UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


________________




Form
10-Q




þ
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
              OF
  1934For
      the Quarterly Period Ended May 30, 2008or




o
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
              OF
  1934


For
      the transition period from
            to
            .





Commission
file number 000-51771


________________




SMART
MODULAR TECHNOLOGIES (WWH), INC.


(Exact
name of registrant as specified in its charter)




Cayman
      Islands
            20-2509518(State
      or Other Jurisdiction of
            (I.R.S.
      EmployerIncorporation
      or Organization)
            Identification
      No.)4211
      Starboard DriveFremont,
      CA
            94538(Address
      of Principal Executive Offices)
            (Zip
      Code)




(510)
623-1231


Registrant’s
Telephone Number, Including Area Code


________________




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 þ  No o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller company. See definition
of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act (Check one):




Large
      accelerated filer o
            Accelerated
      filer þNon-accelerated
      filer o
      (Do not check if a smaller reporting company)
            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 þ




The
number of registrant’s ordinary shares outstanding as of July 1, 2008 was 61,339,699.





SMART
MODULAR TECHNOLOGIES (WWH), INC.




INDEX
TO QUARTERLY REPORT




TABLE
OF CONTENTS




PagePART I.
      FINANCIAL INFORMATION
            
            
            3Item
      1. Financial Statements
            
            
            3Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
            
            
            22Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
            
            
            31Item
      4. Controls and Procedures
            
            
            32PART
      II. OTHER INFORMATION
            
            
            33Item
      1. Legal Proceedings
            
            
            33Item
      1A. Risk Factors
            
            
            33Item
      6. Exhibits
            
            
            36SIGNATURES
            
            
            37








2




PART I.
FINANCIAL INFORMATION


Item 1. Financial
Statements
  SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
  CONDENSED
CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 May30,
                2008
              
              
              August31,
                2007(In
      thousands)ASSETSCash
      and cash equivalents
              
              $
              117,299
              
              
              $
              144,147Accounts
      receivable, net of allowances of $1,733 and $2,517 as of
                May 30, 2008and
      August 31, 2007, respectively
              
              
              186,437
              
              
              
              184,391Inventories
              
              
              68,028
              
              
              
              65,105Prepaid
      expenses and other currentassets
              
              
              11,088
              
              
              
              8,217Total
      current assets
              
              
              382,852
              
              
              
              401,860Property
      and equipment, net
              
              
              38,927
              
              
              
              33,588Goodwill
              
              
              9,471
              
              
              
              3,187Other
      intangible assets, net
              
              
              9,108
              
              
              
              -Other
      non-current assets
              
              
              4,254
              
              
              
              14,442Total
      assets
              
              $
              444,612
              
              
              $
              453,077LIABILITIES
      AND SHAREHOLDERS’ EQUITYAccounts
      payable (1)
              
              $
              99,647
              
              
              $
              126,358Accrued
      expenses and other current liabilities
              
              
              17,731
              
              
              
              24,043Total
      current liabilities
              
              
              117,378
              
              
              
              150,401Long-term
      debt
              
              
              81,250
              
              
              
              81,250Other
      long-term liabilities
              
              
              1,583
              
              
              
              -Total
      liabilities
              
              
              200,211
              
              
              $
              231,651Shareholders’
      equity:Ordinary
      shares,  $0.00016667 par value; 600,000,000 shares authorized;
                61,336,739and
      60,664,463 shares issued and outstanding as of
                May 30, 2008 andAugust
      31, 2007, respectively
              
              
              10
              
              
              
              10Additional
      paid-in capital
              
              
              98,388
              
              
              
              92,250Deferred
      stock-based compensation
              
              
              (162
              )
              
              
              (335
              )Accumulated
      other comprehensive income
              
              
              10,016
              
              
              
              6,083Retained
      earnings (1)
              
              
              136,149
              
              
              
              123,418Total
      shareholders’ equity
              
              
              244,401
              
              
              
              221,426Total
      liabilities and shareholders’ equity
              
              $
              444,612
              
              
              $
              453,077
 
 (1)Prior period amounts
      revised.  See Note 1 of Notes to Unaudited Condensed
      Consolidated Financial
Statements.
  See
accompanying notes to unaudited condensed consolidated financial
statements.








3


SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
  Three
      Months
                  Ended
                  May
      30,
                  2008
                
                
                Three
      Months
                  Ended
                  June
      1,
                  2007
                
                
                NineMonths
                  Ended
                  May
      30,
                  2008
                
                
                NineMonths
                  Ended
                  June
      1,
                  2007(In
      thousands, except per share data)Net
      sales (1)
                
                $
                167,615
                
                
                $
                189,246
                
                
                $
                509,485
                
                
                $
                675,958Cost
      of sales (1)
      (2)
                
                
                139,803
                
                
                
                151,130
                
                
                
                414,691
                
                
                
                558,546Gross
      profit
                
                
                27,812
                
                
                
                38,116
                
                
                
                94,794
                
                
                
                117,412Research
      and development (2)
                
                
                5,418
                
                
                
                4,107
                
                
                
                14,727
                
                
                
                12,597Selling,
      general and administrative (2)
                
                
                15,393
                
                
                
                14,207
                
                
                
                44,785
                
                
                
                45,217In-process
      research and development charge
                
                
                4,400
                
                
                
                —
                
                
                
                4,400
                
                
                
                —Total
      operating expenses
                
                
                25,211
                
                
                
                18,314
                
                
                
                63,912
                
                
                
                57,814Income
      from operations
                
                
                2,601
                
                
                
                19,802
                
                
                
                30,882
                
                
                
                59,598Interest
      expense
                
                
                (2,248
                )
                
                
                (2,598
                )
                
                
                (7,088
                )
                
                
                (7,924
                )Interest
      income
                
                
                780
                
                
                
                823
                
                
                
                3,269
                
                
                
                1,726Other
      income, net
                
                
                255
                
                
                
                696
                
                
                
                2,050
                
                
                
                360Total
      other expense, net
                
                
                (1,213
                )
                
                
                (1,079
                )
                
                
                (1,769
                )
                
                
                (5,838
                )Income
      before provision for income taxes
                
                
                1,388
                
                
                
                18,723
                
                
                
                29,113
                
                
                
                53,760Provision
      for income taxes
                
                
                12,391
                
                
                
                3,357
                
                
                
                16,611
                
                
                
                9,649Net
      income (loss) (1)
                
                $
                (11,003
                )
                
                $
                15,366
                
                
                $
                12,502
                
                
                $
                44,111Net
      income (loss) per ordinary share, basic
                
                $
                (0.18
                )
                
                $
                0.26
                
                
                $
                0.21
                
                
                $
                0.74Shares
      used in computing basic net income (loss) per ordinary
    share
                
                
                61,027
                
                
                
                60,015
                
                
                
                60,864
                
                
                
                59,359Net
      income (loss) per ordinary share, diluted
                
                $
                (0.18
                )
                
                $
                0.24
                
                
                $
                0.20
                
                
                $
                0.69Shares
      used in computing diluted net income (loss) per ordinary
    share
                
                
                61,027
                
                
                
                63,894
                
                
                
                63,606
                
                
                
                63,725
 ____________
 (1)
              Prior
      period amounts
      revised. See Note 1 of Notes to Unaudited Condensed Consolidated
      Financial Statements.(2)
              Stock-based
      compensation by category:Cost
      of sales
              
              $
              217
              
              
              $
              142
              
              
              $
              592
              
              
              $
              388Research
      and development
              
              
              471
              
              
              
              322
              
              
              
              1,277
              
              
              
              865Selling,
      general and administrative
              
              
              1,198
              
              
              
              760
              
              
              
              3,491
              
              
              
              2,137
    See
accompanying notes to unaudited condensed consolidated financial
statements.





4


SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Unaudited)
  Three
      Months
                Ended
                May
      30,
                2008
              
              
              Three
      Months
                Ended
                June
      1,
                2007
              
              
              Nine
      Months
                Ended
                May
      30,
                2008
              
              
              Nine
      Months
                Ended
                June
      1,
                2007(In
      thousands)Net
      income (loss) (1)
              
              $
              (11,003)
              
              
              $
              15,366
              
              
              $
              12,502
              
              
              $
              44,111Other
      comprehensive income (loss):Net
      changes in unrealized gain or (loss) on derivative instruments accounted
      for as cash flow hedges
              
              
              905
              
              
              
              710
              
              
              
              (667)
              
              
              
              476Foreign
      currency translation adjustments
              
              
              1,897
              
              
              
              1,720
              
              
              
              4,600
              
              
              
              2,475Comprehensive
      income (loss)(1)
              
              $
              (8,201)
              
              
              $
              17,796
              
              
              $
              16,435
              
              
              $
              47,062
  
 (1)
      Prior period amounts
      revised.  See Note 1 of Notes to Unaudited Condensed
      Consolidated Financial Statements.
 
 
 See
accompanying notes to unaudited condensed consolidated financial
statements.




5




SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




Nine
      Months
              Ended
              May
      30,
              2008
            
            
            Nine
      Months
              Ended
              June
      1,
              2007(In
      thousands)Cash
      flows from operating activities:Net
      cash provided by operating activities
            
            $
            3,972
            
            
            $
            36,172Cash
      flows from investing activities:Capital
      expenditures
            
            
            (11,401
            )
            
            
            (8,274
            )Cash
      deposits on equipment
            
            
            —
            
            
            
            (1,995
            )Acquisition
      of Adtron, net of cash acquired
            
            
            (20,303
            )
            
            
            —Proceeds
      from sale of assets
            
            
            247
            
            
            
            —Other
            
            
            —
            
            
            
            3Net
      cash used in investing activities
            
            
            (31,457
            )
            
            
            (10,266
            )Cash
      flows from financing activities:Proceeds
      from issuance of ordinary shares from stock option
    exercises
            
            
            928
            
            
            
            1,528Excess
      tax benefits from share-based compensation
            
            
            24
            
            
            
            698Principal
      payment on line of credit
            
            
            (940
            )
            
            
            —Borrowings
      under revolving line of credit
            
            
            11,500
            
            
            
            110,953Repayments
      on revolving line of credit
            
            
            (11,500
            )
            
            
            (110,953
            )Net
      cash provided by financing activities
            
            
            12
            
            
            
            2,226Effect
      of exchange rate changes on cash and cash equivalents
            
            
            625
            
            
            
            291Net
      increase(decrease) in cash and cash equivalents
            
            
            (26,848
            )
            
            
            28,423Cash
      and cash equivalents at beginning of period
            
            
            144,147
            
            
            
            85,620Cash
      and cash equivalents at end of period
            
            $
            117,299
            
            
            $
            114,043Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
            
            
            6,507
            
            
            
            4,732Income
      taxes
            
            
            7,583
            
            
            
            7,342




See
accompanying notes to unaudited condensed consolidated financial
statements.




6
 
  SMART MODULAR TECHNOLOGIES (WWH),
INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




NOTE
1 — Basis of Presentation and Principles of Consolidation




Basis
of Presentation




The
accompanying unaudited condensed consolidated financial statements of SMART
Modular Technologies (WWH), Inc. and subsidiaries (the Company) are as of May
30, 2008 and August 31, 2007 and for the three and nine months ended May 30,
2008 and June 1, 2007. These unaudited condensed consolidated financial
statements have been prepared by the Company in accordance with generally
accepted accounting principles in the United States. The results of operations
for the interim periods shown in this report are not necessarily indicative of
results to be expected for the full fiscal year ending August 29, 2008. In the
opinion of the Company’s management, the information contained herein reflects
all adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature except as disclosed. The interim unaudited condensed
consolidated financial statements should be read in conjunction with the
Company’s audited consolidated financial statements as of and for the year ended
August 31, 2007, which are included in the Annual Report on Form 10-K filed with
the Securities and Exchange Commission (SEC). All significant intercompany
transactions and balances have been eliminated in the unaudited condensed
consolidated financial statements. Certain prior period amounts have been
reclassified to conform to the current period presentation.




The
preparation of unaudited condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America 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 consolidated financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates and assumptions.





Revision
of Prior Period Financial Statements





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, and
continue to be, immaterial to those financial statements.  Corrections
of these errors are immaterial to the previously reported consolidated
financial statements and had no effect on previously reported condensed
consolidated statements of cash flows.  The tax effect of this
cumulative accounting error was immaterial and was recorded in the current
quarter.





The
following table represents the impact of the revisions in the Company’s prior
period condensed consolidated statements of operations and balance sheets
(increase or (decrease) in thousands except per share
amounts):


Cost of Sales
              
              
              Net Income
              
              
              Basic EPS*
              
              
              Diluted EPS*Fiscal
      year 2005 and prior
              
              $
              (3,765
              )
              
              $
              3,765
              
              
              $
              0.04
              
              
              $
              0.04Fiscal
      year 2006
              
              $
              (3
              )
              
              $
              3
              
              
              $
              —
              
              
              $
              —Q1
      of fiscal year 2007
              
              $
              261
              
              
              $
              (261
              )
              
              $
              0.01
              
              
              $
              0.00Q2
      of fiscal year 2007
              
              
              (483
              )
              
              
              483
              
              
              
              0.00
              
              
              
              0.01Q3
      of fiscal year 2007
              
              
              (1,183
              )
              
              
              1,183
              
              
              
              0.02
              
              
              
              0.02Q4
      of fiscal year 2007
              
              
              (406
              )
              
              
              406
              
              
              
              —
              
              
              
              —Fiscal
      year 2007
              
              $
              (1,811
              )
              
              $
              1,811
              
              
              $
              0.03
              
              
              $
              0.03FY08
      Q1
              
              $
              (572
              )
              
              $
              572
              
              
              $
              0.01
              
              
              $
              0.01FY08
      Q2
              
              
              (492
              )
              
              
              492
              
              
              
              0.01
              
              
              
              0.01Cumulative
      as of February 29, 2008
              
              $
              (6,643
              )
              
              $
              6,643Accounts Payable
              
              
              Retained EarningsAt
      August 25, 2006
              
              $
              (3,768
              )
              
              $
              3,768At August 3l, 2007
              
              $
              (5,579
              )
              
              $
              5,579At
      February 29, 2008
              
              $
              (6,643
              )
              
              $
              6,643____________*Summations
      may not compute precisely due to rounding









Net Sales &
              Cost of SalesFiscal
      year 2006
            
            $
            19,800Q1
      of fiscal year 2007
            
            $
            6,282Q2
      of fiscal year 2007
            
            
            4,123Q3
      of fiscal year 2007
            
            
            2,768Q4
      of fiscal year 2007
            
            
            3,082Fiscal
      year 2007
            
            $
            16,255Q1
      of fiscal year 2008
            
            $
            2,422Q2
      of fiscal year 2008
            
            
            4,931Six
      months ended February 29, 2008
            
            $
            7,353


8


Based on
SAB 108, the prior period income statement and balance sheet amounts have been
revised to include the above two adjustments, as follows (in
thousands):





Net
      Sales
              
              
              Cost
      of Sales
              
              
              Net
      IncomeAs
                Reported
              
              
              Adjust-
                ments
              
              
              As
                Revised
              
              
              As
                Reported
              
              
              Adjust-
                ments
              
              
              As
                Revised
              
              
              As
                Reported
              
              
              Adjust-
                ments
              
              
              As
                Revised3
      Months ended
                June
      1, 2007
              
              $
              186,478
              
              
              
              2,768
              
              
              $
              189,246
              
              
              $
              149,545
              
              
              
              1,585
              
              
              $
              151,130
              
              
              $
              14,183
              
              
              
              1,183
              
              
              $
              15,3669
      Months ended
                June
      1, 2007
              
              $
              662,785
              
              
              
              13,173
              
              
              $
              675,958
              
              
              $
              546,778
              
              
              
              11,768
              
              
              $
              558,440
              
              
              $
              42,706
              
              
              
              1,405
              
              
              $
              44,111
   Accounts
      Payable
              
              
              
              Retained
      EarningsAs
                Reported
              
              
              Adjustments
              
              
              As
                Revised
              
              
              
              As
                Reported
              
              
              Adjustments
              
              
              As
                RevisedAt
      August 25, 2006
              
              $
              169,349
              
              
              
              (3,768)
              
              
              $
              165,581
              
              
              
              $
              61,917
              
              
              
              3,768
              
              
              $
              65,685At
      August 3l, 2007
              
              $
              131,937
              
              
              
              (5,579)
              
              
              $
              126,358
              
              
              
              $
              117,839
              
              
              
              5,579
              
              
              $
              123,418At
      February 29, 2008
              
              $
              96,441
              
              
              
              (6,643)
              
              
              $
              89,798
              
              
              
              $
              140,509
              
              
              
              6,643
              
              
              $
              147,152
  Product and Service Revenue




The
Company recognizes revenue in accordance with the SEC Staff Accounting Bulletin
(SAB) No. 104, Revenue
Recognition (“SAB104”). Under SAB 104, product revenue is recognized when
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 sales, while all costs incurred by the
Company for shipping and handling are classified as cost of sales.




In
addition, the Company has certain business with select customers that is
accounted for on an agency basis (that is, the Company recognizes the net profit
associated with serving as an agent with no associated 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 and temporary warehousing, 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. 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 services transactions totaled approximately $216.9 million and
$315.0 million for the three months ended May 30, 2008 and June 1, 2007,
respectively. Total service revenue recorded for the three months ended May 30,
2008 and June 1, 2007 amounted to approximately $9.7 million and $14.3 million,
respectively. Gross amounts billed to customers for service transactions totaled
approximately $691.1 million and $917.3 million for the nine months ended May
30, 2008 and June 1, 2007, respectively. Total service revenue recorded for the
nine months ended May 30, 2008 and June 1, 2007 amounted to approximately $31.6
million and $40.9 million, respectively.


9


Recent
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) No. FAS 157-1 and FSP No. FAS 157-2.  FSP
No. 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
No. 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 Company is currently analyzing the
requirements of SFAS 157 and has not yet determined the impact on its financial
position or results of operations.





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 should 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 is effective for the Company beginning in the first
quarter of fiscal 2010 and the Company will apply SFAS 141R as of that
time. Early adoption is not permitted.


10


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
December 2007, the FASB ratified the consensus reached on EITF Issue No. 07-1,
Collaborative
Arrangements. The EITF addresses accounting for collaborative-arrangement
activities that are not conducted within a separate legal entity. These
collaborative arrangements are sometimes called “virtual joint ventures.”
Applying the equity method of accounting to activities performed outside a
separate legal entity by a “virtual joint venture” is prohibited. Revenues and
costs incurred with third parties in connection with the collaborative
arrangement should be presented gross or net by the collaborators based on
criteria in EITF 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent, and other applicable accounting
literature. Payments to or from collaborators should be presented in the income
statement based on the nature of the arrangement, the nature of the company’s
business and whether the payments are within the scope of other accounting
literature. Other detail information related to the collaborative arrangement is
also required to be disclosed. The requirements under this EITF will be applied
to collaborative arrangements in existence at the beginning of our fiscal 2010,
if any. The Company is currently analyzing the requirements of this EITF and has
not yet determined the impact on its 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.





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 United States (the GAAP
hierarchy). SFAS 162 is effective 60 days following the Securities and Exchange
Commission 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.






11
 NOTE
2 - Stock-Based Compensation





Effective
August 29, 2005, the Company adopted the FASB’s SFAS No. 123R, Share-Based Payment, using
the prospective method, in which compensation cost was recognized beginning with
the effective date (a) based on the requirements of SFAS No. 123R for all
share-based payments granted after the effective date and (b) based on the
requirements of the intrinsic value method as prescribed in Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, for all awards granted to
employees prior to the effective date of SFAS No. 123R that were unvested on the
effective date.




The
Company amortizes stock-based compensation on a straight-line basis over the
requisite service (vesting) period for the entire award, typically four
years.





Plan
Description





The
Company’s stock option plan provides for grants of options to employees and
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 May
30, 2008, there were 9,676,392 ordinary shares reserved for issuance under this
plan, of which 1,213,752 ordinary shares represents the number of shares
available for grant.





Summary
of Assumptions and Activity





The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model that uses the assumptions noted in the
following table. Expected volatility for the nine months ended May 30, 2008 is
based on the historical volatility of the Company’s ordinary shares, as well as
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:








Nine
      Months
              Ended
              May 30, 2008Stock
      options:Expected
      term (years)
            
            
            5.1Expected
      volatility
            
            
            51
            %Risk-free
      interest rate
            
            
            3.58
            %Expected
      dividends
            
            
            —









A summary
of option activity as of and for the nine months ended May 30, 2008, is
presented below (dollars and shares in thousands, except per share
data):




Shares
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Weighted
              AverageRemaining
              ContractualTerm
              (Years)
            
            
            Aggregate
              Intrinsic
              ValueOptions
      outstanding at August 31, 2007
            
            
            6,359
            
            
            $
            4.75Options
      granted
            
            
            3,290
            
            
            
            7.17Options
      exercised
            
            
            (672
            )
            
            
            1.38Options
      forfeited
            
            
            (514
            )
            
            
            7.69Options
      outstanding at May 30, 2008
            
            
            8,463
            
            
            $
            5.78
            
            
            
            8.0
            
            
            $
            12,967Options
      exercisable at May 30, 2008
            
            
            3,761
            
            
            $
            3.54
            
            
            
            6.9
            
            
            $
            11,445Options
      vested and expected to vest at
              May 30, 2008
            
            
            8,032
            
            
            $
            5.67
            
            
            
            8.0
            
            
            $
            12,914






The
weighted average fair value of options granted during the nine months ended May
30, 2008 was $3.46 per option. The total intrinsic value of options exercised
during the nine months ended May 30, 2008 was $4.2 million. Upon the exercise of
options, the Company issues new ordinary shares from its authorized
shares.





A summary
of the status of the Company’s non-vested stock options as of May 30, 2008, and
changes during the nine months ended May 30, 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
            
            
            3,290
            
            
            
            3.46Vested
      stock options
            
            
            (1,868
            )
            
            
            2.94Forfeited
      stock options
            
            
            (514
            )
            
            
            4.76Non-vested
      stock options at May 30, 2008
            
            
            4,702
            
            
            $
            4.45




As of May
30, 2008, there was approximately $20.9 million of total unrecognized
compensation cost related to employee and director stock option compensation
arrangements, which is expected to be recognized over the weighted average
period of 2.9 years. The total fair value of shares vested during the nine
months ended May 30, 2008 was approximately $5.5 million.


13


NOTE
3 — Net Income (Loss) Per Share




Basic net
income per ordinary share is calculated by dividing net income by the weighted
average of ordinary shares outstanding during the period. Diluted net income per
ordinary share is calculated by dividing the net income by the weighted average
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):




Three
      Months
              Ended
              May
      30,
              2008
            
            
            Three
      Months
              Ended
              June
      1,
              2007
            
            
            Nine
      Months
              Ended
              May
      30,
              2008
            
            
            Nine
      Months
              Ended
              June
      1,
              2007Numerator:Net
      income (loss)
            
            $
            (11,003)
            
            
            $
            15,366
            
            
            $
            12,502
            
            
            $
            44,111Denominator:Weighted
      average ordinary shares
            
            
            61,027
            
            
            
            60,015
            
            
            
            60,864
            
            
            
            59,359Effect
      of dilutive securities:Stock
      options
            
            
            —
            
            
            
            3,879
            
            
            
            2,742
            
            
            
            4,366Total
      ordinary shares, diluted
            
            
            61,027
            
            
            
            63,894
            
            
            
            63,606
            
            
            
            63,725Net
      income (loss) per ordinary share, basic
            
            $
            (0.18)
            
            
            $
            0.26
            
            
            $
            0.21
            
            
            $
            0.74Net
      income (loss) per ordinary share, diluted
            
            $
            (0.18)
            
            
            $
            0.24
            
            
            $
            0.20
            
            
            $
            0.69




For the
computation of net loss per share for the three months ended May 30, 2008,
the Company excluded options totaling 8,260,257 shares from the calculation of
the net loss per share as their inclusion would have been
anti-dilutive.  The Company excluded 4,376,797 stock options from the
computation of diluted net income per ordinary share for the nine months ended
May 30, 2008 as their inclusion would have been anti-dilutive. The Company
excluded 1,982,748 and 1,960,891 stock options from the computation of diluted
net income per ordinary share for the three and nine months ended June 1, 2007,
respectively, as their inclusion would have been anti-dilutive.





NOTE
4 — Inventories




Inventories
consist of the following as of May 30, 2008 and August 31, 2007 (in
thousands):




May
      30,
              2008
            
            
            August
      31,
              2007Raw
      materials
            
            $
            24,236
            
            
            $
            27,477Work-in
      process
            
            
            8,003
            
            
            
            4,815Finished
      goods
            
            
            35,789
            
            
            
            32,813$
            68,028
            
            
            $
            65,105




14


NOTE
5 — Income Taxes




The
provision for income tax expense is summarized as follows (in
thousands):




Three
      Months
              Ended
              May
      30,
              2008
            
            
            Three
      Months
              Ended
              June
      1,
              2007
            
            
            Nine
      Months
              Ended
              May
      30,
              2008
            
            
            Nine
      Months
              Ended
              June
      1,
              2007Current
            
            $
            2,747
            
            
            $
            2,370
            
            
            $
            6,942
            
            
            $
            7,317Deferred
            
            
            9,644
            
            
            
            987
            
            
            
            9,669
            
            
            
            2,332Total
            
            $
            12,391
            
            
            $
            3,357
            
            
            $
            16,611
            
            
            $
            9,649








Worldwide
income before provision for income taxes for the three and nine months ended May
30, 2008 and June 1, 2007, consisted of the following components (in
thousands):






Three
      Months
              Ended
              May
      30,
              2008
            
            
            Three
      Months
              Ended
              June
      1,
              2007
            
            
            Nine
      months
              Ended
              May
      30,
              2008
            
            
            Nine
      months
              Ended
              June
      1,
              2007U.S. income
            
            $
            (9,978
            )
            
            $
            2,521
            
            
            $
            (16,105
            )
            
            $
            7,760Non-U.S. income
            
            
            11,366
            
            
            
            16,202
            
            
            
            45,218
            
            
            
            46,000Total
            
            $
            1,388
            
            
            $
            18,723
            
            
            $
            29,113
            
            
            $
            53,760




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
unaudited Condensed Consolidated Balance Sheet for fiscal 2008.





As of May
30, 2008, the total amount of unrecognized tax benefits, included in other
long-term liabilities on the accompanying unaudited condensed consolidated
balance sheet, was $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 May 30, 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 2007
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 2004 remains open to U.S.
federal income tax examination.  Generally, in the major state
jurisdictions, the tax periods ended August 2003 through August 2007 remain open
to state income tax examination.




15


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.




In
accordance with SFAS No. 109, Accounting for Income Taxes,
the company evaluates its deferred income taxes quarterly to determine if
valuation allowance are required.  SFAS No. 109 requires that
companies assess whether valuation allowance should be established against their
deferred tax assets based on consideration of all available positive and
negative evidence using a “more like than not” standard.  In making
such judgments, significant weight is given to evidence that can be objectively
verified.  For the three months ended May 30, 2008, the Company has a
cumulative three year loss from U.S. operations.  A cumulative loss in
recent years is a significant piece of negative evidence that is difficult to
overcome.  The Company considered future U.S. earnings and concluded
that sufficient uncertainty exists that it will generate sufficient earnings
from its U.S. operations to recover the U.S. deferred tax
assets.  Based on all available evidence, the Company concluded that
it should increase the valuation allowance by $9.6 million to the level of a
full valuation allowance on U.S. deferred tax assets.  The valuation
allowance increase of $9.6 million was recorded as additional provision for
income taxes for the three months ended May 30, 2008.


NOTE
6 – Indebtedness




As of May
30, 2008, the senior secured credit facility (WF Credit Facility) had available
borrowing capacity of $50.0 million, and the Company was in compliance with its
covenants as required by the WF Credit Facility agreement.




As of May
30, 2008, the senior secured floating rate notes due on April 2012 (the Notes)
had a balance of $81.3 million, and the Company was in compliance with its
covenants under the Notes.







NOTE
7 — Financial Instruments




Fair
Value of Financial Instruments









Derivative
Instruments







16
 The total fair value of the
outstanding derivative instruments referred to above was a liability of
approximately $(0.9) million and an asset of approximately $0.6 million as of
May 30, 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 if there is a default by the Company’s
counterparties.


NOTE
8 — Commitments and Contingencies




Product
Warranty




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 functionality 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):




Nine
      Months
              Ended
              May
      30, 2008Balance
      of accrual at August 31, 2007
            
            $
            589Warranty
      claims
            
            
            (847
            )Provision
      for product warranties
            
            
            1,066Balance
      of accrual at May 30, 2008
            
            $
            808




Product
warranty reserves are recorded in accrued expenses and other current liabilities
in the accompanying unaudited condensed 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.




Legal
Matters





From time
to time the Company is involved in disputes and litigation arising in the
ordinary 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.  The Company
believes that it has defenses to the cases pending against it, including those
set forth below.  The Company is 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 unaudited condensed consolidated financial
statements.  In the Company’s opinion, the estimated resolution of
these disputes and litigation is not expected to have a material impact on its
consolidated financial position, results of operations or cash
flows.


17


Tessera,
Inc.




In
the Matter of Certain Semiconductor Chips with Minimized Chip Package Size and
Products Containing Same (III), in the U.S. International Trade
Commission




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 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.


18


NOTE
9 — Segment and Geographic Information




The
Company operates in one reportable segment: the design, manufacture, and
distribution of electronic subsystem products to the information technology
industry. The Company’s chief operating decision-maker, the President and CEO,
evaluates financial performance and allocate resources based on consolidated
financial information. A summary of the Company’s net sales and property and
equipment by geographic area is as follows (in thousands):




Three
              Months
              Ended
              May
      30, 2008
            
            
            Three
              Months
              Ended
              June
      1,2007
            
            
            Nine
              Months
              Ended
              May
      30,2008
            
            
            Nine
              Months
              Ended
              June
      1,2007Geographic net
      sales:U.S.A.
            
            $
            92,504
            
            
            $
            115,229
            
            
            $
            296,975
            
            
            $
            427,174Other
      North and Latin America
            
            
            30,268
            
            
            
            39,713
            
            
            
            88,947
            
            
            
            114,271Europe
            
            
            18,785
            
            
            
            11,808
            
            
            
            49,866
            
            
            
            47,224Asia
            
            
            26,058
            
            
            
            22,496
            
            
            
            73,697
            
            
            
            87,289$
            167,615
            
            
            $
            $189,246
            
            
            $
            509,485
            
            
            $
            675,958





May
      30,
              2008
            
            
            August
      31,
              2007Property
      and equipment, net:U.S.A.
            
            $
            6,613
            
            
            $
            6,591Other
      North and Latin America
            
            
            27,975
            
            
            
            22,322Europe
            
            
            66
            
            
            
            24Asia
            
            
            4,273
            
            
            
            4,651$
            38,927
            
            
            $
            33,588





NOTE
10 — Major Customers




A
majority of the Company’s net sales are attributable to customers operating in
the information technology industry. Major customers are defined as those with
net sales in excess of 10% of total net sales or those who have outstanding
customer accounts receivable balances at the end of the fiscal period of 10% or
more of our total net accounts receivables.




Net sales
from major customers as a % of total net sales are as follows:





Three
      Months
              Ended
              May
      30,2008
            
            
            Three
      Months
              Ended
              June
      1,2007
            
            
            Nine
      Months
              Ended
              May
      30,2008
            
            
            Nine
      months
              Ended
              June
      1,2007Customer
      A
            
            
            33%
            
            
            
            49%
            
            
            
            40%
            
            
            
            48%Customer
      B
            
            
            12%
            
            
            
            11%
            
            
            
            12%
            
            
            
            13%Customer
      C
            
            
            4%
            
            
            
            8%
            
            
            
            5%
            
            
            
            6%





As of May
30, 2008, approximately 29%, 26% and 23% 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.


19


NOTE
11 — 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.





NOTE
12 — Acquisition of Adtron




On March
3, 2008, a subsidiary of the Company completed its acquisition of privately-held
Adtron Corporation ("Adtron"), a leading designer and global supplier of high
performance and high capacity solid state flash disk drives.  The Company
expects this acquisition to accelerate the development of future solid state
drive products. The acquisition was an all-cash transaction of approximately
$20.3 million, of which $4.0 million was deposited with an escrow agent pursuant
to the terms of the escrow agreement to be paid to Adtron equity holders on June
3, 2009, $14.6 million was paid to acquire Adtron’s common stock and the cancel
stock options previously issued by Adtron, and $1.7 million was paid for direct
transaction and other acquisition costs.  In addition, Adtron equity
holders (as defined in the merger agreement) may potentially receive earn-out
payments of up to $15 million based on the achievement in calendar year 2008
financial and operational milestones in calendar year 2008. To the extent that
this potential earn-out is earned, the purchase price will be increased and
additional goodwill will be recorded. This acquisition was
accounted for as a purchase in accordance with SFAS 141, Business Combinations, and SFAS 142, Goodwill and Other Intangible
Assets.Accordingly, the result of operations of Adtron has
been included in the Company’s consolidated financial statements from the date
of acquisition.  The financial results of Adtron prior to the
acquisition are immaterial for purposes of pro forma financial
disclosures.




The preliminary purchase price allocation,
which is subject to change based on the Company’s final analysis, is as follows
(in thousands):





Tangible
      assets
            
            $
            4,847Property
      and equipment
            
            
            403Deferred
      tax assets
            
            
            482In-process
      research and development
            
            
            4,400Intangible
      assets
            
            
            9,360Goodwill
            
            
            6,284Total
      assets acquired
            
            
            25,776Liabilities
      assumed
            
            
            (4,153
            )Deferred
      tax liability
            
            
            (1,317
            )Total
      consideration
            
            $
            20,306





The
purchase price of $20.3 million has been allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed on the basis of
their estimated fair value on the acquisition date.  Goodwill
represents the excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets acquired.  The Company
recorded $6.3 million of goodwill in connection with the acquisition and this
amount is not expected to be deductible for income tax purposes.Tangible assets were
valued at their then approximate current fair values.  The amounts
allocated to the identifiable intangible assets were determined with the
assistance of a third-party valuation of the business.  The income
approach, which includes an analysis of the cash flows and risks associated with
achieving such cash flows, was the primary technique utilized in valuing the
acquired intangible assets.  Key assumptions included estimated
revenue growth, cost of revenues, operating expenses and
taxes.  Discount rates used in the valuation of intangible assets
ranged from 19% to 28% and these assets are being amortized over their useful
lives estimated to be between two and ten years.





20


Approximately
$4.4 million of the purchase price represents the estimated fair value of two
acquired in-process research and development projects that at the time of the
acquisition related to new projects that had not been brought to
market.  The first project involves the development of a controller
product which is expected to significantly increase random input-output
operations per second and to be used in high-end server applications for certain
industries.  The values assigned to these projects were based on a
discounted cash flow analysis based on the excess earnings
method.  The second project involves the development of production
equipment that will increase throughput in the testing of memory
chips.  The company estimates approximately $0.8 million to complete
these two projects and completed within a year.  The $4.4 million of
in-process research and development was expensed in the current quarter and is a
component of Operating Expenses in the Condensed Consolidated Statements of
Operation as the technology had not yet reached technological feasibility and
had no alternative use.




Other
intangible assets at May 30, 2008 are as follows (in thousands):





Weighted
      Avg. Life (years)
            
            
            Value
      at Date of Acquisition
            
            
            Accumulated
      Amortization
            
            
            Value
      at
              May
      30, 2008Amortized
      intangible assets:Leasehold
      interest
            
            
            3
            
            
            $
            260
            
            
            $
            20
            
            
            $
            240Product
      names
            
            
            9
            
            
            
            60
            
            
            
            2
            
            
            
            58Customer
      relationships
            
            
            10
            
            
            
            3,700
            
            
            
            93
            
            
            
            3,607Non-compete
      agreement
            
            
            2
            
            
            
            300
            
            
            
            37
            
            
            
            263Technology
            
            
            7
            
            
            
            2,800
            
            
            
            100
            
            
            
            2,7007,120
            
            
            
            252
            
            
            
            6,868Unamortized
      intangible asset:Company
      trade name
            
            Indefinite
            
            
            
            2,240
            
            
            
            -
            
            
            
            2,240Total
            
            
            
            
            
            $
            9,360
            
            
            $
            252
            
            
            $
            9,108





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:Remainder
      of 2008
            
            $
            2522009
            
            
            1,0082010
            
            
            9332011
            
            
            8332012
            
            
            777Thereafter
            
            
            3,065Total
            
            $
            6,868




21


Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations




This
Quarterly Report on Form 10-Q, including this Management’s Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements regarding future events and our future results that
are subject to the safe harbors created under the Securities Act of 1933 (the
“Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”).
These statements are based on current expectations, estimates, forecasts, and
projections about the industries in which we operate and the beliefs and
assumptions of our management. Words such as “expects,” “anticipates,”
“targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,”
“estimates,” “continues,” “may,” and variations of such words and similar
expressions are intended to identify such forward-looking statements. In
addition, any statements that refer to projections of our future financial
performance, our anticipated growth and trends in our businesses, and other
characterizations of future events or circumstances are forward-looking
statements. Readers are cautioned that these forward-looking statements are only
predictions and are subject to risks, uncertainties, and assumptions that are
difficult to predict, including those identified below, under “Risk Factors,”
elsewhere herein, and those discussed in Part II, Item 1A, “Risk Factors” in our
Annual Report on Form 10-K for the year ended August 31, 2007 filed with the SEC
on November 13, 2007. Therefore, actual results may differ materially and
adversely from those expressed in any forward-looking statements. We undertake
no obligation to revise or update any forward-looking statements for any
reason.




Executive
Overview





We are a
leading independent designer, manufacturer and supplier of value added
subsystems to OEMs. Our subsystem products include memory modules, embedded
computing and TFT-LCD display products that we offer to customers worldwide. We
also provide our customers with comprehensive design, manufacturing, testing and
inventory management and logistics 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, an
increase in overall unit demand by end users for, and an increase in memory
content in, products that incorporate our subsystems should have a positive
effect on our financial condition and results of operations. We offer more than
500 standard and custom products to leading OEMs, including Hewlett-Packard,
Cisco Systems, Motorola and Dell. We maintain a strong global footprint with
low-cost manufacturing capabilities through our facilities in Malaysia, Brazil
and the Caribbean. Our global operations enable us to rapidly respond to our
customers’ requirements worldwide.





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 systems and subsystems, including
memory modules and flash memory cards, solid state drives, embedded computing
boards and TFT-LCD display products, principally to leading computing,
networking, communications, printers, 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


22


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 developing custom products for them. We
expect to continue to increase our research and development expenses in future
periods principally for increased engineering efforts related to the development
of new products.


Selling,
General and Administrative Expenses




Selling,
general and administrative expenses consist primarily of personnel costs
(including salaries, performance-based bonuses, commissions and employee
benefits), facilities and equipment costs, costs related to advertising and
marketing and other support costs including utilities, insurance and
professional fees.





Critical
Accounting Policies




Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts in our financial statements. We
evaluate our estimates on an ongoing basis, including those related to our net
sales, accounts receivable, inventories, asset impairments, stock-based
compensation, income taxes, financial instruments, 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, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities. Although actual results have historically been
reasonably consistent with management’s expectations, the actual results may
differ in the future from these estimates or our estimates may be affected by
different assumptions or conditions.




We
believe the following critical accounting policies are the most significant to
the presentation of our financial statements and require the most difficult,
subjective and complex judgments.




Revenue
Recognition




Our
product revenues are derived from the sale of value added subsystems, including
memory modules and flash memory cards, solid state drives, embedded computing
boards and TFT-LCD display products, which we design and manufacture. We
recognize revenue primarily upon shipment, following receipt of written purchase
orders, when the price is fixed or determinable, title has transferred, and
collection of resulting receivables is reasonably assured. Products are shipped
and sold based upon purchase orders from customers. 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.





Our
service revenue consists of procurement, 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, typically upon shipment of the product. Our service
revenue is accounted for on an agency basis in accordance with 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 the 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 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.


23


The
following is a summary of our net sales and gross billings (in
thousands):





Three
      Months Ended
            
            
            Nine
      Months EndedMay 30,
            
            
            June 1,
            
            
            May 30,
            
            
            June 1,2008
            
            
            2007
            
            
            2008
            
            
            2007Product
      net sales (1)
            
            $
            157,932
            
            
            $
            174,947
            
            
            $
            477,888
            
            
            $
            635,056Service
      revenue
            
            
            9,683
            
            
            
            14,299
            
            
            
            31,597
            
            
            
            40,902Net
      sales
            
            
            167,615
            
            
            
            189,246
            
            
            
            509,485
            
            
            
            675,958Plus:
      Cost of sales (2)
            
            
            207,243
            
            
            
            300,668
            
            
            
            659,511
            
            
            
            876,378Gross
      billing to customers
            
            $
            374,858
            
            
            $
            489,914
            
            
            $
            1,168,996
            
            
            $
            1,552,336


____________


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


(2)
      Represents cost of sales associated with service revenue accounted for on
      an agency basis.





Accounts
Receivable




We
evaluate the collectability of accounts receivable based on a combination of
factors. When we are aware of circumstances that may impair a specific
customer’s ability to meet its financial obligations, we record a specific
allowance against amounts due and, thereby, reduce 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 customers, 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 when determining obsolescence and net
realizable value. We adjust remaining balances to approximate the lower of our
manufacturing cost or net realizable value. Inventory cost is determined on a
specific identification basis and includes material, labor, and manufacturing
overhead. From time to time, our customers may request that we purchase and
maintain significant inventory of raw materials for specific programs. Such
inventory purchases are evaluated for excess quantities and potential
obsolescence and could result in a provision at the time of purchase or
subsequent to purchase. The portion, if any, of slow moving inventory estimated
to be sold beyond one year from the balance sheet date, is classified as
non-current inventory and included in non-current assets in our consolidated
balance sheets. Our provisions for excess and obsolete inventory are also
impacted by our arrangements with our customers and/or suppliers, including our
ability or inability to re-sell such inventory to them. If actual market
conditions or our customers’ product demands are less favorable than those
projected or if our customers or suppliers are unwilling or unable to comply
with any arrangements related to their purchase or sale of inventory, additional
provisions may be required and would have a negative impact on our gross margins
in that period. We have had to write-down inventory in the past for reasons such
as obsolescence, excess quantities and declines in market value below our costs,
and we may be required to do so from time to time in the
future.


24


Income
Taxes




We
adopted Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No.
48, Accounting for Uncertainty
in Income Taxes –
An Interpretation of FASB Statement 109, in the first quarter of fiscal
2008.  See Note 5 of the notes to the unaudited condensed consolidated
financial statements.




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. When necessary, a
valuation allowance is recorded or reduced to value tax assets at an amount for
which realization is more likely than not. 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 expected to be reinvested
indefinitely.




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.





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 found to be impaired, the impairment
loss 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.




Stock-Based
Compensation




Effective
August 29, 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 are described in Note 2 to the unaudited condensed consolidated
financial statements.




Results
of Operations




The
following is a summary of our results of operations for the three and nine
months ended May 30, 2008 and June 1, 2007 (in millions):


25


Three
      Months Ended
              
              
              Nine
      Months EndedMay
      30,
              
              
              June
      1,
              
              
              May
      30,
              
              
              June
      1,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      sales
              
              $
              167.6
              
              
              $
              189.2
              
              
              $
              509.5
              
              
              $
              676.0Cost
      of sales
              
              
              139.8
              
              
              
              151.1
              
              
              
              414.7
              
              
              
              558.5Gross
      profit(1)
              
              
              27.8
              
              
              
              38.1
              
              
              
              94.8
              
              
              
              117.4Research
      and development
              
              
              5.4
              
              
              
              4.1
              
              
              
              14.7
              
              
              
              12.6Selling,
      general and administrative
              
              
              15.4
              
              
              
              14.2
              
              
              
              44.8
              
              
              
              45.2In-process
      research and development charge
              
              
              4.4
              
              
              
              —
              
              
              
              4.4
              
              
              
              —Total
      operating expenses(1)
              
              
              25.2
              
              
              
              18.3
              
              
              
              63.9
              
              
              
              57.8Income
      from operations
              
              
              2.6
              
              
              
              19.8
              
              
              
              30.9
              
              
              
              59.6Interest
      expense, net
              
              
              (1.5
              )
              
              
              (1.8
              )
              
              
              (3.8
              )
              
              
              (6.2
              )Other
      income, net
              
              
              0.3
              
              
              
              0.7
              
              
              
              2.1
              
              
              
              0.4Total
      other expense, net(1)
              
              
              (1.2
              )
              
              
              (1.1
              )
              
              
              (1.8
              )
              
              
              (5.8
              )Income
      before provision for income taxes(1)
              
              
              1.4
              
              
              
              18.7
              
              
              
              29.1
              
              
              
              53.8Provision
      for income taxes
              
              
              12.4
              
              
              
              3.4
              
              
              
              16.6
              
              
              
              9.6Net
      income (loss)(1)
              
              $
              (11.0
              )
              
              $
              15.4
              
              
              $
              12.5
              
              
              $
              44.1


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




Three
and Nine Months Ended May 30, 2008 as Compared to the Three and Nine Months
Ended June 1, 2007




Net
Sales




Net sales
for the three months ended May 30, 2008 were $167.6 million, or an 11% decrease
from $189.2 million for the three months ended June 1, 2007. This decrease was
primarily due to a $32.4 million decrease in our memory products, partially
offset by increases of $9.3 million in our embedded products and $1.4 million in
our display 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.




Net sales
for the nine months ended May 30, 2008 were $509.5 million, or a 25% decrease
from $676.0 million for the nine months ended June 1, 2007. This decrease was
primarily due to a $177.3 million decrease in our memory products, partially
offset by increases of $ 6.4 million in our display products and $4.5 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 the three months ended May 30, 2008 was $139.8 million, or an 8%
decrease from $151.1 million for the three months ended June 1, 2007. Cost of
sales as a percent of net sales increased to 83% for the three months ended May
30, 2008, from 80% for the three months ended June 1, 2007. The decrease in cost
of sales was principally due to a $23.2 million decline in our memory product
cost of sales, partially offset by an increase in net cost of sales of $8.3
million and $1.3 million to our embedded product cost of sales and display
product cost of sales, respectively.  In addition, our inventory write
downs increased by $1.2 million and our factory overhead and other costs
increased by $1.1 million.


26


Cost of
sales for the nine months ended May 30, 2008 was $ 414.7 million, or a 26%
decrease from $558.5 million for the nine months ended June 1, 2007. Cost of
sales as a percent of net sales decreased to 81% for the nine months ended May
30, 2008, from 83% for the nine months ended June 1, 2007. The decrease in cost
of sales was principally due to $155.6 million decline in our memory product
cost of sales, partially offset by an increase in net cost of sales of $4.2
million and $5.6 million to our embedded product cost of sales
and display product cost of sales, respectively.  In addition, our
inventory adjustment decreased by $1.2 million and our factory overhead and
other costs increased by $3.2 million.




Gross
Profit




Gross
profit for the three months ended May 30, 2008 was $27.8 million, or a 27%
decrease from $38.1 million for the three months ended June 1, 2007. Gross
margin percentage decreased from 20% for the three months ended June 1, 2007 to
17% for the three months ended May 30, 2008. The decrease in gross profit was
primarily due to the lower net sales to our customers, while the decrease in
gross margin percentage was principally due to lower average selling prices of
some products.




Gross
profit for the nine months ended May 30, 2008 was $94.8 million, or a 19%
decrease from $117.4 million for the nine months ended June 1, 2007. Gross
margin percentage increased from 17% for the nine months ended June 1, 2007 to
19% for the nine months ended May 30, 2008. The decrease in gross profit was
primarily due to the lower net sales to customers, while the increase in gross
margin percentage was principally due to increase in unit volume sales for high
density memory modules, partially offset by the impact of lower average selling
prices of some products.




Research
and Development Expenses and Write-off of Acquired In-process Research and
Development




Research
and development, or R&D, expenses plus the write-off of acquired in-process
research and development for the three months ended May 30, 2008 were $9.8
million compared to $4.1 million for the three months ended June 1, 2007. This
increase was primarily due to $4.4 million in-process research and development
write-off related to the acquisition of Adtron and an additional $1.1 million
R&D expenses for Adtron in the third quarter of fiscal 2008.




R&D
expenses plus the write-off of acquired in-process research and development for
the nine months ended May 30, 2008 were $19.1 million compared to $12.6 million
for the nine months ended June 1, 2007. This $6.5 million increase was primarily
due to $4.4 million in-process research and development write-off related
to the acquisition of Adtron, an additional $1.1 million R&D
expenses for Adtron in the third quarter of fiscal 2008, and $0.4 million
in incremental stock-based compensation expense.





Selling,
General and Administrative Expenses




Selling,
general and administrative, or SG&A, expenses for the three months ended May
30, 2008 were $15.4 million, or an 8% increase from $14.2 million for the three
months ended June 1, 2007. Sales and marketing expenses increased $0.5
million primarily due to the addition of Adtron sales and marketing expense of
$1.0 million partially offset by a reduction in bonus expense of $0.5 million.
General and administrative, or G&A, expenses 
increased $0.7 million primarily due to the addition of Adtron G&A
expenses of $0.4 million, the effect of other G&A headcount increases
and annual pay raises of $0.3 million, an increase of $0.6 million in
recruitment and legal expenses and $0.4 million in incremental stock-based
compensation expense, offset by $0.9 million decrease in bonus
expenses.


27


SG&A
expenses for the nine months ended May 30, 2008 were $44.8 million, or a 1%
decrease from $45.2 million for the nine months ended June 1, 2007. Sales and
marketing expenses decreased $1.1 million primarily due to a decrease in sales
volume and corresponding decrease of commission expense of $0.7 million, a
decrease of $0.7 million in bonus expense, a decrease of $0.3 million in
travel related expenses, and a decrease of $0.2 million in accounting and
other support costs, partially offset by the addition of Adtron sales and
marketing expense of $1.0 million. G&A expense increased by $0.7
million primarily due to a $1.4 million increase in stock-based compensation
expense, a $0.9 million increase in personnel related costs, a $0.5 million
increase of property taxes, partially offset by a reduction of $0.5 million in
bank fees, a reduction of $0.3 million in SOX related expenses, a reduction of
$0.3 million in travel and related expenses, a reduction of $0.3 million in
depreciation expenses, and a $0.8 million in fees incurred in the prior year
related to our secondary share offering.





Interest
Expense, Net




Net
interest expense for the three months ended May 30, 2008 was $1.5 million,
compared to $1.8 million for the three months ended June 1, 2007. This decrease
in interest expense was primarily related to reduced borrowings under our
senior secured credit facility and decreased in interest rate on our
long-term debt.





Net
interest expense for the nine months ended May 30, 2008 was $3.8 million,
compared to $6.2 million for the nine months ended June 1, 2007. This decrease
was principally due to a $1.5 million increase in interest income as a result of
increased cash balances and a decrease in interest expense of $0.8 million
primarily related to reduced borrowings under our senior secured credit facility
and decrease in interest rate on our long-term debt.




Other Income, Net




Net other
income for the three months ended May 30, 2008 was $0.3 million compared to $0.7
million for the three months ended June 1, 2007. The $0.4 million decrease in
other income was primarily due to decrease in foreign currency transaction
losses.




Net other
income for the nine months ended May 30, 2008 was $2.1 million compared to $0.4
million for the nine months ended June 1, 2007. The increase of $1.7 million was
mainly driven by foreign currency transaction gains.




Provision for Income Taxes




The
effective tax rates for the three months ended May 30, 2008 and June 1, 2007
were approximately 893% and 18% respectively.  The effective tax rates
for the nine months ended May 30, 2008 and June 1, 2007 were approximately 57%
and 18% respectively.  The effective tax rate differs from the 35%
U.S. statutory tax rate principally due to the tax expense from an increase in
the valuation allowance on U.S. deferred tax assets recorded in the three months
ended May 30, 2008, and the in-process research and development charge from the
acquisition of Adtron recorded in the three months ended May 30, 2008, that is
on a gross basis without any related tax benefit.  These special items
increasing the effective tax rate were partially offset by a decline in the
effective tax rate from profits being generated in non-U.S. lower tax rate
jurisdictions.  The increase in our effective tax rate was principally
due to these items as described above for the three and nine months ended May
30, 2008, when compared to the three and nine months ended June 1,
2007.


28


Excluding
the tax impact of the $9.6 million increase in the valuation allowance on U.S.
deferred tax assets and the $4.4 million in-process research and development
charge, the effective tax rates for the three months and nine months ended May
30, 2008 were approximately 48% and 21% respectively, up from 19% and 18% for
the three and nine months ended June 1, 2007.  This increase was
principally due to a U.S. pre-tax loss for which we did not record a deferred
tax benefit for the three months and the nine months ended May 30,
2008.  For the three months ended May 30, 2008, we recorded non-U.S.
pre-tax income of $11.4 million and a U.S. pre-tax loss of $10.0 million, and
for the nine months ended May 30, 2008, we recorded non-U.S. pre tax income of
$45.2 million and a U.S. pre-tax loss of $16.1 million.




As
discussed in Note 5, the U.S. pre-tax loss for the three months ended May 30,
2008 resulted in a cumulative three year loss from
U.S. operations.  A cumulative loss in recent years is a
significant piece of negative evidence that is difficult to overcome. Based on
all available evidence, the Company concluded that it is not more likely than
not that its U.S. operations will generate sufficient earnings to recover the
deferred tax assets.  As a result, the Company recorded during the
three months ended May 30, 2008 a $9.6 million increase in tax expense to record
a full valuation allowance on net U.S. deferred tax assets.


Liquidity
and Capital Resources




Our
principal sources of liquidity are cash flow from operations and borrowings
under our senior secured credit facility. Our principal uses of cash are debt
service requirements as described below, capital expenditures, potential
acquisitions, research and development expenditures and working capital
requirements.  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 highly short-term investments with
an original maturity on the date of purchase of three months or
less.  The Company does not have investments in variable rate demand
notes and auction rate certificates.





Debt
Service




As of May
30, 2008, (1) we had total long-term indebtedness of $81.3 million aggregate
principal amount of our senior secured floating rate notes outstanding; and (2)
our senior secured credit facility was undrawn, with $50.0 million of borrowing
capacity available, subject to customary conditions. Any inability to meet our
significant debt service obligations could have material consequences to our
security holders.




Senior Secured Floating Rate
Exchange Notes Due April 2012.Our senior secured floating rate notes
bear interest at a rate equal to LIBOR plus 5.50% per annum, and are guaranteed
by all of our subsidiaries (subject to limited exceptions), except for Estecom,
ConXtra, and SMART Modular Technologies (Deutschland) GmbH, and are secured by
second-priority liens on most of the assets securing our senior secured credit
facility. Interest on our notes is payable quarterly in cash. Our notes contain
customary covenants and events of default, including covenants that limit our
ability to incur debt, pay dividends and make investments. We were in compliance
with such covenants at May 30, 2008.




Senior Secured WellsFargoCredit Facility.Our senior
secured 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 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. We are no longer required to comply with any fixed
charge coverage ratios as a result of an amendment that was made in 2007. Our
senior secured credit facility is available for general corporate purposes until
April 30, 2010, unless earlier terminated.


29


Capital
Expenditures




Future
capital expenditures focus on 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 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 will be
affected by general economic, financial, competitive, business and other factors
beyond our control.




From time
to time we may explore additional financing methods 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 any 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 May 30, 2008, our cash and cash equivalents were
$117.3 million.




Cash Flows from Operating
Activities.Net
cash provided by operating activities was $4.0 million for the nine months ended
May 30, 2008, compared to net cash provided by operating activities of $36.2
million for the nine months ended June 1, 2007. The change was principally the
result of a decrease in net income of $31.6 million, together with decreases in
the changes in operating assets and liabilities of $9.7 million, offset by an
increase of $4.4 million write-off of acquired in-process technology and
increases in adjustment for non-cash charges of $4.7 million mainly associated
with stock-based compensation and depreciation and amortization.




Cash Flows from Investing
Activities.Net cash used in investing activities was $31.4 million for
the nine months ended May 30, 2008, compared to net cash used in investing
activities of $10.3 million for the nine months ended June 1, 2007. The change
was primarily due to the cash used to acquire Adtron of $20.3 million during the
quarter and a decreased level of capital expenditures of $1.1million.




Cash Flows from Financing
Activities.Net
cash provided by financing activities was $12 thousand for the nine months ended
May 30, 2008, compared to $2.2 million in net cash provided by financing
activities for the nine months ended June 1, 2007. The change was mainly related
to $0.9 million of principal payment on line of credit related to the Adtron
acquisition, $0.7 million decrease in excess tax benefit from stock-based
compensation and $0.6 million decrease in proceeds from option exercises during
the nine months ended May 30, 2008, when compared to the nine months ended June
1, 2007.





Contractual
Obligations




Our
contractual obligations as of August 31, 2007 are set forth below:




Payments
      Due by Period1 Year
            
            
            2-3 Years
            
            
            4-5 Years
            
            
            After
      5 Years
            
            
            Total(In
      millions)Total
      debt - principal
            
            $
            —
            
            
            $
            —
            
            
            $
            81.3
            
            
            $
            —
            
            
            $
            81.3Interest
      expense cash obligations in connection with long-term debt and related
      interest rate swaps
            
            
            8.9
            
            
            
            17.9
            
            
            
            14.2
            
            
            
            —
            
            
            
            41.0Operating
      leases
            
            
            2.2
            
            
            
            2.5
            
            
            
            1.5
            
            
            
            0.1
            
            
            
            6.3Total
      contractual cash obligations
            
            $
            11.1
            
            
            $
            20.4
            
            
            $
            97.0
            
            
            $
            0.1
            
            
            $
            128.6





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




We do not
believe that inflation has had a material effect on our business, financial
condition or results of operations. If our costs were to become subject to
significant inflationary pressures, we may not be able to fully offset such
higher costs through price increases. Our inability or failure to do so could
adversely affect our business, financial condition and results of
operations.




Recent
Accounting Pronouncements




See
Note 1 of our Notes to Unaudited Condensed Consolidated Financial
Statements for information regarding the effect of recent accounting
pronouncements on our financial statements.






Item
3. Quantitative and Qualitative Disclosures About Market
Risk




Our
exposure to market rate risk includes risk of foreign exchange rate fluctuations
and change 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 United States
dollars, increases in the value of the United States dollar could increase the
price of our products so that they become relatively more expensive to customers
in the local currency of a particular country, leading to a reduction in sales
and profitability in that country. As a result of our foreign operations, we
have revenues, costs, assets and liabilities that are denominated in foreign
currencies. Therefore, decreases in the value of the United States dollar could
result in significant increases in our manufacturing costs that could have a
material adverse effect on our business, financial condition and results of
operations. At present, we do not purchase financial instruments to hedge
foreign exchange risk, but may do so as circumstances warrant.







Interest
Rate Risk




We are
subject to interest rate risk in connection with our long-term debt, including
the remaining $81.3 million of our senior secured floating rate exchange 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 4. Controls
and Procedures




(a) Evaluation of Disclosure Controls
and Procedures. Our President and Chief Executive Officer and our Interim
Chief Financial Officer, after evaluating the effectiveness of the Company’s
“disclosure controls and procedures” (as defined in the Securities Exchange Act
Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this
quarterly report, have concluded that our disclosure controls and procedures are
effective based on their evaluation of these controls and procedures required by
paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.




(b) Changes in Internal Control Over
Financial Reporting. Other than as described below, there were no changes
in our internal control over financial reporting identified in connection with
the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15
that occurred during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.




Internal Control Significant
Deficiency and Remediation Steps




During
the third quarter of fiscal 2008, management determined that a significant
deficiency existed in our process relating to the accounting for purchases of
raw materials from certain suppliers at our Puerto Rico subsidiary, which caused
cost of sales and accounts payable to be overstated in certain prior
periods.  The Company’s processes of accounting for cost of sales and
accounts payable rely upon certain internal controls including reviews and
analyses performed during the monthly financial closing
process.  These procedures were primary internal controls for
mitigating the financial reporting risks related to the accounting for cost of
sales and accounts payable.  While performing these procedures during
the third quarter of fiscal 2008, management identified these accounting
errors.  Although we have determined that these errors were immaterial
to the financial statements for the periods in which they occurred, we
subsequently evaluated and corrected the errors in the affected periods in
accordance with SAB 108.  See Note 1 to the Unaudited Condensed
Consolidated Financial Statements.





To
improve our internal controls relating to our accounting for cost of sales and
accounts payable, our procedures have been modified to incorporate a more
thorough review and analysis of certain supplier invoices. We believe that these
additional steps will enhance our internal control procedures and effectively
remediate the deficiency in our internal control processes related to the
accounting for cost of sales and accounts payable.




Internal Audit Reviews






32




PART II. OTHER
INFORMATION




Item
1. Legal Proceedings




See Note
8 of our Notes to Unaudited Condensed Consolidated Financial Statements for
information regarding legal matters.




Item
1A . Risk Factors




There
have been no material changes from risk factors previously disclosed in our
Annual Report on Form 10-K for the year ended August 31, 2007, except for the
following:




We
have made and 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 have acquired and expect to 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 display
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 solid state flash disk drives. Any such
past or 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;•
            costs,
      one-time write-offs of goodwill or other intangible assets, restructuring
      and other unanticipated costs or expenses associated with the acquisition
      or investment;•
            negative
      effects on profitability resulting from the 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, including those markets that may be subject to complex
      government regulations;•
            loss
      of key employees of the acquired business; and•
            litigation
      arising from the acquired company’s operations.




Our inability to overcome
problems encountered in connection with any acquisition could divert the
attention of management, utilize scarce corporate resources and otherwise harm
our business. In addition, we are unable to predict whether or when any
prospective acquisition candidate will become available or the likelihood that
any acquisition will be completed. Even if we do find suitable acquisition
opportunities, we may not be able to consummate the acquisitions on commercially
acceptable terms or realize the anticipated benefits of any acquisitions we do
undertake.





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 trade secret laws,
non-disclosure agreements, confidentiality procedures and employee disclosure
and invention assignment agreements. To a lesser extent, we also protect our
intellectual property through 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; and•
            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.





In
addition, the semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights. We believe that it may be necessary,
from time to time, to initiate litigation against one or more third parties to
preserve our intellectual property rights. From time to time, we have received,
and may receive in the future, notices that claim we have infringed upon,
misappropriated or misused other parties’ proprietary rights. Any of the
foregoing events or claims could result in litigation.







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 1 “Legal
Proceedings” in Part II.  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 solid state flash disk drives 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 and sale of certain products, 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. Product development or
license negotiating 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 acquisition 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 have agreed 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 may periodically have to
respond to claims and litigate these types of indemnification obligations. Any
such indemnification claims could require us to pay substantial damages or
settlement amounts, which could have a material adverse effect on our financial
condition and results of operations. Our insurance does not cover intellectual
property infringement.




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 will be
adversely affected.




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.  Jack A. Pacheco, our chief financial officer and senior
vice president, resigned and left our company in April 2008. We are actively
seeking a replacement for Mr. Pacheco and until such time as we secure a
replacement, we do not have a chief financial officer, although in May 2008, we
retained a chief financial officer on an interim basis.  Our future
operating results also depend in significant part upon our ability to attract,
train and retain qualified management, manufacturing and quality assurance,
engineering, marketing, sales and support personnel. We are continually
recruiting such personnel. However, competition for such personnel is intense,
and there can be no assurance that we will be successful in attracting, training
or retaining such personnel now or in the future. There may be only a limited
number of persons with the requisite skills to serve in these positions and it
may be increasingly difficult for us to hire such persons over time. The loss of
any key employee, such as Mr. Pacheco as our chief financial officer, 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 officers and key employees to expand, train and manage our
employee base could materially and adversely affect our business, financial
condition and results of operations.




35


Item 6. Exhibits




The
following exhibits are filed herewith:




Exhibit
      No.
            
            Exhibit
      Title31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            
            Certification
      of Interim Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
      of the Securities Exchange Act of 1934, as adopted pursuant to Section 302
      of the Sarbanes-Oxley Act of 200232
            
            Certification
      of Chief Executive Officer and Interim Chief Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002










36


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










By:
            /s/ MICHAEL
      GENNAROName:
            Michael
      GennaroTitle:
            Interim
      Chief Financial Officer






Date:
July 8, 2008








37


EXHIBIT INDEX




Exhibit
      No.
            
            Exhibit
      Title31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            
            Certification
      of Interim Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
      of the Securities Exchange Act of 1934, as adopted pursuant to Section 302
      of the Sarbanes-Oxley Act of 200232
            
            Certification
      of Chief Executive Officer and Interim Chief Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002






38
 Exhibit
31.1




CERTIFICATIONS
PURSUANT TO SECTION 302 OF


THE
SARBANES-OXLEY ACT OF 2002




I, Iain
MacKenzie, certify that:




1.
            I
      have reviewed this quarterly report on Form 10-Q of SMART Modular
      Technologies (WWH), Inc.;





2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;





3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this
      report;





4.
            The
      registrant’s other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:





a.
            Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;





b.
            Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, 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;





c.
            Evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and





d.
            Disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and




5.
            The
      registrant’s other certifying officer(s) and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant’s auditors and the audit committee of the registrant’s
      board of directors (or persons performing the equivalent
      functions):




a.
            All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant’s ability to record,
      process, summarize and report financial information;
  and





b.
            Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant’s internal control
      over financial reporting.




Date:
July 8, 2008


By:
            /s/ IAIN MACKENZIEName:
            Iain
      MacKenzieTitle:
            President
      and Chief Executive Officer


39
 Exhibit
31.2


CERTIFICATIONS
PURSUANT TO SECTION 302 OF


THE
SARBANES-OXLEY ACT OF 2002




I,
Michael Gennaro, certify that:




1.
            I
      have reviewed this quarterly report on Form 10-Q of SMART Modular
      Technologies (WWH), Inc.;





2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;





3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this
      report;





4.
            The
      registrant’s other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:





a.
            Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;





b.
            Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, 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;





c.
            Evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and





d.
            Disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and




5.
            The
      registrant’s other certifying officer(s) and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant’s auditors and the audit committee of the registrant’s
      board of directors (or persons performing the equivalent
      functions):





a.
            All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant’s ability to record,
      process, summarize and report financial information;
  and





b.
            Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant’s internal control
      over financial reporting.




Date:
July 8, 2008





By:
            /s/ MICHAEL GENNAROName:
            Michael
      GennaroTitle:
            Interim
      Chief Financial Officer


40


Exhibit
32




CERTIFICATIONS
PURSUANT TO SECTION 906 OF


THE
SARBANES-OXLEY ACT OF 2002




The
certification set forth below is being submitted in connection with the
quarterly report on Form 10-Q of SMART Modular Technologies (WWH), Inc. (the
“Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of
the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of
Chapter 63 of Title 18 of the United States Code.




Iain
MacKenzie, the Chief Executive Officer and Michael Gennaro, the Interim Chief
Financial Officer of SMART Modular Technologies (WWH), Inc., each certifies
that, to the best of his knowledge:




1.
            the
      Report fully complies with the requirements of Section 13(a) or 15(d) of
      the Exchange Act; and





2.
            the
      information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of SMART
      Modular Technologies (WWH), Inc.







Date:
July 8, 2008




By:
            /s/ IAIN MACKENZIEName:
            Iain
      MacKenzieTitle:
            President
      and Chief Executive Officer










By:
            /s/ MICHAEL GENNAROName:
            Michael
      GennaroTitle:
            Interim
      Chief Financial Officer