA and CDMA standards are
designed to support telephones that operate in both the 800 MHz. cellular
frequency and the 1.9 GHz. PCS frequency in the United States, as well as other
frequencies in other countries.

     REQUIREMENTS OF WIRELESS SUBSCRIBER EQUIPMENT MANUFACTURERS

     The Company believes that growing demand for mobile voice and data
applications will require a transition from analog to digital technology to
increase the capacity, quality, convenience and variety of services.  The
increase in the number of subscribers and the growth of services provided over
wireless personal communications networks have led to network congestion and the
need to expand the capacity and capabilities of the networks.  The
implementation of digital network technology over analog and digital networks
generally requires the use of DSP technology to maximize their capacity and
capabilities.  DSP technology involves converting light, sound and other
naturally occurring analog wave forms into a stream of digital values which may
then be processed, manipulated, exchanged or stored by electronic systems and
later converted back into analog signals.  DSP technology provides several
advantages over analog technologies, including (i) greater levels of compression
capability, resulting in greater storage and expanded communications capacity,
(ii) greater ability to process and manipulate digital data, resulting in
enhanced product performance and functionality, and (iii) greater ability to
perform routine electronic functions in software rather than using dedicated
hardware.  The ability of DSP to manipulate voice and data communications faster
and more efficiently than analog and non-DSP microprocessor technologies
positions DSP as an important technology for existing and future generations of
wireless personal communications products.


                                          4
<PAGE>

     Manufacturers of subscriber equipment for wireless personal communications
compete in a high-growth, cost-competitive market, in which it is necessary to
offer a compact, cost-effective solution providing a wide range of functions.
To increase performance, minimize the size and decrease the cost of subscriber
equipment, manufacturers require highly integrated chip sets.  Greater
integration of functions minimizes the number and size of the integrated
circuits required, thereby lowering the cost of manufacturing and decreasing
power consumption.  Lower power consumption permits extended battery life,
giving the mobile user more usage time without the need to recharge the battery
unit.  Due to evolving industry standards and the rapid introduction of new
communications services, the success of OEMs in the wireless personal
communications industry also depends on their ability to bring new products to
market quickly to meet new market demands.

DSPC'S SOLUTIONS

     DSPC is focused on developing DSP-based software and algorithms and
designing highly integrated, low power baseband chip sets for subscriber
equipment operating on both analog and digital wireless personal communications
networks.  Through its wholly-owned subsidiary, CTP Systems, the Company also
develops wireless PBX and other on-premises and low-mobility wireless
communications applications.

     The key features of DSPC's solutions include the following:

     HIGH INTEGRATION.  In 1993, the Company introduced a new chip set solution
for digital cellular telephones in Japan consisting of only two integrated
circuits.  Subsequently, the Company developed several further generations of
chip sets that enable lower pin and component counts and higher integration. The
Company continuously works to develop baseband chip sets that it believes will
result in more compact and cost-effective solutions.

     LOW POWER CONSUMPTION.  The Company's expertise in DSP technology enables
it to design efficient DSP solutions that reduce power consumption.  The Company
has developed a high degree of functionality in its software which decreases the
need for dedicated hardware, and thereby reduces the millions of instructions
per second ("MIPS") required for operation.  The components of the baseband chip
set are activated intermittently depending on the operating mode of the
subscriber unit at any given time to minimize power consumption.

     COST-EFFECTIVE.  The Company has reduced the number of integrated circuits
required for a baseband processing subsystem by integrating the DSP functions,
and has also incorporated some traditional hardware functions into its software,
thereby reducing the overall cost of the Company's solution to OEMs.  As a
result, the Company's OEM customers are better able to provide competitively
priced products to the wireless personal communications market.

     ADAPTABLE TO MULTIPLE STANDARDS.  Based on its core DSP technology, the
Company has developed products for use with a variety of modulation standards.
While each product is designed for a specific wireless communications network
and modulation standard, all generally rely on the same fundamental DSP
technology.  By maintaining both standards and system flexibility, the Company
seeks to reduce the risks associated with relying on the success of one or a
limited number of existing industry standards.  The Company has developed
systems expertise in the PDC, IS-136 TDMA and IS-95 CDMA digital standards and
the AMPS, TACS and JTACS analog standards.  The Company believes that its
expertise with multiple transmission standards will also help it develop
products to address the needs of emerging wireless services, such as narrowband
and broadband PCS.

PRODUCTS

     The Company designs DSP-based software and integrated circuits for cellular
communications.  To date, the Company has used its DSP expertise primarily to
develop baseband chip sets for incorporation into cellular telephones.  In
addition, the Company is currently developing new products designed for use in
PCS and other


                                          5
<PAGE>

emerging wireless personal communications services.  Through CTP Systems, the
Company also has developed and sells a wireless PBX system for intra-building
communications.

     EXISTING PRODUCTS

     PDC CHIP SETS.  The Company currently sells chip sets to major Japanese
manufacturers of digital cellular telephones.  In 1993, the Company introduced
its first digital chip set, a set of two integrated circuits with a VSELP speech
coder, channel coder and modem that operates on five volts and is based on the
PDC standard. In 1995, the Company commenced volume shipments of its three volt
PDC chip set and initiated shipments of its half-rate PDC chip set.  The
half-rate PDC standard enables cellular carriers to increase the capacity of
their existing cellular networks.  During 1996 and 1997, the Company introduced
more highly integrated PDC standard chip sets that incorporate higher
functionality, lower power consumption, and smaller size.

     TDMA CHIP SETS.  In early 1995, the Company began jointly developing with
NEC a chip set for digital cellular telephones using the IS-136 TDMA standard.
At the end of 1996, the Company initiated commercial sales of this chip set and
in the third quarter of 1997 commenced volume shipments.  IS-136 supports voice
and limited data communications, such as data cipher mode and short message
alpha-numeric paging service. The Company anticipates that the major potential
markets for the IS-136 standard will be North and South America.  The Company
currently has five OEM customers that are in various stages of developing and/or
producing products that use the IS-136 standard.

     WIRELESS PBX.  The Company's wholly-owned subsidiary, CTP Systems, has
developed a wireless PBX system for intra-building communications.  The CTP
Systems solution includes the development of basestations and handsets, and the
joint development of a PBX interface card with several OEMs.  CTP Systems'
wireless PBX system, which enables users to make and receive calls while away
from their desks, received in October 1996 approval by the Federal
Communications Commission for operation using the unlicensed 1920 to 1930 MHz.
frequency band.  Commercial shipments of the wireless PBX system, which
commenced in the fourth quarter of 1996, have not yet developed into large
volume shipments.  CTP Systems is currently engaged in a cost reduction program,
the effects of which should be felt towards the end of 1998.

     NEW PRODUCT DEVELOPMENT

     CDMA CHIP SETS.  The Company has developed systems expertise in the IS-95
CDMA standard and has developed CDMA-based chip sets for use in cellular and PCS
applications.  In 1995, the Company signed a license agreement with Qualcomm
Incorporated to license Qualcomm's CDMA technology that permits the Company to
develop baseband chip sets for CDMA products.  In the fourth quarter of 1997,
the Company shipped operational samples of the CDMA chip sets, and in the first
quarter of 1998, the Company commenced volume production.  The first volume
shipments are expected in the first half of 1998, and significant revenues from
the CDMA chip set are not anticipated until the second half of 1998.

SALES, MARKETING AND DISTRIBUTION

     The Company markets its products through a direct sales and marketing
organization, headquartered in Cupertino, California, and facilitates
substantially all of its product delivery through its distributors in Japan and
the United States, which are both non-exclusive distributors.  In Japan, the
Company's Japanese subsidiary performs customer liaison services.  The Company's
distributors, in Japan - Tomen Electronics Corp. ("TEC"), and in the United
States - Tomen Electronics America Inc. ("TEA"), are not subject to minimum
purchase requirements and can cease marketing the Company's products at any
time.  The loss of either of the above distributors could have a material
adverse effect on the Company's business, financial condition and results of
operations.


                                          6
<PAGE>

     The Company sells its PDC chip sets to OEMs such as Kenwood, Kyocera,
Pioneer, Kokusai, Sanyo and Sharp, through TEC, and its TDMA chip sets to other
OEMs, through TEC and TEA.  In 1995, 1996 and 1997, product sales to these
distributors accounted for 89%, 91% and 88%, respectively, of the Company's
total revenues.  Sales to these distributors are made through specific purchase
orders, which are cancelable without significant penalties.  In 1997,
substantially all of the Company's PDC products were sold to seven Japanese
OEMs, and all of the Company's TDMA products were sold to two additional OEMs.
The Company expects that a significant portion of its future product sales will
continue to be concentrated among a limited number of major OEMs.  The loss of
either one of the Company's distributors or one or more of its major customers
would have a material adverse effect on the Company's business, financial
condition and results of operations.  In addition, the Company's sales to its
OEM customers are dependent on the OEMs' continued success in maintaining or
increasing their market share in the competitive wireless handset market
worldwide.  The inability of one or more of these OEM customers to succeed in
these markets could have a material adverse effect on the Company's business,
financial condition and results of operations.

     The Company sells a majority of its products and provides technology
development services to OEMs located outside of the United States, primarily in
Japan.  Revenues from Japan accounted for 94%, 94% and 80% of the Company's
total revenues in 1995, 1996 and 1997, respectively.  Due to its international
sales, the Company is subject generally to the risks of conducting business
internationally, including unexpected changes in regulatory requirements,
fluctuations in exchange rates for the United States dollar that could
effectively increase the price of the Company's products in foreign markets,
imposition of tariffs and other barriers and restrictions, and the burden of
complying with a variety of foreign laws.  During 1996 and 1997, the Company
hedged its foreign exchange exposure related to anticipatory revenue
transactions by entering into dollar/yen option contracts.

CUSTOMER SERVICE AND TECHNICAL SUPPORT

     The Company believes that providing customers with comprehensive product
service and support is critical to maintaining a competitive position in the
wireless personal communications industry.  The Company provides technical
support through its application engineering groups located in Japan, Israel and
the United States.  The application engineering group offers full service
technical support to customers, product upgrades and training, if necessary.
The Company works closely with its customers to monitor the performance of its
product designs, and to provide application design support and assistance.  The
Company believes that close contact with its customers improves their level of
satisfaction and provides the Company with insights into future product
development.

     The Company provides several levels of technical support to its customers.
The Company's standard support package is generally offered with all product
sales, and includes provision of evaluation and prototyping systems, full
technical documentation and application design assistance.  During an OEM's
production phase, the Company also provides failure analysis and replacement of
defective components.  In some cases, the Company also offers more extensive
support arrangements for additional quarterly payments, which includes training,
system level design, implementation and integration support, as well as early
releases of new product versions when they become available.  The Company
believes that tailoring the technical support level to its customers' needs is
essential for the success of product introductions and to achieve a high
satisfaction level among its customers.

MANUFACTURING

     The Company uses independent foundries to manufacture its baseband chip
sets.  The Company to date has ordered products from its foundries primarily
upon receipt of orders from its distributor or OEM customers and does not
maintain any significant inventory of its products.  This strategy allows the
Company to avoid the significant capital investment required for wafer
fabrication facilities and inventories, and to focus its resources on algorithm
and software development, product design, quality assurance, marketing and
customer support.  The


                                          7
<PAGE>

Company maintains limited inventory in anticipation of orders from its
distributors or OEM customers.  Designs of the Company's baseband chip sets are
verified by both the Company and the customer prior to orders being placed.
Upon receipt of such orders, the manufacturers ship the devices through the
Company's distributors to the Company's customers.  The Company has also
developed procedures with its contract manufacturers to conduct comprehensive
quality control and quality assurance throughout the manufacturing and assembly
process.  The Company's reliance on independent foundries involves a number of
risks, including the possibility of a shortage of certain key components and
reduced control over delivery schedules, manufacturing capacity, quality and
costs.

     To date, the Company has purchased most of its DSP chips for cellular
telephones, for the PDC standard, from Texas Instruments Incorporated ("TI"),
which embeds the Company's software algorithms in TI's standard products.  The
Company also buys all of the DSP chips used in CTP Systems' products from TI.
Currently, the Company purchases its application specific integrated circuits
("ASICs") for its PDC chip sets from Atmel ES2, a wholly owned subsidiary of
Atmel Inc., and VLSI Technology, Inc. ("VTI"); its ASICs for CTP Systems'
products from American Microsystems, Inc. ("AMI"); the Radio Frequency ("RF")
chip sets for CTP Systems' products from Rockwell Semiconductor Systems, Inc.;
the DSP chips and ASICs for its IS-136 TDMA chip sets from NEC Electronics Inc.
("NEC"); and, in addition, the Company purchases the DSP chips and ASICs for its
IS-95 CDMA chip sets from other independent foundries.  The Company is dependent
on its suppliers to produce a sufficient quantity of DSP chips, ASICs and
components to meet the Company's needs and to deliver them in a timely manner.
Furthermore, the suppliers' manufacturing schedules are entirely independent
from the Company's supply requirements.  The Company's reliance on the above
suppliers involves a number of risks, including the possibility of an
insufficient supply of DSP chips and ASICs, noncompetitive pricing and
discontinued production of the components utilized to produce the Company's
products.

     CTP Systems currently manufactures its own wireless communications systems
and is therefore subject to various risks associated with the manufacturing
process, including risks resulting from CTP Systems' inexperience in mass
production, risks involved with the ramp-up of production, reliance on
subcontracted assembly facilities, errors in 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 materially adversely affect 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.

     Although the Company extensively tests its software and hardware products
prior to their introduction, design errors may be discovered after initial
product sampling, resulting in delays in volume production or recalls of
products sold.  Although the Company has not experienced any significant errors
to date, the occurrence of such errors could have a material adverse effect on
the Company's business, financial condition and results of operations.

RESEARCH AND DEVELOPMENT

     The Company believes that its future success depends on its ability to
adapt to the rapidly changing wireless personal communications environment and
to continue to meet its customers' needs.  Therefore, the continued timely
development and introduction of new products is essential in maintaining its
competitive position.  The Company develops most of its products in-house and,
as of December 31, 1997, had a research, development and engineering staff of
106 people, including  nine people holding doctorate degrees in areas related to
DSP.  The Company is focusing its current development efforts primarily on the
development of enhanced versions of its existing digital cellular chip sets and
new applications involving IS-95 and IS-136.  During 1995, 1996 and 1997, the
Company spent approximately $2.5 million, $5.3 million and $6.6 million,
respectively, on research


                                          8
<PAGE>

and development activities, net of any offsetting grants from the Officer of the
Chief Scientist in Israel's Ministry of Industry and Trade.

COMPETITION

     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.  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 depends upon a number of factors within
and outside 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.  The
Company's current OEM customers continuously evaluate whether to develop and
manufacture their own chip sets and could elect to compete with the Company at
any time.  Price competition in the markets in which the Company currently
competes and proposes to compete is intense and is likely to increase, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.  Moreover, large manufacturers of wireless
personal communications equipment could also elect to enter into the component
market and compete directly with the Company.

     In the Japanese digital cellular market, the Company faces competition from
existing cellular telephone manufacturers that develop in-house solutions, such
as NEC,  Panasonic, and Sony Corporation, from other DSP-based baseband chip
suppliers, such as Asahi Kasei, and, in the future, may face competition from
other chip suppliers.  The Company believes that its current advantage stems
from its experience in this market, early market presence and established
customer base.

     In the TDMA market, the Company competes with existing cellular telephone
manufacturers, such as Ericsson, Lucent, Motorola and Nokia, that develop
in-house solutions.

     In the CDMA market, the Company will compete with chip sets offered by
Qualcomm  and possibly with other chip set manufacturers.

INTELLECTUAL PROPERTY

     Although the Company has twenty-nine patent applications pending or allowed
in the United States, Japan and Israel, the Company relies primarily on its
trade secret program and copyrights to protect its intellectual property.  The
Company attempts to protect its trade secrets and other proprietary information
through agreements with its customers, suppliers, employees and consultants, and
through other security measures.  Although the Company intends to protect its
rights vigorously, there can be no assurance that these measures will be
successful.  In addition, the laws of certain countries in which the Company's
products are or may be developed, manufactured or sold, including Hong Kong,
Japan, Korea and Taiwan, may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.

     While the Company's ability to compete may be affected by its ability to
protect its intellectual property,  the Company believes that, because of the
rapid pace of technological change in the wireless personal communications
industry, its technical expertise and ability to introduce new products on a
timely basis will be more important in maintaining its competitive position than
protection of its intellectual property and that patent, trade secret and
copyright protections are important but must be supported by other factors such
as the expanding knowledge, ability and experience of the Company's personnel,
new product introductions and frequent product


                                          9
<PAGE>

enhancements.  Although the Company continues to implement protective measures
and intends to defend vigorously its intellectual property rights, there can be
no assurance that these measures will be successful.

     While the Company has not been involved in any patent or other intellectual
property rights litigation, there can be no assurance that third parties will
not assert claims against the Company with respect to existing and future
products.  In the event of litigation to determine the validity of any third
party's claims, such litigation could result in significant expense to the
Company, and divert the efforts of the Company's technical and management
personnel, whether or not such litigation is determined in favor of the Company.
Both the semiconductor and the wireless personal communications industries are
subject to frequent litigation regarding patent and other intellectual property
rights.  Leading companies and organizations in the wireless personal
communications industry have numerous patents that protect their intellectual
property rights in these areas.  In the event of an adverse result of any such
litigation, the Company could be required to expend significant resources to
develop non-infringing technology or to obtain licenses to the technology which
is the subject of the litigation.  There can be no assurance that the Company
would be successful in such development or that any such license would be
available on commercially reasonable terms.

BACKLOG

     The Company's backlog was approximately $6.8 million at December 31, 1996
and $20.5 million at December 31, 1997.  The Company includes in its backlog all
accepted product purchase orders with respect to which a delivery schedule has
been specified for product shipment within one year.  As a result of the
relatively short lead time in 1997 between receipt of product orders and
shipment of products due primarily to an increase in the supply of integrated
circuits and increased competition between OEMs in the Japanese wireless handset
market, the Company experienced relatively low backlog levels throughout 1997,
and the Company anticipates that the market for its baseband chip sets will
continue to be characterized by short-term order and shipment schedules.  In
addition, product orders in the Company's backlog are subject to changes in
delivery schedules or to cancellation at the option of the purchaser without
significant penalty.  Accordingly, the Company believes that backlog as of any
particular date is not necessarily a reliable indicator of sales or revenues for
any future period.

EMPLOYEES

     As of December 31, 1997, the Company had 175 full and part-time employees,
including 106 in research and development, 17 in marketing and sales, 25 in
production, and 27 in corporate, administration and production coordination.
The Company believes that its future prospects will depend, in part, on its
ability to continue to attract and retain skilled engineering, marketing and
management personnel, who are in great demand.  In particular, there is a
limited supply of highly qualified engineers with DSP experience.  None of the
Company's employees are covered by a collective bargaining agreement, and the
Company has never experienced any strike or work stoppage.  The Company believes
its relations with its employees to be good.


                                          10
<PAGE>

ITEM 2.   PROPERTIES

     The Company's headquarters are located in an approximately 9,500 square
foot leased facility in Cupertino, California.  This facility houses the
Company's management, marketing and sales personnel.  The Company subleases
approximately 775 square feet in this facility to another corporation.  The
lease for the Cupertino facility terminates in February 2001.  The Company's
subsidiary, DSPC Israel Ltd. ("DSPCI"), leases approximately 10,000 square feet
for research and development, application engineering and manufacturing
coordination activities, in a facility in Givat Shmuel, Israel.  This lease
terminates in April 2001.  DSPCI also leases approximately 10,000 additional
square feet for research and development activities in Givat Shmuel, pursuant to
a lease that terminates in March 1999, with an option to extend the lease until
2002.  The Company's subsidiary, CTP Systems, leases approximately 11,000 square
feet for research and development, engineering and manufacturing activities in a
facility in Petah-Tikva, Israel.  This lease terminates in October 1999.  The
Company's Japanese subsidiary leases approximately 3,200 square feet in Tokyo
for marketing and engineering liaison activities.  This lease expires in October
1999.

ITEM 3.   LEGAL PROCEEDINGS

     As previously disclosed in the Company's reports on  Form 10-Q for the
quarterly periods ended June 30, 1997 and September 30, 1997, on May 12, 1997, a
class action lawsuit was filed against the Company and several of its officers
and directors in the Superior Court of California, Santa Clara County, bearing
the caption BERT PERL, ET AL. V. DSP COMMUNICATIONS, INC., DAVIDI GILO, LEWIS
S. BROAD, GERALD DOGON, NATHAN HOD, ARNON KOHAVI AND JOSEPH PERL.  A second,
identical lawsuit, captioned GERSHON SONTAG, ET AL. V. DSP COMMUNICATIONS, INC.,
ET AL. was filed on May 22, 1997.  The complaints, which were consolidated,
alleged that the Company and certain of its officers and directors violated
California securities laws in connection with certain statements allegedly made
during the first quarter of 1997, and sought damages in an unspecified amount,
interest, attorney's fees and other equitable and injunctive relief.  The
plaintiffs requested to have the matter certified as a class action on behalf of
certain past and present shareholders of the Company.  The Court sustained the
Company's demurrer with leave to amend.  On January 27, 1998, plaintiffs filed
an amended and consolidated complaint.  On February  26, 1998, two of the
plaintiffs in the state action filed a similar complaint in the U.S. District
Court for the Northern District of California, captioned ROBERT MISHELOW, ET AL.
V. DSP COMMUNICATIONS, INC., ET AL. The complaint makes the same allegations as
the amended complaint filed in state court, but charges violations of federal
securities laws.

     The Company believes that the complaints are without merit and will defend
these actions vigorously.  However, due to the inherent uncertainties of
litigation, the Company cannot accurately predict the ultimate outcome of the
litigation at this time.  Any unfavorable outcome of litigation could have an
adverse impact on the Company's business, financial condition and results of
operations.

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

     None.


                                          11
<PAGE>

                                       PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Since December 9, 1997, the Common Stock of the Company has been traded on
the New York Stock Exchange under the symbol "DSP."  The Company's Common Stock
was traded on the Nasdaq National Market from the Company's initial public
offering on March 7, 1995 until December 8, 1997.  The following table presents
for the periods indicated the high and low closing prices for the Common Stock,
as reported by the Nasdaq National Market or the New York Stock Exchange, as
applicable.

<TABLE>
<CAPTION>

                                                           Price Range of
                                                            Common Stock
                                                       ----------------------
                                                          High          Low
                                                       ----------------------
<S>                                                   <C>             <C>
Fiscal Year Ended December 31, 1997
  First Quarter. . . . . . . . . . . . . . . . . . .   $25.38          $ 7.94
  Second Quarter . . . . . . . . . . . . . . . . . .   $13.13          $ 6.75
  Third Quarter. . . . . . . . . . . . . . . . . . .   $22.38          $10.31
  Fourth Quarter . . . . . . . . . . . . . . . . . .   $24.56          $10.94

Fiscal Year Ended December 31, 1996
  First Quarter. . . . . . . . . . . . . . . . . . .   $13.00          $ 8.02
  Second Quarter . . . . . . . . . . . . . . . . . .   $25.69          $12.25
  Third Quarter. . . . . . . . . . . . . . . . . . .   $30.50          $20.75
  Fourth Quarter . . . . . . . . . . . . . . . . . .   $31.63          $16.75

</TABLE>

     On February 25, 1998, the closing price of the Company's Common Stock as
reported on the New York Stock Exchange was $16.687 per share.  As of February
25, 1998, there were approximately 127 holders of record of the Common Stock,
which the Company believes represents approximately 8,000 beneficial holders.

DIVIDEND POLICY

     To date, the Company has neither declared nor paid any cash dividends on
shares of its Common Stock.  The Company presently intends to retain all future
earnings for use in its business and does not anticipate paying cash dividends
on its Common Stock in the foreseeable future.


                                          12
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

(Dollars in thousands, except per share data)               1997          1996            1995          1994            1993
---------------------------------------------               ----          ----            ----          ----            ----
<S>                                                      <C>           <C>             <C>           <C>             <C>
Statement of Operations Data
(Year ended December 31)

Total revenues                                            $81,501       $ 88,899        $40,867        $15,966        $ 4,098

Gross profit                                              $36,697       $ 41,196        $17,021        $ 6,631        $ 2,135

Operating income (loss)                                   $17,701       $ 20,010        $(2,391)       $ 2,655        $(1,142)

Net income (loss)(1)(2)                                   $21,399       $ 21,750        $(2,358)       $ 2,233        $(1,026)

Earnings (loss) per share(1)(2)

  Basic                                                   $  0.51       $   0.52        $ (0.08)       $  0.17        $ (0.08)

  Diluted                                                 $  0.48       $   0.48        $ (0.08)       $  0.09        $ (0.08)

Shares used in computing earnings (loss) per share(3)

  Basic                                                    41,776         41,865         30,252         13,497         12,605

  Diluted                                                  44,922         45,564         30,252         25,624         12,605

Balance Sheet Data
(As of December 31)

Cash, cash equivalents and short-term investments        $116,641       $136,833       $ 27,988        $ 8,387        $ 3,636

Working capital                                          $108,055       $129,230       $ 29,193        $ 5,476        $ 3,602

Total assets                                             $142,896       $155,354       $ 44,119        $11,028        $ 6,397

Long-term obligations                                    $   --         $   --         $   --          $   132        $   191

Total stockholders' equity                               $115,903       $136,844       $ 34,868        $ 6,532        $ 4,122


</TABLE>


---------------------------


(1)  Net loss for 1995 includes a charge of $10,850,000 for acquired in-process
technology primarily in connection with the acquisition of CTP Systems Ltd. and,
to a lesser extent, in connection with a licensing arrangement.  Excluding this
charge, pro forma net income for 1995 was $8,492,000 or $0.28 per basic share
and $0.24 per diluted share (based on 30,252,000 shares and 35,752,000 shares,
respectively).

(2)  Net income for 1996 includes a charge of $5,000,000 in connection with the
termination of a proposed acquisition of Proxim Inc. Excluding this charge, pro
forma net income for 1996 was $26,125,000 or $0.62 per basic share and $0.57 per
diluted share.

(3)  Net income (loss) per share information reflects the common stock
two-for-one split effected in March 1996 and the common stock two-for-one split
effected in December 1996.


                                          13
<PAGE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND       
          RESULTS OF OPERATIONS

     This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the 1997 Consolidated
Financial Statements and notes thereto.  The matters addressed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, with the exception of the historical information presented, contain
forward-looking statements involving risks and uncertainties.  The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under the heading "Certain Factors That May Affect Future Results"
following this Management's Discussion and Analysis section, and elsewhere in
this report.

OVERVIEW

     DSPC, a Delaware corporation incorporated on November 23, 1994, succeeded
to the business of DSP Telecommunications Ltd., an Israeli corporation ("DSP
Telecom"), pursuant to a reorganization completed upon the closing of the
Company's initial public offering ("IPO") on March 14, 1995, under which DSP
Telecom became a wholly owned subsidiary of DSPC (the "Reorganization").  The
Reorganization was accounted for in a manner similar to a pooling of interests.

     The consolidated financial statements present the financial condition of
the Company as of December 31, 1997, the consolidated results of operations and
cash flows of the Company from the Reorganization date, and the combined
financial position, results of operations and cash flow of the Company with DSP
Telecom prior to the Reorganization.

     At the end of 1993, the Company began the first volume shipments of its
digital baseband PDC chip sets to Japanese OEMs through its distributor in Japan
and in 1995 introduced and initiated shipments of its half-rate PDC chip set
which enables cellular carriers to increase the capacity of their existing
cellular networks. At the end of 1996, the Company initiated commercial sales of
a third generation chip set for digital cellular telephones using the IS-136
TDMA standard which supports voice and limited data communications, and in the
third quarter of 1997, the Company commenced volume shipments of IS-136 chip
sets. The Company has also developed baseband chip sets for CDMA products using
the IS-95 standard, under a CDMA license agreement with Qualcomm.  The Company
shipped operational samples of its CDMA chip sets in the fourth quarter of 1997
and commenced volume production of the chip sets in the first quarter of 1998.
The first volume shipments are expected in the first half of 1998, and
significant revenues from the CDMA chip sets are not expected until the second
half of 1998.

     The fourth quarter of 1996 included a charge of $5.0 million, included in
general and administrative expenses, in connection with the termination of a
proposed acquisition of Proxim, Inc.

     The fourth quarter of 1995 included a charge of $10.9 million for acquired
in-process technology, primarily in connection with the purchase of CTP Systems.

     The Company recorded a net income of $21.4 million on total revenues of
$81.5 million in 1997, compared to a net income of $21.8 million on total
revenues of $88.9 million in 1996 and a net loss of $2.4 million on total
revenues of $40.9 million in 1995.  Excluding the charge for the proposed
acquisition in 1996 of $5.0 million and for acquired in-process technology in
1995 of $10.9 million, pro forma net income was $26.1 million for 1996 and $8.5
million for 1995.

     The results of operations subsequent to the acquisition of CTP Systems on
October 26, 1995 include the results of CTP Systems.  CTP Systems has developed
its wireless PBX product for commercial production, and commercial shipments
commenced in the fourth quarter of 1996.  CTP Systems' activities incurred
losses throughout 1996 and 1997 and are expected to continue to incur losses
during 1998.


                                          14
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth the percentage relationships of certain
items from the Company's consolidated statements of operations as a percentage
of total revenues for the years ended December 31:

<TABLE>
<CAPTION>

                                                     1997      1996        1995
                                                    -----      -----      -----
<S>                                                 <C>       <C>        <C>
Revenues:
  Product                                            94.3%      95.8%      90.9%
  Technology development                              5.7        4.2        9.1
                                                    -----      -----      -----
       Total revenues                               100.0      100.0      100.0

Cost of Revenues:
  Product                                            48.9       49.7       52.6
  Technology development                              6.1        4.0        5.8
                                                    -----      -----      -----
       Total cost of revenues                        55.0       53.7       58.4
                                                    -----      -----      -----
Gross Profit                                         45.0       46.3       41.6

Operating Expenses:
  Research and development                            8.1        6.0        6.2
  Sales and marketing                                 5.0        4.1        5.9
  General and administrative                         10.2       13.7        8.9
  Charge for acquired in-process technology             -          -       26.5
                                                    -----      -----      -----
       Total operating expenses                      23.3       23.8       47.5
                                                    -----      -----      -----
Operating income (loss)                              21.7       22.5       (5.9)

Interest and other income (expense), net              7.8        5.5        2.8
                                                    -----      -----      -----
Income (loss) before provision for income taxes      29.5       28.0       (3.1)

Provision for income taxes                           (3.2)      (3.5)      (2.7)
                                                    -----      -----      -----
Net income (loss)                                    26.3%      24.5%      (5.8)%
                                                    -----      -----      -----
                                                    -----      -----      -----

</TABLE>


REVENUES

     PRODUCT:   Product revenues consist primarily of baseband chip sets for
digital cellular telephones.  Revenues from sales to distributors are recognized
at the time the products are shipped by the distributor to the OEM customer.
Other product revenues are recorded when products are shipped to customers.
Product revenues were $76.8 million in 1997 compared to $85.1 million and $37.1
million in 1996 and 1995, respectively.

     The Company's product revenue growth in 1996 was primarily due to a large
increase in demand leading to volume shipments of the Company's Japanese PDC
digital cellular chip sets. The decline in product revenues in 1997 was
primarily due to a product transition in the Japanese PDC handset market that
took place in the second quarter of 1997, during which the Company's product
revenues decreased to $8.1 million as compared to $19.6 million in the second
quarter of 1996 (a decrease of $11.5 million quarter-on-quarter).  At the end of
the second quarter of 1997, the Company began shipments of its new PDC chip
sets.  The decrease in product revenues in the third quarter of 1997 in
comparison to the third quarter of 1996 was $3.9 million ($19.1 million in third
quarter of 1997 as compared to $23.0 million in the third quarter of 1996).
During the fourth quarter


                                          15
<PAGE>

of 1997, product revenues increased to $30.9 million in comparison to $26.4
million in the fourth quarter of 1996 (an increase of $4.5 million quarter-on-
quarter).  Sales prices for the Company's chip sets continued to decline in 1997
as a result of volume discounts and price pressures; however, apart from the
product transition period in the second and third quarters of 1997, increased
sales volume has been sufficient to offset the effect on revenues of decreasing
per unit prices.

     TECHNOLOGY DEVELOPMENT:  The Company has funded its technology development
in part using revenue from technology development agreements.  Following
successful completion of technology development agreements with OEMs, the
Company's strategy is to develop and market products incorporating the developed
technology.  Revenues are recognized only when applicable customer milestones,
including deliverables, have been met, but not in excess of the amount that
would be recognized using the percentage of completion method.  Technology
development revenues were $4.7 million in 1997, $3.8 million in 1996, and $3.7
million in 1995.  The Company's technology development revenues fluctuate, and
may continue to fluctuate, depending on the number and size of technology
development agreements and the timing of related milestones and deliverables.

     In 1997, technology development revenues increased following the initiation
and/or completion of contracts for development and support of products for PDC,
TDMA and CDMA applications.

     Revenues from Japan, consisting of sales of digital chip sets for cellular
telephones and technology development services, accounted for 80%, 94% and 94%
of total revenues in 1997, 1996 and 1995, respectively.  The Company has
introduced its IS-136 TDMA and IS-95 CDMA chip sets, which are expected to
produce significant revenues outside of Japan in 1998. The Company anticipates
that revenues from Japan will continue to account for most of its revenues in
1998, although revenues outside of Japan are expected to continue to increase
through 1999.  Virtually all sales are denominated in United States dollars to
reduce the effect of fluctuations in foreign currency exchange rates.  In 1996
and 1997, the Company entered into dollar/yen option contracts in order to hedge
against the increase in the value of the U.S. dollar against the yen and
decrease exposure to currency-driven sales price pressures.

COST OF REVENUES

     COST OF PRODUCTS SOLD:   Cost of products sold consists primarily of
materials, and, to a lesser extent, warranty costs.  Cost of products sold was
$39.9 million in 1997, compared to $44.2 million in 1996, and $21.5 million in
1995.  The increase in cost of products sold in 1996 was due to increased volume
sales of chip sets, while the decrease in 1997 was a result of a decline in
sales, primarily due to a product transition in the Japanese PDC market that
took place in the second quarter of 1997. The cost of products as a percentage
of product revenues was 51.9%, 51.9%, and 57.9%, for 1997, 1996 and 1995,
respectively.  Sales of CTP Systems' wireless PBX systems, resulted in positive
but relatively low margins in 1997.  The Company expects that it will continue
to experience relatively low margins on sales of these wireless PBX systems
until higher volume sales are achieved.  CTP Systems is currently engaged in a
cost reduction program, the effects of which should be felt towards the end of
1998.

     The Company anticipates that the average sales price of chip sets may
continue to decrease as a result of volume discounts and price pressures, which
would increase the cost of products sold as a percentage of product revenues;
however, any such price decreases may be offset to a certain extent by changes
in the Company's terms of trade, and further cost reductions from suppliers if
the Company's order volumes increase.

     In connection with its license agreement for CDMA, DSPC has agreed to pay
royalties on certain sales based on specified rates.  The Company expects to
commence payments of these royalties in 1998 upon commencement of sales of its
CDMA products.


                                          16
<PAGE>

     COST OF TECHNOLOGY DEVELOPMENT:  Cost of technology development is
comprised primarily of engineering salaries, subcontractors' costs and related
costs.  The costs of technology development contracts are recorded as incurred.
Cost of technology development increased to $4.9 million in 1997 from $3.6
million in 1996 and $2.4 million in 1995 resulting from increased technology
development activities.  The negative gross margin on technology development in
1997 was 5.0% compared to a positive gross margin of 5.9% in 1996 and 36.8% in
1995.  The margins on technology development vary depending on the similarity or
diversity of the products and technologies developed, and as contractual
milestones are reached.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses primarily consist of salaries and related
costs of employees engaged in ongoing research, design and development
activities, and materials and subcontracting costs, reduced through 1995 and
1996 by grants from the Chief Scientist.  Net research and development expenses
increased to $6.6 million in 1997 from $5.3 million and $2.5 million in 1996 and
1995, respectively.  The increases were due to the increased level of activities
in connection with the development of CDMA and TDMA products, and the continued
growth in the number of engineering personnel and in projects under development.
As a percentage of total revenues, research and development expenses were 8.1%
in 1997, 6.0% in 1996 and 6.2% in 1995.  The Company expects that its research
and development expenses will continue to increase in the future, in absolute
dollars.

     The Company records software development costs in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed."  To date, the Company has
expensed all of its software costs.

SALES AND MARKETING EXPENSES

     Sales and marketing expenses are mainly comprised of employee related
expenses, trade exhibition expenses, and charges for customer liaison services
in Japan.  Sales and marketing expenses increased to $4.1 million (5.0% of
revenues) in 1997 from $3.7 million (4.1% of revenues) in 1996, and $2.4 million
(5.9% of revenues) in 1995.  The increase in 1996 reflects primarily the growth
of sales and marketing staff at the Company's headquarters in Cupertino,
California, increased participation at trade exhibitions, and increased
promotion and marketing research activities.  The increase in 1997 was a result
of increased promotion and marketing activities.

GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses in 1997 were $8.4 (10.2% of revenues)
compared to $12.2 million (13.7% of revenues) in 1996 (including a charge of
approximately $5.0 million in connection with the termination of a proposed
acquisition of Proxim, Inc.), and $3.6 million (8.9% of revenues) in 1995.

     General and administrative expenses increased in 1997 and 1996 compared to
1995, in absolute dollars, as a result of increased staffing levels in 1996 at
the Company's headquarters in Cupertino, California, and at the facilities of
DSPC Israel Ltd., an Israeli subsidiary of the Company ("DSPCI"), and, in 1997,
increased facility expenses, increased administration expenses and fees
(including a one-time admission fee to the New York Stock Exchange), and
increased legal fees resulting from a class action that was filed against the
Company (see Item 3 above).


                                          17
<PAGE>

CHARGE FOR ACQUIRED IN-PROCESS TECHNOLOGY

     The Company recorded a charge of $10.9 million in the fourth quarter of
1995, which consisted of $9.6 million for acquired in-process technology
associated with the acquisition of CTP Systems, and  $1.3 million for acquired
in-process technology associated with a licensing arrangement.  See Note 9 to
the consolidated financial statements.

INTEREST AND OTHER INCOME (EXPENSE), NET

     Interest and other income (expense), net, includes interest and investment
income, foreign currency remeasurement gains and losses, and other expenses.
Interest and other income (expense), net, in 1997 was $6.3 million compared to
$4.8 million in 1996, and $1.1 million in 1995.

     Interest and other income (expense), net, in 1997, 1996 and 1995 was
generated primarily from interest and realized gains on the Company's cash and
investment balances, including the proceeds from the IPO completed in March
1995, and from the Company's follow-on public offerings completed in June 1995
and April 1996.

PROVISION FOR INCOME TAXES

     The tax provisions for 1997, 1996 and 1995 have been favorably impacted by
the benefits of the Israeli "Approved Enterprise" status.  The Approved
Enterprise status was granted according to investment plans and will allow the
Company's Israeli subsidiaries a two to four year tax holiday on undistributed
earnings, and a corporate tax rate of 10% to 25% for an additional six to eight
years on each of the investment plans' proportionate share of income.  The
benefits under these investment plans are scheduled to expire in 2005.

     As of December 31, 1997, the Company had United States federal, state, and
Israel net operating loss carryforwards of approximately $27.8 million, $13.8
million and $5.2 million, respectively.  The United States federal and state net
operating loss carryforwards will expire at various dates beginning in years
2001 through 2012.  The Israeli loss carryforwards have no expiration date.

     The Company's effective tax rate was approximately 11% for 1997 and 13% for
each of 1996 and 1995 (excluding the charge for Israeli acquired in-process
technology of $9.6 million in 1995).  The decrease in the Company's effective
tax rate for 1997 was mainly due to a tax refund received by one of the
Company's Israeli subsidiaries as a result of final tax assessments by the
Israeli Income Tax Authorities for the tax years up to and including the 1995
tax year.  Over time, the Company's tax rate is expected to increase due to the
elimination of the tax benefits awarded with the Approved Enterprise status, as
well as potential increases due to rules regarding controlled foreign
corporations ("CFC").  Losses incurred by the Company or any of its subsidiaries
in one country generally will not be deductible by entities in other countries
in the calculation of their respective local taxes.  Likewise, losses generated
by one Israeli entity will not offset income generated by another Israeli
entity.  Therefore, losses incurred by one Israeli entity or a combined loss of
the U.S. entities will increase the Company's effective tax rate.

     Management has assessed the need for a valuation allowance against the
deferred tax assets and concluded that it is more likely than not that $9.5
million will not be realized.  The remaining deferred tax asset of approximately
$2.2 million will be realized based on current levels of future taxable income.
Of the total valuation allowance, $8.7 million relates to deferred tax assets
attributable to stock option deductions, the benefit of which will be credited
to equity when realized.

     DSP Telecom, DSPCI and CTP Systems (collectively, the "Israeli Companies")
are CFCs for United States income tax purposes.  Accordingly, all or a portion
of the earnings of these Israeli Companies are subject to United States taxation
if, among other things, the Israeli Companies lend funds to the Company or
otherwise


                                          18
<PAGE>

invest in certain proscribed assets; or the Israeli Companies engage in various
types of transactions defined in the Subpart F provisions of the United States
Internal Revenue Code.  However, if the Israeli Companies' earnings become
subject to United States taxation, DSPC may be eligible to utilize its Israeli
and other foreign income taxes as a credit against its United States income
taxes.  The Company believes that its existing plans will minimize the impact of
the CFC rules for the immediate future, subject to any changes in United States
tax laws that may occur.  However, over time, the CFC rules may cause the
Company's tax rate to increase.

FOREIGN CURRENCY TRANSACTIONS

     Substantially all of the Company's sales and a substantial portion of its
costs are denominated in United States dollars.  Since the dollar is the primary
currency in the economic environment in which the Company operates, the dollar
is its functional currency, and, accordingly, monetary accounts maintained in
currencies other than the dollar (principally cash and liabilities) are
remeasured using the foreign exchange rate at the balance sheet date.
Operational accounts and nonmonetary balance sheet accounts are remeasured and
recorded at the rate in effect at the date of the transaction.  The effects of
foreign currency remeasurement are reported in current operations and have been
immaterial to date.

IMPACT OF INFLATION

     The rate of inflation in Israel in 1997, 1996 and  1995 was 7.0%, 10.6%,
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 Israeli-based 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.

LIQUIDITY AND CAPITAL RESOURCES

     The Company uses independent foundries to fabricate its baseband chip set
products, minimizing its need to invest in manufacturing equipment and to
develop integrated circuit fabrication processes.  However, the Company relies
on its independent foundries to achieve acceptable manufacturing yields and to
allocate to the Company a sufficient portion of foundry capacity to meet the
Company's needs.  The Company to date has ordered products from its foundries
primarily upon receipt of orders for chip sets from its distributor or OEM
customers and has not maintained any significant inventory of its chip sets.
This strategy allows the Company to avoid utilizing its capital resources for
manufacturing facilities and inventory and allows the Company to focus
substantially all of its resources on the design, development and marketing of
its products.  The Company maintains limited inventory in anticipation of orders
from its distributors or OEM customers.  CTP Systems manufactures its PBX
systems product and therefore utilizes capital resources for its manufacturing
facility and for payment to external subcontractor assembly facilities.  To
date, production of PBX systems has been limited and has not had a material
effect on the Company's liquidity or capital resources.

     The Company has financed its operations and investments in capital
equipment primarily through cash provided by operations and sales of equity
securities.  The Company received gross proceeds of approximately $9.4 million
through private sales of equity securities prior to the IPO in March 1995,
approximately $18.9 million from the IPO, $10.5 million from the follow-on
offering in June 1995, and $75.6 million from the second follow-on offering in
April 1996.

     As of December 31, 1997, the Company had $116.6 million of cash, cash
equivalents and short-term investments.


                                          19
<PAGE>

     In 1997, the Company repurchased 5,869,800 shares of its Common Stock in
its share repurchase program, using an aggregate of approximately $52.6 million.
In addition, in January and February 1998, the Company repurchased an additional
753,900 shares for approximately $10.6 million.  The Company may, from time to
time, repurchase additional shares of its Common Stock under its share
repurchase program.

     The Company's operating activities provided cash of $21.3 million in 1997,
$32.9 million in 1996 and $4.0 million in 1995.  Net cash provided from
operations in 1997 was comprised primarily of net income, an increase in
current liabilities, less an increase in trade accounts receivable and current
assets.  Trade accounts receivable increased to $11.2 million at December 31,
1997, due to the timing of shipments and payments.  Accounts receivable have to
date been primarily from TEC, the Company's distributor in Japan, which
accounted for 85% of the Company's accounts receivable at December 31, 1997.
The Company's write-offs of accounts receivable have not been material to date.

     The Company's investing activities, other than purchases of and proceeds
from sales and maturities of short-term investments, have consisted of
expenditures for fixed assets, which totaled $2.1 million in 1997.

     In obtaining approval of the Reorganization from Israeli tax authorities,
which was completed immediately before the closing of the IPO, the Company
agreed to invest in activities in Israel in an amount of not less than $9.0
million out of the proceeds of the IPO within three years after the IPO.
Through December 31, 1997, $5.0 million has been transferred to Israel.  The
Company is in the process of applying for an extension of the above three year
period and expects to receive approval.  If approval of the extension is not
received, the Company will comply with the original investment requirement.

     As of December 31, 1997, the Company also had issued bank guarantees and
letters of credit totaling $2.5 million. The Company believes that its existing
cash, cash equivalents and short-term investment 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 complementary
businesses, projects or technologies which may require additional financing or
require the use of a significant portion of its existing cash, although the
Company has no present understandings, commitments or agreements, nor is it
engaged in any discussions or negotiations with respect to any such transaction.

IMPACT OF YEAR 2000

     Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year.  As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000.  This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.  In 1997, the Company initiated a project
to modify or replace portions of its systems so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter.  The
Company has determined that it has no exposure to contingencies related to the
Year 2000 issue for the products it has sold.  The Company expects this project
to be substantially complete in 1999 and does not expect to incur material costs
on this project.  In addition, the Company has initiated formal communications
with all of its significant suppliers and large customers to determine the
extent to which the Company may be vulnerable to those third parties' failure to
remediate their own Year 2000 issues.  Despite these efforts, there can be no
assurance that the Company will not encounter unforeseen problems in its own
computer systems, or that the systems of other companies on which the Company's
operations rely will be upgraded or replaced in a timely manner.  Such
unforeseen problems in the Company's systems, or failures to address this issue
by other companies could have an adverse effect on the Company's operations.


                                          20

<PAGE>

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

     This Form 10-K contains forward looking statements concerning the 
Company's existing and future products, markets, expenses, revenues, 
liquidity, performance and cash needs as well as the Company's plans and 
strategies.  These forward looking statements are based on current management 
expectations, and the Company assumes no obligation to update this 
information.  Numerous factors could cause actual results and events to 
differ significantly from the results anticipated by management and described 
in these forward looking statements, including but not limited to the 
following risk factors.

     RELIANCE ON A SMALL NUMBER OF OEMS AND ON TWO DISTRIBUTORS; COMPETITION IN
THE OEM MARKET.  Substantially all of the Company's sales of PDC baseband chip
sets for digital cellular telephones are to TEC, the Company's distributor in
Japan, and all of the Company's sales of TDMA chip sets are to TEC and to TEA,
the Company's distributor in the United States.  These distributors' sales of
the Company's products are concentrated in a small number of OEM customers.  In
1997, seven OEM customers accounted for substantially all of the sales of the
Company's PDC baseband chip sets, while two other OEM customers accounted for
all sales of the Company's TDMA chip sets.  The loss of TEC or TEA as a
distributor or the loss of or significant reduction in the distributors' sales
to any of these OEMs could 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.  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.  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 in part on gaining additional OEM
customers, both within existing markets and in new markets.  The competition
between OEMs in the wireless handset market is intense and is increasing.  The
Company's performance depends significantly on the ability of its OEM customers
to establish, or to maintain and increase their market share in this market.
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 A SINGLE PRODUCT; NEED FOR NEW PRODUCT INTRODUCTIONS.  Since
December 1993, the Company has relied upon sales from a single product, its PDC
baseband chip set for digital cellular telephones for use in Japan, to generate
substantially all of its product sales.  In the second half of 1997, the Company
commenced volume shipments of its TDMA chip set for digital telephones for use
outside of Japan.  The Company believes that its success will depend in part on
its ability to develop successfully additional products for digital cellular
telephones, PCS and wireless PBX applications.  The Company is in the process of
developing, introducing and marketing new products; however, there can be no
assurance that it will be successful in doing so, or that completion of
development of products will not be delayed.  The success of new products will
also depend on, among other things, the ability of the Company to market the
products successfully, the growth of the relevant markets for the products, and
the success of the Company's OEM customers in completing in a timely manner
their development of handsets or other OEM products utilizing the Company's
products and in successfully competing in the applicable markets.  In addition,
the Company will likely use independent foundries to manufacture any such
products (with the exception of CTP Systems' wireless PBX products, which are
currently manufactured by CTP Systems), and there can be no assurance that the
products will be able to be manufactured in a timely manner, in commercial
quantities, at reasonable cost, and with acceptable yields and quality
standards, particularly with new products, such as the new PDC chip set, the
TDMA-based chip set and the CDMA-based chip set, that incorporate new
manufacturing technology.  If the Company is unable, for technological or other
reasons, to develop, introduce and manufacture in a timely manner new products
and to market them successfully, or if the Company's OEMs are unable
successfully to develop and market their products, the Company's business and
results of operations could be materially and adversely affected. In addition,
the Company anticipates that

                                          21
<PAGE>

for the foreseeable future new product introductions may cause significant
fluctuations in quarterly operating results.

     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.
In addition, the Company's quarterly operating results have in the past and may
continue to vary significantly as a result of 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; changes in general economic conditions, particularly in Japan and the
Far East; 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; and sales of wireless subscriber equipment by OEMs.

     DEPENDENCE ON JAPANESE MARKET AND ECONOMY; FLUCTUATION OF EXCHANGE RATE.
Sales of the Company's products may be affected materially by the condition of
the Japanese economy, which has recently experienced a slowing of growth.  A
significant negative change in the condition of the Japanese economy could have
a material adverse effect on the Company's business, financial condition and
results of operations.  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 in Japan.  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.  Changes in the
political or economic conditions, trade policy or regulation of
telecommunications in Japan could 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 handset manufacturers
and component suppliers has increased.  There can be no assurance that either
increases in unit volume, changes in the Company's terms of trade, 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 well in advance
of delivery dates, the Company often must commit to price reductions for its
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.

     UNCERTAINTIES RELATED TO TDMA-BASED PRODUCT.  In the third quarter of 1997,
the Company began commercial shipments of a newly-developed baseband chip set
for IS-136 TDMA-based products, currently for the North American market.
However, the IS-136 TDMA standard has only recently been introduced, and the
success of the Company in marketing its IS-136 TDMA-based chip set will be
dependent on, among other things, the success of the IS-136 TDMA standard and
growth of the IS-136 TDMA market.  There can be no assurance that the IS-136
TDMA standard will be widely adopted or that the IS-136 TDMA-based chip set will
be successful in the marketplace.  Sales of the Company's IS-136 TDMA-based
products will also be dependent on the success of the Company's OEM customers in
completing their development of IS-136 TDMA-based handsets in a timely

                                          22
<PAGE>

manner and in successfully competing in the IS-136 TDMA handset market.  In
addition, the Company uses independent foundries to manufacture the product, and
there can be no assurance that this chip set will continue to be able to be
manufactured in a timely manner, in commercial quantities and at reasonable
cost.  If the Company is unable, for technological or other reasons, to
manufacture in a timely manner the IS-136 TDMA-based chip set and to market the
product successfully, or if the Company's OEMs are unable successfully to
develop and market their IS-136 TDMA-based products, the Company's business and
results of operations could be materially and adversely affected.

     UNCERTAINTIES RELATED TO CDMA-BASED PRODUCT.  The Company has developed a
baseband chip set for IS-95 CDMA products pursuant to a license agreement with
Qualcomm for CDMA technology.  In the fourth quarter of 1997, the Company
delivered operational engineering samples of the CDMA chip set, and in the first
quarter of 1998 commenced volume production of the CDMA chip set.  Although the
Company extensively tested the CDMA chip set prior to its introduction, design
adjustments may yet be required which could result in delays in further or
expanded volume production or recalls of the chip sets already produced.
Although the Company has not to date experienced any significant errors or the
need for any material adjustments with respect to the CDMA 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.  Sales of
the Company's CDMA-based products will be dependent on the success of the
Company's OEM customers in completing their development of CDMA-based handsets
in a timely manner and in successfully competing in the CDMA-based handset
market.  In addition, there has to date been only limited deployment of
CDMA-based digital cellular networks, and the success of the Company in
marketing its CDMA-based chip set will be dependent on, among other things, the
success of the CDMA standard and growth of the CDMA subscriber population.
There can be no assurance that the CDMA standard will be widely adopted or that
the CDMA-based chip set will be successful in the marketplace.  In addition, the
Company uses independent foundries to manufacture the product, and there can be
no assurance that this chip set will be able to be manufactured in a timely
manner, in commercial quantities and at reasonable cost.  If the Company is
unable, for technological or other reasons, to manufacture in a timely manner
and at competitive cost, the CDMA-based chip set and to market the product
successfully, or if the Company's OEMs are unable successfully to develop and
market their products, the Company's business and results of operations could be
materially and adversely affected.

     RELIANCE ON 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 most of the DSP chips for its PDC 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 DSP chips and its application specific integrated
circuits ("ASICs") for its IS-136 D-AMPS chip sets from NEC Corporation ("NEC");
its ASICs for its PDC chip sets from Atmel ES2 and VLSI Technology, Inc.
("VTI"); its ASICs for analog baseband chip sets from TI; and its ASICs for CTP
Systems' products from American Microsystems, Inc. ("AMI").  The Company also
purchases its IS-95 CDMA chip sets from other independent foundries.
Accordingly, the Company is and will remain dependent on independent foundries,
including TI, NEC, AMI, Atmel ES2, VTI and others, 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.

     REDUCED VISIBILITY; DECREASED BACKLOG.  During the second half of 1996 and
the first half of 1997, the period of time between the receipt of orders for the
Company's products and the date requested by OEM customers for shipment of
products declined, due primarily to increased competition among OEMs in the
Japanese wireless handset market and to an increase in the supply of integrated
circuits.  This reduced lead time resulted in decreased backlog levels and
decreased the time period for which the Company is able to estimate future

                                          23
<PAGE>

product demand.  Although the Company's visibility increased somewhat during the
second half of 1997, the Company anticipates that the market for its baseband
chip sets will continue to be characterized by short-term order and shipment
schedules.  Accordingly, since the Company's revenue expectations and planned
operating expenses are in large part based on these estimates rather than on
firm customer orders, the Company's quarterly operating results could be
materially adversely affected if orders and revenues do not meet expectations.

     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.

     RISK OF INCREASED INCOME TAXES.  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."

     OPERATIONAL AND COMMERCIAL RISKS ASSOCIATED WITH CTP SYSTEMS.  In October
1995, the Company acquired for $14.1 million CTP Systems, a developer and
manufacturer of wireless PBX systems and other low-mobility wireless
communications applications.  Although CTP Systems began commercial shipments of
wireless PBX equipment to OEM customers in the fourth quarter of 1996, and is
currently shipping to four OEM customers, it still has not reached commercially
viable levels of shipments.  Sales of wireless PBX systems worldwide in 1997
were lower than forecasts.  Wireless PBX sales are currently to vertical and
limited applications.  It is still not clear when and if the Wireless PBX market
will experience significant growth and how successful the Company's OEMs will be
in this market.  CTP Systems is currently engaged in further development to
facilitate a cost reduction program that may require the Company to incur
additional engineering expenses to correct any problems or redesign the product.

     Although CTP Systems has commenced manufacturing its PBX product, it has
not yet manufactured commercial quantities on a continuous basis.  The Company
believes that CTP Systems' existing manufacturing facilities and subcontracted
assembly facilities will enable it to produce commercial quantities of its PBX
equipment.  No assurance can be given, however, that manufacturing or control
problems will not arise as CTP Systems increases production of its product, or
as additional facilities are required in the future.  CTP Systems

                                          24
<PAGE>

is subject to various risks associated with the manufacturing process, including
errors in 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, CTP Systems may be required
to develop, adapt or acquire additional production technology, facilities and
technical personnel in the event the PBX system equipment is modified or
redesigned.  Since CTP Systems has limited manufacturing experience, there can
be no assurance that prices for CTP Systems' products will cover the
manufacturing costs for its product.  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.

     RELIANCE ON INTERNATIONAL 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, as of December  31, 1997, 155 of the Company's 175 employees
were located in Israel, including most of the Company's senior management and
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 1996 and
1997 was 10.6% and 7.0%, 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 Israeli-based 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.

     MANAGEMENT OF GROWTH. The growth and development 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 and development, 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, general and administrative, 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 may 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,

                                          25
<PAGE>

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
amortization of goodwill and other intangibles 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.

     VOLATILITY OF STOCK PRICE.  The price of the Company's Common Stock has
experienced substantial fluctuation, and the Company believes that factors such
as announcements of developments related to the Company's business,
announcements by competitors, quarterly fluctuations in the Company's financial
results and general conditions in the wireless personal communications industry
in which the Company competes or the national economies in which the Company
does business, fluctuation in levels of consumer spending for cellular
telephones in Japan, and other factors could cause the price of the Company's
Common Stock to continue to fluctuate in the future, perhaps substantially.  In
addition, in recent years the stock market in general, and the market for shares
of technology stocks in particular, have experienced extreme price fluctuations,
which have often been unrelated to the operating performance of affected
companies.  Such fluctuations could have a material adverse effect on the market
price of the Company's Common Stock.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The response to this Item is submitted as a separate section of this Form
     10-K.  See Item 14.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     None.

                                          26
<PAGE>

                                       PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information regarding directors and executive officers required by Item
10 is incorporated by reference from the information under the captions
"Election of Directors," "Directors and Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive proxy
statement for its annual meeting of stockholders to be held on May 12, 1998.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by Item 11 is incorporated by reference from the
information under the caption "Executive Compensation and Other Information" in
the Company's definitive proxy statement for its annual meeting of stockholders
to be held on May 12, 1998.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by Item 12 is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" in the Company's definitive proxy statement for its annual
meeting of stockholders to be held on May 12, 1998.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in the Company's definitive proxy statement for its annual meeting of
stockholders to be held on May 12, 1998.

                                          27
<PAGE>

                                       PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)1.     FINANCIAL STATEMENTS

          The financial statements filed as a part of this report are identified
in the Index to Consolidated Financial Statements on page F-1.

     (a)2.     FINANCIAL STATEMENT SCHEDULES

          The following financial statement schedule is filed as part of this
Report:
                                                                           PAGE

          Schedule II - Valuation and Qualifying Accounts. . . . . . . . . .S-1

          Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

     (a)3.     EXHIBITS

          The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Commission.  The Company shall
furnish copies of exhibits for a reasonable fee (covering the expense of
furnishing copies) upon request.

EXHIBIT
NUMBER    EXHIBIT TITLE
-------   -------------

3.1       Amended and Restated Certificate of Incorporation of the Company
          (Filed as Exhibit 3.1 to the Registrant's Registration Statement on
          Form S-1, File No. 33-87506, as declared effective on March 7, 1995,
          and incorporated herein by reference).

3.1A      Certificate of Amendment of Amended and Restated Certificate of
          Incorporation, dated March 5, 1996 (Filed as Exhibit 3.1A to the
          Registrant's Annual Report on Form 10-K for the year ended December
          31, 1995, as filed on March 30, 1996, and incorporated herein by
          reference).

3.1B      Certificate of Amendment of Amended and Restated Certificate of
          Incorporation, dated November 13, 1996 (Filed as Exhibit 3.1B to the
          Registrant's Annual Report on Form 10-K for the year ended December
          31, 1996, as filed on March 24, 1997, and incorporated herein by
          reference).

3.2       Bylaws of the Company (Filed as Exhibit 3.2 to the Registrant's
          Registration Statement on Form S-1, File No. 33-87506, as declared
          effective on March 7, 1995, and incorporated herein by reference).

3.3       Written Consent dated January 26, 1995, amending the Bylaws of the
          Company (Filed as Exhibit 3.7 to the Registrant's Registration
          Statement on Form S-1, File No. 33-87506, as declared effective on
          March 7, 1995, and incorporated herein by reference).

                                          28
<PAGE>

EXHIBIT
NUMBER    EXHIBIT TITLE
------    -------------

10.1      Form of Indemnification Agreement for directors and executive officers
          (Filed as Exhibit 10.1 to the Registrant's Registration Statement on
          Form S-1, File No. 33-87506, as declared effective on March 7, 1995,
          and incorporated herein by reference).

10.2*     1995 Director Stock Option Plan, as amended.

10.3*     1995 Employee and Consultant Stock Plan (Filed as Exhibit 10.3 to the
          Registrant's Registration Statement on Form S-1, File No. 33-87506, as
          declared effective on March 7, 1995, and incorporated herein by
          reference).

10.4*     1992 Israeli Key Employee Share Incentive Plan (Filed as Exhibit 10.4
          to the Registrant's Registration Statement on Form S-1, File No.
          33-87506, as declared effective on March 7, 1995, and incorporated
          herein by reference).

10.5*     1995 Employee Stock Purchase Plan (Filed as Exhibit 10.5 to the
          Registrant's Registration Statement on Form S-1, File No. 33-87506, as
          declared effective on March 7, 1995, and incorporated herein by
          reference).

10.6      Non-Exclusive Distribution Agreement dated as of January 1, 1994,
          between DSP Telecom and Tomen Electronics Corp. (Filed as Exhibit 10.1
          to the Registrant's Current Report on Form 8-K, as filed on February
          26, 1998, and incorporated herein by reference).

10.7      Technology Assignment and License Agreement dated as of January 7,
          1994 between DSP Group and DSP Telecom (Filed as Exhibit 10.14 to the
          Registrant's Registration Statement on Form S-1, File No. 33-87506, as
          declared effective on March 7, 1995, and incorporated herein by
          reference).

10.8      License Agreement dated as of March 25, 1994 between DSP Telecom and
          DSP Semiconductors USA, Inc. (Filed as Exhibit 10.15 to the
          Registrant's Registration Statement on Form S-1, File No. 33-87506, as
          declared effective on March 7, 1995, and incorporated herein by
          reference).

10.9      Lease Agreement dated February 21, 1991 for a portion of the Company's
          facilities located in Givat Shmuel, Israel, together with
          documentation transferring the Lease from DSP Semiconductors Ltd. to
          DSP Telecom (in Hebrew) (Filed as Exhibit 10.27 to the Registrant's
          Registration Statement on Form S-1, File No. 33-87506, as declared
          effective on March 7, 1995, and incorporated herein by reference).

10.10     Lease Agreement dated February 21, 1991 for a portion of the Company's
          facilities located in Givat Shmuel, Israel, together with
          documentation transferring the Lease from DSP Semiconductors Ltd. to
          DSP Telecom (in English) (Filed as Exhibit 10.28 to the Registrant's
          Registration Statement on Form S-1, File No. 33-87506, as declared
          effective on March 7, 1995, and incorporated herein by reference).

10.11     Development and License Agreement dated May 1, 1993 between Texas
          Instruments Incorporated and DSP Telecom (Filed as Exhibit 10.2 to the
          Registrant's Current Report on Form 8-K, as filed on February 26,
          1998, and incorporated herein by reference).

                                          29
<PAGE>


EXHIBIT
NUMBER         EXHIBIT TITLE

10.12     Lease Agreement dated December 15, 1994 for the Company's headquarters
          located in Cupertino, California (Filed as Exhibit 10.30 to the
          Registrant's Registration Statement on Form S-1, File No. 33-87506, as
          declared effective on March 7, 1995, and incorporated herein by
          reference).

10.13     Development and License Agreement dated as of March 31, 1993 between
          NEC Electronics Inc. and DSP Telecom, Inc. (Filed as Exhibit 10.33 to
          the Registrant's Registration Statement on Form S-1, File No.
          33-87506, as declared effective on March 7, 1995, and incorporated
          herein by reference).

10.14*    1994 Employee and Consultant Stock Plan (Filed as Exhibit 10.34 to the
          Registrant's Registration Statement on Form S-1, File No. 33-87506, as
          declared effective on March 7, 1995, and incorporated herein by
          reference).

10.15     Addendum No. 1 to Lease Agreement between Multiline Service
          International Limited and DSP Semiconductors Ltd. and DSPC Israel Ltd.
          dated December 3, 1995, together with Guarantee by DSP Communications
          Inc. (in English & Hebrew) (Filed as Exhibit 10.36 to the Registrant's
          Annual Report on Form 10-K for the year ended December 31, 1995, as
          filed on March 30, 1996, and incorporated herein by reference).

10.16     Addendum No. 2 to Lease Agreement between Multiline Service
          International Limited and DSPC Israel Ltd., dated December 3, 1995 (in
          English and Hebrew) (Filed as Exhibit 10.37 to the Registrant's Annual
          Report on Form 10-K for the year ended December 31, 1995, as filed on
          March 30, 1996, and incorporated herein by reference).

10.17     Lease Agreement for CTP Systems' facility located in Petah-Tikva,
          Israel (in Hebrew) (Filed as Exhibit 10.38 to the Registrant's Annual
          Report on Form 10-K for the year ended December 31, 1995, as filed on
          March 30, 1996, and incorporated herein by reference).

10.18     1996 Nonstatutory Employee and Consultant Stock Option Plan (Filed as
          Exhibit 10.41 to the Registrant's Quarterly Report on Form 10-Q for
          the quarter ended June 30, 1996, as filed on August 12, 1996, and
          incorporated herein by reference).

10.19*    1996 Stock Option Plan (Filed as Exhibit 10.42 to the Registrant's
          Quarterly Report on Form 10-Q for the quarter ended September 30,
          1996, as filed on November 14, 1996, and incorporated herein by
          reference).

10.20*    Employment Agreement, dated as of June 15, 1996, between DSP Telecom,
          Inc. and Michael Lubin (Filed as Exhibit 10.43 to the Registrant's
          Quarterly Report on Form 10-Q for the quarter ended September 30,
          1996, as filed on November 14, 1996, and incorporated herein by
          reference).


                                          30
<PAGE>

EXHIBIT
NUMBER         EXHIBIT TITLE

10.21*    Amended and Restated Employment Agreement, dated as of November 1,
          1996, between DSP Telecom, Inc. and Davidi Gilo (Filed as Exhibit
          10.25 to the Registrant's Annual Report on Form 10-K for the year
          ended December 31, 1996, as filed on March 24, 1997, and incorporated
          herein by reference).

10.22*    Employment Agreement, dated as of September 16, 1996 between DSP
          Telecom, Inc. and Stephen Pezzola (Filed as Exhibit 10.26 to the
          Registrant's Quarterly Report on Form 10-Q for the quarter ended June
          30, 1997, as filed on August 13, 1997, and incorporated herein by
          reference).

10.23*    Amendment to Employment Agreement, dated as of November 5, 1997,
          between DSP Telecom, Inc. and Davidi Gilo.

10.24*    Employment Agreement, dated as of January 1, 1998, between DSPC Israel
          Ltd. and Nathan Hod.

10.25*    Employment Agreement, dated as of January 1, 1998, between DSPC Israel
          Ltd. and Gerald Dogon.

10.26*    Amended and Restated Employment Agreement, dated as of January 1,
          1998, between DSP Communications, Inc., DSP Telecom, Inc. and Stephen
          Pezzola.

10.27     Rental Contract dated January 8, 1996 for a portion of the Company's
          facilities in Givat Shmuel, Israel (in English).

10.28     Rental Contract dated December 24, 1997 for a portion of the Company's
          facilities in Givat Shmuel, Israel (in English).

21.1      Subsidiaries of the Company.

23.1      Consent of Ernst & Young LLP, Independent Auditors.

27.1      Financial Data Schedule (1997)

27.2      Restated Financial Data Schedule (1996)

27.3      Restated Financial Data Schedule (1995)

------------------------

*  Indicates management contract or compensation plan or arrangement in which
directors and/or executive officers of the Registrant are eligible to
participate.


(b)  REPORTS ON FORM 8-K

     None.


                                          31
<PAGE>

                                      SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

DSP COMMUNICATIONS, INC.


By:  /s/ Nathan Hod
     -------------------------------------------------
     Nathan Hod, Chief Executive Officer and President

Date:  March 16, 1998

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.






        SIGNATURE                    TITLE                      DATE


  /s/ Nathan Hod          Chairman of the Board of       March 16, 1998
-----------------------   Directors, President and      ----------------------
 Nathan Hod               Chief Executive Officer
                          (Principal Executive
                          Officer)

  /s/ Gerald Dogon        Executive Vice President,      March 16, 1998
-----------------------   Chief Financial Officer       ----------------------
 Gerald Dogon             and Director  (Principal
                          Financial and Accounting
                          Officer)

                          Director
-----------------------                                 ----------------------
 Neill Brownstein


  /s/ Lewis Broad         Director                       March 16, 1998
-----------------------                                 ----------------------
 Lewis Broad


  /s/ Andrew Schonzeit    Director                       March 16, 1998
-----------------------                                 ----------------------
 Andrew Schonzeit


  /s/ Shigeru Iwamoto     Director                       March 16, 1998
-----------------------                                 ----------------------
 Shigeru Iwamoto

  /s/ Avraham Fischer     Director                       March 16, 1998
-----------------------                                 ----------------------
 Avraham Fischer


<PAGE>


                               DSP COMMUNICATIONS, INC.

                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            PAGE

Report of Ernst & Young LLP, Independent Auditors. . . . . . . . . . . . . . F-2

Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . . . . F-3

Consolidated Statements of Operations --
Years ended December 31, 1997, 1996, and 1995. . . . . . . . . . . . . . . . F-4

Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1997, 1996, and 1995. . . . . . . . . . . . . . . . F-5

Consolidated Statements of Cash Flows --
Years ended December 31, 1997, 1996, and 1995. . . . . . . . . . . . . . . . F-6

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . F-7


                                         F-1
<PAGE>


                  Report of Ernst & Young LLP, Independent Auditors


The Board of Directors and Stockholders
DSP Communications, Inc.

We have audited the accompanying consolidated balance sheets of DSP
Communications, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of DSP
Communications, Inc. at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.



Palo Alto, California
January 13, 1998
except for Note 13, as to which the date is
February 9, 1998


                                         F-2
<PAGE>


                            DSP Communications, Inc.

                          Consolidated Balance Sheets
               (In thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                            DECEMBER 31,

                                                         1997          1996
                                                     ------------------------
<S>                                                  <C>            <C>
ASSETS

Current assets:

     Cash and cash equivalents                        $  82,322     $  77,799
     Short-term investments                              34,319        59,034
     Trade accounts receivable (net of allowance for
       doubtful accounts of $0 and $132 in 1997 and
       1996, respectively)                               11,200         7,054
     Other current assets                                 7,207         3,373
                                                     ------------------------
Total current assets                                    135,048       147,260

Property and equipment, net                               4,151         3,565
Other assets                                              3,697         4,529
                                                     ------------------------
                                                      $ 142,896     $ 155,354
                                                     ------------------------
                                                     ------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                 $   9,372     $   3,747
     Accrued liabilities                                 17,093        11,793
     Deferred income                                        528         2,490
                                                     ------------------------
Total current liabilities                                26,993        18,030

Other liabilities                                             -           480

Commitments and contingencies

Stockholders' equity:
     Preferred stock, par value $0.001 per share,
          5,000,000 shares authorized; no shares
          issued and outstanding                              -             -
     Common stock, par value $0.001, 110,000,000
          shares authorized; 40,427,710 shares
          issued and outstanding at December 31,
          1997 (44,497,177 shares in 1996)                   40            44
     Additional paid-in capital                          84,890       127,226
     Retained earnings                                   30,973         9,574
                                                     ------------------------
Total stockholders' equity                              115,903       136,844
                                                     ------------------------
                                                     $  142,896     $ 155,354
                                                     ------------------------
                                                     ------------------------
</TABLE>


                              SEE ACCOMPANYING NOTES.
                                        F-3
<PAGE>

                              DSP Communications, Inc.
                       Consolidated Statements of Operations
                       (In thousands, except per share data)


<TABLE>
<CAPTION>


                                                              YEAR ENDED DECEMBER 31,
                                                       1997           1996            1995
                                                   ------------------------------------------
<S>                                                  <C>            <C>            <C>
Revenues:
  Product                                            $76,817        $85,128        $37,127
  Technology development                               4,684          3,771          3,740
                                                   ------------------------------------------
Total revenues                                        81,501         88,899         40,867
                                                   ------------------------------------------

Cost of revenues:
  Product                                             39,885         44,153         21,483
  Technology development                               4,919          3,550          2,363
                                                   ------------------------------------------
Total cost of revenues                                44,804         47,703         23,846
                                                   ------------------------------------------

Gross profit                                          36,697         41,196         17,021


Operating expenses:
  Research and development                             6,562          5,311          2,524
  Sales and marketing                                  4,078          3,685          2,407
  General and administrative                           8,356         12,190          3,631
  Charge for acquired in-process technology               --             --         10,850
                                                   ------------------------------------------
Total operating expenses                              18,996         21,186         19,412
                                                   ------------------------------------------

Operating income (loss)                               17,701         20,010         (2,391)


Interest and other income (expense), net               6,332          4,848          1,148
                                                   ------------------------------------------
Income (loss) before provision for income taxes       24,033         24,858         (1,243)
Provision for income taxes                            (2,634)        (3,108)        (1,115)
                                                   ------------------------------------------
Net income (loss)                                    $21,399        $21,750        $(2,358)
                                                   ------------------------------------------
                                                   ------------------------------------------



Earnings (loss) per share:
  Basic                                                $0.51          $0.52         $(0.08)
                                                   ------------------------------------------
                                                   ------------------------------------------
  Diluted                                              $0.48          $0.48         $(0.08)
                                                   ------------------------------------------
                                                   ------------------------------------------

Shares used in computing earnings (loss) per share:
  Basic                                               41,776         41,865         30,252
                                                   ------------------------------------------
                                                   ------------------------------------------
  Diluted                                             44,922         45,564         30,252
                                                   ------------------------------------------
                                                   ------------------------------------------

</TABLE>



                              SEE ACCOMPANYING NOTES.

                                        F-4
<PAGE>

                              DSP Communications, Inc.
                  Consolidated Statements of Stockholders' Equity
                         (In thousands, except share data)

<TABLE>
<CAPTION>


                                                        Common Stock         Ordinary Shares   Additional  Retained      Total  
                                                  --------------------------------------------   Paid-In   Earnings   Stockholders'
                                                     Shares     Amount     Shares      Amount    Capital   Deficit)      Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>       <C>         <C>        <C>         <C>       <C>
Balance at December 31, 1994                             400   $    --    5,721,360   $  1,386  $ 14,964    $ (9,818)      $6,532
  Conversion of ordinary shares into common
     stock                                        22,885,440        23   (5,721,360)    (1,386)    1,363          --               
  Issuance of common stock for warrants
     exercised                                       505,432        --           --         --       187          --          187  
  Issuance of common stock pursuant to options
     exercised                                     1,073,940         1           --         --       922          --          923  
  Issuance of common stock in public offerings,
     net                                          11,746,632        12           --         --    29,241          --       29,253  
  Change in net unrealized gain on securities
     available for sale                                   --        --           --         --       331          --          331  
  Net loss                                                --        --           --         --        --      (2,358)      (2,358) 
                                                  ---------------------------------------------------------------------------------
Balance at December 31, 1995                      36,211,844        36           --         --    47,008     (12,176)      34,868  
  Issuance of common stock under stock option
     and stock purchase plans (2,076,882
     shares and 11,187 shares, respectively)       2,088,069         2           --         --     3,273          --        3,275  
  Issuance of common stock in public offering,
     net                                           6,197,264         6           --         --    75,616          --       75,622  
  Tax benefit related to stock option plans               --        --           --         --     1,617          --        1,617  
  Change in net unrealized gain on securities
     available for sale                                   --        --           --         --      (288)         --         (288) 
  Net income                                              --        --           --         --        --      21,750       21,750  
                                                  ---------------------------------------------------------------------------------
Balance at December 31, 1996                      44,497,177        44           --         --   127,226       9,574      136,844  
  Issuance of common stock under stock option
     and stock purchase plans (1,789,039 shares
     and 11,294 shares, respectively)              1,800,333         2           --         --     9,995          --        9,997  
  Repurchase of common stock                      (5,869,800)       (6)          --         --   (52,622)         --      (52,628) 

  Compensation expense related to stock options           --        --           --         --       332          --          332  

  Change in net unrealized gain on securities
     available for sale                                   --        --           --         --       (41)         --          (41) 

Net income                                                --        --           --         --        --      21,399       21,399  
                                                  ---------------------------------------------------------------------------------
Balance at December 31, 1997                      40,427,710   $    40           --   $     --   $84,890     $30,973     $115,903  
                                                  ---------------------------------------------------------------------------------
                                                  ---------------------------------------------------------------------------------
</TABLE>

                               SEE ACCOMPANYING NOTES.
                                         F-5

<PAGE>

                               DSP Communications, Inc.

                        Consolidated Statements of Cash Flows
                                    (In thousands)

<TABLE>
<CAPTION>

                                                     YEAR ENDED DECEMBER 31,
                                                   1997      1996      1995
                                                ----------------------------
<S>                                             <C>       <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                               $ 21,399  $ 21,750  $ (2,358)
Adjustments to reconcile net income (loss)
    to net cash provided by operating
    activities:
  Depreciation                                     1,433       946       418
  Amortization                                       832       832       139
  Compensation expense related to shares
    issued in a Subsidiary                           370       310       170
  Compensation expense related to stock options      332         -         -
  Charge for acquired in-process technology            -         -     9,600
  Other                                                -        (1)     (360)
Changes in operating assets and liabilities,
    net of effects of acquisition:
  Trade accounts receivable                       (4,146)    1,784    (7,257)
  Other current assets                            (3,713)   (1,647)     (169)
  Accounts payable                                 5,686       333     2,007
  Accrued liabilities                              1,057     6,604     2,431
  Deferred income                                 (1,962)    2,017      (621)
                                                ----------------------------
Net cash provided by operating activities         21,288    32,928     4,000
                                                ----------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of CTP, net of cash acquired               -         -   (13,886)
Cash purchases of equipment                       (2,097)   (2,702)   (1,203)
Proceeds from sales of equipment                      17        10        34
Purchases of short-term investments              (42,149)  (97,340)  (68,685)
Sales and maturities of short-term investments    66,823    55,714    51,934
Other assets                                           -         -      (750)
                                                ----------------------------
Net cash provided by (used in) investing
    activities                                    22,594   (44,318)  (32,556)
                                                ----------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of lease obligations                        -         -      (190)
Issuance of common stock for cash                  9,997    78,897    30,892
Repurchase of common stock                       (49,356)        -         -
                                                ----------------------------
Net cash provided by (used in) financing
    activities                                   (39,359)   78,897    30,702
                                                ----------------------------

Increase in cash and cash equivalents              4,523    67,507     2,146
Cash and cash equivalents at beginning of year    77,799    10,292     8,146
                                                ----------------------------
Cash and cash equivalents at end of year        $ 82,322  $ 77,799  $ 10,292
                                                ----------------------------
                                                ----------------------------

</TABLE>
                               SEE ACCOMPANYING NOTES.
                                         F-6

<PAGE>

                               DSP Communications, Inc.

                  Consolidated Statements of Cash Flows (continued)
                                    (In thousands)

<TABLE>
<CAPTION>

                                                   YEAR ENDED DECEMBER 31,
                                                   1997      1996      1995
                                                ----------------------------
<S>                                             <C>       <C>       <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION
Interest paid                                   $      -  $      -  $    127
                                                ----------------------------
                                                ----------------------------
Income taxes paid                               $    624  $    730  $    445
                                                ----------------------------
                                                ----------------------------

SUPPLEMENTAL NONCASH INVESTING AND FINANCING
  INFORMATION
Equipment cost payable                          $     64    $  125  $    130
                                                ----------------------------
                                                ----------------------------
Loan provided to CTP before acquisition         $      -    $    -  $    750
                                                ----------------------------
                                                ----------------------------
Amounts payable for repurchase of common stock  $  3,272    $    -  $      -
                                                ----------------------------
                                                ----------------------------

</TABLE>



                               SEE ACCOMPANYING NOTES.

<PAGE>

                               DSP COMMUNICATIONS, INC.

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

DSP Communications, Inc. ("DSPC" or the "Company"), a Delaware corporation
incorporated on November 23, 1994, succeeded to the business of DSP
Telecommunications Ltd., an Israeli company ("DSP Telecom"), pursuant to a
reorganization completed upon the closing of the Company's initial public
offering ("IPO") on March 14, 1995, under which DSP Telecom became a wholly
owned subsidiary of DSPC (the "Reorganization").  The Reorganization was
accounted for in a manner similar to a pooling of interests.

The consolidated financial statements include the accounts of DSPC, its
subsidiaries DSP Telecom Inc., a California corporation, DSP Communications
(Japan) Inc., a Japanese corporation, DSPC Israel Ltd. ("DSPCI"), an Israeli
company; DSP Telecom; and effective October 31, 1995, CTP Systems Ltd., an
Israeli company ("CTP") (see Note 9).  DSPC wholly owns all of its subsidiaries
except for less than a 1% minority interest in DSPCI represented by nonvoting
preferred stock of DSPCI held by certain employees and advisors.  Intercompany
accounts and transactions have been eliminated in consolidation.

NATURE OF OPERATIONS AND RELATED CONCENTRATIONS

The Company applies its expertise in the development, design and marketing of
DSP (digital signal processing) software, algorithms and VLSI circuit design to
develop highly integrated, low power and cost-effective chip sets for wireless
personal communications applications.  Following the CTP Acquisition, DSPC also
provides wireless PBX solutions for the office environment.

The major portion of DSPC's product revenues to date have been generated from
the sale of a single product, its baseband chip set for digital cellular
telephones, for use mainly in Japan.  In the second half of 1997, the Company
commenced volume shipments of chip sets for use outside of Japan.

Substantially all of the Company's product revenues are from sales to its two
distributors who in turn sell to OEM manufacturers in Japan and other areas.
The Company's distributors are not subject to minimum purchase requirements and
can cease marketing the Company's products at any time.  The loss of either of
the Company's distributors could have a material adverse effect on the Company's
business, financial condition and results of operations.  Substantially all of
these distributors' sales were made to a small number of customers in 1997, 1996
and 1995.  Because the worldwide cellular subscriber equipment industry is
dominated by a small number of large corporations, DSPC expects that a
significant portion of its future product revenues will continue to be
concentrated in a limited number of customers.  The loss of one or more of these
customers would have a material adverse effect on the Company's results of
operations.

The Company uses independent foundries to manufacture its baseband chip sets.
The Company's reliance on independent foundries involves a number of risks,
including the possibility of a shortage of certain key components and reduced
control over delivery schedules, manufacturing capacity, quality and costs.


                                         F-7

<PAGE>


                               DSP COMMUNICATIONS, INC.

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NATURE OF OPERATIONS AND RELATED CONCENTRATIONS (CONTINUED)

DSPC's integrated circuits are fabricated by independent third party suppliers.
The Company's reliance on these suppliers involves a number of risks, including
the possibility of an insufficient supply of DSP chips, noncompetitive pricing
and discontinued production of the DSP chip currently utilized to produce the
Company's products.  During and at the end of 1997, the Company had four major
suppliers for the integrated circuits.  The reliance on a small number of
suppliers may subject the Company from time to time to quality, allocation and
pricing constraints.

REVENUE RECOGNITION

PRODUCT - Product revenue relates to sales of baseband chip sets for cellular
telephones and to wireless PBX systems.  Revenue from product sales to
customers, other than sales to distributors, are recorded when products are
shipped.  Sales to distributors, under agreements allowing price protection and
right of return on products unsold by the distributors, are not recognized until
the products are sold by the distributors to OEM manufacturers.  DSPC accrues
estimated sales returns/exchanges for end-user sales and warranty costs upon
recognition of sales.  DSPC has not experienced significant warranty claims to
date.

TECHNOLOGY DEVELOPMENT - DSPC performs best-efforts research and product
development work under technology development agreements.  Due to technology
risk factors, the costs of these agreements are expensed as incurred and
revenues are recognized when applicable customer milestones are met, including
deliverables, and in any case, not in excess of the amount that would be
recognized using the percentage-of-completion method.  Costs incurred under
technology development agreements are included in the cost of technology
development.  Revenues under support agreements are recorded pro rata over the
terms of the agreements.

Deferred income consists of the following at December 31 (in thousands):

<TABLE>
<CAPTION>

                                                  1997                1996
                                             ----------------------------------
    <S>                                          <C>                <C>
     Product revenues                             $ 528              $2,390
     Technology development revenues                 --                 100
                                             ----------------------------------
                                                  $ 528              $2,490
                                             ----------------------------------
                                             ----------------------------------

</TABLE>

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred and through 1996 were
reduced by related participation from programs sponsored by the Israeli
government.


                                         F-8

<PAGE>

                               DSP COMMUNICATIONS, INC.

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect amounts reported in the financial statements and accompanying 
notes. Actual results could differ from these estimates.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market 
and are included in other assets. 

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation and amortization 
are provided using the straight-line method over the estimated useful lives 
of the assets (generally from 3 to 5 years) or the life of the lease, 
whichever is shorter. 

FOREIGN CURRENCY TRANSACTION

Substantially all of DSPC's sales are made in United States dollars. In 
addition, a substantial portion of DSPC's costs are incurred in dollars. 
Since the dollar is the primary currency in the economic environment in which 
DSPC operates, the dollar is its functional currency, and accordingly, 
monetary accounts maintained in currencies other than the dollar (principally 
cash and liabilities) are remeasured using the foreign exchange rate at the 
balance sheet date. Operational accounts and nonmonetary balance sheet 
accounts are measured and recorded at the rate in effect at the date of the 
transaction. The effects of foreign currency remeasurement, which have been 
immaterial to date, are reported in current operations. 

The Company utilizes financial instruments to reduce financial market risks. 
These instruments are used to hedge anticipatory transactions. The foreign 
exchange forward contract position as of December 31, 1997 is to hedge 
$3,600,000 in foreign currency exposure. These contracts mature in the first 
quarter of 1998. The Company does not use derivative financial instruments 
for trading purposes. Material gains and losses on currency options that are 
designated and effective as hedges of anticipated transactions are deferred 
and recognized in income in the same period that the underlying transactions 
are settled. 

                                         F-9

<PAGE>
                              DSP COMMUNICATIONS, INC.
                                          
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          
                                          
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EARNINGS (LOSS) PER SHARE

In 1997 the Financial Accounting Standards Board ("FASB") issued Statement No.
128, EARNINGS PER SHARE, according to which the calculation of primary and fully
diluted earnings per share, was replaced with basic and diluted earnings per
share.  Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.  Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share.  All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to Statement 128
requirements.

The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31 as follows (in thousands except per share
data):

<TABLE>
<CAPTION>
 

                                                               1997           1996           1995
                                                           -----------    -----------    -----------
<S>                                                         <C>            <C>            <C>
Numerator for basic and diluted earnings per share -
  net income (loss)                                          $  21,399      $  21,750      $  (2,358)
                                                           -----------    -----------    -----------
                                                           -----------    -----------    -----------

Denominator for basic earnings per share -
  weighted average shares                                       41,776         41,865         30,252
Effect of dilutive securities - employee stock options           3,146          3,699             --
                                                           -----------    -----------    -----------
Denominator for diluted earnings per share -
  adjusted weighted average shares                              44,922         45,564         30,252
                                                           -----------    -----------    -----------
                                                           -----------    -----------    -----------

Earnings (loss) per share:
  Basic                                                      $    0.51      $    0.52      $   (0.08)
                                                           -----------    -----------    -----------
                                                           -----------    -----------    -----------
  Diluted                                                    $    0.48      $    0.48      $   (0.08)
                                                           -----------    -----------    -----------
                                                           -----------    -----------    -----------
</TABLE>
 


For additional disclosures regarding the employee stock options, see Note 8. 
During 1997 and 1996, options to purchase 860,753 shares and 137,205 shares,
respectively, of common stock were outstanding but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares and, therefore,
the effect would be antidilutive.  Options to purchase 5.5 million shares of
common stock were outstanding during 1995 but were not included in the
computation of diluted earnings per share as the effect would be antidilutive.

The earnings (loss) per share amounts reflect the common stock splits through
December 31, 1997 and are computed using the weighted average number of common
and ordinary shares outstanding and the effect of dilutive securities.


                                        F-10
<PAGE>


                              DSP COMMUNICATIONS, INC.
                                          
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          


1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATIONS OF CREDIT RISK

Financial instruments that subject DSPC to credit risk consist principally of
cash equivalents and short term investments and trade receivables.  The Company
invests cash equivalents and short-term investments through high-quality
financial institutions.  The majority of DSPC's product sales are to a single
distributor who in turn sells to manufacturers of consumer electronics products.
No collateral is required from the distributor or end customers.  As of December
31, 1997, approximately $9,500,000 or 85% of trade accounts receivable is due
from this distributor.  Write-off of accounts receivable through December 31,
1997 have been insignificant.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

DSPC considers all highly liquid investments with a maturity of three months or
less, when purchased, to be cash equivalents.  As of December 31, 1997, pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, all debt securities are
designated as available-for-sale.  Available-for-sale securities are carried at
fair value, which is determined based upon the quoted market prices of the
securities, with unrealized gains and losses reported in stockholders' equity. 
Realized gains and losses and declines in value judged to be
other-than-temporary on available for-sale securities are included in interest
income.  The cost of securities sold is based on the specific identification
method.  Interest and dividends on securities classified as available-for-sale
are included in interest income.

INTANGIBLE ASSETS

Intangible assets consist of acquired developed technology and goodwill
resulting from the CTP acquisition (see Note 9) which are being amortized over
the estimated useful lives of five years.  Acquired developed technology and
goodwill, with a cost of $4,161,000 and accumulated amortization of $1,803,000
and $971,000 at December 31, 1997 and 1996, respectively, are included in other
assets.  Management assesses the realizability of the goodwill and the acquired
technology at each balance sheet date.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations
in accounting for its employee stock options because, as discussed in note 8,
the alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") requires use of option
valuation models that were not developed for use in valuing employee stock
options.  Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of the
grant, no compensation expense is recognized.


                                        F-11
                                          
                                          
<PAGE>


                              DSP COMMUNICATIONS, INC.
                                          
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          



1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NEW ACCOUNTING STANDARDS

In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME
("SFAS 130").  SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components.  Adoption is required in 1998 and will
not have an impact on the Company's net income or stockholders' equity.  SFAS
130 requires unrealized gains or losses on the Company's available-for-sale
securities, which currently are reported in stockholders' equity, to be included
in other comprehensive income and the disclosure of total comprehensive income.

In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION ("SFAS 131") SFAS 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders.  It also establishes standards for related
disclosures about products and services, geographic areas, and major customers. 
The adoption of SFAS 131 is required in 1998 and will have no impact on the
Company's consolidated results of operations, financial position or cash flows.


                                        F-12 

<PAGE>

                              DSP COMMUNICATIONS, INC.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2. AVAILABLE-FOR-SALE SECURITIES

The following is a summary of available-for-sale securities at December 31,
1997: (in thousands)

<TABLE>
<CAPTION>



                                    AMORTIZED        UNREALIZED     UNREALIZED    FAIR MARKET
                                      COST              GAINS         LOSSES         VALUE
                                -------------------------------------------------------------
<S>                              <C>                  <C>            <C>           <C>

Bank time deposit                $  3,062             $  -           $  -          $  3,062
Commercial paper                    4,172                -              -             4,172
Closed-end mutual fund shares      11,776                -              -            11,776
U.S. corporate obligations         22,222                1             (7)           22,216
U.S. municipal obligations         11,108                8              -            11,116
U.S. government obligations         3,034                -              -             3,034
                                -------------------------------------------------------------
                                 $ 55,374             $  9           $ (7)         $ 55,376
                                -------------------------------------------------------------
                                -------------------------------------------------------------

Reported as:
  Cash equivalents               $ 21,057             $  -           $  -          $ 21,057
  Short-term investments           34,317                9             (7)           34,319
                                -------------------------------------------------------------
                                 $ 55,374             $  9           $ (7)         $ 55,376
                                -------------------------------------------------------------
                                -------------------------------------------------------------
</TABLE>

The following is a summary of available-for-sale securities at December 31, 1996
(in thousands):

<TABLE>
<CAPTION>
                                    AMORTIZED        UNREALIZED     UNREALIZED    FAIR MARKET
                                      COST              GAINS         LOSSES         VALUE
                                -------------------------------------------------------------
<S>                              <C>                  <C>            <C>           <C>

Bank time deposit                $ 13,904             $  -           $  -          $ 13,904
Commercial paper                    6,039                -              -             6,039
Closed-end mutual fund shares      20,577                -              -            20,577
U.S. corporate obligations         30,658               29             (2)           30,685
U.S. municipal obligations         19,430               11             (3)           19,438
U.S. government obligations         7,233                8              -             7,241
                                -------------------------------------------------------------
                                 $ 97,841             $ 48           $ (5)         $ 97,884
                                -------------------------------------------------------------
                                -------------------------------------------------------------

Reported as:
  Cash equivalents               $ 38,850             $  -           $  -          $ 38,850
  Short-term investments           58,991               48             (5)           59,034
                                -------------------------------------------------------------
                                 $ 97,841             $ 48           $ (5)         $ 97,884
                                -------------------------------------------------------------
                                -------------------------------------------------------------
</TABLE>


                                        F-13
<PAGE>

                              DSP COMMUNICATIONS, INC.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2. AVAILABLE-FOR-SALE SECURITIES (CONTINUED)


During the years ended December 31, 1997 and 1996, the change in net unrealized
gains were decreases of $41,000 and of $288,000, respectively.  Proceeds from
the sale of available-for-sale securities were $58,778,000, $106,822,000 and
$13,019,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Realized gains and losses on the sale of available-for-sale securities for the
year ended December 31, 1997 and 1996 were immaterial.  Realized gains on the
sale of available-for-sale securities during 1995 were $369,000.  There were no
realized losses on the sale of available-for-sale securities during 1995.

The contractual maturity of available-for-sale securities as of December 31,
1997 is as follows: 1998 - $43,830,000; 1999 - $11,546,000.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31 (in
thousands)

<TABLE>
<CAPTION>

                                                    1997           1996
                                               -------------------------------
<S>                                            <C>               <C>

Computer and laboratory equipment              $  5,928          $  4,047
Furniture, fixtures and other                       679               752
Leasehold improvements                            1,263             1,100
                                               -------------------------------
                                                  7,870             5,899
Accumulated depreciation                         (3,719)           (2,334)
                                               -------------------------------
                                               $  4,151          $  3,565
                                               -------------------------------
                                               -------------------------------
</TABLE>
4. ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31 (in thousands):

<TABLE>
<CAPTION>

                                                    1997           1996
                                               -------------------------------
<S>                                            <C>               <C>

Income tax authorities                         $  5,961          $  3,570
Compensation and benefits                         3,361             3,533
Repurchase of common stock                        3,272                -
Warranty reserve                                  2,894             3,069
Other                                             1,605             1,621
                                               -------------------------------
                                               $ 17,093          $ 11,793
                                               -------------------------------
                                               -------------------------------
</TABLE>


                                        F-14
<PAGE>

                              DSP COMMUNICATIONS, INC.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



5.  LEASES

The Company leases facilities in Cupertino, California, in Israel and in Japan
under noncancelable operating leases expiring on different dates between March
1999 and February 2001.

Future minimum payments under noncancelable operating leases with initial terms
of one year or more consist of the following at December 31, 1997
(in thousands):

<TABLE>

                    <S>                                             <C>
                    1998                                            $ 1,276
                    1999                                              1,034
                    2000                                                645
                    2001                                                153
                                                                --------------
                                                                    $ 3,108
                                                                --------------
                                                                --------------
</TABLE>

The gross rental payments under all operating leases were $1,142,000, 
$865,000 and $497,000 in 1997, 1996 and 1995, respectively.  Rental expense, 
net of reimbursements from sublessees, was $962,000, $784,000 and $412,000 in 
1997, 1996, and 1995, respectively.

6. COMMITMENTS AND CONTINGENCIES

ISRAELI GOVERNMENT RESEARCH GRANTS

The Company has participated in programs sponsored by the Israeli Government for
the support of research and development activities.  Through December 31, 1996,
the Company obtained grants from the Office of the Chief Scientist in the
Israeli Ministry of Industry and Trade (the "Chief Scientist") aggregating
approximately $3,000,000 for participation in a number of research and
development projects.  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 Chief Scientist.  The
Company was obligated to pay royalties to the Chief Scientist, amounting to 3%
of the sales of the products developed out of such projects up to an amount
equal to 150% of the grant received.  For the years ended December 31, 1996 and
1995, the Company charged cost of revenues for approximately $724,000 and
$1,142,000, respectively, for royalties on products that were commercially
developed out of projects funded by research grants from the Chief Scientist.
As of December 31, 1996, the Company decided not to apply for further grants
from the Chief Scientist and repaid all amounts owed pursuant to the grants
relating to products being currently marketed by the Company.


                                         F-15

<PAGE>

                               DSP COMMUNICATIONS, INC.

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



6. COMMITMENTS AND CONTINGENCIES (CONTINUED)

OTHER ROYALTY COMMITMENTS

In connection with certain license agreements, DSPC agreed to pay royalties on
certain sales based on specified rates.  The Company has not commenced payments
of these royalties as of December 31, 1997.

CTP participated with one of its customers in a program sponsored by the BIRD
Foundation, which was terminated prior to the acquisition by DSPC.  In
connection with the program, CTP agreed to pay to the BIRD Foundation royalties
on its wireless PBX product sales at specified rates of 2.5% to 5%, up to an
aggregate total of approximately $800,000 as adjusted for changes in the
consumer price index.  Through December 31, 1997, the Company has paid or
accrued royalties to the BIRD Foundation in the aggregate amount of $80,000.

SEVERANCE LIABILITY

The Company's liability for severance pay and pension, pursuant to Israeli law
is fully provided for through insurance contracts and by accrual.  As of
December 31, 1997, virtually all of the liability is funded.  The amounts
maintained with insurance companies and part of pension and severance pay funds,
are not under the control of the Company and, therefore, are not included in the
financial statements.  Pension and severance expenses for the years ended
December 31, 1997, 1996 and 1995 amounted to approximately $917,000, $802,000
and $493,000, respectively.

INVESTMENT COMMITMENT

In obtaining approval of the Reorganization from Israeli tax authorities, the
Company agreed to invest in activities in Israel no less than $9,000,000 out of
the proceeds of the initial public offering within three years after
consummation of the offering.  Through December 31, 1997, $5,000,000 has been
transferred to Israel.  The Company is in the process of applying for an
extension of the above three year period.

LITIGATION

On May 12, 1997, a class action lawsuit was filed against the Company and
several of its officers and directors in the Superior Court of California, Santa
Clara Country.  A second, identical lawsuit was filed on May 22, 1997.  The
complaints, which were consolidated, alleged that the Company and certain of its
officers and directors violated California securities laws in connection with
certain statements allegedly made during the first quarter of 1997, and sought
damages in an unspecified amount, interest, attorney's fees and other costs, and
other equitable and injunctive relief.  The plaintiffs requested to have the
matter certified as a class action on behalf of certain past and present
shareholders of the Company.  The Court sustained the Company's demurrer with
leave to amend.  On January 27, 1997, plaintiffs filed an amended and
consolidated complaint.

The Company believes that the complaint is without merit and is defending 
this action vigorously.  However, due to the inherent uncertainties of 
litigation, the Company can not accurately predict the ultimate outcome at
this time.  Any unfavorable outcome could have adverse impact on the 
Company's business, financial condition and results of operations.


                                         F-16
<PAGE>

                               DSP COMMUNICATIONS, INC.

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



7. CREDIT ARRANGEMENTS

As of December 31, 1997, the Company had issued bank guarantees and a letter of
credit totaling $2,482,000.  The term of the letter of credit is through
November 27, 1998.

8. STOCKHOLDERS' EQUITY

PREFERRED STOCK

The board of directors has the authority, without any further vote or action by
the stockholders, to provide for the issuance of up to 5,000,000 shares of
preferred stock from time to time in one or more series with such designations,
rights, preferences and limitations as the board of directors may determine,
including the consideration received therefore, the number of shares comprising
each series, dividend rates, redemption provisions, liquidation preferences,
redemption fund provisions, conversion rights and voting rights, all without the
approval of the holders of common stock.

COMMON STOCK

During April 1997, the board of directors authorized management to implement a
repurchase program pursuant to which the Company, from time to time and at
management's discretion, may purchase up to an aggregate of 4,000,000 shares of
the Company's common stock, in open-market and privately negotiated
transactions.  During May 1997, the board of directors increased the number of
shares of common stock authorized to be repurchased under DSPC's repurchase plan
to 8,000,000 shares.  Repurchased shares of common stock will be retired.  As of
December 31, 1997, the Company has repurchased 5,869,800 shares of its common
stock, with an aggregate purchase price of $52,628,000, pursuant to the
repurchase plan.

SHARE OPTION PLANS

1995 EMPLOYEE AND CONSULTANT STOCK PLAN

DSPC's 1995 Employee and Consultant Stock Plan (the "1995 Plan") provides for
(i) the grant to employees of incentive stock options, (ii) the grant to
employees and consultants of DSPC of nonstatutory stock options and (iii) the
grant of stock options which comply with the applicable requirements of Israeli
law to the extent granted to persons who may be subject to income tax in Israel.
A total of 4,800,000 shares of common stock have been reserved for issuance
under the 1995 Plan.

Options granted under the 1995 Plan have an exercise price no less than the fair
market value of the common stock on the date of grant.  The period within which
the option may be exercised is determined at the time of grant.  In no event may
the term of an incentive stock option be longer than ten years.


                                         F-17

<PAGE>

                               DSP COMMUNICATIONS, INC.

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8. STOCKHOLDERS' EQUITY (CONTINUED)

1996 STOCK OPTION PLAN

DSPC's 1996 Stock Option Plan (the "1996 Plan") provides for (i) the grant to
employees of incentive stock options, (ii) the grant to employees, consultants
and nonemployee directors of DSPC of nonstatutory stock options, and (iii) the
grant of stock options which comply with the applicable requirements of Israeli
law to the extent granted to persons who may be subject to income tax in Israel.
A total of 3,000,000 shares of common stock have been reserved for issuance
under the 1996 Plan.

Options granted under the 1996 Plan have an exercise price no less than the fair
market value of the common stock on the date of grant.  The period within which
the option may be exercised is determined at the time of grant.  In no event may
the term of an incentive stock option be longer than ten years.

1996 DIRECTOR STOCK OPTION PLAN

Each nonemployee director of the Company is entitled to participate in the
Company's 1995 Director Stock Option Plan (the "Director Option Plan").  The
board of directors and the stockholders have authorized a total of 600,000
shares of common stock for issuance under the Director Option Plan.  The
Director Option Plan provides for the grant of nonstatutory options to
nonemployee directors of the Company.

The Director Option Plan provides that each eligible director shall be granted
an option to purchase 32,000 shares of common stock on the later of March 14,
1995 or the date on which the optionee first becomes a director of the Company.
Thereafter, beginning on January 1, 1996, each nonemployee director shall be
granted an option to purchase 8,000 additional shares of common stock on January
1 of each year if, on such date, he or she shall have served on the Company's
board of directors for at least six months.

Options granted under the Director Option Plan have an exercise price equal to
the fair market value of the common stock on the date of grant and have a term
of ten years, unless terminated sooner upon termination of the optionee's status
as a director or otherwise pursuant to the Director Option Plan.

OPTION EXCHANGE PROGRAM

In March 1997, the Company adopted an Option Exchange Program whereby employee
options which were previously granted at exercise prices greater than $9.88 and
$10.88 per share for non-executives and executives, respectively, were
exchanged.  The exercise price of the new options for non-executives and
executives are: $9.88 and $10.88 per share, respectively.  Notwithstanding the
original vesting schedule, the new options generally vest over a three year
period and have a term of five years.  A total of 4.0 million options with a
weighted-average exercise price of $21.55 were exchanged and are reflected in
the following table as cancellations and grants.


                                         F-18

<PAGE>

                               DSP COMMUNICATIONS, INC.

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8. STOCKHOLDERS' EQUITY (CONTINUED)

SHARE OPTION PLANS

A summary of the Company's stock option activity under all option plans and
related information for the years ended December 31 is as follows (in thousands
except per share information):

<TABLE>
<CAPTION>
                                                               Weighted
                                 Shares          Shares         Average       Weighted
                                Available        Under         Exercise        Average        Options
                                For Grant        Option          Price        Fair Value     Exercisable
                                ---------       -------        --------       ----------     ----------
<S>                             <C>             <C>            <C>            <C>            <C>
Year ended December 31, 1994       1,287          3,531         $ 0.99
 Authorized                        5,200              -         $    -
 Granted                         (3,238)          3,238         $ 3.98         $ 1.75
 Exercised                             -        (1,068)         $ 0.87
 Canceled and forfeited              167          (167)         $ 2.40
                                ---------       -------
Year ended December 31, 1995       3,416          5,534         $ 2.71                         1,360
 Authorized                        3,000              -         $    -
 Granted                         (4,307)          4,307         $19.92         $ 8.33
 Exercised                             -        (2,077)         $ 1.57
 Canceled and forfeited              374          (374)         $ 3.94
                                ---------       -------
Year ended December 31, 1996       2,483          7,390         $13.00                           995
 Granted                         (6,233)          6,233         $11.63         $ 4.85
 Exercised                             -        (1,789)         $ 5.50
 Canceled and forfeited            5,214        (5,214)         $19.60
                                ---------       -------
Year ended December 31, 1997       1,464          6,620         $ 8.49                           953
                                ---------       -------
                                ---------       -------
</TABLE>


                                         F-19
<PAGE>

                               DSP COMMUNICATIONS, INC.

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8. STOCKHOLDERS' EQUITY (CONTINUED)

SHARE OPTION PLANS (CONTINUED)

The options outstanding at December 31, 1997 have been segregated into ranges
for additional disclosure as follows (in thousands except per share
information):

<TABLE>
<CAPTION>
                          Options Outstanding                   Options Exercisable
                ----------------------------------------------------------------------
                                  Weighted-                     Options
                   Options         Average     Weighted-       Currently     Weighted-
   Range of     Outstanding at    Remaining     Average       Exercisable     Average
   Exercise      December 31,    Contractual   Exercise     at December 31,  Exercise
    Prices           1997      Life (in years)   Price            1997         Price
--------------------------------------------------------------------------------------
<S>             <C>            <C>             <C>          <C>              <C>
$ 0.06-$ 3.25       1,055           2.33        $  2.32            464        $  1.83
$ 3.88-$ 5.00         816           2.44        $  4.26            380        $  4.33
$ 5.69-$ 9.69         628           3.58        $  7.42             64        $  6.71
$ 9.88-$ 9.88       1,995           4.24        $  9.88              -        $     -
$10.25-$10.88       1,518           4.26        $ 10.52              8        $ 10.25
$10.91-$19.38         608           5.27        $ 16.12             37        $ 16.39
                ---------------------------------------------------------------------
$ 0.06-$19.38       6,620           3.80        $  8.49            953        $  3.79
                ---------------------------------------------------------------------
                ---------------------------------------------------------------------
</TABLE>

OPTIONS GRANTED ABOVE FAIR VALUE

Substantially all options have been granted at fair market value.  In 1997 and
1996, options to purchase 2,078,000 and 420,000 shares, respectively, were
granted with an exercise price in excess of the fair market value on the date of
grant.  The weighted-average exercise prices and the weighted-average fair
values of these options were $10.88 and $4.79, respectively, in 1997 and $26.00
and $9.08, respectively, in 1996.  In 1995, all options were granted at fair
market value.  During 1997, the Company recorded compensation cost of $332,000
for stock-based compensation awards granted to consultants.

1995 EMPLOYEE STOCK PURCHASE PLAN

DSPC has reserved 2,000,000 shares of common stock for issuance under the 1995
Employee Stock Purchase Plan (the "1995 Purchase Plan").  Under the 1995
Purchase Plan, eligible employees are permitted to purchase shares of common
stock at the end of each six month purchase period during a two year offering
period (the "Offering Period"), through payroll deductions not exceeding 10% of
an employee's compensation.  The price per share is equal to 85% of the fair
market value of the common stock on the first day of the Offering Period or on
the last day of the applicable purchase period, whichever is lower.  As of
December 31, 1997, approximately 22,500 shares of common stock had been issued
under this plan.


                                         F-20

<PAGE>

                               DSP COMMUNICATIONS, INC.

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8. STOCKHOLDERS' EQUITY (CONTINUED)

PRO FORMA DISCLOSURES

Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement.  The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995, respectively: risk-free rates of 5.6% to
6.7%, 5.0% to 7.0%; and 5.0% to 7.0%; no dividend yield; volatility factors of
the expected market price of the Company's common stock of .75, .65 and .65; and
a weighted-average expected life of the option of approximately 2.5 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable.  In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.  Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

PRO FORMA DISCLOSURES (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.  The Company's pro
forma information follows (in thousands except for per share information):

<TABLE>
<CAPTION>


                                             1997           1996          1995
                                         ---------------------------------------
<S>                                       <C>            <C>           <C>
Pro forma net income                      $  5,469       $ 15,194      $ (3,452)

Pro forma earnings per share
  Basic                                   $   0.13       $   0.36      $  (0.11)
  Diluted                                 $   0.13       $   0.34      $  (0.11)

Shares used in the calculation
 of pro forma earnings per share:
  Basic                                     41,776         41,865         30,252
  Diluted                                   42,971         44,464         30,252

</TABLE>

Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully realized until 1998.


                                         F-21

<PAGE>

                           DSP COMMUNICATIONS, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8. STOCKHOLDERS' EQUITY (CONTINUED)

COMMON STOCK RESERVED FOR FUTURE ISSUANCE

As of December 31, 1997, approximately 10,062,000 shares of common stock are 
reserved for future issuance under the Company's stock option and stock 
purchase plans.

9. MERGER AND ACQUISITION ACTIVITY

On October 26, 1995, the Company acquired all of the outstanding shares of 
CTP, which develops wireless PBX and other low mobility wireless 
applications, for $13,600,000 in cash. The transaction was accounted for as a 
purchase. The purchase price of $14,130,000, which consisted of the 
$13,600,000 cash payment and approximately $500,000 of transaction costs, was 
allocated based on an independent appraisal as follows (in thousands):

<TABLE>
                    <S>                                    <C>
                    Net tangible assets                       $   369
                    Acquired developed technology               1,700
                    Acquired in-process technology              9,600
                    Goodwill                                    2,461
                                                           -------------
                    Total purchase price                      $14,130
                                                           -------------
                                                           -------------
</TABLE>

The purchase price allocation resulted in a $9,600,000 charge to acquired 
in-process technology in the fourth quarter of 1995. The acquired in-process 
technology represents the appraised value of technology in the development 
stage that had not yet reached technological feasibility and does not have 
alternative future uses. The total charge for acquired-in-process technology 
of $10,850,000 in the fourth quarter of 1995 also included $1,250,000 of 
acquired-in-process technology in connection with a license arrangement. The 
results of CTP are consolidated from October 31, 1995. The results of 
operations of CTP from October 26, 1995 to October 31, 1995 were not material 
to DSPC.

In connection with the acquisition, prior shareholders of CTP were entitled 
to receive a contingent earn-out payment on March 31, 1998. Due to CTP's 
operating results for the year ended December 31, 1997, the Company will not 
be required to make this contingent earn-out payment.

In the fourth quarter of 1996, the Company incurred a charge of approximately 
$5,000,000 in connection with the termination of a proposed acquisition of 
Proxim, Inc.


                                     F-22

<PAGE>

                           DSP COMMUNICATIONS, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




10. INCOME TAXES

The provision for income taxes consists of the following for the years ended 
December 31 (in thousands):

<TABLE>
<CAPTION>
                                                   1997            1996           1995
                                            ----------------------------------------------
<S>                                         <C>               <C>            <C>
Current:
 Federal                                          $   283         $   630         $    -
 State                                                  -             170              -
 Foreign                                            2,472           2,770           1,115
                                            ----------------------------------------------
                                                    2,755           3,570           1,115

Deferred:
 Federal                                                -            (183)              -
 Foreign                                             (121)           (279)              -
                                            ----------------------------------------------
                                                     (121)           (462)              -
                                            ----------------------------------------------
Provision for income taxes                        $ 2,634         $ 3,108         $ 1,115
                                            ----------------------------------------------
                                            ----------------------------------------------
</TABLE>

The tax benefits resulting from the exercise of nonqualified stock options 
and the disqualifying dispositions of shares acquired under the Company's 
incentive stock option plans were $1,617,000 in 1996. Such benefit was 
credited to additional paid-in capital.

Pretax income (loss) from foreign operations was $23,424,000 in 1997, 
$24,655,000 in 1996, and $(164,000) in 1995.

A reconciliation between the Company's effective tax rate and the United 
States ("U.S.") federal statutory rate of 35% for the years ended December 31 
is as follows (in thousands):

<TABLE>
<CAPTION>
                                                    1997            1996           1995
                                            ----------------------------------------------
<S>                                            <C>               <C>            <C>
Tax (benefit) at U.S. statutory rate              $8,412           $ 8,700        $  (435)
State taxes, net of federal benefit                    -               110              -
Valuation of temporary differences                     -              (163)           399
Foreign earnings taxes at less than
 U.S. rate                                        (6,342)           (7,656)        (2,209)
Charge for acquired Israeli in-process
 technology                                            -                 -          3,360
Unbenefited foreign losses                         1,006             1,518              -
Other                                               (442)              599              -
                                            ----------------------------------------------
Provision for income taxes                        $2,634           $ 3,108       $  1,115
                                            ----------------------------------------------
                                            ----------------------------------------------
</TABLE>


                                     F-23

<PAGE>

                           DSP COMMUNICATIONS, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




10. INCOME TAXES (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences 
between the carrying amounts of assets and liabilities for financial 
reporting purposes and the amounts used for income tax purposes. Significant 
components of the Company's deferred tax assets and liabilities are as 
follows at December 31 (in thousands):

<TABLE>
<CAPTION>

                                                         1997           1996
                                                    ---------------------------
<S>                                                 <C>               <C>
Deferred tax assets:
 Net operating loss carryforwards                      $10,824        $ 6,178
 Accruals and reserves not currently deductible            585            535
 Foreign tax credits                                         -            484
 Capitalized research and development                      321            409
 Other                                                       8             97
                                                    ---------------------------
Total deferred tax assets                               11,738          7,703
Valuation allowance                                     (9,538)        (5,624)
                                                    ---------------------------
Total deferred tax assets                              $ 2,200        $ 2,079
                                                    ---------------------------
                                                    ---------------------------
</TABLE>

Of the valuation allowance as of December 31, 1997, $8,729,000 is related to 
the benefits of stock options, which will be credited to paid-in capital when 
realized. The valuation allowance increased by $4,322,000 in 1996.

As of December 31, 1997, the Company has U.S. federal, state and Israel net 
operating loss carryforwards of approximately $27,800,000, $13,800,000 and 
$5,200,000, respectively. The federal and state net operating loss 
carryforwards will expire beginning in years 2001 through 2012 if not 
utilized. The Israeli loss carryforwards have no expiration date. Utilization 
of the net operating loss carryforwards may be subject to an annual 
limitation due to the ownership change limitations provided by the Internal 
Revenue Code of 1986 and similar state provisions.

Net undistributed earnings of the foreign subsidiaries amounted to 
approximately $42,000,000 at December 31, 1997. These earnings are considered 
to be indefinitely reinvested, and accordingly, no provision for U.S. federal 
and state income taxes has been provided thereon. Upon distribution of those 
earnings in the form of dividends or otherwise, the Company would be subject 
to U.S. income taxes (subject to an adjustment for foreign tax credits) and 
additional Israeli corporate income and withholding taxes in the amount of 
approximately $17,000,000.

The Approved Enterprise status was granted according to several investment 
plans and will allow the Israeli subsidiaries a two to four year tax holiday 
on undistributed earnings and a corporate tax rate of 10% to 25% for an 
additional six to eight years on each of the investment plan's proportionate 
share of income. The benefits under these investment plans are scheduled to 
fully expire in 2005.

The per share (diluted) benefit of the Israeli tax holiday was $0.14, $0.17 
and $0.07 per diluted share for 1997, 1996 and 1995, respectively.


                                     F-24

<PAGE>

                              DSP COMMUNICATIONS, INC.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



11.  RELATED PARTY TRANSACTIONS

In prior years, DSP Telecom entered into technology licensing, engineering, and
marketing, and marketing arrangements and had transactions with DSP Group, Inc.
a Delaware corporation, and its subsidiaries ("DSP Group").  DSP Group was DSP
Telecom's former parent and is primarily engaged in the development of DSP-based
software for digital speech products.  One of DSPC's former directors is DSP
Group's chairman of the board.

Pursuant to these arrangements and transactions, through 1996, the Company
performed certain contract engineering, research and development, sales and
marketing, and general and administrative services for, and received certain
research and development, sales and marketing, and general and administrative
services from DSP Group, amounting to approximately none and $64,000,
respectively, in 1996 and $183,000 and $1,135,000, respectively, in 1995.

Currently, the Company has a license agreement with DSP Group, which gives DSPC
rights to develop five integrated circuits using DSP Group's current generation
digital signal processor technology.

Until 1996, DSPC performed certain technology development services for a former,
significant stockholder in the amounts of $112,500 in 1996 and $710,000 in 1995.
DSPC also sold chipsets to the same former, significant stockholder.  Product
revenues from such transactions amounted to $6,260,000 and $8,379,000 in 1996
and 1995, respectively.  Management believes that the transactions with the
former stockholder were at arms-length.

In the normal course of business, DSPC provided certain officers and employees
loans, which amounted to an aggregate of $336,000 and $319,000 at December 31,
1997, and 1996, respectively.


                                        F-25

<PAGE>

                              DSP COMMUNICATIONS, INC.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.  INDUSTRY SEGMENT REPORTING


DSPC and its subsidiaries operate in one industry segment, principally the
development and marketing of integrated circuits for the wireless communications
market.  Operations in Israel include research, development and sales.
Operations in the U.S. include marketing and sales.


The following is a summary of operations within geographic areas for the 
years ended December 31 (in thousands):

<TABLE>
<CAPTION>


                                                  1997           1996           1995
                                             -------------------------------------------
<S>                                          <C>             <C>           <C>
Revenues from unaffiliated customers:
  United States                                $ 13,992       $  2,711        $ 1,066
  Israel                                          1,456          1,917            525
  Japan                                          65,553         83,771         38,517
  Others                                            500            500            759
                                             -------------------------------------------
                                               $ 81,501       $ 88,899        $40,867
                                             -------------------------------------------
                                             -------------------------------------------

Income (loss) before provision for
  income taxes:
  United States                                $    609           $203        $(1,079)
  Israel                                         23,424         24,655           (164)
                                             -------------------------------------------
                                               $ 24,033       $ 24,858        $(1,243)
                                             -------------------------------------------
                                             -------------------------------------------

Identifiable assets:
  United States                                $ 66,810       $105,587        $31,637
  Israel                                         81,473         51,107         20,365
  Eliminations                                   (5,387)        (1,340)        (7,883)
                                             -------------------------------------------
                                               $142,896       $155,354        $44,119
                                             -------------------------------------------
                                             -------------------------------------------


</TABLE>

In 1997, 1996 and 1995 sales of chip sets through its distributors (two in 1997
and one in 1996 and 1995) accounted for 88%, 91% and 89% of total revenues,
respectively.

13.  OTHER SUBSEQUENT EVENTS

On January 15, 1998, the board of directors authorized an increase of 2,000,000
shares under the 1996 Stock Option Plan, subject to shareholder approval.

Subsequent to December 31, 1997 and through February 9, 1998, the Company
repurchased approximately 753,900 additional shares of its common stock, with an
aggregate purchase price of $10,598,000, pursuant to the repurchase plan
described in Note 8.

14.  EVENTS SUBSEQUENT TO THE REPORT OF INDEPENDENT AUDITORS (UNAUDITED)

With respect to Note 6, on February 26, 1998, two of the plaintiffs in the 
state action filed a similar complaint in the U.S. District Court for the 
Northern District of California.  The complaint makes the same allegations as 
the amended complaint filed in state court but charges violations of federal 
securities laws.


                                        F-26

<PAGE>

                               DSP COMMUNICATIONS, INC.

                   SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>


     Col. A                                       Col. B                 Col. C                Col. D         Col. E
   ----------                                    --------        -----------------------      --------       --------
                                                                       Additions
                                                                 -----------------------
                                                                               Charged to
                                                  Balance at     Charged to    Other
                                                  Beginning of   Costs and     Accounts       Deductions    Balance at
Descriptions                                      Period         Expenses      Describe       Describe      End of Period
------------                                      ------------   ----------    ----------     ----------    -------------
<S>                                               <C>            <C>           <C>            <C>           <C>
Allowance for Doubtful
  Accounts
Years Ended:
December 31, 1995. . . . . . . . . . . . . .       $  50,000     $   89,000      $   --       $    --           $  139,000
December 31, 1996. . . . . . . . . . . . . .       $ 139,000     $    --         $   --       $  (7,000)(1)     $  132,000
December 31, 1997. . . . . . . . . . . . . .       $ 132,000     $    --         $   --       $(132,000)(1)     $     --
Warranty Reserve:
Years Ended:
December 31, 1995. . . . . . . . . . . . . .       $ 425,000     $  382,000      $   --       $    --           $  807,000
December 31, 1996. . . . . . . . . . . . . .       $ 807,000     $2,262,000      $   --       $    --           $3,069,000
December 31, 1997. . . . . . . . . . . . . .       $3,069,00     $  575,000      $   --       $(750,000)(2)     $2,894,000

</TABLE>

 

(1) Estimated Allowance reduced as a result of a lower outstanding accounts
receivable balance.

(2) Adjustment of warranty reserve balance due to product maturity.


                                         S-1