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                                                                   EXHIBIT 10.18

                               Letter of Intent

                                 May 31, 2001

Ladies and Gentlemen:

     This letter confirms our agreement on the principal terms and conditions of
Lantronix, Inc.'s (the "Acquirer") proposed option to acquire Synergetic Micro
                        --------
Systems, Incorporated (the "Target").  Each party understands and agrees that
                            ------
preparation and execution of formal, comprehensive agreements is required,
containing the terms set forth in Exhibit A and such additional terms as
                                  ---------
Acquirer and Target might agree following good faith negotiation.  This Letter
of Intent is intended to be non-binding with respect to the matters discussed in
Exhibit A, except for Sections 14, 15, 16 and 17, which are intended to be
---------
binding.  This letter of intent may be executed in one or more counterparts,
each of which shall be deemed an original for all purposes.

                              "ACQUIRER"

                              LANTRONIX, INC.

                                    By:     /s/ STEVEN V. COTTON
                                       -----------------------------------------
                                    Name:   Steven V. Cotton
                                    Title:  Chief Financial Officer

                              "TARGET"

                              SYNERGETIC MICRO SYSTEMS, INCORPORATED

                                    By:     /s/ MICHAEL JUSTICE
                                       -----------------------------------------
                                    Name:   Michael Justice
                                    Title:  Chief Executive Officer
<PAGE>

                                   Exhibit A
                                   ---------

            Lantronix, Inc./ Synergetic Micro Systems, Incorporated

                                  TERM SHEET

                                 May 31, 2001

     This term sheet sets forth the proposed terms and structure of a potential
transaction in which Lantronix, Inc. (the "Acquirer") will obtain an option to
                                           --------
acquire all of the capital stock of Synergetic Micro Systems, Incorporated (the
"Target") (including any and all options or other rights to acquire capital
 ------
stock) of Target (the "Option").  This term sheet is for discussion purposes
                       ------
only and does not constitute a binding agreement or commitment of any nature
whatsoever between the parties, with the exception of Sections 14, 15, 16, and
17, which the parties intend to be binding.  Any transaction will be subject in
all respects to a fully negotiated and executed definitive option and merger
agreement (together, the "Definitive Agreements") and approval by the board of
                          ---------------------
directors and Shareholders of Target (the "Shareholders") and the board of
                                           ------------
directors of Acquirer.  A description of the capitalization of the Target is
attached hereto as Annex A.

1.  Stock Purchase/Option     Acquirer shall deposit in an escrow account
                              established with a mutually acceptable third party
                              the amount of eight hundred thousand dollars
                              ($800,000) (the "Initial Consideration"). Upon
                                               ---------------------
                              exercise of the Option by the Acquirer, the
                              initial consideration shall be delivered as a
                              portion of the purchase price. If the Option
                              Period, as defined below, expires or is terminated
                              by Acquirer without Acquirer exercising the
                              Option, the Initial Consideration will be released
                              from escrow and applied to purchase from Target
                              three hundred thirty-six thousand seven hundred
                              (336,700) newly issued shares of the Target's
                              Common Stock.

                              The Option shall be exercisable at any time on or
                              before December 17, 2001 (the "Option Period") for
                                                             -------------
                              the Option Exercise Price (as defined below). Upon
                              the exercise of the Option, the parties shall use
                              commercially reasonable efforts to close the
                              Merger (as defined below) on or before December
                              31, 2001.

2.  Form of Acquisition       In connection with exercise of the Option,
                              Acquirer will create a new, wholly-owned
                              subsidiary of Acquirer ("Merger Sub"). The form of
                                                       ----------
                              the transaction will be a merger of Merger Sub
                              with and into Target (the "Merger"). As a result
                                                         ------
                              of the Merger, Lantronix will be the sole
                              stockholder of Target and as a result of the
                              Merger, will have indirectly acquired all right,
                              title and interest in and to all intangible and
                              tangible assets of Target, including, but not
                              limited to, all contracts, trademarks, domain
                              names, website rights, know-how, patents, other
                              intellectual
<PAGE>

                              property, and any confidential or proprietary
                              information owned by Target, and have indirectly
                              assumed all liabilities of the Target. The date on
                              which the Merger is consummated shall be referred
                              to as the "Closing Date."
                                         ------------

                              At Acquirer's request, Target will cause each
                              Shareholder to enter into an irrevocable proxy or
                              a voting trust at the time the Definitive
                              Agreements are executed.

3.  Purchase Price            The aggregate consideration to be paid by Acquirer
                              within three (3) business days of the Closing Date
                              shall equal $16,500,000 consisting of:

                              $3,300,000 in cash delivered by wire transfer,
                              including the Initial Consideration (the "Cash
                                                                        ----
                              Purchase Price"); and
                              --------------

                              $13,200,000 of unregistered Common Stock of the
                              Acquirer (the "Merger Shares").
                                             -------------

                              In addition, the Acquirer shall assume the options
                              of Target, including approximately $1,500,000 of
                              value as set forth in Section 5 below, subject to
                              final option calculations.

                              The number of Merger Shares shall be determined by
                              dividing $13,200,000 by the closing price of
                              Acquirer common stock on the Closing Date (the
                              "Closing Price"); provided, however, that the
                               -------------
                              actual number of Merger Shares to be issued shall
                              be automatically adjusted at the Closing Date to
                              the extent necessary both to achieve a tax-free
                              transaction and to maintain the value of the Cash
                              Purchase Price plus the value of the Merger Shares
                              (valued at the Closing Price) equal to
                              $16,500,000.

4.  Net Worth True-Up         No later than five (5) business days prior to the
                              Closing Date, Target shall deliver to Acquirer an
                              estimated statement, prepared in good faith, of
                              the Closing Date Net Worth of Target (defined as
                              total assets less total liabilities of Target,
                              determined in accordance with generally accepted
                              accounting principles of the United States
                              ("GAAP"), except that GAAP Notes will not be
                                ----
                              required and adjustments that would be made at
                              year-end under GAAP will be estimated on a pro-
                              rata basis). On the Closing Date, the Cash
                              Purchase Price and the Merger Shares (together the
                              "Purchase Price") shall be reduced pro rata as
                               --------------
                              applicable, by the amount, if any, by which the
                              Closing Date Net Worth of Target is less than the
                              sum (or remainder) of three hundred thousand
                              dollars ($300,000) plus (or minus) any accumulated
                              earnings (or loss) from and after January 1, 2001.
                              Any Purchase Price reduction shall be satisfied
                              from the Cash Purchase Price and Merger Shares (on
                              a pro rata basis) that otherwise would be paid at
                              the Closing.

                                      -2-
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                              At its election, Acquirer may have such Closing
                              Date Net Worth reviewed by Acquirer's internal
                              accountants (and to the extent a dispute arises,
                              by Acquirer's independent auditors). In the event
                              that Acquirer and a representative designated by
                              the Shareholders cannot agree upon a net worth
                              adjustment, Acquirer's auditors and the
                              Shareholder representative's auditors shall select
                              an independent auditor to resolve such dispute,
                              and any resulting decrease in the Closing Net
                              Worth of Target shall result in a post-Closing
                              purchase price adjustment in favor of Acquirer.

5.  Options                   The Acquirer shall assume the outstanding but
                              unexercised options of the Target (the "Acquired
                                                                      --------
                              Options"), provided, that the Purchase Price shall
                              -------
                              be reduced (in cash and Merger Shares, on a pro
                              rata basis) to the extent the Aggregate FMV of the
                              Acquired Options minus the Aggregate FMV of the
                              Acquirer Stock for which such Acquired Options
                              could be exercised (calculating using the Closing
                              Price, and assuming such options are fully vested)
                              exceeds one million five hundred thousand dollars
                              ($1,500,000). The Aggregate FMV of the Acquired
                              Options shall equal the weighted average exercise
                              price of such options (on a post-assumption basis)
                              multiplied by the number of shares of Acquirer
                              Common Stock for which such options shall be
                              exercisable upon their assumption.

                              The Acquired Options will become exercisable for
                              Common Stock of Acquirer, consistent with the
                              existing option terms of the Target (including
                              vesting).

6.  Indemnification and       Twenty percent (20%) of the Cash Purchase Price
    Escrow                    shall be placed in escrow with a third party
                              mutually acceptable to the Target and the Acquirer
                              (the "Escrow Cash") for a period ending eighteen
                                    -----------
                              (18) months from the Closing Date to provide an
                              exclusive remedy against which Acquirer shall
                              exercise any claims for any breaches of
                              Shareholders' or Target's representations,
                              warranties or covenants in the Definitive
                              Agreement. In addition, twenty percent (20%) of
                              the Merger Shares (the "Escrow Shares") issued
                                                      -------------
                              pursuant to the Merger will be placed in escrow
                              for a period ending eighteen (18) from the Closing
                              Date to provide an exclusive remedy against which
                              Acquirer shall exercise any claims for any
                              breaches of Shareholders' or Target's
                              representations, warranties or covenants in the
                              Definitive Agreements. Notwithstanding the above,
                              Shareholders shall remain personally liable for
                              any liability arising from Excluded Claims (as
                              defined below), limited to such Shareholder's pro
                              rata portion of the Aggregate Consideration
                              (except in the case of Shareholder fraud, where
                              such Shareholder's liability shall not be so
                              limited).

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                              All such claims of Acquirer shall be satisfied pro
                              rata from the Cash Purchase Price and Merger
                              Shares (i.e., twenty percent (20%) shall be paid
                              from cash and eighty percent (80%) shall be paid
                              from Escrow Shares), with Merger Shares valued at
                              the Closing Price for the purposes of satisfying
                              any claims.

                              Except for claims relating to environmental, tax
                              and fraud ("Excluded Claims"), claims for
                                          ---------------
                              indemnification shall be recoverable if such
                              claims in the aggregate exceed $100,000, and in
                              such event $50,000 of the first $100,000 of such
                              claims shall be recoverable and the entire amount
                              of such claims in excess of $100,000 shall be
                              recoverable. Except for claims relating to any of
                              the Excluded Claims (which shall survive until
                              expiration of applicable statute of limitations)
                              and all pending claims of which written notice to
                              the Shareholder's representative has been
                              delivered by Acquirer all of the Target's and the
                              Shareholder's obligations under the Definitive
                              Agreements shall expire on the eighteen (18) month
                              anniversary of the Closing Date (the "Release
                                                                    -------
                              Date").
                              ----

                              Acquirer shall take commercially reasonable
                              efforts to mitigate its losses and damages from
                              any indemnification claim. The amounts of all
                              indemnification claims shall be reduced by amounts
                              actually received from insurance relating to such
                              claims; provided that the Acquirer shall take
                              commercially reasonable efforts to collect any
                              sums payable from such insurance.

                              No later than fourteen (14) days after the Release
                              Date, the Escrow Shares and Escrow Cash not
                              transferred to Acquirer or reserved for then
                              pending or threatened claim (for which written
                              notice to the Shareholder's representative has
                              been delivered by Acquirer) will be distributed to
                              the Shareholders by way of joint escrow
                              instructions. All interest on the Escrow Cash
                              shall be distributed to the Shareholders upon
                              distribution of the escrow. All dividends and
                              distributions, if any, on the Escrow Shares, shall
                              be distributed to the Shareholders as earned.

                              Acquirer on the one hand and Target's Shareholders
                              in the aggregate on the other hand each shall bear
                              fifty percent (50%) of the cost of a third party
                              escrow agent.

7.  Tax and Accounting        The parties intend that the proposed Merger will
                              qualify as a tax-free reorganization, and that the
                              proposed Merger will be accounted for as a
                              purchase. The parties will negotiate in good faith
                              any modifications to this term sheet with the
                              intent that the proposed Merger qualifies as a

                                      -4-
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                              tax-free reorganization.

8.  Securities Law Matters    The Merger Shares will be issued pursuant to an
                              exemption from registration under the `33 Act. The
                              shares will be restricted securities, and shall be
                              subject to customary share legends and resale
                              restrictions.

                              Acquirer shall use commercially reasonable efforts
                              to file a Form S-8 registration statement with
                              respect to the Acquired Options within 90 days of
                              the close of the Merger (the "Registration Date")
                                                            -----------------
                              or as soon thereafter as reasonably practicable.

                              The Shareholders shall have Piggyback Rights with
                              respect to public offerings by Acquirer that are
                              on par with existing Piggyback Rights granted by
                              Acquirer.

9.  Due Diligence             Both parties agree to make available and grant
    Investigation             access to any corporate or financial information
                              as is reasonably necessary to conduct a due
                              diligence review. Both parties shall take
                              reasonable good faith efforts promptly to provide
                              the other party or its counsel such documents as
                              may reasonably be requested in writing. The
                              parties will enter into a mutually agreeable
                              confidentiality agreement promptly after execution
                              of this term sheet.

                              Acquirer shall have the right to continue due
                              diligence review after the Definitive Agreement is
                              entered into, which will provide, among other
                              things, that Acquirer and its representatives will
                              only speak with and otherwise contact regarding
                              the proposed transaction, those employees and
                              other representatives of Target as are designated
                              by Michael Justice. Subject to the foregoing,
                              Target will provide Acquirer and its consultants
                              access to the facilities of the Target after the
                              Definitive Agreement is entered into to perform
                              such investigations and tests as Acquirer deems
                              desirable.

10.  Employment,              Contemporaneous with the execution of the Merger
     Non-competition and      Agreement, Target will enter into employment, non-
     Other Agreements         competition and/or stock restriction agreements
                              with persons designated by Acquirer and on such
                              terms and conditions as are mutually acceptable to
                              Acquirer and Target. The Acquirer requires that
                              Michael Justice enter into an employment agreement
                              with Target with a term of three (3) years and
                              such other terms mutually acceptable to Mr.
                              Justice and Acquirer. Key employees shall enter
                              into non-compete agreements with terms not less
                              than five (5) years from the Closing Date (or
                              three (3) years if such employee is terminated
                              other than for cause).

                                      -5-
<PAGE>

11.  Transaction in           Each Shareholder shall agree that during the
     Acquirer Securities      period of the Option, and, in the event the Option
                              is exercised, for a period ending on the first
                              anniversary of the Closing Date, such Shareholder
                              will not sell any equity security nor establish or
                              increase a put equivalent position or liquidate or
                              decrease a call equivalent position (as such terms
                              are defined in Rule 16a-1 of the 1934 Act) or
                              enter into any hedging transaction with respect to
                              the Acquirer's capital stock, including without
                              limitation, equity swaps, pre-paid forward
                              contracts or zero cost collars; provided, however,
                              that (i) such non-employee Shareholders as Target
                              may designated with respect to no more than one
                              hundred thousand (100,000) shares of Merger Shares
                              and (ii) Michael Justice with respect to one-half
                              of the consideration he receives pursuant to the
                              Merger, may enter into hedging transactions and,
                              provided that any such transaction complies with
                              all applicable trading policies of the Acquirer
                              and all applicable laws.

                              Each Shareholder shall agree that during the
                              period of the Option, such Shareholder shall not
                              transfer his or her shares to any third party
                              other than to members of his or her immediate
                              family and trusts for his or their benefit.

12.  Merger Agreement         The Merger Agreement shall include, among other
                              things, representations and warranties by the
                              Acquirer, Shareholders and Target, covenants and
                              closing conditions customary for transactions of
                              this nature. The representations of Target shall
                              survive until the Release Date; provided, that
                              Excluded Claims shall survive until the expiration
                              of the applicable statute of limitations.
                              Representations and warranties of Acquirer shall
                              survive until the Closing Date, except that
                              representations and warranties of the Acquirer
                              relating to the Merger Shares shall survive until
                              the first anniversary of the Closing Date.

                              Conditions to closing shall include, without
                              limitation, (i) approval of this transaction by
                              the boards of directors of both parties,
                              Shareholders and any other necessary parties; (ii)
                              receipt of any necessary regulatory approvals
                              including an HSR filing, if necessary; and (iii)
                              completion of its diligence review to the
                              Acquirer's reasonable satisfaction.

                              The parties will use their reasonable efforts to
                              complete the Definitive Agreements within twenty
                              (20) days of the signing of the term sheet.

13.  Shareholder Agreement    At the time of the execution of the Definitive
                              Agreement, the Shareholders shall agree until
                              expiration or termination by Acquirer of the
                              Option without exercise, if applicable, to vote in
                              favor of the

                                      -6-
<PAGE>

                              transaction and not to transfer their shares to
                              any third party.

14.  Nondisclosure            The parties will keep the existence and terms of
                              this term sheet confidential and will not make any
                              public announcement regarding this term sheet or
                              any transaction contemplated hereby, provided,
                              that Acquirer may announce the execution of this
                              term sheet on a date mutually agreed by the
                              parties and provide a general description of the
                              contemplated transaction, with any press release
                              using text mutually agreed upon by Target and
                              Acquirer. Acquirer may make public disclosure
                              required by applicable securities laws and
                              regulations after the execution of the Definitive
                              Agreement, or such earlier date as agreed by
                              Acquirer and Target.

15.  No-Shop Provision and    Until ninety (90) days after the date of this term
     Termination Fee          sheet, or such earlier date as Acquirer and Target
                              mutually agree in writing to discontinue
                              discussions regarding the Merger (the "Expiration
                                                                     ----------
                              Date"), and in consideration for Acquirer's
                              ----
                              commitment of time and resources to perform due
                              diligence and enter into discussions regarding the
                              Merger, Target will not, directly or indirectly,
                              through any officer, director, employee, affiliate
                              or agent or otherwise, take any action to solicit,
                              initiate, seek, encourage or support any inquiry,
                              proposal or offer from, furnish any information
                              to, or participate in any negotiations with, any
                              third party regarding any acquisition of Target,
                              any merger or consolidation with or involving
                              Target, or any acquisition of any portion of the
                              stock or assets of Target (other than the sale of
                              inventory in the ordinary course of business) (an
                              "Acquisition Transaction"). Target agrees that any
                               -----------------------
                              such negotiations (other than negotiations with
                              Acquirer) in progress as of the date of this
                              letter will be suspended during such period and
                              that Target will not accept or enter into any
                              agreement, arrangement or understanding regarding
                              any Acquisition Transaction during such period.

                              If Target or any of its officers, directors,
                              employees, affiliates or agents receives any
                              proposal for, or inquiry respecting, any third
                              party acquisition transaction involving Target, or
                              any request for nonpublic information in
                              connection with any such proposal or inquiry,
                              Target will promptly notify Acquirer, describing
                              in detail the identity of the person making such
                              proposal or inquiry and the terms and conditions
                              of such proposal or inquiry.

16.  Break-up Fee             In the event that the transactions contemplated
                              hereby are not consummated due to Target's
                              violation of Section 15 Target will pay Acquirer a
                              five hundred thousand dollar ($500,000) cash
                              break-up fee.

                              In the event Target or any Shareholder refuses to
                              enter into an agreement substantially on the terms
                              provided herein and other

                                      -7-
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                              customary and commercially reasonable terms,
                              Target shall reimburse the Acquirer its reasonable
                              out-of-pocket expenses associated with the
                              negotiation of this term sheet and the definitive
                              documentation, including legal and accounting
                              expenses, such reimbursement under this provision
                              not to exceed thirty thousand dollars ($30,000).

                              In the event Acquirer refuses to enter into an
                              agreement substantially on the terms provided
                              herein and other customary and commercially
                              reasonable terms, Acquirer shall reimburse the
                              Target its reasonable out-of-pocket expenses
                              associated with the negotiation of this Term Sheet
                              and the definitive documentation, including legal
                              and accounting expenses, such reimbursement under
                              this provision not to exceed thirty thousand
                              dollars ($30,000).

17.  Expenses                 Except as expressly provided in Section 16,
                              Acquirer, Target and the Shareholders shall each
                              be liable for their own costs, including legal,
                              accounting, and other such costs, incurred by each
                              of them in the negotiation and closing of this
                              transaction, and the parties each shall indemnify
                              the other for any claims for brokerage or finders
                              fees by persons claiming to have been engaged by
                              such party; provided that upon exercise of the
                              Option, Acquirer shall pay for up to twenty-five
                              thousand ($25,000) of such legal fees. All other
                              out-of-pocket expenses of Target associated with
                              the negotiation and consummation of the
                              transaction, including but not limited to expenses
                              of counsel, accountants, finders fees and
                              investment banking fees, shall result in an
                              equivalent Cash Purchase Price reduction.

18.  Opinion                  Counsel for Target and Acquirer each will give a
                              legal opinion customary for a transaction of this
                              type.

     This term sheet represents only the current thinking of the parties with
respect to certain of the major issues relating to the proposed transaction.
Therefore, it is understood and acknowledged that except as to Sections 14, 15,
16 and 17 this term sheet is not intended and will not be deemed to be a legally
binding agreement among the parties for any purposes.  All rights and
obligations of the parties will be subject to negotiation and execution of a
definitive acquisition agreement among the parties and completion of the due
diligence and other matters set forth above.

                                      -8-