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17B, Edificio Comercial Rodrigues

599 Avenida da Praia Grande

Macao

Tel: (853) 322096

Fax: (853) 323265

February 20, 2006

Via EDGAR

Nili Shah

Branch Chief

Securities and Exchange Commission

100 F Street, NE

Washington, DC 20549-7010

    Re:

    Deswell Industries, Inc. (the “Company”)

Form 20-F for the fiscal year ended March 31, 2005

Filed July 8, 2005

File No. 0-26448

Dear Ms. Shah:

This is in response your comment letter of January 30, 2006 to C. P. Li of the Company. For the
convenience of the staff, each comment is repeated verbatim with the Company’s response immediately
following.

Form 20-F for the fiscal year ended March 31, 2005

Item 5. Operating and Financial Review and Prospects, page 24

Operating Results, page 24

    1.

    We note your discussion of the comparisons between fiscal years on pages 25-29.
In future filings, please address the following:

    •

    Discuss, in detail, exactly why your gross margins have been
decreasing steadily over the past five fiscal years, continuing into the
quarters of fiscal 2006. Please quantify the impact of price reductions and
raw material, in particular resin, price increases on the gross margin of each
segment. Refer to Item 5A and 5D of Form 20-F.

    •

    Discuss the sales and gross profit trends of the electronic
products assembling segment in greater detail. It appears that this segment
may

Nili Shah

Branch Chief

February 20, 2006

Page 2

    quickly eclipse the performance of the plastic injection molding segment.
We note that net sales for the electronic products segment more than doubled
during fiscal 2005.

Response:

Your comments are noted and disclosure will be added in future filings.

Liquidity and Capital Resources, page 30

    2.

    We note your table of contractual obligations and commercial commitments on
page 31. We have the following comments:

    •

    In future filings, please include a “Total” column, as shown in
Item 5F of Form 20-F.

Response:

Your comment is noted and disclosure will be added in future filings.

    •

    You disclose purchase obligations for the year ending March 31,
2006 of $8,695,000. However, it is not clear to us what this amount
represents, particularly in light of the fact that you do not engage in
long-term contracts with customers or suppliers. Please tell us, and disclose
in future filings to the extent material within this section and your
commitments and contingencies note, the nature of your purchase obligations.

Response:

The purchase obligations so disclosed were the amount of our outstanding purchase orders to our
vendors as of March 31, 2005. Of $8,695,000, $1,260,000 stemmed from our plastic segment and
$7,435,000 from our electronic & metallic segment.

Your comment is noted and disclosure regarding the nature of our purchase obligations, to the
extent material, will be added in future filings within Liquidity and Capital Resources and our
commitments and contingencies footnote to our notes to financial statements.

Item 11. Quantitative and Qualitative Disclosures About Market Risks, page 52

    3.

    You state that China’s law and regulations regulate dividend distribution and
repatriation by your China subsidiaries. Such dividends will be declared from retained
earnings, but the amount of retained earnings will be limited by the amount of dividends
that can be declared by your subsidiaries. Please provide us with the detailed
computations you performed demonstrating that the restricted retained earnings do not
exceed the 25% threshold, pursuant to Rule 4-08(e)(3) of Regulation S-X. If the
restricted net assets exceed the 25% threshold, revise your

Nili Shah

Branch Chief

February 20, 2006

Page 3

    financial statements in future filings to include the required Rule 4-08(e)(3)
disclosures and Schedule I, which is discussed under Rules 5-04 and 12-04 of
Regulation S-X.

Response:

In fact, for our China subsidiaries, there are no restrictions on the dividend distribution from
retained earnings, except when we decided to reinvest any of such subsidiary’s retained earnings.
If such application of reinvestment of retained earnings is made, the amount of dividend
distribution will then be limited by the retained earnings remaining in the subsidiary.

None of our Chinese subsidiaries had any restricted net assets nor restricted retained earnings for
the year ended March 31, 2005.

Your comment is noted and if our restricted net assets at the end of our fiscal years in the future
exceed the 25% threshold, we will include in our financial statements in future filings the
required disclosures and Schedule I.

Item 15. Controls and Procedures, page 53

    4.

    We note your disclosure regarding your disclosure controls and procedures. We
have the following comments:

    •

    If true, confirm to us that your chief executive officer and
chief financial officer concluded that your disclosure controls and procedures
are effective to ensure that information required to be disclosed by the
Company in reports that it files under the Securities Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC, and that your officers concluded that your
disclosure controls and procedures are also effective to ensure that
information required to be disclosed in the reports that you file or submit
under the Exchange Act is accumulated and communicated to your management,
including your chief executive officer and chief financial officer, to allow
timely decisions regarding required disclosure. See Exchange Act Rule
13a-15(e). Please revise to comply with the requirement in future filings.

Response:

In accordance with your comment, we confirm to you that our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in reports that it files under the
Securities Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC, and that our officers concluded that our disclosure
controls and procedures are also effective to ensure that information required to be

Nili Shah

Branch Chief

February 20, 2006

Page 4

disclosed in the reports that you file or submit under the Exchange Act is accumulated and
communicated to our management, including our chief executive officer and chief financial officer,
to allow timely decisions regarding required disclosure.

This comment is noted and disclosures will be made to comply with the requirement in future
filings.

    •

    If true, please confirm in your response that there have been
no changes in internal control over financial reporting that occurred during
the period covered by the annual report that have materially affected, or are
reasonably likely to materially affect your internal control over financial
reporting. Refer to Item 15(d) of Form 20-F. Please revise your future
filings to comply with this disclosure requirement.

Response:

In accordance with your comment, we confirm that there have been no changes in internal control
over financial reporting that occurred during the period covered by our Annual Report on Form 20-F
for the year ended March 31, 2005 that have materially affected, or are reasonably likely to
materially affect our internal control over financial reporting.

This comment is noted and disclosures will be made to comply with the requirement in future filings

Financial Statements

    8.

    Income Taxes, page 66

    5.

    Please tell us the facts and circumstances that have led to the recognition of
no deferred tax assets for the two most recent fiscal years, and deferred tax
liabilities of only $15,000 at March 31, 2004, resulting in nil deferred tax expenses
for the years ended March 31, 2003 and 2004, and $15,000 deferred tax expense for the
year ended March 31, 2005.

Response:

The assessment is made with reference to FASB statement No. 109 “Accounting for Income taxes” and
to the facts and circumstances of any transactions that might have taxable temporary differences
giving rise to deferred tax liabilities or assets and the extent of realization.

In note 8 — Income Taxes of our audited financial statements, we detailed the tax status of our
various operations. Most of our subsidiaries are either not subject to any tax jurisdictions or
are enjoying tax holidays and concessions in China. As a consequence, there are no material
transactions having timing differences giving rise to deferred tax assets or liabilities.

Nili Shah

Branch Chief

February 20, 2006

Page 5

After the assessment, management concluded that no deferred tax assets or deferred tax liabilities
should be recognized in such years.

    6.

    Please tell us the nature of the line item “Effect of income for which no
income tax is payable” in your reconciliation table on page 67. Citing relevant
accounting literature, please also tell us why the transactions included in this line
do not give rise to deferred taxes.

Response:

The line item “Effect of income for which no income tax is payable” is related to income of
entities that are not subject to any tax jurisdictions, which income, therefore, did not give rise
to any deferred taxes.

* * * *

In connection with responding to your comments, we acknowledge that:

    •

    the Company is responsible for the adequacy and accuracy of the
disclosures in its filings;

    •

    staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action with respect to
the filing; and

    •

    the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.

* * * *

If you have any further comments or questions, please do not hesitate to contact the undersigned.

    Sincerely,

DESWELL INDUSTRIES, INC.

    By:
    /s/ C. P. Li

    C. P. Li

    Chief Financial Officer

    Cc:

    Ms. Jenn Do via fax: (202) 772-5368, and email: dop@sec.gov

Mark A. Klein, Esq. via email: mklein@klng.com