Where we say "we", "us", "our", the "Company" or "SMTC", we mean SMTC Corporation or SMTC Corporation and its subsidiaries, as it may apply. Where we refer to the "industry", we mean the electronics manufacturing services industry.

You should read this Management's Discussion and Analysis of Financial Condition and Results of Operation ("MD&A") in combination with the accompanying unaudited interim consolidated financial statements and related notes as well as the audited consolidated financial statements and the accompanying notes to the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") included within the Company's Annual Report on Form 10-K filed on April 6, 2009. The forward-looking statements in this discussion regarding the electronics manufacturing services industry, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion include numerous risks and uncertainties, some of which are as described in the "Risk Factors That May Affect Future Results" section in the Annual Report on Form 10-K filed on April 6, 2009, as updated by Item 1A in Part II of this quarterly report. Certain statements in this MD&A contain words such as "could", "expects", "may", "anticipates", "believes", "intends", "estimates", "plans", "envisions", "seeks" and other similar language and are considered forward looking statements or information under applicable securities laws. These statements are based on our current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which we operate. These statements are subject to important assumptions, risks and uncertainties, which are difficult to predict and the actual outcome may be materially different. Although we believe expectations reflected in such forward-looking statements are reasonable based upon the assumptions in this MD&A, they may prove to be inaccurate and consequently our actual results could differ materially from our expectations set out in this MD&A. We may not update these forward-looking statements after the date of this Form 10-Q, even though our situation may change in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

This MD&A contains discussion in U.S. dollars unless specifically stated otherwise.

Background

SMTC Corporation is a mid-tier provider of end-to-end electronics manufacturing services, or EMS, including product design and sustaining engineering services, printed circuit board assembly, or PCBA, production, enclosure fabrication, systems integration and comprehensive testing services. SMTC facilities span a broad footprint in the United States, Canada, Mexico and China, with approximately 1000 employees. SMTC's services extend over the entire electronic product life cycle from the development and introduction of new products through to growth, maturity and end-of-life phases. SMTC offers fully integrated contract manufacturing services with a distinctive approach to global original equipment manufacturers, or OEMs, and technology companies primarily within the industrial, computing and networking, and communications, consumer and medical market segments.

Developments in 2009

As expected, first quarter results were impacted by the global recession as several SMTC customers experienced end market contraction and reduced production demand to reduce inventory levels. While the first quarter is traditionally a challenging quarter, the revenue reduction that we have experienced over the past several weeks is unprecedented at SMTC; this experience has been mirrored within our industry. The Company's revenues declined 21% sequentially and 12% compared to Q1 of 2008; a function of the global recession as the Company has retained its customer base, with the exception of certain Boston customers, and expanded with newer customers. Similarly, significant double digit declines have been experienced by the majority of our public company competitors.

In anticipation of lower revenue, the Company has launched a capacity and cost reduction plan in the first quarter that contained both strategic and tactical elements. Largely due to customer specific issues, the Enclosures Systems division experienced revenue erosion through the latter part of 2008 that was exacerbated by the economic slowdown. This revenue decline resulted in significant overcapacity at the Boston site and continuing operational losses. It became clear that not only did capacity have to be reduced, from a strategic perspective, the Company needed to house the enclosures and large scale systems integration capability in a single facility in a lower cost region. Accordingly, the Company has been building such capability at its largest site in Chihuahua, Mexico. With the economic downturn and unsatisfactory financial results, the Company announced the planned closure of the Boston site and consolidation of production into Mexico. Customer production will be transitioned to Mexico through the second quarter and the site will close at the end of June.

From a tactical viewpoint, the Company had to lower its cost position in anticipation of lower production volumes and revenue. In the latter part of the first quarter, the Company implemented a staff reduction plan that lowered overall headcount by approximately 20% and initiated other cost containment measures. Inventory levels were also lowered.

For the quarter, the Company recorded a net loss of $2.5 million, including $1.0 million in restructuring charges and $1.7 million in losses in the Company's Boston facility which will be closing at the end of the second quarter. Excluding the loss in Boston and restructuring charges, the Company would have recorded a modest profit in the quarter.

In the quarter, the Company successfully renegotiated a waiver from its lenders with respect to what would have otherwise been a covenant violation at the time of filing of the Company's fiscal 2008 financial statements in April 2009. In addition, the Company and its lenders have amended the lending agreements to revise the EBITDA and leverage covenants and eliminate the fixed charge coverage ratio for the five quarters beginning January 5, 2009 and including the first quarter of the 2010 fiscal period. The interest rate has also been increased by 200 basis points. Management believes that the Company will be in compliance with these amended covenants for the foreseeable future.

Results of Operations

The consolidated financial statements of SMTC are prepared in accordance with U.S. GAAP.

Quarter ended April 5, 2009 compared with the quarter ended March 30, 2008:

The following table sets forth summarized operating results in millions of U.S.$ for the periods indicated:

                                                  Three months ended            Three months ended              Change
                                                    April 5, 2009                 March 30, 2008             2009 to 2008
                                                   $              %              $              %            $          %
Revenue                                        $    48.5          100.0 %    $    55.1          100.0 %    $ (6.6 )    (12.0 )%
Cost of sales                                       45.6           94.0 %         50.7           92.0 %      (5.1 )    (10.1 )%

Gross profit                                         2.9            6.0 %          4.4            8.0 %      (1.5 )    (34.1 )%
Selling, general and administrative expenses         3.9            8.0 %          3.2            5.8 %       0.7       21.9 %
Restructuring charges (recoveries)                   1.0            2.1 %         (0.2 )         (0.4 )%      1.2      600.0 %

Operating earnings (loss)                           (2.0 )         (4.1 )%         1.4            2.5 %      (3.4 )   (242.9 )%
Interest expense                                     0.3            0.6 %          0.9            1.6 %      (0.6 )    (66.7 )%

Earnings (loss) before income taxes                 (2.3 )         (4.7 )%         0.5            0.9 %      (2.8 )   (560.0 )%
Income tax expenses
Current                                               -              -             0.1            0.2 %      (0.1 )       NA
Deferred                                             0.2            0.4 %           -             0.0 %       0.2      100.0 %

                                                     0.2            0.4 %          0.1            0.2 %       0.1      100.0 %

Net earnings (loss)                            $    (2.5 )         (5.2 )%   $     0.4            0.7 %    $ (2.9 )   (725.0 )%

Revenue

Revenue decreased $6.6 million, or 12.0%, from $55.1 million for the first quarter of 2008 to $48.5 million for the first quarter of 2009 as many of SMTC's long standing customers' end markets were impacted by the global recession and as operations in our Boston plant wind down. Our larger Boston customers are transitioning primarily to Mexico. The Company plans to disengage with a few smaller customers in Boston whose production requirements are best suited for local supply. Other than these few customers, the decline in revenue was not a result of any loss of customers. One highlight of the quarter was the ramping of Crestron Electronics ("Crestron"). We expanded our relationship with Crestron in 2008 and in the first quarter of 2009 Crestron became one of our top 3 customers this quarter for the first time.

During the first quarter of 2009, revenue from the industrial sector increased slightly compared to the same quarter of 2008, $37.1 million for the first quarter of 2009 compared with $36.8 million for the same period in 2008, a result of the ramp up of Crestron offsetting reductions in other customers attributable to the recession, and increased significantly as a percentage of revenue at 76.6% of revenue in the first quarter of 2009, compared with 66.7% of revenue in the first quarter of 2008.

During the first quarter of 2009, revenue from the communications sector decreased compared with the same quarter of 2008, $5.0 million for the first quarter of 2009 compared with $7.3 million in 2008, which represented 10.3% of revenue in the first quarter of 2009, compared with 13.3% of revenue in the first quarter of 2008. The reduction as a percentage of revenue was due to the increase of revenues from the industrial sector as discussed above.

During the first quarter of 2009, revenue from the networking and enterprise computing sector decreased compared with the same quarter of 2008, $6.4 million for the first quarter of 2009 compared with $11.0 million in 2008, which represented 13.1% of revenue in the first quarter of 2009, down from 20.0% of revenue in the first quarter of 2008.

During the first quarter of 2009, we recorded approximately $1.2 million of sales of raw materials inventory to customers, which carried no margin, compared to $0.7 million in the first quarter of 2008. The Company purchases raw materials based on customer purchase orders. When a customer requires an order to be altered or changed, the customer is generally obligated to purchase the original on-order raw material at cost, to the extent the materials are not consumed within a specified period.

Due to changes in market conditions, the life cycle of products, the nature of specific programs and other factors, revenues from a particular customer typically varies from quarter to quarter and year to year. The Company's ten largest customers represented 86.5% of revenue during the first quarter of 2009, compared to 84.1% in the first quarter of 2008. Revenue from our four largest customers during the first quarter of 2009 were $9.7 million from Ingenico S. A. ("Ingenico"), $8.5 million from Harris Broadcast Infrastructure and Digital Media (a subsidiary of Harris Corporation) ("Harris"), $6.8 million from Crestron, and $6.1 million from MEI, Inc. (formerly MEI Electronics) ("MEI"), representing 20.1%, 17.5%, 14.1% and 12.5% of total revenue for the first quarter of 2009, respectively. This compares with revenue of $11.5 million from Ingenico, $10.1 million from Harris and $8.3 million from MEI, representing 20.9%, 18.3% and 15.1% of total revenue for the first quarter of 2008, respectively. No other customers represented more than 10% of revenue in either period.

During the first quarter of 2009, 33.4% of our revenue was attributable to our operations in Canada, 26.9% in Asia, 27.1% in Mexico, and 12.6% in the U.S. During the first quarter of 2008, 44.5% of our revenue was attributable to our operations in the Mexico, 28.3% in the United States and 27.3% in Canada. During the second quarter of 2008, production for a couple of our customers was shifted from our Mexico facility to the new China facility.

The Company operates in a highly competitive and dynamic marketplace in which current and prospective customers from time to time seek to lower their costs through a competitive bidding process among EMS providers. This process creates an opportunity to increase revenue to the extent we are successful in the bidding process, however, there is also the potential for revenue to decline to the extent we are unsuccessful in this process. Furthermore, even if we are successful, there is potential for our margins to decline. If we lose any of our larger product lines manufactured for any one of our customers, we could experience declines in revenue.

Gross Profit

Gross profit for the first quarter of 2009 decreased by $1.6 million, or 36.4%, to $2.8 million when compared to the same period in 2008. This is largely due to reduced revenue levels, somewhat offset by cost reductions.

The Company adjusts for estimated obsolete or excess inventory for the difference between the cost of inventory and estimated realizable value based upon customer forecasts, shrinkage, the aging and future demand of the inventory, past experience with specific customers and the ability to sell back inventory to customers or suppliers. If these estimates change, additional write-downs may be required.

Selling, General & Administrative Expenses

Selling, general and administrative expenses increased by $0.7 million, or 21.9%, during the first quarter of 2009 to $3.9 million, from $3.2 million in the first quarter of 2008. The increase is largely due to a reduction in allowances in the first quarter of 2008 and an increase in costs in 2009 related to higher legal and other professional fees, an investment in sales staff and increased commissions related to new customer volumes.

The Company determines the allowance for doubtful accounts for estimated credit losses based on the length of time the receivables have been outstanding, customer and industry concentrations, the current business environment and historical experience.

Interest Expense

Interest expense decreased from $0.9 million in the first quarter of 2008 to $0.3 million for the first quarter of 2009, a decrease of $0.6 million resulting from reduced debt levels, reduced interest rates due to market rate reductions as well as the refinancing done in mid 2008 and a recovery of interest from prior periods. Interest expense in both the first quarter of 2009 and 2008 included the amortization of deferred financing fees of $0.1 million. Excluding the amortization of deferred financing fees, and the reduction in interest expense related to the recovery, interest expense was $0.4 million for the first quarter of 2009 and $0.8 million for the first quarter of 2008. The weighted average interest rates with respect to the debt were 4.8% and 9.2% for each of the first quarters of 2009 and 2008, respectively.

Restructuring Charges

In the first quarter of 2009, the Company recorded restructuring charges of $1.0 million, consisting of severance charges of $0.5 million in the Mexican segment, $0.3 million in the Canadian segment, and $0.2 million in the U.S. segment. The Company reduced staff levels by approximately 200 in response to expected lower revenues resulting from the global economic recession.

Restructuring recoveries in the first quarter of 2008 consist of a dividend of $0.2 million from the liquidation of the Company's Donegal, Ireland facility, which was initiated under the Company's restructuring plan of 2002.

Income Tax Expense

During the first quarter of 2009, the Company recorded income tax expense of $0.2 million related to minimum taxes in certain jurisdictions, compared to a net income tax expense of $0.1 million related to minimum tax

At January 4, 2009, the Company had total net operating loss ("NOL") carry-forwards of approximately $88.2 million, of which $2.0 million will expire in 2010, $1.3 million will expire in 2012, $8.4 million will expire in 2014, $3.4 million will expire in 2015, $1.1 million will expire in 2018, $0.1 million will expire in 2019, $42.0 million will expire in 2021, and the remainder will expire between 2023 and 2028.

The Company had $0.3 million of gross unrecognized tax benefits at January 5, 2009. At April 5, 2009 the Company had gross unrecognized tax benefits of $0.3 million, which if recognized, would favorably impact the Company's effective rate in future periods. The Company does not expect that any of the unrecognized tax benefits will decrease during the next twelve months.

Tax years 2001 to 2008 remain open for review by the tax authorities in Canada. Tax years 2003 to 2008 remain open in the United States. In addition, 2001 contains an NOL that could potentially be carried forward and therefore remains open to the extent of the NOL.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of deferred tax liabilities, change of control limitations, projected future taxable income and tax planning strategies in making this assessment. FASB Statement No. 109, Accounting for Income Taxes, states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence, such as cumulative losses in recent years in the jurisdictions to which the deferred tax assets relate. At the end of the second quarter of 2003, the Company concluded that given the weakness and uncertainly in the economic environment at that time, it was appropriate to establish a full valuation allowance for the deferred tax assets. Commencing in 2004, it was determined by management that it was more likely than not that the deferred tax assets associated with the Mexican jurisdiction would be realized and no valuation allowance has been recorded against these deferred tax assets since 2004. The U.S. and Canadian jurisdictions continue to have a full valuation allowance recorded against the deferred tax assets in those jurisdictions.

Liquidity

Net cash used in operating activities during the three months ended April 5, 2009 was $1.2 million driven by the net loss recorded by the Company due to restructuring charges and losses incurred at the Company's Boston operations. Net working capital decreased by $0.4 million primarily due to decreases in inventory and accounts receivable largely offset by decreases in accounts payable and accrued liabilities. Accounts receivable days sales outstanding were 52 and 56 days for each of the three months ended April 5, 2009 and March 30, 2008, respectively. Inventory turnover, on an annualized basis was, 6 times for the first quarter of 2009 and compared to 5 times for the first quarter of 2008. Accounts payable days outstanding were 64 days at the end of the first quarter of 2009 compared to 72 days for the same period in 2008.

Net cash used in financing activities during the three months ended April 5, 2009 was $0.8 million and in the three months ended March 30, 2008 was $1.2 million. During the three months ended April 5, 2009, the Company repaid debt of $0.4 million, while during the same period in 2008 the Company repaid debt of $1.0 million.

Net cash used by investing activities during the three months ended April 5, 2009 was $0.2 million and the three months ended March 30, 2008 was $0.2 million, primarily pertaining to additions of property, plant and equipment in both periods.

Capital Resources

On April 2, 2009, the Company received a waiver from its lenders with respect to what would have otherwise been a covenant violation at the time of filing of the Company's fiscal 2008 financial statements. In addition, the Company and its lenders have amended the lending agreements to revise the EBITDA and leverage covenants and eliminate the fixed charge coverage ratio for the five quarters beginning January 5, 2009 and including the first quarter of the 2010 fiscal period. The interest rate has also been

increased by 200 basis points. Management believes that the Company will be in compliance with these covenants for the foreseeable future. Accordingly, the outstanding balances under the lending agreements continue to be classified as long-term. Continued compliance with its covenants, however, is dependent on the Company achieving certain forecasts. While management is confident in its plans, market conditions have been difficult to predict and there is no assurance that the Company will achieve its forecasts.

We believe that cash generated from operations, available cash and amounts available under our Wachovia EDC Facilities and additional financing sources such as leasing companies and other lenders will be adequate to meet our debt service requirements, capital expenditures and working capital needs at our current level of operations and organic growth in the future, although no assurance can be given in this regard, particularly with respect to amounts available from lenders. We have agreed to a borrowing base formula under which the amount we are permitted to borrow under the Wachovia EDC Facilities is based on our accounts receivable and inventory. Further, there can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to enable us to service our indebtedness. Our future operating performance and ability to service indebtedness will be subject to future economic conditions and to financial, business and other factors, certain of which are beyond our control.

During the three months ended April 5, 2009, there were no additions of property, plant and equipment acquired via capital leases.