Set to Increase Market Penetration, msystems™ Teams Up with Leading OEMs to Bring U3™ Smart Drives to Japan

Packed with applications and content to maximize the personal storage experience, msystems U3 smart drives marketed by I-O DATA and Elecom on their way to thousands of retail locations

TOKYO, July 5, 2006, msystems (Nasdaq: FLSH), a leader in smart personal storage, today announced that I-O DATA and Elecom, two of Japan’s top original equipment manufacturers (OEMs), have joined ranks with previously announced partners to sell U3 smart drives made by msystems. U3 smart drives host a “personal digital universe” - not only data and files, but U3 smart software programs, personal user preferences and the means for managing them.

Building on the success of its patented USB Flash Drive (UFD) category, msystems’ U3 smart drives enable consumers to securely store, access and control their personal information and applications from any PC running Windows 2000 or XP, anytime and anywhere. Equipped with a versatile platform containing a powerful microprocessor at its core, the U3 smart drive fuses the power of software with the USB flash drive.

Osaka-based Elecom is currently bundling a U3 smart mobile computing software application from Migo Software (www.migosoftware.com) onto its “MF-UU2” Series U3 smart drive, which will be available soon in a variety of retail locations. In addition to Migo software, Kanazawa-based I-O DATA is currently bundling ACD Systems’ (www.acdsee.com) ACDSee photo viewing and editing software, CyberLink’s (www.cyberlink.com) PowerBackup backup software and RoboForm’s (www.roboform.com) Pass2Go password portability software onto its “EasyDisk U3” U3 smart drive, which will be on sale soon in a variety of retail locations.

“The U3 smart drives that I-O DATA and Elecom will offer will be truly differentiated products in what many see as a very competitive market in Japan,” said Yuzo Tsukui, president of msystems Japan. “With their ability to run a variety of software applications directly from the drive, U3 smart drives such as these from I-O DATA and Elecom offer added value and true mobility to end users. They are USB flash drives, made smarter.”

About I-O Data
I-O DATA DEVICE, INC., is a manufacturer and provider of high-quality computer peripherals and interface products to the global consumer and OEM markets. Founded in 1976, I-O DATA has received recognition as Japan’s undisputed market leader within the PC Peripheral industry. The name I-O DATA originates from the company’s dealings with Input/Output devices. I-O DATA is not only a manufacturer of such devices, but handles the design, development, production and distribution of their products. For more information, visit www.iodata.com.

About Elecom
ELECOM Co., LTD., merged with Logitec last year, is a leading manufacturer and worldwide distributor of total solution, computer-related products. The Company develops and supplies a broad range of computer related products for offices, schools, SOHO and homes. ELECOM has created many best-selling products and achieved the No.1 position in many sectors. According to GFK, ELECOM has a 40% share of the mouse, keyboard, numeric keypad and USB hub market in Japan. More information is available online at www.elecom.eu.com.

About msystems
msystems has been transforming raw flash material into smarter storage solutions since 1989. From embedded flash drives deployed in millions of mobile handsets to U3 USB smart drives designed for leading global brands, msystems creates, develops, manufactures and markets smart personal storage solutions for a myriad of applications targeting high growth markets. msystems’ product lines include:

* mDrive (formerly DiskOnKey®) U3 USB smart drives for personal, portable computing
* mDOC embedded flash drives for mobile handsets and consumer electronics devices
* mSIM MegaSIM® series high-density SIM cards and mSIM M.MAR® series SIM cards and highly secure cards (available both from msystems and its subsidiary Microelectronica)
* mCard, high-quality memory cards for mobile handsets and digital cameras
* mTrust (formerly Xkey®) end-to-end enterprise access, control and management solution for USB flash drives and other removable media
* mSSD (formerly FFD™) rugged solid state disks for mission-critical applications
* mModule (formerly DiskOnChip® modular family) modular flash storage for embedded systems
* mSafe (formerly SuperMAP® family) secure hardware and software crypto cores

More information is available online at www.m-systems.com. msystems. made smarter.

Note to Editors: High-resolution photo images of msystems’ products can be found on the Internet at www.m-systems.com/site/en-US/Corporate/PressRoom/ImageLibrary

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All company and product names mentioned may be trademarks or registered trademarks of their respective holders and are used for identification purposes only.

This press release includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements, as they are subject to various risks and uncertainties which may cause actual results to vary significantly. These risks include, but are not limited to: the effect of global economic conditions in general and conditions in msystems’ industry and target markets in particular, shifts in supply and demand, market acceptance, the impact of competitive products and pricing, product development, commercialization and technological difficulties, and capacity and supply constraints including dependence on flash component suppliers; changes in msystems’ and its customers’ inventory levels and inventory valuations; timely product and technology development/upgrades and the ability to manage changes in market conditions as needed; market acceptance of new products and continuing product demand; the impact of competitive products and pricing on msystems’ and its customers’ products and markets; the development, release and sale of new products by strategic suppliers and customers; the development and growth of anticipated markets for msystems’ and its customers’ products; and other risk factors detailed from time to time in msystems’ filings with the Securities and Exchange Commission. msystems assumes no obligation to update the information in this press release and disclaims any obligation to publicly update or revise any such forward-looking statements to reflect any change in its expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. Reference to msystems’ website above does not constitute incorporation of any of the information thereon into this press release.

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