SMART Modular Technologies Reports Third Quarter Fiscal 2009 Results

NEWARK, CA – June 25, 2009—SMART Modular Technologies (WWH), Inc. (“SMART” or the “Company”) (Nasdaq: SMOD), a leading independent manufacturer of memory modules, solid state drives, embedded computing subsystems, and TFT-LCD display products, today reported financial results for the third quarter of fiscal 2009.

Third Quarter Fiscal 2009 Highlights:

  • Net Sales of $91.6 Million
  • Gross Profit of $18.6 Million
  • Adjusted EBITDA of $5.2 Million
  • GAAP EPS of ($0.04)
  • Non-GAAP Diluted EPS of $0.01
  • Year-to-date Operating Cash Flow of $44.6 Million
  • Cash and Cash Equivalents of $139.2 Million

Net sales for the third quarter of fiscal 2009 were $91.6 million, compared to $109.1 million for the second quarter of fiscal 2009, and $167.6 million for the third quarter of fiscal 2008.

Gross profit for the third quarter of fiscal 2009 was $18.6 million, compared to $24.1 million for the second quarter of fiscal 2009, and $27.8 million for the third quarter of fiscal 2008.

GAAP net loss for the third quarter of fiscal 2009 was $2.4 million, or $0.04 per share, compared to a loss of $1.8 million, or $0.03 per share for the second quarter of fiscal 2009, and a loss of $11.0 million, or $0.18 per share for the third quarter of fiscal 2008.

Non-GAAP net income was $0.9 million or $0.01 per diluted share for the third quarter of fiscal 2009, compared to a net income of $4.1 million, or $0.06 per diluted share for the second quarter of fiscal 2009, and a net income of $4.9 million, or $0.08 per diluted share for the third quarter of fiscal 2008. Non-GAAP net income excludes certain charges such as those related to goodwill impairment, restructuring, and other one-time charges, stock-based compensation, and for the third quarter of fiscal 2009, charges in connection with corporate headquarters relocation.

Adjusted EBITDA for the third quarter of fiscal 2009 was $5.2 million, compared to $10.2 million for the second quarter of fiscal 2009, and $12.6 million for the third quarter of fiscal 2008.

Please refer to the Non-GAAP Information section and the “Reconciliation of Non-GAAP Financial Measures” table below for further detail on non-GAAP net income and Adjusted EBITDA.

Operating cash flow for the third quarter of fiscal 2009 was $20.0 million. Year-to-date operating cash flow was $44.6 million. Cash and cash equivalents at the end of the third quarter of fiscal 2009 was $139.2 million and long-term debt, due in 2012, remained at $81.3 million.

“For the third quarter of fiscal 2009, gross profit, and GAAP and non-GAAP EPS results met our guidance as careful control of expenses in combination with a favorable mix of business and lower taxes more than offset the impact of the decline in net sales,” commented Iain MacKenzie, President and CEO of SMART.

“Earlier this month, we were proud to announce our XceedIOPS PCIe SSD, further demonstrating our continued investment and development in support of the growing enterprise solid state storage business,” continued Mr. MacKenzie. “This collaborative effort between SMART and Marvell involves multiple facets, which include research and development, product technology, packaging, sales, manufacturing and logistics. We believe that our XceedIOPS PCIe addresses the top three requirements in enterprise storage moving forward: increased performance, reduced power consumption and lower dollars per IOPS. Customer sampling is expected to begin this quarter with production volumes expected to begin in calendar Q4. The product joins our extensive portfolio of SSDs available today supporting customers in the defense/aerospace, industrial, embedded, telecom/datacom, enterprise and other OEM markets.”

“On the DRAM portion of our business, we see the industry working towards the introduction of the next-generation DDR3 module for servers, and with our comprehensive suite of products, we believe that we are well-positioned to capture a meaningful portion of this market. The DDR3 ramp is underway, and the adoption of Intel’s Nehalem processor architecture across multiple platforms, combined with the diminishing price premium of DDR3 over DDR2, bode well for our future success on this front. In addition, we expect that the recent introduction of AMD’s Istanbul processor should generate growing demand for our high density DDR2 modules,” added Mr. MacKenzie.

Business Outlook
The following statements are based upon management’s current expectations. These statements are forward-looking, and actual results may differ materially. The Company undertakes no obligation to update these statements.

For the fourth quarter of fiscal 2009, SMART estimates net sales will be in the range of $90 million to $100 million, gross profit in the range of $17 million to $19 million, and net (loss) per share will be in the range of ($0.02) to ($0.01) on a GAAP basis. On a non-GAAP basis, excluding charges related to stock-based compensation, the Company expects net income per diluted share will be in the range of $0.00 to $0.01.

Conference Call Details
SMART’s third quarter, fiscal 2009 teleconference and webcast is scheduled to begin at 2:30 p.m. Pacific Daylight Time (PDT), or 5:30 p.m. Eastern Daylight Time (EDT), on Thursday, June 25, 2009. The call may be accessed US toll free by calling 1-877-941-4774 or US toll by calling 1-480-629-9760. Please join the conference call at least ten minutes early in order to register. The passcode for the call is 4094900. SMART will also offer a live and archived webcast of the conference call, accessible from the Company’s website at http://www.smartm.com. A telephonic replay of the conference call will be available through midnight PDT, July 9, 2009, by dialing 1-800-406-7325 and entering passcode 4094900. Callers outside the U.S. and Canada may access the replay by dialing 1-303-590-3030.

Forward-Looking Statements
Statements contained in this press release, including the quotations attributed to Mr. MacKenzie, that are not statements of historical fact, including any statements that use the words “will,” “believes,” “anticipates,” “estimates,” “expects,” “intends” or similar words that describe the Company’s or its management’s future expectations, plans, objectives, or goals, are “forward-looking statements” and are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, projections regarding the Company’s financial performance and financial condition, the benefits of its joint efforts with Marvell, the timing of new product availability, and the Company’s market position.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the company to be materially different from the historical results and/or from any future results or outcomes expressed or implied by such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, DRAM supply and demand, production or manufacturing difficulties, design issues, competitive factors, new products and technological changes (or rate of adoption), industry and technology trends, fluctuations in product prices and raw material costs, dependence upon third-party vendors, customer demand, changes in industry standards or release plans, regulatory requirements, and market conditions, failure of the Company to achieve stated targets relating to solid state storage products, and other risks detailed in the Company’s periodic report filings with the Securities and Exchange Commission including the Company’s Form 10-K for the fiscal year ended August 29, 2008, Form 10-Q for the quarter ended November 28, 2008, Form 10-Q for the quarter ended February 27, 2009, and the Form 10-Q for the quarter ended May 28, 2009 to be filed with the SEC. Such risk factors as outlined in this press release and the Company’s periodic report filings may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time. The Company cannot predict such factors, nor can it assess the impact, if any, from such factors on the Company or its results. Current uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters and makes it more likely that SMART’s actual results could differ materially from expectations. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company is not obligated to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this press release.

Non-GAAP Information
Certain non-GAAP financial measures are included in this press release, including Adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share. We define adjusted EBITDA as GAAP net income (loss) plus net interest expense, income tax expense, depreciation and amortization expense, goodwill impairment charges, restructuring charges, and stock-based compensation expense. Non-GAAP net income and non-GAAP net income per diluted share do not include goodwill impairment charges, restructuring charges, stock-based compensation expense, and other infrequent or unusual items, such as costs associated with the relocation of its corporate headquarters. These non-GAAP financial measures are provided to enhance the user's overall understanding of our financial performance. By excluding these charges, as well as the related tax effects, our non-GAAP results provide information to management and investors that is useful in assessing SMART's core operating performance and in evaluating and comparing our results of operations on a consistent basis from period to period. These non-GAAP financial measures are also used by management to evaluate financial results and to plan and forecast future periods. The presentation of this additional information is not meant to be a substitute for the corresponding financial measures prepared in accordance with generally accepted accounting principles. Investors are encouraged to review the reconciliations of GAAP to non-GAAP financial measures, which are included below.

         SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
              RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
             (In thousands, except per share data; unaudited)
                       Three      Three      Three       Nine       Nine
                       Months     Months     Months     Months     Months
                       Ended      Ended      Ended      Ended      Ended
                      May 29,  February 27,  May 30,    May 29,    May 30,
                        2009       2009       2008       2009       2008
                     ---------  ---------  ---------  ---------  ----------
Net income (loss)    $  (2,386) $  (1,850) $ (11,003) $ (11,114) $   12,502
Add:
 Goodwill
  impairment,
  no tax effect              -      3,206          -     10,416           -
 Restructuring
  charge, net of
  tax                      945        925          -      2,756           -
 Relocation of
  corporate
  headquarter
  charges, net of
  tax                      820          -          -        820           -
 Stock-based
  compensation
  expense charged
  to operating
  expenses, net of
  tax                    1,478      1,787      1,875      5,040       5,326
 One-time charge to
  IPR&D related to
  Adtron acquisition         -          -      4,400          -       4,400
 Deferred tax assets
  valuation
  allowance increase         -          -      9,630          -       9,630
                     ---------  ---------  ---------  ---------  ----------
Non-GAAP net income  $     857  $   4,068  $   4,902  $   7,918  $   31,858
                     =========  =========  =========  =========  ==========
Non-GAAP net income
 per diluted share   $    0.01  $    0.06  $    0.08  $    0.12  $     0.50
                     =========  =========  =========  =========  ==========
Shares used in
 computing net
 income per diluted
 share                  63,489     63,326     63,449     63,381      63,606
                     =========  =========  =========  =========  ==========
                     ---------  ---------  ---------  ---------  ----------
Net income (loss)    $  (2,386) $  (1,850) $ (11,003) $ (11,114) $   12,502
Interest expense,
 net                     1,629      1,698      1,468      5,079       3,819
Income taxes               368      1,263     12,391      3,808      16,611
Depreciation and
 amortization            3,142      3,115      3,484      9,588       9,054
                     ---------  ---------  ---------  ---------  ----------
EBITDA               $   2,753  $   4,226  $   6,340  $   7,361  $   41,986
Adjustments:
  Goodwill
   impairment                -      3,206          -     10,416           -
  Restructuring
   charges                 989        935          -      2,810           -
  Stock-based
   compensation
   expense charged
   to operating
   expenses              1,490      1,800      1,886      5,077       5,360
  One-time charge to
   IPR&D related to
   Adtron
   acquisition               -          -      4,400          -       4,400
                     ---------  ---------  ---------  ---------  ----------
Adjusted EBITDA      $   5,232  $  10,167  $  12,626  $  25,664  $   51,746
                     =========  =========  =========  =========  ==========
     RECONCILIATION OF Q4-09 GUIDANCE FOR NON-GAAP FINANCIAL MEASURES
             (In millions, except per share data; unaudited)
                                  Three Months Ending August 28, 2009
                            -----------------------------------------------
                            Non-GAAP Range of               GAAP Range of
                                Estimate                      Estimate
                            -----------------             ----------------
                              From     To     Adjustments   From     To
                                              -----------
Net income (loss)           $    0.3 $    0.6 $   1.5 (a) $  (1.2) $  (0.9)
                            ======== ========             =======  =======
Net income (loss) per share $   0.00 $   0.01             $ (0.02) $ (0.01)
                            ======== ========             =======  =======
Shares used in computing
 net income (loss) per
 diluted share                  63.5     63.5                61.8     61.8
                            ======== ========             =======  =======
(a) Reflects estimated adjustment for stock-based compensation expense

About SMART
SMART Modular Technologies is a leading provider of memory products, offering more than 500 standard and custom products to top-tier OEMs in the computer, industrial, networking, and telecommunications sectors. Taking innovations from the design stage through manufacturing and delivery, SMART has developed a comprehensive memory product line that includes DRAM, SRAM, and Flash in various form factors. Through its subsidiary, Adtron Corporation, SMART offers high performance, high capacity solid-state drives for enterprise, defense/aerospace, industrial automation, medical, and transportation markets. SMART's Display and Embedded Products Group designs, manufactures and sells thin film transistors (TFT) liquid crystal display (LCD) solutions to customers developing casino gaming systems as well as embedded applications such as kiosk, ATM, point-of-service, and industrial control systems. SMART's presence in the US, Europe, Asia, and Latin America enables it to provide its customers with proven expertise in international logistics, asset management, and supply-chain management worldwide. More information on SMART may be obtained at www.smartm.com.

         SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            (In thousands, except per share data; unaudited)
                                  Three      Three      Nine       Nine
                                  Months     Months     Months     Months
                                  Ended      Ended      Ended      Ended
                                 May 29,    May 30,    May 29,    May 30,
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------
                                  (In thousands, except per share data)
Net sales                       $  91,645  $ 167,615  $ 341,509  $ 509,485
Cost of sales                      73,008    139,803    272,989    414,691
                                ---------  ---------  ---------  ---------
Gross profit                       18,637     27,812     68,520     94,794
                                ---------  ---------  ---------  ---------
Research and development            4,478      5,418     15,056     14,727
Selling, general and
 administrative                    13,585     15,393     41,834     44,785
In-process research and
 development charge                    --      4,400         --      4,400
Restructuring charges                 989         --      2,810         --
Goodwill impairment                    --         --     10,416         --
                                ---------  ---------  ---------  ---------
  Total operating expenses         19,052     25,211     70,116     63,912
                                ---------  ---------  ---------  ---------
Income (loss) from operations        (415)     2,601     (1,596)    30,882
Interest expense, net              (1,629)    (1,468)    (5,079)    (3,819)
Other income (expense), net            26        255       (631)     2,050
                                ---------  ---------  ---------  ---------
  Total other expense, net         (1,603)    (1,213)    (5,710)    (1,769)
                                ---------  ---------  ---------  ---------
Income (loss) before provision
 for income taxes                  (2,018)     1,388     (7,306)    29,113
Provision for income taxes            368     12,391      3,808     16,611
                                ---------  ---------  ---------  ---------
Net income (loss)               $  (2,386) $ (11,003) $ (11,114) $  12,502
                                =========  =========  =========  =========
Net income (loss) per share,
 basic                          $   (0.04) $   (0.18) $   (0.18) $    0.21
                                =========  =========  =========  =========
Shares used in computing net
 income (loss) per ordinary
 share                             61,738     61,027     61,640     60,864
                                =========  =========  =========  =========
Net income (loss) per share,
 diluted                        $   (0.04) $   (0.18) $   (0.18) $    0.20
                                =========  =========  =========  =========
Shares used in computing net
 income (loss) per diluted
 share                             61,738     61,027     61,640     63,606
                                =========  =========  =========  =========
         SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                               (Unaudited)
                                                      May 29,   August 29,
                                                       2009        2008
                                                    ----------  ----------
                                                        (In thousands)
ASSETS
Cash and cash equivalents                           $  139,229  $  115,994
Accounts receivable, net of allowances of $1,115
 and $1,517 as of May 29, 2009 and August 29, 2008,
 respectively                                          121,887     193,736
Inventories                                             53,983      62,430
Prepaid expenses and other current assets               12,939      14,973
                                                    ----------  ----------
    Total current assets                               328,038     387,133
Property and equipment, net                             34,579      39,317
Goodwill                                                 1,061       7,210
Other intangible assets, net                             7,743       8,545
Other non-current assets                                 4,490       4,943
                                                    ----------  ----------
    Total assets                                    $  375,911  $  447,148
                                                    ==========  ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable                                    $   55,789  $   93,482
Accrued expenses and other current liabilities          14,397      23,942
                                                    ----------  ----------
  Total current liabilities                             70,186     117,424
Long-term debt                                          81,250      81,250
Other long-term liabilities                              2,356       1,568
                                                    ----------  ----------
    Total liabilities                                  153,792     200,242
                                                    ----------  ----------
Shareholders' equity:
  Ordinary shares                                           10          10
  Additional paid-in capital                           105,656     100,234
  Deferred stock-based compensation                        (21)        (91)
  Accumulated other comprehensive income (loss)         (5,033)     14,132
  Retained earnings                                    121,507     132,621
                                                    ----------  ----------
    Total shareholders' equity                         222,119     246,906
                                                    ----------  ----------
    Total liabilities and shareholders' equity      $  375,911  $  447,148
                                                    ==========  ==========
         SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
                      SUMMARY CASH FLOW INFORMATION
                               (Unaudited)
                                                        Three      Three
                                                        Months     Months
                                                        Ended      Ended
                                                        May 29,    May 30,
                                                         2009       2008
                                                      ---------  ---------
                                                         (In thousands)
Net cash provided by (used in) operating activities   $  20,014  $ (15,792)
Net cash used in investing activities                 $  (7,235) $ (21,836)
Net cash used in financing activities                 $     (50) $    (293)
                                                        Nine       Nine
                                                        Months     Months
                                                        Ended      Ended
                                                        May 29,    May 30,
                                                         2009       2008
                                                      ---------  ---------
                                                         (In thousands)
Net cash provided by operating activities             $  44,595  $   3,972
Net cash used in investing activities                 $ (18,603) $ (31,457)
Net cash provided by financing activities             $     414  $      12

For more information
Investor Contacts
:

Suzanne Craig
The Blueshirt Group for SMART Modular Technologies
415.217.7722
suzanne@blueshirtgroup.com

Barry Zwarenstein
CFO, Senior Vice President
SMART Modular Technologies
510-624-8134
Barry.Zwarenstein@smartm.com