UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549
 ________________
  Form
10-Q
  
 þ
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the Quarterly Period Ended
      November 28, 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 January 2, 2009 was
61,649,559.
 
  
     SMART
MODULAR TECHNOLOGIES (WWH), INC.
  INDEX
TO QUARTERLY REPORT
  TABLE
OF CONTENTS
  PagePART I.
      FINANCIAL INFORMATION
              1Item
      1. Financial Statements
              1Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
              17Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
              24Item
      4. Controls and Procedures
              24PART
      II. OTHER INFORMATION
              25Item
      1. Legal Proceedings
              25Item
      1A. Risk Factors
              25Item
      5. Other Information
              25Item
      6. Exhibits
              25SIGNATURES
              26
     
  PART I.
FINANCIAL INFORMATION
  Item 1. Financial
Statements
  SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
  CONDENSED
CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 
 November
      28,
                2008
              
              
              August
      29,
                2008(In
      thousands)ASSETSCash
      and cash equivalents
              
              $
              137,261
              
              
              $
              115,994Accounts
      receivable, net of allowances of $2,104 and $1,517 as of November
      28,
                2008
      and August 29, 2008, respectively
              
              
              149,245
              
              
              
              193,736Inventories
              
              
              78,533
              
              
              
              62,430Prepaid
      expenses and other current assets
              
              
              12,151
              
              
              
              14,973Total
      current assets
              
              
              377,190
              
              
              
              387,133Property
      and equipment, net
              
              
              32,549
              
              
              
              39,317Goodwill
              
              
              —
              
              
              
              7,210Other
      intangible assets, net
              
              
              8,296
              
              
              
              8,545Other
      non-current assets
              
              
              4,806
              
              
              
              4,943Total
      assets
              
              $
              422,841
              
              
              $
              447,148LIABILITIES
      AND SHAREHOLDERS’ EQUITYAccounts
      payable
              
              $
              94,752
              
              
              $
              93,482Accrued
      expenses and other current liabilities
              
              
              20,923
              
              
              
              23,942Total
      current liabilities
              
              
              115,675
              
              
              
              117,424Long-term
      debt
              
              
              81,250
              
              
              
              81,250Other
      long-term liabilities
              
              
              1,915
              
              
              
              1,568Total
      liabilities
              
              
              198,840
              
              
              $
              200,242Shareholders’
      equity:Ordinary
      shares,  $0.00016667 par value; 600,000,000 shares authorized;
      61,620,775
                and 61,361,137 shares issued and
      outstanding as of November 28, 2008 and
                August 29, 2008,
      respectively
              
              
              10
              
              
              
              10Additional
      paid-in capital
              
              
              102,427
              
              
              
              100,234Deferred
      stock-based compensation
              
              
              (58
              )
              
              
              (91
              )Accumulated
      other comprehensive income (loss)
              
              
              (4,121
              )
              
              
              14,132Retained
      earnings
              
              
              125,743
              
              
              
              132,621Total
      shareholders’ equity
              
              
              224,001
              
              
              
              246,906Total
      liabilities and shareholders’ equity
              
              $
              422,841
              
              
              $
              447,148
 
 
 See
accompanying notes to unaudited condensed consolidated financial
statements.
     1
     SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
  Three
      Months
                Ended
                November
      28,
                2008
              
              
              Three
      Months
                Ended
                November
      30,
                2007(In
      thousands, except per share data)Net
      sales
              
              $
              140,775
              
              
              $
              177,373Cost
      of sales *
              
              
              114,959
              
              
              
              143,279Gross
      profit
              
              
              25,816
              
              
              
              34,094Research
      and development *
              
              
              5,436
              
              
              
              4,685Selling,
      general and administrative *
              
              
              14,467
              
              
              
              15,061Restructuring
      charges
              
              
              886
              
              
              
              —Impairment
      of goodwill
              
              
              7,210
              
              
              
              —Total
      operating expenses
              
              
              27,999
              
              
              
              19,746Income
      (loss) from operations
              
              
              (2,183
              )
              
              
              14,348Interest
      expense
              
              
              (2,355
              )
              
              
              (2,423
              )Interest
      income
              
              
              603
              
              
              
              1,399Other
      income (expense), net
              
              
              (766
              )
              
              
              1,422Total
      other income (expense), net
              
              
              (2,518
              )
              
              
              398Income
      (loss) before provision for income taxes
              
              
              (4,701
              )
              
              
              14,746Provision
      for income taxes
              
              
              2,177
              
              
              
              2,681Net
      income (loss)
              
              $
              (6,878
              )
              
              $
              12,065Net
      income (loss) per ordinary share, basic
              
              $
              (0.11
              )
              
              $
              0.20Shares
      used in computing basic net income (loss) per ordinary
    share
              
              
              61,507
              
              
              
              60,695Net
      income (loss) per ordinary share, diluted
              
              $
              (0.11
              )
              
              $
              0.19Shares
      used in computing diluted net income (loss) per ordinary
    share
              
              
              61,507
              
              
              
              63,656____________
                * Stock-based compensation by
      category:Cost
      of sales
              
              $
              201
              
              
              $
              178Research
      and development
              
              
              431
              
              
              
              387Selling,
      general and administrative
              
              
              1,155
              
              
              
              1,074
  See
accompanying notes to unaudited condensed consolidated financial
statements.
     2
     SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (Unaudited)
  Three
      Months
                Ended
                November
      28,
                2008
              
              Three
      Months
                Ended
                November
      30,
                2007Net
      income (loss)
              
              $
              (6,878
              )
              
              $
              12,065Other
      comprehensive income (loss):Net
      changes in unrealized gain or loss on derivative instruments accounted for
      as cash flow hedges
              
              
              (345
              )
              
              
              (741
              )Foreign
      currency translation adjustments
              
              
              (17,908
              )
              
              
              3,305Comprehensive
      income (loss)
              
              $
              (25,131
              )
              
              $
              14,629
  See
accompanying notes to unaudited condensed consolidated financial
statements.
     3
     SMART
MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 
 
 Three
                Months
                Ended
                November
      28,
                2008
              
              
              Three
                Months
                Ended
                November
      30,
                2007(In
      thousands)Cash
      flows from operating activities:Net
      cash provided by (used in) operating activities
              
              $
              28,639
              
              
              $
              (26,902
              )Cash
      flows from investing activities:Capital
      expenditures
              
              
              (3,773
              )
              
              
              (3,828
              )Cash
      deposits on equipment
              
              
              (795
              )
              
              
              (1,311
              )Proceeds
      from sale of property and equipment
              
              
              60
              
              
              
              —Net
      cash used in investing activities
              
              
              (4,508
              )
              
              
              (5,139
              )Cash
      flows from financing activities:Proceeds
      from issuance of ordinary shares from stock option
    exercises
              
              
              439
              
              
              
              86Excess
      tax benefits from share-based compensation
              
              
              —
              
              
              
              71Borrowings
      under revolving line of credit
              
              
              —
              
              
              
              11,500Repayments
      on revolving line of credit
              
              
              —
              
              
              
              (11,500
              )Net
      cash provided by financing activities
              
              
              439
              
              
              
              157Effect
      of exchange rate changes on cash and cash equivalents
              
              
              (3,303
              )
              
              
              551Net
      increase (decrease) in cash and cash equivalents
              
              
              21,267
              
              
              
              (31,333
              )Cash
      and cash equivalents at beginning of period
              
              
              115,994
              
              
              
              144,147Cash
      and cash equivalents at end of period
              
              $
              137,261
              
              
              $
              112,814Supplemental
      disclosures of cash flow information:Non-cash
      activities:Decline
      in fair value of derivative instruments
              
              
              377
              
              
              
              1,030Cash
      paid during the period for:Interest
              
              
              1,880
              
              
              
              2,211Income
      taxes
              
              
              2,121
              
              
              
              2,251
 
 See
accompanying notes to unaudited condensed consolidated financial
statements.
  4
  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
November 28, 2008 and August 29, 2008 and for the three months ended November
28, 2008 and November 30, 2007. These unaudited condensed consolidated financial
statements have been prepared by the Company in accordance with generally
accepted accounting principles in the United States. The results of operations
for the interim periods shown in this report are not necessarily indicative of
results to be expected for the full fiscal year ending August 28, 2009. In the
opinion of the Company’s management, the unaudited interim financial statements
reflects all adjustments, consisting only of normal, recurring adjustments
necessary for a fair statement of the financial position, results of operations
and cash flows for the periods indicated. The interim unaudited condensed
consolidated financial statements should be read in conjunction with the
Company’s audited consolidated financial statements as of and for the year ended
August 29, 2008, which are included in the Annual Report on Form 10-K filed with
the Securities and Exchange Commission (SEC).
  The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries and operations
located in Phoenix, Arizona; Fremont, California; Irvine, California; Tewksbury,
Massachusetts; South Korea; Scotland; Puerto Rico; Malaysia; and
Brazil.  All financial information for one of the Company’s
subsidiaries, SMART Modular Technologies Indústria de Componentes Eletrônicos
Ltda. (SMART Brazil) is included in the Company’s consolidated financial
statements on a one month lag.  The effect of the one month lag for
the operations of SMART Brazil is not significant to the Company’s financial
position and results of operations.  All intercompany balances and
transactions have been eliminated upon consolidation.
  The
preparation of unaudited condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United Statesrequires
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 (“SAB104”). Under SAB 104, product revenue is recognized when
persuasive evidence of an arrangement exists, 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 transactions with select customers that are
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 $198.2 million and
$275.2 million for the three months ended November 28, 2008 and November 30,
2007, respectively. Total service revenue recorded for the three months ended
November 28, 2008 and November 30, 2007 amounted to approximately $12.0 million
and $11.1 million, respectively.
 
 Recent Accounting Pronouncements
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value
Measurement.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. SFAS No. 157 does
not require any new fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. However, in February 2008, the FASB issued FASB Staff
Positions (“FSP”) 157-1 and 157-2. FSP 157-1 amends SFAS No. 157 to exclude
SFAS No. 13, “Accounting
for Leases,” and its related interpretive accounting pronouncements that
address leasing transactions, while FSP 157-2 delays the effective date of the
application of SFAS No. 157 to fiscal years beginning after
November 15, 2008 for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually).
 5
  The
Company adopted SFAS No. 157 as of August 30, 2008, with the exception of
the application of the statement to non-recurring nonfinancial assets and
nonfinancial liabilities. The Company elected the one-year deferral option and
thus will not apply the provisions of SFAS No. 157 to nonfinancial assets
and nonfinancial liabilities that are recognized at fair value in the financial
statements on a non-recurring basis until the fiscal year beginning August 29,
2009. Non-recurring nonfinancial assets and nonfinancial liabilities for which
the Company has not applied the provisions of SFAS No. 157 include those
measured at fair value in goodwill impairment testing, intangible assets
measured at fair value for impairment, and those initially measured at fair
value in a business combination.
 
 SFAS
No. 157 establishes a valuation hierarchy for disclosure of the inputs to
valuation used to measure fair value. This hierarchy prioritizes the inputs into
three broad levels as follows.
 
 Level 1:
Quoted market prices in active markets for identical assets or
liabilities
 
 Level 2:
Observable market based inputs or unobservable inputs that are corroborated by
market data
 
 Level 3:
Unobservable inputs that are not corroborated by market data
 
 The
adoption of SFAS No. 157 did not have a material impact on our consolidated
results of operations and financial condition.
  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.  SFAS 159 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 has elected the option not to
measure eligible financial instruments at fair value allowable under SFAS 159
and believes that this election will not have a material 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. EITF 07-3 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.
EITF 07-3 is to be applied prospectively to new contractual arrangements entered
into beginning in fiscal 2009. The adoption of EITF 07-3 did not have a material
impact on our consolidated results of operations and financial
condition.
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS
141R”).  SFAS 141R establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree.  SFAS 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  The provisions of SFAS 141R are effective for financial
statements issued for fiscal years beginning on or after December 15,
2008.  SFAS 141R will be applied to business combinations occurring
after the effective date and the Company will apply SFAS 141R as of that
time. Early adoption is not permitted.
  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research
Bulletin No. 51 (“SFAS 160”).  SFAS 160 will change the accounting and
reporting of minority interests, which will be recharacterized as noncontrolling
interests and classified as a component of equity.  The provisions of
SFAS 160 are effective for financial statements issued for fiscal years
beginning after December 15, 2008.  SFAS 160 is effective for the
Company beginning in the first quarter of fiscal 2010.  Early adoption
is not permitted.  The adoption of SFAS 160 is not expected to have a
significant effect on the Company’s financial position or results of
operations.
 
 In
March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative
Instruments and Hedging Activities (“SFAS 161”).  SFAS 161
requires additional disclosures related to the use of derivative instruments,
the accounting for derivatives and how derivatives impact financial
statements.  The provisions of SFAS 161 are effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008.  SFAS 161 is effective for the Company beginning the first
fiscal quarter of fiscal 2010 and the Company will apply SFAS 161 as of that
time.
 
 In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”).  SFAS 162 identifies the
sources of accounting principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles (GAAP) in the U.S. (the GAAP
hierarchy). SFAS 162 is effective 60 days following the SEC approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles.  The
Company currently adheres to the GAAP hierarchy as presented in SFAS 162, and
does not expect its adoption will have a material impact on its consolidated
results of operations and financial condition.
 6
 NOTE
2 - Stock-Based Compensation
 
 Stock
Options
  The Company’s equity incentive plan provides for grants of options to employees
and independent directors of the Company to purchase (upon vesting) 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 November 28, 2008, there were 11,233,190 ordinary
shares reserved for issuance under this plan, of which 1,171,278 ordinary shares
represents the number of shares available for grant.
  Prior to fiscal 2006, the Company accounted for its stock-based compensation
plan using the intrinsic value method prescribed in Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to
Employees,and related pronouncements. Under this method, compensation
expense was recorded only if the deemed fair value of the underlying shares
exceeded the exercise price on the date of grant. Deferred stock-based
compensation expense is amortized on a straight-line basis over the vesting
period of each grant, generally four years.
  On August 27, 2005 (effective date), the Company adopted the FASB’s SFAS No.
123R, Share-Based
Payment, applying the prospective method, in which compensation cost is
recognized beginning with the effective date (a) based on the requirements of
SFAS No. 123R for all share-based payments granted or modified after the
effective date and (b) based on the requirements of the intrinsic value method
as prescribed in APB 25, and related interpretations, for all awards granted to
employees prior to the effective date of SFAS No. 123R that remain unvested on
the effective date. The Company adopted SFAS No. 123R prospectively because,
prior to the period of adoption, it was a non-public entity that used the
minimum value method for pro forma disclosure under the provisions of SFAS No.
123, and applied APB 25 for recognition purposes.
 
 Restricted
Stock Units (RSUs)
 
 The
Company’s equity incentive plan also provides for grants of RSUs, and, beginning
with the first quarter of fiscal 2009, the Company began issuing
performance-based and timed-based RSUs.  Generally, under the terms of
each RSU agreement, RSUs vest over a one year period and is subject to the
employee’s continuing service to the Company.  In accordance with SFAS
No. 123R, the cost of each RSU is determined using the fair value of the
Company’s ordinary share on the date of grant and compensation cost is
recognized over a deemed vesting period of one to two
years.  Performance-based RSUs are granted upon the Company’s
achievement of certain predetermined financial goals.  The Company
estimates the likelihood of such performance goals being achieved and recognizes
the related stock-based compensation cost for each reporting period, if
any.  The amount of stock-based compensation expense recognized in any
one period can vary based on the achievement or anticipated achievement of the
performance goals.  If such performance goals are not met or are not
expected to be met, then no compensation cost is recognized and any previously
recognized compensation expense is reversed.  The weighted average
grant date fair value of the 5,000 time-based RSUs granted during the three
months ended November 28, 2008 was $2.84 per RSU.  There was no
stock-based compensation cost related to the performance-based RSUs for the
three months ended November 28, 2008.
 
 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 three months ended November 28,
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:
 
 Three
      Months
                Ended
                November 28, 2008
              
              
              Three
      Months
                Ended
                November 30, 2007Stock
      options:Expected
      term (years)
              
              
              5.3
              
              
              
              5.0Expected
      volatility
              
              
              57
              %
              
              
              51
              %Risk-free
      interest rate
              
              
              2.01
              %
              
              
              3.74
              %Expected
      dividends
              
              
              —
              
              
              
              —
 
 7
 A summary
of option activity as of and for the three months ended November 28, 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 29, 2008
              
              
              8,458
              
              
              $
              5.72Options
      granted
              
              
              2,041
              
              
              
              2.83Options
      exercised
              
              
              (260
              )
              
              
              1.69Options
      forfeited
              
              
              (177
              )
              
              
              8.85Options
      outstanding at November 28, 2008
              
              
              10,062
              
              
              $
              5.18
              
              
              
              8.0
              
              
              $
              1,325Options
      exercisable at November 28, 2008
              
              
              4,325
              
              
              $
              4.21
              
              
              
              6.7
              
              
              $
              1,324Options
      vested and expected to vest at November 28, 2008
              
              
              9,431
              
              
              $
              5.14
              
              
              
              7.9
              
              
              $
              1,325
  The Black-Scholes weighted average fair value of the shares underlying options
granted during the three months ended November 28, 2008 and November 30, 2007
was $1.46 and $3.67 per option, respectively. The total intrinsic value of stock
options exercised during the three months ended November 28, 2008, and November
30, 2007 was approximately $0.2 million and $1.6 million, respectively. Upon the
exercise of options, the Company issues new ordinary shares from its authorized
shares.  Total SFAS No. 123R compensation expense recognized for the
three months ended November 28, 2008 and November 30, 2007 was approximately
$1.8 million and $1.6 million, respectively.
 
 A summary
of the status of the Company’s non-vested stock options as of November 28, 2008,
and changes during the three months ended November 28, 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 29, 2008
              
              
              4,328
              
              
              $
              4.38Non-vested
      stock options granted
              
              
              2,041
              
              
              
              1.46Vested
      stock options
              
              
              (454
              )
              
              
              4.18Forfeited
      stock options
              
              
              (177
              )
              
              
              5.20Non-vested
      stock options at November 28, 2008
              
              
              5,737
              
              
              $
              3.39
  As of
November 28, 2008, there was approximately $19.3 million of total unrecognized
compensation expense related to stock option compensation arrangements, which is
expected to be recognized over the weighted average period of 3.0 years. The
total fair value of shares underlying stock options vested during the three
months ended November 28, 2008 was approximately $1.9 million.
  NOTE
3 — Goodwill and Other Intangible Assets, net
 
 In
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”), the Company performs a goodwill impairment test of
its two reporting units (Memory, Embedded, & Display reporting unit and
Adtron reporting unit) annually during the fourth quarter of its fiscal year and
more frequently if an event or circumstance indicates that an impairment may
have occurred. Such events or circumstances may include significant adverse
changes in the general business climate, among others. The test is performed by
determining the fair value of the reporting unit based on estimated discounted
future cash flows and considering the market price of the Company’s ordinary
shares, and comparing the fair value to the carrying value of the reporting
unit, including goodwill.
  If the
fair value of each reporting unit is less than its carrying value, SMART then
allocates the fair value of the unit to all the assets and liabilities of the
unit (including any unrecognized intangible assets) as if the reporting unit’s
fair value was the purchase price to acquire the reporting unit. The excess of
the fair value of the reporting unit over the amounts assigned to its assets and
liabilities is the implied fair value of the goodwill. If the carrying amount of
the reporting unit’s goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized in an amount equal to that excess.
  Based on
the accelerated deterioration of the macroeconomic conditions, erosion of market
capitalization, the Company’s business outlook for fiscal 2009 and the broad
downward movement in equity valuations during the first fiscal quarter of 2009,
the Company conducted an impairment test of goodwill and determined that
goodwill from its Adtron reporting unit was impaired because the carrying amount
of the reporting unit’s goodwill exceeded its implied fair value. Accordingly, a
charge of $7.2 million was recorded in the condensed consolidated statement of
operations for the three months ended November 28, 2008.  In addition,
the Company conducted an impairment test of its intangible and other long-lived
assets as of November 28, 2008 in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, and found no impairment of intangible and
other long-lived assets.
 8
 Presented
below are the changes in the Company’s goodwill by reporting segment for the
there months ended November 28, 2008 (in thousands):
 
 August
      29, 2008
              
              
              Acquisition/
                (Impairment)
              
              
              November
      28, 2008Reporting
      unit:Memory,
      Embedded, & Display
              
              $
              —
              
              
              $
              —
              
              
              $
              —Adtron
              
              
              7,210
              
              
              
              (7,210
              )
              
              
              —Total
      Goodwill
              
              $
              7,210
              
              
              $
              (7,210
              )
              
              $
              —
 
 The
following table summarizes the gross amounts and accumulated amortization of
other intangible assets from the Adtron acquisition by type as of November 28,
2008 (in thousands):
  Weighted
      Avg. Life (years)
              
              
              Fair
      Value at Date of Acquisition
              
              
              Accumulated
      Amortization
              
              
              Carrying
      Value at November 28, 2008Amortized
      intangible assets:Leasehold
      interest
              
              
              3
              
              
              $
              260
              
              
              $
              61
              
              
              $
              199Product
      names
              
              
              9
              
              
              
              60
              
              
              
              6
              
              
              
              54Customer
      relationships
              
              
              10
              
              
              
              3,700
              
              
              
              270
              
              
              
              3,430Non-compete
      agreement
              
              
              2
              
              
              
              220
              
              
              
              78
              
              
              
              142Company
      trade name
              
              
              20
              
              
              
              2,040
              
              
              
              74
              
              
              
              1,966Technology
              
              
              7
              
              
              
              2,800
              
              
              
              295
              
              
              
              2,505Total
              
              
              11
              
              
              $
              9,080
              
              
              $
              784
              
              
              $
              8,296
  The
following table summarizes the gross amounts and accumulated amortization of
other intangible assets from the Adtron acquisition by type as of August 29,
2008 (in thousands):
 Weighted
      Avg. Life (years)
              
              
              Fair
      Value at Date of Acquisition
              
              
              Accumulated
      Amortization
              
              
              Carrying
      Value at August 29, 2008Amortized
      intangible assets:Leasehold
      interest
              
              
              3
              
              
              $
              260
              
              
              $
              41
              
              
              $
              219Product
      names
              
              
              9
              
              
              
              60
              
              
              
              3
              
              
              
              57Customer
      relationships
              
              
              10
              
              
              
              3,700
              
              
              
              185
              
              
              
              3,515Non-compete
      agreement
              
              
              2
              
              
              
              220
              
              
              
              55
              
              
              
              165Company
      trade name
              
              
              20
              
              
              
              2,040
              
              
              
              51
              
              
              
              1,989Technology
              
              
              7
              
              
              
              2,800
              
              
              
              200
              
              
              
              2,600Total
              
              
              11
              
              
              $
              9,080
              
              
              $
              535
              
              
              $
              8,545
 
 Amortization
expense related to identifiable intangible assets totaled approximately $0.2
million and zero for the three months ended November 28, 2008 and November 30,
2007, respectively.  Acquired intangibles with definite lives are amortized
on a straight-line basis over the remaining estimated economic life of the
underlying intangible assets.
  Estimated
amortization expenses of these intangible assets for the next five fiscal years
and all years thereafter are as follows (in thousands):
  Estimated
      Amortization Expense:Remainder
      of 2009
              
              $
              8212010
              
              
              1,0152011
              
              
              9362012
              
              
              8792013
              
              
              879Thereafter
              
              
              3,766Total
              
              $
              8,296
  9
 NOTE
4 — Net Income (Loss) Per Share
  Basic net
income per ordinary share is calculated by dividing net income by the weighted
average of ordinary shares outstanding during the period. Diluted net income per
ordinary share is calculated by dividing the net income by the weighted average
ordinary shares and dilutive potential ordinary shares outstanding during the
period. Dilutive potential ordinary shares consist of dilutive shares issuable
upon the exercise of outstanding stock options and vesting of restricted stock
units 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
                November28,
      2008
              
              
              Three
      Months
                Ended
                November
      30, 2007Numerator:Net
      income (loss)
              
              $
              (6,878)
              
              
              $
              12,065Denominator:Weighted
      average ordinary shares
              
              
              61,511
              
              
              
              60,695Less:
      Weighted average unvested RSU subject to repurchase
              
              
              (4)
              
              
              
              —Shares
      used in computing basic net income per share
              
              
              61,507
              
              
              
              60,695Effect
      of dilutive securities:Stock
      options
              
              
              —
              
              
              
              2,961Total
      ordinary shares, diluted
              
              
              61,507
              
              
              
              63,656Net
      income (loss) per ordinary share, basic
              
              $
              (0.11)
              
              
              $
              0.20Net
      income (loss) per ordinary share, diluted
              
              $
              (0.11)
              
              
              $
              0.19
  For the
computation of net loss per share for the three months ended November 28, 2008,
the Company excluded 9,386,269 shares underlying stock options from the
calculation of the net loss per share as their inclusion would have been
anti-dilutive. The Company excluded 3,597,773 shares underlying stock options
from the computation of diluted net income per ordinary share for the three
months ended November 30, 2007, as their inclusion would have been
anti-dilutive.
  NOTE
5 — Inventories
  Inventories
consist of the following as of November 28, 2008 and August 29, 2008 (in
thousands):
  November
      28,
                2008
              
              
              August
      29,
                2008Raw
      materials
              
              $
              25,896
              
              
              $
              28,122Work-in
      process
              
              
              6,855
              
              
              
              4,899Finished
      goods
              
              
              45,782
              
              
              
              29,409$
              78,533
              
              
              $
              62,430
  NOTE
6 — Income Taxes
  The
provision for income tax expense (benefit) is summarized as follows (in
thousands):
  Three
      Months
                Ended
                November
      28,
                2008
              
              
              Three
      Months
                Ended
                November
      30,
                2007Current
              
              $
              2,192
              
              
              $
              2,668Deferred
              
              
              (15
              )
              
              
              13Total
              
              $
              2,177
              
              
              $
              2,681
 
 10
 Worldwide
income (loss) before provision for income taxes for the three months ended
November 28, 2008 and November 30, 2007, consisted of the following components
(in thousands):
 
 Three
      Months
                Ended
                November
      28,
                2008
              
              
              Three
      Months
                Ended
                November
      30,
                2007U.S.
      loss
              
              $
              (12,329
              )
              
              $
              (4,611
              )Non-U.S.
      income
              
              
              7,628
              
              
              
              19,357Total
              
              $
              (4,701
              )
              
              $
              14,746
  The
effective tax rates for the three months ended November 28, 2008 and November
30, 2007 were approximately -46% (representing tax expense and a pre-tax loss)
and 19% respectively.  For the three months ended November 28, 2008, the
effective tax rate differs from the 35% U.S. statutory tax rate principally due
to losses in the United States generating no tax benefit (due to the full
valuation allowance on U.S. deferred tax assets) and the $7.2 million write-down
of non-deductible goodwill.  These special items increasing the effective
tax rate were partially offset by a decline in the effective tax rate from
profits being generated in non-U.S. lower tax rate jurisdictions. 
Excluding the impact of the $7.2 million charge for non-deductible goodwill
write down, the effective tax rate for the three months ended November 28, 2008
was 87%.  The increase in our effective tax rate was principally due
to these items as described above for the three months ended November 28, 2008,
when compared to the three months ended November 30,
2007.
  On
September 1, 2007, the Company adopted FIN No. 48, which clarifies the
accounting for uncertainty in income tax positions recognized in accordance with
SFAS No. 109.  The adoption of FIN No. 48 had no material effect on
the financial statements.  The Company recognized a $0.2 million net
decrease in 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 No. 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
November 28, 2008, the Company evaluated its valuation allowance in accordance
with SFAS No. 109 to determine if a change in circumstances caused a change in
judgment regarding the realization of deferred tax assets in future years. 
The Company has a cumulative loss for the current year plus the two preceding
years for the U.S.  A cumulative loss in recent years within the U.S.
represents significant evidence in evaluating the need for a valuation allowance
on U.S. net deferred tax assets.  As a result the Company continues to
record a full valuation allowance on its U.S. deferred tax assets.
  NOTE
7 – Indebtedness
  On
November 26, 2008, the First Amendment to Second Amended and Restated Loan and
Security Agreement (the "Amendment") was entered into by and among SMART Modular
Technologies, Inc., SMART Modular Technologies (Europe) Limited, and SMART
Modular Technologies (Puerto Rico) Inc., as borrowers, and Wells Fargo Bank,
National Association, as lender, arranger, administrative agent and security
trustee. Under the Amendment, certain changes were made to the Second Amended
and Restated Loan and Security Agreement dated April 30, 2007 to, among other
things, (i) decrease the amount available for borrowing by $15 million, from $50
million to $35 million (of which $10 million instead of $30 million may be in
the form of letters of credit), (ii) modify the calculation and levels of
certain financial covenants, (iii) modify the fees payable, (iv) modify the
calculation of, and increase, the interest rates applicable to loans and other
amounts outstanding, (v) further limit Restricted Payments, and (vi) limit
voluntary repayment and/or retirement of subordinated debt issued by the
Company. The amended financial covenants require that the borrowers maintain, as
of the end of each fiscal quarter, an Adjusted Quick Ratio equal to or greater
than 1.45, and, depending on the applicable fiscal quarter and based on the
preceding four fiscal quarters then ended, (i) an Adjusted EBITDA equal to or
greater than $30 million to $45 million, and (ii) a Funded Debt to Adjusted
EBITDA Ratio equal to or less than 2.25 to 3.00. The Base Rate Margin and LIBOR
Rate Margin were increased to 2% and 3%, respectively. As of November 28, 2008,
the revolving credit facility was undrawn and had available borrowing capacity
of $35 million and the Company was in compliance with its covenants under the
revolving credit facility.  This credit facility is available until April
30, 2010, unless earlier terminated.
 
 As of
November 28, 2008, the senior secured floating rate notes due on April 2012 (the
Notes) had a balance of $81.3 million.
  NOTE
8 — Financial Instruments
  Fair Value of Financial Instruments
  The fair
value of the Company’s cash, cash equivalents, accounts receivable, accounts
payable and Wells Fargo credit facility approximates the carrying amount due to
the relatively short maturity of these items. Cash and cash equivalents consist
of funds held in general checking accounts, money market accounts, certificates
of deposits and investments in securities 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 or auction rate
securities.
 11
 In
accordance with SFAS 157, the following table represents the Company’s fair
value hierarchy for our assets and liability measured on a recurring basis (in
millions):
 
 Quoted
      Prices in Active Markets for Identical Assets or Liabilities
                Level
      1
              
              
              Observable/
                Unobservable
      Inputs Corroborated by Market Data
                Level
      2
              
              
              Significant
      Unobservable Inputs Not Corroborated by Market Data
                Level
      3
              
              TotalAssets:Money
      market funds
              
              $
              48.6
              
              
              $
              —
              
              
              $
              —
              
              $
              48.6Certificates
      of deposit *
              
              
              37.7
              
              
              
              —
              
              
              
              —
              
              
              37.7Liabilities:Non-current variable-to-fixed interest rate swaps
              
              
              —
              
              
              
              (1.3
              )
              
              
              —
              
              
              (1.3)Total
              
              $
              86.3
              
              
              $
              (1.3
              )
              
              $
              —
              
              $
              85.0_____________
    Derivative Instruments
  The Company has previously entered into two interest swap agreements (the
Swaps), one of which is expired and one of which is outstanding. The expired
Swap, which expired on April 1, 2008, was for approximately $41.3 million
notional amount, and under its terms, the Company paid a fixed interest rate of
9.79% related to such notional amount. The unexpired Swap is for approximately
$40.0 million notional amount, has an expiration date of April 28, 2010 and
under its terms, the Company pays a fixed rate of 9.97% related to such notional
amount. 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. In
exchange, the Company receives interest income at a variable interest rate equal
to the 3-month LIBOR rate plus 5.50%. The Swaps essentially replaced the
variable interest rate on $81.3 million of the Notes with fixed interest rates
through the respective expiration dates. The Swaps were accounted for as cash
flow hedges under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The swap that expired on April 1,
2008 became ineffective as a hedge as defined under the provisions of SFAS No.
133 at the end of the first fiscal quarter of 2008. Accordingly, the Company
recorded an insignificant change in fair market value of this swap to other
expense in its consolidated statement of operations for the year ended
August 29, 2008. During the period of swap effectiveness, the changes in fair
values were reflected in other comprehensive income.
  The total fair value of the outstanding derivative instrument referred to above
was a liability of approximately $(1.3) million and $(1.0) million as of
November 28, 2008 and August 29, 2008, respectively.
  For
all derivative transactions, the Company is exposed to counterparty credit risk.
To manage such risk, the Company limits its derivative transaction
counterparties to major financial institutions. The Company does not expect to
experience any material adverse financial consequences as a result of default by
the Company’s counterparties.
  NOTE
9 — 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): 
 Three
      Months Ended
                  November 28, 2008Balance
      of accrual at August 29, 2008
                
                $
                765Warranty
      claims
                
                
                (256
                )Provision
      for product warranties
                
                
                214Balance
      of accrual at November 28, 2008
                
                $
                723
  Product
warranty reserves are recorded in accrued expenses and other current liabilities
in the accompanying unaudited condensed consolidated balance
sheets.
  The
Company currently has in effect a number of agreements in which it has agreed to
defend, indemnify and hold harmless its customers and suppliers from damages and
costs which may arise from the infringement by its products of third-party
patents, trademarks or other proprietary rights. The Company believes its
internal development processes and other policies and practices limit its
exposure related to such indemnities. Maximum potential future payments cannot
be estimated because many of these agreements do not have a maximum stated
liability. However, to date, the Company has not had to reimburse any of its
customers or suppliers for any losses related to these indemnities. The Company
has not recorded any liability in its financial statements for such
indemnities.
  Legal
Matters
 
 From time
to time the Company is involved in disputes and litigation arising in the
ordinary course of business.  Litigation in general and intellectual
property and employment litigation in particular, can be expensive and
disruptive to normal business operations.  Moreover, the results of
complex legal proceedings are difficult to predict.  The Company
believes that it has defenses to the cases pending against it, including those
set forth below.  The Company is not currently able to estimate, with
reasonable certainty, the possible loss, or range of loss, if any, from the case
listed below, and accordingly no provision for any potential loss which may
result from the resolution of these matters has been recorded in the
accompanying unaudited condensed consolidated financial
statements.  In the Company’s opinion, the estimated resolution of
these disputes and litigation is not expected to have a material impact on its
consolidated financial position, results of operations or cash
flows.
  Tessera,
Inc.
  On
December 7, 2007, Tessera, Inc. filed a complaint under section 337 of the
Tariff Act of 1930 (“Tariff Act”), 19 U.S.C. § 1337, in the U.S.
International Trade Commission ("ITC") against the Company, as well as A-DATA
Technology Co., Ltd., A-DATA Technology (U.S.A.) Co., Ltd., Acer America Corp.,
Acer Inc., Centon Electronics, Inc., Elpida Memory, Inc., Elpida Memory (USA)
Inc., International Products Sourcing Group, Inc., Kingston Technology Co.,
Nanya Technology Corp., Nanya Technology Corp. U.S.A., Peripheral Devices &
Products Systems, Inc. d/b/a Patriot Memory, Powerchip Semiconductor Corp.,
ProMOS Technologies Inc., Ramaxel Technology Ltd., TwinMOS Technologies Inc.,
and Twin MOS Technologies USA Inc. (each a “Respondent” and collectively,
“Respondents”).  Tessera claims that "small-format Ball Grid Array
(“BGA”) semiconductor packages" and products containing such semiconductor
packages, including memory module products sold by the Company, infringe certain
claims of United States Patent Nos. 5,697,977, 6,133,627, 5,663,106 and
6,458,681 (the "Asserted Patents").  Tessera's Complaint requests that
the ITC institute an investigation into the matter.  Tessera has
requested the following relief in the ITC:
 
 -  a
permanent general exclusion order pursuant to section 337(d)(2) of the Tariff
Act, as amended, excluding from entry into the U.S. all small-format BGA
semiconductor packaged DRAM chips (“BGA chips”) and products containing the same
that are manufactured, imported or sold for importation by or on behalf of
unlicensed entities and that infringe any claim of the Asserted Patents, and all
products (e.g., personal computers or “PCs”) that contain such infringing
small-format BGA chips;
  -  a permanent exclusion order pursuant to section 337(d)(1) of the Tariff
Act, as amended, excluding from entry into the U.S. all semiconductor chips with
small-format BGA semiconductor packaging which are manufactured, imported or
sold for importation by or on behalf of Respondents and which infringe any claim
of the Asserted Patents, and all products (e.g., PCs) that contain such
infringing BGA chips; and
 
 -  permanent
cease and desist orders—one per Respondent—pursuant to section 337(f) of the
Tariff Act, as amended, directing each Respondent having domestic inventories to
cease and desist from importing, marketing, advertising, demonstrating,
sampling, warehousing inventory for distribution, offering for sale, selling,
distributing, licensing, or using any semiconductor chips with small format BGA
semiconductor packaging and/or products containing such semiconductor chips,
that infringe any claim of the Asserted Patents.
 13
 On
January 3, 2008, the ITC instituted an investigation pursuant to 19 U.S.C. §
1337, entitled In the Matter of Certain Semiconductor Chips with Minimized Chip
Package Size and Products Containing Same  (III) , Inv.
No. 337-TA-630.  On February 27, 2008, the administrative law
judge set trial for September 22, 2008, which trial has been completed, and
ordered that an Initial Determination shall be due on January 14, 2009, and that
the target date for completing the investigation shall be April 24,
2009.  On January 2, 2009, an order was entered extending the deadline
for the Initial Determination to March 6, 2009 and changing the target
date for completing the investigation to July 6, 2009.  We believe
that we have meritorious defenses against Tessera’s claims, including the fact
that over 95% of the packaged DRAMs that SMART uses in its memory module
products are purchased (directly or indirectly) from DRAM manufacturers that
Tessera admits are licensed under the Asserted Patents.
  In May
2008, Tessera withdrew one of the four Asserted Patents (U.S. Patent No.
6,458,681) from the ITC investigation in an effort to streamline the
case.
  Tessera
also filed a parallel patent infringement claim in the Eastern District of
Texas, alleging infringement of the same patents at issue in the ITC
action.  The district court action seeks an unspecified amount of
damages and injunctive relief.  The district court action has been
stayed pending the completion of the ITC action.
  Commitments
  Adtron Earn-Out
Consideration
  As part
of our purchase of Adtron Corporation on March 2, 2008, we offered
earn-out consideration of up to $15.0 million to the sellers if the Adtron
Segment achieved certain financial and operational goals by December 31,
2008.  In the last quarter of fiscal 2008, we accrued $1.5 million for an
operational goal that had been achieved; it was paid to the sellers before
calendar year-end 2008.  Final determination of whether the remaining
financial goals have been achieved is expected by March 1, 2009.
 Contingencies
  During its third quarter of fiscal 2007, the Company identified certain
discrepancies in the invoicing of certain products that it sold in the Brazilian
market in fiscal 2006. Some of the Company’s imported products were invoiced in
a manner that may have left customers with the impression that they were
manufactured in Brazil, rather than imported, and therefore potentially impact
the customers’ eligibility for tax incentives.  The Company assessed the
impact arising from these discrepancies and noted that the customers had access
to other information to determine the origin of the products and may not have
relied on the information contained in the invoices for computing their tax
liability.  Also, the revenues related to these invoices were not material
to the Company’s operations.  Therefore, the Company believes that the
likelihood of any liability arising from these discrepancies in the invoices is
remote and as such, is not likely to have a material adverse effect on its
consolidated financial position, results of operations or cash flows for any
periods impacted.
  During the fourth quarter of fiscal 2008, the Sao Paulo, Brazil, State Tax
Inspector informed the Company that certain tax credits transferred during 2004
between two Brazilian entities may not have represented an authorized
transfer.  These transfers occurred prior to the acquisition in April
2004 of SMART from Solectron Corporation (Solectron) and the full amount of any
related tax assessment against SMART would be subject to indemnification by
Solectron to SMART pursuant to the Transaction Agreement dated February 11,
2004.   A notice was received from the Sao Paulo, Brazil Tax
Authorities by SMART on October 3, 2008 providing an assessment for interest and
penalties, related to the transfer of these credits.  SMART has
notified Solectron and its parent company, Flextronics International Ltd.
(Flextronics) of this assessment, and under the terms of the Transaction
Agreement, Flextronics has elected to assume responsibility for the appeals
process for this case on SMART's behalf.  As of November 28,
2008 the Company carries both a tax liability and a corresponding indemnity
receivable for approximately $3.0 million.   The Company believes
that the likelihood of any material loss arising from this matter is not
probable, and as such, not likely to have a material adverse effect on its
consolidated financial position, results of operations or cash flows for any
periods impacted.
 
 
 NOTE
10 — Segment and Geographic Information
  With the
acquisition of Adtron in fiscal 2008, based on information regularly reviewed by
the Company's CEO and chief operating decision maker to evaluate Adtron’s
performance and to allocate resources to Adtron, the Company revised its segment
reporting to include Adtron as a separate segment.  The Company now
operates in two business segments, the Memory, Embedded, & Display Segment
and the Adtron Segment.   The accounting policies of the
operating segments are the same as those described in the summary of significant
accounting policies.  The following tables present summarized
information by segment or geographic area:
 Property
and equipment, net, and certain results of operations by
segment:
  November
      28,
                2008
              
              
              August
      29,
                2008(In
      thousands)Property
      and equipment, net:Memory,
      Embedded, & Display
              
              $
              31,964
              
              
              $
              38,772Adtron
              
              
              585
              
              
              
              545Total
      property and equipment, net
              
              $
              32,549
              
              
              $
              39,317
 
 14
  Memory,
      Embedded, & Display
              
              Adtron
              
              Total(In
      thousands)Three
      Months Ended November 28, 2008Net
      sales
              
              $
              136,885
              
              
              $
              3,890
              
              
              $
              140,775Gross
      profit
              
              
              23,990
              
              
              
              1,826
              
              
              
              25,816Depreciation
      and amortization
              
              
              3,067
              
              
              
              263
              
              
              
              3,330Impairment
      of goodwill
              
              
              —
              
              
              
              7,210
              
              
              
              7,210Income
      (loss) from operations
              
              $
              5,515
              
              
              $
              (7,698
              )
              
              $
              (2,183
              )Three
      Months Ended November 30, 2007 (1)Net
      sales
              
              $
              177,373
              
              
              $
              —
              
              
              $
              177,373Gross
      profit
              
              
              34,094
              
              
              
              —
              
              
              
              34,094Depreciation
      and amortization
              
              
              2,617
              
              
              
              —
              
              
              
              2,617Income
      from operations
              
              $
              14,348
              
              
              $
              —
              
              
              $
              14,348
  (1)For
      the three months ended November 30, 2007, the Company had only one
      segment. Adtron was acquired in March 2008.
 
 
 Three
      Months Ended
                November
      28,
                2008
              
              Three
      Months
                Ended
                November
      30,
                2007(In
      thousands)Geographic
      net sales:U.S.A.
              
              $
              58,968
              
              $
              118,222Other
      North and Latin America
              
              
              41,320
              
              
              30,475Europe
              
              
              16,309
              
              
              5,556Asia
              
              
              24,178
              
              
              23,120$
              140,775
              
              $
              177,373
 
 
 November
      28,
                2008
              
              
              August
      29,
                2008(In
      thousands)Property
      and equipment, net:U.S.A.
              
              $
              5,960
              
              
              $
              6,679Other
      North and Latin America
              
              
              20,704
              
              
              
              28,492Europe
              
              
              54
              
              
              
              59Asia
              
              
              5,831
              
              
              
              4,087$
              32,549
              
              
              $
              39,317
 
 
 NOTE
11 — 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 receivable.
 
 15
 Net sales
from major customers as a percentage of total net sales are as
follows:
 
 Three
      Months
                Ended
                November
      28,
                2008
              
              
              Three
      Months
                Ended
                November
      30,
                2007Customer
      A
              
              
              34%
              
              
              
              45
              %Customer
      B
              
              
              12%
              
              
              
              12
              %Customer
      C
              
              
              *
              
              
              
              *____________*Less
      than 10%
  As of
November 28, 2008, approximately 35%, 22% and 22% of accounts receivable were
concentrated with Customer A, B and C, respectively. As of August 29, 2008,
approximately 32%, 19% and 28% of accounts receivable were concentrated with
Customer A, B and C, respectively. The loss of a major customer or a significant
reduction in revenue from a major customer could have a material adverse effect
on the Company’s business, financial condition and results of
operations.
 
 NOTE
12 — Restructuring
  During the fourth quarter of fiscal 2008, the Company initiated a restructuring
plan to reduce operating expenses and improve operating margins and cash flows
by consolidating certain operations in Asia and the Caribbean.  The
intent of the plan was to decrease the Company’s cost structure through
workforce reductions and facility and resource consolidation.  Costs
resulting from the restructuring plan include severance payments,
severance-related benefits, lease costs associated with the closure of our
Dominican Republic facility, charges for assets written off and other
costs.  These costs relate to the Memory, Embedded & Display
segment.
  The
following table summarizes the restructuring accrual activity for the three
months ended November 28, 2008 (in thousands):
  Severance
      and
                Benefits
              
              
              Assets/Facility
      Related
              
              
              Other
              
              
              TotalAccrual
      as of August 29, 2008
              
              $
              572
              
              
              $
              —
              
              
              $
              258
              
              
              $
              830Restructuring
      charges
              
              $
              428
              
              
              $
              179
              
              
              $
              279
              
              
              $
              886Non-cash
      charges
              
              
              —
              
              
              
              
              
              
              
              —
              
              
              
              —Cash
      payment
              
              
              (957
              )
              
              
              (179
              )
              
              
              (523)
              
              
              
              (1,659
              )Accrual
      as of November 28, 2008
              
              $
              43
              
              
              $
              —
              
              
              $
              14
              
              
              $
              57
  All severance payments and severance-related benefits accrued as of November 28,
2008 will be paid by the end of the Company’s fiscal 2009.  Total
restructuring costs accrued as of November 28, 2008 were approximately $57
thousand and are recorded in accrued expenses in the condensed consolidated
balance sheets.  There were no restructuring activities for the three
months ended November 30, 2007.
  NOTE
13 — 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
14 – Subsequent Events
 
 Disclose Board authorization of an option exchange program, subject to SH
approval?
 16
 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 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 29, 2008 filed with the SEC
on November 12, 2008. 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 sold primarily to OEMs. Our subsystem products include memory
modules, SSD, embedded computing and TFT-LCD products that we offer to customers
worldwide. We also offer our customers custom supply chain services including
procurement, logistics, inventory management and temporary warehousing, kitting
and/or packaging services. Our products and services are used for a variety of
applications in the computing, networking, communications, printers, storage and
industrial markets worldwide. Products that incorporate our subsystems include
servers, routers, switches, storage systems, workstations, PCs, notebooks,
printers and gaming machines. Generally, while increases in overall unit demand
by end users for, and increases in memory content in, products that incorporate
our subsystems should have a positive effect on our business, financial
condition and results of operations, conversely, decreases in product unit
demand and memory content can have a negative effect on our business, financial
condition and results of operations.  We offer more than 500 standard
and custom products to leading OEMs, including Cisco Systems, Dell, and
Hewlett-Packard. We maintain a large global footprint with manufacturing
capabilities in the U.S., Malaysia, Brazil and Puerto Rico. Our global
operations enable us to control costs and rapidly respond to our customers’
requirements worldwide.
  In
April 2004, a group of investors led by TPG, Francisco Partners and Shah Capital
Partners acquired SMART Modular Technologies, Inc. ("SMART Modular")from
Solectron Corporation, at which time we began to operate our business as an
independent company under the laws of the Cayman Islands. Since the acquisition
by our principal investors, we repositioned a portion of our business by
focusing on the delivery of certain higher value added products, diversifying
our end markets and extending into new vertical markets, creating more
technically engineered products and solutions, migrating manufacturing to low
cost regions and controlling expenses.  For example, in fiscal 2005 we
acquired Estecom, a producer of TFT-LCD products, in fiscal 2006 we acquired
ConXtra, Inc., a product design and design manufacturing services provider, and
in fiscal 2008 we acquired Adtron Corporation, a leading designer and global
supplier for high performance and high capacity SSDs. Also, in fiscal 2006 we
completed our manufacturing facility in Atibaia, Brazil into which we import
finished wafers and package them into memory integrated circuits and into memory
modules.
  In fiscal 2008, we categorized our products and services into the following two
business segments, the Memory, Embedded, & Display Segment and the Adtron
Segment.  In prior fiscal years we operated under one
segment.  From the acquisition of Adtron on March 3, 2008 through
December 31, 2008, SMART’s CEO and chief operating decision maker will
separately evaluate Adtron’s performance and the allocation of resources to
Adtron.
  Key
Business Metrics
 
 The
following is a brief description of the major components of the key line items
in our financial statements.
  Net
Sales
  We
generate our product revenues from sales of our subsystems, including memory
modules and flash memory cards, SSDs, embedded computing boards and TFT-LCD
products, principally to leading computing, networking, communications, printer,
storage and industrial OEMs. Sales of our products are generally made pursuant
to purchase orders rather than long-term commitments. We generate service
revenue from a limited number of customers by providing procurement, logistics,
inventory management and temporary warehousing, and kitting or packaging
services. Our net sales are dependent upon demand in the end markets that we
serve and fluctuations in end-user demand can have a rapid and material effect
on our net sales. Furthermore, sales to relatively few customers have accounted
for, and we expect will continue to account for, a significant
percentage of our net sales in the foreseeable future.
 17
 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 the development of
custom products.
  Selling,
General and Administrative Expenses
  Selling, general and administrative expenses consist primarily of personnel
costs, including commissions, facilities and equipment costs, costs related to
advertising and marketing and other support costs including utilities, insurance
and professional fees.
  Critical
Accounting Policies
 Management’s Discussion and Analysis of Financial Condition and Results of
Operations are based on our financial statements which have been prepared in
accordance with accounting principles generally accepted in the U.S.The preparation of these
financial statements requires us to make certain estimates that affect the
reported amounts in our financial statements. We evaluate our estimates on an
ongoing basis, including those related to our net sales, accounts receivables,
inventories, asset impairments, restructuring charges, income taxes, stock-based
compensation and commitments and contingencies. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances.  Actual results may differ from
these estimates under different assumptions or conditions.
  We believe the following critical accounting policies are the most significant
to the presentation of our financial statements and they at times require the
most difficult, subjective and complex estimates.
  Revenue
Recognition
  Our product revenues are derived from the sale of value added subsystems,
including memory modules and flash memory cards, SSDs, embedded computing boards
and TFT-LCD products, which we design and manufacture. We recognize revenue
primarily upon shipment, following receipt of written purchase orders, when the
price is fixed and determinable, title has transferred, product acceptance has
occurred and collection of the resulting accounts receivable is reasonably
assured. Amounts billed to customers related to shipping and handling are
classified as sales, while costs incurred by us for shipping and handling are
classified as cost of sales.  Taxes, including value added taxes,
assessed by a government authority that are both imposed on and concurrent with
a specific revenue producing transaction are excluded from revenue.
  Our
service revenues are derived from procurement and logistics, inventory
management and temporary warehousing, and kitting or packaging services. The
terms of our contracts vary, but we generally recognize service revenue upon the
completion of the contracted services. Our service revenue is reported on a net
basis in accordance with Emerging Issues Task Force (EITF) Issue No. 99-19,
Reporting Revenue Gross as a
Principal versus Net as an Agent.  Service revenue for these
arrangements is typically based on material procurement costs plus a fee for any
services provided. We determine whether to report revenue on a net or gross
basis depending on a number of factors, including whether we are the primary
obligor in the arrangement, have general inventory risk, have the ability to set
the price, have the ability to determine who the suppliers are, can physically
change the product or have credit risk.
  The
following is a summary of our net sales and gross billings (in
thousands):
 
 Three
      Months EndedNovember 28,
              
              
              November 30,2008
              
              
              2007Product
      net sales
              
              $
              128,800
              
              
              $
              166,232Service
      revenue
              
              
              11,975
              
              
              
              11,141Net
      sales
              
              
              140,775
              
              
              
              177,373Plus:
      Cost of sales (1)
              
              
              186,210
              
              
              
              263,981Gross
      billing to customers
              
              $
              326,985
              
              
              $
              441,354
 ____________
 (1)
Represents cost of sales associated with service revenue reported on a net
basis.
 18
 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.
  As a
result of the current macroeconomic environment and associated credit market
conditions, both liquidity and access to capital have impacted some of our
customers. We have continued to closely monitor our credit exposure with our
customers to anticipate exposures and minimize our risk.
 Inventory
Valuation
  At each
balance sheet date, we evaluate our ending inventories for excess quantities and
obsolescence. This evaluation includes analysis of sales levels by product
family. Among other factors, we consider historical demand and forecasted demand
in relation to the inventory on hand, competitiveness of product offerings,
market conditions and product life cycles when determining obsolescence and net
realizable value. We adjust remaining balances to approximate the lower of our
manufacturing cost or net realizable value. Inventory cost is determined on a
specific identification basis and includes material, labor, and manufacturing
overhead. From time to time, our customers may request that we purchase and
maintain significant inventory of raw materials for specific programs. Such
inventory purchases are evaluated for excess quantities and potential
obsolescence and could result in a provision at the time of purchase or
subsequent to purchase. The portion, if any, of slow moving inventory estimated
to be sold beyond one year from the balance sheet date, is classified as
non-current inventory and included in non-current assets in our consolidated
balance sheets. Our provisions for excess and obsolete inventory are also
impacted by our arrangements with our customers and/or suppliers, including our
ability or inability to re-sell such inventory to them. If actual market
conditions or our customers’ product demands are less favorable than those
projected or if our customers or suppliers are unwilling or unable to comply
with any arrangements related to their purchase or sale of inventory, additional
provisions may be required and would have a negative impact on our gross margins
in that period. We have had to write-down inventory in the past for reasons such
as obsolescence, excess quantities and declines in market value below our costs,
and we may be required to do so from time to time in the future.
 
 Restructuring
Charges
  We record and account for our restructuring activities following formally
approved plans that identify the actions and timelines over which the
restructuring activities will occur. Restructuring charges include estimates
pertaining to such items as employee severance and fringe benefit costs,
facility exit costs and subleasing assumptions, among other items. Adjustments
to these estimates are made when changes in facts and circumstances suggest
actual amounts will differ from original estimates. These changes in estimates
may result in increases or decreases to our results of operations in future
periods and would be presented on the restructuring charge line of our
consolidated statements of operations.
 
 Income
Taxes
  We use the asset and liability method of accounting for income taxes. Deferred
tax assets and liabilities are recognized for the future consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net operating
loss and credit carry-forwards. When necessary, a valuation allowance is
recorded or reduced to value tax assets to amounts that are more
likely than not expected to be realized. The effect of changes in tax rates
is recognized in the period in which the rate change occurs.  U.S.
income and foreign withholding taxes are not provided on that portion of
unremitted earnings of foreign subsidiaries since they are expected to be
reinvested indefinitely.
  After excluding ordinary losses in a tax jurisdiction for which no tax benefit
can be recognized, we estimate our annual effective tax rate and apply such rate
to year-to-date income, adjusting for unusual or infrequent items that are
treated as discrete events in the period. We also evaluate our valuation
allowance to determine if a change in circumstances causes a change in judgment
regarding realization of deferred tax assets in future years. If the valuation
allowance is adjusted as a result of a change in judgment regarding future
years, that adjustment is recorded in the period of such change affecting our
tax expense in that period.
  The
calculation of our tax liabilities involves accounting for uncertainties in the
application of complex tax rules, regulations and practices.  As a
result of the implementation of FIN No. 48, we recognize benefits for uncertain
tax positions based on a two-step process.  The first step is to
evaluate the tax position for recognition of a benefit (or the absence of a
liability) by determining if the weight of available evidence indicates that it
is more likely than not that the position taken will be sustained upon audit,
including resolution of related appeals or litigation processes, if
any.  If it is not, in our judgment, “more likely than not” that the
position will be sustained, then we do not recognize any benefit for the
position.  If it is more likely than not that the position will be
sustained, a second step in the process is required to estimate how much of the
benefit we will ultimately receive. This second step requires that we estimate
and measure the tax benefit as the largest amount that is more than 50 percent
likely of being realized upon ultimate settlement. It is inherently difficult
and subjective to estimate such amounts.  We reevaluate these
uncertain tax positions on a quarterly basis.  This evaluation is
based on a number of factors including, but not limited to, changes in facts or
circumstances, changes in tax law, new facts, correspondence with tax
authorities during the course of an audit, effective settlement of audit issues,
and commencement of new audit activity.  Such a change in recognition
or measurement could result in the recognition of a tax benefit or an additional
charge to the tax provision in the period.
 19
 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.
  Impairment
of Goodwill
  In accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets” (“SFAS 142”), the Company performs a goodwill impairment test of
its two reporting units (Memory, Embedded, & Display and Adtron) annually
during the fourth quarter of its fiscal year and more frequently if an event or
circumstance indicates that an impairment may have occurred. Such events or
circumstances may include significant adverse changes in the general business
climate, among others. The test is performed by determining the fair value of
the reporting unit based on estimated discounted future cash flows and
considering the market price of the Company’s ordinary shares, and comparing the
fair value to the carrying value of the reporting unit, including
goodwill.
 
 If
the fair value of each reporting unit is less than its carrying value, the
Company then allocates the fair value of the unit to all the assets and
liabilities of the unit (including any unrecognized intangible assets) as if the
reporting unit’s fair value was the purchase price to acquire the reporting
unit. The excess of the fair value of the reporting unit over the amounts
assigned to its assets and liabilities is the implied fair value of the
goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess.
  Stock-Based
Compensation
  Effective
August 27, 2005, we adopted SFAS No. 123R, Share-Based Payment, using the
prospective method. The key assumptions used in applying the provisions of SFAS
No. 123R are described in Note 2 to the Unaudited Condensed Consolidated
Financial Statements.
 
 Financial Information about
Segments
  During fiscal 2008, our corporate structure included two operating segments, the
Memory, Embedded, & Display Segment and the Adtron
Segment.  Accordingly, we report certain financial information by
segment.  We may adjust our reported segments in fiscal 2009 to
reflect changes regarding how we manage the business.  See Note 10 to
the Unaudited Condensed Consolidated Financial Statements for information
regarding our business segments.
 Certain
results of operations by segment (in millions):
 
 Memory,
      Embedded, & Display
              
              Adtron
              
              TotalThree
      Months Ended November 28, 2008Net
      sales
              
              $
              136.9
              
              
              $
              3.9
              
              
              $
              140.8Gross
      profit
              
              
              24.0
              
              
              
              1.8
              
              
              
              25.8Depreciation
      and amortization
              
              
              3.1
              
              
              
              0.2
              
              
              
              3.3Impairment
      of goodwill
              
              
              —
              
              
              
              7.2
              
              
              
              7.2Income
      (loss) from operations
              
              $
              5.5
              
              
              $
              (7.7
              )
              
              $
              (2.2
              )Three
      Months Ended November 30, 2007(1)Net
      sales
              
              $
              177.4
              
              
              $
              —
              
              
              $
              177.4Gross
      profit
              
              
              34.1
              
              
              
              —
              
              
              
              34.1Depreciation
      and amortization
              
              
              2.6
              
              
              
              —
              
              
              
              2.6Income
      from operations
              
              $
              14.3
              
              
              $
              —
              
              
              $
              14.3
  (1) For
the three months ended November 30, 2007, the Company had only one
segment.  Adtron was acquired in March 2008.
 20
 Results
of Operations
  The
following is a summary of our results of operations for the three months ended
November 28, 2008 and November 30, 2007 (in millions):
  Three
      Months EndedNovember
      28,
              
              
              November
      30,2008
              
              
              2007Net
      sales
              
              $
              140.8
              
              
              $
              177.4Cost
      of sales
              
              
              115.0
              
              
              
              143.3Gross
      profit(1)
              
              
              25.8
              
              
              
              34.1Research
      and development
              
              
              5.4
              
              
              
              4.7Selling,
      general and administrative
              
              
              14.5
              
              
              
              15.1Restructuring
      charges
              
              
              0.9
              
              
              
              —Impairment
      of goodwill
              
              
              7.2
              
              
              
              —Total
      operating expenses(1)
              
              
              28.0
              
              
              
              19.7Income
      (loss) from operations
              
              
              (2.2
              )
              
              
              14.3Interest
      expense, net
              
              
              (1.8
              )
              
              
              (1.0
              )Other
      income (expense), net
              
              
              (0.7
              )
              
              
              1.4Total
      other income (expense), net(1)
              
              
              (2.5
              )
              
              
              0.4Income
      (loss) before provision for income taxes(1)
              
              
              (4.7
              )
              
              
              14.7Provision
      for income taxes
              
              
              2.2
              
              
              
              2.7Net
      income (loss)
              
              $
              (6.9
              )
              
              $
              12.0
 ____________
 (1)  Summations
may not compute precisely due to rounding.
  Three
Months Ended November 28, 2008 as Compared to the Three Months Ended November
30, 2007
  Net
Sales
  Net sales
for the three months ended November 28, 2008 were $140.8 million, or a 21%
decrease from $177.4 million for the three months ended November 30, 2007. This
decrease was primarily due to a $36.2 million decrease in net sales of our
memory products.  The overall decline in sales was primarily driven by
falling average selling prices year over year, partially offset by an increase
in unit sales volume.
 
 Cost of
Sales
  Cost of
sales for the three months ended November 28, 2008 was $115.0 million, or a 20%
decrease from $143.3 million for the three months ended November 30, 2007. Cost
of sales as a percent of net sales increased slightly to 82% for the three
months ended November 28, 2008, from 81% for the three months ended November 30,
2007. The decrease in cost of sales was principally due to a $29.4 million
decline in our memory product cost of sales, partially offset by an increase of
$1.8 million for inventory adjustments related to increase in reserves for
excess and obsolete products.
  Gross Profit
  Gross
profit for the three months ended November 28, 2008 was $25.8 million, or a 24%
decrease from $34.1 million for the three months ended November 30, 2007. Gross
margin percentage decreased from 19% for the three months ended November 30,
2007 to 18% for three months ended November 28, 2008. The decrease in gross
profit was primarily due to the lower net sales to our customers, while the
decrease in gross margin percentage was principally due to lower average selling
prices of some products and inventory write-downs.
  Research
and Development Expenses
  Research
and development, or R&D, expenses for the three months ended November 28,
2008 were $5.4 million compared to $4.7 million for the three months ended
November 30, 2007. This increase was primarily due to $1.2 million in additional
R&D expenses related to Adtron, offset by a $0.2 million decrease in bonus
expense, and a $0.3 million decrease in outside service and supplies
expenses.
 
 Selling,
General and Administrative Expenses
  Selling,
general and administrative, or SG&A, expenses for the three months ended
November 28, 2008 were $14.5 million, or a 4% decrease from $15.1 million for
the three months ended November 30, 2007.  Sales and marketing
expenses increased $0.3 million primarily due to the addition of Adtron sales
and marketing expenses of $0.8 million, offset by a net reduction of $0.5
million in sales conference and bonus expenses.  General and
administrative expenses decreased $0.9 million primarily due to a $0.8 million
decrease in bonus and employee benefit expense, a decrease of $0.2 million of
acquisition expenses, and a decrease of $0.2 million of corporate expenses,
offset by the addition of Adtron general and administrativeexpenses of $0.3
million.
 21
 Restructuring
and Goodwill Impairment Charges
  The $0.9 million of restructuring costs included $0.4 million in
severance-related benefits, $0.2 million of lease costs associated with the
closure of our Dominican Republic facility and $0.3 million in other related
costs. The restructuring charges incurred were primarily from the
consolidation of certain operation in Asia and the Caribbean.  The
$7.2 million goodwill impairment charge was related to the Adtron segment. We
did not incur any restructuring or goodwill impairment charges for the three
months ended November 30, 2007.
  Interest
Expense, Net
  Net
interest expense for the three months ended November 28, 2008 was $1.8 million,
compared to $1.0 million for the three months ended November 30,
2007.  The increase was primarily due to less interest income earned
because of significantly lower interest rates on bank deposits accounts, while
interest expense remained relatively flat.
 
 Other Income (expense), net
  Net other
income (expense) for the three months ended November 28, 2008 was $(0.8) million
compared to $1.4 million for the three months ended November 30, 2007. The $2.2
million decrease was mainly driven by foreign currency transactions losses in
our Brazil operations.
 
 Provision
for Income Taxes
  The
effective tax rates for the three months ended November 28, 2008 and November
30, 2007 were approximately -46% (representing tax expense and a pre-tax loss)
and 19% respectively.  For the three months ended November 28, 2008, the
effective tax rate differs from the 35% U.S. statutory tax rate principally due
to losses in the United States generating no tax benefit (due to the full
valuation allowance on U.S. deferred tax assets) and the $7.2 million write-down
of non-deductible goodwill.  These special items increasing the effective
tax rate were partially offset by a decline in the effective tax rate from
profits being generated in non-U.S. lower tax rate jurisdictions. 
Excluding the impact of the $7.2 million charge for the non-deductible
goodwill write-down, the effective tax rate for the three months ended November
28, 2008 was 87%.  The increase in our effective tax rate was
principally due to these items as described above for the three months ended
November 28, 2008, when compared to the three months ended November 30,
2007.
  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.   Cash and cash equivalents consist of funds held in
general checking accounts, money market accounts, certificates of deposits, and
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 or auction rate certificates.
  Debt
Service
  As of
November 28, 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 $35.0
million of borrowing capacity available, subject to customary conditions. Any
inability to meet our significant debt service obligations could have material
consequences to our security holders.
  Senior Secured
Floating Rate Exchange Notes Due April 2012.Our senior secured
floating rate notes bear interest at a rate equal to LIBOR plus 5.50% per annum,
and are guaranteed by all of our subsidiaries, except for Estecom, 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 November 28, 2008.
 
 Senior Secured
WellsFargoCredit
Facility.On November 26, 2008,
the First Amendment to Second Amended and Restated Loan and Security Agreement
(the "Amendment") was entered into by and among SMART Modular Technologies,
Inc., SMART Modular Technologies (Europe) Limited, and SMART Modular
Technologies (Puerto Rico) Inc., as borrowers, and Wells Fargo Bank, National
Association, as lender, arranger, administrative agent and security
trustee.  Our
senior secured credit facility is available until April 30, 2010, unless earlier
terminated.
 22
 The
amended financial covenants require that the borrowers maintain, as of the end
of each fiscal quarter, an Adjusted Quick Ratio equal to or greater than 1.45,
and, depending on the applicable fiscal quarter and based on the preceding four
fiscal quarters then ended, (i) an Adjusted EBITDA equal to or greater than $30
million to $45 million, and (ii) a Funded Debt to Adjusted EBITDA Ratio equal to
or less than 2.25 to 3.00. The Base Rate Margin and LIBOR Rate Margin were
increased to 2% and 3%, respectively. As of November 28, 2008, the revolving
credit facility was undrawn and had available borrowing capacity of $35 million
and we were in compliance with its covenants under the revolving credit
facility.
 
 Capital
Expenditures
  Future
capital expenditures focus on test and manufacturing equipment upgrades and/or
acquisitions, IT infrastructure and software upgrades. Our senior secured credit
facility contains restrictions on our ability to make capital expenditures.
Based on current estimates, we believe that the amount of capital expenditures
permitted to be made under the senior secured credit facility will be adequate
to implement our current plans.
  Sources
of Funds
  We
anticipate that our current cash balance, together with our operating cash flow
and available borrowings under our senior secured credit facility, will be
sufficient to meet our working capital needs, and fund our R&D and capital
expenditures and service requirements on our debt obligations for at least the
next 12 months. However, our ability to make scheduled payments of principal, to
pay interest on or to refinance our indebtedness and to satisfy our other debt
obligations will depend upon our future operating performance, which will be
affected by general economic, financial, competitive, business and other factors
beyond our control.
  From time
to time we may explore additional financing methods and other means to lower our
cost of capital, which could include additional share issuance or debt financing
and the application of the proceeds there from to repay bank debt or other
indebtedness. In addition, in connection with any future acquisitions, we may
require additional funding in the form of additional debt or equity financing or
a combination thereof. There can be no assurance that any additional funding
will be available to us on acceptable terms.
  Historical
Trends
  Historically,
our financing requirements have been funded primarily through cash generated by
operating activities, credit facility borrowings, the sale of preferred shares
to and advances from our former principal shareholder, Modular, L.L.C, and our
initial public offering. As of November 28, 2008, our cash and cash equivalents
were $137.3 million.
  Cash Flows from
Operating Activities.Net cash provided by
operating activities was $28.6 million for the three months ended November 28,
2008, compared to net cash used in operating activities of $26.9 million for the
three months ended November 30, 2007. The change was principally the result of a
decrease in net income of $18.9 million, offset by increases in the changes in
operating assets and liabilities of $66.8 million and non-cash charges of $7.6
million primarily associated with goodwill impairment.  The increases
in changes in operating assets and liabilities activities primarily consisted
of a $73.9 million increase in accounts receivable and an increase of $10.9
million in accounts payable, offset by a decrease in inventory of $19.5
million.
  Cash Flows from
Investing Activities.Net cash used in investing activities was $4.5 million for the three
months ended November 28, 2008, compared to net cash used in investing
activities of $5.1 million for the three months ended November 30, 2007. The
change was primarily due to a decrease of $0.5 million for cash deposits on
equipment purchased.
 
 Cash Flows from
Financing Activities.Net cash provided by financing activities was $0.4 million for the three
months ended November 28, 2008, compared to $0.2 million in net cash provided by
financing activities for the three months ended November 30, 2007. The change
was mainly attributed to the proceeds from exercises of stock options during the
respective periods.
 
 Contractual
Obligations
 
 There
have been no material changes from Contractual Obligations previously disclosed
in our Annual Report on Form 10-K for the year ended August 29,
2008.
  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.
 23
 Inflation
  We do not
believe that inflation has had a material effect on our business, financial
condition or results of operations. If our costs were to become subject to
significant inflationary pressures, we may not be able to fully offset such
higher costs through price increases. Our inability or failure to do so could
adversely affect our business, financial condition and results of
operations.
  Recent
Accounting Pronouncements
  See
Note 1 of our notes to Unaudited Condensed Consolidated Financial
Statements for information regarding the effect of recent accounting
pronouncements on our financial statements.
   Item 3.
Quantitative and Qualitative Disclosures About Market Risk
  Our
exposure to market rate risk includes risk of foreign exchange rate fluctuations
and change in interest rates.
  Foreign
Exchange Risks
  We are
subject to inherent risks attributed to operating in a global economy. Our
international sales and our operations in foreign countries make us subject to
risks associated with fluctuating currency values and exchange rates. Because
sales of our products have been denominated to date primarily in United States
dollars, increases in the value of the United States dollar could increase the
price of our products so that they become relatively more expensive to customers
in the local currency of a particular country, leading to a reduction in sales
and profitability in that country. As a result of our foreign operations, we
have revenues, costs, assets and liabilities that are denominated in foreign
currencies. Therefore, decreases in the value of the United States dollar could
result in significant increases in our manufacturing costs that could have a
material adverse effect on our business, financial condition and results of
operations. At present, we do not purchase financial instruments to hedge
foreign exchange risk, but may do so as circumstances warrant.
  For
foreign operations using the local currency as their functional currency, assets
and liabilities are translated at exchange rates in effect at the balance sheet
date and income and expenses are translated at average exchange rates during the
period. The effect of this translation is reported in other comprehensive income
(loss). For the three months ended November 28, 2008, we recorded foreign
currency translation adjustment primarily related to our Brazil operations of
$17.9 million.  This significant cumulative translation adjustment was
due to the devaluation of the Brazilian currency against the U.S.
dollar.
 
 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 Wells Fargo credit facility provides for borrowings of up
to $35.0 million that will also bear interest at variable rates. Assuming the
Wells Fargo credit facility is fully drawn and holding other variables
constant and excluding the impact of any hedging arrangements, each 1.0%
increase in interest rates on our variable rate borrowings would result in an
increase in annual interest expense and a decrease in our cash flows and income
before taxes of $1.2 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
with a notional amount of $40.0 million 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  SeniorVice
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.
 24
 PART II. OTHER
INFORMATION
  Item 1. Legal
Proceedings
  See Note
9 of our notes to Unaudited Condensed Consolidated Financial Statements for
information regarding legal matters.
  
 Item
1A. Risk Factors
  There
have been no material changes from risk factors previously disclosed in our
Annual Report on Form 10-K for the year ended August 29, 2008 that was filed on
November 12, 2008.
  Item
5.  Other Information
  Subsequent
to the filing of our Current Report on Form 8-K on December 18, 2008 that
included our press release in which we furnished our unaudited financial results
for our first fiscal quarter ended November 28, 2008, information became
available to us that required us to adjust certain amounts previously
furnished.  This Quarterly Report on Form 10-Q reflects adjustments to
November 28, 2008 balances as follows:  a reduction in accounts
receivable of $0.5 million, a reduction in current other liabilities of $0.2
million, and an increase in inventory of $0.1 million.  For the three
months ended November 28, 2008, we also made certain related income statement
adjustments to reduce net sales by $0.5 million, cost of sales by $0.1 million,
and SG&A expenses by $0.2 million.  There was no effect on income
tax expense as a result of these adjustments.  However, our GAAP and
non-GAAP net loss increased by $0.3 million, while the impact was immaterial to
both basic and diluted earnings per share.
 Item 6. Exhibits
  The
following exhibits are filed herewith:
  Exhibit
      No.
                
                Exhibit
      Title31.1
                
                Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
                
                Certification
      of 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
   25
     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/ BARRY ZWARENSTEINName:
              Barry
      ZwarensteinTitle:
              Senior
      Vice President and Chief Financial
Officer
   Date:
January 6, 2009
   26
  EXHIBIT INDEX
  Exhibit
      No.
              
              Exhibit
      Title31.1
              
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
              
              Certification
      of 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