<PAGE>   1
 
================================================================================
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-Q
 
(MARK ONE)
 
     [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934.
 
                 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1998,
 
                                       OR
 
     [ ]   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: 0-26942
 
                            ------------------------
 
                        SMART MODULAR TECHNOLOGIES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                  CALIFORNIA                                     77-0200166
         (STATE OR OTHER JURISDICTION                         (I.R.S. EMPLOYER
      OF INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)
</TABLE>
 
                              4305 CUSHING PARKWAY
                           FREMONT, CALIFORNIA 94538
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 623-1231
 
                            ------------------------
 
     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 [X]  No [ ]
 
     At June 1, 1998, there were 43,028,929 shares of the Registrant's common
stock, no par value, outstanding.
 
================================================================================
<PAGE>   2
 
                        SMART MODULAR TECHNOLOGIES, INC.
 
                                   FORM 10-Q
 
                               TABLE OF CONTENTS
 
                         PART I. FINANCIAL INFORMATION
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>         <C>                                                           <C>
Item 1.     Financial Statements
              Consolidated Condensed Balance Sheets -- As of April 30,
              1998 and
              October 31, 1997..........................................    3
              Consolidated Condensed Statements of Income -- For the
              Three and Six Months Ended April 30, 1998 and 1997........    4
              Consolidated Condensed Statements of Cash Flows -- For the
              Six Months Ended April 30, 1998 and 1997..................    5
              Notes to Consolidated Condensed Financial Statements......    6
Item 2.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations...................................    8
 
                          PART II. OTHER INFORMATION
Item 1.     Legal Proceedings...........................................   21
Item 2.     Changes in Securities.......................................   21
Item 3.     Defaults upon Senior Securities.............................   21
Item 4.     Submission of Matters to a Vote of Security Holders.........   21
Item 5.     Other Information...........................................   21
Item 6.     Exhibits and Reports on Form 8-K............................   21
Signatures  ............................................................   22
</TABLE>
 
                                        2
<PAGE>   3
 
                         PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
               SMART MODULAR TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED CONDENSED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                              APRIL 30,      OCTOBER 31,
                                                                1998             1997
                                                              ---------    ----------------
<S>                                                           <C>          <C>
Current Assets:
  Cash and cash equivalents.................................  $ 88,993         $111,331
  Short term investments....................................    80,570           38,672
  Accounts receivable, net..................................    83,127           95,366
  Inventories...............................................    35,733           39,336
  Prepaid expenses and other................................    16,918           18,317
                                                              --------         --------
          Total current assets..............................   305,341          303,022
Property and equipment, net.................................    39,017           24,604
Other.......................................................       463              359
                                                              --------         --------
          Total assets......................................  $344,821         $327,985
                                                              ========         ========
 
                           LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable..........................................  $ 56,389         $ 73,833
  Accrued bonuses...........................................     4,134            6,761
  Other accrued expenses....................................     9,025            9,001
  Income taxes payable......................................     9,722            7,312
                                                              --------         --------
          Total current liabilities.........................    79,270           96,907
Long-term Liabilities:
  Deferred income taxes and other...........................       631              758
                                                              --------         --------
          Total liabilities.................................    79,901           97,665
                                                              --------         --------
Shareholders' Equity:
  Common stock, no par value --
     Authorized -- 200,000,000 shares
     Outstanding -- 43,022,022 and 42,334,260 shares,
      respectively..........................................   139,512          135,123
  Retained earnings.........................................   125,408           95,197
                                                              --------         --------
          Total shareholders' equity........................   264,920          230,320
                                                              --------         --------
          Total liabilities and shareholders' equity........  $344,821         $327,985
                                                              ========         ========
</TABLE>
 
See the accompanying notes to these consolidated condensed financial statements.
                                        3
<PAGE>   4
 
               SMART MODULAR TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED       SIX MONTHS ENDED
                                                       APRIL 30,               APRIL 30,
                                                  --------------------    --------------------
                                                    1998        1997        1998        1997
                                                  --------    --------    --------    --------
<S>                                               <C>         <C>         <C>         <C>
Net sales.......................................  $181,421    $143,652    $384,262    $275,264
Cost of sales...................................   150,314     119,511     318,073     228,492
                                                  --------    --------    --------    --------
Gross profit....................................    31,107      24,141      66,189      46,772
                                                  --------    --------    --------    --------
Operating Expenses:
  Research and development......................     2,295       2,066       4,441       3,895
  Sales, general and administrative.............     9,883       8,209      20,588      16,335
                                                  --------    --------    --------    --------
          Total operating expenses..............    12,178      10,275      25,029      20,230
                                                  --------    --------    --------    --------
Income from operations..........................    18,929      13,866      41,160      26,542
Other income, net...............................     1,588         480       3,515       1,009
                                                  --------    --------    --------    --------
Income before provision for income taxes........    20,517      14,346      44,675      27,551
Provision for income taxes......................     6,555       4,878      14,291       9,373
                                                  --------    --------    --------    --------
Net income......................................  $ 13,962    $  9,468    $ 30,384    $ 18,178
                                                  ========    ========    ========    ========
Diluted net income per share....................  $   0.30    $   0.22    $   0.64    $   0.42
                                                  ========    ========    ========    ========
Weighted average common and common equivalent
  shares outstanding............................    47,202      43,280      47,209      43,102
                                                  ========    ========    ========    ========
Basic net income per share......................  $   0.33    $   0.25    $   0.71    $   0.48
                                                  ========    ========    ========    ========
Weighted average common shares outstanding......    42,892      38,346      42,682      38,117
                                                  ========    ========    ========    ========
</TABLE>
 
See the accompanying notes to these consolidated condensed financial statements.
                                        4
<PAGE>   5
 
               SMART MODULAR TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                       FOR THE SIX MONTHS ENDED APRIL 30,
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.........  $ 36,352    $ (1,302)
                                                              --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of investments available-for-sale...............   (55,819)     (5,088)
  Maturities of investments available-for-sale..............    13,921       2,271
  Purchases of property and equipment.......................   (18,667)     (8,720)
  Proceeds from sale of property and equipment..............        32          71
                                                              --------    --------
     Net cash used in investing activities..................   (60,533)    (11,466)
                                                              --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from line of credit..............................     5,000          --
  Payments on line of credit................................    (5,000)         --
  Payments of capital lease obligations.....................      (578)       (875)
  Proceeds from sale of common stock........................     2,421       1,285
                                                              --------    --------
     Net cash provided by financing activities..............     1,843         410
                                                              --------    --------
NET DECREASE IN CASH AND CASH EQUIVALENTS...................   (22,338)    (12,358)
CASH AND CASH EQUIVALENTS, beginning of period..............   111,331      52,568
                                                              --------    --------
CASH AND CASH EQUIVALENTS, end of period....................  $ 88,993    $ 40,210
                                                              ========    ========
</TABLE>
 
See the accompanying notes to these consolidated condensed financial statements.
                                        5
<PAGE>   6
 
               SMART MODULAR TECHNOLOGIES, INC. AND SUBSIDIARIES
 
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  Basis of Presentation
 
     The Interim Consolidated Condensed Financial Statements of SMART Modular
Technologies, Inc., a California corporation, and subsidiaries (the "Company")
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. These Interim Consolidated Condensed
Financial Statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's fiscal 1997 Report on
Form 10-K as filed with the Securities and Exchange Commission on January 29,
1998.
 
     The Interim Consolidated Condensed Financial Statements for the second
quarter of fiscal 1998 reflect, in the opinion of management, all adjustments
(which include only the normal recurring adjustments) necessary for a fair
presentation of financial position, results of operations and cash flows for
such period. The Interim Consolidated Condensed Financial Statements for fiscal
1997 are provided for information purposes only. The results of operations for
the three and six month periods ended April 30, 1998 are not necessarily
indicative of the results that may be expected for the entire fiscal year ending
October 31, 1998, or any other future periods.
 
  Revenue Recognition
 
     Revenue is recognized upon shipment to the customer. The Company provides
for estimated future returns for inventory rebalancing, stock rotation,
established price protection arrangements and the estimated costs of warranty at
the time of sale.
 
  Net Income Per Share
 
     The Company computes net income per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No.
128 requires companies to compute net income per share under two different
methods, basic and diluted, and present per share data for all periods in which
a statement of operations is presented. Basic net income per share is computed
by dividing net income by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per share is computed using
the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Common stock equivalents consist of
preferred stock (using the "if converted" method), stock options and warrants
(using the treasury stock method). Preferred stock, stock options and warrants
are excluded from the computation of diluted net income per share if their
effect is anti-dilutive.
 
                                        6
<PAGE>   7
               SMART MODULAR TECHNOLOGIES, INC. AND SUBSIDIARIES
 
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
 
     The following table reconciles the amounts used in the computation of basic
and diluted net income per share (in thousands, except per share data):
 
<TABLE>
<CAPTION>
                                                             3 MONTHS ENDED      6 MONTHS ENDED
                                                                APRIL 30,           APRIL 30,
                                                            -----------------   -----------------
                                                             1998      1997      1998      1997
                                                            -------   -------   -------   -------
<S>                                                         <C>       <C>       <C>       <C>
Net income available to common shareholders...............  $13,962   $ 9,468   $30,384   $18,178
                                                            =======   =======   =======   =======
Diluted net income per share:
  Weighted average common shares outstanding..............   42,892    38,346    42,682    38,117
  Weighted average common stock options outstanding.......    4,310     4,934     4,527     4,985
                                                            -------   -------   -------   -------
     Total weighted average common and common equivalents
       outstanding........................................   47,202    43,280    47,209    43,102
                                                            =======   =======   =======   =======
     Diluted net income per share.........................  $  0.30   $  0.22   $  0.64   $  0.42
                                                            =======   =======   =======   =======
Basic net income per share:
  Weighted average common shares outstanding..............   42,892    38,346    42,682    38,117
                                                            -------   -------   -------   -------
     Total weighted average common shares outstanding.....   42,892    38,346    42,682    38,117
                                                            =======   =======   =======   =======
     Basic net income per share...........................  $  0.33   $  0.25   $  0.71   $  0.48
                                                            =======   =======   =======   =======
</TABLE>
 
  Inventories
 
     Inventories are stated at the lower of cost (first-in, first-out) or market
and include material, labor and manufacturing costs. Inventories consist of the
following (in thousands):
 
<TABLE>
<CAPTION>
                                                           APRIL 30,   OCTOBER 31,
                                                             1998         1997
                                                           ---------   -----------
<S>                                                        <C>         <C>
Raw materials............................................   $19,970      $22,692
Work-in-process..........................................     8,214        5,266
Finished goods...........................................     7,549       11,378
                                                            -------      -------
          Total..........................................   $35,733      $39,336
                                                            =======      =======
</TABLE>
 
2. LINE OF CREDIT:
 
     In June 1997, the Company entered into an unsecured revolving bank line of
credit agreement that expires in May 1999. Borrowings under this agreement are
limited to $20.0 million and bear interest at either the bank's prime rate (8.5%
at April 30, 1998) or a spread over LIBOR (5.7% at April 30, 1998), at the
Company's option. The Company is required to maintain specified levels of
tangible net worth and comply with certain other covenants. As of April 30, 1998
and October 31, 1997, no borrowings were outstanding under this agreement.
 
                                        7
<PAGE>   8
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     In addition to other areas of this Management's Discussion and Analysis of
Financial Condition and Results of Operations, the second, fifth and sixth
paragraphs of the Overview Section; the Net Sales Section; the Gross Profit
Section; the Research and Development Section; the Sales, General and
Administrative Section; the Provision for Income Taxes Section; and the first
and third paragraphs of the Liquidity and Capital Resources Section contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Without limiting the foregoing, the sentemces in the second
paragraph of the Overview section and in the Net Sales section regarding the
Company's expected third and fourth quarter fiscal 1998 net sales and diluted
net income per share are forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the factors set forth in "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors That May Affect Future
Results." In particular, note the factors entitled "Significant Customer
Concentration," "Product Concentration; Dependence on Memory Market,"
"Dependence on Semiconductor, Computer, Telecommunications and Networking
Industries," "Intense Competition," "Fluctuations in Operating Results,"
"Dependence on Sole or Limited Sources of Supply" and "Rapid Technological
Change." The discussion of those factors is incorporated herein by this
reference as if said discussion was fully set forth at this point.
 
OVERVIEW:
 
     SMART Modular Technologies, Inc., a California corporation (the "Company"
or "SMART"), commenced operations in 1989 and initially focused on the design
and manufacture of standard memory modules for OEMs and semiconductor
manufacturers. Standard memory modules implement industry standard
specifications, primarily utilize DRAM and are designed to be incorporated into
a wide variety of electronic equipment. In 1991, the Company expanded its
design, manufacturing and marketing efforts to offer specialty memory modules
and PC card memory products. The Company expanded its PC card communication
product line through the acquisition of Apex Data, Inc., a Delaware corporation,
in July 1995. The Company further expanded its product line to include embedded
computer modules through the acquisition of RISQ Modular Systems, Inc., a
California corporation, in July 1996.
 
     The Company expects to operate in an uncertain environment during at least
the next two fiscal quarters. The reasons for this include ongoing efforts by
OEMs to reduce factory and channel inventories, lack of visibility in the
Company's options business, an industry-wide excess supply of standard memory
modules and, most fundamentally, questions about the strength of end-user demand
in a number of industry segments served by the Company. Given these
considerations, the Company currently expects its third quarter fiscal 1998 net
sales and diluted net income per share to total approximately $155 million and
$0.19, respectively. The Company expects its fiscal fourth quarter net sales and
diluted net income per share to total approximately $180 million and $0.26,
respectively. However, actual net sales and diluted net income per share may be
significantly different than what is currently expected.
 
     Over the last eight fiscal quarters, SMART's gross margin has ranged from
15.3% to 18.2%. One of the primary factors affecting gross margin has been the
proportion of the Company's memory products manufactured on either a turnkey or
consignment basis. Products manufactured on a turnkey basis are designed and
manufactured by the Company with purchased memory devices. Products manufactured
on a consignment basis are generally designed and manufactured by the Company
with memory devices that are owned and supplied by the customer. While products
manufactured on a turnkey basis typically have lower gross margin than products
manufactured on a consignment basis, products manufactured on a turnkey basis
generally contribute greater net sales and higher gross profit per unit than
products manufactured on a consignment basis. Currently, a substantial majority
of the Company's net sales is derived from sales of products manufactured on a
turnkey basis.
 
                                        8
<PAGE>   9
 
     The other primary factor affecting the Company's gross margin has been the
mix between sales of specialty memory modules, standard memory modules,
communication card products and embedded computer modules. In prior fiscal
periods, a significant majority of the Company's net sales were derived from the
sales of its specialty memory modules which typically have slightly higher gross
margin than the Company's standard memory modules. Currently, a majority of the
Company's net sales are derived from the sales of its standard memory modules.
The Company's embedded computer modules currently generate the Company's highest
gross margin, followed by the Company's PC card communication products. Both of
these product lines currently contribute a relatively small portion of the
Company's net sales.
 
     The Company expects that its net sales and gross margin will continue to
vary based on these and other factors, including the mix of products sold and
the manufacturing services provided, the channels through which the Company's
products are sold, changes in product selling prices and component costs, the
level of manufacturing efficiencies achieved and pricing by competitors. The
selling prices of the Company's existing products have declined in the past and
the Company expects that prices will continue to decline in the future. In
particular, during fiscal 1997, the selling prices of the Company's existing
products declined due to significant declines in DRAM semiconductor prices and
declines in SRAM and Flash semiconductor prices. Moreover, since the fiscal 1997
year end, declines in the selling prices of certain of the Company's existing
products have continued due to significant declines in DRAM semiconductor prices
and declines in SRAM and Flash semiconductor prices which has adversely impacted
net sales. Because a substantial portion of the Company's net sales are
attributable to the resale of semiconductor memory devices, a continued decline
in the prices of these components would have a material adverse effect on the
Company's net sales and could have a material adverse effect on the Company's
business, financial condition and results of operations. Accordingly, the
Company's ability to maintain or increase net sales will be highly dependent
upon its ability to increase unit sales volumes of existing products and to
introduce and sell new products in quantities sufficient to compensate for the
anticipated declines in selling prices. Declining product selling prices may
also materially and adversely affect the Company's gross margin unless the
Company is able to reduce its cost per unit to offset declines in product
selling prices. There can be no assurance that the Company will be able to
increase unit sales volumes, introduce and sell new products or reduce its cost
per unit. In addition, the Company's business has in the past been subject to
seasonality, although the Company believes such seasonality has been masked by
its growth. The Company expects that its business will experience more
significant seasonality as it expands its sales and marketing efforts in Europe
and to the extent its exposure to the personal computer market remains
significant.
 
     The Company primarily sells its products to OEMs and semiconductor
manufacturers in the computer, networking and telecommunications industries. A
relatively small number of customers have accounted for a significant percentage
of the Company's net sales. For fiscal 1997, fiscal 1996 and fiscal 1995, the
Company's ten largest customers accounted for 86%, 71% and 68% of net sales,
respectively. For fiscal 1997, the Company's three largest customers were Compaq
Computer Corporation ("Compaq"), Cisco System, Inc. ("Cisco") and
Hewlett-Packard Company ("Hewlett-Packard"), which accounted for 53%, 12% and
11% of net sales, respectively. In fiscal 1996, the Company's three largest
customers were Cisco, Hewlett-Packard and IBM Corporation ("IBM"), which
accounted for 19%, 15% and 12% of net sales, respectively. In fiscal 1995, the
Company's three largest customers were Cisco, IBM and Hewlett-Packard, which
accounted for 18%, 15% and 10% of net sales, respectively. During these periods,
no other customers accounted for more than 10% of net sales. The Company expects
that sales to relatively few customers will continue to account for a
significant percentage of its net sales in the foreseeable future. However,
there can be no assurance that any of these customers or any of the Company's
other customers will continue to utilize the Company's products at current
levels, if at all. The Company has experienced significant changes in the
composition of its major customer base and expects that this variability will
continue in the future. For example, sales to Compaq, which represented less
than 10% of net sales in fiscal 1996 and fiscal 1995, represented 53% of the
Company's net sales in fiscal 1997. The loss of any major customer or any
reduction in orders by any such customer would have a material adverse effect on
the Company's business, financial condition and results of operations. Recently,
certain of the Company's customers have announced that they intend to reduce
their inventory levels in the distribution channel for certain products that
incorporate the Company's products, which has resulted in lower than anticipated
orders for the Company's products and could continue to have a material
                                        9
<PAGE>   10
 
adverse impact on the Company's sales to those customers. Any adverse changes in
the business of the Company's customers could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, one of the Company's largest customers has recently reduced the
Company's market share levels for certain of the products the Company sells to
the customer. If the Company is unable to regain the lost market share or
otherwise satisfy the customer, the Company's business, financial condition and
results of operations would be materially and adversely affected.
 
RESULTS OF OPERATIONS:
 
     The following table sets forth certain consolidated condensed statements of
income data of the Company expressed as a percentage of net sales:
 
<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED      SIX MONTHS ENDED
                                            APRIL 30,              APRIL 30,
                                        ------------------      ----------------
                                         1998        1997       1998       1997
                                        ------      ------      -----      -----
<S>                                     <C>         <C>         <C>        <C>
Net sales.............................  100.0%      100.0%      100.0%     100.0%
Cost of sales.........................   82.9        83.2        82.8       83.0
                                        -----       -----       -----      -----
Gross profit..........................   17.1        16.8        17.2       17.0
Operating expenses:
  Research and development............    1.3         1.4         1.2        1.4
  Selling, general and
     administrative...................    5.4         5.7         5.4        5.9
                                        -----       -----       -----      -----
     Total operating expenses.........    6.7         7.2         6.5        7.3
                                        -----       -----       -----      -----
Income from operations................   10.4         9.7        10.7        9.6
Other income, net.....................    0.9         0.3         0.9        0.4
                                        -----       -----       -----      -----
Income before provision for income
  taxes...............................   11.3        10.0        11.6       10.0
Provision for income taxes............    3.6         3.4         3.7        3.4
                                        -----       -----       -----      -----
Net income............................    7.7%        6.6%        7.9%       6.6%
                                        =====       =====       =====      =====
</TABLE>
 
  Net Sales
 
     Net sales consist of sales of specialty and standard memory products, PC
cards, embedded computer modules and communication card products, less returns
and discounts. Net sales for the second quarter of fiscal 1998 increased 26.3%
to $181.4 million from $143.7 million for the same period of fiscal 1997. Net
sales for the six months ended April 30, 1998 increased 39.6% to $384.3 million
from $275.3 million for the same period of fiscal 1997. The increase in net
sales for the three and six month periods ended April 30, 1998 reflects an
overall increase in demand for the Company's products from both new and existing
customers as compared to the same periods of fiscal 1997. Further contributing
to the increase in net sales during the three and six month periods ended April
30, 1998 was a slight increase in the percentage of products manufactured on a
turnkey basis versus those manufactured on a consignment basis as compared to
the same periods of fiscal 1997. These increases were partially offset by a
decrease in net sales resulting from a substantial decline in the cost of
certain memory devices used in the production of the Company's products. The
Company expects to operate in an uncertain environment during at least the next
two fiscal quarters. The reasons for this include ongoing efforts by OEMs to
reduce factory and channel inventories, lack of visibility in the Company's
options business, an industry-wide excess supply of standard memory modules and,
most fundamentally, questions about the strength of end-user demand in a number
of industry segments served by the Company. Given these considerations, the
Company currently expects its third quarter fiscal 1998 net sales and diluted
net income per share to total approximately $155 million and $0.19,
respectively. The Company expects its fiscal fourth quarter net sales and
diluted net income per share to total approximately $180 million and $0.26,
respectively. However, actual net sales and diluted net income per share may be
significantly different than what is currently expected.
 
                                       10
<PAGE>   11
 
  Gross Profit
 
     Cost of sales includes the costs of semiconductor devices and other
components and materials purchased by the Company for its products, as well as
the direct labor and overhead costs associated with manufacturing. Gross profit
increased 28.9% to $31.1 million for the second quarter of fiscal 1998 from
$24.1 million for the same period of fiscal 1997. Gross margin increased to
17.1% for the second quarter of fiscal 1998 from 16.8% for the comparable period
of fiscal 1997. Gross profit for the first six months of fiscal 1998 increased
41.5% to $66.2 million from $46.8 million for the same period of fiscal 1997.
Gross margin increased to 17.2% for the first six months of fiscal 1998 from
17.0% for the comparable period of fiscal 1997. The increase in gross margin for
the three and six month periods ended April 30, 1998 was principally due to a
decrease in the cost of certain memory chips used in the production of the
Company's products as compared to the same period of fiscal 1997. These
increases in gross margin were partially offset by an increase in the proportion
of products manufactured on a turnkey basis versus those manufactured on a
consignment basis as compared to the same periods of fiscal 1997. Further
contributing to the offset of these increases was an increase in the proportion
of the Company's net sales derived from its lower margin standard memory
products as compared to the same periods of fiscal 1997. The Company expects
gross margin to continue to be affected in future periods by, among other
things, changes in the cost of memory devices used in the production of the
Company's products, changes in the sales mix of the Company's products and
changes in the proportion of products manufactured on a turnkey basis versus
those manufactured on a consignment basis.
 
  Research and Development
 
     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. Research and development expenses increased
11.1% to $2.3 million for the second quarter of fiscal 1998 from $2.1 million
during the same period of fiscal 1997 and totaled 1.3% and 1.4% of net sales for
the second quarter of fiscal 1998 and fiscal 1997, respectively. For the first
six months of fiscal 1998, research and development expenses increased 14.0% to
$4.4 million from $3.9 million during the same period of fiscal 1997 and totaled
1.2% and 1.4% of net sales for the first six months of fiscal 1998 and fiscal
1997, respectively. The Company expects that its research and development
expenses will increase in absolute dollars in future periods to the extent that
the Company expands its research and development efforts.
 
  Sales, General and Administrative
 
     Sales, general and administrative expenses consist primarily of personnel
costs (including salaries, performance-based bonuses, commissions and employee
benefits), facilities and equipment costs, costs related to advertising and
marketing and other support costs including utilities, insurance and
professional fees. Sales, general and administrative expenses incurred during
the second quarter of fiscal 1998 totaled $9.9 million, representing an increase
of 20.4% from $8.2 million for the same period of fiscal 1997. Sales, general
and administrative expenses totaled 5.4% and 5.7% of net sales for the second
quarter of fiscal 1998 and fiscal 1997, respectively. For the first six months
of fiscal 1998, sales, general and administrative expenses totaled $20.6
million, representing an increase of 26.0% from $16.3 million for the same
period of fiscal 1997. Sales, general and administrative expenses totaled 5.4%
and 5.9% of net sales for the first six months of fiscal 1998 and fiscal 1997,
respectively. The decreases in sales, general and administrative expenses as a
percentage of net sales for the three and six month periods ended April 30, 1998
were principally due to the growth in net sales generated by certain OEM
customers, which sales generally require lower incremental levels of selling and
marketing expenses. The Company expects that its sales, general and
administrative expenses will increase in absolute dollars in future periods to
the extent that the Company expands its staffing, information systems and other
systems and personnel in connection with the expansion of the Company's
infrastructure.
 
  Other Income, Net
 
     Other income, net consists primarily of interest income, less interest
expense. Interest expense is attributable to the Company's utilization of its
line of credit and interest paid on certain lease obligations.
                                       11
<PAGE>   12
 
Interest income results from investment of cash balances. As compared to the
same periods of fiscal 1997, interest income earned during the three and six
month periods ended April 30, 1998 increased due to higher cash balances
generated from operations and proceeds from the Company's secondary public
offering of common stock completed in September 1997.
 
  Provision for Income Taxes
 
     Provisions for income taxes were $6.6 million and $4.9 million for the
second quarter of fiscal 1998 and fiscal 1997, respectively, resulting in
effective tax rates of 32.0% and 34.0%, respectively. For the first six months
of fiscal 1998 and fiscal 1997, the Company provided $14.3 million and $9.4
million for income taxes, respectively, resulting in respective effective tax
rates of 32% and 34%. The decrease in the Company's consolidated effective tax
rate for the three and six month periods ended April 30, 1998 was principally
due to anticipated contributions to income from the Company's Puerto Rican and
international operations as compared to the same periods of fiscal 1997.
 
LIQUIDITY AND CAPITAL RESOURCES:
 
     Since inception, SMART has used funds generated primarily from operations,
certain borrowings, capital leases and equity financings to support its
operations, acquire capital equipment and finance inventory and accounts
receivable. For the first six months of fiscal 1998, the Company generated cash
from operating activities totaling $36.4 million. The increase in cash provided
by operating activities primarily resulted from net income generated during the
period, a decrease in accounts receivable and inventories, an increase in taxes
payable and was partially offset by a decrease in accounts payable. For the
first six months of fiscal 1997, the Company used cash in operations totaling
$1.3 million. At April 30, 1998, the Company had $169.6 million of cash, cash
equivalents and short-term investments, and $226.1 million of working capital.
At October 31, 1997, the Company had $150.0 million of cash, cash equivalents
and short-term investments and $206.1 million of working capital. The Company
primarily funds its liquidity requirements from utilization of existing cash
balances and amounts borrowed under its existing line of credit. The Company
expects to fund any future liquidity requirements from a combination of
available cash balances and certain short-term borrowings under its line of
credit. The Company currently anticipates that its working capital requirements
will continue to increase in future periods to the extent that the Company's
operations continue to expand.
 
     The Company has a revolving line of credit agreement (the "Credit Line")
with a term expiring in May 1999. Borrowings under the Credit Line are limited
to $20.0 million. Borrowings under the Credit Line bear interest at either the
bank's prime rate or a spread over LIBOR, at the Company's option. The Company
is required to maintain specified levels of tangible net worth and comply with
certain other covenants. As of April 30, 1998, the Company was in compliance
with all covenants related to the line of credit. The Credit Line is unsecured
and no borrowings were outstanding under the Credit Line as of April 30, 1998.
 
     Capital expenditures totaled $18.7 million for the first six months of
fiscal 1998 and $17.1 million for the fiscal year ended October 31, 1997. These
expenditures were primarily for manufacturing and test equipment and the
expansion of the Company's existing manufacturing operations. SMART anticipates
spending between $25.0 million and $30.0 million on capital expenditures during
all of fiscal 1998 related to the continued expansion of the Company's
manufacturing operations and related equipment.
 
     SMART has entered into certain capital lease arrangements. The outstanding
principal on these obligations was approximately $0.5 million and $1.2 million
at April 30, 1998 and October 31, 1997, respectively.
 
     On May 26, 1998, the Company announced that the Board of Directors had
authorized the repurchase of up to 4,000,000 shares of the Company's Common
Stock. Shares may be repurchased in the open market from time to time and at the
Company's discretion.
 
                                       12
<PAGE>   13
 
FACTORS THAT MAY AFFECT FUTURE RESULTS:
 
     The Company's business, financial condition and results of operations could
be impacted by a number of factors including without limitation the following
factors.
 
  Significant Customer Concentration
 
     A relatively small number of customers have accounted for a significant
percentage of the Company's net sales. For fiscal 1997, fiscal 1996 and fiscal
1995, the Company's ten largest customers accounted for 86%, 71% and 68% of net
sales, respectively. For fiscal 1997, the Company's three largest customers were
Compaq, Cisco and Hewlett-Packard, which accounted for 53%, 12% and 11% of net
sales, respectively. In fiscal 1996, the Company's three largest customers were
Cisco, Hewlett-Packard and IBM, which accounted for 19%, 15% and 12% of net
sales, respectively. In fiscal 1995, the Company's three largest customers were
Cisco, IBM and Hewlett-Packard, which accounted for 18%, 15% and 10% of net
sales, respectively. During these periods, no other customers accounted for more
than 10% of net sales. The Company expects that sales to relatively few
customers will continue to account for a significant percentage of its net sales
in the foreseeable future. However, there can be no assurance that any of these
customers or any of the Company's other customers will continue to utilize the
Company's products at current levels, if at all. The Company has experienced
significant changes in the composition of its major customer base and expects
that this variability will continue in the future. For example, sales to Compaq,
which represented less than 10% of net sales in fiscal 1996 and fiscal 1995,
represented 53% of the Company's net sales in fiscal 1997. The loss of any major
customer or any reduction in orders by any such customer would have a material
adverse effect on the Company's business, financial condition and results of
operations. Recently, certain of the Company's customers have announced that
they intend to reduce their inventory levels in the distribution channel for
certain products that incorporate the Company's products, which has resulted in
lower than anticipated orders for the Company's products and could continue to
have a material adverse impact on the Company's sales to those customers. Any
adverse changes in the business of the Company's customers could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, one of the Company's largest customers has recently
reduced the Company's market share levels for certain of the products the
Company sells to the customer. If the Company is unable to regain the lost
market share or otherwise satisfy the customer, the Company's business,
financial condition and results of operations would be materially and adversely
affected.
 
     The Company has no firm long-term volume commitments from any of its major
customers and generally enters into individual purchase orders with its
customers, in certain cases under master agreements governing the terms and
conditions of the relationship. The Company has experienced cancellations of
orders and fluctuations in order levels from period to period and expects it
will continue to experience such cancellations and fluctuations in the future.
Customer purchase orders may be canceled and order volume levels can be changed,
canceled or delayed with limited or no penalties. The replacement of canceled,
delayed or reduced purchase orders with new business cannot be assured.
Moreover, the Company's business, financial condition and results of operations
will depend in significant part on its ability to obtain orders from new
customers, as well as on the financial condition and success of its customers.
Therefore, any adverse factors affecting any of the Company's major customers or
their customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
  Product Concentration; Dependence on Memory Market
 
     A substantial majority of the Company's net sales is derived from memory
products. The market for memory products is characterized by frequent
transitions in which products rapidly incorporate new features and performance
standards. A failure to develop products with required feature sets or
performance standards or a delay as short as a few months in bringing a new
product to market could significantly reduce the Company's net sales for a
substantial period, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
 
                                       13
<PAGE>   14
 
     The market for semiconductor memory devices has been cyclical. The industry
has experienced significant economic downturns at various times, characterized
by diminished product demand, accelerated erosion of average selling prices and
production overcapacity. During fiscal 1997, there were significant declines in
DRAM semiconductor prices and declines in SRAM and Flash semiconductor prices.
Since the fiscal 1997 year end, there have been continued significant declines
in DRAM semiconductor prices and declines in SRAM and Flash semiconductor prices
which have adversely impacted net sales. Because a substantial portion of the
Company's net sales are attributable to the resale of semiconductor memory
devices, a continued decline in the prices of these components would have a
material adverse effect on the Company's net sales and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
  Dependence on Semiconductor, Computer, Telecommunications and Networking
Industries
 
     The Company may experience substantial period-to-period fluctuations in
future operating results due to factors affecting the semiconductor, computer,
telecommunications and networking industries. From time to time, each of these
industries has experienced downturns, often in connection with, or in
anticipation of, declines in general economic conditions. A decline or
significant shortfall in growth in any one of these industries could have a
material adverse impact on the demand for the Company's products and therefore a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, changes in end user demand for the products
sold by any individual OEM customer can have a rapid and exaggerated effect on
demand for the Company's products from that customer in any given period,
particularly in the event that the OEM customer has accumulated excess
inventories of products purchased from the Company. There can be no assurance
that the Company's net sales and results of operations will not be materially
and adversely affected in the future due to changes in demand from individual
customers or cyclical changes in the semiconductor, computer,
telecommunications, networking or other industries utilizing the Company's
products.
 
  Intense Competition
 
     The memory module, communication card and embedded computer subsystem
industries are intensely competitive. Each of these markets includes a large
number of competitive companies, several of which have achieved a substantial
market share. Certain of the Company's competitors in each of these markets have
substantially greater financial, marketing, technical, distribution and other
resources, greater name recognition, lower cost structures and larger customer
bases than the Company. In the memory module market, the Company competes
against semiconductor manufacturers that maintain captive memory module
production capabilities, including Samsung Electronics Company Ltd. ("Samsung").
The Company also competes with independent memory module manufacturers,
including Celestica Inc., PNY Electronics, Inc. and Simple Technology
Incorporated. In the computer systems reseller market for memory modules, the
Company primarily competes with companies such as Kingston Technology, Inc.,
Viking Technology, Inc. and Vision Tek, Inc. In the communication card market,
the Company competes with GVC, TDK and U.S. Robotics, Inc. (a subsidiary of 3Com
Corporation), among others. In the embedded computer subsystem market, the
Company competes with Force Computers Inc. (a subsidiary of Solectron
Corporation), Motorola Inc. and Radisys Corporation, among others. The Company
faces competition from current and prospective customers that evaluate the
Company's capabilities against the merits of manufacturing products internally.
In addition, certain of the Company's competitors, such as Samsung, are
significant suppliers to the Company. These suppliers have the ability to
manufacture competitive products at lower costs than the Company as a result of
their higher levels of integration and therefore have the ability to sell
competitive products at lower prices than the Company's products. The Company
also faces competition from new and emerging companies that have recently
entered or may in the future enter the markets in which the Company
participates.
 
     The Company expects its competitors to continue to improve the performance
of their current products, to reduce their current product sales prices and to
introduce new products that may offer greater performance and improved pricing,
any of which could cause a decline in sales or loss of market acceptance of the
Company's products. There can be no assurance that enhancements to or future
generations of competitive
 
                                       14
<PAGE>   15
 
products will not be developed that offer better prices or technical performance
features than the Company's products. To remain competitive, the Company must
continue to provide technologically advanced products and manufacturing
services, maintain quality levels, offer flexible delivery schedules, deliver
finished products on a reliable basis, reduce manufacturing and testing costs
and compete favorably on the basis of price. In addition, increased competitive
pressure has led in the past and may continue to lead to intensified price
competition, resulting in lower prices and gross margin, which could materially
adversely affect the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to compete
successfully in the future.
 
  Fluctuations in Operating Results
 
     The Company's results of operations and gross margin have fluctuated
significantly from period to period in the past and may in the future continue
to fluctuate significantly from period to period. The primary factors that have
affected and may in the future affect the Company's results of operations
include the partial or complete loss of a principal customer or the reduction in
orders from a customer due to among other things excess product inventory
accumulation by such customer, the adverse changes in the mix of products sold
by the Company, and the inability to procure required components. Other factors
that have affected and may in the future affect the Company's results of
operations include fluctuating market demand for and declines in the selling
prices of the Company's products, market acceptance of new products and enhanced
versions of the Company's products, the Company's competitors selling products
that compete with the Company's products at lower prices or on better terms than
the Company's products, delays in the introduction of new products and
enhancements to existing products, manufacturing inefficiencies associated with
the start up of new product introductions, and the Company's semiconductor
customers manufacturing memory modules, internally or with other third parties,
outside of the United States due to concerns about United States antidumping
investigations and laws. Recently, certain of the Company's customers have
announced that they intend to reduce their inventory levels in the distribution
channel for certain products that incorporate the Company's products, which has
resulted in lower than anticipated orders for the Company's products and could
continue to have a material adverse impact on the Company's sales to those
customers. Any adverse changes in the business of the Company's customers could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, one of the Company's largest customers
has recently reduced the Company's market share levels for certain of the
products the Company sells to the customer. If the Company is unable to regain
the lost market share or otherwise satisfy the customer, the Company's business,
financial condition and results of operations would be materially and adversely
affected.
 
     The Company's operating results may also be affected by the timing of new
product announcements and releases by the Company or its competitors, the timing
of significant orders, the ability to produce products in volume, delays,
cancellations or reschedulings of orders due to customer financial difficulties
or other events, inventory obsolescence, including the reduction in value of the
Company's inventories due to unexpected price declines, unexpected product
returns, the timing of expenditures in anticipation of increased sales,
cyclicality in the Company's targeted markets, and expenses associated with
acquisitions. In particular, declines in DRAM, SRAM and Flash semiconductor
prices could affect the valuation of the Company's inventory which could result
in adverse changes in the Company's business, financial condition and results of
operations. The concentration of the Company's assets in its Fremont, California
facility could make the Company's exposure to business disruptions greater than
if the Company's assets were more geographically dispersed.
 
     The Company's net sales and gross margin have varied and will continue to
vary significantly based on a variety of factors, including the mix of products
sold and the manufacturing services provided, the channels through which the
Company's products are sold, changes in product selling prices and component
costs, the level of manufacturing efficiencies achieved and pricing by
competitors. The selling prices of the Company's existing products have declined
in the past and the Company expects that prices will continue to decline in the
future. In particular, during fiscal 1997, the selling prices of the Company's
existing products declined due to significant declines in DRAM semiconductor
prices and declines in SRAM and Flash semiconductor prices. Moreover, since the
fiscal 1997 year end, declines in the selling prices of certain of the Company's
existing products have continued due to significant declines in DRAM
semiconductor prices and declines in SRAM
 
                                       15
<PAGE>   16
 
and Flash semiconductor prices which has adversely impacted net sales. Because a
substantial portion of the Company's net sales are attributable to the resale of
semiconductor memory devices, a continued decline in the prices of these
components would have a material adverse effect on the Company's net sales and
could have a material adverse effect on the Company's business, financial
condition and results of operations. Accordingly, the Company's ability to
maintain or increase net sales will be highly dependent upon its ability to
increase unit sales volumes of existing products and to introduce and sell new
products in quantities sufficient to compensate for the anticipated declines in
selling prices. Declining product selling prices may also materially and
adversely affect the Company's gross margin unless the Company is able to reduce
its cost per unit to offset declines in product selling prices. There can be no
assurance that the Company will be able to increase unit sales volumes,
introduce and sell new products or reduce its cost per unit. In addition, the
Company's business has in the past been subject to seasonality, although the
Company believes such seasonality has been masked by its growth. The Company
expects that its business will experience more significant seasonality as it
expands its sales and marketing efforts in Europe and to the extent its exposure
to the PC market remains significant.
 
     Sales of the Company's individual products and product lines toward the end
of a product's life cycle are typically characterized by steep declines in
sales, pricing and gross margin, the precise timing of which may be difficult to
predict. The Company could experience unexpected reductions in sales of products
as customers anticipate new product purchases. In addition, to the extent that
the Company manufactures products in anticipation of future demand that does not
materialize, or in the event a customer cancels outstanding orders during a
period of either declining product selling prices or decreasing demand, the
Company could experience an unanticipated decrease in sales of products. These
factors could give rise to charges for obsolete or excess inventory, returns of
products by distributors, or substantial price protection charges or discounts.
In the past, the Company has had to write-down and write-off excess or obsolete
inventory. To the extent that the Company is unsuccessful in managing product
transitions, its business, financial condition and results of operations could
be materially and adversely affected.
 
     The need for continued significant expenditures for capital equipment
purchases, research and development and ongoing customer service and support,
among other factors, will make it difficult for the Company to reduce its
operating expenses in any particular period if the Company's expectations for
net sales for that period are not met. The Company has significantly increased
its expense levels to support its recent growth, and there can be no assurance
that the Company will maintain its current level of net sales or rate of growth
for any period in the future. Accordingly, there can be no assurance that the
Company will be able to continue to be profitable. The Company believes that
period-to-period comparisons of the Company's financial results are not
necessarily meaningful and should not be relied upon as indications of future
performance. Due to the foregoing factors, it is likely that in some future
period the Company's operating results will be below the expectations of public
market analysts or investors. In such event, the market price of the Company's
securities would be materially and adversely affected.
 
  Dependence on Sole or Limited Sources of Supply
 
     The Company is dependent on certain suppliers, including limited and sole
source suppliers, to provide key components used in the Company's products. In
particular, the Company is dependent in significant part upon certain limited or
sole source suppliers for critical components in the Company's memory module,
communication card and embedded computer module products. The Company also
depends on sole source third party manufacturers to produce certain of the
Company's embedded computer module products. The electronics industry has
experienced in the past, and may experience in the future, shortages in
semiconductor devices, including DRAM, SRAM and Flash memory. The Company has
experienced and may continue to experience delays in component deliveries and
quality problems with respect to certain component deliveries which have caused
and could in the future cause delays in product shipments and have required and
could in the future require the redesign of certain products. The Company
generally has no written agreements with its suppliers. There can be no
assurance that the Company will receive adequate component supplies on a timely
basis in the future. The inability to continue to obtain sufficient supplies of
components as required, or to develop alternative sources if required, could
cause delays, disruptions or reductions in product shipments or
 
                                       16
<PAGE>   17
 
require product redesigns which could damage relationships with current or
prospective customers, could increase costs and/or prices and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
  Management of Growth; Expansion of Operations
 
     The Company has significantly expanded its operations over the last several
years. This growth has resulted in a significant increase in responsibility for
existing management which has placed, and may continue to place, a significant
strain on the Company's limited personnel and management, manufacturing and
other resources. The Company's ability to manage the recent and any possible
future growth will require an expansion of its manufacturing capacity,
accounting and other internal management systems and the implementation of a
variety of procedures and controls. There can be no assurance that significant
problems in these areas will not occur. Any failure to expand these systems and
implement such procedures and controls in an efficient manner and at a pace
consistent with the Company's business could have a material adverse effect on
the Company's business, financial condition and results of operations.
 
     The Company has licensed a new management information system to replace its
existing management information system. The implementation of the new system
will impact almost all phases of the Company's operations (e.g., planning,
manufacturing, finance and accounting). Implementation of the new system and
transition from the current system to the new system will require substantial
financial resources, time and personnel. There can be no assurance that the
Company will not experience problems, delays or unanticipated additional costs
in implementing the new management information system or in the use of its
existing system that could have a material adverse effect on the Company's
business, financial condition and results of operations, particularly in the
period in which the new system is brought online.
 
     In connection with the Company's recent growth, the Company's operating
expenses have increased significantly, and the Company anticipates that
operating expenses will continue to increase in absolute dollars in the future.
In particular, in order to continue to provide quality products and customer
service and to meet any anticipated demand of its customers, the Company will be
required to continue to increase staffing and other expenses, including
expenditures on capital equipment, sales and marketing. Should the Company
increase its expenditures in anticipation of a future level of sales that does
not materialize, the Company's business, financial condition and results of
operations would be materially and adversely affected. Certain customers have
required and may continue to require rapid increases in production and
accelerated delivery schedules which have placed and may continue to place a
significant burden on the Company's resources. In order to achieve anticipated
sales levels and profitability, the Company will continue to be required to
manage its assets and operations efficiently. In addition, should the Company
continue to expand geographically, it may experience certain inefficiencies from
the management of geographically dispersed facilities.
 
     In May 1998, the Company opened a new manufacturing facility in Penang,
Malaysia, which will result in higher operating expenses. There can be no
assurance that enough future sales will exist to support the operating expenses
of the new facility or that the production lines of the new facility will be
efficient or that they will result in an increase in output. Any delay or
unexpected difficulties arising from the start-up of the new facility could
materially and adversely affect the Company's business, financial condition and
results of operations.
 
  Year 2000; Information Technology Transition
 
     Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements. Significant
uncertainty exists concerning the potential effects associated with such
compliance. The Company's existing management information system is not Year
2000 compliant. The Company has licensed a new management information system to
replace its existing management information system. The implementation of the
new system will impact almost all phases of the Company's operations (e.g.,
planning,
 
                                       17
<PAGE>   18
 
manufacturing, finance and accounting). Implementation of the new system and
transition from the current system to the new system will require substantial
financial resources, time and personnel. There can be no assurance that the new
system will be implemented by the year 2000, or that the Company will not
experience problems, delays or unanticipated additional costs in implementing
the new management information system or in the use of its existing system that
could have a material adverse effect on the Company's business, financial
condition and results of operations, particularly in the period in which the new
system is brought online. In addition, there can be no assurance that the
Company's customers and suppliers have, or will have management information
systems that are Year 2000 compliant. Any Year 2000 compliance problem facing
the Company, its customers or suppliers could have a material adverse effect on
the Company's business, financial condition and results of operations.
 
  Rapid Technological Change
 
     The semiconductor, computer, telecommunications and networking industries
are subject to rapid technological change, short product life cycles, frequent
new product introductions and enhancements, changes in end user requirements and
evolving industry standards. The Company's ability to be competitive in these
markets will depend in significant part upon its ability to invest significant
amounts of resources for research and development efforts, to successfully
develop, introduce and sell new products and enhancements on a timely and
cost-effective basis and to respond to changing customer requirements that meet
evolving industry standards. For example, the semiconductor memory market is
currently transitioning from fast page mode ("FPM") and EDO memory to SDRAM, and
the industry standard modem is currently changing from a 33.6 kbps synchronous
modem to a 56 kbps asynchronous modem. The Company is currently focusing its
research and development resources on the development of SDRAM, Flash and SRAM
products, 56 kbps asynchronous modem products and various embedded computer
modules. The success of the Company in developing new and enhanced products will
depend upon a variety of factors, including integration of various elements of
complex technology, timely and efficient completion of product design, timely
and efficient implementation of manufacturing and assembly processes,
availability of production capacity, achievement of acceptable manufacturing
yields and product performance, quality and reliability. The Company has
experienced, and may in the future experience, delays from time to time in the
development and introduction of new products. Moreover, there can be no
assurance that the Company will be successful in selecting, developing,
manufacturing and marketing new products or enhancements. There can be no
assurance that defects or errors will not be found in the Company's products
after commencement of commercial shipments, which could result in the delay in
market acceptance of such products. The inability of the Company to introduce
new products or enhancements that contribute to net sales could have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
  Dependence on Key Personnel
 
     The Company's future operating results depend in significant part upon the
continued contributions of its key technical and senior management personnel,
many of whom would be difficult to replace. None of such persons, including the
executive officers, has an employment agreement with the Company. The Company's
future operating results also depend in significant part upon its ability to
attract, train and retain qualified management, manufacturing and quality
assurance, engineering, marketing, sales and support personnel. The Company is
actively recruiting such personnel. However, competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting, training or retaining such personnel now or in the future. There may
be only a limited number of persons with the requisite skills to serve in these
positions and it may be increasingly difficult for the Company to hire such
persons over time. The loss of any key employee, the failure of any key employee
to perform in his or her current position, the Company's inability to attract,
train and retain skilled employees as needed or the inability of the officers
and key employees of the Company to expand, train and manage the Company's
employee base could materially and adversely affect the Company's business,
financial condition and results of operations.
 
                                       18
<PAGE>   19
 
  International Sales
 
     International sales accounted for 18%, 8% and 14% of net sales in fiscal
1997, fiscal 1996 and fiscal 1995, respectively. The Company anticipates that
international sales will increase in future periods and will account for an
increasing portion of net sales. As a result, an increasing portion of the
Company's sales may be subject to certain risks, including changes in regulatory
requirements, tariffs and other barriers, timing and availability of export
licenses, political and economic instability, difficulties in accounts
receivable collections, natural disasters, difficulties in staffing and managing
foreign subsidiary and branch operations, difficulties in managing distributors,
difficulties in obtaining governmental approvals for telecommunications and
other products, foreign currency exchange fluctuations, the burden of complying
with a wide variety of complex foreign laws and treaties, potentially adverse
tax consequences and uncertainties relative to regional, political and economic
circumstances. In particular, recent instability in certain Asian economies and
financial markets could have an adverse effect on the Company's business,
financial condition and results of operations in future quarters. In fiscal
1997, the Company's net sales to customers in Asia accounted for less than one
percent of all net sales. In addition to exporting products to Asia, the Company
maintains strategic supply relationships with companies located in Asia.
Moreover and as a result of currency changes and other factors, certain of the
Company's competitors may have the ability to manufacture competitive products
in Asia at lower costs than the Company. There can be no assurance that current
economic instability in Asia will not have a material adverse effect on the
Company's net sales, its ability to compete or its ability to receive raw
materials for its products.
 
     The Company is also subject to the risks associated with the imposition of
legislation and regulations relating to the import or export of high technology
products. The Company cannot predict whether quotas, duties, taxes or other
charges or restrictions upon the importation or exportation of the Company's
products will be implemented by the United States or other countries. Because
sales of the Company's 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 the Company's 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. Future international
activity may result in increased foreign currency denominated sales. Gains and
losses on the conversion to United States dollars of accounts receivable,
accounts payable and other monetary assets and liabilities arising from
international operations may contribute to fluctuations in the Company's results
of operations. Some of the Company's customer's purchase orders and agreements
are governed by foreign laws, which may differ significantly from United States
laws. Therefore, the Company may be limited in its ability to enforce its rights
under such agreements and to collect damages, if awarded. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's business, financial condition and results of operations.
 
  Uncertainty Regarding Protection of Proprietary Rights
 
     In the semiconductor, computer, telecommunications and networking
industries, it is typical for companies to receive notices from time to time
alleging infringement of patents, copyrights or other intellectual property
rights of others. The Company is currently being sued by a party who alleges
that certain of the Company's communication card products have infringed and
continue to infringe upon the party's intellectual property rights. Moreover,
the Company has been and may from time to time continue to be notified of claims
that it may be infringing patents, copyrights or other intellectual property
rights owned by other third parties. There can be no assurance that these or
other companies will not in the future pursue claims against the Company with
respect to the alleged infringement of patents, copyrights or other intellectual
property rights. In addition, litigation may be necessary to protect the
Company's intellectual property rights and trade secrets, to determine the
validity of and scope of the proprietary rights of others or to defend against
third party claims of invalidity. The current litigation or any other litigation
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     There can be no assurance that additional infringement, invalidity, right
to use or ownership claims by third parties or claims for indemnification
resulting from infringement claims will not be asserted in the future.
                                       19
<PAGE>   20
 
The Company has entered into license agreements in the past regarding certain
alleged infringement claims asserted by third parties. In response to the
current litigation or if any other claims or actions are asserted against the
Company, the Company may again seek to obtain a license under a third party's
intellectual property rights. There can be no assurance, however, that a license
will be available under reasonable terms or at all. The failure to obtain a
license under a patent or intellectual property right from a third party for
technology used by the Company could cause the Company to incur substantial
liabilities and to suspend the manufacture of the products utilizing the
intellectual property. In addition, should the Company decide to litigate the
current claim or such other claims, such litigation could be extremely expensive
and time consuming and could materially and adversely affect the Company's
business, financial condition and results of operations, regardless of the
outcome of the litigation.
 
     The Company attempts to protect its intellectual property rights through a
variety of measures including non-disclosure agreements, trademarks, trade
secrets and to a lesser extent, patents. There can be no assurance, however,
that such measures will provide adequate protection for the Company's trade
secrets or other proprietary information, that disputes with respect to the
ownership of its intellectual property rights will not arise, that the Company's
trade secrets or proprietary technology will not otherwise become known or be
independently developed by competitors or that the Company can otherwise
meaningfully protect its intellectual property rights.
 
  Risks Associated with Acquisitions
 
     As part of its business strategy, the Company expects to acquire or make
significant investments in businesses that offer complementary products and
technologies. Any such future acquisitions or investments would expose the
Company to the risks commonly encountered in acquisitions of businesses. Such
risks include, among others, difficulty of assimilating the operations,
information systems and personnel of the acquired businesses, the potential
disruption of the Company's ongoing business, the inability of management to
maximize the financial and strategic position of the Company through the
successful incorporation of acquired employees and customers, the maintenance of
uniform standards, controls, procedures and policies and the impairment of
relationships with employees and customers as a result of any integration of new
management personnel. There can be no assurance that any potential acquisition
will be consummated or, if consummated, that it will not have a material adverse
effect on the Company's business, financial condition and results of operations.
 
  Volatility of Stock Prices
 
     There has been a history of significant volatility in the market prices of
the common stock of technology companies, including the Common Stock of the
Company, and it is likely that the market price of the Company's Common Stock
will continue to be subject to significant fluctuations. Factors such as the
timing and market acceptance of new product introductions by the Company, demand
for products of the Company's customers, the introduction of new products by the
Company's competitors, variations in quarterly operating results, changes in
securities analysts' recommendations regarding the Company's Common Stock,
developments in the technology industry and general economic conditions may have
a significant impact on the market price of the Company's Common Stock. In
addition, the equity markets in recent years have experienced significant price
and volume fluctuations that have affected the market prices of technology
companies and that have often been unrelated to the operating performance of
such companies.
 
                                       20
<PAGE>   21
 
                           PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
     Not applicable
 
ITEM 2. CHANGES IN SECURITIES
 
     Not applicable
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
     Not applicable
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
(a) The Company held an annual meeting of shareholders (the "Annual Meeting") on
    March 16, 1998.
 
(b) The following individuals were nominated and elected to the Board of
    Directors to serve for the ensuing year and until their successors are duly
    elected and qualified or until their earlier death, resignation or removal.
    Each individual so nominated also served as a Director on the Company's
    Board of Director during the preceding year.
 
<TABLE>
<CAPTION>
                               NUMBER OF VOTES
                 -------------------------------------------
                                                    BROKER
   NOMINEE          FOR       AGAINST   WITHHELD   NON-VOTES
   -------       ----------   -------   --------   ---------
<S>              <C>          <C>       <C>        <C>
Ajay Shah        40,106,278   299,123      0           0
Mukesh Patel     40,109,878   295,523      0           0
Erik Anderson    40,109,869   295,532      0           0
Tor R. Braham    40,110,569   294,832      0           0
</TABLE>
 
(c) The following matters were voted upon at the Annual Meeting and the results
    of voting were as follows:
 
     (1) The shareholders voted 25,352,832 shares in the affirmative, 8,365,216
         shares in the negative, 6,643,588 broker non-votes and withheld 43,765
         shares to approve an amendment to the Company's Amended and Restated
         Articles of Incorporation to increase the authorized number of shares
         of the Company's Common Stock by 100,000,000 shares to a total of
         200,000,000 shares and the authorized number of shares of the Company's
         Preferred Stock by 15,000,000 shares to a total of 30,000,000 shares.
 
     (2) The shareholders voted 23,705,149 shares in the affirmative, 9,993,131
         shares in the negative, 6,643,588 broker non-votes and withheld 63,533
         shares to approve an increase by 6,000,000 shares in the number of
         shares of Common Stock authorized for issuance under the Company's 1995
         Stock Plan to a total of 12,000,000 shares.
 
     (3) The shareholders voted 40,336,139 shares in the affirmative, 15,330
         shares in the negative and withheld 43,765 shares to approve an
         amendment to ratify the appointment of Arthur Andersen LLP as
         independent auditors of the Company for the fiscal year ending October
         31, 1998.
 
ITEM 5. OTHER INFORMATION
 
     Not applicable
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) Exhibits: For a list of exhibits to this Form 10-Q see the exhibit
index located on pages 23-25.
 
     (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the
three months ended April 30, 1998.
 
                                       21
<PAGE>   22
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
 
                                          SMART MODULAR TECHNOLOGIES, INC.
 
                                          By:      /s/ DAVID B. MULLIN
                                            ------------------------------------
                                                      David B. Mullin
                                                Vice President, Finance and
                                                  Chief Financial Officer
                                                  (Principal Financial and
                                                    Accounting Officer)
 
Date: June 12, 1998
 
                                       22
<PAGE>   23
 
                        SMART MODULAR TECHNOLOGIES, INC.
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
     EXHIBIT
      NUMBER                                EXHIBITS
     -------                                --------
    <C>           <S>
       2.1(1)     Agreements and Plan of Reorganization among the Registrant,
                  Apex Data, Inc. and SMART Acquisition Inc. dated April 24,
                  1995.
       3.1        Registrant's Amended and Restated Articles of Incorporation.
       3.2(1)     Registrant's Amended Bylaws.
       4.1(1)     Registration Rights Agreement dated July 26, 1995.
       4.2(1)     Registrant's specimen stock certificate.
       4.3(3)     Termination to the Registration Rights Agreement dated July
                  26, 1995.
      10.1(1)     1989 Incentive Stock Plan, as amended, and forms of
                  agreements attached thereto.
      10.2(1)     1995 Employee Stock Purchase Plan, and forms of agreements
                  attached thereto.
      10.3(1)     1995 Director Option Plan, and forms of agreements attached
                  thereto.
      10.4(1)     1995 Stock Plan, and forms of agreements attached thereto.
      10.5(1)     Form of Indemnification Agreement between the Registrant and
                  its officers, directors and certain significant employees.
      10.6(1)     Standard Triple Net Industrial Lease between the Registrant
                  and Pactel Properties dated November 18, 1991.
      10.7(1)     First Amendment to Lease between the Registrant and Pactel
                  Properties dated July 19, 1993.
      10.8(1)     Second Amendment to Lease between the Registrant and Riggs
                  National Bank of Washington, D.C. as Trustee of the
                  Multi-Employer Property Trust Northport Business Park, a
                  National Banking Association dated May 31, 1994.
      10.9(1)     Third Amendment to Lease between the Registrant and Riggs
                  National Bank of Washington, D.C. as Trustee of the
                  Multi-Employer Property Trust Northport Business Park, a
                  National Banking Association dated November 1994.
      10.10(1)    Standard Triple Net Industrial Lease between the Registrant
                  and Riggs National Bank of Washington, D.C., as Trustee of
                  the Multi-Employer Property Trust, dated June 18, 1995.
      10.11(1)    Lease Contract between the Registrant and The Puerto Rico
                  Industrial Development Company dated April 24, 1995.
      10.12(1)    Note, Loan and Security Agreement between the Registrant and
                  Merrill Lynch Business Financial Services Inc. dated May 19,
                  1993.
      10.13(1)    Letter Agreement between the Registrant and Merrill Lynch
                  Business Financial Services Inc. dated December 28, 1994.
      10.14(1)    Letter Agreement between the Registrant and Merrill Lynch
                  Business Financial Services Inc. dated June 27, 1995.
      10.15(1)    Intercreditor Agreement among the Registrant, Merrill Lynch
                  Business Financial Services Inc. and Imperial Bank dated
                  June 27, 1995.
      10.16(1)    Security and Loan Agreement between the Registrant and
                  Imperial Bank dated July 19, 1995.
     *10.17(1)    License and Supply Agreement between the Registrant and
                  Krypton Isolation, Inc. dated July 22, 1994.
</TABLE>
 
                                       23
<PAGE>   24
 
<TABLE>
<CAPTION>
     EXHIBIT
      NUMBER                                EXHIBITS
     -------                                --------
    <C>           <S>
      10.18(1)    Warrant Purchase Agreement between the Registrant and
                  Krypton Isolation, Inc. dated July 27, 1994.
      10.19(1)    Holders' Agreement dated July 27, 1994 by and among Krypton
                  Isolation, Inc. and certain individuals and entities
                  identified on Exhibit A attached thereto.
      10.20(1)    Common Stock Purchase Agreement dated July 27, 1994 by and
                  among Krypton Isolation, Inc. and the individuals identified
                  on Exhibit A attached thereto.
      10.21(1)    First Amendment to the Krypton Isolation, Inc. Warrant to
                  Purchase 2,000,000 Shares of Series A Preferred Stock
                  between the Registrant and Krypton Isolation, Inc. dated
                  October 24, 1995.
      10.22(1)    Letter of Intent dated as of October 24, 1995 by and among
                  Krypton Isolation, Inc., the Registrant and certain
                  individuals identified on the signature pages thereto.
    **10.23(2)    License and Supply Agreement between the Registrant and
                  Krypton Isolation, Inc. dated January 29, 1996.
      10.24(2)    Warrant Purchase Agreement between the Registrant and
                  Krypton Isolation, Inc. dated January 29, 1996.
      10.25(2)    First Amended and Restated Holders' Agreement dated January
                  29, 1996 by and among Krypton Isolation, Inc. and certain
                  individuals and entities identified on Exhibit A attached
                  thereto.
      10.26(2)    Common Stock Agreement dated January 29, 1996 by and among
                  Krypton Isolation, Inc. and the entities identified on
                  Exhibit A attached thereto.
      10.27(2)    First Amendment to the License and Supply Agreement between
                  the Registrant and Krypton Isolation, Inc. dated January 29,
                  1996.
      10.28(3)    1989 Incentive Stock Plan, as amended, dated March 25, 1996.
      10.29(4)    Fourth Amendment to Lease between the Registrant and Riggs
                  Bank N.A. dated September 27, 1996.
      10.30(5)    Revolving Line of Credit Note between the Registrant and
                  Wells Fargo Bank, National Association dated May 29, 1997.
      10.31(5)    Credit Agreement between the Registrant and Wells Fargo
                  Bank, National Association dated May 29, 1997.
      10.32(5)    Subfeature Note between the Registrant and Wells Fargo Bank,
                  National Association dated May 29, 1997.
      10.33(6)    Lease Contract between the Registrant and The Puerto Rico
                  Industrial Development Company dated October 9, 1997.
      10.34(6)    Second Amendment to the Krypton Isolation, Inc. Warrant to
                  Purchase 2,000,000 Shares of Series A Preferred Stock
                  between the Registrant and Krypton Isolation, Inc. dated
                  January 21, 1998.
      10.35       Revolving Line of Credit Note between the Registrant and
                  Wells Fargo Bank, National Association dated May 1, 1998.
      10.36       Credit Agreement between the Registrant and Wells Fargo
                  Bank, National Association dated May 1, 1998.
      10.37       Subfeature Note between the Registrant and Wells Fargo Bank,
                  National Association dated May 1, 1998.
      27.1        Financial Data Schedule for the Quarter Ended April 30,
                  1998.
</TABLE>
 
---------------
(1) Incorporated by reference to exhibit filed with the Registrant's
    Registration Statement on Form S-1 (No. 33-97748) filed October 4, 1995,
    Amendment No. 1 thereto filed October 24, 1995, Amendment
 
                                       24
<PAGE>   25
 
    No. 2 thereto filed November 6, 1995, Amendment No. 3 thereto filed November
    14, 1995 and Amendment No. 4 thereto filed November 16, 1995, which
    Registration Statement became effective November 16, 1995.
 
(2) Incorporated by reference to exhibit filed with the Registrant's Report on
    Form 10-Q filed March 16, 1996.
 
(3) Incorporated by reference to exhibit filed with the Registrant's Report on
    Form 10-Q filed June 14, 1996.
 
(4) Incorporated by reference to exhibit filed with the Registrant's Report on
    Form 10-Q filed June 16, 1997.
 
(5) Incorporated by reference to exhibit filed with the Registrant's Report on
    Form 10-Q filed August 28, 1997.
 
(6) Incorporated by reference to exhibit filed with the Registrant's Report on
    Form 10-K filed January 29, 1998.
 
 *  Pursuant to Rule 406(b) under the Securities Act of 1933, confidential
    treatment has been granted to certain portions of this exhibit, which
    portions have been deleted and filed separately with the Securities and
    Exchange Commission.
 
**  Pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
    confidential treatment has been granted to certain portions of this exhibit,
    which portions have been deleted and filed separately with the Securities
    and Exchange Commission.
 
                                       25