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
  1934




For
      the Quarterly Period Ended February 29,
2008




or




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 April1,
2008 was60,941,045.












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
            15Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
            22Item
      4. Controls and Procedures
            23PART
      II. OTHER INFORMATION
            24Item
      1. Legal Proceedings
            24Item
      1A. Risk Factors
            24Item
      4.  Submission of Matters to a Vote of Security
      Holders
            26Item
      6. Exhibits
            27SIGNATURES
            28




2


PART
I. FINANCIAL INFORMATION




Item
1. Financial Statements




SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES




CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)


February
      29,
                2008
              
              
              August
      31,
                2007(In
      thousands)ASSETSCash
      and cash equivalents
              
              $
              155,018
              
              
              $
              144,147Accounts
      receivable, net of allowances of $2,019 and $2,517 as ofFebruary29,
      2008
                and
      August 31, 2007, respectively
              
              
              162,637
              
              
              
              184,391Inventories
              
              
              61,856
              
              
              
              65,105Prepaid
      expenses and other current assets
              
              
              9,803
              
              
              
              8,217Total
      current assets
              
              
              389,314
              
              
              
              401,860Property
      and equipment, net
              
              
              38,957
              
              
              
              33,588Goodwill
              
              
              3,187
              
              
              
              3,187Other
      non-current assets
              
              
              13,029
              
              
              
              14,442Total
      assets
              
              $
              444,487
              
              
              $
              453,077LIABILITIES
      AND SHAREHOLDERS’ EQUITYAccounts
      payable
              
              $
              96,441
              
              
              $
              131,937Accrued
      expenses and other current liabilities
              
              
              21,353
              
              
              
              24,043Total
      current liabilities
              
              
              117,794
              
              
              
              155,980Long-term
      debt
              
              
              81,250
              
              
              
              81,250Other
      long-term liabilities
              
              
              2,018
              
              
              
              -Total
      liabilities
              
              
              201,062
              
              
              $
              237,230Shareholders’
      equity:Ordinary
      shares,  $0.00016667 par value; 600,000,000 sharesauthorized;60,921,688
                and
      60,664,463 shares issued and outstanding as ofFebruary
      29, 2008 and
                August
      31, 2007, respectively
              
              
              10
              
              
              
              10Additional
      paid-in capital
              
              
              95,894
              
              
              
              92,250Deferred
      stock-based compensation
              
              
              (202
              )
              
              
              (335
              )Accumulated
      other comprehensive income
              
              
              7,214
              
              
              
              6,083Retained
      earnings
              
              
              140,509
              
              
              
              117,839Total
      shareholders’ equity
              
              
              243,425
              
              
              
              215,847Total
      liabilities and shareholders’ equity
              
              $
              444,487
              
              
              $
              453,077




See
accompanying notes to condensed consolidated financial statements.






3


SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES




CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)




Three
      Months
              Ended
              February
      29,
              2008
            
            
            Three
      Months
              Ended
              March
      2,
              2007
            
            
            Six
      Months
              Ended
              February
      29,
              2008
            
            
            Six
      Months
              Ended
              March
      2,
              2007(In
      thousands, except per share data)Net
      sales
            
            $
            159,566
            
            
            $
            239,137
            
            
            $
            334,517
            
            
            $
            476,307Cost
      of sales*
            
            
            127,170
            
            
            
            197,975
            
            
            
            268,599
            
            
            
            397,233Gross
      profit
            
            
            32,396
            
            
            
            41,162
            
            
            
            65,918
            
            
            
            79,074Research
      and development*
            
            
            4,624
            
            
            
            4,450
            
            
            
            9,309
            
            
            
            8,490Selling,
      general and administrative*
            
            
            14,331
            
            
            
            16,756
            
            
            
            29,392
            
            
            
            31,010Total
      operating expenses
            
            
            18,955
            
            
            
            21,206
            
            
            
            38,701
            
            
            
            39,500Income
      from operations
            
            
            13,441
            
            
            
            19,956
            
            
            
            27,217
            
            
            
            39,574Interest
      expense
            
            
            (2,417
            )
            
            
            (2,738
            )
            
            
            (4,840
            )
            
            
            (5,325
            )Interest
      income
            
            
            1,090
            
            
            
            402
            
            
            
            2,489
            
            
            
            902Other
      income (expense), net
            
            
            373
            
            
            
            (265
            )
            
            
            1,795
            
            
            
            (336
            )Total
      other expense, net
            
            
            (954
            )
            
            
            (2,601
            )
            
            
            (556
            )
            
            
            (4,759
            )Income
      before provision for income taxes
            
            
            12,487
            
            
            
            17,355
            
            
            
            26,661
            
            
            
            34,815Provision
      for income taxes
            
            
            1,539
            
            
            
            3,385
            
            
            
            4,220
            
            
            
            6,292Net
      income
            
            $
            10,948
            
            
            $
            13,970
            
            
            $
            22,441
            
            
            $
            28,523Net
      income per ordinary share, basic
            
            $
            0.18
            
            
            $
            0.24
            
            
            $
            0.37
            
            
            $
            0.48Shares
      used in computing basic net income per ordinary share
            
            
            60,869
            
            
            
            59,396
            
            
            
            60,782
            
            
            
            59,043Net
      income per ordinary share, diluted
            
            $
            0.17
            
            
            $
            0.22
            
            
            $
            0.35
            
            
            $
            0.45Shares
      used in computing diluted net income per ordinary share
            
            
            63,713
            
            
            
            63,790
            
            
            
            63,684
            
            
            
            63,653____________* Stock-based
      compensation by
    category:Cost
      of sales
            
            $
            197
            
            
            $
            133
            
            
            $
            375
            
            
            $
            246Research
      and development
            
            
            419
            
            
            
            271
            
            
            
            806
            
            
            
            543Selling,
      general and administrative
            
            
            1,219
            
            
            
            813
            
            
            
            2,293
            
            
            
            1,377




See
accompanying notes to condensed consolidated financial statements.






4


SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME




(Unaudited)




Three
      Months
              Ended
              February
      29,
              2008
            
            
            Three
      Months
              Ended
              March
      2,
              2007
            
            
            Six
      Months
              Ended
              February
      29,
              2008
            
            
            Six
      Months
              Ended
              March
      2,
              2007(In
      thousands)Net
      income
            
            $
            10,948
            
            
            $
            13,970
            
            
            $
            22,441
            
            
            $
            28,523Other
      comprehensive income (loss):Net
      changes in unrealized gain or (loss) on derivative instruments accounted
      for as cash flow hedges
            
            
            (831
            )
            
            
            76
            
            
            
            (1,572
            )
            
            
            (234
            )Foreign
      currency translation adjustments
            
            
            (602
            )
            
            
            266
            
            
            
            2,703
            
            
            
            755Comprehensive
      income
            
            $
            9,515
            
            
            $
            14,312
            
            
            $
            23,572
            
            
            $
            29,044




See
accompanying notes to condensed consolidated financial statements.






5


SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




Six
      Months
                Ended
                February
      29,
                2008
              
              
              Six
      Months
                Ended
                March
      2,
                2007(In
      thousands)Cash
      flows from operating activities:Net
      cash provided by operating activities
              
              $
              19,764
              
              
              $
              25,434Cash
      flows from investing activities:Capital
      expenditures
              
              
              (9,563
              )
              
              
              (5,177
              )Cash
      deposits on equipment
              
              
              (164
              )
              
              
              —Proceeds
      from sale of assets
              
              
              106
              
              
              
              —Other
              
              
              —
              
              
              
              3Net
      cash used in investing activities
              
              
              (9,621
              )
              
              
              (5,174
              )Cash
      flows from financing activities:Proceeds
      from issuance of ordinary shares from stock option
    exercises
              
              
              224
              
              
              
              834Excess
      tax benefits from share-based compensation
              
              
              81
              
              
              
              669Borrowings
      under revolving line of credit
              
              
              11,500
              
              
              
              94,129Repayments
      on revolving line of credit
              
              
              (11,500
              )
              
              
              (94,129
              )Net
      cash provided by financing activities
              
              
              305
              
              
              
              1,503Effect
      of exchange rate changes on cash and cash equivalents
              
              
              423
              
              
              
              43Net
      increase in cash and cash equivalents
              
              
              10,871
              
              
              
              21,806Cash
      and cash equivalents at beginning of period
              
              
              144,147
              
              
              
              85,620Cash
      and cash equivalents at end of period
              
              $
              155,018
              
              
              $
              107,426Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
              
              
              4,426
              
              
              
              3,679Income
      taxes
              
              
              3,927
              
              
              
              4,229




See
accompanying notes to 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
February 29, 2008 and August 31, 2007 and for the three and six months ended
February 29, 2008 and March 2, 2007. These unaudited condensed consolidated
financial statements have been prepared by the Company in accordance with
generally accepted accounting principles. 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 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 condensed consolidated financial
statements. Certain prior period amounts have been reclassified to conform to
the current period presentation.




The
preparation of 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.




Product
and Service Revenue




The
Company recognizes revenue in accordance with the SEC Staff Accounting Bulletin
(SAB) No. 104, Revenue
Recognition. Under SAB 104, product revenue is recognized when there is
persuasive evidence of an arrangement, product delivery has occurred, the sales
price is fixed or determinable, and collectibility is reasonably assured.
Product revenue typically is recognized at the time of shipment or when the
customer takes title of the goods. All amounts billed to a customer related to
shipping and handling are classified as 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 $199.1 million and $329.9 million for the three months
ended February 29, 2008 and March 2, 2007, respectively. Total service revenue
recorded for the three months ended February 29, 2008 and March 2, 2007 amounted
to approximately $10.8 million and $13.9 million, respectively. Gross amounts
billed to customers for service transactions totaled approximately $474.3
million and $602.4 million for the six months ended February 29, 2008 and March
2, 2007, respectively. Total service revenue recorded for the six months ended
February 29, 2008 and March 2, 2007 amounted to approximately $21.9 million and
$26.6 million, respectively.





7


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.  Early adoption is not
permitted.  The Company is currently analyzing the requirements of
SFAS 141R and has not yet determined the impact on its financial position or
results of operations.


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 Company is currently analyzing the requirements of
SFAS 160 and has not yet determined the impact on its 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. The Company is currently analyzing the
requirements of this EITF and have not yet determined the impact on its
financial position or results of operations.
 
 8
 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.  The Company is
currently analyzing the requirements of SFAS 161 and has not yet determined the
impact on its financial position or results of operations.






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
February 29, 2008, there were 10,091,443 ordinary shares reserved for issuance
under this plan, of which 1,943,636 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 six months ended February 29, 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:






Six
      Months
              Ended
              February
      29, 2008Stock
      options:Expected
      term (years)
            
            
            5.0Expected
      volatility
            
            
            51
            %Risk-free
      interest rate
            
            
            3.71
            %Expected
      dividends
            
            
            —




A summary
of option activity as of and for the six months ended February 29, 2008, is
presented below (dollars and shares in thousands, except per share
data):




Shares
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Weighted
              Average
              Remaining
              Contractual
              Term
              (Years)
            
            
            Aggregate
              Intrinsic
              ValueOptions
      outstanding at August 31, 2007
            
            
            6,359
            
            
            $
            4.75Options
      granted
            
            
            2,233
            
            
            
            7.58Options
      exercised
            
            
            (258
            )
            
            
            0.87Options
      forfeited
            
            
            (186
            )
            
            
            8.86Options
      outstanding at February 29, 2008
            
            
            8,148
            
            
            $
            5.55
            
            
            
            8.0
            
            
            $
            19,287Options
      exercisable at February 29, 2008
            
            
            3,538
            
            
            $
            3.13
            
            
            
            7.1
            
            
            $
            14,763Options
      vested and expected to vest at February 29, 2008
            
            
            7,756
            
            
            $
            5.42
            
            
            
            8.0
            
            
            $
            19,122






9


The
weighted average fair value of options granted during the six months ended
February 29, 2008 was $3.65 per option. The total intrinsic value of options
exercised during the six months ended February 29, 2008 was $2.3 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 February 29, 2008,
and changes during the six months ended February 29, 2008, is presented below
(dollars and shares in thousands, except per share data):
  Shares
              
              
              Weighted
      Average
                Grant
      Date Fair
                Value
      Per ShareNon-vested
      stock options at August 31, 2007
              
              
              3,794
              
              
              $
              4.25Non-vested
      stock options granted
              
              
              2,233
              
              
              
              3.65Vested
      stock options
              
              
              (1,231
              )
              
              
              2.87Forfeited
      stock options
              
              
              (186
              )
              
              
              5.61Non-vested
      stock options at February 29, 2008
              
              
              4,610
              
              
              $
              4.56
  As of
February 29, 2008, there was approximately $20.0 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 2.7 years. The total fair value of shares vested during the six months
ended February 29, 2008 was approximately $3.5 million.
   NOTE
3 — Net Income 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
              February
      29,
              2008
            
            
            Three
      Months
              Ended
              March
      2,
              2007
            
            
            Six
      Months
              Ended
              February
      29,
              2008
            
            
            Six
      Months
              Ended
              March
      2,
              2007Numerator:Net
      income
            
            $
            10,948
            
            
            $
            13,970
            
            
            $
            22,441
            
            
            $
            28,523Denominator:Weighted
      average ordinary shares
            
            
            60,869
            
            
            
            59,396
            
            
            
            60,782
            
            
            
            59,043Effect
      of dilutive securities:Stock
      options
            
            
            2,844
            
            
            
            4,394
            
            
            
            2,902
            
            
            
            4,610Total
      ordinary shares, diluted
            
            
            63,713
            
            
            
            63,790
            
            
            
            63,684
            
            
            
            63,653Net
      income per ordinary share, basic
            
            $
            0.18
            
            
            $
            0.24
            
            
            $
            0.37
            
            
            $
            0.48Net
      income per ordinary share, diluted
            
            $
            0.17
            
            
            $
            0.22
            
            
            $
            0.35
            
            
            $
            0.45




The
Company excluded 4,359,832 and 3,978,473 stock options from the computation of
diluted net income per ordinary share for the three and six months ended
February 29, 2008, respectively, as their inclusion would have been
anti-dilutive. The Company excluded 2,014,548 and 1,826,999 stock options from
the computation of diluted net income per ordinary share for the three and six
months ended March 2, 2007, respectively, as their inclusion would have been
anti-dilutive.




10


NOTE
4 — Inventories




Inventories
consist of the following as of February 29, 2008 and August 31, 2007 (in
thousands):




February
      29,
              2008
            
            
            August
      31,
              2007Raw
      materials
            
            $
            25,574
            
            
            $
            27,477Work-in
      process
            
            
            6,908
            
            
            
            4,815Finished
      goods
            
            
            29,374
            
            
            
            32,813$
            61,856
            
            
            $
            65,105






NOTE
5 — Income Taxes




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




Three
      Months
              Ended
              February
      29,
              2008
            
            
            Three
      Months
              Ended
              March
      2,
              2007
            
            
            Six
      Months
              Ended
              February
      29,
              2008
            
            
            Six
      Months
              Ended
              March 2,
              2007Current
            
            $
            1,529
            
            
            $
            2,439
            
            
            $
            4,197
            
            
            $
            4,947Deferred
            
            
            10
            
            
            
            946
            
            
            
            23
            
            
            
            1,345Total
            
            $
            1,539
            
            
            $
            3,385
            
            
            $
            4,220
            
            
            $
            6,292






Worldwide
income before provision for income taxes for the three and six months ended
February 29, 2008 and March 2, 2007, consisted of the following components (in
thousands):
   Three
      Months
                    Ended
                    February
      29,
                    2008
                  
                  
                  Three
      Months
                    Ended
                    March 2,
                    2007
                  
                  
                  Six
      Months
                    Ended
                    February
      29,
                    2008
                  
                  
                  Six
      Months
                    Ended
                    March 2,
                    2007U.S. income
                  
                  $
                  (1,516
                  )
                  
                  $
                  3,816
                  
                  
                  $
                  (6,127
                  )
                  
                  $
                  5,239Non-U.S. income
                  
                  
                  14,003
                  
                  
                  
                  13,539
                  
                  
                  
                  32,788
                  
                  
                  
                  29,576Total
                  
                  $
                  12,487
                  
                  
                  $
                  17,355
                  
                  
                  $
                  26,661
                  
                  
                  $
                  34,815
  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
Condensed Consolidated Balance Sheet for fiscal 2008.
  As of
February 29, 2008 and November 30, 2007, the total amount of unrecognized tax
benefits, included in other long-term liabilities on the accompanying unaudited
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
February 29, 2008, the Company expects no significant changes in the total
unrecognized tax benefits within the next 12 months.
  The
Company’s U.S. subsidiaries file federal and state income/franchise tax returns
in the U.S.  The tax periods ended August 2004 through August 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.
   11
 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.
   NOTE
6 – Indebtedness
  As of
February 29, 2008, the senior secured credit facility (WF Credit Facility) has
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
February 29, 2008, the senior secured floating rate notes due on April 2012 (the
Notes) has a balance of $81.3 million, and the Company was in compliance with
its covenants under these notes.
 NOTE
7 — Financial Instruments
  Fair
Value of Financial Instruments
  The fair value of the
Company’s cash, cash equivalents, accounts receivable, accounts payable and WF
Credit Facility approximates the carrying amount due to the relatively short
maturity of these items. The fair value of the Notes is based on a dealer quote
and approximates their carrying value as of February 29, 2008. 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.
  Derivative
Instruments


The
Company has entered into two interest swap agreements (The Swaps), one of which
is expired and one of which is outstanding.  The Swaps are for $41.3
million and $40.0 million in notional amounts (Notional Amounts) and expire on
April 1, 2008 and April 28, 2010 (Expiration Dates), respectively. The Company
entered into the Swaps in order to hedge a portion of its future cash flows
against interest rate exposure resulting from the Notes. Under the terms of the
Swaps, the Company pays fixed interest rates of 9.78% and 9.97% related to the
above Notional Amounts, respectively. In exchange, the Company receives a
variable interest rate equal to the 3-month LIBOR rate plus 5.50%. The Swaps
effectively replace the variable interest rate on $81.3 million of the Notes
with fixed interest rates through the respective Expiration Dates. The Swaps
have been accounted for as cash flow hedges under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities.The swap that expired on April 1, 2008 became ineffective as a hedge as
defined under the provisions of SFAS No. 133 at the end of the first fiscal
quarter.  Accordingly, the Company recorded the change in fair market
value of this swap to other expense in its unaudited consolidated statement of
operations for the three and six months ended February 29, 2008.  The
charges were insignificant.  During the period of swap effectiveness,
the changes in fair values were reflected in other comprehensive
income.  Since the remaining term of the ineffective swap was
relatively short, changes in fair value over the remaining term was not
significant and the Company did not expect this swap to be highly effective over
its remaining term and continued to record changes in its fair value to other
income or expense.  The balance in other comprehensive income for this
swap was recognized in other income or expense as and when the forecasted
transaction occur.




The total
fair value of the outstanding derivative instruments referred to above was a
liability of approximately $(1.5) million and an asset of approximately $0.6
million as of February 29, 2008 and August 31, 2007, respectively.




For all
derivative transactions, the Company is exposed to counterparty credit risk. To
manage such risk, the Company limits its derivative transaction counterparties
to major financial institutions. The Company does not expect to experience any
material adverse financial consequences 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.




12


The
following table reconciles the changes in the Company’s accrued warranty (in
thousands):
  Six
      Months
                      Ended
                      February
      29, 2008Balance
      of accrual at August 31, 2007
                    
                    $
                    589Warranty
      claims
                    
                    
                    (387
                    )Provision
      for product warranties
                    
                    
                    494Balance
      of accrual at February 29, 2008
                    
                    $
                    696
  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
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,
includingthose 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 cases listed
below, and accordingly no provision for any potential loss which may result from
the resolution of these matters has been recorded in the accompanying condensed
consolidatedfinancial 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, annual results of
operations or cash flows.
 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
   13
 -  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 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.
 
 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 damages and injunctive
relief.  The district court action has been stayed pending the
completion of the ITC action.
 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 on a company wide basis. A summary of the
Company’s net sales and property and equipment by geographic area is as follows
(in thousands):


Three
      Months
              Ended
              February
      29, 2008
            
            
            Three
      Months
              Ended
              March
      2,
              2007
            
            
            Six
      Months
              Ended
              February
      29, 2008
            
            
            Six
      Months
              Ended
              March2,
              2007Geographic
      net sales:U.S.A.
            
            $
            92,505
            
            
            $
            147,810
            
            
            $
            197,783
            
            
            $
            302,579Other
      North and Latin America
            
            
            28,102
            
            
            
            43,412
            
            
            
            58,680
            
            
            
            74,556Europe
            
            
            15,277
            
            
            
            16,190
            
            
            
            31,081
            
            
            
            35,416Asia
            
            
            23,682
            
            
            
            31,725
            
            
            
            46,973
            
            
            
            63,756$
            159,566
            
            
            $
            239,137
            
            
            $
            334,517
            
            
            $
            476,307






February
      29,
              2008
            
            
            August
      31,
              2007Property
      and equipment, net:U.S.A.
            
            $
            6,664
            
            
            $
            6,591Other
      North and Latin America
            
            
            27,694
            
            
            
            22,322Europe
            
            
            42
            
            
            
            24Asia
            
            
            4,557
            
            
            
            4,651$
            38,957
            
            
            $
            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.




14


Three
      Months
              Ended
              February
      29,
              2008
            
            
            Three
      Months
              Ended
              March
      2,
              2007
            
            
            Six
      Months
              Ended
              February
      29,
              2008
            
            
            Six
      Months
              Ended
              March
      2,
              2007Customer
      A
            
            
            44
            %
            
            
            45
            %
            
            
            45
            %
            
            
            49
            %Customer
      B
            
            
            13
            %
            
            
            16
            %
            
            
            13
            %
            
            
            14
            %Customer
      C
            
            
            6
            %
            
            
            6
            %
            
            
            6
            %
            
            
            5
            %




As of February 29, 2008,
approximately 30%, 27% and 19% 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 could have a material adverse effect
on the Company’s business, financial condition and results of
operations.




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 — Subsequent Event




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 definitive
agreement between the Company’s subsidiary and Adtron was announced on February
13, 2008.  The acquisition was an all-cash transaction of
approximately $20 million with up to an additional $15 million in payments
dependent on Adtron’s achievement of financial and operational milestones in
calendar year 2008.






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, as well as through our agreements with third-party
manufacturers in India and China. Our global operations enable us to rapidly
respond to our customers’ requirements worldwide.




15


Key
Business Metrics




The
following is a brief description of the major components of the key line items
in our financial statements.




Net
Sales
 We
generate our product revenues from sales of our subsystems, including memory
modules and flash memory cards, 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 sales due to higher levels of depreciation expense. Cost of
sales also includes any inventory write-downs. We may write-down inventory for a
variety of reasons, including obsolescence, excess quantities and declines in
market value below our cost.




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 our research and development expenses to increase in fiscal 2008,
principally as a result of increased spending on engineering efforts related to
our embedded computing and TFT-LCD display products.




Selling,
General and Administrative Expenses




Selling,
general and administrative, or SG&A, 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. We anticipate that our general and administrative expenses
will increase in fiscal 2008 as we continue to grow our
organization.




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, 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.


16
 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
general inventory risk; have the ability to set the price; have the ability to
determine who the suppliers are; can physically change the product; or have
credit risk.




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






Three
      Months Ended
            
            
            Six
      Months EndedFebruary
      29,
            
            
            March
      2,
            
            
            February
      29,
            
            
            March
      2,2008
            
            
            2007
            
            
            2008
            
            
            2007Product
      net sales
            
            $
            148,793
            
            
            $
            225,256
            
            
            $
            312,603
            
            
            $
            449,704Service
      revenue
            
            
            10,773
            
            
            
            13,881
            
            
            
            21,914
            
            
            
            26,603Net
      sales
            
            
            159,566
            
            
            
            239,137
            
            
            
            334,517
            
            
            
            476,307Plus:
      Cost of sales(1)
            
            
            188,284
            
            
            
            315,974
            
            
            
            452,329
            
            
            
            575,710Gross
      billing to customers
            
            $
            347,850
            
            
            $
            555,111
            
            
            $
            786,846
            
            
            $
            1,052,017


____________




(1)
            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
quantities 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. 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 contractual arrangements with our customers, including our
ability or inability to re-sell such inventory to them. If actual market
conditions or our customers’ product demands are less favorable than those
projected or if our customers are unwilling or unable to comply with any
contractual arrangements related to their purchase 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.




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.






17


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 six months
ended February 29, 2008 and March 2, 2007 (in millions):




Three Months
      Ended
            
            
            Six Months
      EndedFebruary
      29,
            
            
            March
      2,
            
            
            February
      29,
            
            
            March
      2,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      sales
            
            $
            159.6
            
            
            $
            239.1
            
            
            $
            334.5
            
            
            $
            476.3Cost
      of sales
            
            
            127.2
            
            
            
            198.0
            
            
            
            268.6
            
            
            
            397.2Gross
      profit(1)
            
            
            32.4
            
            
            
            41.2
            
            
            
            65.9
            
            
            
            79.1Research
      and development
            
            
            4.6
            
            
            
            4.5
            
            
            
            9.3
            
            
            
            8.5Selling,
      general and administrative
            
            
            14.3
            
            
            
            16.8
            
            
            
            29.4
            
            
            
            31.0Total
      operating expenses(1)
            
            
            19.0
            
            
            
            21.2
            
            
            
            38.7
            
            
            
            39.5Income
      from operations
            
            
            13.4
            
            
            
            20.0
            
            
            
            27.2
            
            
            
            39.6Interest
      expense, net
            
            
            (1.3
            )
            
            
            (2.3
            )
            
            
            (2.4
            )
            
            
            (4.4
            )Other
      income (expense), net
            
            
            0.4
            
            
            
            (0.3
            )
            
            
            1.8
            
            
            
            (0.3
            )Total
      other expense, net(1)
            
            
            (0.9
            )
            
            
            (2.6
            )
            
            
            (0.6
            )
            
            
            (4.8
            )Income
      before provision for income taxes
            
            
            12.5
            
            
            
            17.4
            
            
            
            26.6
            
            
            
            34.8Provision
      for income taxes
            
            
            1.5
            
            
            
            3.4
            
            
            
            4.2
            
            
            
            6.3Net
      income
            
            $
            11.0
            
            
            $
            14.0
            
            
            $
            22.4
            
            
            $
            28.5


____________




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






18


Three
and Six Months Ended February 29, 2008 as Compared to the Three and Six
Months
Ended March 2, 2007




Net
Sales




Net sales
for the three months ended February 29, 2008 were $159.6 million, or a 33%
decrease from $239.1 million for the three months ended March 2, 2007. This
decrease was primarily due to a $72.9 million and $8.6 million decline in net
sales to our OEM customers and reseller business, respectively. The overall
decline in our net sales was primarily driven by falling average selling prices
of DRAM integrated circuits (ICs) and slower than expected growth in sales of
high density server modules, partially offset by an increase in unit sales
volume and net sales increase in our display products.




Net sales
for the six months ended February 29, 2008 were $334.5 million, or a 30%
decrease from $476.3 million for the six months ended March 2, 2007. This
decrease was primarily due to a $126.6 million and $17.2 million decline in net
sales to our OEM customers and reseller business, respectively. The overall
decline in our net sales was primarily driven by falling average selling prices
of DRAM integrated circuits (ICs), partially offset by an increase in unit sales
volume and net sales increase in our display products.




Cost
of Sales




Cost of
sales for the three months ended February 29, 2008 was $127.2 million, or a 36%
decrease from $198.0 million for the three months ended March 2, 2007. Cost of
sales as a percent of net sales decreased to 80% for the three months ended
February 29, 2008, from 83% for the three months ended March 2, 2007. The
decrease in cost of sales was principally due to a $68.6 million decline in cost
of sales to our OEM customers and a release of $2.2 million related to pricing
reconciliation from prior periods.  The $2.2 million liability
reversal was the result of the extinguishment of unsettled amounts under prior
pricing reconciliations periods.




Cost of
sales for the six months ended February 29, 2008 was $268.6 million, or a 32%
decrease from $397.2 million for the six months ended March 2, 2007. Cost of
sales as a percent of net sales decreased to 80% for the six months ended
February 29, 2008, from 83% for the six months ended March 2, 2007. The decrease
in cost of sales was principally due to a $126.4 million decline in cost of
sales to our OEM customers and a release of $2.2 million related to pricing
reconciliation from prior periods.  The $2.2 million liability
reversal was the result of the extinguishment of unsettled amounts under prior
pricing reconciliations periods.




Gross
Profit




Gross
profit for the three months ended February 29, 2008 was $32.4 million, or a 21%
decrease from $41.2 million for the three months ended March 2, 2007. Gross
margin percentage increased from 17% for the three months ended March 2, 2007 to
20% for the three months ended February 29, 2008. The decrease in gross profit
was primarily due to the lower net sales to our OEM customers, while the
increase in gross margin percentage was principally due to lower average selling
prices.




Gross
profit for the six months ended February 29, 2008 was $66.0 million, or a 17%
decrease from $79.1 million for the six months ended March 2, 2007. Gross margin
percentage increased from 17% for the six months ended March 2, 2007 to 20% for
the six months ended February 29, 2008. The decrease in gross profit was
primarily due to the lower net sales to our OEM customers, while the increase in
gross margin percentage was principally due to lower average selling
prices.




Research
and Development Expenses
  Research
and development, or R&D, expenses for the three months ended February 29,
2008 were $4.6 million, or a 4% increase from $4.5 million for the three months
ended March 2, 2007. This increase was primarily due to an approximately $0.1
million increase in stock-based compensation expense.




R&D
expenses for the six months ended February 29, 2008 were $9.3 million, or a 10%
increase from $8.5 million for the six months ended March 2, 2007. This $0.8
million increase was due mainly to a net increase in R&D material charges
and R&D headcount and annual pay raises of approximately $0.5 million and
approximately $0.3 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
February 29, 2008 were $14.3 million, or a 14% decrease from $16.8 million for
the three months ended March 2, 2007. SG&A decreased by $2.5 million, mainly
due to a corresponding decrease in sales volume and related commission expense
of $0.4 million, a decrease of $0.4 million in travel related expenses, a
decrease of approximately $0.8 million in offering expenses incurred during the
second quarter of fiscal 2007 in connection with our secondary share offering,
and a decrease of approximately $1.5 million in accounting and consulting
expenses and other support costs, partially offset by an increase of $0.4
million in incremental stock-based compensation expense and an increase of $0.2
million in payroll and related costs due to an increase in headcount and
annual pay raises.




19


SG&A
expenses for the six months ended February 29, 2008 were $29.4 million, or a 5%
decrease from $31.0 million for the six months ended March 2, 2007. SG&A
decreased by $1.6 million, mainly due to a corresponding decrease in sales
volume and related commission expense of $0.6 million, a decrease of $0.7
million in travel related expenses, a decrease in approximately $0.8 million in
offering expenses incurred during the second quarter of fiscal 2007 in
connection with our secondary share offering, and a decrease of approximately
$1.0 million in accounting and other support costs, partially offset by an
increase of  $0.9 million in incremental stock-based compensation
expense and an increase of $0.7 million in payroll and related costs due to an
increase in headcount and annual pay raises.




Interest
Expense, Net




Net
interest expense for the three months ended February 29, 2008 was $1.3 million,
compared to $2.3 million for the three months ended March 2, 2007. This decrease
was principally due to a $0.7 million increase in interest income as a result of
increased cash balances and a decrease in interest expense of $0.3 million
primarily related to reduced borrowings under our senior secured credit
facility.




Net
interest expense for the six months ended February 29, 2008 was $2.4 million,
compared to $4.4 million for the six months ended March 2, 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 $0.5 million
primarily related to reduced borrowings under our senior secured credit
facility.




Other
Income (Expense), Net




Net other
income (expense) for the three months ended February 29, 2008 was $0.4 million
compared to approximately $(0.3) million for the three months ended March 2,
2007. The $0.6 million increase in other income was primarily driven by foreign
currency transaction gains.




Net other
income (expense) for the six months ended February 29, 2008 was $1.8 million
compared to approximately $(0.3) million for the six months ended March 2, 2007.
The $2.1 million increase in other income was primarily driven by foreign
currency transaction gains.




Provision
for Income Taxes




The
effective tax rates for the three months ended February 29, 2008 and March 2,
2007 were approximately 12% and 20% respectively.  The effective tax
rates for the six months ended February 29, 2008 and March 2, 2007 were
approximately 16% and 18% respectively.  The effective tax rate
differs from the 35% U.S. statutory tax rate principally due to profits being
generated in non-U.S. lower tax rate jurisdictions.  The decline in
our effective tax rates was principally due to a higher portion of our profits
being generated in lower tax rate jurisdictions for the three and six months
ended February 29, 2008, when compared to the three and six months ended March
2, 2007.  For the three months ended February 29, 2008, we recorded
non-U.S. pre-tax income of $14.0 million and a U.S. pre-tax loss of $1.5
million, and for the six months ended February 29, 2008, we recorded non-U.S.
pre tax income of $32.8 million and a U.S. pre-tax loss of $6.1
million.  We did not recognize a deferred tax benefit on the U.S.
pre-tax loss for the three and the six months ended February 29,
2008.






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
February 29, 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
approximately $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.






20


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 February 29,
2008.




Senior
Secured Wells Fargo Credit 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.




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 therefrom 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 February 29, 2008, our cash and cash equivalents
were approximately $155.0 million.
 Cash
Flows from Operating Activities.Net
cash provided by operating activities was $19.8 million for the six months ended
February 29, 2008, compared to net cash provided by operating activities of
$25.4 million for the six months ended March 2, 2007. The change was principally
the result of a decrease in net income of $6.1 million, together with decreases
in the changes in operating assets and liabilities of $2.4 million, partially
offset by increases in adjustment for non-cash charges of $2.9 million mainly
associated with stock-based compensation and depreciation and
amortization.


Cash
Flows from Investing Activities.Net cash used in investing activities
was $9.6 million for the six months ended February 29, 2008, compared to net
cash used in investing activities of approximately $5.2 million for the six
months ended March 2, 2007. The change was primarily the result of an increased
level of capital expenditures of approximately $4.4 million during the six
months ended February 29, 2008.




Cash
Flows from Financing Activities.Net cash provided by financing
activities was $0.3 million for the six months ended February 29, 2008, compared
to $1.5 million in net cash provided by financing activities for the six months
ended March 2, 2007. The change was mainly related to approximately $0.6 million
decrease in excess tax benefit from stock-based compensation and $0.6 million
decrease in proceeds from option exercises during the six months ended February
29, 2008, when compared to the six months ended March 2,
2007.




21


Contractual
Obligations




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




Payments
Due by Period




Payments
      Due by Period1 Year
            
            
            2-3 Years
            
            
            4-5 Years
            
            
            After
      5 Years
            
            
            Total(In
      millions)Total
      debt
            
            $
            —
            
            
            $
            —
            
            
            $
            81.3
            
            
            $
            —
            
            
            $
            81.3Interest
      expense cash obligations in connection with long-term debt and related
      interest rate 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 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.






22


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 will result in an increase in annual interest expense
and a decrease in our cash flows and income before taxes of approximately $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 Senior Vice President and 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. 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.








23


PART
II. OTHER INFORMATION




Item
1. Legal Proceedings




See Note
8 of our Notes to 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 writeoffs 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;•
            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;






24


•
            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. 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, announced in February 2008 that he would be resigning effective
mid-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.  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.




25


Item
4.  Submission of Matters to a Vote of Security Holders




At our
Annual General Meeting of Shareholders held on January 16, 2008, the following
actions were taken:




1.           Election
of the Board of Directors comprised of the following members:


Nominee
            
            Votes
      For
            
            Votes
      WithheldIain
      MacKenzie
            
            51,258,021
            
            7,377,243Ajay
      Shah
            
            47,409,603
            
            11,225,661Dipanjan
      Deb
            
            49,478,008
            
            9,157,256Eugene
      Frantz
            
            47,629,863
            
            11,005,401Harry
      W. (Webb) McKinney
            
            56,936,744
            
            1,698,520D.
      Scott Mercer
            
            56,752,305
            
            1,882,959Dr.
      C.S. Park
            
            56,935,744
            
            1,699,520Mukesh
      Patel
            
            49,261,112
            
            9,374,152Clifton
      Thomas Weatherford
            
            56,220,942
            
            2,414,322




2.           Vote
to ratify the selection of KPMG LLP as independent registered public accounting
firm of the Company for the fiscal year ending August 29, 2008.


Votes
      For
            
            Votes
      Against
            
            Abstain58,590,696
            
            32,408
            
            12,160






26


Item
6. Exhibits




The
following exhibits are filed herewith:




Exhibit
      No.
            
            Exhibit
      Title10.24
            
            Agreement
      and Plan of Merger, dated February 12, 2008, by and among Adtron
      Corporation, SMART Modular Technologies, Inc., and Armor Acquisition
      Corporation (“Merger Sub”) and Alan Fitzgerald (“Equity Holders’
      Representative”)31.1
            
            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 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 Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002






27


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/
      JACK A. PACHECOName:
              Jack A.
      PachecoTitle:
              Senior Vice
      President and Chief Financial Officer




Date: April4,
2008






28


EXHIBIT
INDEX




Exhibit
      No.
            
            Exhibit
      Title10.24
            
            Agreement
      and Plan of Merger, dated February 12, 2008, by and among Adtron
      Corporation, SMART Modular Technologies, Inc., and Armor Acquisition
      Corporation (“Merger Sub”) and Alan Fitzgerald (“Equity Holders’
      Representative”)31.1
            
            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 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 Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002






29


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:
April4,
2008


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




30


Exhibit
31.2




CERTIFICATIONS
PURSUANT TO SECTION 302 OF


THE
SARBANES-OXLEY ACT OF 2002




I, Jack
A. Pacheco, 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: April4,
2008


By:
              /s/
      JACK A. PACHECOName:
              Jack A.
      PachecoTitle:
              Senior Vice
      President and Chief Financial
Officer


31


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 Jack A. Pacheco, the 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: April4,
2008


By:
              /s/
      IAIN MACKENZIEName:
              Iain
      MacKenzieTitle:
              President and
      Chief Executive Officer
  By:
                /s/
      JACK A. PACHECOName:
                Jack A.
      PachecoTitle:
                Senior Vice
      President and Chief Financial
Officer
 32