UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549
  FORM 10-K
 
 þ  ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For the
fiscal year ended August 29, 2008
   ̈  TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT    OF 1934
  Commission
file number 000-51771
 
 SMART
MODULAR TECHNOLOGIES (WWH), INC.
 (Exact
Name of Registrant as Specified in Its Charter)
 Cayman
      Islands
              3674
              20-2509518(State
      or Other Jurisdiction of
                Incorporation
      or Organization)
              (Primary
      Standard Industrial
                Classification
      Code Number)
              (I.R.S.
      Employer
                Identification
      Number)4211
      Starboard Drive
                Fremont,
      CA 94538(Address
      of Principal Executive Offices)(510) 623-1231(Registrant’s telephone
      number)
  Securities
registered pursuant to Section 12(b) of the Exchange Act:
 Title of Each
      Class
              Name of Each Exchange
      on Which RegisteredOrdinary
      Shares, $0.00016667 par value
              NASDAQ
      Global Select Market
  Securities
registered pursuant to Section 12(g) of the Exchange Act:
 None
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o  No T
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act.                  
Yes o    No
T
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes T  No
o
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10 K-A. T
 
 Indicate
by check mark if the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a
smaller reporting company.  See definition of “accelerated filer,”
and “large accelerated filer” and “smaller reporting company” in Rule
12b(2) of the Exchange Act. (Check one).
  Large
accelerated filer o                         Accelerated
filer T                       Non-accelerated
filer o  Smaller Reporting
Company o
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b
2 of the Exchange Act). Yes o  No T
  The
aggregate market value of the registrant’s ordinary stock held by
non-affiliates of the registrant at February 29, 2008, based on the closing
price of such stock on the Nasdaq National Market on such date, was
approximately $105,462,801.
The number of shares of the registrant’s ordinary shares, $0.00016667 par value,
outstanding onOctober 27, 2008, was61,592,212.
  Portions
of the registrant’s Proxy Statement relating to the registrant’s 2008 Annual
Meeting of Shareholders to be held on or about January 28, 2009 are incorporated
by reference into Part III of this Annual Report on Form 10-K (“Annual
Report”).


1


SMART
MODULAR TECHNOLOGIES (WWH), INC.
 FOR
THE FISCAL YEAR ENDED AUGUST 29, 2008
  TABLE OF
CONTENTS
  PART I
              
              3Item
      1.
              Business
              3Item
    1A.
              Risk
      Factors
              7Item
    1B.
              Unresolved Staff
      Comments
              20Item
2.
              Properties
              20Item
3.
              Legal
      Proceedings
              21Item
4.
              Submission of Matters to a Vote
      of Security Holders
              22PART
    II
              
              22Item 5.
              Market for the
      Registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities
              22Item 6.
              Selected Financial
      Data
              23Item
7.
              Management’s Discussion
      and Analysis of Financial Condition and Results of
      Operations
              25Item
    7A.
              Quantitative and Qualitative
      Disclosures About Market Risk
              33Item
8.
              Financial Statements and
      Supplementary Data
              34Item
9.
              Changes in and Disagreements with
      Accountants on Accounting and Financial
    Disclosure
              34Item
    9A.
              Controls and
      Procedures
              34Item
    9B.
              Other
      Information
              35PART
    III
              
              35Item 10.
              Directors and Executive Officers
      of the Registrant
              35Item
    11.
              Executive
      Compensation
              35Item
    12.
              Security Ownership of Certain
      Beneficial Owners and Management
              35Item
    13.
              Certain Relationships and
      Related Transactions
              35Item
    14.
              Principal Accountant Fees and
      Services
              35PART
    IV
              
              35Item 15.
              Exhibits and Financial Statement
      Schedules.
              35SIGNATURES
              
              62
  This
Annual Report is for the fiscal year ended August 29, 2008.  This
Annual Report modifies and supersedes documents filed prior to this Annual
Report. The United States  Securities and Exchange Commission (“SEC”)
allows us to “incorporate by reference” information that we file with them,
which means that we can disclose important information to you by referring you
directly to those documents. Information incorporated by reference is considered
to be part of this Annual Report. In addition, information that we file with the
SEC in the future will automatically update and supersede information contained
in this Annual Report. In this report, “SMART,” the “Company,” “we,” “us” or
“our” refer to SMART Modular Technologies (WWH), Inc. and its subsidiaries,
except where the context makes clear that the reference is only to SMART Modular
Technologies (WWH), Inc. itself and is not inclusive of its
subsidiaries.
  2


PART I




Item
      1.
            Business


FORWARD-LOOKING
STATEMENTS
  This
report contains “forward-looking statements.” Forward-looking statements give
our current expectations or forecasts of future events. Forward-looking
statements generally can be identified by the use of forward-looking terminology
such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,”
“project” or “continue” or the negative thereof or other similar words. From
time to time, we also may provide oral or written forward-looking statements in
other materials we release to the public. Any or all of our forward-looking
statements in this report may turn out to be incorrect, possibly to a material
degree, due to a loss of, or a reduction in sales to any of our key customers,
our dependence on certain components in our products which we obtain from a
limited number of suppliers, the impact of any acquisitions we may make, changes
in political, social and economic conditions and local regulations, particularly
outside of the U.S., and our ability to satisfy our debt service obligations and
comply with the covenants contained in the agreements related thereto, among
many others. Such statements can be affected by inaccurate assumptions we might
make or by known or unknown risks or uncertainties. Consequently, no
forward-looking statement can be guaranteed. Actual results may vary materially.
Investors are cautioned not to place undue reliance on any forward-looking
statements.
  Overview
  We are a
leading independent designer, manufacturer and supplier of value added
subsystems primarily to Original Equipment Manufacturers (“OEMs”). Our subsystem
products include memory modules, embedded computing, Solid State Drives (“SSD”)
and Thin Film Transistor – Liquid Crystal Display (“TFT-LCD”) products that we
offer to customers worldwide. We also offer our customers custom supply chain
services including procurement, logistics, inventory management and temporary
warehousing, kitting and/or packaging services. Our products and services are
used for a variety of applications in the computing, networking, communications,
printers, storage and industrial markets worldwide. Products that incorporate
our subsystems include servers, routers, switches, storage systems,
workstations, PCs, notebooks, printers and gaming machines. Generally, increases
in overall unit demand by end users for, and increases in memory content in,
products that incorporate our subsystems should have a positive effect on our
business, financial condition and results of operations, conversely, decreases
in product unit demand and memory content can have a negative effect on our
business, financial condition and results of operations.  We offer
more than 500 standard and custom products to leading OEMs, including Cisco
Systems, Dell and Hewlett-Packard. We maintain a large global footprint with
manufacturing capabilities in the U.S., Malaysia, Brazil and Puerto Rico. Our
global operations enable us to control costs and rapidly respond to our
customers’ requirements worldwide.
  Our
business was originally founded in 1988 as SMART Modular Technologies, Inc.,
(“SMART Modular”) and SMART Modular became a publicly traded company in
1995.  Subsequently, SMART Modular was acquired by Solectron
Corporation (“Solectron”) in 1999, where it operated as a subsidiary of
Solectron. In April 2004, a group of investors led by TPG Capital, L.P., or TPG,
Francisco Partners and Shah Capital Partners acquired our business from
Solectron (the “Acquisition”), and we began to operate as an independent company
under the name, SMART Modular Technologies (WWH), Inc. (“SMART” or the
“Company”) under the laws of the Cayman Islands.
  Since
the Acquisition, we repositioned portions of our business by focusing on the
delivery of certain higher value added products, diversifying our end markets
and extending into new vertical markets, creating more technically engineered
products and solutions, migrating manufacturing to low cost regions and
controlling expenses.  For example, in fiscal 2005 we acquired
Estecom, a producer of TFT-LCD products, in fiscal 2006 we acquired ConXtra,
Inc., a product design and design manufacturing services provider, and in fiscal
2008 we acquired Adtron Corporation (“Adtron”), a leading designer and global
supplier for high performance and high capacity SSDs.  Also, in fiscal
2006 we completed our manufacturing facility in Atibaia, Brazil into which we
import finished wafers and package them into memory integrated circuits and into
memory modules.
  Our
Products and Services
  In fiscal
2008, we categorize our products and services into the following two business
segments: the design, manufacture, and distribution of memory modules, embedded
computing subsystems, and TFT-LCD products (“Memory, Embedded, & Display
Segment”) and the design, manufacture, and distribution of industrial data
storage products such as high capacity SSDs (“Adtron Segment”).  In
our prior fiscal years we operated under one segment.  From the
acquisition of Adtron on March 3, 2008 through December 31, 2008 (the Adtron
acquisition earn-out period for certain former Adtron employees), SMART’s CEO
and chief operating decision maker will separately evaluate Adtron’s performance
and the allocation of resources to Adtron.
  Memory,
Embedded, & Display Segment
  Memory
Products
  DRAM Modules.We offer a comprehensive lineup of Dynamic Random Access Memory (DRAM)
memory modules utilizing a wide range of DRAM technologies from legacy Fast
Page/Extended-Data-Out (FP/EDO) and Synchronous DRAM (“SDRAM”) to
double-data-rate (“DDR”) SDRAM and leading-edge high performance DDR3 SDRAM
devices. These modules encompass a broad range of form factors and functions
including the older single in-line memory modules (SIMMs) and more current dual
in-line memory modules (DIMMs), fully-buffered DIMMS (FB DIMMS), small outline
dual in-line memory modules (SO-DIMMs), and very low profile (VLP) DIMMs and
mini-DIMMs for space-constrained blade servers, or 1.75 inch thin computing
servers and networking applications. These memory modules come in configurations
of up to 244 pins and densities of up to 8GB. We utilize advanced device and
module-level packaging/stacking technologies to achieve cost-effective
high-density solutions.  We also develop custom memory module designs
based on specific OEM requirements. We deploy extensive software based
electrical
 and
thermal simulations in the design of DDR, DDR2, and DDR3 DIMMs and test those
designs on high-end functional testers utilizing comprehensive test
suites.   These products meet the quality requirements of enterprise
class systems pursuant to stringent specifications of various high speed
applications.
 
 Flash Memory
Cards and Modules.We design and manufacture flash memory products in a
variety of form factors and capacities. Our wide range of flash memory products
come in CompactFlash, PC Card, Key Drives, Embedded USB (EUSB), SATA Drives
(Serial ATA), Mini IDE Drives, and module form factors that utilize ATA, Linear,
IDE, and USB technologies for data and code storage applications. We also build
a wide variety of custom flash products such as Embedded Firewire SSDs. Our
flash modules are predominantly used in telecom equipment, printers, embedded
controller applications, servers, switches and routers. Our relationships with
numerous suppliers of flash and controller application specific integrated
circuits allow us to offer a wide range of cost-effective products to our
customers.
  SRAM.We
provide SRAM based SIMMs, DIMMs and SO-DIMMs for industrial and other
applications. Our SRAM modules are used in communication systems, point of sale
terminals, electronic verification equipment, industrial instrumentation,
medical instruments, disk drives, servers, graphics, and workstations. We
manufacture and market SRAM modules in a variety of form factors and
capacities.
  eFlashTools and
FlashTools.We have engineered our software development tools,
eFlashTools and FlashTools, to offer a user-friendly environment in which to
update or program linear flash cards in the field or in-house. These programs
allow users to upgrade their cards from a local desktop with a program sent from
the manufacturer (FlashTools) or downloaded (eFlashTools) from a web site. These
tools offer significant time savings over legacy support techniques. Our current
implementations of these software solutions provide our OEM customers with
freedom and flexibility while maintaining the protection of our customers’
intellectual property. Users can license FlashTools and receive data for
programming directly from the OEM. This flexible solution allows the OEM to
control its intellectual property. In other cases, users can license eFlashTools
from our e-commerce enabled web site.
  Embedded
Computing Products
  We offer
complex, diversified, and high quality products designed for embedded computing
and communication applications to OEMs. We produce products that are designed
for continuous operation and long life systems.  Our embedded products
are Restriction of Hazardous Substances, or RoHS, compliant and may be supported
for extended production lifetimes.  To develop these products, we rely
on a small number of highly skilled employees and third parties located
worldwide to which we outsource a portion of our product development
efforts.  We leverage our vertical integration, worldwide
manufacturing, and logistics footprint to provide customers with a cost
effective solution to their embedded computing needs.
  We have
developed the XceedPC family, a product line of embedded, long life systems that
are PC compatible and use either Linux or Microsoft Windows XP operating
systems. This product family is focused on kiosk, point of service, point of
sale and digital signage applications enabling more efficient, self-initiated,
self-service transactions and queries.
  TFT-LCD
Products
  We
develop leading edge display subsystems using TFT LCDs, touch panels, and
controller products targeted at gaming systems, kiosk, ATM, point-of-service,
digital signage and industrial control systems.  We develop and
manufacture display interface boards implementing VGA, DVI, and TV
interfaces.  Our display products are configured standalone and
integrated with TFT-LCD panels and touch screens sourced from leading
manufacturers to produce display subsystems optimized for a customer’s specific
needs.
 
 We
support display products worldwide from the U.S., Korea and Malaysia, allowing
us to quickly and cost-effectively deliver TFT-LCD touch screen solutions to
customers worldwide. In addition to providing engineering and manufacturing
expertise, we also provide an extensive logistics and global supply organization
to support this product line.
  Adtron
Segment
  Solid State
Drives.  We provide a comprehensive product line of SSDs to
multiple markets including defense, aerospace, industrial automation, medical,
transportation and enterprise. The Xceed family of products are true
industrial grade storage products which bring the performance, reliability and
ruggedness of solid state technology to our customers through easy-to-integrate,
industry-standard interfaces. Our SSD products, ranging in capacity
from 4GB to 160GB, are targeted at application segments with specific added
value that differentiates them from their competition:
 
 •
                XceedLite
      – low power requirement appropriate for mobile
  applications
 
 •
                XceedUltra
      and XceedUltraX – high sequential performance appropriate for streaming
      data applications found in medical, transportation,  industrial
      automation, aerospace and enterprise
  applications
 
 •
                XceedSecure
      –  unique data security technology appropriate for defense and
      aerospace applications
 
 •
                XceedSCSI
      – appropriate for interfacing with certain discontinued hard disk drive
      products targeted at the legacy Small Computer System Interface (SCSI)
      market
 Product-Related
      Logistics and Services
  Our
logistics and services offerings are tailored to meet the specific needs of our
customers. As a complement to our product sales, we offer customers custom
supply chain services including procurement, logistics, inventory management and
temporary warehousing, kitting and/or packaging services. Our global footprint
allows us to provide these services to our customers in many regions of the
world. For example, we supply upgrade memory modules to over 600 end users
worldwide for one of our OEM customers. Our global inventory management
capabilities allow us to manage a vast array of customer and supplier part
numbers across our manufacturing and logistics hubs worldwide to help our
customers minimize inventory levels while maintaining reliable delivery and
availability of supply. For example, we manage the supply chain of most of the
memory semiconductors and modules around the world for a leading networking OEM.
In 2008, 2007 and 2006, our logistics and service offerings from our Memory,
Embedded, & Display Segment accounted for approximately 6.2%, 6.1% and 6.2%
of total SMART net sales, respectively.
  Design,
Manufacturing and Test
  Design
  By
working closely with our customers we are able to deliver technically advanced
products designed to meet their specific needs. We have design centers in
Fremont (California), Gunpo (South Korea), Irvine (California), Phoenix
(Arizona), and Tewksbury (Massachusetts). Our engineers focus on applications
development, component selection, schematic design, layout, firmware and
software driver development. The layouts for memory modules and advanced flash
storage solutions are complex due to their high component and trace densities
and the complexities increase as the speed of memory semiconductors increases.
Our advanced engineering and design capabilities allow us to address our
customers’ increasingly complex needs. We work closely with our customers and
suppliers to design competitive solutions to satisfy our customers’ memory
requirements, shorten their time-to-market and enhance the performance of our
customers’ applications.
  Manufacturing
  We
believe that the efficiency of our manufacturing operations has benefited from
our many years of design experience and our existing library of proven designs
which stress high manufacturability and quality. We offer localized,
cost-efficient ISO 9001 certified manufacturing services from consignment to
turnkey manufacturing, all backed by test services using advanced testing
equipment. Our manufacturing facilities are located in Fremont (California),
Penang (Malaysia), Atibaia (Brazil), and Aguada (Puerto Rico). Over 20 years of
manufacturing experience enables us to quickly move from manufacturing
initiation to full production volumes of a new product which is key to helping
our customers achieve rapid time-to-market for their new product introductions.
Our manufacturing processes rely on a high level of automation and involve the
use of fine pitch surface mount equipment. Our surface mount manufacturing lines
for memory modules have been optimized to support the placement and
configuration of a high number of semiconductors on each board. As a result of
our design efficiencies, high level of automation and general manufacturing
expertise, we believe we consistently achieve high manufacturing yields and
reduced direct labor costs, and offer our customers quick turnaround of both
small and large production orders.
  Test
  Product
testing is an important aspect of our manufacturing operations. We test our
products for full functionality. We have a track record of achieving stringent
quality targets across a broad spectrum of system applications. We believe that
we have established substantial technical expertise in the testing of products
for high-end applications. We have a group of experienced test engineers that
have developed proprietary testing routines and parameters which, combined with
our advanced test equipment, enable us to diagnose problems in system design or
components, characterize the performance of new products and provide high
quality products in volume.
  Suppliers
  To
address the needs of our customers, we have developed and maintain relationships
with leading semiconductor suppliers located in Asia, Europe, and the Americas.
Our semiconductor suppliers include many of the world’s largest semiconductor
memory suppliers, such as Hynix, Micron, Qimonda, and Samsung. We frequently
work jointly with them in bidding for customers’ design-in opportunities. We
work closely with our primary suppliers to better ensure that materials are
available and delivered on time at competitive prices. Our long-standing
relationships with leading semiconductor suppliers put us in a favorable
position to procure sufficient quantities of materials during periods of
industry shortages. Our flexible and responsive global manufacturing
capabilities, inventory management systems and global IT system allow us to
cost-effectively move materials from one site to another and often employ what
might otherwise be excess inventory among other products and OEM
customers.
 
 Customers
  Our
principal customers include major OEMs which compete in the computing,
networking, communications, printer, storage and industrial markets. Overall, we
served more than 500 customers in 2008. For 2008, 2007 and 2006, our ten largest
OEM customers accounted for 71%, 77% and 78% of net sales,
respectively.  In 2008, 2007 and 2006, Hewlett-Packard accounted for
39%, 47% and 44% of our net sales, respectively, and Cisco Systems accounted for
12%, 13% and 14% of our net sales, respectively.   During these
periods, no other customers in either segment accounted for more than 10% of our
total net sales. We have long-standing relationships with Cisco Systems and
Hewlett-Packard, which are the major customers of our Memory, Embedded &
Display Segment. These relationships span more than 10 years, are
multi-dimensional and exist within individual business units and engineering
organizations at these customers.
  5
 Sales,
Support and Marketing
  We
primarily sell our products directly to major OEMs. Our sales organization also
utilizes a network of independent sales representatives located throughout North
America, Europe and Asia. Our direct sales and marketing efforts are conducted
in an integrated process incorporating these independent sales representatives,
together with our own customer service representatives and our senior
executives. Larger OEM customers are supported by dedicated sales and support
teams. Our advanced memory solutions group provides on-site field application
engineering support to our customers. Our field application engineers work
closely with our OEM customers in the product design process. We have sales
offices in North America, Latin America, Europe and Asia. At the end of fiscal
year 2008, we employed 102 sales and marketing personnel worldwide.
  In
addition, through our channel sales organization, we sell to value added
resellers (“VARs”), value added dealers (“VADs”), distributors and smaller OEMs.
Our channel sales organization utilizes a limited number of independent sales
representatives. We also utilize an on-line memory configuration application
which allows quick and easy access to detailed memory upgrade information and
helps meet the special needs of system builders, solution integrators, VARs and
end-users.
  We
provide our customers with comprehensive customer service and technical support.
We have service and support personnel across North America as well as in Latin
America, Europe and Asia. We have also developed a number of on-line tools, some
customized for single customers, to assist our customers.
  Our
marketing activities include active memberships in industry organizations such
as Joint Electron Device Engineering Council (“JEDEC”), Personal Computer Memory
Card International Association (“PCMCIA”), USB Implementers Forum, SD Card
Association and CompactFlash Association. We advertise in technical journals,
publish articles in leading industry periodicals and utilize direct mail
solicitation. We also participate in many industry trade shows
worldwide.
  Research
and Development
  The
timely development of new products is essential to maintaining our competitive
position. Our research and development activities are focused primarily on new
high-speed memory modules and cards, SSDs, embedded flash memory subassemblies,
TFT-LCD analog to digital controller boards and open frame display solutions,
products for embedded computing platforms, ongoing improvement in manufacturing
processes and technologies and continual improvement in test routines and
software. We plan to continue to devote research and development efforts to the
design of new products which address the requirements of our customers,
especially to our SSD products as we meet the needs of this nascent and emerging
end market.
  Our
engineering staff continually explores practical applications of new
technologies, works closely with our OEM customers and provides services
throughout the product life cycle, including architecture definition, component
selection, schematic design, layout, and manufacturing and test engineering. We
design our products to be compatible with existing industry standards and, where
appropriate, develop and promote new standards or provide custom solutions to
meet a customer’s unique requirements. An important aspect of our research and
development effort is the understanding of the challenges presented by our
customers’ requirements and addressing them by utilizing our industry knowledge,
proprietary technologies and technical expertise.
  Intellectual
Property
  We have
ten issued patents which expire between October 2014 and March 2025 and 24
patent applications pending in the U.S. We expect to file new patent
applications where appropriate to protect our proprietary
technologies.  We believe however that our continued success depends
primarily on factors such as the know-how, technological skills and innovation
of our personnel rather than on patent protection.
  Backlog
  Sales of
our products are generally made pursuant to customer purchase orders. We include
in backlog only those customer orders for which we have accepted purchase orders
and to which we expect to ship within the next twelve months. Since orders
constituting our current backlog are subject to changes in delivery schedules or
cancellation with only limited or no penalties, we believe that the amount of
our backlog is not necessarily an accurate indication of our future net
sales.
 
 Competition
  We
conduct business in industries characterized by intense competition, rapid
technological change, constant price pressures and evolving industry standards.
Certain of our competitors include many large domestic and international
companies that have substantially greater financial, technical, marketing,
distribution and other resources, greater name recognition, broader product
lines, lower cost structures, and longer-standing relationships with customers
and suppliers than we do.
  
 In the
memory module industry we compete against semiconductor suppliers that maintain
captive memory module and card production capabilities, including Hynix, Micron,
Qimonda, Samsung, and SanDisk. Our primary competitors in the memory module and
card industry include NetList, STEC and Viking InterWorks, a Sanmina-SCI
company, Unigen, and Wintec. Our primary competitors in the embedded computing
market are Artesyn, an Emerson company, Kontron and Radisys, and in the TFT-LCD
market are ELO Technologies, Kortek and Tobis.
  The rapid
growth projections for the SSD market have attracted numerous competitors, both
large and small, from around the world.  Entrants generally target
specific segments within the potential SSD market. Large SSD manufacturers such
as Intel, Samsung and SanDisk have targeted the client/consumer laptop market,
while smaller vendors such as Apacer, PQI, and Transcend have selected smaller
niches.  Intel has also targeted the high-end commercial (enterprise
OTLP) market.  Our primary competitors in the industrial (defense,
aerospace, medical, transportation, industrial automation) and commercial
(enterprise server) markets are BiTMICRO, Mtron, and STEC.
  We face
competition from current and prospective customers that evaluate our
capabilities against the merits of manufacturing products internally. In
addition, certain of our competitors, such as Hynix, Micron, Qimonda and
Samsung, are also our significant suppliers, many of whom have the ability to
manufacture competitive products at lower costs than we can as a result of their
higher levels of product integration.  We also expect to face
competition from existing competitors and new and emerging companies that may
enter our existing or future markets.
  To remain
competitive we must continue to provide technologically advanced products and
manufacturing services, maintain high quality levels, offer flexible delivery
schedules, deliver finished products on a reliable basis, reduce manufacturing
and testing costs and compete favorably on the basis of price. In addition,
increased competitive pressure has led in the past and may continue to lead to
intensified price competition resulting in lower net sales and gross
margins.
  Employees
  At the
end of fiscal year 2008, we employed 1,466 permanent employees of whom 1,054
were in manufacturing (including test, quality assurance and materials work),
142 were in research and development, 102 were in sales and marketing, and 168
were in finance, IT and administration. At that date we also employed an
additional 64 temporary employees almost all of which were in
manufacturing.  Our employees are not represented by any collective
bargaining agreements and we have never experienced a work
stoppage.
  Environmental
Matters
  Our
operations and properties are subject to a variety of U.S. and international
environmental laws and regulations governing, among other things, air emissions,
wastewater discharges, management and disposal of hazardous and non-hazardous
materials and wastes, and remediation of releases of hazardous materials. We
cannot be certain that identification of presently unidentified environmental
conditions, more vigorous enforcement by regulatory agencies, enactment of more
stringent laws and regulations, or other unanticipated events will not arise in
the future and cause additional material liabilities which could have a material
adverse effect on our business, financial condition, and results of
operations.
  Available
Information
 
 We
maintain a website at www.smartm.com.  Our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and related
amendments are available free of charge through our website as soon as
reasonably practicable after such reports are electronically filed with or
furnished to the SEC.  Our website and the information contained in it
and connected to it shall not be deemed incorporated by reference into this
Form 10-K. You may inspect and copy our reports, proxy statements and other
information filed with the SEC at the offices of the SEC’s Public Reference Room
located at 100 F Street, NE, Washington D.C. 20549.  Please call the
SEC at 1-800-SEC-0330 for further information on the operation of Public
Reference Rooms.  The SEC also maintains an Internet website at www.sec.gov.
  Item 1A.
              Risk
      Factors
  Risks
Related to Our Business
  We
are subject to the cyclical nature of the markets in which we compete and the
current and future downturn is adversely affecting and could continue to
adversely affect our business.
  The
markets in which we compete can be highly cyclical and characterized by constant
and rapid technological change, rapid product obsolescence, price erosion,
evolving standards, short product life cycles and wide fluctuations in product
supply and demand. These markets have experienced significant downturns often
connected with, or in anticipation of, maturing product cycles of both
manufacturers’ and their customers’ products and declines in general economic
conditions. These downturns have been characterized by diminished product
demand, production overcapacity, high inventory levels and accelerated erosion
of selling prices.  Recently we have seen unit demand reduction in the
U.S. followed by a more global demand reduction.  Unit demand may
continue to decrease and further adversely affect our operating
results.  There can be no assurance as to when the U.S. or global
economy may improve and accordingly when demand for our products may
increase.
  7
 Our historical operating results have been subject to substantial fluctuations
and we may experience substantial period-to-period fluctuations in future
operating results.  The current and future downturns in our markets
could have a material adverse effect on the demand for our products and
therefore a material adverse effect on our business, financial condition and
results of operations. Moreover, changes in end-user demand for the products
sold by any individual OEM customer can have a rapid and disproportionate effect
on demand for our products from that customer in any given period, particularly
if the OEM customer has accumulated excess inventories of products purchased
from us. There can be no assurance that our net sales and results of operations
will not be materially and adversely affected in the future due to changes in
demand from individual customers or cyclical changes in the industries utilizing
our products. As a result, our results of operations for the fourth quarter and
year ended August 29, 2008 may not be indicative of our future
results.
  We have experienced quarterly losses
in the past and may experience losses in the future.
 
 We have
experienced some quarterly losses in the past. As we continue to expend
substantial funds for engineering, research and development projects, enhance
sales and marketing efforts and to otherwise operate our business, there can be
no assurance that we will be profitable on a quarterly basis in the
future.
  Declines in memory component prices
and our average selling prices may result in declines in our net sales
and gross
profit.
  Our
average selling prices may decline due to several factors. Over the last few
years, overcapacity in the memory component and NAND flash markets has resulted
in significant declines in component prices which negatively has impacted our
average selling prices and net sales. During periods of overcapacity, our net
sales may decline if we do not increase unit sales of existing products or fail
to introduce and sell new products in quantities sufficient to offset declines
in selling prices. Our efforts to increase unit sales, reduce costs and develop
new products to offset the impact of further declines in average selling prices
may not be successful. Declines in semiconductor prices could also affect our
gross profit and the valuation of our inventory which could harm our financial
results. Declines in average selling prices might enable OEMs to pre-install
higher capacity based memory into new systems at existing price points thereby
reducing the demand for future memory upgrades. In addition, our net sales and
gross profit may be negatively affected by shifts in our product mix during
periods of declining average selling prices.
 
 The
continued transition to smaller design geometries and the use of 300 millimeter
wafers by existing memory manufacturers has led to a significant increase in the
worldwide supply of DRAM and flash components. Increases in the worldwide supply
of memory components have also resulted from manufacturing capacity
expansions. If not accompanied by increases in demand, these supply increases
would likely lead to further declines in the average selling prices of our
products and have a material adverse effect on our business, financial condition
and results of operations.
 
 Sales to a limited number of
customers represent a significant portion of our net sales, and the loss of any key
customer or key program would materially harm our business.
 
 Because
of our dependence on a limited number of key customers, the loss of a major
customer or any reduction in orders by a major customer would materially reduce
our net sales and adversely affect our financial results. We expect that sales
to relatively few customers will continue to account for a significant
percentage of our net sales for the foreseeable future. However there can be no
assurance that any of these customers or any of our other customers will
continue to utilize our products at current levels. We have no firm long-term
volume commitments from any of our major customers and we generally only enter
into individual purchase orders with our customers (in certain cases under
master agreements that govern the terms and conditions of the relationship). We
have experienced cancellations of orders and fluctuations in order levels from
period to period and expect that we will continue to experience such
cancellations and fluctuations in the future. Customer purchase orders may be
cancelled and order volume levels can be changed, cancelled or delayed with
limited or no notice or penalties. The replacement of such purchase orders with
new orders cannot be assured.
  Our principal customers include major OEMs which compete in the computing,
networking, communications, printer, storage and industrial markets. For 2008,
2007 and 2006, our ten largest OEM customers accounted for 71%, 77% and 78% of
net sales, respectively. In 2008, 2007 and 2006, Hewlett-Packard accounted for
39%, 47% and 44% of our net sales, respectively, and Cisco Systems accounted for
12%, 13% and 14% of our net sales, respectively. Hewlett-Packard and Cisco
Systems are our major customers of our Memory, Embedded, & Display Segment.
During these periods, no other customers in either segment accounted for more
than 10% of our total net sales.
  Our customers are primarily in the
computing, networking, communications, printer, storage and industrial markets, and
the current and future fluctuations in demand in these markets are and may
continue toadversely
affect sales of our products.
 
 Sales of
our products are dependent upon demand in the markets served by our customers.
We may experience substantial period-to-period fluctuations in future operating
results due to factors affecting these markets. From time to time, each of these
markets has experienced downturns, often in connection with, or in anticipation
of, declines in general economic conditions. A continual decline or significant
shortfall in demand in any one of these markets could have a material adverse
effect on the demand for our products and therefore a material adverse effect on
our business, financial condition and results of operations. As previously
mentioned, we have recently seen a general unit demand reduction for our
products in the U.S. followed by a more global demand reduction.
   8
 Customer demand is difficult to
accurately forecast and, as a result, we may be unable to optimally calibrate
production to meet customer demand.
 
 We make
significant decisions, including determining the levels of business that we will
accept, production scheduling, component procurement commitments, personnel
needs and other resource requirements, based on our estimates of customer
requirements. The short-term nature of commitments by many of our customers and
the possibility of unexpected changes in demand for their products reduces our
ability to accurately estimate future customer requirements. On occasion,
customers may require rapid increases in production which can challenge our
resources and can reduce profit margins. We may not have sufficient capacity at
any given time to meet our customers’ demands. Downturns in the markets in which
our customers compete can, and have, caused our customers to significantly
reduce the amount of products ordered from us or to cancel existing orders
leading to lower-utilization of our facilities. Because many of our costs and
operating expenses are relatively fixed, reduction in customer demand would have
an adverse effect on our gross margins, operating income and cash flow. During
an industry downturn, there is also a higher risk that some of our trade
receivables would be uncollectible.
 
 Order cancellations or reductions,
product returns, selling price decreases and product obsolescence could
result in substantial inventory
write-downs.
 
 To the
extent we manufacture products or make purchases in anticipation of future
demand that does not materialize, or in the event a customer cancels or reduces
outstanding orders, we could experience an unanticipated increase in our
inventory. We have had in the past and expect to continue to have certain levels
of inventory write-downs due to obsolescence, excess quantities and declines in
market value below our costs.
 
 We may be less competitive if we fail
to develop new or enhanced products and introduce them in a timely
manner.
 
 The
markets in which we compete are subject to rapid technological change, product
obsolescence, frequent new product introductions and enhancements, changes in
end-user requirements and evolving industry standards. Our ability to
successfully compete in these markets and to continue to grow our business
depends in significant part upon our ability to develop, introduce and sell new
and enhanced products on a timely and cost-effective basis, and to anticipate
and respond to changing customer requirements.
 
 The
markets for our products are characterized by frequent transitions in which
products rapidly incorporate new features and performance standards. A failure
to develop products with required feature sets or performance standards, or a
delay as short as a few months in bringing a new product to market could
significantly reduce our net sales which would have a material adverse effect on
our business, financial condition and results of operations.
 
 We have
experienced, and may experience in the future, delays in the development and
introduction of new products. These delays could provide a competitor a
first-to-market opportunity and allow a competitor to achieve greater market
share or permit a customer to cancel time-sensitive orders without penalty.
Defects or errors found in our products after commencement of commercial
shipment could result in delays in market acceptance of these products. Lack of
market acceptance for our new products would jeopardize our ability to recoup
research and development expenditures, hurt our reputation and impact our
business, financial condition and results of operations. Accordingly, there can
be no assurance that our future product development efforts will result in
future profitability or product market acceptance.
 
 Our dependence on a small number of
sole or limited source suppliers subjects us to certain risks and our results of
operations would be adversely affected if we are unable to obtain adequate supplies in
a timely manner.
 
 We are
dependent upon a small number of certain sole or limited source suppliers for
the materials, including critical components we use in manufacturing our
products. Our major suppliers include Hynix, Intel, Oki Semiconductor, Qimonda,
and Samsung. The markets in which we operate have experienced, and may
experience in the future, shortages in semiconductors. In the past and
currently, this situation has caused some vendors to place their customers,
including us, on component allocation. Our suppliers are not required to supply
us with any minimum quantities and there can be no assurance that we will
receive adequate quantities of components on a timely basis in the future. As a
result, we may not be able to obtain the components that we need to fill
customer orders. The inability to fill these orders could cause delays,
disruptions or reductions in product shipments or require product redesigns
which could, in turn, damage relationships with current or prospective
customers, increase costs or prices and have a material adverse effect on our
business, financial condition and results of operations. We purchase almost all
of our materials from our suppliers on a purchase order basis and generally do
not have long-term contracts with suppliers.
 
 Drive
to product standardization.
 
 In
a drive to reduce costs and assure supply of their memory module demand, an
increasing percentage of our OEM customers may endeavor to design JEDEC standard
DRAM modules into some products.  Although SMART also manufactures
JEDEC modules, this trend could reduce the demand for our higher priced
customized memory solutions which in turn would have a negative impact on our
financial results.   In addition, customers deploying custom memory
solutions today may in the future choose to adopt a JEDEC standard, and the
adoption of a JEDEC standard module instead of a previously custom module
might allow new competitors to participate in a share of our customers’ memory
module business that previously belonged to us.
  9
 The flash memory market is constantly
evolving and competitive, and we may not have rights to manufacture and sell
certain types of products utilizing emerging flash formats, or we may be required to pay
a royalty to sell products utilizing these formats.
 
 The
flash-based storage market is constantly undergoing rapid technological change
and evolving industry standards. Many consumer devices, such as digital cameras,
PDAs and smartphones, have already transitioned to certain flash memory formats,
such as the Memory Stick, Commercial Grade SD, Micro SD and xD Picture Card
formats which we do not currently manufacture and do not have rights to
manufacture. Although we do not currently serve the consumer flash market, it is
possible that certain OEM customers of ours may choose to adopt these formats.
If we decide to manufacture flash memory products utilizing these formats, we
will be required to secure licenses to give us the right to manufacture such
products and/or licensed subcontract assembly facilities to produce these
products, which may not be available at reasonable rates or at all. If we are
unable to supply certain flash memory products at competitive prices or at all,
our net sales could be adversely impacted and our customers might cancel orders
or seek other suppliers to replace us.
 
 Our growth strategy includes
expanding our presence in the embedded computing and TFT-LCD markets, both of which are
highly competitive.
 
 The
embedded computing and TFT-LCD markets are highly competitive. Certain of our
competitors are more diversified than us and may be able to sustain lower
operating margins in their embedded computing and TFT-LCD business based on the
profitability of their other businesses. We expect a continued high competition
rate in these markets due to the possibility of existing competitors introducing
new products and process technologies, new competitors entering the market,
industry-wide production capacity increases and competitors aggressively pricing
products. Our growth strategy includes an ongoing expansion of our presence in
these markets and there can be no assurance that we will be successful in doing
so.
 
 Our
growth initiatives require significant capital investments and we cannot be
assured that we will realize a positive return on these
investments.
 
 Our
ongoing business initiatives require capital investment. For example, in March
2006 we completed setting up a 49,000 square foot leased manufacturing
facility in Atibaia, Brazil at a total cost of approximately $14 million,
and during fiscal 2007 we set up an additional 23,000 square feet in that
location.  During fiscal 2008 we made capital expenditures to expand
our production, test and packaging capacity in that facility and we plan on
additional capital investment in the foreseeable future in Atibaia, Brazil and
elsewhere. There can be no assurance that expected returns on these investments
will be achieved.
 
 Industry consolidation could
adversely affect our business by reducing the number of potential significant customers and
increasing our reliance on our existing key customers.
 
 Some
participants in the industries which we serve  have recently merged
and this trend may continue. Industry consolidation will likely decrease the
number of potential significant customers for our products and services. Fewer
significant customers will increase our reliance on key customers and, due to
the increased size of these companies, may negatively impact our bargaining
position and thus our profit margins. Consolidation in some of our customers’
industries may result in the loss of customers. The loss of, or a reduced role
with, key customers due to industry consolidation could negatively impact our
financial results.
 
 We may make acquisitions which
involve numerous risks. If we are not successful in integrating the technologies,
operations and personnel of acquired businesses or fail to realize the anticipated benefits
of an acquisition, our operations may be adversely
affected.
 
 As part
of our business and growth strategy, we may acquire or make significant
investments in businesses, products or technologies that allow us to complement
our existing product offering, expand our market coverage, increase our
engineering workforce or enhance our technological capabilities. For example, in
fiscal 2005 we acquired Estecom, a producer of TFT-LCD products, in fiscal 2006
we acquired ConXtra, Inc., a product design and design manufacturing services
provider, and in March 2008 we acquired Adtron Corporation, a designer and
supplier of SSDs. Any such future acquisitions or investments would expose us to
the risks commonly encountered in acquisitions of businesses. Such risks
include, among others:
 
 •
              problems
      integrating the purchased operations, technologies or
      products;
 
 •
              unanticipated
      costs or expenses associated with an acquisition or investment including
      one-time write-offs of goodwill or other intangibles
    assets;
 
 •
              negative
      effects on profitability resulting from an acquisition or
      investment;
 
 •
              adverse
      effects on existing business relationships with suppliers and
      customers;
 
 •
              risks
      associated with entering markets in which we have no or limited prior
      experience and government markets with complex
  regulations;
 
 •
              loss
      of key employees of the acquired
  business; and
 
 •
              litigation
      arising from an acquired company’s
operations.
 10
 Problems
encountered in connection with an acquisition could divert the attention of
management, utilize scarce corporate resources and otherwise harm our
business
 
 We may not be able to maintain or
improve our competitive position because of the intense competition in the markets we
serve.
 
 We
conduct business in markets characterized by intense competition, rapid
technological change, constant price pressures and evolving industry standards.
Certain of our competitors include many large domestic and international
companies that have substantially greater financial, technical, marketing,
distribution and other resources, greater name recognition, broader product
lines, lower cost structures, and longer-standing relationships with customers
and suppliers than we do and larger customer. As a result, our competitors may
be able to respond better to new or emerging technologies or standards and to
changes in customer requirements. Further, some of our competitors are in a
better financial and marketing position from which to influence industry
acceptance of a particular product standard or competing technology than we are.
Our competitors may also be able to devote greater resources to the development,
promotion and sale of products, and may be able to deliver competitive products
at a lower price than we can.
 
 We
compete against semiconductor suppliers that maintain captive memory module and
card production capabilities, including Hynix, Micron, Qimonda, Samsung and
SanDisk. Our primary competitors in the memory module and card industry include
NetList, STEC, Viking InterWorks, a Sanmina-SCI company, Unigen and Wintec. Our
primary competitors in the embedded computing market are Artesyn, an Emerson
company, Kontron and Radisys and in the TFT-LCD market are ELO Technologies,
Kortek and Tobis.
  The rapid
growth projections for the SSD market have attracted numerous competitors, both
large and small, from around the world.  Entrants often target
specific segments within the SSD market.  Large SSD manufacturers such
as Intel, Samsung and SanDisk have targeted the client/consumer laptop market,
while smaller vendors such as Apacer, PQI, and Transcend have selected smaller
market segments.  Intel has also targeted the high-end commercial
(enterprise OTLP) market.  Our primary competitors in the industrial
(defense, aerospace, medical, transportation, industrial automation) and
commercial (enterprise server) markets are BiTMICRO, Mtron, and
STEC.
  We expect
to face competition from existing competitors and new and emerging companies
that may enter our existing or future markets with similar or alternative
products, which may be less costly or provide additional features. In the
personal computer, or PC, market in Asia, we expect to face increasing
competition from local competitors such as A-Data and Ramaxel. We also face
competition from current and prospective customers that evaluate our
capabilities against the merits of manufacturing products internally.
Competition may also arise due to the development of cooperative relationships
among our current and potential competitors or third parties to increase the
ability of their products to address the needs of our prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share.
 
 We expect
that our competitors will continue to improve the performance of their current
products, reduce their prices and introduce new products that may offer greater
performance and improved pricing, any of which could cause a decline in sales or
market acceptance of our products. In addition, our competitors may develop
enhancements to, or future generations of, competitive products that may render
our technology or products obsolete or uncompetitive.  To remain
competitive, we must continue to provide technologically advanced products and
manufacturing services, maintain high quality levels, offer flexible delivery
schedules, deliver finished products on a reliable basis, reduce manufacturing
and testing costs and compete favorably on the basis of price. In addition,
increased competitive pressure has led in the past and may continue to lead to
intensified price competition resulting in lower net sales and gross
margins.
  Our success is dependent on achieving
design wins into commercially successful OEM systems and the failure to achieve
design wins or of OEM customers to incorporate our products in their systems could
adversely affect our operating results and prospects.
 
 Our
products are often incorporated into our OEM customers’ systems at the design
stage. As a result, we rely on OEMs to select our product designs, which we
refer to as design wins. We often incur significant expenditures in the
development of a new product without any assurance that an OEM will select our
product for design into its system. Additionally, in some instances, we are
dependent on third parties to obtain or provide information that we need to
achieve a design win. Some of these third parties may not supply this
information to us on a timely basis, if at all. Furthermore, even if an OEM
designs one of our products into its system, we cannot be assured that its
product will be commercially successful or that we will receive significant net
sales as a result of that design win. Our OEM customers are typically not
obligated to purchase our products. If we are unable to achieve design wins or
if our OEM customers’ systems incorporating our products are not commercially
successful, our net sales would be impacted.
 
 Our business is dependent upon our
OEM customers continuing to outsource the design and manufacturing of value added
subsystems.
 
 Historically,
OEMs designed and manufactured subsystems in-house. Many OEMs now outsource the
design and manufacturing of subsystems. Our business is dependent upon our OEM
customers continuing to outsource the design and manufacturing of these
subsystems. Our OEM customers have the requisite capabilities and capital
resources to bring the design and manufacturing of these subsystems in-house and
their doing so would adversely impact our net sales.
  Our future success is dependent on
our ability to retain key personnel, including our executive officers, and attract
qualified personnel. If we lose the services of these individuals or are unable to
attract new talent, our business may be adversely affected.
 11
 Our
future operating results depend in significant part upon the continued
contributions of our key technical and senior management personnel, many of whom
would be difficult to replace. We are particularly dependent on the continued
service of Iain MacKenzie, our chief executive officer and president. Our future
operating results also depend in significant part upon our ability to attract,
train and retain qualified management, manufacturing and quality assurance,
engineering, finance, marketing, sales and support personnel. We are continually
recruiting such personnel in various parts of the world. However, competition
for such personnel can be strong, and there is no assurance that we will be
successful in attracting or retaining such personnel now or in the future.
 In
addition, particularly in the high-technology industry, the value of stock
options, restricted stock grants or other stock-based compensation is an
important element in the retention of employees. The decline in the value of our
stock could adversely affect our ability to retain employees, and we may have to
take steps to make the equity component of our compensation packages more
attractive in order to attract or retain employees.The loss of any
key employee, the failure of any key employee to perform in his or her current
position, our inability to attract, train and retain skilled employees as needed
or the inability of our key employees to expand, train and manage our employee
base as needed could adversely affect our business, financial condition and
results of operations.
 
 We rely on third-party sales
representatives to assist in selling our products, and the failure of these representatives
to perform as expected could reduce our future sales.
 
 We sell
our products to some of our OEM customers through third-party sales
representatives. We are unable to predict the extent to which our third-party
sales representatives will be successful in marketing and selling our products.
Moreover, many of our third-party sales representatives also market and sell
competing products. Our third-party sales representatives may terminate their
relationships with us at any time. Our future performance may also depend, in
part, on our ability to attract additional third-party sales representatives
that will be able to market and support our products effectively, especially in
markets in which we have not previously sold our products. If we cannot retain
our current third-party sales representatives or recruit additional or
replacement third-party sales representatives, our net sales and operating
results could be impacted.
 
 If we fail to maintain an effective
system of internal controls or discover material weaknesses in our internal controls
over financial reporting, we may not be able to report our financial results
accurately or detect fraud, which could harm our business and the trading price of our
ordinary shares.
 
 Effective
internal controls are necessary for us to prepare financial statements that are
presented in accordance with U.S. generally accepted accounting principles and
are important in our effort to detect and prevent financial fraud. Since our
fiscal year ending August 31, 2007, under Section 404 of the
Sarbanes-Oxley Act of 2002 we have been required to periodically evaluate the
design and operating effectiveness of our internal controls. As our business
evolves, these evaluations may result in the conclusion that enhancements,
modifications or changes to our internal controls are necessary or desirable.
While management evaluates the effectiveness of our internal controls on a
regular basis, all internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation or the detection or prevention of fraud. If we fail
to produce reliable financial reports or prevent fraud, either could negatively
impact our business, financial condition and results of operations, result in
loss of investor confidence and/or a decline in our share price.
 
 Compliance with Section 404 of
the Sarbanes-Oxley Act of 2002 and other requirements.
 
 Compliance
with Section 404 of the Sarbanes-Oxley Act and other public company
requirements is costly and time-consuming. If we were to identify any issues in
complying with those requirements such as the discovery by management or our
independent public accounting firm of a material weakness in our internal
controls, we could incur additional costs and expend significant management
attention rectifying such issues. If we are not able to maintain compliance with
the requirements of Section 404 in a timely manner, we might be subject to
sanctions or investigation by regulatory authorities, such as the SEC or the
NASDAQ. Any such action could adversely affect our financial results or the
market price of our ordinary shares.
 
 Changes
in, or interpretations of, tax regulations or rates may adversely affect our
effective tax rates.
 
 Unanticipated
changes in our tax regulations or rates could affect our future results of
operations.  Our future effective tax rates could be unfavorably
affected by such changes, by unanticipated increases or decreases in the amount
of revenue or earnings in countries with particularly high or low statutory tax
rates, or by changes in the valuation of our deferred tax assets and
liabilities.  In addition, we are subject tax examination in the U.S.
from 2004 to 2008 and in foreign jurisdictions ranging from 2002 to
2008.  We regularly assess the likelihood of outcomes resulting from
these examinations to determine the adequacy of our provision for income taxes
and have reserved for potential adjustments that may result from the current
examinations.  We believe such estimates to be reasonable, however
there can be no assurance that the final determination of any of these
examinations will not have an adverse effect on our operating results and
financial position.
 
 During
the fourth quarter of fiscal 2008, the Sao Paulo, Brazil, State Tax Inspector
informed us that certain tax credits transferred during 2004 between two
Brazilian entities may not have represented an authorized
transfer.  These transfers occurred prior to the acquisition in April
2004 of SMART from Solectron and the full amount of any related tax assessment
against SMART would be subject to indemnification by Solectron to SMART pursuant
to the Transaction Agreement dated February 11, 2004.   A notice
was received from the Sao Paulo, Brazil Tax Authorities by SMART on October 3,
2008 providing an assessment of approximately $3.5 million, including interest
and penalties, related to the transfer of these credits.  We have
notified Solectron and its parent company, Flextronics International Ltd., of
this assessment and under the terms of the indemnity agreement Flextronics has
elected to assume responsibility for the appeals process of this case
on SMART's behalf.  We believe but have no assurance that the
likelihood of any material net liability arising from these matters is not
probable, and as such, not likely to have a material adverse effect on theconsolidated financial
position, results of operations or cash flows for any periods
impacted.
 12
 If
our goodwill or intangible assets become impaired, we may be required to record
a significant charge to earnings.
  Under
accounting principles generally accepted in the U.S., we review our intangible
assets for impairment when events or changes in circumstances indicate the
carrying value may not be recoverable.  Goodwill is required to be
tested for impairment at least annually.  Factors that may be
considered a change in circumstances indicating that the carrying value of our
goodwill or other intangible assets may not be recoverable include declines in
our stock price and market capitalization or future cash flows
projections.  We may be required to record a significant charge to
earnings in our financial statements during the period in which any impairment
of our goodwill or other intangible assets is determined.  For
example, in the fourth quarter of fiscal 2008 we recorded a charge of $3.2
million for goodwill impairment related to our Memory, Embedded, & Display
Segment.
 
 Our indemnification obligations to
our customers and suppliers for product defects could require us to pay substantial
damages.
 
 A number of our product sales and product purchase agreements provide that we
will defend, indemnify and hold harmless our customers and suppliers from
damages and costs which may arise from product warranty claims or claims for
injury or damage resulting from defects in our products. We maintain insurance
to protect against certain claims associated with the use of our products, but
our insurance coverage may not be adequate to cover all or any part of a claim
asserted against us. A successful claim brought against us that is in excess of,
or excluded from, our insurance coverage could adversely impact our business,
financial condition and results of operations.
  Our
operations in foreign countries are subject to political and economic risks,
which could have a material adverse effect on us.
  Sales outside of the U.S., Puerto Rico and Canada accounted for approximately
44%, 37%, and 35% of net sales in 2008, 2007, and 2006, respectively. We
anticipate that these international sales will continue to constitute a
meaningful percentage of our total net sales in future periods. In addition, a
significant portion of our product design and manufacturing is performed at our
facilities in Brazil, Malaysia, Puerto Rico and South Korea. As a result, our
operations may be subject to certain risks, including changes in regulatory
requirements, tariffs and other barriers, increased price pressure, timing and
availability of export licenses, difficulties in accounts receivable
collections, difficulties in protecting our intellectual property, difficulties
in staffing and managing international operations, difficulties in managing
distributors, difficulties in obtaining governmental approvals for products that
may require certification, restrictions on transfers of funds and other assets
of our subsidiaries between jurisdictions, foreign currency exchange
fluctuations, the burden of complying with a wide variety of complex
international laws and treaties, potentially adverse tax consequences and
uncertainties relative to regional, political and economic
circumstances.
  We are
also subject to the risks associated with the imposition of, and compliance
with, legislation and regulations relating to the import or export of high
technology products and components of such products.  We cannot predict
whether quotas, duties, taxes or other charges or restrictions upon the
importation or exportation of our products or components of such
products will be amended or enacted by the U.S. or other countries.
Some of our customers’ purchase orders and agreements are governed by
international laws which often differ significantly from U.S. laws. Therefore,
we may be limited in our ability to enforce our rights under such agreements.
These factors may have a material adverse effect on our business, financial
condition and results of operations.
  Our inability to effectively manage
our operations in foreign countries could harm our operating
results.
 
 A
significant portion of our manufacturing operations are performed outside of the
U.S. at our foreign facilities. And international sales have accounted for a
significant portion of our overall sales. In some of the countries in which we
operate or sell our products, it is difficult to recruit, employ and retain
qualified personnel to manage and oversee our local operations, sales and other
activities. Further, given our executive officers’ lack of physical proximity to
some of the activities being managed and inherent limitations of cross-border
information flow, our executive officers may at times be unable to effectively
oversee the day-to-day management of our international operations. The inability
of management to effectively recruit, employ and retain qualified personnel and
to otherwise manage our international operations could have a negative impact on
our business and adversely affect our operating results.
 
 Worldwide economic and political
conditions may adversely affect demand for our products.
 
 In the
past, economic slowdowns in the U.S. and worldwide adversely affected demand for
our products. Future decline in the worldwide semiconductor market or a future
decline in economic conditions or consumer confidence in any significant
geographic area would likely decrease the overall demand for our products which
could have a material adverse effect on us.   Furthermore, in the
U.S. and abroad, financial markets are currently in turmoil resulting in stock
market volatility, and global economic measures are being undertaken by
political and financial leaders.  The impacts of these measures are
uncertain at this time.  These factors could affect our overall
business and the demand for our products.
 
 The
occurrence or threat of terrorist attacks may in the future adversely affect
demand for our products. In addition, such attacks may negatively affect our
operations directly or indirectly and such attacks or other armed conflicts may
directly impact our physical facilities or those of our suppliers or customers.
Such attacks may make travel and the transportation of our products more
difficult and more expensive, ultimately affecting our business.
 
 Also, any
armed conflicts around the world could have an impact on our sales, our supply
chain and our ability to deliver products to our customers. Political and
economic instability in some regions of the world could negatively impact our
business.
 
 More
generally, various events could cause consumer confidence and spending to
decrease or result in increased volatility to the U.S. and the worldwide
economy. Any such occurrences could have a material adverse effect on our
business, financial condition and results of operations.
 13
 Unfavorable currency exchange rate
fluctuations could result in our products becoming relatively more expensive to our
overseas customers or increase our manufacturing costs, each of which could adversely
affect our profitability.
 
 We are
subject to inherent risks attributed to operating in a global
economy.  Our international sales and our operations in foreign
countries make us subject to certain risks associated with fluctuating currency
values and exchange rates. Because sales of our products are denominated to date
primarily in U.S. dollars, increases in the value of the U.S. dollar
could increase the price of our products so that they become relatively more
expensive to customers in a particular country, possibly leading to a reduction
in sales and profitability in that country.  Some of the sales of our
products are denominated in foreign currency. Gains and losses on the conversion
to U.S.  dollars of accounts receivable arising from such sales, and of
other associated monetary assets and liabilities, may contribute to fluctuations
in our results of operations. We also have certain costs that are denominated in
foreign currencies, and decreases in the value of the U.S. dollar could
result in increases in such costs that could have a material adverse effect on
our results of operations.  In addition, fluctuating values between
the U.S. dollar and other currencies can result in currency gains which are used
in the computation of foreign taxes and which can increase foreign taxable
income. We do not presently purchase financial instruments to hedge foreign
exchange risk, but we may do so as circumstances warrant.
 
 Our worldwide operations could be
subject to natural disasters and other business disruptions, which could materially
adversely affect our business and increase our costs and
expenses.
 
 Our
worldwide operations could be subject to natural disasters and other business
disruptions which could harm our business, financial condition and results of
operations. For example, our corporate headquarters in Fremont, California is
located near major earthquake fault lines. In addition, our manufacturing
facility in Aguada, Puerto Rico, is located in a hurricane-prone area. In the
event of a major earthquake or hurricane, or other natural or manmade disaster,
we could experience business interruptions, destruction of facilities and/or
loss of life, any of which could materially adversely affect our
business.
 
 Our ability to compete successfully
and achieve future growth will depend, in part, on our ability to protect our
intellectual property, as well as our ability to operate without infringing the
intellectual property of others.
 
 We
attempt to protect our intellectual property rights through a variety of
measures, including trade secret laws, non-disclosure agreements,
confidentiality procedures and employee disclosure and invention assignment
agreements, patents, trademarks and copyrights. It is possible that our efforts
to protect our intellectual property rights may not:
 
 •
              prevent
      our competitors from independently developing similar products,
      duplicating our products or designing around the patents owned by
      us;
 
 •
              prevent
      third-party patents from having an adverse effect on our ability to do
      business;
 
 •
              provide
      adequate protection for our intellectual property
  rights;
 
 •
              prevent
      disputes with third parties regarding ownership of our intellectual
      property rights;
 
 •
              prevent
      disclosure of our trade secrets and know-how to third parties or into the
      public domain;
 
 •
              prevent
      the challenge, invalidation or circumvention of our existing
      patents;
 
 •
              result
      in patents that lead to commercially viable products or provide
      competitive advantages for our
products; or
 
 •
              result
      in issued patents and registered trademarks from any of our pending
      applications.
  If any of
our issued patents are found to be invalid or if any of our patent applications
are rejected, our ability to exclude competitors from making, using or selling
the same or similar products as us could be compromised. We have occasionally
applied for and may in the future apply for patent protection in foreign
countries. The laws of foreign countries, however, may not adequately protect
our intellectual property rights. Many U.S. companies have encountered
substantial infringement problems in foreign countries. Because we conduct a
substantial portion of our operations and sell some of our products overseas, we
have exposure to foreign intellectual property risks.
 
 The
markets in which we compete are characterized by frequent claims alleging
infringement of patents, trademarks, copyrights or other intellectual property
rights of others. We have been and may from time to time in the future be
notified of claims that we may be infringing patents, copyrights or other
intellectual property rights owned by other third parties. There can be no
assurance that third parties will not in the future pursue claims against us
with respect to the alleged infringement of intellectual property rights. In
addition, litigation may be necessary to protect our intellectual property
rights, to determine the validity of and scope of the proprietary rights of
others or to defend against third party claims of invalidity. Litigation could
result in substantial costs and diversion of resources and management attention
and could have a material adverse effect on our business, financial condition
and results of operations.
   14
 For
example, Tessera, Inc. filed a complaint in the U. S. International Trade
Commission and the Eastern District of Texas against us alleging that we have
infringed certain of Tessera’s patents.  See Item 3 “Legal
Proceedings” in Part I.  Tessera has sought to enjoin such alleged
infringements, to recover an unspecified amount of damages, and to bar our
importation and sale of allegedly infringing products.  In addition,
as we expand our product offerings in the SSD market in which larger companies
with large patent portfolios compete, the possibility of other intellectual
property claims against us grows.  Such litigation, whether as
plaintiff or defendant, could result in significant expense to us and divert the
efforts of our technical and management personnel, whether or not such
litigation is ultimately determined in our favor. In the event of an adverse
result in, or a settlement of, such litigation, we could be required to pay
substantial damages or settlement amounts, cease the manufacture, use, import,
and sale of certain products or product components, expend significant resources
to develop or acquire non-infringing technology, discontinue the use of certain
processes or obtain licenses and pay one-time fees and/or on-going royalties to
use the infringing or allegedly infringing technology.  Technology
development or license negotiations would likely result in significant expense
to us and divert the efforts of our technical and management personnel. We
cannot assure you that we would be successful in such development
or negotiations or that such licenses would be available on
reasonable terms, or at all.
 
 Our indemnification obligations for
the infringement by our products of the intellectual property rights of
others could require us to pay substantial damages.
 
 We
currently have in effect a number of agreements in which we agree to defend,
indemnify and hold harmless our customers and suppliers from damages and costs
which may arise from the infringement by our products of third-party patents,
trademarks or other proprietary rights. We periodically have to respond to
claims and litigate indemnification obligations. Indemnification claims could
require us to pay substantial damages or settlement amounts which could have a
material adverse effect on our business, financial condition and results of
operations. Our insurance does not cover intellectual property
infringement.
 
 We could incur substantial costs or
liabilities as a result of violations of environmental
laws.
 
 Our
operations and properties are subject to a variety of U.S. and international
environmental laws and regulations governing, among other things, air emissions,
wastewater discharges, management and disposal of hazardous and non-hazardous
materials and wastes, and remediation of releases of hazardous materials. Our
failure to comply with present and future requirements, or the identification of
contamination, could cause us to incur substantial costs, including cleanup
costs, fines and penalties, investments to upgrade our facilities, or
curtailment of operations. The identification of presently unidentified
environmental conditions, more vigorous enforcement by regulatory agencies,
enactment of more stringent laws and regulations, or other unanticipated events
may arise in the future and give rise to material environmental liabilities and
related costs which could have a material adverse effect on our business,
financial condition, and results of operations.
 
 We are subject to
a variety of federal, state and international laws and regulatoryregimes. Failure
to comply with governmental laws and regulations could subject usto, among other
things, mandatory product recalls, penalties and legal expenses
whichcould have an
adverse effect on our business.
 
 Our
business is subject to regulation by various U.S. federal and state governmental
agencies. Such regulation includes the radio frequency emission regulatory
activities of the Federal Communications Commission, the anti-trust regulatory
activities of the Federal Trade Commission, or FTC, and Department of Justice,
the consumer protection laws of the FTC, the import/export regulatory activities
of the Department of Commerce, the product safety regulatory activities of the
Consumer Products Safety Commission, the regulatory activities of the
Occupational Safety and Health Administration, the environmental regulatory
activities of the Environmental Protection Agency, the labor regulatory
activities of the Equal Employment Opportunity Commission and tax and other
regulations by a variety of regulatory authorities in each of the areas in which
we conduct business. We are also subject to regulation in other countries where
we conduct business, including import and export laws and foreign currency
control.  In certain jurisdictions, such regulatory requirements may be
more stringent and complex than in the U.S.. We are also subject to a variety of
U.S.federal
and state employment and labor laws and regulations, including the Americans
with Disabilities Act, the Federal Fair Labor Standards Act, the Worker
Adjustment and Restructuring Notification Act, or WARN Act, which requires
employers to give affected employees at least 60 days notice of a plant
closing or a mass layoff, and other regulations related to working conditions,
wage-hour pay, overtime pay, employee benefits, antidiscrimination and
termination of employment.
 
 Like
other companies operating or selling internationally, we are subject to the
Foreign Corrupt Practices Act (“FCPA”) and other laws which generally prohibit
improper payments or offers of payments to foreign governments and their
officials and political parties by U.S. companies and their intermediaries
for the purpose of obtaining or retaining business or otherwise obtaining
favorable treatment. We make sales and operate in countries known to experience
corruption. Our business activities in such countries create the risk
of unauthorized conduct by one or more of our employees, consultants, sales
agents or distributors that could be in violation of various laws including the
FCPA.  In addition, we may be held liable for actions taken by such parties
even though such parties are not subject to the FCPA or similar laws. Any
determination that we have violated the FCPA or similar laws may result in
severe criminal or civil sanctions, and we may be subject to other liabilities
that could have a material adverse effect on our business, financial condition
and results of operations.
 
 Noncompliance
with applicable regulations or requirements could subject us to investigations,
sanctions, mandatory product recalls, enforcement actions, disgorgement of
profits, fines, damages, civil and criminal penalties, or injunctions which
could harm our business, financial condition and results of
operations.  In addition, from time to time we have received, and may
receive in the future, correspondence from former employees and parties with
whom we have done business with threatening to bring claims against us alleging
that we have violated one or more regulations related to customs, labor and
employment, or foreign currency control.  An adverse outcome in any
litigation related to such matters could require us to pay damages, attorneys’
fees and/or other costs.
 15
 If any
governmental sanctions were to be imposed, or if we were to not prevail in any
civil action or criminal proceeding, our business, financial condition and
results of operations could be materially adversely affected. In addition,
responding to any litigation or action would likely result in a
significant diversion of management’s attention and resources and an increase in
professional fees.
  Risks
Related to our Debt
  Restrictive covenants contained in
our senior secured revolving line of credit facility (“WF Credit Facility”)
and the indenture relating to our senior secured floating rate notes (the
“Notes”) may restrict our current and future operations, particularly
our ability to respond to changes or to take some actions and our failure to
comply with such covenants, whether due to events beyond our control or otherwise,
could result in an event of default which could materially and adversely affect our
operating results and our financial condition.
 
 The
indenture relating to our Notes contains various covenants that limit our
ability to engage in certain transactions. In addition, our WF Credit Facility
contains other and more restrictive covenants and prohibits us from voluntarily
prepaying certain of our other indebtedness. Our WF Credit Facility also
requires us to maintain specified financial ratios and satisfy other financial
condition tests. We cannot be assured that we will meet those financial ratios
and tests in the future. A breach of any of these covenants could result in a
default under our WF Credit Facility and, in the event that there is an
acceleration of more than $10 million under our WF Credit Facility, in an
acceleration of our Notes.  Specifically, it is unlikely that in
fiscal 2009 we will meet the WF Credit Facility covenant requiring an adjusted
EBITDA equal to or greater than $50.0 million (which is calculated using the
preceding four fiscal quarters).  However, among other items, we
are finalizing the terms of an amendment to this covenant with our
lender, although there can be no assurance that we will be successful in doing
so.  If an amendment is obtained, the cost of borrowing under
the WF Credit Facility is likely to increase and other terms may be
less favorable to us in light of current market conditions related to
financing.
 
 We have
identified an exception to compliance relating to the reporting under Rule 3 –
16 of Regulation S-X under the Securities Act of 1933, as amended, with respect
to fiscal 2006.  This rule requires the filing of financial statements
of certain subsidiaries that pledged stock to secure our Notes. We have
commenced efforts to remedy this exception in a timely
manner.  In December 2008, when the next annual compliance
certificate is due to the trustee, we will note this exception if it is not
yet remediated.
 
 If there
were an uncured
event of default under our debt instruments, the holders of the defaulted debt
could cause all amounts outstanding with respect to that debt to become due and
payable immediately. We cannot be assured that our assets or cash flow would be
sufficient to fully repay borrowings under our outstanding debt instruments,
either upon maturity or acceleration upon an uncured event of default or, if we
were required to repurchase the Notes upon a change of control, that we would be
able to refinance or restructure the payments on such debt. Further, if we are
unable to repay, refinance or restructure our indebtedness under the
WF Credit Facility, the lender could proceed against the collateral
securing that indebtedness, our Notes and certain other indebtedness. In
addition, any event of default or declaration of acceleration under one debt
instrument could also result in an event of default under one or more of our
other debt instruments.
 
 Disruption
in the financial markets may adversely impact the availability and cost of
credit and cause other disruptions.
 
 Refinancing
our existing debt or securing new debt or equity financing is likely to be
extremely difficult, expensive or impossible in the foreseeable future given the
current condition of the financial markets. Instability in the financial markets
may also have an adverse effect on the U.S. and/or world economy which could
adversely impact our business.
 
 Our
indebtedness could impair our financial condition and harm our ability to
operate our business.
  We have certain debt service obligations. At August 29, 2008, our total
outstanding debt was $81.3 million.  We may incur additional debt in
the future, subject to certain limitations contained in our debt
instruments.
  The
degree to which we are leveraged could have important consequences including,
but not limited to, the following:
 
 •
              it
      may limit our ability to service all of our debt
    obligations;
 
 •
              it
      may impair our ability to obtain additional financing in the future for
      working capital, capital expenditures, acquisitions, general corporate
      purposes or other purposes;
 
 •
              a
      significant portion of our cash flow from operations must be dedicated to
      the payment of interest and principal on our debt which would reduce the
      funds available to us for our
operations;
 
 •
              some
      of our debt is and will continue to be at variable rates of interest,
      which would result in higher interest expense in the event of increases in
      those interest rates;
 
 •
              our
      debt agreements contain, and any agreements to refinance or amend the
      terms of our debt likely will contain, financial and restrictive
      covenants, and our failure to comply with them may result in an event of
      default which, if not cured or waived, could have a material adverse
      effect on our business;
 
 •
              it
      may increase our vulnerability to general economic downturns and adverse
      industry conditions; and
 
 •
              it
      may limit our flexibility in planning for, or reacting to, changes in our
      business and our industry.
 16
 To service our debt, we will require
a significant amount of cash and we may not be able to generate sufficient cash flow
from operations to satisfy these obligations or to refinance these obligations on
acceptable terms, or at all.
 
 Our
ability to make payments on our debt and to fund working capital requirements,
capital expenditures and research and development efforts will depend on our
ability to generate cash in the future. Our historical financial results have
been, and we expect our future financial results will be, subject to substantial
fluctuation based upon a wide variety of factors, many of which are not within
our control, including among others, those described in this
section.
 
 If we are
unable to generate sufficient cash flow from operations to satisfy our debt
obligations, we may have to undertake alternative plans, such as refinancing or
restructuring our debt, selling assets, reducing or delaying capital investments
or seeking to raise additional capital. Certain of these actions would require
the consent of our lender and/or note holders. The terms of our credit facility
and indenture contain limitations on our ability to incur debt. We cannot be
assured that any assets could be sold, or, if sold, of the timing of the
sales and the amount of proceeds realized from those sales, or that additional
financing could be obtained on acceptable terms, if at all, or would be
permitted under the terms of our debt instruments then in effect. Refinancing of
our existing debt or securing new debt or equity financing is likely to be
extremely difficult or impossible in the foreseeable future given the current
conditions of the financial markets.  Our inability to generate
sufficient cash flow to satisfy our debt obligations or to refinance our
obligations on commercially reasonable terms would have an adverse effect on our
business, financial condition and results of operations.
  Our
existing debt is subject to floating interest rates, which may cause our
interest expense to increase and decrease cash available for operations and
other purposes.
  We are
subject to interest rate risk in connection with our long-term debt, including
the remaining $81.3 million of our Notes. In addition, our WF Credit Facility
provides for borrowings of up to $50.0 million that will also bear interest at
variable rates. Assuming the WF Credit Facility is fully drawn and holding other
variables constant and excluding the impact of any hedging arrangements, each
1.0% increase in interest rates on our variable rate borrowings
would result in an increase in annual interest expense and a decrease in
our cash flows and income before taxes of $1.3 million per year. We have entered
into two simultaneous interest rate swap arrangements for the purpose of fixing
the interest rate on the remaining portion of our long-term debt for the
specified respective interest rate swap periods, one of which has now expired.
The interest rate swaps were for notional amounts of $41.3 and $40.0 million,
bearing 9.78% and 9.97% fixed annual interest rate, respectively. One interest
rate swap expired on April 1, 2008 and the other one remains outstanding through
April 28, 2010. However, we cannot assure you that the outstanding interest rate
swap or any other interest rate swaps that we implement will be
effective.
 
  Risks
Related to Our Ordinary Shares
  The
price of our ordinary shares may be volatile and subject to wide
fluctuations.
 
 The
market price of the securities of technology companies can be especially
volatile. Broad market and industry factors may adversely affect the market
price of our ordinary shares regardless of our actual operating performance.
Factors that could cause fluctuations in our stock price may include, among
other things:
 
 •
              actual
      or anticipated variations in quarterly operating
  results;
 
 •
              changes
      in financial estimates by us or by any securities analysts, or our failure
      to meet the estimates made by securities
  analysts;
 
 •
              changes
      in the market valuations of other companies operating in our
      industry;
 
 •
              announcements
      by us or our competitors of significant acquisitions, strategic
      partnerships, divestitures, or restructuring initiatives, or other events
      that affect us or companies in our
industry;
  •
              loss
      of a key customer or significant business of a major
    customer;
  •
              additions
      or departures of key
personnel; and
 
 •
              a
      general downturn in the stock
market.
 
 Some
companies experiencing past volatility in the market price of their stock have
been the subject of securities class action litigation. If we were to become the
subject of securities class action litigation, it could result in substantial
costs and a diversion of management’s attention and resources.
 
 We may experience significant
period-to-period quarterly and annual fluctuations in our net sales and
operating results, which may result in volatility in our share
price.
 
 We may
experience significant period-to-period fluctuations in our net sales and
operating results in the future due to a number of possible factors and any such
fluctuations may cause our share price to fluctuate. Our share price could also
drop significantly if we were to report future operating results, or provide
guidance, below the expectations of securities analysts or
investors.
 17
  A number
of factors, in addition to those cited in other risk factors applicable to our
business, may contribute to fluctuations in our sales and operating results,
including:
 
 •
              the
      timing and volume of orders from our
customers;
 
 •
              the
      rate of acceptance of our products by our customers, including the rate of
      design wins;
 
 •
              the
      demand for and life cycles of customer products incorporating our
      products;
 
 •
              the
      rate of adoption of our products in the end markets we
    target;
 
 •
              cancellations
      or deferrals of customer orders in anticipation of new products or product
      enhancements from us or our competitors or other
  providers;
 
 •
              changes
      in product mix; and
 
 •
              the
      rate at which new markets emerge for products we are currently developing
      or for which our design expertise can be utilized to develop products for
      new markets.
 
 Although we are no longer a
“controlled company” within the meaning of the rules of the NASDAQ , our principal
investors continue to
exert substantial influence over us.
 
 TPG,
Francisco Partners and Shah Capital Partners collectively hold approximately
36.6% of our outstanding ordinary shares. Although these investors own less than
a majority of our outstanding ordinary shares, they still continue to have
significant influence over matters submitted to our shareholders and our
business policies and affairs. Pursuant to a shareholders’ agreement, TPG,
Francisco Partners and Shah Capital Partners have the right to nominate for
election a majority of our directors, and the parties to the shareholders’
agreement have agreed, subject to certain minimum shareholding thresholds, to
vote their ordinary shares to elect the persons so nominated to our board of
directors. These rights of our principal investors do not affect the rights of
our other shareholders, under our articles of association, to nominate our
directors. In addition, each of TPG, Francisco Partners and Shah Capital
Partners have agreed not to vote their ordinary shares for any amendment to our
memorandum and articles of association unless all three of them also approve of
such amendment.
 
 The
shareholders’ agreement also provides that we may not take certain significant
actions without the approval of TPG, Francisco Partners and Shah Capital
Partners, acting collectively, so long as they own at least 25% of our
outstanding ordinary shares in the aggregate. These actions
include:
 
 •
              mergers,
      acquisitions or certain sales of
assets;
 
 •
              any
      liquidation, dissolution or
bankruptcy;
 
 •
              issuances
      of securities;
 
 •
              determination
      of compensation and benefits for our chief executive officer, president
      and chief financial officer;
 
 •
              appointment
      or dismissal of any of the chairman of our board of directors, chief
      executive officer, president, chief financial officer, or any other
      executive officer in a similar
capacity;
 
 •
              amendments
      to the shareholders’ agreement or exercise or waiver of rights under the
      shareholders’ agreement;
 
 •
              any
      increase or decrease in the number of directors that comprise our board of
      directors;
 
 •
              the
      declaration of dividends or other distributions or the recapitalization,
      reclassification, redemption, repurchase or other acquisition of any of
      our or our subsidiaries’
securities;
 
 •
              incurrences
      or refinancings of indebtedness in excess of
    $10 million;
 
 •
              approval
      of our business plan, and
budget; and
 
 •
              modification
      of our long-term business strategy, the scope of our business or changes
      to any of our material customer
relationships.
 
 In
addition, the shareholders’ agreement provides that so long as TPG, Francisco
Partners and Shah Capital Partners own in the aggregate at least 25% of our
outstanding ordinary shares, we may not enter into certain related party
transactions without the consent of each of TPG, Francisco Partners and
Shah Capital Partners.
 
  Such
powers could have the effect of delaying, deterring or preventing a change of
control, business combination or other transaction that might otherwise be
beneficial to our shareholders. Our principal investors, acting collectively,
also are not prohibited from selling a substantial interest in us to a third
party or a participant in our industry.
 
 Our articles of association do not
provide for shareholder proposals other than nominations to our board of directors
and do not explicitly provide for periodic elections of our directors, each of
which could negatively affect the ability of shareholders to exercise control over
us.
 
 Other
than nominations to our board of directors, our articles of association do not
provide for a means by which shareholders can propose resolutions for
consideration by the other shareholders, including for example, amendments to
our articles of association. Further, our articles of association do not
explicitly provide for periodic elections of our directors. Although
shareholders may nominate directors in connection with our annual shareholders’
meeting, unless we receive such nominations, each of our directors will continue
to serve until his death, disability, retirement, resignation or removal (with
or without cause) by the other directors or by the vote of shareholders who hold
a majority of our shares in favor of a resolution proposed by our board of
directors. These provisions could negatively affect the ability of shareholders
to exercise control over us. Notwithstanding the absence of specific provisions
for periodic election of directors by shareholders, eight of our current
directors will stand for re-election at our 2009 annual meeting of shareholders.
However, there is no guarantee that any director elected will stand for
re-election at any time in the future or that subsequent vacancies on the Board
will not be filled by appointment by other directors.
 
 Our principal investors and the
persons whom they nominate to our board of directors may have interests that conflict with
our interests and the interests of our other shareholders.
 
 TPG,
Francisco Partners and Shah Capital Partners and the persons whom they nominate
as directors to our board of directors may have interests that conflict with, or
are divergent from, our own and those of our other shareholders. TPG, Francisco
Partners and Shah Capital Partners are the holders of an aggregate of 36.6% of
our outstanding ordinary shares. They have invested in or acquired other
businesses that are involved in the semiconductor industry and may invest in or
acquire others in the future. Conflicts of interest between our principal
investors and us or our other shareholders may arise. Our memorandum and
articles of association do not contain any provisions designed to facilitate
resolution of actual or potential conflicts of interest, or to ensure that
potential business opportunities that may become available to both our principal
investors and us will be reserved for, or made available to, us. If an actual or
potential conflict of interest develops involving one of our directors, our
corporate governance guidelines provide that the director must report the matter
immediately to our board of directors and nominating and corporate governance
committee for evaluation and appropriate resolution. Further, such director must
recuse himself or herself from participation in the related discussion and
abstain from voting on the matter. Nonetheless, conflicts of interest may not be
resolved in a manner favorable to us or our other shareholders. In addition, our
principal investors’ substantial share ownership may adversely affect the
trading price of our ordinary shares because investors often perceive
disadvantages in owning shares in companies with shareholders who control a
significant percentage of outstanding shares.
 
 Future
sales of shares could depress our share price.
 
 If our
existing shareholders were to sell substantial amounts of our ordinary shares in
the public market, the market price of our ordinary shares could decline. If our
principal investors sell substantial amounts of our ordinary shares, the market
price of our ordinary shares could decline as these sales might be viewed by the
public as an indication of an upcoming or recently occurring shortfall in the
financial performance of our company. Moreover, the perception in the public
market that these investors might sell shares could depress the market price of
our ordinary shares. Additionally, we may sell or issue additional shares of
stock in subsequent public offerings or in connection with acquisitions which
would result in additional dilution and could adversely affect market prices for
our ordinary shares.
 
 Anti-takeover provisions in our
organizational documents may discourage our acquisition by a third party, which
could limit your opportunity to sell your shares at a premium.
 
 Our
memorandum and articles of association include provisions that could limit the
ability of others to acquire control of us, modify our structure or cause us to
engage in change of control transactions, including, among other things,
provisions that restrict the ability of our shareholders to call meetings, make
shareholder proposals and provisions that authorize our board of directors,
without action by our shareholders, to issue preferred shares and to issue
additional ordinary shares. These provisions could deter, delay or prevent a
third party from acquiring control of us in a tender offer or similar
transactions, even if such transaction would benefit our
shareholders.
 
 We are a Cayman Islands company and,
because the rights of shareholders under Cayman Islands law differ from those under
United States law, shareholders may have difficulty protecting your shareholder
rights.
  19
 We are a
company incorporated under the laws of the Cayman Islands. Our corporate affairs
are governed by our memorandum and articles of association, the Cayman Islands
Companies Law and the ordinary law of the Cayman Islands. The rights of
shareholders to take action against the directors, actions by minority
shareholders and the fiduciary responsibilities of our directors to us under
Cayman Islands law are to a large extent governed by the ordinary law of the
Cayman Islands. The ordinary law of the Cayman Islands is derived in part from
comparatively limited judicial precedent in the Cayman Islands as well as from
English ordinary law, which has persuasive, but not binding, authority on a
court in the Cayman Islands. The rights of our shareholders and the fiduciary
responsibilities of our directors under Cayman Islands law are not as clearly
established as they would be under statutes or judicial precedent in some
jurisdictions in the U.S.. In particular, the Cayman Islands has a less
developed body of securities laws as compared to the U.S., and some states, such
as Delaware, have more fully developed and judicially interpreted bodies of
corporate law. In addition, Cayman Islands companies may not have standing to
initiate a shareholder derivative action in a federal court of the
U.S..
  The
Cayman Islands courts are also unlikely:
 
 •
              to
      recognize or enforce against us judgments of courts of the U.S. based on
      certain civil liability provisions of U.S. securities
      laws; or
 
 •
              to
      impose liabilities against us, in original actions brought in the Cayman
      Islands, based on certain civil liability provisions of
      U.S. securities laws that are penal in
  nature.
  There is no statutory recognition in the Cayman Islands of judgments obtained in
the U.S., although the courts of the Cayman Islands will generally recognize and
enforce a non-penal judgment of a foreign court of competent jurisdiction
without retrial on the merits.
 
 As a
result of all of the above, public shareholders may have more difficulty in
protecting their interests in the face of actions taken by management, members
of the board of directors or controlling shareholders than they would as public
shareholders of a U.S. company.
  Item 1B.
              Unresolved
      Staff Comments
  None.
  Item 2.
              Properties
  Our
corporate headquarters are located in a 130,000 square foot facility in Fremont,
California. The lease on this facility expires in April 2009, unless our option
to extend the lease for a three-year period is exercised. We design, manufacture
and sell our products at the following facilities:
  Building Size
                Leased orLocation
                (Sq.
      Feet)
                Owned
                Expiration
                CapabilitiesPhoenix,
      Arizona
                20,600
                Leased
                May
      2011
                Design
      &
                  SalesFremont,
      California
                130,000
                Leased
                April
      2009
                Manufacturing,
                  Design,
      &
                  SalesIrvine,
      California
                5,600
                Leased
                August
      2009
                Design
      &
                  SalesTewksbury,
      Massachusetts
                10,700
                Leased
                March
      2011
                Design
      &
                  SalesAguada,
      Puerto Rico
                51,000
                Leased
                June
      2013
                Manufacturing
      &
                  SalesAtibaia,
      Brazil
                72,000
                Leased
                September
      2012
                Manufacturing,
      &
                  SalesSanto
      Domingo, Dominican Republic
                49,000
                Leased
                October
      31, 2008
                ManufacturingPenang,
      Malaysia
                67,000
                Owned
                N/A
                Manufacturing,
      &
                  SalesGunpo,
      South Korea
                5,200
                Owned
                N/A
                Design
      &
                  SalesGunpo,
      South Korea
                2,300
                Leased
                May
      2010
                Design
      &
                  Sales
 During
the fourth quarter of fiscal 2008, we ceased manufacturing operations in the
Dominican Republic and we terminated the Dominican Republic lease effective
October 31, 2008 due to the consolidation of our business.  We also
lease a number of small sales offices throughout the world.
 20
 Item
      3.
              Legal Proceedings
  We are from time to time involved in legal matters that arise in the normal
course of business. Litigation in general and intellectual property and
employment litigation in particular, can be expensive and disruptive to normal
business operations.  Moreover, the results of complex legal
proceedings are difficult to predict.  We believe that we have
defenses to the cases pending, including those set forth below.  We
are not currently able to estimate, with reasonable certainty, the possible
loss, or range of loss, if any, from the case listed below, and accordingly no
provision for any potential loss which may result from the resolution of these
matters has been recorded in the accompanying condensed consolidated financial
statements.  In our opinion, the estimated resolution of these
disputes and litigation is not expected to have a material impact on our
consolidated financial position, results of operations or cash
flows.
  During
its third quarter of fiscal 2007, the Company identified certain discrepancies
in the invoicing of certain products that it sold in the Brazilian market in
fiscal 2006. Some of the Company’s imported products were invoiced in a manner
that may have left customers with the impression that they were manufactured in
Brazil, rather than imported, and therefore potentially impact the customers’
eligibility for tax incentives.  The Company assessed the impact arising
from these discrepancies and noted that the customers had access to other
information to determine the origin of the products and may not have relied on
the information contained in the invoices for computing their tax
liability.  Also, the revenues related to these invoices were not material
to the Company’s operations.  Therefore, the Company believes that the
likelihood of any liability arising from these discrepancies in the invoices is
remote and as such, is not likely to have a material adverse effect on its
consolidated financial position, results of operations or cash flows for any
periods impacted.
  On
December 7, 2007, Tessera, Inc. filed a complaint under section 337 of the
Tariff Act of 1930 (“Tariff Act”), 19 U.S.C. § 1337, in the U.S.
International Trade Commission ("ITC") against the Company, as well as A-DATA
Technology Co., Ltd., A-DATA Technology (U.S.A.) Co., Ltd., Acer America Corp.,
Acer Inc., Centon Electronics, Inc., Elpida Memory, Inc., Elpida Memory (USA)
Inc., International Products Sourcing Group, Inc., Kingston Technology Co.,
Nanya Technology Corp., Nanya Technology Corp. U.S.A., Peripheral Devices &
Products Systems, Inc. d/b/a Patriot Memory, Powerchip Semiconductor Corp.,
ProMOS Technologies Inc., Ramaxel Technology Ltd., TwinMOS Technologies Inc.,
and Twin MOS Technologies USA Inc. (each a “Respondent” and collectively,
“Respondents”).  Tessera claims that "small-format Ball Grid Array
(“BGA”) semiconductor packages" and products containing such semiconductor
packages, including memory module products sold by the Company, infringe certain
claims of United States Patent Nos. 5,697,977, 6,133,627, 5,663,106 and
6,458,681 (the "Asserted Patents").  Tessera's Complaint requests that
the ITC institute an investigation into the matter.  Tessera has
requested the following relief in the ITC:
  -  a
      permanent general exclusion order pursuant to section 337(d)(2) of the
      Tariff Act, as amended, excluding from entry into the U.S. all
      small-format BGA semiconductor packaged DRAM chips (“BGA chips”) and
      products containing the same that are manufactured, imported or sold for
      importation by or on behalf of unlicensed entities and that infringe any
      claim of the Asserted Patents, and all products (e.g., personal computers
      or “PCs”) that contain such infringing small-format BGA
chips;
                
                -  a
      permanent exclusion order pursuant to section 337(d)(1) of the Tariff Act,
      as amended, excluding from entry into the U.S. all semiconductor chips
      with small-format BGA semiconductor packaging which are manufactured,
      imported or sold for importation by or on behalf of Respondents and which
      infringe any claim of the Asserted Patents, and all products (e.g., PCs)
      that contain such infringing BGA chips; and
                
                -  permanent
      cease and desist orders—one per Respondent—pursuant to section 337(f) of
      the Tariff Act, as amended, directing each Respondent having domestic
      inventories to cease and desist from importing, marketing, advertising,
      demonstrating, sampling, warehousing inventory for distribution, offering
      for sale, selling, distributing, licensing, or using any semiconductor
      chips with small format BGA semiconductor packaging and/or products
      containing such semiconductor chips, that infringe any claim of the
      Asserted Patents.
  On
January 3, 2008, the ITC instituted an investigation pursuant to 19 U.S.C. §
1337, entitled In the Matter
of Certain Semiconductor Chips with Minimized Chip Package Size and Products
Containing Same (III), Inv.
No. 337-TA-630.  On February 27, 2008, the administrative law
judge set trial for September 22, 2008, which trial has been completed, and
ordered that an Initial Determination shall be due on January 14, 2009, and that
the target date for completing the investigation shall be April 24,
2009.  We believe that we have meritorious defenses against Tessera’s
claims, including the fact that over 95% of the packaged DRAMs that SMART uses
in its memory module products are purchased (directly or indirectly) from DRAM
manufacturers that Tessera admits are licensed under the Asserted
Patents.
  In May
2008, Tessera withdrew one of the four Asserted Patents (U.S. Patent No.
6,458,681) from the ITC investigation in an effort to streamline the
case.
  Tessera
also filed a parallel patent infringement claim in the Eastern District of
Texas, alleging infringement of the same patents at issue in the ITC
action.  The district court action seeks an unspecified amount of
damages and injunctive relief.  The district court action has been
stayed pending the completion of the ITC action.
 21
 Item 4.
              Submission
      of Matters to a Vote of Security
Holders
  None.
 PART II
  Item 5.
              Market
      for the Registrant’s Common Equity, Related Shareholder Matters and Issuer
      Purchases of Equity Securities
  Market For Our Common Stock and
Related Shareholder Matters
  Our
ordinary shares haves traded on the NASDAQ Global Select Market under the symbol
“SMOD” since February 3, 2006.  The following table summarizes the
high and low bid quotations for our ordinary shares as reported by the NASDAQ
Global Select Market, for each quarter of the fiscal years ended August 29, 2008
and August 31, 2007.
 High
                  
                  LowFiscal Year
      2007First
      quarter
                  $
                  11.75
                  
                  $
                  8.77Second
      quarter
                  $
                  14.68
                  
                  $
                  10.38Third
      quarter
                  $
                  15.89
                  
                  $
                  10.18Fourth
      quarter
                  $
                  15.50
                  
                  $
                  10.15Fiscal
      Year 2008First
      quarter
                  $
                  10.62
                  
                  $
                  6.86Second
      quarter
                  $
                  10.94
                  
                  $
                  6.63Third
      quarter
                  $
                  6.81
                  
                  $
                  4.90Fourth
      quarter
                  $
                  5.42
                  
                  $
                  3.10
 As of
October 27, 2008, we had approximately
2,200 shareholders.
 
 Dividend
Policy
 
 We have
never declared or paid cash dividends on our ordinary shares.  We
currently intend to retain earnings to finance future growth and therefore do
not expect to pay cash dividends on our ordinary share in the foreseeable
future.  Also, our senior secured credit facility and senior secured
floating rate exchange notes prohibit us from paying cash dividends on our
equity securities, except in limited circumstances.
 
 For
equity plan compensation information, please refer to Item 12 in Part III of
this Annual Report on Form 10-K.


Stock
Performance Graph
 The following graph compares the cumulative total return to shareholders on our
ordinary shares with the cumulative total return of the NASDAQ Composite Index
and Standard & Poor’s (S&P) Semiconductors Index. The graph assumes
that $100 was invested on February 3, 2006 (the first day we traded on the
NASDAQ) in our ordinary shares and in each of the foregoing indices, and covers
the period to October 31, 2008. No dividends have been declared or paid on
our ordinary shares. Shareholder returns over the period indicated are based on
historical data and should not be considered indicative of future shareholder
returns.


Cumulative Total
Return*


* Assumes
reinvestment of dividends, if any
 
 Item 6.
                  Selected
      Financial Data
 The
following table sets forth data for the last five fiscal years and should be
read in conjunction with the Management’s Discussion and Analysis of Financial
Condition and Results of Operations and the Exhibits and Financial Statement
Schedules included in Items 7 and 15, respectively, of this Form
10-K.
  On April
16, 2004, a group of investors led by TPG, Francisco Partners and Shah Capital
Partners acquired our business from Solectron. Selected financial data for the
periods prior to and including April 16, 2004 are referred to as the
“Predecessor Business” and are derived from the combined financial statements of
SMART Modular. We have derived the statement of operations data for the years
ended August 29, 2008, August 31, 2007, and August 25, 2006, and the balance
sheet data as of August 29, 2008 and August 31, 2007 from our audited financial
statements which have been audited by KPMG LLP and are included elsewhere in
this report. KPMG LLP’s report on the consolidated financial statements refers
to the adoption of Statement of Financial Accounting Standards (SFAS)
No. 123RShare-Based Payment by applying the
prospective method at the beginning of fiscal year 2006 and the adoption of
Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes–an interpretation of FASB Statement
No. 109 at the beginning of fiscal 2008.  Historical
results are not necessarily indicative of results to be expected for future
periods.
 In April
2004, we began reporting all revenue for a service program with our largest
customer on a net revenue basis as a result of changes to the terms of our
existing services contract with this customer. Prior to this change, most of our
other services contracts were already accounted for on a net revenue basis.
Reporting services revenue on a net basis has had no impact on our gross profit,
operating expenses, net income (loss) or cash flow. We use a 52- to 53-week
fiscal year ending on the last Friday in August.
 23


Successor
      Business
            
            
            Predecessor
      BusinessFiscal
      Year
                Ended
                August
      29,
                2008
            
            
            Fiscal
      Year
                Ended
                August
      31,
                2007(1)
            
            
            Fiscal
      Year
                Ended
                August
      25,
                2006(1)
            
            
            Fiscal
      Year
                Ended
                August
      26,
                2005(1)
            
            
            Period
      from
                April
      17 to
                August
      27,
                2004(1)
            
            
            Period
      from
                August
      30,
                2003
      to
                April
      16,
                2004(1)(In
      thousands, except per share amounts)Statement of Operations
      Data(1)Net
      sales
            
            $
            670,151
            
            
            $
            844,627
            
            
            $
            727,206
            
            
            $
            607,299
            
            
            $
            233,677
            
            
            $
            659,171Cost
      of sales
            
            
            550,420
            
            
            
            695,054
            
            
            
            600,632
            
            
            
            505,461
            
            
            
            203,482
            
            
            
            601,217Gross
      profit
            
            
            119,731
            
            
            
            149,573
            
            
            
            126,574
            
            
            
            101,838
            
            
            
            30,195
            
            
            
            57,954Operating
      expenses:Research and development
            
            
            20,164
            
            
            
            16,383
            
            
            
            15,545
            
            
            
            9,697
            
            
            
            4,447
            
            
            
            9,012Selling, general and
      administrative
            
            
            59,849
            
            
            
            59,552
            
            
            
            54,917
            
            
            
            46,636
            
            
            
            18,151
            
            
            
            29,454Advisory
      service agreements' fees
            
            
            —
            
            
            
            —
            
            
            
            10,303
            
            
            
            2,588
            
            
            
            913
            
            
            
            —Impairment of
      goodwill
            
            
            3,187
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            43,302Research
      and development charge
            
            
            4,400
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Restructuring
    charges
            
            
            1,938
            
            
            
            —
            
            
            
            —
            
            
            
            880
            
            
            
            1,300
            
            
            
            6,224Total operating
      expenses
            
            
            89,538
            
            
            
            75,935
            
            
            
            80,765
            
            
            
            59,801
            
            
            
            24,811
            
            
            
            87,992Income
      (loss) from operations
            
            
            30,193
            
            
            
            73,638
            
            
            
            45,809
            
            
            
            42,037
            
            
            
            5,384
            
            
            
            (30,038
            )Interest
      (expense) income, net
            
            
            (5,355
            )
            
            
            (7,381
            )
            
            
            (15,153
            )
            
            
            (6,998
            )
            
            
            (927
            )
            
            
            170Other
      income (expense), net
            
            
            2,557
            
            
            
            934
            
            
            
            2,567
            
            
            
            481
            
            
            
            451
            
            
            
            (148
            )Total other (expense)
      income
            
            
            (2,798
            )
            
            
            (6,447
            )
            
            
            (12,586
            )
            
            
            (6,517
            )
            
            
            (476
            )
            
            
            22Income
      (loss) before provision for income taxes
            
            
            27,395
            
            
            
            67,191
            
            
            
            33,223
            
            
            
            35,520
            
            
            
            4,908
            
            
            
            (30,016
            )Provision
      for income taxes
            
            
            18,421
            
            
            
            9,458
            
            
            
            914
            
            
            
            8,802
            
            
            
            1,255
            
            
            
            2,301Net
      income (loss)
            
            $
            8,974
            
            
            $
            57,733
            
            
            $
            32,309
            
            
            $
            26,718
            
            
            $
            3,653
            
            
            $
            (32,317
            )Net
      income per ordinary share,basic
            
            $
            0.15
            
            
            $
            0.97
            
            
            $
            0.60
            
            
            $
            0.55
            
            
            $
            0.07Net
      income per ordinary share,diluted
            
            $
            0.14
            
            
            $
            0.91
            
            
            $
            0.55
            
            
            $
            0.50
            
            
            $
            0.07Shares
      used in computing net income per ordinary share,basic
            
            
            60,985
            
            
            
            59,636
            
            
            
            54,265
            
            
            
            48,872
            
            
            
            48,872Shares
      used in computing net income per ordinary share,diluted
            
            
            63,555
            
            
            
            63,782
            
            
            
            59,189
            
            
            
            53,531
            
            
            
            50,745





Successor
      Business
            
            Predecessor
      BusinessAugust
      29,
                2008
            
            August
      31,
                2007
            
            August
      25,
                2006
            
            August
      26,
                2005
            
            August
      27,
                2004
            
            April
      16, 2004Balance
      Sheet Data:Cash
      and cash equivalents
            $
            115,994
            $
            144,147
            $
            85,620
            $
            75,970
            $
            36,747
            $
            17,887Working
      capital
            
            269,709
            
            251,459
            
            184,799
            
            135,930
            
            52,924
            
            83,536Total
      assets
            
            447,148
            
            453,077
            
            426,456
            
            321,061
            
            288,040
            
            257,056Total
      long-term debt
            
            81,250
            
            81,250
            
            81,250
            
            125,000
            
            —
            
            —Total
      shareholders’ equity
            
            246,906
            
            221,426
            
            150,663
            
            42,648
            
            79,837
            
            91,330





(1)
            Certain
      amounts for fiscal 2007, 2006, 2005 and 2004 and as of August
      31, 2007, August 25, 2006, August 26, 2005, and August 27, 2004 were
      revised due to prior period revisions.  See Note 1(u) of Notes to Consolidated Financial
      Statements for additional
information.





24


Item 7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
 The
following discussion should be read in conjunction with the audited financial
statements and related notes and other financial information, which appear
elsewhere in this report. The following discussion contains forward-looking
statements that involve risks and uncertainties. See the disclosure regarding
“Forward-Looking Statements.” Our actual results could differ materially from
the results contemplated by these forward-looking statements due to certain
factors, including those factors discussed below and elsewhere in this
report.
  We use a 52- to 53-week fiscal year ending on the last Friday in August.
Financial information for one of our subsidiaries,SMART Modular
Technologies Indústria de Componentes Eletrônicos Ltda., is included in our consolidated
financial statements on a one month lag.  The effects of the one month
lag for the operations of SMART Modular Technologies Indústria de Componentes
Eletrônicos Ltda. is not significant to our financial position and results of
operations. Certain prior period amounts have been reclassified to conform to
the current year presentation.
 
  Overview
  We are a
leading independent designer, manufacturer and supplier of value added
subsystems sold primarily to OEMs. Our subsystem products include memory
modules, SSD, embedded computing and TFT-LCD products that we offer to customers
worldwide. We also offer our customers custom supply chain services including
procurement, logistics, inventory management and temporary warehousing, kitting
and/or packaging services. Our products and services are used for a variety of
applications in the computing, networking, communications, printers, storage and
industrial markets worldwide. Products that incorporate our subsystems include
servers, routers, switches, storage systems, workstations, PCs, notebooks,
printers and gaming machines. Generally, while increases in overall unit demand
by end users for, and increases in memory content in, products that incorporate
our subsystems should have a positive effect on our business, financial
condition and results of operations, conversely, decreases in product unit
demand and memory content can have a negative effect on our business, financial
condition and results of operations.  We offer more than 500 standard
and custom products to leading OEMs, including Cisco Systems, Dell, and
Hewlett-Packard. We maintain a large global footprint with manufacturing
capabilities in the U.S., Malaysia, Brazil and Puerto Rico. Our global
operations enable us to control costs and rapidly respond to our customers’
requirements worldwide.
 
 In April
2004, a group of investors led by TPG, Francisco Partners and Shah Capital
Partners acquired SMART Modular from Solectron, at which time we began to
operate our business as an independent company under the laws of the Cayman
Islands. Since the Acquisition, we repositioned a portion of our business by
focusing on the delivery of certain higher value added products, diversifying
our end markets and extending into new vertical markets, creating more
technically engineered products and solutions, migrating manufacturing to low
cost regions and controlling expenses.  For example, in fiscal 2005 we
acquired Estecom, a producer of TFT-LCD products, in fiscal 2006 we acquired
ConXtra, Inc., a product design and design manufacturing services provider, and
in fiscal 2008 we acquired Adtron Corporation, a leading designer and global
supplier for high performance and high capacity SSDs. Also, in fiscal 2006 we
completed our manufacturing facility in Atibaia, Brazil into which we import
finished wafers and package them into memory integrated circuits and into memory
modules.
  In fiscal
2008, we categorized our products and services into the following two business
segments, the Memory, Embedded, & Display Segment and the Adtron
Segment.  In prior fiscal years we operated under one
segment.  From the acquisition of Adtron on March 3, 2008 through
December 31, 2008 (the Adtron acquisition earn-out period for certain former
Adtron employees), SMART’s CEO and chief operating decision maker will
separately evaluate Adtron’s performance and the allocation of resources to
Adtron.
  Key
Business Metrics
  The
following is a brief description of the major components of the key line items
in our financial statements.
  Net
Sales
  We
generate our product revenues from sales of our subsystems, including memory
modules and flash memory cards, SSDs, embedded computing boards and TFT-LCD
products, principally to leading computing, networking, communications, printer,
storage and industrial OEMs. Sales of our products are generally made pursuant
to purchase orders rather than long-term commitments. We generate service
revenue from a limited number of customers by providing procurement, logistics,
inventory management and temporary warehousing, and kitting or packaging
services. Our net sales are dependent upon demand in the end markets that we
serve and fluctuations in end-user demand can have a rapid and material effect
on our net sales. Furthermore, sales to relatively few customers have accounted,
and we expect will continue to account for a significant percentage of our net
sales in the foreseeable future.
  Cost
of Sales
  The most
significant components of cost of sales are materials, fixed manufacturing
costs, labor and depreciation. Increases in capital expenditures may increase
our future cost of sales due to higher levels of depreciation
expense.  Cost of sales also includes any inventory write-downs. We
may write-down inventory for a variety of reasons, including obsolescence,
excess quantities and declines in market value below our cost.
 25
 Research
and Development Expenses
  Research
and development expenses consist primarily of the costs associated with the
design and testing of new products. These costs relate primarily to compensation
of personnel involved with development efforts, materials and outside design and
testing services. Our customers typically do not separately compensate us for
design and engineering work involved in the development of custom
products.
  Selling,
General and Administrative Expenses
  Selling,
general and administrative expenses consist primarily of personnel costs,
including commissions, facilities and equipment costs, costs related to
advertising and marketing and other support costs including utilities, insurance
and professional fees.
  Critical
Accounting Policies
  Management’s
Discussion and Analysis of Financial Condition and Results of Operations are
based on our financial statements which have been prepared in accordance with
accounting principles generally accepted in the U.S.. The preparation of these
financial statements requires us to make certain estimates that affect the
reported amounts in our financial statements. We evaluate our estimates on an
ongoing basis, including those related to our net sales, inventories, asset
impairments, restructuring charges, income taxes, stock-based compensation and
commitments and contingencies. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the
circumstances.
  We
believe the following critical accounting policies are the most significant to
the presentation of our financial statements and they at times require the most
difficult, subjective and complex estimates.
  Revenue
Recognition
  Our
product revenues are derived from the sale of value added subsystems, including
memory modules and flash memory cards, SSDs, embedded computing boards and
TFT-LCD products, which we design and manufacture. We recognize revenue
primarily upon shipment, following receipt of written purchase orders, when the
price is fixed and determinable, title has transferred, product acceptance has
occurred and collection of the resulting accounts receivable is reasonably
assured. Amounts billed to customers related to shipping and handling are
classified as sales, while costs incurred by us for shipping and handling are
classified as cost of sales.  Taxes, including value added taxes,
assessed by a government authority that are both imposed on and concurrent with
a specific revenue producing transaction are excluded from revenue.
 
 Our
service revenues are derived from procurement and logistics, inventory
management and temporary warehousing, and kitting or packaging services. The
terms of our contracts vary, but we generally recognize service revenue upon the
completion of the contracted services. Our service revenue is accounted for on
an agency basis in accordance with Emerging Issues Task Force
(EITF) Issue No. 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent.Service revenue for
these arrangements is typically based on material procurement costs plus a fee
for any services provided. We determine whether to report revenue on a net or
gross basis depending on a number of factors, including whether we are the
primary obligor in the arrangement, have general inventory risk, have the
ability to set the price, have the ability to determine who the suppliers are,
can physically change the product or have credit risk.
  The
following is a summary of our net sales and gross billings:


Fiscal
      Year
                  Ended
                  August
      29,
                  2008
              
              
              Fiscal
      Year
                  Ended
                  August
      31,
                  2007
              
              
              Fiscal
      Year
                  Ended
                  August
      25,
                  2006(in
      thousands)Product
      net sales(1)
              
              $
              628,791
              
              
              $
              794,397
              
              
              $
              683,467Service
      revenue
              
              
              41,360
              
              
              
              50,230
              
              
              
              43,739Net
      sales
              
              
              670,151
              
              
              
              844,627
              
              
              
              727,206Plus: Related cost of
      sales(2)
              
              
              875,839
              
              
              
              1,085,715
              
              
              
              773,786Gross
      billings to customers
              
              $
              1,545,990
              
              
              $
              1,930,342
              
              
              $
              1,500,992


(1)
            Prior
      period amounts revised.  See Note 1(u)of Notes to Condensed Consolidated
      Financial Statements(2)
            Represents
      cost of sales netted against sales accounted for on an agency
      basis.






26


Accounts
Receivable
  We
evaluate the collectibilty of accounts receivable based on several factors. When
we are aware of circumstances that may impair a specific customer’s ability to
meet its financial obligations, we consider the need to record a specific
allowance against amounts due, thus adjusting the net recognized receivable to
the amount we reasonably believe will be collected. Increases to the allowance
for bad debt are recorded as a component of general and administrative expenses.
For all other customer accounts receivable, we record an allowance for doubtful
accounts based on a combination of factors including the length of time the
receivables are outstanding, industry and geographic concentrations, the current
business environment, and historical experience.
  Inventory
Valuation
  At each
balance sheet date we evaluate our ending inventories for excess quantities and
obsolescence. This evaluation includes analysis of sales levels by product
family. Among other factors, we consider historical demand and forecasted demand
in relation to the inventory on hand, competitiveness of product offerings,
market conditions and product life cycles. We adjust remaining inventory
balances to approximate the lower of our manufacturing cost or net realizable
value. Inventory values are determined on a specific identification basis and
include material, labor, and manufacturing overhead. Provisions for excess and
obsolete inventory may also be impacted by our contractual arrangements with our
customers, including our ability or inability to re-sell such inventory to them.
If actual market conditions or our customers’ product demands become less
favorable or if our customers are unwilling or unable to comply with contractual
arrangements related to inventory, additional inventory write-downs may be
required. We have had inventory write-downs in the past for reasons noted above
and we expect to be required to do so from time to time in the
future.
  Restructuring
Charges
  We record
and account for our restructuring activities following formally approved plans
that identify the actions and timelines over which the restructuring activities
will occur. Restructuring charges include estimates pertaining to such items as
employee severance and fringe benefit costs, facility exit costs, subleasing
assumptions, etc.  Adjustments to these estimates are made when
changes in facts and circumstances suggest actual amounts will differ from
original estimates. These changes in estimates may result in increases or
decreases to our results of operations in future periods and would be presented
on the restructuring charge line of our consolidated statements of
operations.
  Income
Taxes
  We use
the asset and liability method of accounting for income taxes. Deferred tax
assets and liabilities are recognized for the future consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and net operating loss and
credit carry-forwards. When necessary, a valuation allowance is recorded or
reduced to value tax assets to amounts expected to be realized. The effect of
changes in tax rates is recognized in the period in which the rate change
occurs. U.S. income and foreign withholding taxes are not provided on that
portion of unremitted earnings of foreign subsidiaries that are expected to be
reinvested indefinitely.
 
 After
excluding ordinary losses in a tax jurisdiction for which no tax benefit can be
recognized, we estimate our annual effective tax rate and apply such rate to
year-to-date income, adjusting for unusual or infrequent items that are treated
as discrete events in the period. We also evaluate our valuation allowance to
determine if a change in circumstances causes a change in judgment regarding
realization of deferred tax assets in future years. If the valuation allowance
is adjusted as a result of a change in judgment regarding future years, that
adjustment is recorded in the period of such change affecting our tax expense in
that period.
  The
calculation of our tax liabilities involves accounting for uncertainties in the
application of complex tax rules, regulations and practices.  As a
result of the implementation of FIN No. 48, we recognize benefits for uncertain
tax positions based on a two-step process.  The first step is to
evaluate the tax position for recognition of a benefit (or the absence of a
liability) by determining if the weight of available evidence indicates that it
is more likely than not that the position taken will be sustained upon audit,
including resolution of related appeals or litigation processes, if
any.  If it is not, in our judgment, “more likely than not” that the
position will be sustained, then we do not recognize any benefit for the
position.  If it is more likely than not that the position will be
sustained, a second step in the process is required to estimate how much of the
benefit we will ultimately receive. This second step requires that we estimate
and measure the tax benefit as the largest amount that is more than 50 percent
likely of being realized upon ultimate settlement. It is inherently difficult
and subjective to estimate such amounts.  We reevaluate these
uncertain tax positions on a quarterly basis.  This evaluation is
based on a number of factors including, but not limited to, changes in facts or
circumstances, changes in tax law, new facts, correspondence with tax
authorities during the course of an audit, effective settlement of audit issues,
and commencement of new audit activity.  Such a change in recognition
or measurement could result in the recognition of a tax benefit or an additional
charge to the tax provision in the period.
  Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed
  We review
our long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to the future undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed are reported at the
lower of the carrying amount or fair value, less cost to sell.
 27
 Stock-Based
Compensation
  Effective
August 27, 2005, we adopted SFAS No. 123R, Share-Based Payment, using the
prospective method. The key assumptions used in applying the provisions of SFAS
No. 123R and the impact of adoption are described in Note 1(p) to the
Consolidated  Financial Statements.
  Financial
Information about Segments
  During
fiscal 2008, our corporate structure included two operating segments, the
Memory, Embedded, & Display Segment and the Adtron
Segment.  Accordingly, we report certain financial information by
segment.  We may adjust our reported segments in fiscal 2009 to
reflect changes regarding how we manage the business.  See Note 12 of
Notes to the Consolidated Financial Statements for information regarding our
business segments.
  Certain
results of operations by segment (in millions):


Memory,
      Embedded, & Display
              
              Adtron(2)
              
              TotalYear
      Ended August  29, 2008Net
      sales
              
              $
              662.8
              
              
              $
              7.4
              
              
              $
              670.2Gross
      profit
              
              
              116.6
              
              
              
              3.1
              
              
              
              119.7Depreciation
      and amortization
              
              
              12.1
              
              
              
              .6
              
              
              
              12.7Income
      (loss) from operations
              
              
              36.4
              
              
              
              (6.2
              )
              
              
              30.2Year
      Ended August 31, 2007(1)Net
      sales
              
              $
              844.6
              
              
              $
              —
              
              
              $
              844.6Gross
      profit
              
              
              149.6
              
              
              
              —
              
              
              
              149.6Depreciation
      and amortization
              
              
              9.0
              
              
              
              —
              
              
              
              9.0Income
      from operations
              
              
              73.6
              
              
              
              —
              
              
              
              73.6Year
      Ended August 25, 2006(1)Net
      sales
              
              $
              727.2
              
              
              $
              —
              
              
              $
              727.2Gross
      profit
              
              
              126.6
              
              
              
              —
              
              
              
              126.6Depreciation
      and amortization
              
              
              8.7
              
              
              
              —
              
              
              
              8.7Income
      from operations
              
              
              45.8
              
              
              
              —
              
              
              
              45.8


(1)
            In
      fiscal years 2007 and 2006, the Company had only one
    segment.(2)
            Adtron
      was acquired in March 2008.  The results of Adtron and for periods
      post acquisition.


28


Results
of Operations




The
following is a summary of our results of operations for 2008, 2007 and 2006(in
millions).




Fiscal
      Year
                Ended
                August
      29,
                2008
            
            
            Fiscal
      Year
                Ended
                August
      31,
                2007
            
            
            Fiscal
      Year
                Ended
                August
      25,
                2006(In
      millions)Net
      Sales (1)
            
            $
            670.2
            
            
            $
            844.6
            
            
            $
            727.2Cost
      of sales (1)
            
            
            550.4
            
            
            
            695.1
            
            
            
            600.6Gross
      profit (2)
            
            
            119.7
            
            
            
            149.6
            
            
            
            126.6Operating
      expenses:Research
      and development
            
            
            20.2
            
            
            
            16.4
            
            
            
            15.5Selling,
      general and administrative
            
            
            59.8
            
            
            
            59.6
            
            
            
            54.9Advisory
      service agreements’ fees
            
            
            —
            
            
            
            —
            
            
            
            10.3Impairment
      of goodwill
            
            
            3.2
            
            
            
            —
            
            
            
            —In-process
      research and development charge
            
            
            4.4
            
            
            
            —
            
            
            
            —Restructuring
      costs
            
            
            1.9
            
            
            
            —
            
            
            
            —Total
      operating expenses (2)
            
            
            89.5
            
            
            
            76.0
            
            
            
            80.8Income
      from operations
            
            
            30.2
            
            
            
            73.6
            
            
            
            45.8Interest
      expense, net
            
            
            (5.4
            )
            
            
            (7.4
            )
            
            
            (15.2
            )Other
      income, net
            
            
            2.6
            
            
            
            0.9
            
            
            
            2.6Total
      other expense, net (2)
            
            
            (2.8
            )
            
            
            (6.4
            )
            
            
            (12.6
            )Income
      before provision
              for
      income taxes
            
            
            27.4
            
            
            
            67.2
            
            
            
            33.2Provision
      for income taxes
            
            
            18.4
            
            
            
            9.5
            
            
            
            0.9Net
      income (2)
            
            $
            9.0
            
            
            $
            57.7
            
            
            $
            32.3





(1)   
      Prior period amounts revised.  See Note 1(u)of Notes to the Condensed
      Consolidated Financial Statements.


(2)   
      Summations may not compute precisely due to
  rounding.






Fiscal
Year Ended August 29, 2008 Compared to Fiscal Year Ended August 31,
2007
  Net
Sales. Net
sales for 2008 were $670.2 million or a 21% decrease from $844.6 million from
2007. This decrease was primarily due to a $189.6 million decrease in our memory
products, partially offset by increases of $9.9 million in our display products
and $5.2 million in our embedded products.  The overall decline in
sales was primarily driven by falling average selling prices year over year and
our loss of market share to certain semiconductor manufacturers that offer
memory modules.
  Cost of
Sales.  Cost of sales for 2008 was $550.4 million or a 21%
decrease from $695.1 million for 2007. Cost of sales as a percent of net sales
remained unchanged at 82% year over year as these costs decreased commensurate
with the decrease in net sales.  The $144.6 million decrease in cost
of sales was principally due to a $164.8 million decline in our memory product
cost of sales, partially offset by increases in net cost of sales of $8.9
million in our display products and $5.3 million in our embedded products,
respectively.  In addition, our inventory write downs increased by
$0.7 million and our factory overhead and other costs increased by $5.4
million.
  Gross
Profit. Gross
profit for 2008 was $119.7 million, or a 20% decrease from $149.6 million for
2007. Gross margin percentage remained unchanged at 18% year over year. The
decrease in gross profit was primarily due to the lower net sales to our
customers.
 Research and
Development Expensesand Write-off of
Acquired In-process Research and Development. Research
and development, or R&D expenses, for 2008 were $20.2 million, or a 23%
increase from $16.4 million for 2007. This increase was primarily due to
approximately $2.3 million in R&D expenses for the new Adtron Segment and
approximately $0.6 million increase in stock-based compensation expense incurred
during 2008 when compared to 2007.  During fiscal 2008, we wrote off
an additional $4.4 million of in-process R&D related to the acquisition of
Adtron.
 29
 Selling, General
and Administrative Expenses.  Selling, general and
administrative, or SG&A expenses, for 2008 were $59.8 million, representing
an increase of $0.2 million over the same period in fiscal 2007 from $59.6
million. Sales and marketing expense increased $0.1 million primarily due to
increases in personnel related costs of $0.8 million and $0.2 million in
amortization of our intangible assets due to the Adtron acquisition during the
year, partially offset by a decrease of $0.6 million in bonus expense, a
decrease of $0.2 million in commission expense, and a decrease of $0.1 million
in other support costs.  G&A expense increased $0.1 million
primarily due to increases in personnel related costs of $1.9 million and of
$1.7 million in stock-based compensation expense, partially offset by a
reduction of $1.9 million in bonus expense, a reduction of $0.6 million in SOX
related expenses, a reduction in $0.2 million in support costs and $0.8 million
in fees incurred in the prior year related to our secondary share
offering.
 Restructuringand
Goodwill ImpairmentCharges. Restructuring
costs for 2008 consist of $0.7 million for severance and employee benefit costs,
approximately $0.9 million for facility and assets write-off and
approximately $0.3 million in other exit costs.  The total $1.9
million of restructuring charge incurred in fiscal year 2008 were primarily
from the consolidation of certain operation in Asia and the
Caribbean.  In particular, we ceased operations in China and India and
started the closure of our Dominican Republic facility.  Goodwill
impairment charge in fiscal 2008 was $3.2 million related to our Memory,
Embedded, & Display Segment. We did not incur any restructuring or goodwill
impairment charges during fiscal 2007.
 Interest Expense,
Net.  Net interest expense for 2008 was $5.4 million compared
to $7.4 million for 2007. This decrease was principally due to a $0.9 million
increase in interest income as a result of increased cash balances and a
decrease in interest expense of $1.1 million primarily due to the decrease in
interest rate on our long-term debt.
 Other Income,
Net.  Net other income for 2008 increased to $2.6 million, from
$0.9 million in 2007.  The increase of $1.7 million was mainly driven
by foreign currency transactions gains.
 
 Provision for
Income Taxes.  The effective tax rates for 2008 and 2007 were
approximately 67% and 14%, respectively. During the third quarter of the fiscal
year ended August 29, 2008, the Company recorded $9.6 million deferred tax
expense to increase the valuation allowance on U.S. deferred tax
assets.  The U.S. net deferred tax assets generated during the fiscal
year ended August 29, 2008 also have a full valuation allowance.  The
effective tax rate increased primarily due to the $9.6 million tax expense to
establish a full valuation allowance on U.S. net deferred tax
assets.
 
 Excluding the impact of the $9.6
million increase in the valuation allowance and the non-deductible in process
research and development expenses of $4.4 million in fiscal year 2008 and
excluding the impact of the $2.4 million decrease in the valuation allowance in
fiscal year 2007, the effective tax rates for 2008 and 2007 would have been
approximately 27% and 18%, respectively.  This increase was primarily
due to reductions in pre-tax profits in 2008 as compared to 2007 in low tax rate
countries which did not significantly reducing consolidated tax
expense.
 
 Fiscal
Year Ended August 31, 2007 Compared to Fiscal Year Ended August 25,
2006
  Net
Sales.  Net sales for 2007 were $844.6 million, or a 16%
increase from $727.2 million for 2006. This increase was primarily due to a
$126.4million
increase in net sales to our OEM customers which was primarily driven by an
increase in unit sales volume. Included in net sales for 2007 is
$1.8 million of sales, the corresponding cost of which was recorded in a
prior period, related to products shipped in the fourth quarter of fiscal 2006
under a customer arrangement for which the fee was not fixed or determinable, or
collectibility reasonably assured at the time of sale.
 
 Cost of
Sales.  Cost of sales for 2007 was $695.1 million, or a
16% increase from $600.6 million for 2006. Cost of sales as a percent of
net sales decreased to 82% for the fiscal year 2007, from 83% for the fiscal
year 2006. The $94.5 million increase in cost of sales was principally due
to the overall increase in net sales to our OEM customers. Included in cost of
sales for 2007 is an approximately $1.7 million benefit due to the reversal
of inventory reserve that was recorded in 2005, related to end-of-life inventory
that we disposed of at cost in 2007.
 
 Gross
Profit.  Gross profit for 2007 was $149.6 million, or an
18% increase from $126.6 million for 2006. Gross margin percentage
increased from 17% for fiscal year 2006 to 18% for fiscal year 2007. The
increase in gross profit was primarily due to the higher net sales to our OEM
customers, which was primarily driven by an increase in unit sales
volume.
 
 Research and
Development Expenses.  Research and development, or R&D
expenses for 2007 were $16.4 million, or a 6% increase from
$15.5 million for 2006. This increase was primarily due to approximately
$0.6 million increase in stock-based compensation expense incurred during
2007 when compared to 2006.
 
 Selling, General
and Administrative Expenses.  Selling, general
and administrative, or SG&A expenses for 2007 were $59.6 million, or a
9% increase from $54.9 million for 2006. This change was the result of a
net increase in SG&A headcount and annual pay raises and commissions of
approximately $1.9 million, approximately $1.8 million in incremental
stock-based compensation expense, approximately $0.8 million in offering
expenses incurred in connection with our secondary share offering and
approximately $1.6 million in incremental accounting, legal and consulting
expenses, offset by an approximately $2.0 million decline in amortization
expense due to the reduction of our net intangible assets to zero during the
fourth quarter of 2006.
 30
 Advisory Service
Agreements’ Fees.  We did not incur fees under the advisory
service agreements during fiscal 2007. Fees from the advisory service agreements
for 2006 were $10.3 million, which included a $9.0 million charge to
terminate our obligation to pay annual fees under these agreements, as well as
approximately $1.3 million in advisory service fees incurred for the period
from August 27, 2005 through February 8, 2006.
 
 Interest Expense,
Net.  Net interest expense for 2007 was $7.4 million,
compared to $15.2 million for 2006. This decrease was principally due to
$5.9 million of interest charges that we incurred during the third quarter
of fiscal 2006, in connection with the redemption of $43.8 million of the
Notes during the third quarter of fiscal 2006 and the related reduction in
interest expense on the Notes during fiscal 2007. Interest expense also reflects
the effect of interest rate swaps (“Swaps”) used to hedge the variable interest
rate exposure on our senior secured floating rate notes.
 
 Other Income,
Net.  Net other income for 2007 decreased to $0.9 million,
from $2.6 million in 2006. This decrease was principally due to the fact
that in June 2006, based upon further review of our hedge accounting practices,
we concluded that we needed to change the accounting for the Swaps previously
accounted for under the “short cut” method for cash flow hedges, as described in
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. As a result, we recorded
approximately $1.4 million of other income that was previously recorded in
other comprehensive income. We recorded the adjustment in the third quarter of
fiscal 2006, as the amount was not material to any impacted period. We also
recorded approximately $0.5 million of other income for the three months
ended May 31, 2006, due to changes in fair value of the Swaps during that
quarter. We implemented hedge accounting under the “long haul” method for cash
flow hedges for our Swaps in the fourth quarter of fiscal 2006, which resulted
in changes in the fair value of the Swaps, excluding the ineffective portion of
the hedge, which was recorded in other comprehensive income. The changes in fair
value of the Swaps related to any ineffective portion of the hedge are reflected
in other income or expense.
 
 Provision for
Income Taxes.  The effective tax rates for 2007 and 2006 were
approximately 14% and 3%, respectively. We reduced our deferred tax assets’
valuation allowance by approximately $2.4 million and $10.3 million
during the fourth quarters of fiscal 2007 and 2006, respectively. Since the
valuation allowance was originally established in connection with the
Acquisition, the benefit of the reduction during 2006 was recorded first to
reduce to zero the remaining balance of the acquired intangible assets, with the
remaining amount of approximately $3.8 million recorded as an income tax
benefit during the fourth quarter of fiscal 2006. The entire $2.4 million
was recorded as an income tax benefit during the fourth quarter of fiscal
2007.
 
 Excluding
the impact of the $2.4 million and $3.8 million reduction in the tax
provision for release of the valuation allowance, the effective tax rate for
fiscal 2007 and 2006 would have been approximately 18%, up from approximately
14% for fiscal 2006, respectively. This increase was principally due to a higher
portion of our profits being generated in higher tax rate jurisdictions during
2007 when compared to 2006.
 
  Liquidity
and Capital Resources
  Our
principal sources of liquidity are cash flow from operations and borrowings
under our senior secured floating rate notes. Our principal uses of cash, in
addition to working capital requirements, include debt service requirements as
described below, capital expenditures and potential
acquisitions.  From time to time, cash may be used to pay down
long-term debt.  Cash and cash equivalents consist of funds held in
general checking accounts, money market accounts and short-term investments with
an original maturity on the date of purchase of three months or
less.  We do not have investments in variable rate demand notes,
auction rate securities and other assets backed securities.
  Debt
Service
  As of
August 29, 2008, (1) we had total long-term indebtedness of $81.3 million under
the Notes; and (2) our senior secured credit facility was undrawn with
approximately $50.0 million of borrowing capacity available, subject to
customary conditions. Any inability to meet our debt service obligations could
have material consequences to our security holders.
  Senior
SecuredFloating Rate Exchange Notes Due April
2012.The Notes bear interest at a rate equal to LIBOR plus
5.50% per annum, and are guaranteed by most of our subsidiaries (subject to
limited exceptions), and the guarantees are secured by the capital stock of most
of our subsidiaries. Interest on our notes is payable quarterly in cash. The
indenture relating to the Notes contains customary covenants including
limitations on our ability to engage in certain transactions.
 
 We have
identified an exception to compliance relating to the reporting under Rule 3 –
16 of Regulation S-X under the Securities Act of 1933, as amended, with respect
to our fiscal 2006.  This rule requires the filing of financial
statements of certain subsidiaries that pledged stock to secure
the  Notes. We have commenced efforts to remedy this exception in a
timely manner.  In December 2008, when in the next annual compliance
certificate is due to the trustee, we will note this exception if it
is not yet remidiated.
 
 On August
13, 2008, we filed a Form 15 to de-register the Notes with the SEC pursuant to
Rule 12g-4(a)(1) to suspend our remaining reporting obligations to file reports
under Sections 13 and 15(d) with respect to the Notes.
 31
 Senior
SecuredRevolving
Line ofCredit
Facility.Our senior secured revolving line of credit facility
(“WF Credit Facility”) provides us with up to $50.0 million of aggregate
borrowing capacity ($30.0 million of which may be in the form of letters of
credit). Borrowings under this credit facility bear interest based on LIBOR plus
an applicable margin, ranging from 1.25% (if the funded debt to adjusted EBITDA
ratio is less than or equal to 1.00) to 2.00% (if such ratio is greater than
2.00). The WF Credit Facility contains financial covenants that require us to
maintain, as of the end of each fiscal quarter, an adjusted quick ratio (as
defined in the WF Credit Facility) equal to or greater than 1.00, an adjusted
EBITDA equal to or greater than $50.0 million (based on the preceding four
fiscal quarters then ended), and a funded debt to adjusted EBITDA ratio equal to
or less than 2.25. It is not likely that in the immediate future the Company
will meet its adjusted EBITDA covenant requiring $50.0 million over the
preceding four fiscal quarters, and is in the process of seeking an
amendment.  Our WF Credit Facility is available for general corporate
purposes until April 30, 2010, unless earlier terminated.
  Capital
Expenditures
  Future
capital expenditures are expected to primarily be for test and manufacturing
equipment upgrades and/or acquisitions, IT infrastructure and software upgrades.
Our senior secured credit facility contains restrictions on our ability to make
capital expenditures. Based on current estimates, we believe that the amount of
capital expenditures permitted to be made under the senior secured credit
facility will be adequate to implement our current plans.
  Sources of Funds
  We
anticipate that our current cash balance, together with our operating cash flow
and available borrowings under our senior secured credit facility, will be
sufficient to meet our working capital needs, and fund our R&D and capital
expenditures and service requirements on our debt obligations for at least the
next 12 months. However, our longer term ability to make scheduled payments of
principal, to pay interest on or to refinance our indebtedness and to satisfy
our other debt obligations will depend upon our future operating performance
which may be affected by general economic, financial, competitive, business and
other factors beyond our control.
 
 From time
to time we may explore additional financing and other means to lower our cost of
capital which could include additional share issuance or debt financing and the
application of the proceeds there from to repay bank debt or other indebtedness.
In addition, in connection with any future acquisitions, we may require
additional funding in the form of additional debt or equity financing or a
combination thereof. There can be no assurance that additional funding will be
available to us on acceptable terms.
  Historical
Trends
  Historically,
our financing requirements have been funded primarily through cash generated by
operating activities, credit facility borrowings, the sale of preferred shares
to and advances from our former principal shareholder, Modular, L.L.C, and our
initial public offering. As of August 29, 2008, our cash and cash equivalents
were $116.0 million.
  Cash Flows from
Operating Activities.Net cash provided by
operating activities was $4.6 million, $69.7 million, and $0.5 million for
fiscal years 2008, 2007, and 2006, respectively.   Net cash
provided by operating activities of $4.6 million for the year ended August 29,
20008 representing a decrease of $65.2 million over net cash
provided by operating activities of $69.7 million for the year ended August 31,
2007.  The decrease in cash provided by operating activities was
principally the result of a decrease in net income of $48.8 million, together
with decreases in the changes in operating assets and liabilities of $31.3
million, which includes the impact of the increase in the valuation allowance,
offset by increases in adjustment for non-cash charges of $7.6 million for the
write-off of acquired in-process technology and goodwill and $6.2
million mainly associated with stock-based compensation and depreciation
and amortization.
 
 Net cash
provided by operating activities of $69.7 million for the year ended August
31, 2007, representing an increase of $69.2 million over net cash provided by
operating activities of $0.5 million for the year ended August 25,
2006.  The increase in cash provided by operating activities was
principally the result of increases in net income of $25.4 million together
with decreases in the change in inventory, accounts receivable and prepaid
expenses and other assets of $14.3 million, $95.4 million and
$18.6 million, respectively, offset by decrease in the change in accounts
payable of $88.7 million.
  Cash
Flows from Investing
Activities.Net cash used in
investing activities was $33.8 million, $14.4 million, and $15.9 million for
fiscal years 2008, 2007, and 2006, respectively.  The increase of
$19.4 million in net cash used in investing activities in fiscal year 2008 from
fiscal year 2007 was primarily due to the cash used to acquire Adtron of $20.3
million during the year, along with a decrease level of capital
expenditures of $0.7million, and a decrease of $0.3 million in proceeds from
sales of property, plant and equipment.
 
 Net cash
used in investing activities of $14.4 million for the year ended August 31,
2007, representing a decrease of $1.5 million over net cash used in investing
activities of $15.9 million for the year ended August 25, 2006.  This
decrease in cash used in investing activities in fiscal year 2007 from fiscal
year 2006 was primarily due to a decrease level of capital expenditures of
approximately $6.4 million principally in connection with our packaging facility
in Brazil, offset by the maturity of short-term investments of approximately
$5.1 million.
 32
 Cash
Flows from Financing Activities.Net cash provided by
financing activities was $18 thousand, $2.2 million, and $25.1 million for
fiscal years 2008, 2007, and 2006, respectively.  The decrease of $2.2
million in net cash provided by financing activities in fiscal year 2008 from
fiscal year 2007 was primarily due to $0.9 million of principal payment on the
line of credit related to the Adtron acquisition, $0.6 million decrease in
excess tax benefit from stock-based compensation and $0.9 million decrease in
proceeds from option exercises during the twelve months ended August 29, 2008
when compared to the twelve months ended August 31, 2007.
 
 Net cash
provided by financing activities was $2.2 million for the year ended August 31,
2007 representing a decrease of $22.9 million over net cash used in financing
activities of $25.1 million for the year ended August 25, 2006.  This
decrease in cash provided by financing activities in fiscal year 2007 from
fiscal year 2006 was primarily due to the proceeds received from our initial
public offering of approximately $74.2 million in February 2006, together with
an increase in the proceeds of stock option exercises of approximately $1.8
million, offset by the $48.1 million in long-term debt redemption in March
2006.
  Contractual
Obligations
  Our
contractual obligations as of August 29, 2008 are set forth below:
  Payments
Due by Period


1
      Year
            
            
            2-3
      Years
            
            
            4-5
      Years
            
            
            After
      5 Years
            
            
            Total(In
      millions)Total
      debt
            
            $
            —
            
            
            $
            —
            
            
            $
            81.3
            
            
            $
            —
            
            
            $
            81.3Interest
      expense cash obligations in connection with long-term debt and related
      interest rate swap
            
            
            8.3
            
            
            
            16.6
            
            
            
            5.5
            
            
            
            —
            
            
            
            30.4Operating
      leases
            
            
            2.4
            
            
            
            2.6
            
            
            
            1.1
            
            
            
            —
            
            
            
            6.1Total
      contractual cash obligations
            
            $
            10.7
            
            
            $
            19.2
            
            
            $
            87.9
            
            
            $
            —
            
            
            $
            117.8




In
addition to what is included in the table above, as discussed in Note 5 of the
Notes to the Consolidated Financial Statements, we have adopted the provisions
of FIN No. 48.  As of August 29, 2008, we had an accrued liability for
unrecognized tax benefits and related interest totaling $0.3
million.  We are unable to estimate when any cash settlement with a
taxing authority might occur.
  Off-Balance
Sheet Arrangements
  We do not
have any relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited
purposes. In addition, we do not have any undisclosed borrowings or debt, and we
have not entered into any synthetic leases. We are, therefore, not materially
exposed to any financing, liquidity, market or credit risk that could arise if
we had engaged in such relationships.
  Inflation
  Inflation
did not have a material effect on our business, financial condition or results
of operations during the past three fiscal years.
  Recent
Accounting Pronouncements
  See Note
1(v) of our Notes to
Condensed Consolidated Financial Statements for information regarding the effect
of recent accounting pronouncements on our financial statements.
   Item
      7A.
              Quantitative and Qualitative Disclosures About Market
      Risk
  Our
exposure to market rate risk includes risk of foreign currency exchange rate
fluctuations and changes in interest rates.
  Foreign
Exchange Risks
  We are
subject to inherent risks attributed to operating in a global economy. Our
international sales and our operations in foreign countries make us subject to
risks associated with fluctuating currency values and exchange rates. Because
sales of our products have been denominated to date primarily in U.S. dollars,
increases in the value of the U.S. dollar could increase the price of our
products so that they become relatively more expensive to customers in a
particular country, possibly leading to a reduction in sales and profitability
in that country. Some of the sales of our products are denominated in foreign
currency. Gains and losses on the conversion to U.S. dollars of accounts
receivable arising from such sales, and of other associated monetary assets and
liabilities, may contribute to fluctuations in our results of operations. In
addition, we have certain costs that are denominated in foreign currencies, and
decreases in the value of the U.S. dollar could result in increases in such
costs that could have a material adverse effect on our results of operations. We
do not currently purchase financial instruments to hedge foreign exchange risk,
but may do so as circumstances warrant.
 33
 Interest
Rate Risk
  We are
subject to interest rate risk in connection with our long-term debt, including
the remaining $81.3 million of  the Notes. In addition, our WF Credit
Facility provides for borrowings of up to $50.0 million that will also bear
interest at variable rates. Assuming the WF Credit Facility is fully drawn and
holding other variables constant and excluding the impact of any hedging
arrangements, each 1.0% increase in interest rates on our variable rate
borrowings would result in an increase in annual interest expense and a decrease
in our cash flows and income before taxes of $1.3 million per year. We have
entered into two simultaneous interest rate swap arrangements for the purpose of
fixing the interest rate on the remaining portion of our long-term debt for the
specified respective interest rate swap periods. The interest rate swaps were
for notional amounts of $41.3 and $40.0 million, bearing 9.78% and 9.97% fixed
annual interest rate, respectively. One interest rate swap expired on April 1,
2008 and the other one remains outstanding through April 28, 2010. However, we
cannot assure you that the outstanding interest rate swap or any other interest
rate swaps that we implement will be effective.
  Item 8.
              Financial
      Statements and Supplementary Data
  Please
refer to Item 15 — Exhibits and Financial Statement Schedules.
  Item 9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
  None.
  Item 9A.
              Controls and Procedures
  The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. SMART’s internal control
system was designed to provide reasonable assurance to the Company’s management
and Board of Directors regarding the preparation and fair presentation of
published financial statements in accordance with U.S. generally accepted
accounting principles. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
 
 Management
maintains a comprehensive system of controls intended to ensure that
transactions are executed in accordance with management’s authorization, assets
are safeguarded, and financial records are reliable, and Management monitors the
performance of the Company’s internal control procedures.
 
 SMART
management assessed the effectiveness of the Company’s internal control over
financial reporting as of August 29, 2008 based on the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control-Integrated Framework. Based on this assessment, management
believes that, as of August 29, 2008, the Company’s internal control over
financial reporting is effective.
 
 Effectiveness
of the Company’s internal control over financial reporting as of August 29,
2008 has been audited by KPMG LLP, the Company’s independent registered public
accounting firm, as stated in its report appearing on page 37,
which expresses an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting as of August 29,
2008.
 
 Evaluation
of Disclosure Controls and Procedures
 
 Based on
their evaluation as of the end of the period covered by this report, SMART’s
Chief Executive Officer and Principal Financial Officer have concluded that
SMART’s disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) are effective to ensure that information
required to be disclosed by SMART in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms.
 
 Changes
in Internal Control Over Financial Reporting
 
 There
were no changes in SMART’s internal control over financial reporting during the
last quarter of fiscal 2008 that has materially affected or are reasonably
likely to materially affect our internal control over financial
reporting.
 
 During
the third quarter of fiscal 2008, we determined that a significant deficiency
existed in our process relating to the accounting for purchase of raw materials
from certain suppliers by our Puerto Rico subsidiary, which caused cost of sales
and accounts payable to be overstated in certain prior periods.  We
remediated this significant deficiency during the third quarter of fiscal 2008
and tested the operation of these internal controls during our fourth quarter of
fiscal 2008.  We believe these controls are operating
effectively.
 
 Internal Audit
Reviews
  Beginning
in the third quarter of fiscal 2008 and continuing in the fourth quarter of
fiscal 2008, the Company's internal audit department conducted rotational
site audit reviews at various Company locations to test and, where appropriate,
to improve worldwide internal controls over financial reporting.  Such site
reviews are expected to continue in future periods on a rotational
basis.
 
 Item 9B
              Other
      Information




None.





PART III




Item 10.
            Directors
      and Executive Officers of the
Registrant




The
information required by this item with respect to directors and executive
officers is incorporated by reference to our Proxy Statement for our 2009 Annual
Meeting of Shareholders, which we expect to file on or before December 15,
2008.


We have
adopted a code of business conduct and ethics applicable to our directors,
officers (including our principal executive officer and principal financial
officer) and employees.  The Code of Business Conduct and Ethics is
available on our website at www.smartm.com under
Corporate Governance.




Item 11.
            Executive
      Compensation




The
information required by this item will be set forth under “Executive
Compensation and Related Information” in our Proxy Statement for our 2009 Annual
Meeting of Shareholders, and is incorporated herein by reference.




Item 12.
            Security
      Ownership of Certain Beneficial Owners and
  Management




The
information required by this item will be set forth under “Security Ownership of
Certain Beneficial Owners and Management” and “Equity Compensation Information
for Plans or Individual Arrangements with Employees and Non-Employees” in our
Proxy Statement for our 2009 Annual Meeting of Shareholders, and is incorporated
herein by reference.




Item 13.
            Certain
      Relationships and Related
Transactions




The
information required by this item will be set forth under “Compensation
Committee Interlocks and Insider Participation” and “Certain Transactions” in
our Proxy Statement for our 2009 Annual Meeting of Shareholders, and is
incorporated herein by reference.




Item 14.
            Principal
      Accountant Fees and Services




The
information required by this item will be set forth under the caption “Principal
Accountant Fees and Services” in our Proxy Statement for our 2009 Annual Meeting
of Shareholders, and is incorporated herein by reference.




PART IV




Item 15.
            Exhibits
      and Financial Statement Schedules.




(a)(1)                      Financial
Statements




The following financial statements are
filed as part of this report:




PageAudited
      Financial Statements:Report
      of Independent Registered Public Accounting Firm
            36Consolidated
      Balance Sheets
            38Consolidated
      Statements of Operations
            39Consolidated
      Statements of Shareholders’ Equity and Other Comprehensive
      Income
            40Consolidated
      Statements of Cash Flows
            41Notes
      to Consolidated Financial Statements
            42




(a)(2)                      Financial
Statement Schedules





The following financial statement
schedule is filed as part of this report:





Schedules:Schedule
      II — Valuation and Qualifying Accounts
            61





(a)(3)                      Exhibits




Please
see the Exhibit Index at the end of this Report.




35


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
  The
Board of Directors and Shareholders
 SMART
Modular Technologies (WWH), Inc.:
  We
have audited the accompanying consolidated balance sheets of SMART Modular
Technologies (WWH), Inc. and subsidiaries (the Company) as of August 29,
2008 and August 31, 2007, and the related consolidated statements of operations,
shareholders’ equity and other comprehensive income, and cash flows for each of
the years in the three-year period ended August 29, 2008. In connection
with our audits of the consolidated financial statements, we also have audited
the accompanying financial statement schedule II. These consolidated
financial statements and financial statement schedule II are the responsibility
of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule II
based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SMART Modular
Technologies (WWH), Inc. and subsidiaries as of August 29, 2008 and August
31, 2007, and the results of their operations and their cash flows for each of
the years in the three-year period ended August 29, 2008, in conformity
with U.S. generally accepted accounting principles. Also in our opinion, the
related financial statement schedule II, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
  As discussed in
note 5 to the consolidated financial statements, the Company adopted the
provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No.
109, at the beginning of fiscal year 2008.  Also,
as discussed in note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards
No. 123(R), Share-Based
Payment, applying the prospective method at the beginning of fiscal year
2006.
  We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company’s
internal control over financial reporting as of August 29, 2008 based on
criteria established inInternal
Control – Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated November
12, 2008, expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.


/s/ KPMG
LLP


Mountain
View, California


November
12, 2008




36


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board
of Directors and Shareholders
 SMART
Modular Technologies (WWH), Inc.:
 
 We have
audited SMART Modular Technologies (WWH), Inc. and subsidiaries’ (the Company)
internal control over financial reporting as of August 29, 2008, based on
criteria established in Internal Control — Integrated
Framework,issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying management’s annual report on internal control over
financial reporting appearing in Item 9A. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on
our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 In our
opinion, SMART Modular Technologies (WWH), Inc. and subsidiaries maintained, in
all material respects, effective internal control over financial reporting as of
August 29, 2008, based on criteria established in Internal Control — Integrated Framework,issued
by COSO.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company
as of August 29, 2008 and August 31, 2007, and the related
consolidated statements of operations, shareholders’ equity and other
comprehensive income, and cash flows for each of the years in the three-year
period ended August 29, 2008 and the related financial statement
schedule II, and our report dated November 12, 2008 expressed an
unqualified opinion on those consolidated financial statements and financial
statement schedule II.




/s/  KPMG
LLP


Mountain
View, California


November 12, 2008


37


SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
   CONSOLIDATED
BALANCE SHEETS
 ASSETS
                  
                  August
      29,
                      2008
                  
                  
                  August
      31,
                      2007(In
      thousands, except share data)Current
      assets:Cash
      and cash equivalents
                  
                  $
                  115,994
                  
                  
                  $
                  144,147Accounts
      receivable, net of allowances of $1,517 and $2,517 as of August 29, 2008
      and August 31, 2007, respectively
                  
                  
                  193,736
                  
                  
                  
                  184,391Inventories
                  
                  
                  62,430
                  
                  
                  
                  65,105Prepaid
      expenses and other current assets
                  
                  
                  14,973
                  
                  
                  
                  8,217Total
      current assets
                  
                  
                  387,133
                  
                  
                  
                  401,860Property
      and equipment, net
                  
                  
                  39,317
                  
                  
                  
                  33,588Goodwill
                  
                  
                  7,210
                  
                  
                  
                  3,187Other
      intangible assets, net
                  
                  
                  8,545
                  
                  
                  
                  —Other
      non-current assets
                  
                  
                  4,943
                  
                  
                  
                  14,442Total
      assets
                  
                  $
                  447,148
                  
                  
                  $
                  453,077
 
 LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable (1)
                    
                    $
                    93,482
                    
                    
                    $
                    126,358Accrued
      expenses
                    
                    
                    23,942
                    
                    
                    
                    24,043Total
      current liabilities
                    
                    
                    117,424
                    
                    
                    
                    150,401Long-term
      debt
                    
                    
                    81,250
                    
                    
                    
                    81,250Other
      long-term liabilities
                    
                    
                    1,568
                    
                    
                    
                    —Total
      liabilities
                    
                    $
                    200,242
                    
                    
                    $
                    231,651Commitments
      and contingencies (Note 10)
                      Shareholders’
      equity:Ordinary
      shares, $0.00016667 par value; 600,000,000 shares authorized; 61,361,137
      and 60,664,463 shares issued and outstanding as of August 29, 2008
      and August 31, 2007 respectively
                    
                    
                    10
                    
                    
                    
                    10Additional
      paid-in capital
                    
                    
                    100,234
                    
                    
                    
                    92,250Deferred
      stock-based compensation
                    
                    
                    (91
                    )
                    
                    
                    (335
                    )Accumulated
      other comprehensive income
                    
                    
                    14,132
                    
                    
                    
                    6,083Retained
      earnings (1)
                    
                    
                    132,621
                    
                    
                    
                    123,418Total
      shareholders’ equity
                    
                    
                    246,906
                    
                    
                    
                    221,426Total
      liabilities and shareholders’ equity
                    
                    $
                    447,148
                    
                    
                    $
                    453,077
  (1)Prior period amounts revised.  See Note
1(u)of Notes to Condensed Consolidated
Financial Statements.
  See
accompanying notes to consolidated financial statements.
 38
 SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
  Year
      Ended August 29, 2008
                          
                          
                          Year
      Ended August 31, 2007
                          
                          
                          Year
      Ended August 25, 2006(In
      thousands, except per share data)Net
      sales (1)
                          
                          $
                          670,151
                          
                          
                          $
                          844,627
                          
                          
                          $
                          727,206Cost
      of sales (1)
      (2)
                          
                          
                          550,420
                          
                          
                          
                          695,054
                          
                          
                          
                          600,632Gross
      profit
                          
                          
                          119,731
                          
                          
                          
                          149,573
                          
                          
                          
                          126,574Operating
      expenses:Research
      and development (2)
                          
                          
                          20,164
                          
                          
                          
                          16,383
                          
                          
                          
                          15,545Selling,
      general, and administrative (2)
                          
                          
                          59,849
                          
                          
                          
                          59,552
                          
                          
                          
                          54,917Advisory
      service agreements’ fees
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          10,303Impairment
      of goodwill
                          
                          
                          3,187
                          
                          
                          
                          —
                          
                          
                          
                          —In
      process research and development charge
                          
                          
                          4,400
                          
                          
                          
                          —
                          
                          
                          
                          —Restructuring
      charge
                          
                          
                          1,938
                          
                          
                          
                          —
                          
                          
                          
                          —Total
      operating expenses
                          
                          
                          89,538
                          
                          
                          
                          75,935
                          
                          
                          
                          80,765Income
      from operations
                          
                          
                          30,193
                          
                          
                          
                          73,638
                          
                          
                          
                          45,809Interest
      expense
                          
                          
                          (9,241
                          )
                          
                          
                          (10,365
                          )
                          
                          
                          (17,326
                          )Interest
      income
                          
                          
                          3,886
                          
                          
                          
                          2,984
                          
                          
                          
                          2,173Other
      income, net
                          
                          
                          2,557
                          
                          
                          
                          934
                          
                          
                          
                          2,567Total
      other expense
                          
                          
                          (2,798
                          )
                          
                          
                          (6,447
                          )
                          
                          
                          (12,586
                          )Income
      before provision for income taxes
                          
                          
                          27,395
                          
                          
                          
                          67,191
                          
                          
                          
                          33,223Provision
      for income taxes
                          
                          
                          18,421
                          
                          
                          
                          9,458
                          
                          
                          
                          914Net
      income (1)
                          
                          
                          8,974
                          
                          
                          
                          57,733
                          
                          
                          
                          32,309Net
      income per share, basic
                          
                          $
                          0.15
                          
                          
                          $
                          0.97
                          
                          
                          $
                          0.60Shares
      used in computing basic net income per share
                          
                          
                          60,985
                          
                          
                          
                          59,636
                          
                          
                          
                          54,265Net
      income per share, diluted
                          
                          $
                          0.14
                          
                          
                          $
                          0.91
                          
                          
                          $
                          0.55Shares
      used in computing diluted net income per share
                          
                          
                          63,555
                          
                          
                          
                          63,782
                          
                          
                          
                          59,189
 
 
 ______________(1)Prior period amounts revised. See Note 1(u) to Condensed
      Consolidated Financial Statements.(2)
      Stock-based compensation by category:Cost
      of sales
                          
                          $
                          809
                          
                          
                          $
                          521
                          
                          
                          $
                          191Research
      and development
                          
                          
                          1,746
                          
                          
                          
                          1,156
                          
                          
                          
                          578Selling,
      general and administrative
                          
                          
                          4,716
                          
                          
                          
                          3,014
                          
                          
                          
                          1,216
 
 See
accompanying notes to consolidated financial statements.
  39
  SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND OTHER COMPREHENSIVE
INCOME
  (Dollars in
thousands)
 Ordinary
                              
                              Shares
                          Shares
                              
                              Amount
                          
                          Additional
                              Paid-In
      Capital
                          Deferred
      Stock-Based Compensation
                          Accumulated
      Other Comprehensive Income (Loss)
                          
                          Retained
                              Earnings
      (1)
                          Shareholders’
      Equity (1)
                          Comprehensive
      Income (1)Balances
      as of August 26, 2005
                          48,872,340
                          $                  8
                          
                          $           9,490
                          $        (1,126)
                          $              900
                          
                          $          33,376
                          $         42,648
                          $          30,967Stock
      option exercises
                          467,554
                          —
                          
                          103
                          —
                          —
                          
                          —
                          103Issuance
      of ordinary shares in an initial public offering
                          9,090,909
                          2
                          
                          74,172
                          —
                          —
                          
                          —
                          74,174Foreign
      currency translation
                          —
                          —
                          
                          —
                          —
                          89
                          
                          —
                          89
                          89Stock-based
      compensation expense
                          —
                          —
                          
                          1,414
                          571
                          —
                          
                          —
                          1,985Net
      changes in unrealized gain or (loss) on derivative instruments accounted
      for as cash flow hedges
                          —
                          —
                          
                          —
                          —
                          (717)
                          
                          —
                          (717)
                          (717)Tax
      benefit for stock option exercises
                          —
                          —
                          
                          72
                          —
                          —
                          
                          —
                          72Net
      income
                          —
                          —
                          
                          —
                          —
                          —
                          
                          32,309
                          32,309
                          32,309Balances
      as of August 25, 2006
                          58,430,803
                          10
                          
                          85,251
                          (555)
                          272
                          
                          65,685
                          150,663
                          31,681Stock
      option exercises
                          2,233,660
                          —
                          
                          1,926
                          —
                          —
                          
                          —
                          1,926Stock-based
      compensation expense
                          —
                          —
                          
                          4,471
                          220
                          —
                          
                          —
                          4,691Net
      changes in unrealized gain or (loss) on derivative instruments accounted
      for as cash flow hedges
                          —
                          —
                          
                          —
                          —
                          (1)
                          
                          —
                          (1)
                          (1)Foreign
      currency translation
                          —
                          —
                          
                          —
                          —
                          5,812
                          
                          —
                          5,812
                          5,812Tax
      benefit for stock option exercises
                          —
                          —
                          
                          602
                          —
                          —
                          
                          —
                          602Net
      income
                          —
                          —
                          
                          —
                          —
                          —
                          
                          57,733
                          57,733
                          57,733Balances
      as of August 31, 2007
                          60,664,463
                          10
                          
                          92,250
                          (335)
                          6,083
                          
                          123,418
                          221,426
                          63,544FIN
      48 initial adoption adjustment
                          —
                          —
                          
                          —
                          —
                          —
                          
                          229
                          229Stock
      option exercises
                          696,674
                          —
                          
                          934
                          —
                          —
                          
                          —
                          934Stock-based
      compensation expense
                          —
                          —
                          
                          7,027
                          244
                          —
                          
                          —
                          7,271Net
      changes in unrealized gain or (loss) on derivative instruments accounted
      for as cash flow hedges
                          —
                          —
                          
                          —
                          —
                          (666)
                          
                          —
                          (666)
                          (666)Foreign
      currency translation
                          —
                          —
                          
                          —
                          —
                          8,715
                          
                          —
                          8,715
                          8,715Tax
      benefit for stock option exercises
                          —
                          —
                          
                          23
                          —
                          —
                          
                          —
                          23Net
      income
                          —
                          —
                          
                          —
                          —
                          —
                          
                          8,974
                          8,974
                          8,974Balances
      as of August 29, 2008
                          61,361,137
                          $                 10
                          
                          $        100,234
                          $               (91)
                          $         14,132
                          
                          $        132,621
                          $        246,906
                          $          17,023
   (1)
      Prior period amounts revised.  See Note 1(u) of Notes to Condensed Consolidated
      Financial Statements.
 See accompanying notes to consolidated
financial statements
  40
 SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 YearEnded
                        August
      29, 2008
                      
                      
                      YearEnded
                        August
      31, 2007
                      
                      
                      Year
      Ended
                        August
      25, 2006(In
      thousands)Cash flows from operating
      activities:Net
      income (1)
                      $
                      8,974
                      
                      $
                      57,733
                      
                      $
                      32,309Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                      
                      12,700
                      
                      
                      9,031
                      
                      
                      8,673Note
      redemption charge
                      
                      —
                      
                      
                      —
                      
                      
                      4,388Stock-based
      compensation
                      
                      7,271
                      
                      
                      4,691
                      
                      
                      1,985Amortization
      of debt issuance costs
                      
                      800
                      
                      
                      741
                      
                      
                      2,317Loss/(Gain)
      on sale of assets
                      
                      27
                      
                      
                      —
                      
                      
                      (64
                      )Write-off
      of acquired in-process technology
                      
                      4,400
                      
                      
                      —
                      
                      
                      —Goodwill
      write off
                      
                      3,187
                      
                      
                      —
                      
                      
                      —Non-cash
      restructuring cost
                      
                      967
                      
                      
                      —
                      
                      
                      —Unrealized
      gains under cash flow hedging arrangements
                      
                      —
                      
                      
                      —
                      
                      
                      (2,287
                      )Deferred
      income tax provision
                      
                      9,343
                      
                      
                      270
                      
                      
                      (3,679
                      )Changes
      in operating assets and liabilities:Accounts
      receivable, net of allowance
                      
                      (5,238
                      )
                      
                      18,574
                      
                      
                      (76,833
                      )Inventories
                      
                      5,845
                      
                      
                      3,907
                      
                      
                      (10,402
                      )Prepaid
      expenses and other assets
                      
                      (7,587
                      )
                      
                      12,222
                      
                      
                      (6,358
                      )Accounts
      payable
                      
                      (36,665
                      )
                      
                      (35,525
                      )
                      
                      53,210Accrued
      expenses and other current liabilities
                      
                      526
                      
                      
                      (1,908
                      )
                      
                      (2,758
                      )Net
      cash provided by operating activities
                      
                      4,550
                      
                      
                      69,736
                      
                      
                      501Cash
      flows from investing activities:Cash
      paid for acquisition of business, net of cash acquired
                      
                      (20,284
                      )
                      
                      —
                      
                      
                      (680
                      )Sale
      (purchase) of short-term investments
                      
                      —
                      
                      
                      —
                      
                      
                      5,071Capital
      expenditures
                      
                      (13,313
                      )
                      
                      (14,059
                      )
                      
                      (20,431
                      )Cash
      deposits on equipment
                      
                      (533
                      )
                      
                      (391
                      )
                      
                      —Proceeds
      from sale of property and equipment
                      
                      311
                      
                      
                      —
                      
                      
                      131Other
                      
                      —
                      
                      
                      3
                      
                      
                      (5
                      )Net cash used in investing activities
                      
                      (33,819
                      )
                      
                      (14,447
                      )
                      
                      (15,914
                      )Cash
      flows from financing activities:Excess
      tax benefits from share-based compensation
                      
                      24
                      
                      
                      602
                      
                      
                      —Repayment
      from customer
                      
                      
                      
                      
                      
                      
                      
                      (1,000
                      )Repayment
      of acquired line of credit
                      
                      (940
                      )
                      
                      —
                      
                      
                      —Borrowings
      under revolving line of credit
                      
                      —
                      
                      
                      110,953
                      
                      
                      27,147Repayments
      on revolving line of credit
                      
                      —
                      
                      
                      (111,271
                      )
                      
                      (27,147
                      )Proceeds
      from issuance of ordinary shares from stock option
    exercises
                      
                      934
                      
                      
                      1,926
                      
                      
                      103Redemption
      of Notes
                      
                      —
                      
                      
                      —
                      
                      
                      (48,138
                      )Proceeds
      from issuance of ordinary shares
                      
                      —
                      
                      
                      —
                      
                      
                      74,174Net cash provided by financing activities
                      
                      18
                      
                      
                      2,210
                      
                      
                      25,139Effect
      of exchange rate changes on cash and cash equivalents
                      
                      1,098
                      
                      
                      1,028
                      
                      
                      (76
                      )Net
      (decrease)increase in cash and cash equivalents
                      
                      (28,153
                      )
                      
                      58,527
                      
                      
                      9,650Cash
      and cash equivalents at beginning of period
                      
                      144,147
                      
                      
                      85,620
                      
                      
                      75,970Cash
      and cash equivalents at end of period
                      $
                      115,994
                      
                      $
                      144,147
                      
                      $
                      85,620Supplemental
      disclosures of cash flow information:
 Cash
      paid during the year, net of cash received:Interest
                      
                      $
                      8,350
                      
                      
                      $
                      9,376
                      
                      
                      $
                      15,271Taxes
                      
                      
                      9,405
                      
                      
                      
                      9,999
                      
                      
                      
                      4,643Non-cash
      activities information:Unrealized
      gains under cash flow hedging arrangements
                      
                      $
                      933
                      
                      
                      $
                      963
                      
                      
                      $
                      —Accrued earn-out payments for acquisition of business
                      
                      
                      1,500
                      
                      
                      
                      —
                      
                      
                      
                      —
  (1)
Prior period amounts revised.  See Note 1(u) of Notes to Condensed Consolidated
Financial Statements.
  See
accompanying notes to consolidated financial statements.
 41
 SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  August 29,
2008, August 31, 2007 and August 25, 2006
  (1)           Summary
of Significant Accounting Policies
  (a)         Organization
and Operations of the Company
 SMART
Modular Technologies (WWH), Inc. (SMART or the Company) is an independent
designer, manufacturer and supplier of value added subsystems to original
equipment manufacturers (OEMs). The Company’s subsystem products include memory
modules, solid state drives (“SSDs”), embedded computing and thin film
transistor-liquid crystal display (TFT-LCD) products which it offers to
customers worldwide. The Company also provides its customers with comprehensive
design, manufacturing, testing and inventory management and logistics
services.
 
 SMART is
headquartered in Fremont, California, and has operations in Phoenix, Arizona;
Fremont, California; Irvine, California; Tewksbury, Massachusetts; South Korea;
Scotland; Puerto Rico; Malaysia; the Dominican Republic; and
Brazil.  During the fiscal quarter ended August 29, 2008, the Company
terminated operations in the Dominican Republic.
  (b)         Basis
of Presentation
  The
accompanying consolidated financial statements as of August 29, 2008 and August
31, 2007 and for the years ended August 29, 2008, August 31, 2007 and
August 25, 2006 are comprised of SMART and its subsidiaries. Intercompany
transactions have been eliminated in the consolidated financial
statements.  All financial information for one of the Company’s
subsidiaries, SMART Modular Technologies Indústria de Componentes Eletrônicos
Ltda., is included in the Company’s consolidated financial statements on a one
month lag.  The effects of the one month lag for the operations of
SMART Modular Technologies Indústria de Componentes Eletrônicos Ltda. is not
significant to the Company’s financial position and results of
operations.  Certain prior period amounts have been reclassified to
conform to the current year presentation.
  (c)         Acquisition
of Businesses
  On March
3, 2008, the Company acquired Adtron Corporation.  The Company expects this
acquisition to accelerate its development of future solid state drive (SSD)
products. The acquisition was an all-cash transaction of approximately $20.3
million and was accounted for as a purchase of a
business.  Adtron equity holders may potentially receive additional
earn-out payments of up to $15 million based on the achievement in calendar year
2008 of certain financial and operational milestones.  The preliminary
allocation of the purchase price was recorded as $5.7 million of goodwill, $13.5
million of identifiable intangible assets and $1.1 million of net
assets.  In connection with this acquisition, the Company recorded an
expense of $4.4 million during fiscal 2008 for the write-off of acquired
in-process research and development (“IPR&D”) projects.  The
purchase price allocated to acquired IPR&D was determined through
established valuation techniques and was immediately expensed because
technological feasibility had not been established and no further alternative
use existed.  In its fourth quarter of fiscal 2008, the Company
accrued $1.5 million additional purchase price to recognize the achievement of a
portion of the earn-out.  The total value of the goodwill recorded in
connection with this acquisition, including the $1.5 million earn-out is
approximately $7.2 million and is not deductible for income tax
purposes.  The results of operations and the estimated fair value of
the assets acquired and liability assumed have been included in the Company’s
Consolidated Financial Statements from the date of the
acquisition.  Comparative pro forma financial information for this
acquisition has not been presented because the results of operation were not
material to the Company’s Consolidated Financial Statements.
 (d)         Year-End
  The
Company uses a 52 to 53 week fiscal year ending on the last Friday in August.
Fiscal 2008, 2007 and 2006 ended on August 29, 2008, August 31, 2007, and August
25, 2006, respectively, and included 52, 53 and 52 weeks,
respectively.
  (e)         Use
of Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods presented. Actual results could differ from the estimates made
by management.
 42
 (f)         Revenue
Recognition
  The
Company recognizes revenue in accordance with the SEC Staff Accounting Bulletin
(SAB) No. 104, Revenue
Recognition. Under SAB 104, product revenue is recognized when there is
persuasive evidence of an arrangement, product delivery has occurred, the sales
price is fixed or determinable, and collectibility is reasonably assured.
Product revenue typically is recognized at the time of shipment or when the
customer takes title of the goods. All amounts billed to a customer related to
shipping and handling are classified as revenue, while all costs incurred by the
Company for shipping and handling are classified as cost of
sales.  Taxes, including value added taxes, assessed by a government
authority that are both imposed on and concurrent with a specific revenue
producing transaction are excluded from revenue.
 
 In
addition, the Company has certain service revenue with select customers that is
accounted for on an agency basis (that is, the Company recognizes the fees
associated with serving as an agent with no associated direct cost of sales) in
accordance with Emerging Issues Task Force (EITF) Issue No. 99-19, Reporting Revenue Gross as a Principal versus
Net as an Agent. The Company provides procurement, logistics, inventory
management, kitting or packaging services for these customers. Revenue from
these arrangements is recognized as service revenue and is based on material
procurement costs plus a fee for services provided net of the direct costs
incurred. The Company recognizes service revenue upon the completion of the
services, typically upon shipment of the product. There are no post-shipment
obligations subsequent to shipment of the product. Gross amounts billed to
customers for service transactions totaled approximately $917 million, $1,136
million and $818 million for the years ended August 29, 2008, August 31, 2007
and August 25, 2006, respectively.
 The
following is a summary of our net sales and gross billings:
 Fiscal
      Year
                        Ended
                        August
      29,
                        2008
                    
                    
                    Fiscal
      Year
                        Ended
                        August
      31,
                        2007
                    
                    
                    Fiscal
      Year
                        Ended
                        August
      25,
                        2006(in
      thousands)Product
      net sales(1)
                    
                    $
                    628,791
                    
                    
                    $
                    794,397
                    
                    
                    $
                    683,467Service
      revenue
                    
                    
                    41,360
                    
                    
                    
                    50,230
                    
                    
                    
                    43,739Net
      sales
                    
                    
                    670,151
                    
                    
                    
                    844,627
                    
                    
                    
                    727,206Plus: Related cost of
      sales(2)
                    
                    
                    875,839
                    
                    
                    
                    1,085,715
                    
                    
                    
                    773,786Gross
      billings to customers
                    
                    $
                    1,545,990
                    
                    
                    $
                    1,930,342
                    
                    
                    $
                    1,500,992
 
 (1)
                    Prior
      period amounts revised.  See Note 1(u) of Notes to
      Condensed Consolidated Financial
Statements.
 (2)
                    Represents
      cost of sales netted against sales accounted for on an agency
      basis.
  (g)         Cash
and Cash Equivalents
 Cash and
cash equivalents include cash on hand and deposits with banks as well as highly
liquid short-term investments with maturities at date of purchase of three
months or less.  The Company does not have investments in variable
rate demand notes and auction rate securities.
  (h)         Allowance
for Doubtful Accounts
  The
Company evaluates the collectibility of accounts receivable based on a
combination of factors. In cases where the Company is aware of circumstances
that may impair a specific customer’s ability to meet its financial obligations,
the Company records a specific allowance against amounts due and, thereby,
reduces the net recognized receivable to the amount management reasonably
believes will be collected. For all other customers, the Company recognizes
allowances for doubtful accounts based on a combination of factors including the
length of time the receivables are outstanding, industry and geographic
concentrations, the current business environment, and historical
experience.
  (i)        Inventories
  Inventories
are valued at the lower of cost or market value. Inventory value is determined
on a specific identification basis and includes material, labor, and
manufacturing overhead. At each balance sheet date the Company evaluates the
ending inventories for excess quantities and obsolescence. This evaluation
includes an analysis of sales levels by product family and considers historical
demand and forecasted demand in relation to the inventory on hand,
competitiveness of product offerings, market conditions and product life cycles.
The Company adjusts remaining balances to the lower of its cost or market
value.
  (j)         Property
and Equipment
 Property
and equipment are recorded at cost. Depreciation and amortization are computed
based on the shorter of the estimated useful lives or the related lease terms,
using the straight-line method. Estimated useful lives are presented
below:
 Asset
                  
                  PeriodBuildings
                  
                  20
      to 50 yearsManufacturing
      equipment
                  
                  3
      to 5 yearsOffice
      furniture, software, computers, and equipment
                  
                  2
      to 5 yearsLeasehold
      improvements
                  
                  Shorter
      of estimated life or lease term
 43
 (k)         Goodwill
  In
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”), SMART performs a goodwill impairment test of its two
reporting units (Memory, Embedded, & Display and Adtron) annually during the
fourth quarter of its fiscal year and more frequently if an event or
circumstance indicates that an impairment loss may have occurred. Such events or
circumstances may include significant adverse changes in the general business
climate, among others. The test is performed by determining the fair value of
the reporting unit based on estimated discounted future cash flows and
considering the stock market prices of the Company, and comparing the fair value
to the carrying value of the reporting unit, including goodwill.
 If the
fair value of each reporting unit is less than its carrying value, SMART then
allocates the fair value of the unit to all the assets and liabilities of the
unit (including any unrecognized intangible assets) as if the reporting unit’s
fair value was the purchase price to acquire the reporting unit. The excess of
the fair value of the reporting unit over the amounts assigned to its assets and
liabilities is the implied fair value of the goodwill. If the carrying amount of
the reporting unit’s goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized in an amount equal to that excess.
  SMART
completed its annual impairment test and determined that there was impairment to
goodwill from its Memory, Embedded, & Display reporting unit as the carrying
amount of the reporting unit goodwill exceeded the implied fair value.
Accordingly, a charge of $3.2 million was recorded in the consolidated statement
of operations for the year ended August 29, 2008.  There was no
impairment of goodwill recorded in fiscal years 2006 and 2007.
  Presented
below are the changes in the Company’s goodwill by reporting segment for the
year ended August 29, 2008 ( in thousands):
 August
      31, 2007
                    
                    
                    Acquisition/
                        (Impairment)
                    
                    
                    August
      29, 2008Reporting
      unit:Memory,
      Embedded, & Display
                    
                    $
                    3,187
                    
                    
                    $
                    (3,187
                    )
                    
                    $
                    —Adtron
                    
                    
                    —
                    
                    
                    
                    7,210
                    
                    
                    
                    7,210Total
      Goodwill
                    
                    $
                    3,187
                    
                    
                    $
                    4,023
                    
                    
                    $
                    7,210
  (l)         OtherIntangible Assets,
net
   The
following table summarizes the gross amounts and accumulated amortization of
other intangible assets from the Adtron acquisition by type as of
August 29, 2008 (in thousands):
  Weighted
      Avg. Life (years)
                  
                  
                  Value
      at Date of Acquisition
                  
                  
                  Accumulated
      Amortization
                  
                  
                  Value
      at August 29, 2008Amortized
      intangible assets:Leasehold
      interest
                  
                  
                  3
                  
                  
                  $
                  260
                  
                  
                  $
                  41
                  
                  
                  $
                  219Product
      names
                  
                  
                  9
                  
                  
                  
                  60
                  
                  
                  
                  3
                  
                  
                  
                  57Customer
      relationships
                  
                  
                  10
                  
                  
                  
                  3,700
                  
                  
                  
                  185
                  
                  
                  
                  3,515Non-compete
      agreement
                  
                  
                  2
                  
                  
                  
                  220
                  
                  
                  
                  55
                  
                  
                  
                  165Company
      trade name
                  
                  
                  20
                  
                  
                  
                  2,040
                  
                  
                  
                  51
                  
                  
                  
                  1,989Technology
                  
                  
                  7
                  
                  
                  
                  2,800
                  
                  
                  
                  200
                  
                  
                  
                  2,600Total
                  
                  
                  11
                  
                  
                  
                  9,080
                  
                  
                  
                  535
                  
                  
                  
                  8,545
 Amortization
expense related to identifiable intangible assets totaled approximately
$0.5million, $0, and $2.4 million for fiscal years 2008, 2007, and 2006,
respectively.  Acquired
intangibles with definite lives are amortized on a straight-line basis over the
remaining estimated economic life of the underlying intangible
assets.
 Estimated
amortization expenses of these intangible assets for the next five fiscal years
and all years thereafter are as follows (in thousands):
  Estimated
      Amortization Expense:2009
                  
                  $
                  1,0702010
                  
                  
                  1,0152011
                  
                  
                  9362012
                  
                  
                  8792013
                  
                  
                  879Thereafter
                  
                  
                  3,766Total
                  
                  $
                  8,545
 44
 (m)                   Impairment
of Long-Lived Assets
  The
Company reviews long-lived assets for impairment in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived
Assets. Under SFAS No. 144, long-lived assets, excluding
goodwill, are reviewed for impairment whenever events or circumstances indicate
that the carrying amount of an asset group may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset group to future net cash flows expected to be
generated by the asset group. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or the fair value, less cost
of disposal.
  (n)        Income
Taxes
  The
Company uses the asset and liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the future consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net operating
loss and credit carry-forwards. When necessary, a valuation allowance is
recorded to reduce tax assets to amounts expected to be realized. The effect of
changes in tax rates is recognized in the period in which the rate change
occurs. U.S. income and foreign withholding taxes are not provided on that
portion of unremitted earnings of foreign subsidiaries which are expected to be
reinvested indefinitely.
  (o)         Foreign
Currency Translation
  For
foreign subsidiaries using the local currency as their functional currency,
assets and liabilities are translated at exchange rates in effect at the balance
sheet date and income and expenses are translated at average exchange rates
during the period. The effect of this translation is reported in other
comprehensive income (loss). Exchange gains and losses arising from transactions
denominated in a currency other than the functional currency of the respective
foreign subsidiaries are included in results of operations.
 
 For
foreign subsidiaries using the U.S. dollar as their functional currency,
the financial statements of these foreign subsidiaries are re-measured into
U.S. dollars using the historical exchange rate for property and equipment
and certain other non-monetary assets and liabilities and related depreciation
and amortization on these assets and liabilities. The Company uses the exchange
rate at the balance sheet date for the remaining assets and liabilities,
including deferred taxes. A weighted average exchange rate is used for each
period for revenues and expenses. All foreign subsidiaries except Brazil and
Korea use the U.S. dollar as their functional currency.
 
 The gains
or losses resulting from the re-measurement process are recorded in other
expense in the statements of operations. In fiscal year 2008, the Company
recorded $2.4 million of transaction gains primarily related to its Brazil
operating subsidiary.  In fiscal years 2007 and 2006, the effects of
such re-measurement adjustments on the Company’s results of operations were not
material.
  (p)         Stock-Based
Compensation
  The Company’s stock option plan provides for grants of options to
employees and independent directors of the Company to purchase the Company’s
ordinary shares at the fair value of such shares on the grant date. The options
generally vest over a four-year period beginning on the grant date and have a
10-year term. As of August 29, 2008, there were 9,651,994 ordinary shares
reserved for issuance under this plan, of which 1,193,914 ordinary shares
represents the number of shares available for grant.
  Prior to
fiscal 2006, the Company accounted for its stock-based compensation plan using
the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, Accounting for
Stock Issued to Employees and related pronouncements. Under this method,
compensation expense was recorded only if the deemed fair value of the
underlying shares exceeded the exercise price on the date of grant. Deferred
stock-based compensation expense is amortized on a straight-line basis over the
vesting period of each grant, generally four years.
  On August
27, 2005 (effective date), the Company adopted the FASB’s SFAS No. 123R, Share-Based Payment, applying
the prospective method, in which compensation cost is recognized beginning with
the effective date (a) based on the requirements of SFAS No. 123R for all
share-based payments granted or modified after the effective date and (b) based
on the requirements of the intrinsic value method as prescribed in APB 25, and
related interpretations, for all awards granted to employees prior to the
effective date of SFAS No. 123R that remain unvested on the effective date. The
Company adopted SFAS No. 123R prospectively because, prior to the period of
adoption, it was a non-public entity that used the minimum value method for pro
forma disclosure under the provisions of SFAS No. 123, and applied APB 25 for
recognition purposes.
  Stock-based
compensation expense amounted to approximately $7.3 million, $4.7 million, and
$2.0 million for fiscal 2008, 2007, and 2006, respectively.
 45
 Summary
of Assumptions and Activity
  Under
SFAS No. 123R, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model applying the assumptions
noted in the following table. Expected volatility is an average of the Company’s
historical common stock volatility together with the historical volatilities of
the common stock of comparable publicly traded companies. The expected term of
options granted represents the weighted average period of time that options
granted are expected to be outstanding giving consideration to vesting schedules
and our historical exercise patterns.  The risk-free rate for the
expected term of the option is based on the average U.S. Treasury yield curve at
the date of grant.  The following assumptions were used to value stock
options:
 Year
                      Ended
                      August
      29, 2008
                  
                  
                  Year
                      Ended
                      August
      31, 2007
                  
                  
                  Year
                      Ended
                      August
      25, 2006Stock
      options:Expected
      term (years)
                  
                  
                  5.1
                  
                  
                  
                  6.25
                  
                  
                  
                  6.25Expected
      volatility
                  
                  
                  51
                  %
                  
                  
                  68
                  %
                  
                  
                  80
                  %Risk-free
      interest rate
                  
                  
                  3.56
                  %
                  
                  
                  4.61
                  %
                  
                  
                  4.63
                  %Expected
      dividends
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
 
 A summary
of option activity as of and for years ended August 29, 2008, August 31, 2007,
and August 25, 2006 is presented below (dollars and shares in thousands, except
per share data):
  Shares
                  
                  
                  Weighted
      Average Exercise Price
                  
                  
                  Weighted
      Average Remaining Contractual Term (Years)
                  
                  
                  Aggregate
      Intrinsic ValueOptions
      outstanding at August 26, 2005
                  
                  
                  5,478
                  
                  
                  $
                  0.29Options
      granted
                  
                  
                  2,133
                  
                  
                  
                  5.09Options
      exercised
                  
                  
                  (467
                  )
                  
                  
                  0.22Options
      forfeited
                  
                  
                  (353
                  )
                  
                  
                  2.59Options
      outstanding at August 25, 2006
                  
                  
                  6,791
                  
                  
                  $
                  1.68
                  
                  
                  
                  8.3
                  
                  
                  $
                  50,800Options
      exercisable at August 25, 2006
                  
                  
                  2,660
                  
                  
                  $
                  0.60
                  
                  
                  
                  8.0
                  
                  
                  $
                  22,780Options
      vested and expected to vest at August 25, 2006
                  
                  
                  6,534
                  
                  
                  $
                  0.60
                  
                  
                  
                  8.3
                  
                  
                  $
                  49,226Options
      outstanding at August 25, 2006
                  
                  
                  6,791
                  
                  
                  $
                  1.68Options
      granted
                  
                  
                  2,036
                  
                  
                  
                  10.80Options
      exercised
                  
                  
                  (2,234
                  )
                  
                  
                  0.86Options
      forfeited
                  
                  
                  (234
                  )
                  
                  
                  5.56Options
      outstanding at August 31, 2007
                  
                  
                  6,359
                  
                  
                  $
                  4.75
                  
                  
                  
                  7.9
                  
                  
                  $
                  40,521Options
      exercisable at August 31, 2007
                  
                  
                  2,565
                  
                  
                  $
                  2.42
                  
                  
                  
                  7.4
                  
                  
                  $
                  21,893Options
      vested and expected to vest at August 31, 2007
                  
                  
                  6,138
                  
                  
                  $
                  4.63
                  
                  
                  
                  7.9
                  
                  
                  $
                  39,810Options
      outstanding at August 31, 2007
                  
                  
                  6,359
                  
                  
                  $
                  4.75Options
      granted
                  
                  
                  3,490
                  
                  
                  
                  7.01Options
      exercised
                  
                  
                  (697
                  )
                  
                  
                  1.34Options
      forfeited
                  
                  
                  (694
                  )
                  
                  
                  7.75Options
      outstanding at August 29, 2008
                  
                  
                  8,458
                  
                  
                  $
                  5.72
                  
                  
                  
                  7.8
                  
                  
                  $
                  6,584Options
      exercisable at August 29, 2008
                  
                  
                  4,131
                  
                  
                  $
                  3.80
                  
                  
                  
                  3.4
                  
                  
                  $
                  6,327Options
      vested and expected to vest at August 29, 2008
                  
                  
                  8,064
                  
                  
                  $
                  5.62
                  
                  
                  
                  7.8
                  
                  
                  $
                  6,575
  The
Black-Scholes weighted average fair value of options granted during the fiscal
years ended August 29, 2008, August 31, 2007 and August 25, 2006 were $3.39,
$7.46, and $4.42 per option, respectively. The total intrinsic value of employee
stock options exercised during the fiscal years ended August 29, 2008, August
31, 2007 and August 25, 2006 were approximately $4.3 million, $25.6 million, and
$2.4 million, respectively . Upon the exercise of options, the Company issues
new ordinary shares from its authorized shares.  Total SFAS No. 123R
compensation expense recognized for fiscal years ended August 29, 2008, August
31, 2007 and August 25, 2006 were approximately $7.3 million, $4.7 million, and
$2.0 million, respectively.
 46
 A summary
of the status of the Company’s non-vested stock options as of August 29, 2008,
and changes during the fiscal year ended August 29, 2008, is presented below
(dollars and shares in thousands, except per share data):
 Shares
                    
                    
                    Weighted
      Average
                      Grant
      Date Fair
                      Value Per ShareNon-vested
      stock options at August 31, 2007
                    
                    
                    3,794
                    
                    
                    $
                    4.25Non-vested
      stock options granted
                    
                    
                    3,490
                    
                    
                    
                    3.39Vested
      stock options
                    
                    
                    (2,262
                    )
                    
                    
                    3.11Forfeited
      stock options
                    
                    
                    (694
                    )
                    
                    
                    4.74Non-vested
      stock options at August 29, 2008
                    
                    
                    4,328
                    
                    
                    
                    4.38
  As of
August 29, 2008, there was approximately $19.2 million of total unrecognized
compensation costs related to employee and independent director stock options.
Such cost is expected to be recognized over the weighted average period of 2.8
years. The total fair value of shares vested during the year ended August 29,
2008 was approximately $7.0 million.
 (q)         Loss
Contingencies
 The
Company is subject to the possibility of various loss contingencies arising in
the ordinary course of business. The Company considers the likelihood of a loss
and the ability to reasonably estimate the amount of loss in determining the
necessity for and amount of any loss contingencies. Estimated loss contingencies
are accrued when it is probable that a liability has been incurred and the
amount of loss can be reasonably estimated. The Company regularly evaluates the
most current information available to determine whether any such accruals should
be recorded or adjusted.
 (r)         Comprehensive
Income
  Comprehensive
income consists of net income and other gains and losses affecting shareholders’
equity that, under U.S. generally accepted accounting principles are excluded
from net income. For the Company, comprehensive income generally consists of
foreign currency translation adjustments, changes in unrealized gains or losses
on derivative financial instruments accounted for as cash flow hedges and
unrealized gains and losses on investments classified as
available-for-sale.
  (s)         Concentration
of Credit Risk
  The
Company ‘s concentration of credit risk consists principally of cash and cash
equivalents and accounts receivable. The Company’s revenues and related accounts
receivable reflect a concentration of activity with two customers (see note 13).
The Company does not require collateral or other security to support accounts
receivables. The Company performs periodic credit evaluations of its customers
to minimize collection risk on accounts receivable and maintains allowances for
potentially uncollectible accounts.
  (t)         Net
Income Per Share
  Basic net
income per ordinary share is calculated by dividing net income by the weighted
average number of ordinary shares outstanding during the period. Diluted net
income per ordinary share is calculated by dividing net income by the weighted
average number of ordinary shares and dilutive potential ordinary shares
outstanding during the period. Dilutive potential ordinary shares consist of
dilutive shares issuable upon the exercise of outstanding stock options computed
using the treasury stock method.
  The
following table sets forth for all periods presented the computation of basic
and diluted net income per ordinary share, including the reconciliation of the
numerator and denominator used in the calculation of basic and diluted net
income per share (dollars and shares in thousands, except per share
data):
 Year
      Ended
                      August 29,
      2008
                  
                  
                  Year
      Ended
                      August 31,
      2007
                  
                  
                  Year
      Ended
                      August 25,
      2006Numerator:
                    Net
      Income
                  
                  $
                  8,974
                  
                  
                  $
                  57,733
                  
                  
                  $
                  32,309Denominator:
                    Weighted
      average ordinary shares
                  
                  
                  60,985
                  
                  
                  
                  59,636
                  
                  
                  
                  54,265Effect
      of dilutive ordinary shares:
                    Stock
      options
                  
                  
                  2,570
                  
                  
                  
                  4,146
                  
                  
                  
                  4,924Weighted average ordinary
      shares, diluted
                  
                  
                  63,555
                  
                  
                  
                  63,782
                  
                  
                  
                  59,189Net
      income per ordinary share, basic
                  
                  $
                  0.15
                  
                  
                  $
                  0.97
                  
                  
                  $
                  0.60Net
      income per ordinary share, diluted
                  
                  $
                  0.14
                  
                  
                  $
                  0.91
                  
                  
                  $
                  0.55
  The
Company excluded 4,687,062, 1,975,615, and 1,412,604 stock options from the
computation of diluted net income per ordinary share for the years ended
August 29, 2008, August 31, 2007, and August 25, 2006 respectively, as
their inclusion would have been anti-dilutive.
 47
 (u)         Prior
Period Revisions
 During
the third quarter of fiscal 2008, the Company identified immaterial errors in
accounting for the purchase of raw materials from certain suppliers which caused
cost of sales and accounts payable to be overstated in prior periods.  The
Company applied the guidance of Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements(“SAB
108”), and revised
prior period financial statements even though such revisions previously were
immaterial to those financial statements.  Corrections of these errors
are immaterial to the previously reported consolidated financial
statements.  The tax effect of this cumulative accounting error was
immaterial and was recorded in fiscal 2008.  In addition, the Company
also made immaterial revisions to prior period consolidated statements of
operations in order to gross up net sales and cost of sales from sales of raw
materials that had previously been recorded as a net amount in cost of
sales.  These revisions were immaterial with respect to all years as a
percentage of the Company’s annual net sales, cost of sales and gross margin
percentage and had no impact on previously reported gross profit or net
income. 
 The
following table represents the impact of the revision in the Company’s prior
period consolidated statements of operations and balance sheets (in thousands
except per share amounts):
 
 Fiscal
      year ended August 31, 2007Net
      Sales
                  
                  
                  Cost
      of Sales
                  
                  
                  Net
      Income
                  
                  
                  Basic
                    Net
                    Income
                    Pershare
                  
                  
                  Diluted
      Net Income Per
                    ShareAs
      reported
                  
                  $
                  828,372
                  
                  
                  $
                  680,610
                  
                  
                  $
                  55,922
                  
                  
                  $
                  0.94
                  
                  
                  $
                  0.88Adjustments
                  
                  
                  16,255
                  
                  
                  
                  14,444
                  
                  
                  
                  1,811
                  
                  
                  
                  0.03
                  
                  
                  
                  0.03As
      revised
                  
                  $
                  844,627
                  
                  
                  $
                  695,054
                  
                  
                  $
                  57,733
                  
                  
                  $
                  0.97
                  
                  
                  $
                  0.91Fiscal
      year ended August 25, 2006Net
      Sales
                  
                  
                  Cost
      of Sales
                  
                  
                  Net
      Income
                  
                  
                  Basic
                    Net
                    Income
                    Pershare
                  
                  
                  Diluted
      Net Income Per
                    ShareAs
      reported
                  
                  $
                  707,406
                  
                  
                  $
                  580,835
                  
                  
                  $
                  32,306
                  
                  
                  $
                  0.60
                  
                  
                  $
                  0.55Adjustments
                  
                  
                  19,800
                  
                  
                  
                  19,797
                  
                  
                  
                  3
                  
                  
                  
                  —
                  
                  
                  
                  —As
      revised
                  
                  $
                  727,206
                  
                  
                  $
                  600,632
                  
                  
                  $
                  32,309
                  
                  
                  $
                  0.60
                  
                  
                  $
                  0.55
 
 As
      of August 31, 2007Accounts
      Payable
                  
                  
                  Retained
      EarningsAs
      reported
                  
                  $
                  131,937
                  
                  
                  $
                  117,839Adjustments
                  
                  
                  (5,579
                  )
                  
                  
                  5,579As
      revised
                  
                  $
                  126,358
                  
                  
                  $
                  123,418
  The
      change in retained earning for the fiscal year ended August 26,
      2005:
 As
      of August 26, 2005Retained
      EarningsBalance
      as of August 26, 2005
                  
                  $
                  29,611Prior
      period revisions
                  
                  
                  3,765As
      revised as of August 26, 2005
                  
                  $
                  33,376
 48
 (v)         New
Accounting Pronouncements
  In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements
("SFAS 157"), which defines fair value, establishes guidelines for
measuring fair value and expands disclosures regarding fair value measurements.
SFAS 157 does not require any new fair value measurements but rather
eliminates inconsistencies in guidance found in various prior accounting
pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. However, in February 2008, the FASB issued FASB
Staff Position (FSP) FAS 157-1 and FSP FAS 157-2.  FSP FAS 157-1
amends SFAS 157 to exclude SFAS No. 13 Accounting for Leases and
other accounting pronouncements that address fair value measurements for
purposes of lease classification or measurement under SFAS 13.  FSP
FAS 157-2 delays the effective date of SFAS 157 for all nonfinancial assets
and nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least
annually). This FSP partially defers the effective date of SFAS 157 to
fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years for items within the scope of this FSP. Effective for the
first quarter of fiscal 2009, the Company will adopt SFAS 157 except as it
applies to those nonfinancial assets and nonfinancial liabilities as noted in
FSP FAS 157-2.  The adoption of SFAS 157 as it relates to
financial assets and financial liabilities measured on a recurring basis is not
expected to have a significant effect on the Company’s financial position or
results of operations.  In October 2008, the FASB issued FSP FAS
157-3, Determining the Fair
Value of a Financial Asset in a Market that is Not Active.FSP FAS 157-3
clarifies the application of SFAS 157 when the market for a financial asset is
inactive.  Specifically, FSP FAS 157-3 clarifies how management’s
internal assumptions should be considered in measuring fair value when
observable data are not present, observable market information from an inactive
market should be taken into account, and the use of broker quotes or pricing
services should be considered in assessing the relevance of observable and
unobservable data to measure fair value.  The guidance in FSP FAS
157-3 is effective immediately and will apply to the Company upon adoption of
SFAS 157.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”).  SFAS 159
permits companies to choose to measure certain financial instruments and certain
other items at fair value.  The standard requires that unrealized
gains and losses on items for which the fair value option has been elected be
reported in earnings.  SFAS 159 also establishes presentation and
disclosure requirements designed to draw comparisons between the different
measurements attributes the Company elects for similar types of assets and
liabilities.  The provisions of SFAS 159 are effective for financial
statements issued for fiscal years beginning after November 15,
2007.  SFAS 159 is effective for the Company beginning in the first
quarter of fiscal 2009.  The Company is currently analyzing the
requirements of SFAS 159 and has not yet determined the impact on its
financial position or results of operations.
 
 In June
2007, the FASB ratified EITF Issue No. 07-3, Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and
Development Activities. The EITF requires non-refundable advance payments
to acquire goods or pay for services that will be consumed or performed in a
future period in conducting R&D activities should be recorded as an asset
and recognized as an expense when the R&D activities are performed. The EITF
is to be applied prospectively to new contractual arrangements entered into
beginning in fiscal 2009. The Company currently recognizes these non-refundable
advanced payments, if any, as an expense upon payment. The adoption of EITF 07-3
is not expected to have a significant effect on the Company’s financial position
or results of operations.
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(“SFAS
141R”).  SFAS 141R establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree.  SFAS 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  The provisions of SFAS 141R are effective for financial
statements issued for fiscal years beginning on or after December 15,
2008.  SFAS 141R will be applied to business combinations occurring
after the effective date and the Company will apply SFAS 141R as of that
time. Early adoption is not permitted.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No. 51(“SFAS 160”).  SFAS 160 will change the accounting and
reporting of minority interests, which will be recharacterized as noncontrolling
interests and classified as a component of equity.  The provisions of
SFAS 160 are effective for financial statements issued for fiscal years
beginning after December 15, 2008.  SFAS 160 is effective for the
Company beginning in the first quarter of fiscal 2010.  Early adoption
is not permitted.  The adoption of SFAS 160 is not expected to have a
significant effect on the Company’s financial position or results of
operations.
 
 In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative
Instruments and Hedging Activities (“SFAS 161”).  SFAS 161
requires additional disclosures related to the use of derivative instruments,
the accounting for derivatives and how derivatives impact financial
statements.  The provisions of SFAS 161 are effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008.  SFAS 161 is effective for the Company beginning the first
fiscal quarter of fiscal 2010 and the Company will apply SFAS 161 as of that
time.
 49
 In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles(“SFAS 162”). SFAS 162 identifies the
sources of accounting principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles (GAAP) in the U.S. (the GAAP
hierarchy). SFAS 162 is effective 60 days following the SEC approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. The Company
currently adheres to the hierarchy of GAAP as presented in SFAS 162, and does
not expect its adoption will have a material impact on its consolidated results
of operations and financial condition.
  (2)         Related
Party Information
  In April
2004, the Company entered into advisory service agreements with entities
affiliated with each of TPG, Francisco Partners, and Shah Capital Partners
(members of Modular, L.L.C., the Company’s then majority shareholder) pursuant
to which each advisor may provide financial advisory and consulting services to
the Company. These services have included executive and management services;
identification, support, and analysis of acquisitions and dispositions by the
Company or its subsidiaries; support and analysis of financing alternatives;
finance functions, including assistance in the preparation of financial
projects, and monitoring of compliance with financing agreements; and human
resource functions, including searching for and hiring of executive and other
services for the Company upon which the Company’s board of directors and such
advisors agree.
  Specific
services provided by such advisors have included, among others, the design of
the Company’s equity capital structure and assistance with analysis of the
Company’s structure for tax purposes, analyses of various financing
alternatives, assistance in the search for directors, creation of the Company’s
employee and independent director stock incentive plan, and negotiation of
certain employment arrangements. On July 1, 2005, the Company executed an
amendment to its advisory agreement with the entity affiliated with Shah Capital
Partners, increasing the annual management fees to $1.0 million, and the
aggregate annual management fee to all advisors to $3.0 million.
  On
February 8, 2006, the Company used approximately $9.0 million of its proceeds
from the initial public offering and made a one-time payment, which was expensed
during the second quarter of fiscal 2006, to terminate the annual fees payable
under its advisory service agreements with the entities affiliated with each of
the three advisors.  In addition to the termination fee, the Company
incurred approximately $1.3 million in advisory service fees pursuant to the
advisory service agreements for the year ended August 25,
2006.  Accordingly, the Company did not incur any advisory service
fees for the years ended August 29, 2008 and August 31, 2007.
  In
January 2007, the Company closed a secondary public offering of its ordinary
shares, whereby its selling shareholders sold 14,800,000 ordinary shares at
$12.50 per share. The Company did not receive any proceeds from this offering,
as all 14,800,000 ordinary shares were sold by existing shareholders, and
incurred approximately $0.8 million in offering expenses in connection with this
offering. These offering expenses were recorded in selling, general and
administrative expenses in the Company’s consolidated statement of operations
for the year ended August 31, 2007.
 (3)        Inventories
  Inventories
consisted of the following (in thousands):
 August
      29, 2008
                  
                  
                  August
      31, 2007Raw
      materials
                  
                  $
                  28,122
                  
                  
                  $
                  27,477Work
      in process
                  
                  
                  4,899
                  
                  
                  
                  4,815Finished
      goods
                  
                  
                  29,409
                  
                  
                  
                  32,813$
                  62,430
                  
                  
                  $
                  65,105
  (4)        Net
Property and Equipment
  Property
and equipment consisted of the following (in thousands):
 August
      29, 2008
                  
                  
                  August
      31, 2007Buildings
                  
                  $
                  622
                  
                  
                  $
                  717Office
      furniture, software, computers, and equipment
                  
                  
                  5,156
                  
                  
                  
                  5,189Manufacturing
      equipment
                  
                  
                  55,727
                  
                  
                  
                  40,636Leasehold
      improvements
                  
                  
                  13,410
                  
                  
                  
                  10,64874,915
                  
                  
                  
                  57,190Less
      accumulated depreciation and amortization
                  
                  
                  35,598
                  
                  
                  
                  23,602Net
      property and equipment
                  
                  $
                  39,317
                  
                  
                  $
                  33,588
 
 Depreciation
and amortization expense was $12.7 million, $9.0 million and $6.3 million for
the years ended August 29, 2008, August 31, 2007 and August 25, 2006,
respectively.
 50
 (5)                 Income
Taxes
  The
components of income tax expense for the years ended August 29, 2008,
August 31, 2007, and August 25, 2006, are as follows (in
thousands):
  Year
      Ended August 29, 2008
                  
                  
                  Year
      Ended August 31, 2007
                  
                  
                  Year
      Ended August 25, 2006Current:Federal
                  
                  $
                  (102
                  )
                  
                  $
                  (340
                  )
                  
                  $
                  527State
                  
                  
                  56
                  
                  
                  
                  293
                  
                  
                  
                  267Foreign
                  
                  
                  9,124
                  
                  
                  
                  9,235
                  
                  
                  
                  3,7999,078
                  
                  
                  
                  9,188
                  
                  
                  
                  4,593Deferred:Federal
      and state
                  
                  
                  9,630
                  
                  
                  
                  699
                  
                  
                  
                  (3,776
                  )Foreign
                  
                  
                  (287
                  )
                  
                  
                  (429
                  )
                  
                  
                  979,343
                  
                  
                  
                  270
                  
                  
                  
                  (3,679
                  )$
                  18,421
                  
                  
                  $
                  9,458
                  
                  
                  $
                  914
  The
effective income tax rate (expressed as a percentage of income before income
taxes) varied from the U.S. statutory income tax rate for the years ended
August 29, 2008, August 31, 2007, and August 25, 2006, as a
result of the following items:
  Year
      Ended August 29, 2008
                  
                  
                  Year
      Ended August 31, 2007
                  
                  
                  Year
      Ended August 25, 2006Statutory
      tax rate
                  
                  
                  35.0
                  %
                  
                  
                  35.0
                  %
                  
                  
                  35.0
                  %Foreign
      income taxes at different rates
                  
                  
                  (17.2
                  )
                  
                  
                  (12.1
                  )
                  
                  
                  (12.1
                  )State
      income tax, net of federal tax benefit
                  
                  
                  —
                  
                  
                  
                  0.8
                  
                  
                  
                  0.9Tax
      holiday — Malaysia
                  
                  
                  (10.7
                  )
                  
                  
                  (5.6
                  )
                  
                  
                  (9.7
                  )Change
      in valuation allowance
                  
                  
                  54.2
                  
                  
                  
                  (3.6
                  )
                  
                  
                  (11.4
                  )Non
      deductible in process research and development
                  
                  
                  5.6
                  
                  
                  
                  —
                  
                  
                  
                  —Other,
      net
                  
                  
                  0.3
                  
                  
                  
                  —
                  
                  
                  
                  0.167.2
                  %
                  
                  
                  14.5
                  %
                  
                  
                  2.8
                  %
 
 The tax
effects of temporary differences that gave rise to significant portions of
deferred tax assets and liabilities as of August 29, 2008 and
August 31, 2007 are as follows (in thousands):
  2008
                  
                  
                  2007Deferred
      tax assets:Accruals
      and allowances
                  
                  $
                  3,355
                  
                  
                  $
                  3,499Stock-based
      compensation
                  
                  
                  4,269
                  
                  
                  
                  2,047Credits
      carryover
                  
                  
                  1,624
                  
                  
                  
                  724Capital
      loss carryover
                  
                  
                  —
                  
                  
                  
                  1,655Property
      and equipment
                  
                  
                  —
                  
                  
                  
                  12Net
      operating loss carryover
                  
                  
                  17,118
                  
                  
                  
                  12,999Deferred
      tax assets
                  
                  
                  26,366
                  
                  
                  
                  20,936Valuation
      allowance
                  
                  
                  (22,172
                  )
                  
                  
                  (10,856
                  )Net
      deferred tax assets
                  
                  
                  4,194
                  
                  
                  
                  10,080Deferred
      tax liabilities:Deferred tax assets:Property
      and equipment
                  
                  
                  (165
                  )
                  
                  
                  —Purchase
      accounting intangible
                  
                  
                  (3,333
                  )
                  
                  
                  —Deferred
      tax liabilities
                  
                  
                  (3,498
                  )
                  
                  
                  —Net
      deferred tax assets
                  
                  $
                  696
                  
                  
                  $
                  10,080
  51
 As of
August 29, 2008, the Company classified approximately $0.2 million of
current deferred tax assets in other current assets and $0.5 million of
non-current deferred tax liabilities in other non-current liabilities,
respectively, on the accompanying consolidated balance sheets.
 
 As of
August 31, 2007, the Company classified approximately $1.7 million of
current deferred tax assets in other current assets and $8.4 million of
non-current deferred tax assets in other non-current assets, respectively, on
the accompanying consolidated balance sheets.
 
 As of
August 31, 2008, the Company had U.S. (federal) and California (state)
net operating loss carryovers of approximately $66.1 million and $37.9
million, respectively. The federal net operating loss carryovers will expire in
2011 through 2028 and the California net operating loss carryovers will expire
in 2015 through 2020, in varying amounts, if not utilized.
 
 The
federal and California net operating loss carryovers are subject to an annual
limitation as a result of a change of ownership as defined in Section 382
of the Internal Revenue Code. The annual limitation will not prevent the Company
from using the net operating loss carryovers if sufficient income is earned in
the carryover period.
 
 For the
year ended August 29, 2008, the Company recorded a $23 thousand tax benefit to
additional paid in capital for excess tax deductions attributable to share-based
payments that reduce taxes payable.
 
 Pursuant
to footnote 82 of SFAS No. 123R, Share-Based Payment, the
additional tax benefit from excess tax deductions attributable to share based
payments resulted in $17.0 million of federal net operating loss carryovers and
$10.6 million of California net operating loss carryovers that will not be
recognized as a credit to additional paid in capital until such deductions
reduce taxes payable.  The Company follows the ordering rules, which
assume that stock option deductions are the last item to be considered in
calculating taxes.
 
 As of
August 29, 2008, the Company has consolidated net deferred tax assets of
approximately $0.7 million.  The valuation allowance on deferred
tax assets increased by $11.3 million from $10.9 million as of August 31,
2007 to  $22.2 million as of August 29, 2008.  The
valuation allowance as of August 29, 2008 and August 31, 2007 primarily
relates to U.S. deferred tax assets.  At May 31, 2008 and at August
29, 2008, the Company’s management did not believe that the deferred tax assets
from U.S. operations were realizable by considering future taxable income based
on cumulative U.S. losses for the most recent three years of the
Company.  Accordingly, during the third quarter of the fiscal year
ending August 29, 2008, the Company recorded approximately $9.6 million deferred
tax expense to increase the valuation allowance to a full valuation allowance on
U.S. deferred tax assets.  The U.S. net deferred tax assets acquired
and generated during the fiscal year ended August 29, 2008 of $1.7 million also
have a full valuation allowance.
 
 Provision
has been made for deferred income taxes on undistributed earnings of foreign
subsidiaries to the extent that dividend payments by such foreign subsidiaries
are expected to result in additional tax liability.  The Company has
not provided deferred income taxes on approximately $159.0 million of
undistributed earnings from certain foreign operations as of August 29,
2008 because such earnings are intended to be reinvested
indefinitely.  Of the $159.0 million of undistributed earnings,
approximately $27.8 million would be included in U.S. taxable income of the
Company, which would be offset, in whole or in part, by foreign tax
credits.  The remainder of undistributed earnings of approximately
$131.2 million would not be includable in U.S. taxable income, but would incur
an insignificant amount of foreign country withholding taxes.
 Consolidated income before taxes for all periods presented consisted of the
following (in thousands):
  Year
      Ended August 29, 2008
                  
                  
                  Year
      Ended August 31, 2007
                  
                  
                  Year
      Ended August 25, 2006U.S
                  
                  $
                  (19,017
                  )
                  
                  $
                  6,830
                  
                  
                  $
                  410Non-U.S
                  
                  
                  46,412
                  
                  
                  
                  60,361
                  
                  
                  
                  32,813Total
                  
                  $
                  27,395
                  
                  
                  $
                  67,191
                  
                  
                  $
                  33,223
  During
the third quarter of fiscal 2005, the tax holiday (Pioneer Status) for the
Company’s Malaysian operations, which was previously scheduled to expire in
September 2004, was renewed through May 31, 2014. The Company expensed the
deferred tax assets recorded in Malaysia upon receipt of the tax holiday during
the third quarter of fiscal 2005. The renewal was effective retroactively to
September 2004. The Company was also granted a tax holiday (International
Procurement Company) for its Malaysian operations, effective for 10 years
beginning April 30, 2004, subject to certain conditions. In addition, the
Company was granted a continuing tax holiday for certain manufacturing
operations in Puerto Rico, subject to certain conditions.  The net
impact of these tax holidays in Malaysia and Puerto Rico was to decrease income
tax expense by approximately $8.6 million in fiscal 2008 ($0.14 per basic
ordinary share), approximately $11.5 million in fiscal 2007 ($0.19 per basic
ordinary share), and approximately $11.3 million in fiscal 2006 ($0.21 per
basic ordinary share).
  As of
September 1, 2007, the Company adopted FIN 48, which clarifies the accounting
for uncertainty in income tax positions recognized in accordance with SFAS No.
109.  The adoption of FIN 48 had no material effect on the financial
statements.  The Company recognized a $0.2 million net decrease in the
liabilities for unrecognized tax benefits, which was accounted for as an
increase to the September 1, 2007 balance of retained earnings.  This
adjustment was the cumulative effect of applying an enhanced measurement
standard in accounting for uncertainty in income taxes under FIN 48 and was
reported as an adjustment to the opening balance of retained earnings in the
Consolidated Balance Sheet for fiscal 2008.
 52
 The total
liability for gross unrecognized tax benefits included in our Consolidated
Balance Sheet as of September 1, 2008 was approximately $0.3
million.  Other than the accrual of interest, there was no net change
in the liability for gross unrecognized tax benefits during the current
year.  A reconciliation of the beginning and ending balance of
unrecognized tax benefits is summarized as follows (in
millions):
 AmountBalance
      as of September 1, 2007Increase
      in unrecognized tax benefits related to prior year tax
      positions
                  
                  $
                  0.3Decreases
      in unrecognized tax benefits related to prior year tax
      positions
                  
                  
                  —Increase
      in unrecognized tax benefits related to current year tax
      positions
                  
                  
                  —Decrease
      in unrecognized tax benefits related to settlements with tax
      authorities
                  
                  
                  —Reductions
      in unrecognized tax benefits due to lapse of  applicable statue
      of limitations
                  
                  
                  —Balance
      as of August 29, 2008
                  
                  $
                  0.3
  As of
August 29, 2008, the total amount of unrecognized tax benefits, included in
other long-term liabilities on the accompanying consolidated balance sheet, was
approximately $0.3 million, which would impact the effective tax rate if
recognized.   The Company records interest and penalties on
unrecognized tax benefits as income tax expense.  As of August 29,
2008, the Company expects no significant changes in the total unrecognized tax
benefits within the next 12 months.
  The
Company’s U.S. subsidiaries file federal and state income/franchise tax returns
in the U.S.  The tax periods ended August 2004 through August 2008
remain open to U.S. federal income tax examination.  In addition, any
prior year that generated a net operating loss (NOL) carry forward available for
use in taxable periods ending on or after August 2005 remains open to U.S.
federal income tax examination.  Generally, in the major state
jurisdictions, the tax periods ended August 2004 through August 2008 remain open
to state income tax examination.
 The
Company’s international subsidiaries file income tax returns in various non-U.S.
jurisdictions, including Malaysia, Brazil, Puerto Rico, Korea, and the United
Kingdom.  The years that are open for examination by tax authorities
of the international subsidiaries vary by country.  The earliest year
open for examination of any international subsidiary is the year ended August
2002 for the subsidiary in Malaysia.
 (6)
                    Accrued
      Expenses
  Accrued
expenses consisted of (in thousands):
  August
      29, 2008
                    
                    
                    August
      31, 2007Accrued
      employee compensation
                    
                    $
                    8,251
                    
                    
                    $
                    10,504Income
      taxes payable
                    
                    
                    824
                    
                    
                    
                    3,170Accrued
      warranty
                    
                    
                    765
                    
                    
                    
                    722Other
      accrued liabilities
                    
                    
                    14,102
                    
                    
                    
                    9,647Total
                    
                    $
                    23,942
                    
                    
                    $
                    24,043
 (7)
                  Long
      Term Debt
  Senior
Secured Floating Rate Notes
  On March
28, 2005 the Company issued $125.0 million in senior secured floating rate notes
due on April 1, 2012 (the 144A Notes) in an offering exempted from registration
by rule 144A and Regulation S under the Securities Act (the Offering). The 144A
Notes were jointly and severally guaranteed on a senior basis by all of our
restricted subsidiaries, subject to limited exceptions. In addition, the 144A
Notes and the guarantees were secured on a second-priority basis by the capital
stock of, or equity interests in, most of our subsidiaries and substantially all
of the Company’s and most of its subsidiaries’ assets.  The 144A Notes
accrued interest at the three-month London Inter Bank Offering Rate, or LIBOR,
plus 5.50% per annum, payable quarterly in arrears, and were redeemable under
certain conditions and limitations. The Company filed an exchange offer
registration statement that was declared effective on September 27, 2005, and
all of the 144A Notes were exchanged for the Company’s Senior Secured Floating
Rate Exchange Notes (the Notes) by October 27, 2005. The terms of the registered
Notes were identical in all material respects to the terms of the 144A Notes,
except that the Notes were registered under the Securities Act, and the transfer
restrictions and registration rights related to the 144A Notes did not apply to
the Notes.  On August 13, 2008, the Company filed Form 15 to
de-register the Notes with the SEC pursuant to Rule 12g-4(a)(1) to
suspend  the Company’s remaining reporting obligations to file reports
under Sections 13 and 15(d) with respect to the Notes.  The indenture
relating to the Notes contains various covenants including limitations on our
ability to engage in certain transactions.  The Company has identified
an exception to compliance relating to the reporting under Rule 3-16 of
Regulation S-X under the Securities Act of 1933, as amended, with respect to the
fiscal year ending August 25, 2006.  Rule 3-16 requires the filing of
the financial statements for certain subsidiaries who pledged stock to secure
the Notes.  The Company has commenced efforts to remedy this exception
in a timely manner.  This exception will be noted in our annual
compliance certificate to be submitted to the trustee of the Notes if it is not
remedied prior to submission.
 
 The net
proceeds from the Offering of approximately $120.1 million were used to repay
outstanding indebtedness of approximately $42.3 million under the Company’s
existing revolving loan and security agreement, redeem all of the outstanding
shares of the Company’s Series A redeemable preferred shares for an aggregate
amount of approximately $65.1 million, with the remaining approximately $12.7
million used for general corporate purposes.
 53
 The
Company incurred approximately $4.9 million in related debt issuance costs,
which are included in other non-current assets in the accompanying consolidated
balance sheets. Debt issuance costs related to the Notes were being amortized to
interest expense on a straight-line basis, which approximates the effective
interest rate method, over the life of the Notes.
  As of
August 29, 2008, the aggregate principal amount outstanding under the Notes was
$81.3 million.
  Senior
Secured Revolving Line of Credit
  SMART had
a revolving loan and security agreement (the Loan and Security Agreement) with
Wells Fargo Foothill, Inc., La Salle Business Credit, LLC and Congress Financial
Corporation (Western) that allowed SMART to borrow up to $100 million. The
ability to draw funds under this credit facility was dependent upon sufficient
collateral and meeting certain financial covenants, including the maintenance of
certain financial ratios. There also were restrictions on payment of dividends
and restrictions on the amount of ordinary shares that could be repurchased
annually. Interest on borrowings was calculated based on prime rate plus a
margin of up to 1%, or based on LIBOR plus margins between 1.5% and 2.5%,
depending on loan availability.
 
 Contemporaneous
with the closing of the Offering of the 144A Notes, the Company amended and
restated the Loan and Security Agreement with its lenders, providing for a new
senior secured credit facility with Wells Fargo Foothill, Inc. (Foothill Credit
Facility), which was further amended and restated during the third fiscal
quarter as described below. The Foothill Credit Facility provided for up to
$35.0 million of aggregate borrowing capacity ($20.0 million of which could have
been in the form of letters of credit), subject to a borrowing base calculated
by reference to the amounts of eligible accounts and eligible inventory owned by
the Company. Borrowings under the Foothill Credit Facility bore interest at a
rate equal to, at the Company’s option, either (i) the base rate (the prime rate
most recently announced by the agent) or (ii) the applicable reserve adjusted
LIBOR, in each case, plus the applicable margin. The margin on base rate
borrowings could have ranged from 0% to 0.5%, and the margin on LIBOR borrowings
could have ranged from 1.25% to 2.25%, in each case depending on the amount of
unrestricted cash and excess availability under the Foothill Credit Facility.
The Foothill Credit Facility had been available for general corporate purposes
through March 28, 2009, unless earlier terminated.
 
 In
connection with the Foothill Credit Facility, the Company incurred approximately
$0.7 million in debt issuance costs, which are included in other non-current
assets in the accompanying consolidated balance sheets.
 
 On April
30, 2007, the Company amended and restated the Foothill Credit Facility (WF
Credit Facility), by and among the Company, as an obligor, SMART Modular
Technologies, Inc., SMART Modular Technologies (Europe) Limited, and SMART
Modular Technologies (Puerto Rico) Inc., as borrowers, and the other obligor
parties named therein, and Wells Fargo Bank, National Association (successor to
Wells Fargo Foothill, Inc.), as lender, arranger, administrative agent and
security trustee.
 
 The WF
Credit Facility (i) increases the amount available for borrowing by $15 million,
from $35 million to $50 million ($30 million of which may be in the form of
letters of credit), (ii) reduces the number and makes less restrictive certain
financial covenants (as described below) and (iii) extends the maturity date to
April 30, 2010, from March 28, 2009. Borrowings under the WF Credit Facility
bear interest based on LIBOR plus an applicable margin, ranging from 1.25% (if
the funded debt to adjusted EBITDA ratio is less than or equal to 1.00) to 2.00%
(if such ratio is greater than 2.00). The WF Credit Facility contains financial
covenants that require the borrowers to maintain, as of the end of each fiscal
quarter, an adjusted quick ratio (as defined in the WF Credit Facility) equal to
or greater than 1.00, an adjusted EBITDA equal to or greater than $50 million
(based on the preceding four fiscal quarters then ended), and a funded debt to
adjusted EBITDA ratio equal to or less than 2.25. The Company is no longer
required to comply with any fixed charge coverage ratio as a result of the
amendment. The WF Credit Facility contains other customary covenants and events
of default usual for commercial lending credit facilities, which did not change
materially as a result of the amendment.
 
 In
connection with the WF Credit Facility, the Company incurred approximately $0.5
million in debt issuance costs, which are included in other non-current assets
in the accompanying consolidated balance sheets. Debt issuance costs related to
the WF Credit Facility, together with the unamortized debt issuance costs
related to the Foothill Credit Facility of approximately $0.5 million, are being
amortized to interest expense on a straight-line basis, which approximates the
effective interest rate method, over three years, which represents the term of
the WF Credit Facility.
 
 As of
August 29, 2008, the WF Credit Facility was undrawn and had available borrowing
capacity of $50.0 million.
  (8)
                    Financial
      Instruments
  Fair
Value of Financial Instruments
 
 The fair
value of the Company’s cash, cash equivalents, accounts receivable, accounts
payable and WF Credit Facility approximates the carrying amount due to the
relatively short maturity of these items. The fair value of the Notes is
determined by market trading and approximates their carrying value as of
August 29, 2008.
 54
 Derivative
Instruments
 
 The
Company has entered into two interest swap agreements (The Swaps), one of which
is expired and one of which is outstanding. The Swaps are for approximately
$41.3 million and $40.0 million in notional amounts (Notional Amounts) with
expiration dates of April 1, 2008 and April 28, 2010 (Expiration Dates),
respectively. The Company entered into the Swaps in order to hedge a portion of
its future cash flows against interest rate exposure resulting from the Notes.
Under the terms of the Swaps, the Company pays fixed interest rates of 9.78% and
9.97% related to the above Notional Amounts, respectively. In exchange, the
Company receives interest income at a variable interest rate equal to the
3-month LIBOR rate plus 5.50%. The Swaps essentially replace the variable
interest rate on $81.3 million of the Notes with fixed interest rates through
the respective Expiration Dates. The Swaps were accounted for as cash flow
hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. The swap that expired on April 1, 2008 became ineffective as a hedge
as defined under the provisions of SFAS No. 133 at the end of the first fiscal
quarter of 2008. Accordingly, the Company recorded an insignificant change in
fair market value of this swap to other expense in its consolidated statement of
operations for the year ended August 29, 2008. During the period of swap
effectiveness, the changes in fair values were reflected in other comprehensive
income.
 
 The total
fair value of the outstanding derivative instruments referred to above was a
liability of approximately $1.0 million and an asset of approximately $0.6
million as of August 29, 2008 and August 31, 2007, respectively.
 
 For all
derivative transactions, the Company is exposed to counterparty credit risk. To
manage such risk, the Company limits its derivative transaction counterparties
to major financial institutions. The Company does not expect to experience any
material adverse financial consequences as a result of default by the Company’s
counterparties.
   (9)
                    Employee
      Benefit Plans
  (a)       Stock
Option Plan
  The
Company’s stock option plan provides for grants of options to employees of the
Company to purchase the Company’s ordinary shares at the fair market value, as
determined by the closing market price of such shares on the grant date once we
traded publicly on the NASDAQ (and as determined by management and the board of
directors prior to such time). The options generally vest over a 4-year period
beginning generally on the grant date and have a 10-year term.
  The
following table summarizes options outstanding as of August 29, 2008
(shares in thousands):
 Options
      Outstanding
                  
                  
                  Options
      VestedRange
      of Exercise Prices
                  
                  
                  Shares
      Outstanding
                  
                  
                  Weighted
      Average Remaining Contractual Life (Years)
                  
                  
                  Weighted
      Average Exercise Price
                  
                  
                  Shares
      Vested
                  
                  
                  Weighted
      Average Exercise Price$
                  0.17
                  
                  
                  
                  1,869
                  
                  
                  
                  5.8
                  
                  
                  $
                  0.17
                  
                  
                  
                  1,864
                  
                  
                  $
                  0.17$
                  0.98
      – 4.71
                  
                  
                  
                  1,355
                  
                  
                  
                  7.1
                  
                  
                  $
                  3.00
                  
                  
                  
                  904
                  
                  
                  $
                  2.83$
                  4.92-6.29
                  
                  
                  
                  195
                  
                  
                  
                  9.7
                  
                  
                  $
                  5.51
                  
                  
                  
                  1
                  
                  
                  $
                  5.19$
                  6.31
                  
                  
                  
                  900
                  
                  
                  
                  9.4
                  
                  
                  $
                  6.31
                  
                  
                  
                  1
                  
                  
                  $
                  6.31$
                  7.22-7.28
                  
                  
                  
                  264
                  
                  
                  
                  9.0
                  
                  
                  $
                  7.26
                  
                  
                  
                  52
                  
                  
                  $
                  7.24$
                  7.50
                  
                  
                  
                  1,641
                  
                  
                  
                  9.1
                  
                  
                  $
                  7.50
                  
                  
                  
                  341
                  
                  
                  $
                  7.50$
                  7.84-9.39
                  
                  
                  
                  534
                  
                  
                  
                  8.0
                  
                  
                  $
                  8.68
                  
                  
                  
                  223
                  
                  
                  $
                  8.57$
                  9.97
                  
                  
                  
                  1,231
                  
                  
                  
                  8.1
                  
                  
                  $
                  9.97
                  
                  
                  
                  571
                  
                  
                  $
                  9.97$
                  11.35-14.96
                  
                  
                  
                  461
                  
                  
                  
                  8.6
                  
                  
                  $
                  12.92
                  
                  
                  
                  172
                  
                  
                  $
                  12.91$
                  15.01
                  
                  
                  
                  8
                  
                  
                  
                  8.8
                  
                  
                  $
                  15.01
                  
                  
                  
                  2
                  
                  
                  $
                  15.01$
                  0.17
      – 15.01
                  
                  
                  
                  8,458
                  
                  
                  
                  7.8
                  
                  
                  $
                  5.72
                  
                  
                  
                  4,131
                  
                  
                  $
                  3.80
  (b)         Savings
and Retirement Program
  The
Company provides a 401(k) Plan which provides for tax deferred salary deductions
for eligible employees. Employees may contribute from 1% to 15% of their annual
compensation to this plan, limited by an annual maximum amount determined by the
U.S. Internal Revenue Service. The Company also makes discretionary matching
contributions, which vest immediately, as periodically determined by management.
The matching contributions made by the Company during the years ended
August 29, 2008, August 31, 2007, and August 25, 2006 were
approximately $1.0 million, $0.9 million, and $0.6 million
respectively.
 55
 (10)
                    Commitments
      and Contingencies
  (a)         Commitments
  Rent
expense for the years ended August 29, 2008, August 31, 2007 and August 25,
2006 was approximately $2.9 million, $2.3 million and $2.1 million,
respectively. As of August 29, 2008, the Company also has commitments under
operating leases for other facilities and equipment.
 Future
minimum lease payments under all leases are as follows (in
thousands):
 Year
      Ending August2009
                  
                  $
                  2,3632010
                  
                  
                  1,3892011
                  
                  
                  1,2142012
                  
                  
                  9202013
                  
                  
                  2562014
      and thereafter
                  
                  
                  -$
                  6,142
 
 (b)         Product
Warranties
  Product
warranty reserves are established in the same period that revenue from the sale
of the related products is recognized, or in the period that a specific issue
arises as to the performance of a Company’s product. The amounts of the reserves
are based on established terms and the Company’s best estimate of the amounts
necessary to settle future and existing claims on products sold as of the
balance sheet date.
 The
following table reconciles the changes in the Company’s accrued warranty (in
thousands):
  Year
      Ended August 29, 2008
                  
                  
                  Year
      Ended August 31, 2007
                  
                  
                  Year
      Ended August 25, 2006Beginning
      accrued warranty reserve
                  
                  $
                  722
                  
                  
                  $
                  505
                  
                  
                  $
                  1,044Warranty
      claims
                  
                  
                  (1,208
                  )
                  
                  
                  (1,361
                  )
                  
                  
                  (1,430
                  )Provision
      for product warranties
                  
                  
                  1,251
                  
                  
                  
                  1,578
                  
                  
                  
                  891Ending
      accrued warranty reserve
                  
                  $
                  765
                  
                  
                  $
                  722
                  
                  
                  $
                  505
 
 Product
warranty reserves are recorded in accrued expenses and other current liabilities
in the accompanying consolidated balance sheets.
 The
Company currently has in effect a number of agreements in which it has agreed to
defend, indemnify and hold harmless its customers and suppliers from damages and
costs which may arise from the infringement by its products of third-party
patents, trademarks or other proprietary rights. The Company believes its
internal development processes and other policies and practices limit its
exposure related to such indemnities. Maximum potential future payments cannot
be estimated because many of these agreements do not have a maximum stated
liability. However, to date, the Company has not had to reimburse any of its
customers or suppliers for any losses related to these indemnities. The Company
has not recorded any liability in its financial statements for such
indemnities.
  (c)         Legal
Matters
  From time
to time the Company has been involved in disputes and legal actions arising in
the ordinary course of business. In the Company’s opinion, the estimated
resolution of these disputes and legal actions is not expected to have a
material impact on its consolidated financial position, results of operations or
cash flows.
  (d)         Contingencies
   During
its third quarter of fiscal 2007, the Company identified certain discrepancies
in the invoicing of certain products that it sold in the Brazilian market in
fiscal 2006. Some of the Company’s imported products were invoiced in a manner
that may have left customers with the impression that they were manufactured in
Brazil, rather than imported, and therefore potentially impact the customers’
eligibility for tax incentives.  The Company assessed the impact arising
from these discrepancies and noted that the customers had access to other
information to determine the origin of the products and may not have relied on
the information contained in the invoices for computing their tax
liability.  Also, the revenues related to these invoices were not material
to the Company’s operations.  Therefore, the Company believes that the
likelihood of any liability arising from these discrepancies in the invoices is
remote and as such, is not likely to have a material adverse effect on its
consolidated financial position, results of operations or cash flows for any
periods impacted.
 56
 During
the fourth quarter of fiscal 2008, the Sao Paulo, Brazil, State Tax Inspector
informed the Company that certain tax credits transferred during 2004 between
two Brazilian entities may not have represented an authorized
transfer.  These transfers occurred prior to the acquisition in April
2004 of SMART from Solectron Corporation (Solectron) and the full amount of any
related tax assessment against SMART would be subject to indemnification by
Solectron to SMART pursuant to the Transaction Agreement dated February 11,
2004.   A notice was received from the Sao Paulo, Brazil Tax
Authorities by SMART on October 3, 2008 providing an assessment of approximately
$3.5 million including interest and penalties, related to the transfer of these
credits.  SMART has notified Solectron and its parent company,
Flextronics International Ltd., of this assessment, and under the terms of the
indemnity agreement Flextronics has elected to assume responsibility for
the appeals process for this case on SMART's behalf.  In the
Company’s fourth quarter of fiscal 2008 it recorded both a tax liability and a
corresponding indemnity receivable for approximately $3.5
million.   The Company believes that the likelihood of any
material loss arising from these matters is not probable, and as such, not
likely to have a material adverse effect on its consolidated financial position,
results of operations or cash flows for any periods impacted.
  (11)            
Restructuring
  Impairment
of owned facilities and equipment in connection with restructuring activities
initiated beginning in fiscal 2003 were recorded in accordance with
SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. For owned facilities
and equipment, the impairment loss recognized was based on the estimated fair
value less costs to sell with fair value estimated based on existing market
prices for similar assets. Severance and benefit costs associated with
restructuring activities initiated on or after January 1, 2003 are recorded in
accordance with SFAS No. 112, Employer’s Accounting for
Postemployment Benefits, as SMART concluded that it had a substantive
severance plan based on the similarity of the benefits offered by this
restructuring activity with previous severance activities. Other costs
associated with restructuring activities initiated on or after January 1, 2003
are recorded in accordance with SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. For leased facilities and equipment that
will be abandoned and subleased, the estimated lease loss accrued represents
future lease payments subsequent to abandonment less any estimated sublease
income.
  During
the fourth quarter of fiscal 2008, the Company initiated a restructuring plan to
reduce operating expenses and improve operating margins and cash flows by
consolidating certain operations in Asia and the Caribbean.  The
intent of the plan is to decrease the Company’s cost structure through workforce
reductions and facility and resource consolidation.  Costs resulting
from the restructuring plan included severance payments, severance-related
benefits, lease costs associated with the closure of our Dominican Republic
facility, charges for assets written off and other costs.
  The
following table summarizes the restructuring accrual activity for the years
ended August 29, 2008 (in thousands):
 Severance
      and
                      Benefits
                    
                    
                    Assets/Facility Related
                    
                    
                    Other
                    
                    
                    TotalProvision
                    
                    $
                    712
                    
                    
                    $
                    966
                    
                    
                    $
                    260
                    
                    
                    $
                    1,938Non-cash
      charges
                    
                    
                    —
                    
                    
                    
                    (966
                    )
                    
                    
                    —
                    
                    
                    
                    (966
                    )Cash
      payment
                    
                    
                    (140
                    )
                    
                    
                    —
                    
                    
                    
                    (2
                    )
                    
                    
                    (142
                    )Accrual
      as of August 29, 2008
                    
                    $
                    572
                    
                    
                    $
                    —
                    
                    
                    $
                    258
                    
                    
                    $
                    830
  All
severance payments and severance-related benefits accrued as of August 29, 2008
will be paid in the Company’s fiscal 2009.  Total restructuring costs
accrued as of August 29, 2008 were approximately $0.8 million and are recorded
in accrued expenses in the Consolidated Balance Sheets.  There were no
restructuring activities in fiscal years 2007 and 2006.
  (12)             Segment
Information and Geographic Information
  With the
acquisition of Adtron in fiscal 2008, based on information regularly reviewed by
the chief operating decision maker to evaluate Adtron’s performance and to
allocate resources to Adtron, the Company revised its segment reporting to
include Adtron as a separate segment.  The Company now operates in two
business segments, the Memory, Embedded, & Display Segment and the Adtron
Segment.   The accounting policies of the operating segments are
the same as those described in the summary of significant accounting
policies.
 57
 The
following tables present summarized information by segment or geographic
area:
 
 Property
and equipment, net,  and certain results of operations by segment (in
thousands):
 Fiscal
      Year
                          Ended
                          August
      29,
                          2008
                      
                      
                      Fiscal
      Year
                          Ended
                          August
      31,
                          2007(In
      thousands)Property
      and equipment, net:Memory,
      Embedded, & Display
                      
                      $
                      38,772
                      
                      
                      $
                      33,588Adtron
                      
                      
                      545
                      
                      
                      
                      —Total
      property and equipment, net
                      
                      
                      39,317
                      
                      
                      
                      33,588
   
 Memory,
      Embedded, & Display
                      
                      Adtron
                      
                      TotalYear
      Ended August  29, 2008Net
      sales
                      
                      $
                      662,781
                      
                      
                      $
                      7,370
                      
                      
                      $
                      670,151Gross
      profit
                      
                      
                      116,589
                      
                      
                      
                      3,142
                      
                      
                      
                      119,731Depreciation
      and amortization
                      
                      
                      12,112
                      
                      
                      
                      588
                      
                      
                      
                      12,700Income
      (loss) from operations
                      
                      
                      36,365
                      
                      
                      
                      (6,172
                      )
                      
                      
                      30,193Year
      Ended August 31, 2007Net
      sales
                      
                      $
                      844,627
                      
                      
                      $
                      —
                      
                      
                      $
                      844,627Gross
      profit
                      
                      
                      149,573
                      
                      
                      
                      —
                      
                      
                      
                      149,573Depreciation
      and amortization
                      
                      
                      9,031
                      
                      
                      
                      —
                      
                      
                      
                      9,031Income
      from operations
                      
                      
                      73,638
                      
                      
                      
                      —
                      
                      
                      
                      73,638Year
      Ended August 25, 2006Net
      sales
                      
                      $
                      727,206
                      
                      
                      $
                      —
                      
                      
                      $
                      727,206Gross
      profit
                      
                      
                      126,574
                      
                      
                      
                      —
                      
                      
                      
                      126,574Depreciation
      and amortization
                      
                      
                      8,673
                      
                      
                      
                      —
                      
                      
                      
                      8,673Income
      from operations
                      
                      
                      45,809
                      
                      
                      
                      —
                      
                      
                      
                      45,809
   Net sales
and property and equipment, net, by geographic area (in thousands):
 Year
      Ended August 29, 2008
                    
                    
                    Year
      Ended August 31, 2007
                    
                    
                    Year
      Ended August 25, 2006Geographic
      net sales:U.S.A.
                    
                    $
                    374,425
                    
                    
                    $
                    532,691
                    
                    
                    $
                    453,556Other
      North and Latin America
                    
                    
                    128,032
                    
                    
                    
                    142,887
                    
                    
                    
                    87,512Europe
                    
                    
                    67,266
                    
                    
                    
                    56,090
                    
                    
                    
                    58,730Asia
                    
                    
                    100,428
                    
                    
                    
                    112,959
                    
                    
                    
                    127,408$
                    670,151
                    
                    
                    $
                    844,627
                    
                    
                    $
                    727,206
  58
  August 29,
      2008
                    
                    
                    August 31,
      2007Property
      and equipment, net:U.S.A.
                    
                    $
                    6,679
                    
                    
                    $
                    6,591Other
      North and Latin America
                    
                    
                    28,492
                    
                    
                    
                    22,322Europe
                    
                    
                    59
                    
                    
                    
                    24Asia
                    
                    
                    4,087
                    
                    
                    
                    4,651$
                    39,317
                    
                    
                    $
                    33,588
  (13)             
Major Customers
  A
majority of the Company’s net sales are attributable to customers operating in
the information technology industry. Net sales from SMART’s major customers,
defined as net sales in excess of 10% of total net sales or those who have
outstanding customer accounts receivable balance at the end of the fiscal period
of 10% or more of our total net accounts receivables, are as follows (dollars in
thousands):
 Year
      Ended
                          August 29,
      2008
                      
                      
                      Year
      Ended
                          August 31,
      2007
                      
                      
                      Year
      Ended
                          August 25,
      2006Amount
                      
                      
                      Percent
                      
                      
                      Amount
                      
                      
                      Percent
                      
                      
                      Amount
                      
                      
                      PercentCustomer
      A
                      
                      $
                      259,639
                      
                      
                      
                      39
                      %
                      
                      $
                      394,202
                      
                      
                      
                      47
                      %
                      
                      $
                      319,091
                      
                      
                      
                      44
                      %Customer
      B
                      
                      $
                      83,710
                      
                      
                      
                      12
                      %
                      
                      $
                      107,739
                      
                      
                      
                      13
                      %
                      
                      $
                      99,892
                      
                      
                      
                      14
                      %Customer
      C
                      
                      $
                      39,067
                      
                      
                      
                      6
                      %
                      
                      $
                      48,954
                      
                      
                      
                      6
                      %
                      
                      $
                      36,698
                      
                      
                      
                      7
                      %
  As of
August 29, 2008, approximately 32%, 19% and 28% of accounts receivable were
concentrated with Customer A, B and C, respectively. As of August 31, 2007,
approximately 38%, 32% and 12% of accounts receivable were concentrated with
Customer A, B and C, respectively. The loss of a major customer or a significant
reduction in revenue from a major customer could have a material adverse effect
on the Company’s business, financial condition and results of
operations.
 (14)            
Other Income, Net
  The
following table provides the detail of other income, net as follows (in
thousands):
  Year
      Ended
                          August 29,
      2008
                      
                      
                      Year
      Ended
                          August 31,
      2007
                      
                      
                      Year
      Ended
                          August 25,
      2006Gain
      on derivative instruments
                      
                      $
                      40
                      
                      
                      $
                      —
                      
                      
                      $
                      2,287Foreign
      currency gains (losses)
                      
                      
                      2,415
                      
                      
                      
                      922
                      
                      
                      
                      (175
                      )Other
                      
                      
                      102
                      
                      
                      
                      12
                      
                      
                      
                      455Total
                      
                      $
                      2,557
                      
                      
                      $
                      934
                      
                      
                      $
                      2,567
 (15)             
Interest Expense
  Interest
expense for the year ended August 25, 2006 includes a charge of approximately
$5.9 million related to the redemption of $43.8 million in principal amount of
the Notes. This charge is comprised of a approximately $4.4 million redemption
premium and the write-off of approximately $1.5 million of unamortized debt
issuance costs.
  (16)             
Subsidiary Guarantors
  The Company has not presented separate financial statements of subsidiary
guarantors of the Notes, as (1) each of the subsidiary guarantors is wholly
owned by the Company, the issuer of the Notes, (2) the guarantees are full and
unconditional, (3) the guarantees are joint and several, and (4) the Company has
no independent assets and operations and all subsidiaries of the Company other
than the subsidiary guarantors are minor.
 59
 (17)             
Selected Quarterly Financial Data (Unaudited)
  The
following table sets forth our selected unaudited quarterly consolidated
statements of operations data for the eight most recent quarters.
 Three
      Months EndedNovember
                          24,
      2006(1)
                      
                      
                      March
                          2,2007(1)
                      
                      
                      June
                          1,2007(1)
                      
                      
                      August
                          31,
      2007(1)
                      
                      
                      November
                          30,2007
                      
                      
                      February
      29, 2008
                      
                      
                      May
                          30,2008
                      
                      
                      August
                          29,
      2008(In
      thousands, except for per share data)Statement of Operations
      Data(1):Net
      Sales
                      
                      $
                      243,452
                      
                      
                      $
                      243,260
                      
                      
                      $
                      189,246
                      
                      
                      $
                      168,669
                      
                      
                      $
                      177,373
                      
                      
                      $
                      164,497
                      
                      
                      $
                      167,615
                      
                      
                      $
                      160,666Cost
      of Sales
                      
                      
                      205,801
                      
                      
                      
                      201,615
                      
                      
                      
                      151,130
                      
                      
                      
                      136,508
                      
                      
                      
                      143,279
                      
                      
                      
                      131,609
                      
                      
                      
                      139,803
                      
                      
                      
                      135,729Gross
      Profit
                      
                      
                      37,651
                      
                      
                      
                      41,645
                      
                      
                      
                      38,116
                      
                      
                      
                      32,161
                      
                      
                      
                      34,094
                      
                      
                      
                      32,888
                      
                      
                      
                      27,812
                      
                      
                      
                      24,937Operating
      expenses:Research
      and development
                      
                      
                      4,040
                      
                      
                      
                      4,450
                      
                      
                      
                      4,107
                      
                      
                      
                      3,786
                      
                      
                      
                      4,685
                      
                      
                      
                      4,624
                      
                      
                      
                      9,818
                      
                      
                      
                      5,437Selling,
      general and administrative
                      
                      
                      14,254
                      
                      
                      
                      16,756
                      
                      
                      
                      14,207
                      
                      
                      
                      14,335
                      
                      
                      
                      15,061
                      
                      
                      
                      14,331
                      
                      
                      
                      15,393
                      
                      
                      
                      15,064Restructuring
      and Impairment
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      5,125Total
      operating expenses
                      
                      
                      18,294
                      
                      
                      
                      21,206
                      
                      
                      
                      18,314
                      
                      
                      
                      18,121
                      
                      
                      
                      19,746
                      
                      
                      
                      18,955
                      
                      
                      
                      25,211
                      
                      
                      
                      25,626Income
      (loss) from operations
                      
                      
                      19,357
                      
                      
                      
                      20,439
                      
                      
                      
                      19,802
                      
                      
                      
                      14,040
                      
                      
                      
                      14,348
                      
                      
                      
                      13,933
                      
                      
                      
                      2,601
                      
                      
                      
                      (689
                      )Interest
      expense, net
                      
                      
                      (2,087
                      )
                      
                      
                      (2,336
                      )
                      
                      
                      (1,775
                      )
                      
                      
                      (1,183
                      )
                      
                      
                      (1,024
                      )
                      
                      
                      (1,327
                      )
                      
                      
                      (1,468
                      )
                      
                      
                      (1,536
                      )Other
      income (expense), net
                      
                      
                      (71
                      )
                      
                      
                      (265
                      )
                      
                      
                      696
                      
                      
                      
                      574
                      
                      
                      
                      1,422
                      
                      
                      
                      373
                      
                      
                      
                      255
                      
                      
                      
                      507Total
      other expense
                      
                      
                      (2,158
                      )
                      
                      
                      (2,601
                      )
                      
                      
                      (1,079
                      )
                      
                      
                      (609
                      )
                      
                      
                      398
                      
                      
                      
                      (954
                      )
                      
                      
                      (1,213
                      )
                      
                      
                      (1,029
                      )Income
      before provision (benefit) for income taxes
                      
                      
                      17,199
                      
                      
                      
                      17,838
                      
                      
                      
                      18,723
                      
                      
                      
                      13,431
                      
                      
                      
                      14,746
                      
                      
                      
                      12,979
                      
                      
                      
                      1,388
                      
                      
                      
                      (1,718
                      )Provision
      (benefit) for income taxes
                      
                      
                      2,907
                      
                      
                      
                      3,385
                      
                      
                      
                      3,357
                      
                      
                      
                      (191
                      )
                      
                      
                      2,681
                      
                      
                      
                      1,539
                      
                      
                      
                      12,391
                      
                      
                      
                      1,810Net
      income (loss)
                      
                      $
                      14,292
                      
                      
                      $
                      14,453
                      
                      
                      $
                      15,366
                      
                      
                      $
                      13,622
                      
                      
                      $
                      12,065
                      
                      
                      $
                      11,440
                      
                      
                      $
                      (11,003
                      )
                      
                      $
                      (3,528
                      )Net
      income (loss) per ordinary share, basic
                      
                      $
                      0.24
                      
                      
                      $
                      0.24
                      
                      
                      $
                      0.26
                      
                      
                      $
                      0.23
                      
                      
                      $
                      0.20
                      
                      
                      $
                      0.19
                      
                      
                      $
                      (
      0.18
                      )
                      
                      $
                      (
      0.06
                      )Shares
      used in computing basic net income per ordinary share
                      
                      
                      58,663
                      
                      
                      
                      59,396
                      
                      
                      
                      60,015
                      
                      
                      
                      60,487
                      
                      
                      
                      60,695
                      
                      
                      
                      60,869
                      
                      
                      
                      61,027
                      
                      
                      
                      61,348Net
      income (loss) per ordinary share, diluted
                      
                      $
                      0.23
                      
                      
                      $
                      0.23
                      
                      
                      $
                      0.24
                      
                      
                      $
                      0.21
                      
                      
                      $
                      0.19
                      
                      
                      $
                      0.18
                      
                      
                      $
                      (
      0.18
                      )
                      
                      $
                      (
      0.06
                      )Shares
      used in computing diluted income per ordinary share
                      
                      
                      63,488
                      
                      
                      
                      63,790
                      
                      
                      
                      63,894
                      
                      
                      
                      63,975
                      
                      
                      
                      63,656
                      
                      
                      
                      63,713
                      
                      
                      
                      61,027
                      
                      
                      
                      61,348
  (1)
      Certain prior period amounts revised.  See Note 1(u)of Notes to Condensed Consolidated Financial
      Statements.
  During
the fourth quarter of fiscal 2007, the Company recorded an income tax benefit of
approximately $2.4 million, related to the reduction in the valuation allowance
of its deferred tax assets. Also, included in the Company’s results for the
fourth quarter of 2007 are an approximately $1.7 million benefit due to the
reversal of inventory reserve related to end-of-life inventory that we disposed
of at cost, and an approximately $0.5 million gain related to the release of a
provision related to a legal claim no longer considered required.
  During
the third quarter of fiscal 2008, the Company recorded an income tax increase of
$9.6 million related to the increase in the valuation allowance of its deferred
tax assets as the Company concluded that it is not more likely than not that its
U.S. operations will generate sufficient earning to recover the deferred tax
assets.  Also, during the fourth quarter of fiscal 2008, the Company
recorded a restructuring charge of $1.9 million related to severance, facility
and other exit costs incurred primarily from the consolidation of certain
operations in Asia and the Caribbean and a goodwill impairment charge of $3.2
million in the Company’s Memory, Embedded, & Display Segment.
 60
 
 CONSOLIDATED
FINANCIAL STATEMENT SCHEDULE
  The
consolidated financial statement Schedule II — VALUATION AND QUALIFYING ACCOUNTS
is filed as part of this Form 10-K.
   SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
   SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS
   
  Description
                  
                  Balance
      at beginning of Year
                  
                  Charged
      to Operations
                  
                  (Deductions)
                  
                  Balance
      at End
                      of
      Year(In
      thousands)Year
      ended August 29, 2008:
                    Allowance
      for doubtful accounts receivable, credits and returns
                  
                  $
                  2,517
                  
                  $
                  1,160
                  
                  $
                  (2,160
                  )
                  $
                  1,517Year
      ended August 31, 2007:
                    Allowance
      for doubtful accounts receivable, credits and returns
                  
                  $
                  2,592
                  
                  $
                  2,550
                  
                  $
                  (2,625
                  )
                  $
                  2,517Year
      ended August 25, 2006:
                    Allowance
      for doubtful accounts receivable, credits and returns
                  
                  $
                  2,629
                  
                  $
                  4,323
                  
                  $
                  (4,360
                  )
                  $
                  2,592
 61
 SMART
MODULAR TECHNOLOGIES (WWH), INC.
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, SMART Modular
Technologies (WWH), Inc. has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
  SMART
      MODULAR TECHNOLOGIES (WWH), INC.
  By:
                  /s/
      IAIN MACKENZIEName:
                  Iain
      MacKenzieTitle:
                  President
      and Chief Executive Officer
  Date:           November
12, 2008
   Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons in behalf of the
Registrant in the capacities and on the dates indicated.
  Signature
                      
                      Title
                      
                      Date
 /s/
      IAIN MACKENZIE
                      President,
      Chief Executive
                      November
      12, 2008Iain
      MacKenzie
                      Officer
      and Director(Principal
      Executive Officer)
                      (Principal
      Executive Officer)
 
 /s/
      MICHAEL GENNARO
                      Principal
      Financial
                      November
      12, 2008Michael
      Gennaro
                      Officer(Principal Financial Officer)
 /s/
      AJAY SHAH
                        Chairman
      of the Board of Directors
                        November
      12, 2008Ajay
      Shah
  /s/
      EUGENE FRANTZ
                            Director
                            November
      12, 2008Eugene
      Frantz
  /s/ DIPANJAN DEB
                        Director
                        November
      12, 2008Dipanjan
      Deb
  /s/ HARRY W.(WEBB)
      MCKINNEY
                        Director
                        November
      12, 2008Harry
      W. (Webb) McKinney
  /s/
      D. SCOTT MERCER
                        Director
                        November
      12, 2008D.
      Scott Mercer
  /s/
      MUKESH PATEL
                        Director
                        November
      12, 2008Mukesh
      Patel
  /s/
      CHONG SUP PARK
                        Director
                        November
      12, 2008Chong
      Sup Park
  /s/
      CLIFTON THOMAS WEATHERFORD
                        Director
                        November
      12, 2008Clifton
      Thomas Weatherford
 62
 EXHIBIT
INDEX
 Exhibit
      No.
                  
                  Document2
                  .1*
                  
                  Transaction
      Agreement, dated February 11, 2004, by and among Solectron
      Corporation, Solectron Global Holdings L.P., Solectron Serviços E
      Manufactura Do Brasil Ltda., SMART Modular Technologies, Inc., Modular,
      Inc., Modular Merger Corporation and Modular (Cayman)
  Inc.3
                  .1*(1)
                  
                  Form
      of Amended and Restated Memorandum of Association of the
      Company3
                  .2*(1)
                  
                  Form
      of Amended and Restated Articles of Association of the
    Company4
                  .1*(2)
                  
                  Indenture,
      dated as of March 28, 2005, among the Company, the guarantors party
      thereto and U.S. Bank National Association, as
  trustee4
                  .2*(2)
                  
                  Registration
      Rights Agreement dated as of March 28, 2005 between the Company, the
      guarantors party thereto, Citigroup Global Markets Inc. and Lehman
      Brothers, Inc.4
                  .3*(2)
                  
                  Form
      of Note (included in Exhibit 4.1)4
                  .4*(2)
                  
                  Form
      of Exchange Note (included in Exhibit 4.1)4
                  .5*(2)
                  
                  Security
      Agreement, dated as of March 28, 2005, among the Company, the
      guarantors party thereto and U.S. Bank National Association, as
      trustee4
                  .6*(2)
                  
                  Intercreditor
      Agreement, dated as of March 28, 2005, among Wells Fargo Foothill,
      Inc., as Credit Agent, U.S. Bank National Association, as trustee,
      and the Company4
                  .7*(2)
                  
                  Intercompany
      Subordination Agreement, dated as of March 28, 2005, among
      U.S. Bank National Association, as trustee, the Company and the other
      obligors party thereto4
                  .8*(1)
                  
                  Form
      of Shareholders’ Agreement among the Company and certain other parties
      named therein4
                  .9
                  
                  [Reserved]4
                  .10(2)
                  
                  Amended
      and Restated Loan and Security Agreement, dated as of March 28, 2005,
      by and among the Company, SMART Modular Technologies (Europe) Limited,
      SMART Modular Technologies (Puerto Rico) Inc., Wells Fargo Foothill, Inc.,
      as Arranger and Administrative Agent, and certain other persons named
      therein4
                  .11(2)
                  
                  Amended
      and Restated Intercompany Subordination Agreement, dated as of
      March 28, 2005, by and among the Company, SMART Modular Technologies,
      Inc., SMART Modular Technologies (Europe) Limited, SMART Modular
      Technologies (Puerto Rico), Inc., Wells Fargo Foothill, Inc., as Agent,
      and certain other persons named therein4
                  .12*(2)
                  
                  First
      Amendment to Guaranty, dated April 20, 2005, among Wells Fargo
      Foothill, Inc., as Agent, and certain other persons named
      therein10
                  .1(2)
                  
                  Form
      of Indemnification Agreement10
                  .2*(1)
                  
                  Form
      of Amended and Restated Stock Incentive Plan10
                  .3*(1)
                  
                  Form
      of Stock Option Agreement10
                  .4*(2)
                  
                  Offer
      Letter, dated February 11, 2004, from Modular, L.L.C. to Iain
      MacKenzie10
                  .5*(2)
                  
                  Offer
      Letter, dated April 13, 2004, from Modular, L.L.C. to Alan
      Marten10
                  .6*(2)
                  
                  Offer
      Letter, dated April 13, 2004, from Modular, L.L.C. to Wayne
      Eisenberg10
                  .7*(2)
                  
                  Offer
      Letter, dated April 13, 2004, from Modular, L.L.C. to Michael
      Rubino10
                  .8*(2)
                  
                  Offer
      Letter, dated February 12, 2004, from Modular, L.L.C. to Jack A.
      Pacheco10
                  .9*(2)
                  
                  USD
      $40,000,000 Interest Rate Swap Transaction, dated April 26, 2005,
      between the Company and Wells Fargo Foothill, Inc.10
                  .10*(2)
                  
                  USD
      $41,250,000 Interest Rate Swap Transaction, dated April 26, 2005,
      between the Company and Wells Fargo Foothill,
  Inc.
  10
                  .11*(2)
                  
                  ISDA
      Master Agreement, dated as of April 20, 2005, between Wells Fargo
      Foothill, Inc. and SMART Modular Technologies (WWH),
  Inc.10
                  .12*(2)
                  
                  Lease
      Agreement, dated April 16, 2004, by and between Solectron USA, Inc.
      and SMART Modular Technologies, Inc., as amended (relating to the property
      at 4211 Starboard Drive, Fremont, California)10
                  .13*(3)
                  
                  Corporate
      Purchase Agreement, dated as of May 1, 2001, by Compaq Computer
      Corporation and by SMART Modular Technologies, Inc.10
                  .14*(4)
                  
                  Amendment
      to Corporate Purchase Agreement, dated September 1, 2004, between
      SMART Modular Technologies, Inc. and Hewlett-Packard
    Company
 63
 Exhibit
      No.
                  
                  Document
 10
                  .15*(4)
                  
                  Amendment
      Number 2 to Corporate Purchase Agreement, dated January 20, 2005,
      between SMART Modular Technologies, Inc. and Hewlett-Packard
      Company10
                  .16*(2)
                  
                  Advisory
      Agreement, dated April 16, 2004, between SCP Management Company,
      L.L.C. and SMART Modular Technologies, Inc.10
                  .17*(2)
                  
                  Letter
      Amendment, dated June 17, 2005, to Advisory Agreement dated
      April 16, 2004, between SCP Management Company, L.L.C. and SMART
      Modular Technologies, Inc.10
                  .18*(2)
                  
                  Advisory
      Agreement, dated April 16, 2004, among SMART Modular Technologies,
      Inc., T3 GenPar II, L.P., TPG GenPar III, L.P., and TPG GenPar
      IV, L.P.10
                  .19*(2)
                  
                  Advisory
      Agreement, dated April 16, 2004, between SMART Modular Technologies,
      Inc. and Francisco Partners, L.P.10
                  .20*(1)
                  
                  Form
      of Amendment No. 2 to the Advisory Agreement filed as
      Exhibit 10.1610
                  .21*(1)
                  
                  Form
      of Amendment No. 1 to the Advisory Agreement filed as
      Exhibit 10.1810
                  .22*(1)
                  
                  Form
      of Amendment No. 1 to the Advisory Agreement filed as
      Exhibit 10.1910
                  .23*(1)
                  
                  Form
      of Amended and Restated Indemnification Agreement10
                  .23*(5)
                  
                  Employment
      Agreement of Iain MacKenzie, dated December 18, 200710
                  .24*(6)
                  
                  Agreement
      and Plan of Merger, dated February 12, 2008, by and among Adtron
      Corporation, SMART Modular Technologies, Inc., and Armor Acquisition
      Corporation (“Merger Sub”) and Alan Fitzgerald (“Equity Holders’
      Representative”)10
                  .25*(7)
                  
                  Consulting
      Agreement, effective as of April 30, 2008, between SMART Modular
      Technologies (WWH), Inc. and FLG Partners, LLC10
                  .26*(8)
                  
                  Employment
      Agreement of Barry Zwarenstein, dated July 19, 200810
                  .27
                  
                  SMART
      Modular Technologies, Inc. 2009 RSU Time-based
Agreement10
                  .28
                  
                  SMART
      Modular Technologies, Inc. 2009 Performance-based
  Agreement14
                  .1*(9)
                  
                  SMART
      Modular Technologies Code of Ethics for Officers and
    Directors21
                  .1
                  
                  Subsidiaries
      of the Company23
                  .1
                  
                  Consent
      of Independent Registered Public Accounting Firm23
                  .2
                  
                  Consent
      of Independent Auditors31
                  .1
                  
                  Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231
                  .2
                  
                  Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232
                  
                  
                  Certification
      of the Chief Executive Officer and Principal Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
 *
                  Incorporated
      by reference to the Exhibits filed with Amendment No. 1 to the Company’s
      Registration Statement on Form S-1, filed on November 30, 2005 (File No.
      333-129134).*(1)
                  Incorporated
      by reference to the Exhibits filed with Amendment No. 3 to the Company’s
      Registration Statement on Form S-1, filed on January 10, 2006 (File No.
      333-129134).*(2)
                  Incorporated
      by reference to the Exhibits filled with the Company’s Registration
      Statement on Form S-4, filed on August 11, 2005 (File
      No. 333-127442).*(3)
                  Incorporated
      by reference to the Exhibits filed with Amendment No. 2 to the Company’s
      Registration Statement on Form S-1, filed on December 20, 2005 (File No.
      333-129134).*(4)
                  Incorporated
      by reference to the Exhibits filed with the Company’s Registration
      Statement on Form S-1, filed on October 19, 2005 (File No.
      333-129134).*(5)
                  Incorporated
      by reference to the Exhibit file with the Company’s Quarterly Report on
      Form-10Q, filed on January 4, 2008, (File No.
000-51771)*(6)
                  Incorporated
      by reference to the Exhibit file with the Company’s Quarterly Report on
      Form-10Q, filed on April 4, 2008, (File No. 000-51771)*(7)
                  Incorporated
      by reference to the Exhibit file with the Company’s Current Report on Form
      8-K, filed on April 30 2008, (File No. 000-51771)*(8)
                  Incorporated
      by reference to the Exhibit file with the Company’s Current Report on Form
      8-K, filed on September 10 2008, (File No. 000-51771)*(9)
                  Incorporated
      by reference to the Exhibit file with the Company's Annual Report on
      Form 10-K, filed on November 13, 2007, (File No.
      000-51771)
    64