Deliver Your News to the World

msystems Reports $217 Million in Revenues and Non GAAP EPS of 32 Cents for the Third Quarter of 2006


KFAR-SABA, Israel, Israel, Oct. 23, 2006 - msystems™ (Nasdaq: FLSH), a leader in smart personal storage, today announced financial results for the third quarter ended September 30, 2006.

GAAP financial highlights for the third quarter:

* Revenues totaled $217.1 million, reflecting a 41 percent increase compared with revenues of $153.9 million in the third quarter of 2005 and a 4 percent increase compared with revenues of $209.5 million in the second quarter of 2006.
* Gross margins were 25.8 percent, 250 basis points higher than gross margins of 23.3 percent in the second quarter of 2006.
* Net income was $5.8 million, or $0.14 per share on a fully diluted basis, compared with net income of $3.1 million, or $0.08 per share on a fully diluted basis, in the second quarter of 2006.

Non GAAP financial highlights for the third quarter:

* Revenues totaled $217.1 million.
* Non GAAP gross margins were 26.0 percent, 260 basis points higher than non GAAP gross margins of 23.4 percent in the second quarter of 2006.
* Non GAAP net income was $13.6 million, or $0.32 per share on a fully diluted basis, compared with non GAAP net income of $10.8 million, or $0.26 per share on a fully diluted basis, in the second quarter of 2006.

Non GAAP adjustments for the third quarter of 2006 (and, to the extent applicable, the second quarter of 2006) exclude the effects of stock-based compensation, amortization of intangible assets related to an acquisition, expenses attributable to the proposed merger with SanDisk Corporation, expenses attributable to the review of prior stock option grants and related withholding tax expenses. A reconciliation of all non GAAP results to the comparable GAAP results is set forth below.

Commenting on the results, Dov Moran, Chief Executive Officer of msystems said, “The third quarter of 2006 was a unique quarter for msystems, as we announced our acquisition by SanDisk at the end of July. Nonetheless, we grew our revenues significantly compared to the third quarter of 2005 and also grew our revenues compared to the previous quarter. Our results in this past quarter demonstrated the continued strength of our OEM business model and the customer relationships we have built as demand in the quarter from our major OEM customers remained strong. We expect demand to continue to grow in the fourth quarter, typical for the holiday season.

“msystems has shown phenomenal growth over the past 5 years – in the third quarter of 2001, we sold less than $10 million compared with $217 million in the third quarter, representing over 20 times growth. In the first nine months of 2006, our revenues were $646 million, higher than our full year 2005 revenues.”

Mr. Moran continued, “As proud as I am of our achievements, I am very pleased with the acquisition as I believe that msystems and SanDisk are a great match with strong synergies in technology, channels and products. But most important, at SanDisk we found great people who truly share our first and foremost value: ‘People First’.”

Mr. Moran concluded, “I would like to take this opportunity to thank all the employees of msystems who helped build this company and create its innovation, technology and tremendous success through their commitment to excellence, hard work and loyalty. In addition to the great team at msystems, I would like to thank our shareholders, suppliers and customers – you are all our partners in this successful journey.”

Conference call
msystems’ management will host a conference call to discuss its third quarter financial results at 10:00 a.m. EDT today, October 23, 2006. In light of the pending transaction with SanDisk, there will be no question and answer session following management’s prepared comments on the call.
A replay of the call will be available beginning at approximately 12:00 p.m. EDT, October 23, 2006, until October 30, 2006 at 11:59 p.m. To listen to the replay, please call +1 (973) 341-3080; ID code: 7984983.

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.

More information is available online at msystems. made smarter.

Click here to download tables:

All company and product names mentioned may be trademarks or registered trademarks of their respective holders and are used for identification purposes only. msystems is a trademark of msystems Ltd.; MegaSIM is a trademark of msystems Ltd. in the United States and other countries and registered in Israel and Japan. U3 is a trademark of U3, LLP.

This press release includes forward-looking statements including statements regarding the proposed merger with SanDisk Corporation, the future market for the companies’ products, as defined in the Private Securities Litigation Reform Act of 1995, including statements about our business outlook for the future, that our based on our current expectations. 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: that the businesses of msystems and SanDisk will not be integrated successfully and that any synergies from the proposed transaction may not be fully realized or may take longer to realize than expected; all risk associated with the development and implementation of x4 technology , including difficulties in utilization or implementation of 4-bit/cell NAND flash, any failure we may experience in perfecting and/or protecting our intellectual property rights related to x4 technology, and the risk that flash manufacturers may opt to utilize such other technologies and not our x4 technology; the risk that msystems business may not perform as expected, risks relating to msystems prior stock option grants, the effect of global economic conditions in general and conditions in msystems’ industry and target markets in particular, shifts in supply and demand, difficulty in predicting the level of sales by our venture with a flash partner, 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.

You may register to receive msystems’ future press releases or to download a complete Digital Investor Kit™ including press releases, regulatory filings and corporate materials by clicking on the “Digital Investor Kit™” icon at


This news content was configured by WebWire editorial staff. Linking is permitted.

News Release Distribution and Press Release Distribution Services Provided by WebWire.