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Digi International

11001 Bren Road East

Minnetonka, MN 55343

Phone: 952-912-3444

Fax: 952-912-4998

March 9, 2010

Via EDGAR and Federal Express

Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, DC 20549-7010

    Attention:

    Mr. Craig Wilson

Senior Asst. Chief Accountant

    Re:

    Digi International Inc.

Form 10-K for the Fiscal Year Ended September 30, 2009

Filed December 3, 2009

File No. 001-34033

Ladies and Gentlemen:

On behalf of Digi International Inc. (the “Company”), I am responding to the letter dated February
12, 2010, of Craig Wilson of the Division of Corporation Finance to Subramanian Krishnan, Senior
Vice President, Chief Financial Officer and Treasurer of the Company, with respect to comments on
the above-referenced filings. We again thank the Commission staff for the extension of our
response period, as set forth in our correspondence dated February 23, 2010.

For ease of reference, I have included the staff’s comments, followed by the Company’s response.

The terms “Digi,” “we,” “our”, or “us” mean Digi International Inc. and all of the subsidiaries
included in the consolidated financial statements unless the context indicates otherwise.

Form 10-K for the Fiscal Year Ended September 30, 2009

General

    1.

    You state on pages 15, 34, 64, and elsewhere that you operate in Latin America, the Middle
East, and Africa, references generally understood to encompass Cuba, Iran, Syria, and Sudan.
You also include Sudan in the list of countries included in the dropdown menu in the “Warranty
Registration” section of your website. Cuba, Iran, Syria, and Sudan are countries that are
identified by the State Department as state sponsors of terrorism, and are subject to U.S.
economic sanctions and export controls. We note that your Form 10-K does not include
disclosure regarding contacts with Cuba, Iran, Syria, and Sudan. Please describe to us the
nature and extent of your past, current, and anticipated contacts with Cuba, Iran, Syria, and
Sudan, if any, whether through subsidiaries, distributors, resellers, or other direct or
indirect arrangements. Your response should describe any products, equipment, components,
technology, software, or services that you have provided into Cuba, Iran,

Securities and Exchange Commission

March 9, 2010

Page 2

    Syria, and Sudan, directly or indirectly, and any agreements, commercial arrangements, or other
contacts you have had with the governments of those countries or entities controlled by those
governments.

Response:

Digi has no direct past, current, or anticipated contacts with the embargoed countries of Cuba,
Iran, Syria, or Sudan, nor are any such contacts authorized. With reference to indirect
arrangements, our distributor contracts require compliance with U.S. export laws, which prohibit
activity with these countries. We have an export compliance program in place that we believe is
effective in identifying and preventing any agreements or transactions from taking place with these
countries. All sales orders are reviewed using a software program and matched to a denied parties
list. Training has been provided to all applicable Digi personnel to ensure that these groups are
educated on export compliance. Our employees have been instructed that in the event of an inquiry
from one of the embargoed countries, we will indicate that we are prohibited from providing
information under the U.S. export laws. Sudan has been removed from the dropdown menu in the
“Warranty Registration” section of our website. This was an administrative oversight. No product
has been sold into or warranty support provided to Sudan or the other embargoed countries. We have
had no contact with the governments of Cuba, Iran, Syria, or Sudan, or entities controlled by those
governments.

Item 1A. Risk Factors

“We depend on manufacturing relationships and on limited-source suppliers ... ,” page 18

    2.

    You disclose that you procure certain key components involved in producing your products from
a sole supplier or a limited number of suppliers, and that “[a]ny extended interruption in the
supply of any of the key components currently obtained from limited sources could disrupt
[y]our operations and have a material adverse effect on [y]our customer relationships and
profitability.” It is unclear from this risk factor and the related discussion in the Business
section on page 12 the extent of your reliance on limited-source suppliers and the nature of
the key components they provide for you. Please tell us in your response letter what
percentage of your revenues is derived from the sale of products that involve key components
that are available from only one or a limited number of suppliers. To the extent material to
your business as a whole, disclose the nature of such key components, and ensure that you have
provided a materially-complete description of your arrangements with such suppliers in
Business. Please also file as exhibits any supplier contracts upon which your business is
substantially dependent. See Item 601(b)(10)(ii)(B) of Regulation S-K.

Response:

We continue to use multiple single-source and limited-source suppliers to procure products and
component parts and the extended interruption in the supply of any of these products or key
component parts might have a material adverse effect on our customer relationships and
profitability. These are strategic relationships that we have chosen to put in place as they are
advantageous to us. We perform rigorous ongoing reviews of these suppliers based upon various risk
scores to minimize the risk of a disruption in supply and we have determined that our core product
technology could be procured from multiple vendors if such an arrangement became necessary or
advantageous to us. We have no individual single-source or limited-source supplier that provides a
material amount of products or key component parts compared to our annual revenue. We consider
these to be limited-source suppliers of our products and component parts and we have exclusivity
agreements with these vendors due to volume-based purchases, which are more advantageous to us. We
have determined that, if any one of these suppliers were unable to meet our future requirements for
products and component parts in a timely fashion, then we would be able to procure like components
from a different supplier to accommodate the product design, but there could be additional costs
and delays in providing products to customers as indicated in the risk factor in the Form 10-K.
Based upon this

Securities and Exchange Commission

March 9, 2010

Page 3

information, it is not necessary to file additional exhibits with respect to Item 601(b)(10)(ii)(B)
of Regulation S-K because the agreements discussed above are not “material contracts.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations

Results of operations, page 32

    3.

    Please describe for us in greater detail the reasons for, and amounts associated with, the
changes (i.e. price and/or volume) in the product and customer mix that impacted Net Sales and
Gross Profit, as disclosed on pages 32 and 34, respectively. In view of your identification of
the effects of these known changes, it would appear your MD&A should provide analysis of the
factors and reasons underlying the changes and discuss whether they will give rise to other
material changes in the company’s future operations and liquidity. Please tell us why you have
not provided such MD&A disclosure.

Response:

While we believe our disclosure satisfies the applicable requirements, we recognize the potential
utility of enhanced disclosures in our MD&A regarding the reasons for, and amounts associated with,
changes in product and customer mix that impact net sales and gross profit and will consider such
disclosure in future filings. Because the more significant factors that impacted net sales and
gross profit in fiscal 2009 related to our acquisitions, changes in product mix and foreign
currency impacts, all of which we discussed in our Form 10-K, we did not provide specific
disclosure related to pricing or customer mix, as those did not have a material impact on our
operations. The balance of our revenue changes were all volume based.

Weakened economic conditions impacted product demand and resulted in substantial decreases in most
of our product lines on a volume basis, except for the cellular, wireless communication adapters
and chips and software product lines.

We acquired Sarian Systems, Ltd. (Sarian) in April 2008, Spectrum Design Solutions, Inc. (Spectrum)
in August 2008 and the assets of MobiApps Holdings Private Limited (MobiApps) in June 2009. Each
of these acquisitions complements a need within our cellular or wireless product lines. These
acquisitions increased revenue in fiscal 2009 by $10.5 million, $3.8 million and $0.4 million,
respectively, compared to fiscal 2008. Without the additional revenue from these acquisitions, net
sales would have decreased $33.8 million, or 18.9%, for fiscal 2009 compared to fiscal 2008. Chips
and software increased mainly due to a large last time buy sale that was executed in fiscal 2009.
Fluctuation in foreign currency rates compared to the prior year’s rates in each case had an
unfavorable impact on net sales of $5.9 million in fiscal 2009.

The majority of the gross margin decrease in fiscal 2009 compared to fiscal 2008 was due to
the Sarian and Spectrum acquisitions and the growth in the cellular product lines. The decrease in
gross margins due to the acquisition of Sarian included one large legacy customer of Sarian which
generated lower than normal gross margins.

The gross margin also decreased due to an increase in the amortization of purchased and core
technology due to the acquisitions of Sarian, Spectrum and MobiApps. Fluctuation in foreign
currency rates compared to the prior year’s rates also had an unfavorable impact on gross margins
of 0.5% in fiscal 2009.

Overall we see fluctuations in our business that are mainly volume and demand driven rather than
fluctuations due to price. We maintain our value proposition when setting and negotiating pricing
in the normal course of business

Securities and Exchange Commission

March 9, 2010

Page 4

and we did not experience a material revenue decline due to pricing pressures and concluded that
disclosure was not needed on pricing. If we begin to see price driven factors affecting our
business, we will disclose this in the future.

Critical Accounting Policies and Estimates

Goodwill, page 43

    4.

    Please tell us how much your market capitalization plus an estimated control premium of 35%
exceeded the carrying value of the reporting unit. If your reporting unit was at risk of
failing “step one” of paragraph 350-20-35-4 of the FASB Accounting Standards Codification
because the fair value of your reporting unit was not substantially in excess of its carrying
value, please provide us the following information and provide this information in future
filings:

    •

    The percentage by which fair value exceeded carrying value as of the most recent
step-one test;

    •

    Analysis of the degree of uncertainty associated with the your assumptions, and

    •

    A description of potential events and/or changes in circumstances that could reasonably
be expected to negatively affect the key assumptions.

    Alternatively, if in your view your reporting unit is not at risk, we encourage you to disclose
that fact in future filings.

Response:

As of the close of business on September 30, 2009, Digi’s stock price was $8.52. Based on the
common shares outstanding at September 30, 2009 of 24,700,895, our market capitalization was $210
million, compared to a carrying value of $230 million. Including a control premium of 35 percent,
the fair value of our reporting unit was $284 million and exceeded the carrying value of net assets
by 24%. As this fair value exceeded the carrying value of net assets by a significant percentage,
we determined that we were not at a level of risk that warranted additional disclosure of failing
the step one test for recognition and measurement of an impairment loss described in paragraph
350-20-35-4 of the FASB Accounting Standards Codification.

We will provide enhanced disclosure in future periods of the fair value of our reporting unit
compared to the carrying value if we believe the fair value does not substantially exceed the
carrying value. Please refer also to our response to Comment 5. Alternatively, if we believe
that the reporting unit is not at substantial risk of failing the step one test for recognition and
measurement of an impairment loss, we will disclose this fact in future filings when a control
premium is used to determine fair value.

    5.

    In addition, for the periods reported provide to us greater detail of the similarities you
share with the companies used to determine your control premium over the past five years. Tell
us what control premium percentage was used in conjunction with your reporting unit fair value
determination as of June 30, 2008 and 2009. We note your disclosure that the estimated control
premium was determined by a review of premiums paid for similar companies over the past five
years; however there is no quantification of the percentages. Since this is a significant
assumption, we would expect enhanced disclosure of the basis and assumptions used to select a
particular control premium in future filings.

Securities and Exchange Commission

March 9, 2010

Page 5

Response:

We perform our annual goodwill impairment assessments as of June 30 each year. During our annual
impairment assessment performed as of June 30, 2008, the fair value of our reporting unit as
indicated by our market capitalization was below the carrying value due to significant declines in
our stock price during the year, primarily resulting from the effects of the overall broader
economic situation at that time. We believe that the fair value of our reporting unit was
undervalued based solely on our market capitalization, and therefore we engaged a reputable and
independent national third party valuation firm to complete a control premium study which included
a review of premiums paid for similar companies over the past five years. While we engaged a third
party valuation firm to assist in determination of the control premium, we used our own industry
knowledge in concluding on the control premium used to calculate fair value. We believe that the
fair value including the impact of the control premium more accurately represented the fair value
of our reporting unit as of June 30, 2008. This control premium study was updated as of June 30,
2009.

In order to compute the control premium, three methodologies were used, including (1) analyzing
individual transactions within our industry, (2) analyzing industry-wide data, and (3) analyzing
global transaction data. Individual transactions in the Communication Equipment and Computer &
Peripherals industries were used to find transactions of target companies that operated in similar
markets and shared similar operating characteristics with Digi. Transaction screening criteria
included selection of transactions with the following characteristics:

    •

    At least 50 percent of a target company’s equity sought by an acquirer,

    •

    Target company considered operating (not in bankruptcy),

    •

    Target company had publicly traded stock outstanding at the transaction date, and

    •

    Transactions announced between June 30, 2006 and the valuation date.

In analyzing industry-wide data, transactions in three industries were identified that encompassed
the products offered by Digi: Office Equipment and Computer Hardware, Communications, and Computer,
Supplies and Services. Finally, control premiums were