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M-Systems & Microsoft Sign Xbox 2 Memory Deal

(Press Release)

FREMONT, Calif. --(Business Wire)-- Feb. 25, 2004 M-Systems Flash Disk Pioneers Ltd. (Nasdaq:FLSH), the developer of the Smart DiskOnKey(R) platform, has entered into a technology development agreement with Microsoft Corporation. Under the agreement, M-Systems will develop customized memory units for future Xbox(R) products and services.

"Although Microsoft is not obligated to purchase any memory units under the agreement, we believe that this agreement could represent a significant opportunity for M-Systems," said Dov Moran, president and CEO of M-Systems.

About M-Systems' Smart DiskOnKey Platform

The Smart DiskOnKey platform is comprised of solutions offering M-Systems' customers the option to choose from M-Systems' existing product lines or to design their own form factor while still using M-Systems' internal architecture. The DiskOnKey product line offers fast data transfer speeds combined with reliability and ease-of-use. M-Systems' Smart DiskOnKey platform offers the flexibility to extend the use of the device beyond simple data storage to meet other requirements, such as functioning as a secure access device or as a smart card. M-Systems' proprietary flash management software, True Flash File System (TrueFFS), is an integral component of the Smart DiskOnKey platform.

About Xbox

Xbox (http://www.xbox.com/) is Microsoft's future-generation video game system that delivers the most powerful games experiences ever. Xbox empowers game artists by giving them the technology to fulfill their creative visions as never before, creating games that blur the lines between fantasy and reality. Xbox is now available in the continents of North America, Europe, Asia and Australia.

About Microsoft

Founded in 1975, Microsoft (Nasdaq:MSFT) is the worldwide leader in software, services and Internet technologies for personal and business computing. Microsoft offers a wide range of products and services designed to empower people through great software -- any time, any place and on any device.

About M-Systems

M-Systems (Nasdaq:FLSH) designs, develops and markets 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 proprietary TrueFFS(R) technology and target applications in a variety of markets. M-Systems' products include the DiskOnChip(R), DiskOnKey(R) and Fast Flash Disk (FFD(TM)) product families. For more information, please contact M-Systems at www.m-systems.com.