M-Systems Reports 74% Increase in Revenue for Second Quarter

7/17/2003 - M-Systems (Nasdaq: FLSH), a leader in flash-based data storage products, announced financial results for the second quarter ended June 30, 2003.

For the second quarter ended June 30, 2003, revenues were $25.6 million, representing an increase of 16 percent compared to revenues of $22.1 million in the first quarter of 2003, and 74 percent compared to revenues of $14.7 million in the second quarter of 2002. M-Systems reported a net loss for the quarter ended June 30, 2003 of $0.4 million, or $(0.01) per share, compared to a net loss of $0.7 million, or $(0.02) per share in the first quarter of 2003, and compared to a net loss of $1.4 million, or $(0.05) per share in the second quarter of 2002. Gross margins for the quarter were 32.4 percent, compared to 32.6 percent in the first quarter of 2003 and 30.9 percent in the second quarter of 2002.

For the six-month period ended June 30, 2003, revenues were $47.7 million, compared to revenues of $26.1 million in the corresponding period of 2002. The Company reported a net loss of $1.0 million, or $(0.04) per share for the six months ended June 30, 2003, compared to net loss of $3.7 million, or $(0.14) per share, for the six months ended June 30, 2002. Gross margins for the six months ended June 30, 2003 were 32.5 percent, compared to 32.0 percent in the corresponding period of 2002.

Commenting on the results, Dov Moran, President and Chief Executive Officer of M-Systems, said: "We are pleased to report that this is the eighth consecutive quarter in which we have both increased our revenues and improved our bottom line. The significant growth in sales of our DiskOnKey and Mobile DiskOnChip products is the main reason for our strong results.

"The DiskOnKey concept, pioneered and patented by M-Systems, is clearly becoming the standard in personal data storage devices for computers. We are very proud to have created this product category and to have become the leader in the USB Flash Disk market. We believe that the strength of our intellectual property combined with our continuing product development and enhancements will enable us to maintain our leadership position in this fast-growing market."

Mr. Moran continued, "Our Mobile DiskOnChip was the first embedded storage solution for the PDA and handset markets to be based on NAND flash. We introduced the product at a time when NOR-based solutions were the standard, but we are pleased to see that DiskOnChip is gaining greater recognition from device manufacturers as the superior solution for local data storage, and as such, is being utilized in an increasing number of handsets and PDAs.

"The superior solution provided by the Mobile DiskOnChip is evidenced by the fact that it is currently designed into devices from four out of the top five handset vendors. These design wins and ongoing design win activity, along with the impressive growth in its sales in the past quarter, bode well for the continued success of Mobile DiskOnChip in the second half of 2003 and thereafter."

Mr. Moran concluded, "We are delighted with our achievements and our improved positioning in these key markets with tremendous growth potential. I expect that these accomplishments and our past and present initiatives and investments in our technology will add further value to M-Systems and its shareholders and allow us to return to profitability during the second half of the year."

About M-Systems
M-Systems (Nasdaq: FLSH) is a leader and innovator of flash-based data storage products known as flash disks. M-Systems' flash disks provide the functionality of a mechanical hard drive in a silicon chip. M-Systems' products are based on its patented TrueFFS® technology and target applications in a vast array of markets, including connected devices, mobile and telecom. M-Systems' products include the DiskOnChip®, DiskOnKey® and Fast Flash Disk (FFDTM) product families. For more information, please contact M-Systems at www.m-sys.com.

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