This Quarterly Report on Form 10-Q, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," "continues," "may," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under "Risk Factors," elsewhere herein, and those discussed in Part II, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended August 29, 2008 filed with the SEC on November 12, 2008. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

Executive Overview

We are a leading independent designer, manufacturer and supplier of value added subsystems sold primarily to OEMs. Our subsystem products include memory modules, solid state storage , embedded computing and TFT-LCD products that we offer to customers worldwide. We also offer our customers custom supply chain services including procurement, logistics, inventory management and temporary warehousing, and kitting or packaging services. Our products and services are used for a variety of applications in the computing, networking, communications, printer, storage and industrial markets worldwide. Products that incorporate our subsystems include servers, routers, switches, storage systems, workstations, PCs, portable computers, printers and gaming machines. Generally, while increases in overall unit demand by end users for, and increases in memory content in, products that incorporate our subsystems should have a positive effect on our business, financial condition and results of operations, conversely, decreases in product unit demand and memory content can have a negative effect on our business, financial condition and results of operations. We offer more than 500 standard and custom products to leading OEMs, including Cisco Systems, Dell, and Hewlett-Packard. We maintain a large global footprint with manufacturing capabilities in the U.S., Malaysia, Brazil and Puerto Rico. Our global operations enable us to control costs and rapidly respond to our customers' requirements worldwide.

In April 2004, a group of investors led by TPG, Francisco Partners and Shah Capital Partners acquired SMART Modular Technologies, Inc. ("SMART Modular") from Solectron Corporation, at which time we began to operate our business as an independent company incorporated under the laws of the Cayman Islands. Since the acquisition by our principal investors, we repositioned a portion of our business by focusing on the delivery of certain higher value added products, diversifying our end markets and extending into new vertical markets, creating more technically engineered products and solutions, migrating manufacturing to low cost regions and controlling expenses. For example, in fiscal 2005 we acquired Estecom, a producer of TFT-LCD products, in fiscal 2006 we acquired ConXtra, Inc., a product design and design manufacturing services provider, and in fiscal 2008 we acquired Adtron Corporation, a leading designer and global supplier for high performance and high capacity solid state storage products . Also, in fiscal 2006 we completed our manufacturing facility in Atibaia, Brazil into which we import finished wafers and package them into memory integrated circuits and into memory modules.

Beginning fiscal 2008, we categorized our products and services into the following two business segments, the Memory, Embedded, & Display Segment and the Adtron Segment. In prior fiscal years we operated under one segment. Since the acquisition of Adtron on March 3, 2008, SMART's CEO and chief operating decision maker separately evaluates Adtron's performance and the allocation of resources to Adtron.

In March 2009, we entered into a seven year operating lease with Newark Eureka Industrial Capital LLC to lease approximately 79,480 square feet of office, manufacturing, engineering, research and development, warehouse and distribution space to serve as our new corporate headquarters starting in the third quarter of fiscal 2009. Our principal executive office is now located at 39870 Eureka Drive, Newark, California 94560.

In March 2009, our Board of Directors authorized the repurchase of up to $10.0 million of our ordinary shares. We intend to repurchase (and have repurchased) shares using our available cash. In April 2009, we entered into a Rule 10b5-1 trading plan ("Plan") with a broker to repurchase ordinary shares based on pre-defined terms and conditions. Except as set forth in the Plan, the timing, duration, and the exact number of additional shares to be purchased will be at our discretion. Under the repurchase program, depending on price, regulatory requirements, market conditions and other factors, shares may be purchased on the open market or in privately negotiated transactions. Purchases under this program may be commenced, suspended, or terminated at any time without prior notice. During the three months ended May 29, 2009, we repurchased approximately forty-five thousand of our ordinary shares through open market repurchases at an average price of $1.82 per share for a total of approximately $0.1 million. As of May 29, 2009, the remaining balance available for future share repurchases was $9.9 million under our share repurchase program.

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

Net Sales

We generate our product revenues from sales of our subsystems, including memory modules and flash memory cards, solid state storage devices, embedded computing boards and TFT-LCD products, principally to leading computing, networking, communications, printer, storage and industrial OEMs. Sales of our products are generally made pursuant to purchase orders rather than long-term commitments. We generate service revenue from a limited number of customers by providing procurement, logistics, inventory management and temporary warehousing, and kitting or packaging services. Our net sales are dependent upon demand in the end markets that we serve and fluctuations in end-user demand can have a rapid and material effect on our net sales. Furthermore, sales to relatively few customers have accounted for, and we expect will continue to account for, a significant percentage of our net sales in the foreseeable future.

Cost of Sales

The most significant components of cost of sales are materials, fixed manufacturing costs, labor and depreciation. Increases in capital expenditures may increase our future cost of sales due to higher levels of depreciation expense. Cost of sales also includes any inventory write-downs. We may write-down inventory for a variety of reasons, including obsolescence, excess quantities and declines in market value below our cost.

Research and Development Expenses

Research and development expenses consist primarily of the costs associated with the design and testing of new products. These costs relate primarily to compensation of personnel involved with development efforts, materials and outside design and testing services. Our customers typically do not separately compensate us for design and engineering work involved in the development of custom products.

Selling, general and administrative expenses consist primarily of personnel costs, including commissions, facilities and equipment costs, costs related to advertising and marketing and other support costs including utilities, insurance and professional fees.

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations are based on our financial statements which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make certain estimates that affect the reported amounts in our financial statements. We evaluate our estimates on an ongoing basis, including those related to our net sales, accounts receivables, inventories, asset impairments, restructuring charges, income taxes, stock-based compensation and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies are the most significant to the presentation of our financial statements and they at times require the most difficult, subjective and complex estimates.

Revenue Recognition

Our product revenues are derived from the sale of value added subsystems, including memory modules and flash memory cards, solid state storage devices, embedded computing boards and TFT-LCD products, which we design and manufacture. We recognize revenue primarily upon shipment, following receipt of written purchase orders, when the price is fixed or determinable, title has transferred, product acceptance has occurred and collection of the resulting accounts receivable is reasonably assured. Amounts billed to customers related to shipping and handling are classified as sales, while costs incurred by us for shipping and handling are classified as cost of sales. Taxes, including value added taxes, assessed by a government authority that are both imposed on and concurrent with a specific revenue producing transaction are excluded from revenue.

Our service revenues are derived from procurement and logistics, inventory management and temporary warehousing, and kitting or packaging services. The terms of our contracts vary, but we generally recognize service revenue upon the completion of the contracted services. Our service revenue is reported on a net basis in accordance with Emerging Issues Task Force (EITF) Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. Service revenue for these arrangements is typically based on material procurement costs plus a fee for any services provided. We determine whether to report revenue on a net or gross basis depending on a number of factors, including whether we are the primary obligor in the arrangement, have general inventory risk, have the ability to set the price, have the ability to determine who the suppliers are, can physically change the product or have credit risk.

                               Three Months Ended            Nine Months Ended
                              May 29,       May 30,       May 29,        May 30,
                               2009          2008          2009           2008
Product net sales            $  83,692     $ 157,932     $ 312,682     $   477,888
Service revenue                  7,953         9,683        28,827          31,597
Net sales                       91,645       167,615       341,509         509,485
Plus: Cost of sales(1)         136,070       207,243       466,192         659,511
Gross billing to customers   $ 227,715     $ 374,858     $ 807,701     $ 1,168,996


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Accounts Receivable

We evaluate the collectability of accounts receivable based on a combination of factors. When we are aware of circumstances that may impair a specific customer's ability to meet its financial obligations, we record a specific allowance against amounts due and, thereby, reduce the net recognized receivable to the amount we reasonably believe will be collected. Increases to the allowance for bad debt are recorded as a component of general and administrative expenses. For all other customers, we record an allowance for doubtful accounts based on a combination of factors including the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment, and historical experience.

As a result of the current macroeconomic environment and associated credit market conditions, both liquidity and access to capital have impacted some of our customers. We have continued to closely monitor our credit exposure with our customers to anticipate exposures and minimize our risk.

Inventory Valuation

At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. This evaluation includes analysis of sales levels by product family. Among other factors, we consider historical demand and forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining obsolescence and net realizable value. We adjust remaining balances to approximate the lower of our manufacturing cost or net realizable value. Inventory cost is determined on a specific identification basis and includes material, labor, and manufacturing overhead. From time to time, our customers may request that we purchase and maintain significant inventory of raw materials for specific programs. Such inventory purchases are evaluated for excess quantities and potential obsolescence and could result in a provision at the time of purchase or subsequent to purchase. The portion, if any, of slow moving inventory estimated to be sold beyond one year from the balance sheet date, is classified as non-current inventory and included in non-current assets in our consolidated balance sheets. Our provisions for excess and obsolete inventory are also impacted by our arrangements with our customers and/or suppliers, including our ability or inability to re-sell such inventory to them. If actual market conditions or our customers' product demands are less favorable than those projected or if our customers or suppliers are unwilling or unable to comply with any arrangements related to their purchase or sale of inventory, additional provisions may be required and would have a negative impact on our gross margins in that period. We have had to write-down inventory in the past for reasons such as obsolescence, excess quantities and declines in market value below our costs, and we may be required to do so from time to time in the future.

Restructuring Charges

We record and account for our restructuring activities following formally approved plans that identify the actions and timelines over which the restructuring activities will occur. Restructuring charges include estimates pertaining to such items as employee severance and fringe benefit costs, facility exit costs and subleasing assumptions, among other items. Adjustments to these estimates are made when changes in facts and circumstances suggest actual amounts will differ from original estimates. These changes in estimates may result in increases or decreases to our results of operations in future periods and would be presented on the restructuring charge line of our consolidated statements of operations.

Income Taxes

We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and credit carry-forwards. When necessary, a valuation allowance is recorded or reduced to value tax assets to amounts that are more likely than not expected to be realized. The effect of changes in tax rates is recognized in the period in which the rate change occurs. U.S. income and foreign withholding taxes are not provided on that portion of unremitted earnings of foreign subsidiaries since they are expected to be reinvested indefinitely.

The calculation of our tax liabilities involves accounting for uncertainties in the application of complex tax rules, regulations and practices. As a result of the implementation of FIN No. 48, we recognize benefits for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition of a benefit (or the absence of a liability) by determining if the weight of available evidence indicates that it is more likely than not that the position taken will be sustained upon audit, including resolution of related appeals or litigation processes, if any. If it is not, in our judgment, "more likely than not" that the position will be sustained, then we do not recognize any benefit for the position. If it is more likely than not that the position will be sustained, a second step in the process is required to estimate how much of the benefit we will ultimately receive. This second step requires that we estimate and measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on a number of factors including, but not limited to, changes in facts or circumstances, changes in tax law, new facts, correspondence with tax authorities during the course of an audit, effective settlement of audit issues, and commencement of new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are found to be impaired, the impairment loss is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed are reported at the lower of the carrying amount or fair value, less cost to sell.

Impairment of Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), the Company performs a goodwill impairment test of its two reporting units (Memory, Embedded, & Display and Adtron) annually during the fourth quarter of its fiscal year and more frequently if an event or circumstance indicates that an impairment may have occurred. Such events or circumstances may include significant adverse changes in the general business climate, among others. The test is performed by determining the fair value of the reporting unit based on estimated discounted future cash flows, considering the market price of the Company's ordinary shares, and comparing the fair value to the carrying value of the reporting unit, including goodwill.

If the fair value of each reporting unit is less than its carrying value, the Company then allocates the fair value of the unit to all the assets and liabilities of the unit (including any unrecognized intangible assets) as if the reporting unit's fair value was the purchase price to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of the goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Stock-Based Compensation

Effective August 27, 2005, we adopted SFAS No. 123R, Share-Based Payment, using the prospective method. The key assumptions used in applying the provisions of SFAS No. 123R are described in Note 2 to the Unaudited Condensed Consolidated Financial Statements.

Our corporate structure includes two operating segments, the Memory, Embedded, & Display Segment and the Adtron Segment. Accordingly, we report certain financial information by segment. We may adjust our reported segments in fiscal 2009 to reflect changes regarding how we manage the business. See Note 10 to the Unaudited Condensed Consolidated Financial Statements for information regarding our business segments.

                                                   Memory, Embedded,
                                                       & Display           Adtron          Total
Three Months Ended May 29, 2009
Net sales                                               $       88.1     $     3.5      $    91.6
Gross profit                                                    17.2           1.4           18.6
Depreciation and amortization                                    2.8           0.3            3.1
Income (loss) from operations                           $        1.4     $    (1.0 )    $    (0.4 )

Three Months Ended May 30, 2008
Net sales                                               $      163.9     $     3.7      $   167.6
Gross profit                                                    26.2           1.6           27.8
Depreciation and amortization                                    3.2           0.3            3.5
In-process research and development charge                         -           4.4            4.4
Income (loss) from operations                           $        7.8     $    (5.2 )    $     2.6




                                                   Memory, Embedded,
                                                       & Display           Adtron          Total
Nine Months Ended May 29, 2009
Net sales                                               $      328.1     $    13.4      $   341.5
Gross profit                                                    62.2           6.3           68.5
Depreciation and amortization                                    8.7           0.9            9.6
Impairment of goodwill                                             -          10.4           10.4
Income (loss) from operations                           $       10.5     $   (12.1 )    $    (1.6 )

Nine Months Ended May 30, 2008
Net sales                                               $      505.8     $     3.7      $   509.5
Gross profit                                                    93.2           1.6           94.8
Depreciation and amortization                                    8.8           0.3            9.1
In-process research and development charge                         -           4.4            4.4
Income (loss) from operations                           $       36.1     $    (5.2 )    $    30.9

Out of Period Adjustment

During the second quarter of fiscal 2009, we recorded one adjustment to net sales and one adjustment to cost of sales, which adjustments represented corrections of immaterial prior period errors in current liabilities. Each adjustment was less than $0.5 million and together resulted in a net decrease to net loss of $0.2 million during the second quarter of fiscal 2009.

Results of Operations

The following is a summary of our results of operations for the three and nine
months ended May 29, 2009 and May 30, 2008:

                                                      Three Months Ended                      Nine Months Ended
                                                May 29,                May 30,             May 29,         May 30,
                                                 2009                    2008                2009            2008
                                                                          (In millions)
Net sales                                  $            91.6      $           167.6       $    341.5      $    509.5
Cost of sales                                           73.0                  139.8            273.0           414.7
Gross profit (1)                                        18.6                   27.8             68.5            94.8
Research and development                                 4.5                     5.4            15.1            14.7
Selling, general and administrative                     13.6                   15.4             41.8            44.8
Restructuring charges                                    1.0                       -             2.8               -
Impairment of goodwill                                     -                       -            10.4               -
In-process research and development
charge                                                     -                    4.4                -             4.4
Total operating expenses (1)                            19.1                   25.2             70.1            63.9
Income (loss) from operations (1)                       (0.4 )                  2.6             (1.6 )          30.9
Interest expense, net                                   (1.6 )                 (1.5  )          (5.1 )          (3.8 )
Other income (expense), net                              0.0                    0.3             (0.6 )           2.1
Total other expense, net (1)                            (1.6 )                 (1.2  )          (5.7 )          (1.8 )
Income (loss) before provision for
income taxes (1)                                        (2.0 )                   1.4            (7.3 )          29.1
Provision for income taxes                               0.4                    12.4             3.8            16.6
Net income (loss) (1)                      $            (2.4 )    $            (11.0 )    $    (11.1 )    $     12.5


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Three and Nine months Ended May 29, 2009 as Compared to the Three and Nine months Ended May 30, 2008

Net Sales

Net sales for the three months ended May 29, 2009 were $91.6 million, or a 45% decrease from $167.6 million for the three months ended May 30, 2008. This . . .