SimpleTech Announces Third Quarter 2005 Results

SimpleTech, Inc. (Nasdaq:STEC), a designer, manufacturer and marketer of custom and open-standard memory and storage solutions based on Flash memory, DRAM and hard disk drive technologies, today announced its financial results for the third quarter ended September 30, 2005.




Revenue for the third quarter of 2005 was $67.2 million, a decrease of 4% from $70.3 million for the second quarter of 2005 and a decrease of 10% from $75.0 million for the third quarter of 2004. Gross profit margin increased to 20.7% for the third quarter of 2005, compared to 18.2% for the second quarter of 2005 and 17.9% for the third quarter of 2004. Diluted earnings per share was $0.04 for the third quarter of 2005, compared to diluted earnings per share of $0.04 for the second quarter of 2005 and diluted earnings per share from continuing operations of $0.06 for the third quarter of 2004. Order backlog was $12.1 million at September 30, 2005, compared to $17.9 million at June 30, 2005, and $13.0 million at September 30, 2004.



The company did not purchase any shares of its common stock during the third quarter of 2005 under its previously announced $15 million stock repurchase program. The program has a remaining balance of approximately $74,000.



Business Segments



OEM Division



Revenue from OEM Division customers comprised 49% of total revenue in the third quarter of 2005, compared to 54% in the second quarter of 2005 and 52% in the third quarter of 2004. OEM Division revenue was $32.8 million in the third quarter of 2005, a decrease of 14% from $38.1 million in the second quarter of 2005 and a decrease of 16% from $39.0 million in the third quarter of 2004.



Consumer Division



Revenue from Consumer Division customers comprised 51% of total revenue in the third quarter of 2005, compared to 46% in the second quarter of 2005 and 48% in the third quarter of 2004. Consumer Division revenue was $34.4 million in the third quarter of 2005, an increase of 7% from $32.2 million in the second quarter of 2005 and a decrease of 4% from $36.0 million in the third quarter of 2004.



Business Outlook



"We continue to see improvements in certain parts of our business and I am optimistic about our outlook going into 2006," said Manouch Moshayedi, chairman and CEO of SimpleTech, Inc.



"We significantly expanded our gross profit margin, surpassing 20% for the third quarter of 2005. The expansion resulted primarily from a shift in product mix towards OEM Flash -- our highest-margin product line. Our OEM Flash product revenue increased sequentially by $7.3 million, or 101%, from $7.2 million in the second quarter of 2005 to $14.5 million in the third quarter of 2005. Total units shipped increased 31% sequentially due to a 32% increase in Consumer Division Flash products shipped and a 186% increase in OEM Flash products shipped in the third quarter of 2005.



"We remain excited about our efforts to enter the growing external storage market with our SimpleShare line of network-attached storage (NAS) solutions. We expect to increase our presence in this market through the anticipated launch of our storage solutions at several major retailers in the fourth quarter of 2005.



"We currently expect our revenue for the fourth quarter of 2005 to increase by approximately 5% and our diluted earnings per share to be relatively flat, sequentially."



Conference Call



SimpleTech, Inc. will hold an open conference call to discuss results for the third quarter of 2005. The call will take place today at 1:30 p.m., Pacific/4:30 p.m., Eastern. The call-in numbers for the conference are 1-800-781-3662 (United States and Canada) and 1-706-643-7710 (International).



Webcast



This call is being webcast. The webcast can be accessed by clicking on "Investors" at the bottom of the home page at www.simpletech.com. The webcast will be archived and available for replay beginning approximately two hours after the live call concludes.



About SimpleTech, Inc. (Nasdaq:STEC)



SimpleTech, Inc. designs, manufactures and markets custom and open-standard memory and storage solutions based on Flash memory, DRAM and hard disk drive technologies. Headquartered in Santa Ana, California, the company offers a comprehensive line of over 2,500 products and specializes in developing high-density memory modules, memory cards and storage drives. For information about SimpleTech, Inc., and to subscribe to the company's "Email Alert" service, please visit our web site at www.simpletech.com, click "Investor" and then Email Alert.



Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:



This release may contain forward-looking statements that involve risks and uncertainties, including, but not limited to, statements concerning our optimism going into 2006, excitement in our efforts to enter the growing external storage market, expected increased in presence in the external storage market, anticipated launch of storage solutions at several major retailers in the fourth quarter of 2005, and revenue and earnings guidance for the fourth quarter of 2005.



Actual results may differ materially from the results predicted. Important factors which could cause actual results to differ materially from those expressed or implied in the forward-looking statements are detailed under "Risk Factors" in filings with the Securities and Exchange Commission made from time to time by SimpleTech, including its Annual Report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. Other factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements include the following risks: integration issues, costs and unanticipated expenditures related to our recent acquisition of Memtech, we may not realize the anticipated benefits of the acquisition of Memtech, the cost of raw materials may fluctuate widely in the future, delays in the qualification process of our products with customers, slower than expected expansion of our international business, the impact of the implementation in 2006 of new accounting rules related to the expensing of stock options, excess availability of DRAM or Flash memory could reduce component pricing resulting in lower average selling prices and gross profit, DRAM or Flash memory supply may tighten requiring suppliers to place their customers, including us, on limited component allocation, effects of seasonality, interruptions or delays at the semiconductor manufacturing facilities that supply products to us, higher than expected operating expenses, new and changing technologies limiting the applications of our products, our inability to become more competitive in new and existing markets, our backlog may not result in future revenue, our inability to maintain and increase market share, difficulty competing in sectors characterized by aggressive pricing and low margins, higher than anticipated product returns, inventory write-downs, price protection and rebate charges, new customer and supplier relationships may not be implemented successfully and we may not repurchase any additional shares under our previously announced stock repurchase plan. SimpleTech undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.



The SimpleTech company logo can be found at: http://www.primezone.com/newsroom/prs/?pkgid=1079





SimpleTech, Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)

September 30, December 31,
2005 2004
------------ -----------
ASSETS:
Current Assets:
Cash, cash equivalents and marketable
securities $ 69,664 $ 83,318
Accounts receivable, net of allowances
of $861 at September 30, 2005 and
$993 at December 31, 2004 35,554 37,047
Inventory, net 36,504 19,002
Deferred income taxes 1,316 1,515
Other current assets 3,922 2,663
-------- --------
Total current assets 146,960 143,545
Furniture, fixtures and equipment, net 7,495 6,146
Intangible assets 2,327 373
Deferred income taxes 2,036 3,345
-------- --------
Total assets $158,818 $153,409
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 27,852 $ 16,553
Accrued and other liabilities 4,953 5,428
-------- --------
Total liabilities 32,805 21,981

Shareholders' Equity:
Common stock 45 47
Additional paid-in capital 110,971 121,193
Retained earnings 14,997 10,188
-------- --------
Total shareholders' equity 126,013 131,428
-------- --------
Total liabilities and shareholders'
equity $158,818 $153,409
======== ========

SimpleTech, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

Three Months Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
-------- -------- -------- --------
Net revenues $ 67,221 $ 75,016 $198,737 $197,815
Cost of revenues 53,313 61,565 161,054 164,579
-------- -------- -------- --------
Gross profit 13,908 13,451 37,683 33,236
-------- -------- -------- --------
Operating expenses:
Sales and marketing 6,352 4,979 17,750 14,174
General and
administrative 3,279 2,460 9,459 7,537
Research and
development 1,805 1,192 4,709 3,005
-------- -------- -------- --------
Total operating
expenses 11,436 8,631 31,918 24,716
-------- -------- -------- --------
Operating income 2,472 4,820 5,765 8,520
Interest income 367 291 1,219 692
-------- -------- -------- --------
Income from continuing
operations before
provision for income
taxes 2,839 5,111 6,984 9,212
Provision for income
taxes 999 2,038 2,175 3,613
-------- -------- -------- --------
Income from continuing $ 1,840 $ 3,073 $ 4,809 $ 5,599
operations
Loss from discontinued
operations before
benefit for income
taxes -- -- -- (7,115)
Benefit for income
taxes -- -- -- (3,013)
-------- -------- -------- --------
Loss from discontinued
operations $ -- $ -- $ -- $ (4,102)
-------- -------- -------- --------
Net income $ 1,840 $ 3,073 $ 4,809 $ 1,497
======== ======== ======== ========
Net income (loss) per
share:
Basic:
Continuing operations $ 0.04 $ 0.06 $ 0.11 $ 0.12
Discontinued operations -- -- -- (0.09)
-------- -------- -------- --------
Total $ 0.04 $ 0.06 $ 0.11 $ 0.03
======== ======== ======== ========
Diluted:
Continuing operations $ 0.04 $ 0.06 $ 0.10 $ 0.11
Discontinued operations -- -- -- (0.08)
-------- -------- -------- --------
Total $ 0.04 $ 0.06 $ 0.10 $ 0.03
======== ======== ======== ========
Shares used in
computation of net
income (loss)
per share:
Basic 44,761 47,712 45,326 47,816
======== ======== ======== ========
Diluted 46,668 48,730 46,809 49,609
======== ======== ======== ========


CONTACT: SimpleTech, Inc.
Investors & Financial Media:
Mitch Gellman
(949) 260-8328
ir@simpletech.com

Media:
Elaine Marshall
(949) 260-8219
emarshall@simpletech.com

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