SAN JOSE -- Wireless chipmaker DSP Group said Friday that an activist shareholder has threatened to launch a proxy battle for control of the company.

In a letter to shareholders, DSP Chairman Eliyahu Ayalon and CEO Ofer Elyakim said the San Jose-based company, whose stock is traded on the Nasdaq exchange, has tried to placate New York hedge fund Starboard Value by allowing it to name two directors to the company's board. The letter said DSP also worked to cut expenses and buy back stock in an effort to boost its share price; the stock closed Friday at $7.33 a share.

But, the letter said, Starboard CEO Jeff Smith is demanding more seats on the company's board and wants DSP to stop work on new products and focus instead on its legacy lines of business. DSP's semiconductors are used in cordless phones, home security systems and other devices, but it recently unveiled a product to reduce background noise on mobile devices.

"The board does not believe that Starboard's demands are in the best interests of the company or its shareholders, customers or employees," Ayalon and Elyakim stated.

Officials at Starboard, which owns 10 percent of DSP stock, did not immediately return a request for comment from this newspaper.

Contact Peter Delevett at 408-271-3638; follow him at Twitter.com/mercwiretap.



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