MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
KIRK B. HULETT (110726)
HENRY ROSEN (156963)
JAMES I. JACONETTE (179565)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058

Attorneys for Plaintiffs
[Additional counsel appear on signature page.]

1. This is a securities class action lawsuit on behalf of the purchasers of DSP Communications, Inc. ("DSPC" or the "Company") common stock between January 7, 1997 and April 16, 1997, inclusive (the "Class Period"), against DSPC and certain of its officers and directors. As detailed herein, plaintiffs allege that defendants made materially false and misleading statements and omissions during the Class Period with the purpose of inducing plaintiffs and others to purchase DSPC stock in violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934. Defendants include the Company; Davidi Gilo, Chairman of the Company's Board of Directors; Lewis S. Broad, a member of the Board of Directors and past Chairman; Gerald Dogon, Senior Vice President and Chief Financial Officer; Nathan Hod, President, Chief Executive Officer and a director; Arnon Kohavi, Vice President of Business Development; and Joseph Perl, Vice President of Engineering and Chief Technical Officer.

2. DSPC was founded in 1987 to create new technologies for the emerging cellular market. According to the Company, it creates, markets, licenses and supports software, baseband integrated circuits and application specific integrated circuits ("ASICs") based on digital signal processing technology. The products from which DSPC derives its revenue are chipsets used in cellular phone handsets assembled and sold by Japan-based original equipment manufacturers ("OEMs") in the analog and digital wireless communication markets. Prior to and during the Class Period, the Company portrayed itself as the largest independent vendor of baseband chipsets to OEMs in the Japanese digital cellular telephone market. The Company's announced strategy was to exploit the technological advantage of its chipsets to maintain its position as a leading supplier of baseband chipsets for digital cellular telephones in Japan.

3. The software DSPC embeds in its chipsets can support multiple modulation standards for wireless communication. Those standards include "analog" and "digital" cellular and the emerging "PCS" standard. The modulation standard for wireless communication in Japan is the "PDC" digital standard, therefore the Company sells PDC baseband chipsets to its OEM cellular handset customers in Japan. (Although the Company develops chipsets for use with other digital modulation standards, such as "TDMA" and "CDMA," only a small fraction of the Company's revenues have ever been generated by that part of its business.)

4. The baseband processor chipset sold by DSPC is the heart of a digital phone; it performs many of the phone's critical functions and is one of the main factors determining the phone handset's performance. Phone handset performance is measured by physical attributes such as size, weight and energy consumption (battery life). During the Class Period, DSPC's "solution" was to design and sell digital baseband chipsets which had more functionality, consumed less power, were more integrated (i.e., two chips versus three chips) and thus were lighter and smaller than the chipset technology of DSPC's competitors.

5. Because DSPC's chipsets directly affect the size, weight, functionality and energy consumption (battery life) of its OEM customers' cellular handsets, the Company calls its chipset products "enabling technology." And, DSPC's OEM customers design their cellular handsets to incorporate the chipset technology which DSPC tells them it is capable of designing and producing. Once a DSPC customer so designs their handset and begins production, the customer can only use DSPC chipsets and DSPC can only sell to the customer the DSPC chipset requirement of the phone then being produced by the customer.

6. Although DSPC generates the software and designs the programming functions incorporated into its chipsets, it relies on chip manufacturing foundries to produce its chipsets. The Company's PDC baseband chipset consists of two chips: a digital signal baseband processor chip and an ASIC. Texas Instruments provides the digital signal processor chip for the Company's PDC chipset. DSPC obtains the ASICs for use in its PDC chipsets from either VLSI Technology, Inc. or Atmel ES2. The Company must provide its design specifications to its chip foundries before the foundries can schedule and ramp up production of its chips.

7. As of the end of 1996, approximately 95% of the Company's business was derived from sales of the Company's "B-series" PDC baseband chipsets to handset manufacturers in Japan. The B-series chipsets were the Company's most advanced PDC chipsets sold throughout 1996 and during the Class Period. DSPC's customers using the Company's B-series chipsets during the Class Period included, among others, Kenwood, Kyocera, Sanyo, Sharp, Pioneer and Kokusai. The models and features of the PDC-based cellular handsets of DSPC's customers in 1996 and during the Class Period included:

Customer         Model No.       Weight     Max. Battery Life

Kenwood          DP 132           210 g.        100 hours    

Kyocera          TH 162           165 g.        150 hours    

Sanyo            DP 182(L)        180 g.        150 hours    
                 DP 182(S)        155 g.        75 hours     

Sharp            DP 201(S)        210 g.        50 hours     
                 DP 201(L)        285 g.        150 hours    

Pioneer          DP 211           180 g.        90 hours     

Kokusai          KO 101(S)        160 g.        70 hours     
                 KO 101(L)        180 g.        130 hours    
                 D 313(S)         165 g.        100 hours    

8. Throughout 1996, DSPC experienced tremendous growth based on the success of its B-series chipsets, which were used in the cellular handsets of DSPC's above-referenced OEM customers. As a result, DSPC's stock increased from below $20 per share to over $60 per share between January 1996 and October 1996. Because DSPC derived virtually all of its 1996 revenues from the sale of its B-series chipsets, the Company's success remained dependent on continued demand for that chipset.

9. In October 1996, in an attempt to diversify its product line and geographic base, DSPC announced a proposed merger with Proxim, Inc. ("Proxim") whereby DSPC would acquire Proxim through an exchange of DSPC stock. The merger announcement backfired, however, and DSPC's stock dropped by over $17 per share when news of the proposed merger hit the markets. The one-day market losses were over $740 million, and the individual defendants saw their personal worth plummet.

10. Thereafter, DSPC, in response to the negative reaction of the financial market to the proposed merger, terminated its merger with Proxim. When the merger cancellation was announced in November 1996, DSPC's stock price rebounded, but only slightly. Making matters worse, defendants also learned during this time that order rates for the B-series chipsets had materially declined and DSPC's backlog of orders had shrunk by $10 million. Defendants learned that the declining order rate was largely due to the decision of the Company's OEM customers to redesign their current models of PDC phones which would require development and delivery of DSPC's next generation "D-series" PDC chipsets.

11. DSPC's customers materially changed their chipset requirements because Panasonic, a competitor of DSPC, had introduced a new, superior handset which was eroding the market for the handsets of DSPC's customers. Panasonic's new model P201 handset, manufactured with Panasonic's latest and superior chipset technology, weighed just 97 grams, nearly half the weight of handsets made with DSPC's B-series chipsets. It was the smallest and lightest handset then available and consumed significantly less current than other handsets. Panasonic began manufacturing its P201 handset in October 1996, the cellular carrier NTT began selling the handset throughout the Christmas season in Japan, and Panasonic's handset stole significant market share from DSPC's OEM customers.

12. Consequently, in late December 1996 to early January 1997, DSPC's OEM customers, including Sanyo, Sharp and Kyocera, informed defendants of their needs for the Company's next generation D-series chipsets, which would be smaller, lighter and use less energy than the Company's predecessor B-series chipsets. Those customers, whose orders were material to the Company's revenues, also told DSPC that demand for their phones incorporating the B-series chipsets had materially declined, as reflected in DSPC's shrunken backlog and order rate, that no advance orders for the B-series chipsets would follow and that virtually no future orders for the B-series chipsets would be made.

13. This was a devastating development to DSPC because the defendants knew that DSPC would not, given design and development delays and foundry ramp-up lead times, deliver commercial quantities of its new D-series chipsets until after the end of second quarter 1997 (June 30, 1997). As defendants knew or recklessly disregarded, the Company was caught in a serious product transition gap spurred by Panasonic's introduction of the next technological advance in baseband chipsets over six months ahead of DSPC. Defendants knew the Company's second quarter 1997 earnings would be a disaster.

14. Despite their knowledge of these adverse material facts, defendants embarked on a campaign to conceal the Company's product transition problems and to raise and sustain the price of DSPC's stock until they were able to sell large amounts of their personal holdings at artificially inflated prices. Defendants' media campaign included stepping up their already frequent and regular communications with securities analysts. Thus, in December 1996 and January 1997, defendants conducted numerous conferences and "one-on-one" sessions with securities analysts knowing and expecting that these analysts would publish what the defendants said and told them. For example, during these communications, defendants Nathan Hod and Gerald Dogon discussed DSPC's revenues, earnings and gross margin contributions of DSPC's chipsets and confirmed increasingly profitable quarterly and year-end 1997 earnings per share ("EPS") projections for the Company.

15. The information defendants communicated to securities analysts had the desired effect, causing the analysts to issue favorable reports regarding DSPC just prior to and at the beginning of the Class Period. Those reports caused DSPC's stock price to rise.

16. Meanwhile, by early January, DSPC's order backlog for its B-series chipsets had shrunk by approximately 75%, as DSPC's cellular handset OEMs began suffering the effects of lost market share due to Panasonic's new handset. Defendants did not, however, tell analysts or the public of the product transition then being experienced by DSPC, of the expected order rate decline for B-series chipsets, of the fact that DSPC would not be able to supply its OEM customers with the next generation D-series chipsets until after the end of the second quarter 1997, or that DSPC's second quarter 1997 EPS would be materially less than the $.17 per share they had projected.

17. Thereafter, on January 16, 1997, defendants officially released DSPC's financial results for the quarter ended December 31, 1996. Reported revenues had increased 77% over the 1995 comparable period and 118% for the entire year. In its January 1997 press release, DSPC also cited its continued and sustained growth of its wireless market niche in Japan and reported increased sales to seven OEM customers in Japan as being responsible for its record fourth quarter results.

18. That same day, defendants Arnon Kohavi, Davidi Gilo, Nathan Hod and Gerald Dogon held a conference call with securities analysts. The analysts asked defendants questions about the Company's expected future performance, product transition concerns and OEM customer demand in the face of competition by cellular handsets of non-DSPC customers. In response, defendants gave the analysts false and misleading answers, concealing their knowledge that the Company's B-series chipsets, which accounted for 96% of DSPC's 1996 revenues, were effectively obsolete and that DSPC would be unable to produce its next generation D-series chipsets in time to avoid a sharp revenue and earnings decline compared to forecasted amounts. Given the highly positive and misleading statements made in DSPC's press release and conference call, the analysts maintained their current DSPC earnings forecasts for second quarter and year-end 1997 and issued favorable reports on DSPC which uniformly recommended the purchase of DSPC stock. Those reports and the Company's January 16, 1997 positive earnings announcement caused DSPC's stock price to increase.

19. In the third week of January 1997, just days after defendants again communicated with securities analysts in part to encourage the publication of additional favorable reports about DSPC, the individual defendants started to sell tens of thousands of shares of DSPC stock. (A two-for-one stock split was also announced in late 1996 which doubled the number of shares outstanding and reduced the price of DSPC's stock by half.) Exploiting their concealed knowledge of the Company's adverse business conditions, defendants conducted the largest insider sell-off in DSPC's history as a public company. Between January 21, 1997 and February 19, 1997, the individual defendants sold nearly 400,000 shares of their personal holdings -- over twice the volume of previous insider sales during any similar period of time -- for proceeds of nearly $8 million.

20. Responding in part to the sell-off, as well as the tips provided to favored shareholders to sell, DSPC's stock price dropped from over $21 per share on February 19, 1997, to below $10 per share on March 3, 1997 (post-split prices).

21. The following charts demonstrate the massive insider bail-out and that defendants caused the price of DSPC stock to artificially outperform DSPC's industry index:

22. In an effort to halt the further slide of DSPC's stock price, on March 3, 1997, defendants issued a "special" press release. In that news release, DSPC stated that "no new information has appeared to . . . change its visibility of the business environment." DSPC also announced that it had not lost any customers nor had any customers decided to exit the PDC market. The Company also stated that it was not aware of any new competitors. Defendant Nathan Hod stated: "We still believe in the viability of the Japanese PDC market over the next several years and believe that our OEMs are well positioned in that market. . . . [W]e believe that in the near future, additional OEMs will adopt our solutions for the PDC, CDMA and TDMA markets." These announcements caused DSPC's stock to rebound by over 20% and subsequently the Company sold over 155,000 shares of DSPC stock.

23. However, although DSPC had not "lost" any customers, its customers order rates for the B-series chipsets had materially declined because those customers were waiting for DSPC to ramp up production of its next generation chipset. In contrast to DSPC's public statements, DSPC's customers were not "well positioned" because Panasonic was already marketing and selling a superior handset that utilized technology to which DSPC's customers were denied, given, in part, DSPC's inability to timely develop and deliver its next generation D-series chipsets. Indeed, by at least March 1, 1997, DSPC had learned that its OEM cellular handset customers were losing market share as a result of competition from the Panasonic handset.

24. Finally, on April 16, 1997, after months of deception and insider selling, contrary to defendants' previously confirmed second quarter 1997 projections of $.17 per share, defendants announced that "revenues and profits in [second quarter 1997] will be materially lower than the first quarter of 1997." Defendants announced that orders for DSPC's B-series chipsets were so abysmal that DSPC had discontinued production requests to its foundries until a specific order was placed. Defendants continued to mislead the market, stating that DSPC's customers were merely at the point of "designing" new handsets, but for the first time admitted that "our production for the second quarter will be reduced due to the anticipated phase-out of our existing chip sets, as our customers transition to new models."

25. On this startling news, DSPC's stock price collapsed by nearly 40% to a low of just $6 per share in massive trading volume of 19 million shares, three times the highest previous trading volume ever for DSPC stock. DSPC's second quarter 1997 revenues were a disastrous $8.7 million, almost $12 million less than the Company's first quarter 1997 revenues and second quarter 1996 revenues.

26. Jurisdiction and venue of this Court are founded on §27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §78aa, and 28 U.S.C. §§1331 and 1337.

27. The claims herein arise under §§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission (the "SEC"), 17 C.F.R. §240.10b-5. In connection with the acts and course of conduct alleged in this Complaint, the defendants directly and indirectly used the means and instrumentalities of interstate commerce, including the United States mails and interstate telephone communications, and the facilities of the national securities markets.

28. (a) Venue is proper in this District under §27 of the Exchange Act and 28 U.S.C. §1391 because a substantial part of the acts and conduct charged herein, including the filing and dissemination of false and misleading reports and the issuance of materially false and misleading information to the investing public, occurred in this District. DSPC also maintains its principal executive offices and conducts its business in this District.

(b) Assignment of this action to the San Jose Division is appropriate as a substantial part of the events or omissions identified herein occurred in Santa Clara County.

29. (a) Plaintiff Robert Mishelow purchased 500 shares of DSPC stock during the Class Period and was damaged as a result of defendants' violations as alleged herein.

(b) Plaintiff Ram Yariv purchased 1,000 shares of DSPC stock during the Class Period and was damaged as a result of defendants' violations as alleged herein.

30. (a) Defendant DSPC is a leading developer of chipsets and products for the wireless personal communications services ("PCS") market in Japan. Headquartered in Cupertino, California, the Company develops, markets, licenses, and supports ASICs and software based on digital signal processing technology for a variety of PCS applications. The Company has over 44 million shares of common stock outstanding. During the Class Period, DSPC's common stock was actively traded on the NASDAQ National Market System, an efficient market.

(b) During the Class Period, DSPC as a corporate entity, made false and misleading statements through its officers and directors and securities analysts. By its officers, directors, security analysts, and other avenues, DSPC made each of the specific misrepresentations alleged in ¶¶56-60, 62-70, 75, 77-78, 80, 82, 85 and concealed the adverse material facts alleged in ¶¶63-67, 76-77, 79, 81, and 83 herein, allowing the individual defendants to sell their own DSPC stock and registering and offering to sell the Company's stock pursuant to its stock option plan.

(c) On January 16, 1997, DSPC registered and offered for sale 3,000,000 shares of stock via the Company's 1996 Stock Option Plan and sold over 760,000 shares of DSPC common stock to employees pursuant to that plan on January 21, 23, 30 and 31, 1997, February 5-7, 10, 12-14, 18-19 and 28, 1997 and March 25, 1997, for total proceeds of over $6.5 million. The Stock Option Plan was tied to the performance of DSPC's stock and this materially benefited DSPC by providing a source of officer and employee compensation. Under the Stock Option Plan, financial benefit accrued if the price of DSPC's stock could be maintained or inflated to increasingly higher levels. Accordingly, the Stock Option Plan provided the Company and the Individual Defendants with a significant motive to artificially inflate the value of DSPC's stock.

31. (a) Defendant Davidi Gilo ("Gilo") has served as Chairman of the Board of Directors of DSPC since 1987. Because of defendant Gilo's position with the Company and review of the Company's order rates, production volume and engineering status reports, defendant Gilo knew the adverse non-public information about DSPC's products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith.

(b) As part of and in furtherance of defendants' scheme to manipulate the market price of DSPC common stock, for the purpose of registering and offering to sell the Company's stock pursuant to the Employee Stock Option Plan, to enhance the value of his personal wealth and to permit the sale by the other defendants' of their DSPC stock, defendant Gilo:

(i) made the misrepresentations specified in ¶¶56-60, 62-67, 68-70, 75, 81 and 85 and approved and/or adopted the misrepresentations made by other defendants (e.g., the Company) as specified in ¶¶77-78, 80 and 82;

(ii) concealed the material adverse facts about DSPC's products and prospects as alleged in ¶¶63-67, 76-77, 79, 81 and 83; and

(iii) as Chairman of DSPC's Board of Directors, Gilo orchestrated the Company's fraudulent scheme to conceal the product transition problems that were impacting the Company's ability to sell its PDC chipsets going forward and falsely endorsed as accurate the Company's and other defendants' statements during the Class Period.

32. (a) Defendant Lewis S. Broad ("Broad") has served as a member of the Board of Directors of DSPC since 1992. Because of defendant Broad's position with the Company and review of the Company's order rates, production volume and engineering status reports, defendant Broad knew the adverse non-public information about DSPC's products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, Broad sold 220,000 shares of his DSPC stock for $4.5 million while in possession of the material, adverse, non-public information about DSPC alleged herein.

(b) As part of and in furtherance of defendants' scheme to manipulate the market price of DSPC common stock, for the purpose of registering and offering to sell the Company's stock pursuant to the Employee Stock Option Plan and for selling his own DSPC stock, defendant Broad:

(i) made the misrepresentations specified in ¶¶60, 77-78, 80 and 82 and approved and/or adopted the misrepresentations made by other defendants (e.g., the Company) as specified in ¶¶56-60, 62-70, 75 and 85;

(ii) concealed the material adverse facts about DSPC's products and prospects alleged in ¶¶63-67, 76-77, 79, 81 and 83; and

(iii) as a member of DSPC's Board of Directors, defendant Broad orchestrated the Company's fraudulent scheme to conceal the product transition problems that were impacting the Company's ability to sell its PDC chipsets and falsely endorsed as accurate the Company's and other defendants' statements during the Class Period. See ¶40.

33. (a) Defendant Gerald Dogon ("Dogon") has served as Senior Vice President and Chief Financial Officer of DSPC since 1994. Because of defendant Dogon's position with the Company and review of the Company's order rates, production volume and engineering status reports, defendant Dogon knew the adverse non-public information about DSPC's products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, Dogon sold 43,000 shares of his DSPC stock for nearly $1 million while in possession of the material, adverse, non-public information about DSPC alleged herein.

(b) As part of and in furtherance of defendants' scheme to manipulate the market price of DSPC common stock, for the purpose of registering and offering to sell the Company's stock pursuant to the Employee Stock Option Plan and for selling his own DSPC stock, defendant Dogon:

(i) made the misrepresentations specified in ¶¶56-60, 62-67, 68-70, 75, 81 and 85 and approved and/or adopted the misrepresentations made by other defendants (e.g., the Company) as specified in ¶¶77-78, 80 and 82;

(ii) concealed the material adverse facts about DSPC's products and prospects alleged in ¶¶63-67, 76-77, 79, 81 and 83;

(iii) as DSPC's Chief Financial Officer, defendant Dogon directed the making of statements announcing DSPC's quarterly or yearly revenues and earnings, the preparation and filing of reports on Forms 10-K and 10-Q with the SEC, and the making of the statements -- including the financial statements -- contained in those Forms 10-K and 10-Q; and

(iv) as DSPC's Chief Financial Officer, defendant Dogon orchestrated the Company's fraudulent scheme to conceal the product transition problems that were impacting the Company's ability to sell its PDC chipsets going forward and falsely endorsed as accurate the Company's and other defendants' statements during the Class Period.

34. (a) Defendant Nathan Hod ("Hod") joined the Company in 1994 as President, Chief Executive Officer and a director. Because of defendant Hod's position with the Company and review of the Company's order rates, production volume and engineering status reports, defendant Hod knew the adverse non-public information about DSPC's products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, Hod sold 45,000 shares of his DSPC stock for over $974,000 while in possession of the material, adverse, non-public information about DSPC alleged herein.

(b) As part of and in furtherance of defendants' scheme to manipulate the market price of DSPC common stock, for the purpose of registering and offering to sell the Company's stock pursuant to the Employee Stock Option Plan and for selling his own DSPC stock, defendant Hod:

(i) made the misrepresentations specified in ¶¶56-60, 62-67, 75, 77-78, 80, 82 and 85;

(ii) concealed the material adverse facts about DSPC's products and prospects alleged in ¶¶63-67, 76-77, 79, 81 and 83;

(iii) directed the making of statements announcing DSPC's quarterly or yearly revenues and earnings, the preparation and filing of reports on Forms 10-K and 10-Q with the SEC, and the making of the statements -- including the financial statements -- contained in those Forms 10-K and 10-Q; and

(iv) orchestrated the Company's fraudulent scheme to conceal the product transition problems that were impacting the Company's ability to sell its PDC chipsets going forward and falsely endorsed as accurate the Company's and other defendants' statements during the Class Period.

35. (a) Defendant Arnon Kohavi ("Kohavi") has served as Vice President of Business Development of DSPC since 1995. Because of defendant Kohavi's position with the Company and review of the Company's order rates, production volume and engineering status reports, defendant Kohavi knew the adverse non-public information about DSPC's products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, Kohavi sold 3,800 shares of his DSPC stock for over $84,000 while in possession of the material, adverse, non-public information about DSPC alleged herein.

(b) As part of and in furtherance of defendants' scheme to manipulate the market price of DSPC common stock, for the purpose of registering and offering to sell the Company's stock pursuant to the Employee Stock Option Plan and for selling his own DSPC stock, defendant Kohavi:

(i) made the misrepresentations specified in ¶¶56-60, 62-67, 68-70, 75, 81 and 85 and approved and/or adopted the misrepresentations made by other defendants (e.g., the Company) as specified in ¶¶77-78, 80 and 82;

(ii) concealed the material adverse facts about DSPC's products and prospects alleged in ¶¶63-67, 76-77, 79, 81 and 83; and

(iii) helped to orchestrate the Company's fraudulent scheme to conceal the product transition problems that were impacting the Company's ability to sell its PDC chipsets going forward and falsely endorsed as accurate the Company's and other defendants' statements during the Class Period.

36. (a) Defendant Joseph Perl ("Perl") has served as Vice President of Engineering and Chief Technical Officer of DSPC since 1993. Because of defendant Perl's position with the Company and review of the Company's order rates, production volume and engineering status reports, defendant Perl knew the adverse non-public information about DSPC's products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, Perl sold 59,500 shares of his DSPC stock for $1.3 million while in possession of the material, adverse, non-public information about DSPC alleged herein.

(b) As part of and in furtherance of defendants' scheme to manipulate the market price of DSPC common stock, for the purpose of registering and offering to sell the Company's stock pursuant to the Employee Stock Option Plan and for selling his own and the other defendants' DSPC stock, defendant Perl:

(i) approved and/or adopted the misrepresentations specified in ¶¶77-78, 80 and 82;

(ii) concealed the material adverse facts about DSPC's products and prospects alleged in ¶¶63-67, 76-77, 79, 81 and 83; and

(iii) orchestrated the Company's fraudulent scheme to conceal the product transition problems that were impacting the Company's ability to sell its PDC chipsets going forward and falsely endorsed as accurate the Company's and other defendants' statements during the Class Period.

37. The defendants referred to in ¶¶31-36, and each of them, are otherwise referred to as the Individual Defendants.

38. As officers, directors and/or controlling persons of a publicly-held company whose stock is registered with the SEC under the Exchange Act and was traded on the NASDAQ during the Class Period, the Individual Defendants had a duty to promptly disseminate accurate and truthful information with respect to the Company's operations, business, products, markets, management, earnings, and present and future business prospects, to correct any previously issued statements that had become untrue and to disclose any adverse trends that would materially affect the present and future financial operating results of the Company, so that the market price of the Company's stock would be based upon truthful and accurate information.

39. The Individual Defendants, because of their positions with the Company, controlled the contents of its quarterly and annual reports, press releases and presentations to securities analysts. Each Individual Defendant was provided with copies of the Company's reports and press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them but not the public, each of these defendants knew or recklessly disregarded that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representations which were being made were then false and misleading. As a result, each of the Individual Defendants is responsible for the accuracy of the corporate reports, filings and releases detailed herein as "group-published" information and is therefore responsible and liable for the representations contained therein.

40. Each defendant directly or indirectly made the statements complained of herein. As officers and/or directors of a publicly-traded company, these defendants had a duty to disseminate truthful and complete data to the public about DSPC. Each also owed a duty to correct those materially false and misleading statements made by other DSPC officers and/or directors. Each defendant reviewed, edited, commented upon and/or participated in the preparation and dissemination of DSPC's SEC filings and press releases. Each defendant also had access to and was privy to weekly reports relating to product design, manufacturing, sales and marketing, as well as non-public budgets, order rates, margin analyses, and revenue and earnings projections. Each defendant either knew or recklessly disregarded that the statements complained of herein were materially false and misleading and that they omitted material information as described above, disclosure of which was necessary to make the statements made not misleading. The defendants directly and indirectly, knowingly or recklessly pursued the fraudulent scheme and course of business alleged herein in order to enrich themselves at the public's expense, protect their emoluments and privileges of corporate office, increase and maintain the value of their stock holdings in DSPC, and sell their personal DSPC holdings at inflated prices.

41. Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of a class (the "Class") consisting of all persons who purchased the securities of DSPC during the period from January 7, 1997 to and including April 16, 1997. Excluded from the Class are the defendants herein, members of the immediate family of the Individual Defendants, any entity in which any defendant has a controlling interest and the legal affiliates, representatives, heirs, controlling persons, successors and predecessors in interest or assigns of any such excluded party.

42. Because over 44 million shares of the Company's common stock were outstanding and because the Company's common stock was actively traded on the NASDAQ during the Class Period, the members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members can only be determined by appropriate discovery, plaintiffs believe that Class members number at least in the thousands and that they are geographically dispersed.

43. Plaintiffs' claims are typical of the claims of the members of the Class because plaintiffs and all of the Class members sustained damages arising out of the defendants' wrongful conduct complained of herein.

44. Plaintiffs will fairly and adequately protect the interests of the Class members and have retained counsel who are experienced and competent in class and securities litigation. Plaintiffs have no interests which are contrary to or in conflict with those of the members of the Class plaintiffs seek to represent.

45. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual members of the Class may be relatively small, the expense and burden of individual litigation make it impossible for the members of the Class individually to redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.

46. Questions of law and fact common to the members of the Class predominate over any questions which may affect only individual members in that defendants have acted on grounds generally applicable to the entire Class. Among the questions of law and fact common to the Class are:

(a) Whether §§10(b) and 20(a) of the Exchange Act were violated by defendants' acts as alleged herein;

(b) Whether the Company's publicly disseminated releases and statements during the Class Period omitted and/or misrepresented material facts and whether defendants breached any duty to convey material facts or to correct material facts previously disseminated;

(c) Whether defendants participated in and pursued the fraudulent scheme and course of business complained of;

(d) Whether defendants acted knowingly or recklessly in omitting and/or misrepresenting material facts;

(e) Whether the market prices of DSPC common stock or securities related to its common stock during the Class Period were artificially inflated due to the material nondisclosures and/or misrepresentations complained of herein; and

(f) Whether the members of the Class have sustained damages and, if so, what is the appropriate measure of damages.

47. As a matter of custom and practice, analysts employed by securities firms regularly prepare electronic and/or written reports and make recommendations therein about the securities issued by public companies such as DSPC. During the Class Period, DSPC was followed by securities analysts employed by brokerage houses which issue reports and make recommendations concerning securities to their clients, including Lior Bregman and Avishai Kantor of Oppenheimer & Company ("Oppenheimer"), Albert Lin of Cowen & Co. ("Cowen"), Michael Ching from Merrill Lynch ("Merrill Lynch"), Clark Westmont from Montgomery Securities ("Montgomery"), Jeffrey Schlesinger from UBS Securities ("UBS"), Craig Sultan from Unterberg Harris ("Unterberg"), Charles Morris from T. Rowe Price ("Price"), Robert Reitzes from Bear Stearns ("Bear Stearns"), Marc Cabi from Deutsche Morgan Grenfel ("Deutsche") and Doug Whitman from Whitman Capital ("Whitman"). In writing their reports, making stock recommendations or purchase decisions, these analysts relied in substantial part upon information provided by the Individual Defendants during regularly scheduled telephone conference calls and statements and reports made publicly by DSPC, information provided to them privately by the Company including DSPC's historical and anticipated revenues, earnings and product gross margin contributions, and DSPC's assurances that the information and EPS projections contained in the analysts' reports was not at material variance from the Company's internal reports and forecasts about its operations and prospects.

48. Because DSPC's common stock was considered a "growth stock" and traded at a high price/earnings ratio, its stock price was particularly sensitive to the Company's (and analysts') statements during the Class Period regarding DSPC's performance, business prospects, future revenues and profits. The Company's officers and directors used their communications to analysts to assure them that DSPC's business was strong, its marketing and expansion programs were a success, and that the Company was on track to achieve strong EPS growth throughout 1997.

49. The defendants, the market and investors understand that analysts rely substantially on information provided publicly and privately by the Company to them, and assurances by DSPC that the revenue projections, the Company's business prospects and other information in the analysts' reports was not at material variance from the Company's internal knowledge of its operations and prospects, in formulating their research reports and recommendations to purchase the Company's stock. In fact, many of the analyst reports at issue explicitly attribute information contained therein to the defendants. The defendants had these communications with analysts for the purpose of causing them to issue favorable reports on the Company and used these communications to falsely present the prospects of the Company to the marketplace and to artificially inflate or maintain the market price of the Company's common stock.

50. The defendants directly and indirectly manipulated and inflated the market price of the Company's stock by falsely presenting to analysts the current status and future prospects of the Company and by failing to disclose the true adverse information about the Company that was known to them.

51. The statements made by DSPC executives to securities analysts were reported and repeated by those analysts in research reports, internal advisories and otherwise disseminated by them into the securities marketplace. That information thus became part of the "total mix" of information impacting the price of DSPC's publicly-traded securities and, since that information was materially false and misleading, it inflated the trading price of those securities.

52. As part of their fraudulent scheme to deceive the market that the Company was poised to continue its tremendous growth and to counteract the negative impact of the Proxim merger announcement, directly and indirectly, through the use of securities analysts, defendants initiated and conducted a media campaign beginning in late 1996 and continuing through the Class Period by, inter alia, the issuance of false and misleading statements to the market. Thus, on November 22, 1996, as part of the media campaign designed to inflate the price of DSPC's stock, the Company announced that it was abandoning the proposed Proxim merger. On this announcement, the price of DSPC stock rebounded, but only slightly when compared to the tremendous decline which occurred when the merger was announced just weeks earlier.

53. Also on November 22, 1996, based on meetings during the prior week with defendants Kohavi, Gilo, Hod and Dogon, analysts Lior Bregman and Avishai Kantor of Oppenheimer issued a research report projecting a huge increase in fiscal 1996 and 1997 earnings. That report stated that the Company would continue to deliver "superior growth" and projected 1996 and 1997 EPS of $1.10 and $1.40 respectively. The report also stated that:

Armed with a large amount of cash, the company is well positioned to continue to undertake acquisitions to respond to requests from its customers needs and opportunities to enhance its growth as it identifies them.

54. On December 13, 1996, Albert Lin, a research analyst from Cowen, based on information received from defendants Kohavi, Gilo, Hod and Dogon during a conference call with securities analysts on December 10, 1996, also issued a research report projecting a huge increase in fiscal 1996 and 1997 earnings. Lin projected 1996 and 1997 EPS of $1.10 and $1.48 respectively. In that report, Lin also noted the extensive campaign then being engaged in by defendants to bolster analyst and market support, and thus higher prices, for DSPC stock: "DSPC has presented no less than three conferences and multiple one-on-one investor meetings over the last few weeks."

55. Repeating defendants' statements that DSPC was well positioned to meet the chipset demands of the Company's OEM customers throughout 1997, and based on information provided by defendants Kohavi, Gilo, Hod and Dogon in the December 10, 1996 conference call and other communications, Marc Cabi of Deutsche initiated coverage of DSPC on December 20, 1996, with a research report projecting 1996 and 1997 EPS of $.55 and $.72 respectively. (Cabi's estimates reflect the two-for-one stock split completed in late 1996.) The report projected first and second quarter 1997 EPS of $.14 and $.17 respectively.

We conservatively believe the company can sustain earnings growth of more than 30% per year over the next three years, and should be valued on the basis of its superior growth opportunities. Our 12 month price target is $27 based on a multiple of 25-30 times our 1998 earnings estimate of $0.97 per share, providing for a return opportunity of more than 40%.

Our positive investment recommendation is based on our belief that DSPC can continue to capitalize on its dominant market share position as one of the largest independent vendors of baseband chipsets to the rapidly expanding digital cellular and PCS markets. DSPC's current market focus is on the Japanese digital cellular (PDC) market. We forecast PDC growth in the Japanese market will grow more than 60% per year over the next two years. As robust PDC expansion continues, we believe that DSPC is uniquely positioned to participate in this growth, based on its established customer relationships with major Japanese cellular subscriber equipment OEMs such as Kenwood, Kyocera, Sharp, and Pioneer. These customers represent approximately 30%-35% of the Japanese PDC market.

56. In the first week of January 1997, just prior to DSPC's release of its fourth quarter 1996 financial results, defendants again communicated with securities analysts about DSPC internal, confidential information in furtherance of defendants' plan to raise the price of DSPC's stock. Two such firms used by DSPC to leak and disseminate information were Oppenheimer and Deutsche. At that time, defendants told analysts that strong order rates for the Company's B-series chipsets would continue well into the first half of 1997 and that competition was not forcing a production transition, and confirmed for the analysts the Company's quarterly and year-end 1997 earnings projections published by Oppenheimer and Deutsche.

57. Based on the revenue, earnings and gross margin information provided by defendants in December 1996 and the first week of January 1997, the analysts published quarterly and year-end 1997 EPS projections. On the first day of the Class Period, Deutsche analyst Marc Cabi issued a report repeating that which defendants had confirmed to him, namely that defendants' second quarter 1997 EPS projections were $.17 per share. That report also stated:

We initiated coverage of DSP Communications on December 20, 1996, with a BUY recommendation on the shares. DSPC is the leading vendor of baseband chipsets to the high-growth digital cellular market for the PDC standard in Japan. Our positive investment rating is predicated on the belief that DSP's strong RF and software expertise and solid established relationships with major Japanese electronics manufacturers, which constitute nearly 35% of the PDC market, will enable DSPC to deliver earnings growth of more than 30% per year for the next three years.

Fourth Quarter Revenue & Earnings Outlook

For the fourth quarter, we are looking for DSPC's revenue to increase by more than 60% as the company's sales of PDC chipsets in Japan continue to experience explosive growth. We believe that DSPC's robust revenue and volume growth will drive DSP's fourth-quarter gross margin to 46.1% from 41.2% a year ago, although longer term we believe the sustainable gross margin for DSPC is likely to range between 42%-45%. We estimate that DSPC's R&D as a percentage of revenue will rise to 6% from 4.3% last year, reflecting the company's increased commitment to developing and introducing new products, including its new CDMA chipset solution in the second half of 1997.

In response to the report, DSPC's stock price increased approximately $2 per share by the close of the stock market on January 7, 1997.

58. Likewise, based on the revenue, earnings and gross margin information provided by defendants in December 1996 and the first week of January 1997 and the quarterly and year-end 1997 earnings projections defendants made to them, at the open of the market on January 9, 1997, Oppenheimer analysts Bregman and Kantor issued a report repeating defendants' second quarter 1997 EPS projections of $.17 per share. The report also stated:

INVESTMENT CONCLUSION: We recently upgraded our rating from Market Perform to Outperform on the stock following an overdone correction triggered by an unsuccessful acquisition attempt. We believe strong near-term EPS momentum driven by growth in the Japanese market and the long-term upside from the company's move into other markets and technologies (CDMA, TDMA) should help the stock recover toward the mid-high $20s.

COMPANY UPDATE

EPS upside likely. In the tradition of previous quarters, we expect DSP Communication to exceed consensus estimates driven by strong sales in the Japanese market. . . .

The Japanese digital cellular market continues to enjoy dramatic growth. DSPC continues to benefit from the explosive growth in the Japanese market. In addition, the lack of competitive chipsets as well as DSPC's strength in algorithms design continues to drive the company's financial results.

In response to the report, DSPC's stock price increased over $1.50 per share by the close of the stock market on January 9, 1997.

59. Following discussions with defendants wherein defendants leaked news of DSPC's fourth quarter 1996 earnings and confirmed their continued agreement with the first and second quarter 1997 EPS projections of $.14 and $.17, Deutsche analyst Cabi issued a "Fourth Quarter Preview" report just after the open of the stock market on January 14, 1997. Analyst Cabi's report repeated projected DSPC second quarter 1997 EPS of $.17, and also stated:

DSP Communications will report fourth quarter earnings on January 16 after the close. . . .

. . . We believe that an upside earnings surprise is likely.

We expect management to present an upbeat outlook for the year ahead, with a focus on continued solid growth in Japan as well as the potential of the TDMA and CDMA solutions. We believe that such a development should provide additional confidence into our conservative 1997 EPS estimate of $0.72 and our 1998 estimate of $0.97.

We believe that DSPC's strong RF and software expertise and solid established relationships with major Japanese electronics manufacturers, which constitute nearly 35% of the PDC market, should enable DSPC to deliver earnings growth of more than 30% per year for the next three years.

DSPC's PDC chip set business should continue to drive the company's robust revenue and earnings growth. Specifically, solid seasonal subscriber growth of more than 80% in the Japanese PDC market and recent tariff reductions should join forces to create a favorable growth environment for the first quarter of 1997.

In response to the report, DSPC's stock price increased another $2 per share by the close of the market on January 14, 1997.

60. On January 16, 1997, DSPC issued a press release, which was drafted, edited, reviewed and/or approved by each of the Individual Defendants. The press release stated:

DSP Communications Inc. . . . announced revenues for its fourth quarter ending December 31, 1996 were $27,846,000, an increase of 77% compared to the same period in 1995. Revenues for the twelve month period ended December 31, 1996 were $88,899,000, an increase of 118% compared to the same period in 1995. Net income for the fourth quarter was $4,622,000 or 10 cents per share compared to a loss of $6,721,000 or 19 cents per share in the fourth quarter of 1995. For the year ended December 31, 1996 the Company recorded net income of $21,750,000, or 48 cents per share, compared to a loss of $2,358,000 or 8 cents per share in the same period in 1995.

In the fourth quarter of 1996 the Company incurred a charge of approximately $5,000,000 in connection with the proposed acquisition of Proxim Inc. This charge was included in General and Administrative expenses. Excluding this charge, pro forma net income for the quarter was $8,997,000 or 19 cents per share and for the twelve month period ended December 31, 1996, $26,125,000 or 57 cents per share.

Revenues throughout 1996 have been driven primarily by the sustained growth of the wireless personal communications market in Japan, and by the related increase in sales by the Company's seven OEM customers in that market. Commercial shipments of CTP's CTPhone Wireless PBX system were initiated in the second half of the year. Initial shipments of the Company's IS-136 chipset to the U.S. market were made during the fourth quarter.

61. The statements made in the Company's January 16, 1997 press release and made by defendants to analysts and repeated by analysts in ¶¶56-60, were materially false and misleading at the times they were made because:

(a) In December 1996, a competitor of DSPC, Panasonic, had introduced into the Japanese digital cellular market its new P201 handset, which was smaller and had a longer battery life than other available handsets, and which, at just 97 grams, weighed only half as much as the cellular handsets then being offered by DSPC's customers. Panasonic's handset used the next generation of PDC chipset technology, which was smaller, lighter and consumed less current than DSPC's existing PDC chipset technology, thus causing weakened demand and sales of DSPC's customers' handsets;

(b) In mid and late December 1996 and the first week of January 1997, DSPC's OEM cellular handset customers, including Sanyo, Sharp and Kyocera, communicated to DSPC that they, like Panasonic, had already initiated plans for a product transition to a smaller, lighter handset with a longer battery life designed to incorporate DSPC's next generation lesser-pin-count, less-energy-consuming D-series chipsets. DSPC's OEM cellular handset customers, including Sanyo, Sharp and Kyocera, stated they would ramp up production of their next generation handsets in the beginning of the second quarter 1997 and, therefore, would have little or no future requirements for the Company's B-series chipsets. Moreover, defendants knew that once the OEMs started production of their new PDC handsets, the OEMs would not require the Company's B-series chipsets. DSPC's OEM cellular handset customers also informed defendants that further orders for DSPC's B-series chipsets had declined and would continue to materially decline because price competition from their competitors and product competition from Panasonic's new P201 handset had reduced demand for handsets using DSPC's B-series chipset technology;

(c) During that same time in January 1997, the Company was informed by its OEM handset customers, including Sanyo, Sharp and Kyocera, that, because of the competition from Panasonic's P201 cellular handset, which had virtually assured the obsolescence of DSPC's B-series chipsets, and because the Company's customers were going to ramp up production of their new PDC handsets -- designed for DSPC's next generation technology -- not later than April 1997, the Company's OEM cellular handset customers would no longer (as they had historically done) place advance orders for DSPC's B-series chipsets into the second quarter 1997, but instead expected deliveries of the Company's next generation D-series chipsets at or about that time;

(d) By at least the first week of January 1997 and at other times that month, the Individual Defendants learned that DSPC's design engineers would be unable to timely develop and engineer specifications for the Company's new model D-series chipsets until after the end of the second quarter 1997. Defendants also knew that once the new chipsets were designed and ready for production, the lead time necessary to get DSPC's foundries to re-tool and ramp-up for commercial quantity runs of the new chipsets would further delay delivery of DSPC's D-series chipsets, assuring that no such shipments would occur until sometime in the third quarter 1997; and

(e) By at least the first week of January 1997, defendants knew or recklessly disregarded that revenues and profits for second quarter 1997 would be materially lower than in first quarter 1997 and that as a result the Company would not make the $.17 second quarter 1997 EPS forecasts they had been conveying to securities analysts. The Company's revenues, profits and EPS would be materially lower because, among other things, defendants knew that: (1) DSPC's OEM cellular handset customers would not order the Company's then-existing B-series chipsets in second quarter 1997, when they would begin producing their next generation PDC handset; (2) no advance orders for second quarter 1997 were being placed for the B-series chipsets and the orders that would be made (if any) would be materially less than in previous quarters; (3) DSPC's backlog for the B-series chipsets was nearly extinguished and would not sustain its growth into the second quarter 1997 because of the OEMs' chipset requirements; and (4) in second quarter 1997 DSPC would not be capable of producing for its customers its next generation D-series chipsets to replace the lost sales of the Company's B-series chipsets, which then accounted for approximately 95% of DSPC's business.

62. Also on January 16, 1997, at 5:00 p.m. EST, defendants Kohavi, Gilo, Hod and Dogon conducted a conference call with securities analysts to discuss the Company's fourth quarter 1996 results and to answer questions. During that conference call, one securities analyst asked DSPC's executives whether DSPC's OEM cellular handset customers would maintain their market share (and correspondingly sustain demand for the Company's PDC chipsets) given the presence in the market of NTT, the cellular network carrier selling Panasonic's new handset. That analyst also asked if DSPC had increased its downside "exposure" as a result of this phenomenon.

63. Defendant Hod responded that NTT was increasing its business, not because NTT was selling a superior handset, but simply because NTT had "removed the requirement of sign-up costs or fees." That statement was materially misleading because it omitted to state that DSPC had been informed by its OEM cellular handset customers, including Sanyo, Sharp and Kyocera, that their demand for DSPC's existing PDC chipset had materially declined because, beginning with NTT's December 1996 sales of Panasonic's new model P201 handset, Panasonic's superior new handset had shrunk the market for handsets using DSPC's existing B-series chipsets.

64. During the January 16, 1997 conference call, defendant Hod stated further that "we will definitely develop the best technology [and] try to help [our OEMs] to be competitive." That statement was also materially misleading because it omitted to state that, despite the demands of DSPC's OEM customers for DSPC's next generation D-series chipsets, DSPC was not going to be able to timely provide its OEM customers with those chipsets to enable the OEMs to compete with Panasonic's new cellular handset, as described in ¶61(a)-(e), above.

65. Defendant Hod also stated that "Our visibility is becoming shorter these days because of the fact that the semiconductor companies' lead times in the semiconductor fabs are shorter than they were a year ago. And our customers are well aware of it, and they wait until the last minute to give us their orders and so our visibility to the future is getting shorter." This statement was materially misleading because defendant Hod knew that semiconductor foundry lead times were not materially impacting future orders for the Company's chipsets. In fact, defendant Hod knew that DSPC was caught in the middle of a product transition, unable to ramp up production of its next generation PDC chipsets until after second quarter 1997, and that in the second quarter 1997 there would be no new demand for the Company's B-series chipsets, which accounted for nearly all of DSPC's business, as described in ¶61(a)-(e), above. The lead times at semiconductor plants, whatever they were, were irrelevant because DSPC had been informed by its customers that second quarter 1997 order volume for the Company's B-series chipsets would materially decrease because of handset product competition and the customers' transition in production to next generation handsets.

66. During DSPC's January 16, 1997 securities analyst conference call, one analyst asked also about the "current" PDC business growth the Company expected in Japan in 1997, stating "What [do] you see when you talk to the manufacturers there?" Defendant Kohavi responded: "Some companies such as Ericsson have announced recently large infrastructure orders for the Japanese market and they at least sound bullish about the market. We cannot give any guidance on this because we are again at one part of the food chain where we are dependent on the growth of the market. If the market will continue to grow, obviously we will continue with it." That statement was false and misleading because DSPC did not then have its next generation chipset technology available for production to enable DSPC to grow with the market's demand. To the contrary, defendants were informed from DSPC's customers that the market for the Company's B-series chipsets was shrinking, and DSPC's OEM cellular handset manufacturers were then demanding next generation PDC chipsets; however, defendants knew DSPC would not be able to produce those chipsets for over six months, as described in ¶61(a)-(e), above.

67. Near the end of DSPC's January 16, 1997 conference call with securities analysts, one analyst asked if product demand from DSPC's OEMs in the upcoming quarter would decline as a result of a carrier which DSPC did not supply "bringing out demonstrably superior handsets for the Japanese market." Defendant Gilo falsely responded: "We don't know about that." Defendant Hod falsely emphasized that the Company was not threatened by competition, stating "We didn't say that." Those statements were each false and misleading because defendants knew that, in fact, the dominating sales of Panasonic's P201 cellular handset had caused DSPC's customers to decrease their orders for DSPC's B-series chipsets and had transitioned their requirements to DSPC's next-generation smaller, lighter D-series chipsets for which the Company had yet to even begin production, as described in ¶61(a)-(e), above.

68. The clear consensus of analysts following the Company was to maintain or increase quarterly and year-end 1997 earnings projections for DSPC in response to defendants' statements during the January 16, 1997 conference call.

69. On January 17, 1997, Deutsche analyst Marc Cabi issued a report which repeated projected DSPC second quarter 1997 EPS of $.17, and also stated:

INVESTMENT SUMMARY

We conservatively project that DSPC will deliver average earnings growth of more than %30 over the next three years. We believe that the company's current valuation does not yet reflect the company's positive growth outlook. . . . We believe the shares offer investors a pure play in the wireless digital cellular market and we rate the shares a BUY.

70. Likewise, on January 17, 1997, Oppenheimer analysts Bregman and Lior issued a report which repeated projected DSPC second quarter 1997 EPS of $.17, and also stated:

[Earnings per share] Revised upward from $0.70 for 1997.

INVESTMENT CONCLUSION: We continue to recommend purchase of DSP's shares and believe that the stock could trade during 1997 in the $25-$30 range.

COMPANY UPDATE

Adjusting model to reflect new assumptions, slightly increasing 1997's EPS estimate and establishing a 1998 estimate based on expected re-acceleration in growth. While gross margins continued to improve this quarter to 49.7%, the company continues to indicate that it expects them to stabilize in the longer term around the 40%-45% area as DSPC reduces prices to remain competitive. As a result, we have factored lower margins in the coming quarters into our model. . . .

Revenues continue to be driven primarily by the sustained growth in the Japanese market. Company continues to expand its customer base.

71. The statements made in the January 17, 1997 Deutsche and Oppenheimer analysts' reports were materially false and misleading at the times they were made for the reasons set forth in ¶61(a)-(e).

72. Within days after the January 16 and 17, 1997 announcements and DSPC's January 16, 1997 analyst conference call, the Individual Defendants began a massive sell-off of their personal stock holdings:

                                  Number of           Price                 
Name             Sale Date       Shares Sold        Per Share       Proceeds
----             ---------       -----------        ---------       --------
Dogon, Gerald    01/21/97           5,000            $21.88         $109,400
                 01/21/97          10,000            $22.00         $220,000
                 01/23/97          10,000            $23.00         $230,000
                 01/23/97           5,000            $22.50         $112,500
                 01/31/97           5,000            $22.00         $110,000
                 01/31/97           1,000            $22.13         $ 22,130
                 02/06/97           3,500            $21.13         $ 73,955
                 02/07/97           1,000            $23.00         $ 23,000
                 02/07/97           2,500            $22.25         $ 55,625
                                   ------                           --------
                                   43,000                           $956,610

Perl, Joseph     01/21/97           5,000            $21.88       $  109,400
                 01/21/97          10,000            $22.00       $  220,000
                 01/23/97             891            $23.00       $   20,493
                 01/23/97           9,109            $23.00       $  209,507
                 01/23/97           5,000            $22.50       $  112,500
                 01/30/97           1,000            $21.50       $   21,500
                 01/30/97           4,000            $21.38       $   85,520
                 01/31/97           5,000            $22.00       $  110,000
                 01/31/97           1,000            $22.13       $   22,130
                 02/05/97           5,000            $22.00       $  110,000
                 02/07/97           1,000            $23.00       $   23,000
                 02/07/97           2,500            $22.25       $   55,625
                 02/18/97           5,000            $20.69       $  103,450
                 02/19/97           5,000            $20.75       $  103,750
                                   ------                         ----------
                                   59,500                         $1,306,875

Hod, Nathan      02/10/97          10,000            $23.38         $233,800
                 02/12/97           5,000            $21.50         $107,500
                 02/12/97           1,500            $21.50         $ 32,250
                 02/13/97           5,000            $21.19         $105,950
                 02/13/97           5,000            $21.44         $107,200
                 02/14/97           5,000            $21.25         $106,250
                 02/14/97           8,500            $20.75         $176,375
                 02/14/97           5,000            $21.00         $105,000
                                   ------                           --------
                                   45,000                           $974,325

Kohavi, Arnon    02/07/97             883            $22.75          $20,088
                 02/07/97           1,117            $22.75          $25,412
                 02/12/97           1,800            $21.75          $39,150
                                    -----                            -------
                                    3,800                            $84,650

Broad, Lewis     02/14/97         220,000            $20.75       $4,565,000
                                  -------                         ----------
                                  220,000                         $4,565,000
                                  -------                         ----------
    GRAND TOTAL                   371,300                         $7,887,460

In addition, the Company also sold millions of dollars worth of DSPC stock as follows:

                                 Number of            Price                 
                 Sale Date      Shares Sold         Per Share       Proceeds
----             ---------       -----------        ---------       --------

DSPC             01/21/97          16,767             $ 1.77        $ 29,678
                 01/21/97          11,633             $ 5.69        $ 66,192
                 01/21/97          15,000             $ 0.06        $    900
                 01/23/97          15,000             $ 1.77        $ 26,550
                 01/23/97             891             $ 0.06        $     53
                 01/23/97          14,109             $ 0.08        $  1,129
                 01/30/97           5,000             $ 0.08        $    400
                 01/31/97           6,000             $ 1.77        $ 10,620
                 01/31/97           6,000             $ 0.08        $    480
                 02/05/97           5,000             $ 0.79        $  3,950
                 02/06/97           3,500             $ 1.77        $  6,195
                 02/07/97           4,383             $ 1.77        $  7,758
                 02/07/97           3,500             $ 0.79        $  2,765
                 02/07/97           1,117             $ 5.69        $  6,356
                 02/10/97          10,000             $ 7.04        $ 10,400
                 02/12/97           5,000             $ 1.04        $  5,200
                 02/12/97           1,500             $ 3.88        $  5,820
                 02/12/97           1,800             $ 5.69        $ 10,242
                 02/13/97          10,000             $ 3.88        $ 38,800
                 02/14/97           5,000             $ 1.04        $  5,200
                 02/14/97          13,500             $ 3.88        $ 52,380
                 02/14/97         440,000             $12.79      $5,627,600
                 02/18/97           5,000             $ 0.79        $  3,950
                 02/19/97           5,000             $ 0.79        $  3,950
                 02/28/97           1,000             $12.00        $ 12,000
                 03/25/97         155,241             $ 3.88        $602,335
                                  -------                         ----------
                                  760,941                         $6,540,903

73. A corporate insider must abstain from trading in the shares of his corporation unless he first discloses all material information known to him. Insiders, such as defendants, have a duty not to trade securities in their own corporation without first disclosing material, negative, nonpublic facts known to them that would impact the price of the securities. See §20A of the Exchange Act (liability for purchasing or selling a security while in possession of material, nonpublic information); SEC Rule 10b-5 (unlawful for trader to make untrue statements, or omit to share a material fact necessary to make the statements made not misleading in connection with the purchase or sale of securities). Here, while the Individual Defendants were issuing false and misleading statements about DSPC's business, they sold 371,300 shares of their DSPC stock for proceeds of over $7.8 million, thereby profiting from the artificial inflation in DSPC's stock price their unlawful conduct had created. Defendants' failure to disclose the adverse, nonpublic information known to them before undertaking their trades permitted their violation of law to continue and further evidences their participation in it.

74. Only days after the Individual Defendants completed their suspiciously timed and disproportionately large selling spree, the largest insider sell-off in DSPC's history as a public company, DSPC's stock began a steep decline. From February 19, 1997, the last day of the insider sales complained of herein, to March 3, 1997, DSPC's stock declined by over 50% on large volume. That drop was caused, in part, by news of the insider sales, which, at total volume of nearly 400,000 shares, were over twice the volume of previous insider sales during any similar period of time, and by the fact that defendant Gilo and other DSPC insiders secretly advised favored shareholders and friends to sell their DSPC stock. The market's learning of the insider sell-off and the insiders' illegal tips precipitated another sell-off and resulting price slide.

75. Thereafter, in furtherance of their plan to artificially inflate DSPC's stock and to avoid suspicion about their illegal insider trading, defendants once again used securities analysts to write falsely positive reports about DSPC and its future. In late February, DSPC's executives communicated with securities analysts to inform them that DSPC's stock was undervalued. On February 26, 1997, one such analyst, Marc Cabi from Deutsche, reported:

RECENT PRICE WEAKNESS CREATES BUYING OPPORTUNITY

Recent share price weakness of DSP Communications, in our view, has created an excellent buying opportunity. Given a conservative 30%-plus earnings growth rate expectation, we believe the shares have upside to the low $30 range as the company continues to deliver on its growth objectives. . . .

. . . Formerly leveraged to only Japan's wireless market opportunity, the company is now set to exploit wireless opportunities that are emerging in digital cellular services in the Americas. . . .

PDC GROWTH OUTLOOK LOOKS BRIGHT

DSPC continues to experience robust growth in the Japanese digital cellular market. Market growth early in 1997 remains in line with expectations. The company and our assumptions for 700,000 subscriber additions were met as numbers reported from that market suggest that there were 750,000 new subscribers added to networks during that month. Although a large sequential drop from the 1.2 million in December, the seasonality of this business is well documented and similar patterns occur in other markets outside Japan. Traditionally, more than one-third of new customer additions occur in the fourth quarter. Additionally, last December's growth in Japan was further bolstered by the removal of a one-time initiation fee charged by NTT amounting to several hundred dollars creating a surge in subs during December.

Once again, DSPC's second quarter 1997 EPS of $.17 were reported.

76. Those statements were materially false and misleading when made for the reasons stated at ¶61(a)-(e), and for the additional reasons that:

(a) In mid-February 1997, the Company was again informed by its OEM handset customers, including Sanyo, Sharp and Kyocera, that they required the Company's next generation D-series chipsets for new model handsets in the second quarter of 1997 and that competition from Panasonic's P201 cellular handset was continuing to erode market share for handsets using the Company's B-series chipset technology;

(b) In February 1997, no advance orders were being placed for the Company's B-series chipsets and DSPC no longer had a substantial order backlog for its B-series chipsets and would not have an order backlog for those chipsets in the future because of the OEM's chipset requirements; and

(c) Throughout February defendants were updated that DSPC would not be able to deliver its next generation D-series chipsets until sometime in the third quarter of 1997.

77. The February 26, 1997 report was able to keep DSPC's stock price stable for only a day or two. Consequently, thereafter, in furtherance of defendants' plan to artificially maintain the price of DSPC's stock, on March 3, 1997, DSPC issued a "special" press release which each of the Individual Defendants wrote, edited, reviewed and/or approved. The press release falsely stated, "[N]o new information has appeared to cause the Company to change its visibility of the business environment." That statement was materially misleading for the reasons stated at ¶61(a)-(e) and ¶76(a)-(c). The Company was caught in the middle of a product transition spurred by the introduction of a technologically superior cellular handset by DSPC's competitor, Panasonic. At that time, DSPC had little or no second quarter 1997 orders for its out-dated B-series chipsets and the Individual Defendants knew that DSPC would not ramp up production of its next generation chipsets until after the second quarter 1997 to fill the revenue shortfall resulting from the material loss of orders for the Company's B-series chipsets.

78. The Company's March 3, 1997 press release also stated:

In its public statements following the announcement of the fourth quarter operating results, the Company stated that the lead time for orders for the Japanese PDC cellular telephone handsets and their components such as the Company's chipsets, had significantly shorten [sic]. This has reduced the Company's ability to forecast demand for its products or the results for the current quarter.

79. That statement was also materially misleading for the reasons set forth in ¶61(a)-(e) and ¶76(a)-(c). The lead times at semiconductor plants, whatever they were, were irrelevant because they were not materially impacting future orders for the Company's chipsets. DSPC had been informed by its customers that order volume for the Company's B-series chipsets had already materially decreased and would continue to materially decrease until the Company's next generation D-series chipsets were available in commercial quantities. The Individual Defendants knew, or reasonably believed, that DSPC had materially lower-than-projected orders for its B-series chipsets and that DSPC could not and would not ramp up production of its next generation chipsets in the second quarter 1997 to fill the huge gap in lost sales of the B-series chipsets.

80. DSPC's March 3, 1997 press release misleadingly added, "[T]he Company has not been advised that it has lost any customers or that any customers have decided to exit the PDC market. Nor is the Company aware of any new competitors for its chipset solution."

81. That statement was materially misleading because, as the Individual Defendants knew, the dominating sales of Panasonic's P201 cellular handset had caused DSPC's customers to decrease their orders for the Company's B-series chipsets and transition their requirements to DSPC's next generation D-series chipsets for which the Company had yet to even begin a production ramp-up, as described in ¶61(a)-(e). Although the Company had not "lost" any customers, its existing customers had halted orders for B-series chipsets and had delayed future purchases of PDC chips until after DSPC engineered and delivered its next generation chipsets.

82. The Company's March 3, 1997 press release lastly stated:

Nathan Hod, president and chief executive officer of the Company, stated that, "We still believe in the viability of the Japanese PDC market over the next several years and believe that our OEMs are well positioned in that market. Our customers are currently designing new models with our next generation chipsets which has lower pin count, lower component count, higher integration, and lower power consumption." Mr. Hod added "we are also very excited about the Company's prospects over the next 24 months in the CDMA and TDMA markets worldwide. In the last 12 months we doubled our total customer base and we believe that in the near future, additional OEMs will adopt our solutions for the PDC, CDMA and TDMA markets."

83. That statement was false and misleading because, as the defendants knew or reasonably believed, the Company's customers were not "well positioned" in the market, but instead were imperiled because DSPC's competitor, Panasonic, had beat DSPC to the next generation PDC chipset market by over six months, as described in ¶61(a)-(e). Panasonic was selling a superior handset that utilized technology to which DSPC's customers had no access.

84. Thereafter, on March 25, 1997, the Company sold over 155,000 shares of stock pursuant to its Stock Option Plan, for proceeds of over $600,000.

85. Because the Individual Defendants wanted to boost the price of DSPC's stock after the stock's decline following the massive insider sell-off, they again communicated with securities analysts regarding the overall growth in the Japanese PDC market and again confirmed second quarter 1997 earnings projections of $.17 per share for the Company. Based on conversations with the Individual Defendants, on April 9, 1997, Deutsche analyst Marc Cabi issued a report which repeated projected DSPC second quarter 1997 EPS of $.17, and also stated:

Subscriber growth numbers out of Japan for the month of March came in at 1.2 million subscribers, well ahead of our 800,000 subscriber growth estimate. The March number constitutes the second best number on record for subscriber growth in Japan after December, 1996, which benefited from the seasonally strong Christmas selling season. We believe the number speaks to the solid opportunity that exists for DSPC in the PDC market in 1997 given the low penetration rate (16%) and potential price cuts that could be forthcoming on the part of carriers in this market.

86. Finally, on April 16, 1997, DSPC announced on the Business Wire that revenues for its first quarter ending March 31, 1997 were $20,302,000, an increase of 17% compared to the same period in 1996. Net income for the first quarter was $6,126,000 or $.13 per share compared to $3,575,000 or $.09 per share in the first quarter of 1996, an increase of 71%. In an attempt to minimize the impact of the Company's anticipated poor second quarter, defendants coupled with their successful first quarter earnings report the following information which they concealed during the Class Period:

Nathan Hod, president and chief executive officer of the Company, stated that, "The second quarter of 1997 is a transition quarter for our PDC customers and for our company. At the beginning of the first quarter of 1997, despite decreased visibility of orders for our product, we continued building products for the anticipated orders which we ultimately received. Toward the end of the first quarter, we announced that our customers were designing new cellular telephone models which will use our next generation chipsets with lower pin count, lower component count, higher integration, and lower power consumption. We believe that these new models will be introduced during the third quarter of 1997. With low visibility continuing, our production for the second quarter will be reduced due to the anticipated phase-out of our existing chipsets, as our customers transition to new models. As a result, we believe that the Company's sales in the second quarter of 1997 to our PDC customers will be reduced, and that our revenues and profits in this quarter will be materially lower than the first quarter of 1997."

87. Contrary to their repeated projections of $.17 per share for the second quarter 1997, defendants announced that "revenues and profits in [second quarter 1997] will be materially lower than the first quarter of 1997." In response to defendants' disclosures and admissions, the market price of DSPC stock collapsed, plunging nearly 40% to a low of just $6 per share in massive trading volume of 19 million shares, three times the highest trading volume ever for DSPC stock.

88. As a result of defendants' conduct, plaintiffs and members of the Class suffered millions of dollars in damages. Conversely, as set forth above in ¶72, defendants fared much better by selling over $7.8 million of their personal holdings before making the disclosures of April 16, 1997.

89. DSPC's second quarter 1997 revenues were a disastrous $8.7 million, or almost $12 million less than the Company's prior-year second quarter revenues and the Company's first quarter 1997 revenues, and far below projected second quarter earnings for the Company. Indeed, DSPC's second quarter 1997 EPS was just $.02, well below the $.17 forecasts the Individual Defendants provided to securities analysts.

90. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false forward-looking statements pleaded in this Complaint because none of the forward-looking statements pleaded herein was identified as a "forward-looking statement" when made. Moreover, to the extent the January 16, 1997 conference call contained forward-looking statements, the oral statements were not accompanied by a cautionary statement that the particular statement was forward-looking. Alternatively, to the extent that the statutory safe harbor does apply to any statements pleaded herein, because they are "forward-looking," defendants are liable for those statements because, at the time each of those statements was made, the speaker knew the statement was false and the statement was authorized and/or approved by an executive officer of DSPC who knew that such statement was false when made.

91. Plaintiffs incorporate ¶¶1-90 by reference.

92. Each of the defendants: (a) knew the material, adverse, non-public information about DSPC's financial results and then-existing business conditions, which was not disclosed; and (b) participated in drafting, reviewing, and/or approving the misleading statements, releases, reports, and other public representations of and about DSPC.

93. During the Class Period, defendants disseminated or approved the false statements specified above, which they knew were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

94. Defendants violated §10(b) of the Exchange Act and Rule 10b-5 in that they:

(a) Employed devices, schemes, and artifices to defraud;

(b) Made untrue statements of material facts or omitted to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading; or

(c) Engaged in acts, practices, and a course of business that operated as a fraud or deceit upon plaintiffs and others similarly situated in connection with their purchases of DSPC common stock during the Class Period.

95. Plaintiffs and the Class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for DSPC stock. Plaintiffs and the Class would not have purchased DSPC stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants' misleading statements.

96. Plaintiffs incorporate ¶¶1-95 by reference.

97. Defendants Gilo and Hod acted as controlling persons of DSPC within the meaning of §20(a) of the Exchange Act. By reason of their positions as directors and/or officers of DSPC they had the power and authority to cause DSPC to engage in the wrongful conduct complained of herein. DSPC controlled each of the Individual Defendants and all of its employees.

98. By reason of such wrongful conduct, DSPC, Gilo and Hod are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of these defendants' wrongful conduct, plaintiffs and the other members of the Class suffered damages in connection with their purchases of DSPC common stock during the Class Period.

99. This Complaint is pleaded in accordance with the Federal Rules of Civil Procedure under Rule 11. Because the PSLRA, §21D(c) of the Exchange Act [15 U.S.C. §78u-4(c)], requires complaints to be pleaded in conformance with Federal Rule of Civil Procedure 11, plaintiffs have alleged the foregoing based upon the investigation of their counsel, which included a review of public filings concerning DSPC, securities analysts reports, interviews and advisories about the Company, pursuant to Rule 11(b)(3), and believe that, after reasonable opportunity for discovery, substantial evidentiary support will exist for the allegations set forth in ¶¶10-13, 18, 23, 31-36, 56-59, 61(b)-(e) and 76-77.

WHEREFORE, plaintiffs, on their own behalf and on behalf of the Class, pray for judgment as follows:

1. Declaring this action to be a class action pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of the Class defined herein;

2. Awarding plaintiffs and the members of the Class compensatory damages, including rescissory damages, where applicable;

3. Awarding plaintiffs and the members of the Class prejudgment and post-judgment interest, as well as their reasonable attorneys' and experts' witness fees and other costs;

4. Award extraordinary, equitable, and/or injunctive relief as permitted by law, equity, and federal statutory provisions sued hereunder, including rescission, the imposition of a constructive trust upon the proceeds of defendants' insider trading, pursuant to Rules 64, 65, and any appropriate state law remedies; and

5. Award such other relief as this Court may deem just and proper.

Plaintiffs demand a trial by jury.

COMPLNTS\DSP-FED.CPT

Source: Milberg Weiss website