SimpleTech Revenues Higher than Expected with 9% Growth

7/31/2003 - SimpleTech, Inc. (Nasdaq: STEC), a technology solutions provider offering products based on DRAM and Flash memory technologies, announced its financial results for the second quarter and the six months ended June 30, 2003.

Revenues for the second quarter of 2003 were $44.7 million, an increase of 9% from $40.9 million for the first quarter of 2003, and an increase of 3% from $43.3 million for the second quarter of 2002. Revenues for the second quarter of 2003 increased from the prior quarter due primarily to a 28% increase in sales of Flash-based memory solutions and increased shipments to new and existing retail customers. The company exceeded its previous guidance of flat revenues for the second quarter of 2003 by $3.8 million. Loss per share was $0.02 for the second quarter of 2003, compared to a loss per share of $0.04 for the first quarter of 2003 and a loss per share of $0.02 for the same period in 2002. The results for the second quarter of 2003 were better than analyst expectations of a loss per share of $0.04. The company increased its cash and short-term marketable securities balance by more than $2 million during the second quarter of 2003 to more than $44 million.

Business Segments

Commercial Division
Revenues from Commercial Division customers comprised 81% of total revenues for the second quarter of 2003, compared to 78% of total revenues for the first quarter of 2003. Commercial Division revenues increased to $36.1 million for the second quarter of 2003 from $31.8 million for the first quarter of 2003, an increase of 14%. For the second quarter of 2003, revenues from the division's largest retail customer increased 69% from the prior quarter. The division expects to generate additional revenues during the second half of 2003 from new products released late in the second quarter and early in the third quarter of 2003. These new products include a line of embedded USB Flash drives and a line of high-speed, high-capacity desktop, notebook and external hard drives.

Industrial Division
Revenues from Industrial Division customers comprised 19% of total revenues for the second quarter of 2003, compared to 22% of total revenues for the first quarter of 2003. Industrial Division revenues decreased from $9.1 million for the first quarter of 2003 to $8.7 million for the second quarter of 2003.

Xiran Division
The Xiran Division completed testing of its prototype units, successfully demonstrated product performance at several industry tradeshows and expects to ship evaluation units to potential customers during the third quarter of 2003.

The division combines proprietary hardware, firmware and software to implement its DirectPath(TM) family of products. These products are aimed at improving server throughput and performance in several high growth markets ranging from streaming media and video-on-demand to emerging networked storage applications.

During the second quarter of 2003, the Xiran Division was granted United States patent number 6,535,518 B1 titled "System for Bypassing a Server to Achieve Higher Throughput Between Data Network and Data Storage System," a universal solution for accelerating content delivery between network and storage.

Business Outlook
"We are pleased with our performance for the second quarter of 2003 as well as the demand outlook for our Flash- and DRAM-based products for the third quarter of 2003," said Manouch Moshayedi, chief executive officer of SimpleTech, Inc. "We are encouraged by our stronger than expected results in the second quarter of 2003 along with current market trends and believe that these may be signs of a turnaround for our sector. We have seen significant increases in DRAM and Flash demand along with the stabilization and increase of component prices during the past several weeks. Excluding Xiran, we achieved profitability for the quarter. We strengthened our balance sheet through positive cash flow from operations, exiting the quarter with more than $44 million in cash and short-term marketable securities and no long-term debt. At the same time, we invested additional resources to bolster our sales and marketing effort, while decreasing our general and administrative expenses.

"Flash continues to grow as a contributor to our revenue stream. We recently announced our new line of embedded USB Flash drives. Flash-based product sales surpassed 44% of revenues for the second quarter of 2003, an increase from 38% of revenues for the first quarter of 2003.

"Flash prices have held steady after a major decline in the first quarter of 2003. This steadiness along with increasing demand for our Flash-based solutions, revenue increases due to improved retail operating methods and the addition of a sizable, select retail customer with warehouse locations nationwide, support our positive Flash outlook as we enter the second half of 2003.

"Our Xiran Division continues to make significant progress in terms of product development and customer interest. We look forward to feedback from our potential customers on upcoming shipments of our evaluation units. We believe that we are on course in developing a technology which helps meet a growing challenge -- that of delivering rich content through servers more efficiently and more cost effectively.

"Although order visibility continues to be limited, we believe that we are well positioned to take advantage of improving industry conditions in the second half of 2003. Demand for our DRAM- and Flash-based solutions is accelerating and pricing is firming. Based upon current trends, we expect our third quarter 2003 revenues to increase to a range of $48 to $50 million and earnings per share to improve to a net loss of $0.01."

About SimpleTech
SimpleTech, Inc., is a technology solutions provider offering products based on DRAM, SRAM and Flash memory technologies. Headquartered in Santa Ana, Calif., the company is a leader in the design, development, manufacturing and marketing of memory solutions. For information, please contact the company's Investor Relations department at (949) 260-8328 (ir@simpletech.com) or visit www.simpletech.com.

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