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DIGI INTERNATIONAL INC.

11001 Bren Road East

Minnetonka, MN 55343

July 28, 2006

Via EDGAR and Federal Express

Securities and Exchange Commission

Attention: Marc D. Thomas

Division of Corporation Finance

100 F Street, NE

Washington, D.C. 20549-5553

    Re:

    Digi International

    Form 10-K for Fiscal Year Ended September 30, 2005

    Form 10-Q for Fiscal Quarter Ended March 31, 2006

    Form 8-K filed dated April 17, 2006

    File No. 0-17972

Ladies and Gentlemen:

     On behalf of Digi International Inc. (the “Company”), I am responding to the letter dated June
13, 2006 of Marc D. Thomas of the Division of Corporation Finance to Joseph T. Dunsmore, Chief
Executive Officer of the Company, with respect to comments on the above-referenced filings.

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

Accounting Comments

Form 10-K for the Fiscal Year Ended September 30, 2005

Management’s Discussion and Analysis, page 20

Securities and Exchange Commission

Page 2

Operating Expenses, page 29

    1.

    We note your disclosure within MD&A that identifiable intangible amortization expense is
included within operating expenses. Advise us as to what consideration you have given to FASB
86 Interpretation 17.

We provide device networking solutions for our customers by offering an extensive range of
connectivity solutions, primarily resulting in hardware product sales. Our past acquisitions were
principally made to extend our portfolio of device networking hardware solutions. Accordingly,
none of these acquisitions has resulted in the acquisition of software and no software has been
capitalized by us in connection with these acquisitions. In addition, software development costs
incurred by us have been expensed as incurred because they have been very insignificant.

Non-GAAP Financial Measures, page 22

    2.

    Your presentation of non-GAAP information identifies both the tax settlement and the
valuation allowance adjustment as unusual items. Explain to us your basis for concluding that
these items are unusual for purposes of non-GAAP disclosure. As part of your response,
explain your basis for concluding that it is not reasonably likely that similar items will
recur within two years. See Item 10(e)(ii)(B) of
Regulation
S-K.

We considered the following items to be unusual items, and we excluded the impact of these items
from certain GAAP financial measures in our Form 10-K filing:

    –

    In February 2005, the Congressional Joint Committee on Taxation approved a settlement with
the Internal Revenue Service on an audit of certain of our prior fiscal years income tax
returns. We had previously established tax reserves that ultimately exceeded the settled
amount. As a result of the favorable settlement, we reversed $5.7 million of excess income
tax reserves during the second quarter of fiscal 2005. We accounted for the reversal of the
income tax reserves as a discrete event for purposes of our effective income tax rate
computation, and recorded an income tax benefit during the second fiscal quarter of 2005 of
$5.7 million.

    –

    In March 2003, we reversed the valuation allowance associated with our German net operating
loss carryforwards. The valuation allowance was reversed based upon current and anticipated
future taxable income generated by our German operations. The portion of the valuation
allowance related to the German net operating loss carryforwards that we expected to utilize
during the year ended September 30, 2003 was accounted for by reducing the effective income
tax rate for the current year. The portion of the valuation allowance related to the German
net operating loss carryforwards that we expected to utilize in periods subsequent to
September 30, 2003 was accounted for as a discrete event and resulted in an income tax benefit
of $1.4 million being recorded during fiscal 2003 as part of deferred tax expense.

Securities and Exchange Commission

Page 3

We concluded that these items were unusual for purposes of non-GAAP disclosure since neither type
of event had taken place in at least the previous two fiscal years and we do not anticipate that
they will recur within the following two fiscal years. We do not anticipate another Internal
Revenue Service audit within the next two years that would result in a material charge or gain. We
did not, in fact, have any valuation allowances on our balance sheet during the two-year period
following the reversal in March 2003, nor do we anticipate that we will need to record a valuation
allowance in the next two years based on the criteria for evaluating and establishing valuation
allowances. As we stated on page 22 of the Form 10-K, management believes that, with respect to
the measures that exclude the favorable tax settlement, excluding this item provides useful
information to investors regarding the Company’s consolidated results of operations and financial
condition and permits a more meaningful comparison and understanding of the Company’s operating
performance, allowing investors to comparably evaluate our income tax provision and effective
income tax rate.

    3.

    We note that you have reconciled EBITDA to net income. Explain to us how you have considered
the answers to questions 8 and 15 from the Frequently Asked Questions Regarding the use of
Non-GAAP Financial Measures. In this regard explain to us, in detail, how you have considered
the disclosures identified in the answer to question 8.

We monitor EBTDA (earnings before taxes, depreciation, and amortization) internally as it is an
element of the annual incentive plan for all employees, including executive management. The EBTDA
performance is posted quarterly on the Company’s intranet to allow employees to keep abreast of the
company’s progress toward this incentive plan component.

We also monitor EBTDA as a percentage of our net sales as an indicator of our trended financial
performance and as a measure of our progress over time in achieving our financial goals. During
the past several years our strategy has been to acquire complementary technologies to grow our
device networking business. We have had five acquisitions in the last six years with purchase
prices ranging in size from less than $5 million to greater than $50 million. We believe that
presenting this non-GAAP measure provides a better understanding of our underlying financial
performance excluding the impact of identifiable intangibles amortization.

Additionally, the Company is endeavoring to reduce our operating expenses to net sales ratio and to
increase our operating income to net sales ratio. In order to measure our progress toward
achievement of these goals, identifiable intangibles amortization is excluded from the calculations
since identifiable intangibles amortization is determined at the time that acquisitions are
completed and cannot be impacted through tactical management efforts to control expenses.

Finally, we compute EBTDA each quarter as this is a statistic that is used by our analysts for
their quarterly research reports. Our analysts use this information as a tool in assessing our
operational performance each quarter.

We have considered the disclosures identified in the answer to Question 8 as follows:

Securities and Exchange Commission

Page 4

    •

    The manner in which management uses the non-GAAP measure to conduct or evaluate its
business — As disclosed on page 22 of the Form 10-K, we believe that EBTDA allows for a
more meaningful comparison of operating results and corporate performance exclusive of the
impact of our capital structure and the method by which assets were acquired. As a result,
our incentive compensation plans include EBTDA to measure operating performance without
regard to decisions that may be made about the means of financing the Company.

    •

    The economic substance behind management’s decision to use such a measure — As
described above, management uses EBTDA to focus on operating performance and to incent
employees.

    •

    The material limitations associated with use of the non-GAAP financial measure as
compared to the use of the most directly comparable GAAP financial measure — As disclosed
on page 22 of the Form 10-K, we caution readers that EBTDA is not a substitute for complete
GAAP measures of the Company’s financial performance and we refer readers to review the
GAAP measures.

    •

    The manner in which management compensates for these limitations when using the non-GAAP
financial measure — When using EBTDA as a measure of operating performance, management
keeps in mind that depreciation and amortization also affect the Company’s earnings, and
management also reviews and monitors trends in GAAP net income to identify the significance
of the impact of depreciation and amortization on the Company’s earnings.

    •

    The substantive reasons why management believes the non-GAAP financial measure provides
useful information to investors —We believe EBTDA provides useful information to investors
because they tell us that it does. This is evidenced by the fact that our analysts use
EBTDA as a measure of our operating performance in their research reports to investors.

     As the SEC suggests in FAQ 15, we reconcile EBTDA to net income, and not to operating income.

    4.

    We note similar non-GAAP disclosures in the press release in the Form 8-K dated April 17,
2006. Management should review these disclosures in light of the preceding comments on the
Form 10-K.

We have reviewed the non-GAAP disclosures in the press release contained in the Form 8-K. We
reported (i) earnings per diluted share excluding the impact of stock-based compensation expense,
and also guidance related to earnings per diluted share excluding the impact of stock-based
compensation expense, (ii) earnings per diluted share excluding the impact of the favorable tax
settlement, and (iii) earnings before taxes, depreciation and amortization. With respect to the
measures that exclude stock-based compensation expense, we believe that these disclosures allow
investors to compare results with the results of prior periods that
did not include stock-based compensation expense. With

Securities and Exchange Commission

Page 5

respect to the exclusion of the impact of
stock-based compensation, we currently intend to discontinue the presentation of such non-GAAP
financial measures once all comparable periods include stock-based compensation expense. We also
refer you to our answer to your Comment 6.

With respect to the non-GAAP disclosure for earnings per diluted share excluding the impact of the
favorable tax settlement, we believe that this is a nonrecurring event that should be excluded from
the earnings per diluted share calculations in order to provide comparability to investors in
making decisions about the profitability of the company, and that it is appropriate to include a
presentation of earnings per diluted share excluding the impact of the favorable tax settlement.
Additional information related to this matter is included in our response to Comment 2.

Earnings before taxes, depreciation and amortization have been presented as a non-GAAP disclosure
as explained in our response to Comment 3. We have provided information on the manner in which we
use this non-GAAP measure to evaluate our business. We have also explained why we believe this
non-GAAP measure provides useful information to our investors and analysts following the Company.

Financial Statements

Notes
to Consolidated Financial Statements

Note 6. Segment Information and Major Customers, page 59

    5.

    We note the discussion, beginning on page 7 of your 10-K, of various product families and
categories. In view of these differing product offerings, explain to us how you have
considered the requirements of SFAS 131, par. 37.

SFAS 131, paragraph 37, requires reporting of revenues from external customers for each product or
each group of similar products. In fiscal year 2005 we had two reportable segments, Connectivity
Solutions and Device Networking. The Connectivity Solutions products were external “board and box”
products, while the Device Networking products were generally embedded products that employed
silicon, an operating system, and networking software. We concluded that we did not need to
disclose any additional information with respect to our products as a result of the similarities of
the products in each of the respective reportable segments described above, since the products in
each reportable segment were essentially similar in that the products had similar production
processes, classes of customers, economic characteristics, and similar degrees of risk.

Form 8-K dated April 17, 2006

    6.

    We note the non-GAAP disclosures relating to the impact of share-based compensation on
operating results for the three and six month periods ending March 31, 2006 which have been
included in the press release. Explain to us how you have considered
the guidance of

Securities and Exchange Commission

Page 6

    SAB Topic 14.G and the answer to question 8 from Frequently Asked Questions
Regarding the use of Non-GAAP Financial Measures. Please note that each measure you have
presented that excludes stock-based compensation expense, e.g. gross profit, operating
expenses, represents a separate non-GAAP measure that should be specifically addressed.

Effective October 1, 2005, we adopted Statement of Financial Accounting Standard No. 123 (revised
2004), “Share-Based Payment” (FAS No. 123R), as amended by FASB Staff Position No. FAS 123(R) -4
(FSP FAS 123 (R) -4), using the modified prospective method of application. We anticipate that the
adoption of FAS No. 123R will incrementally increase pre-tax compensation expense by approximately
$2.3 million during fiscal 2006, or approximately $0.07 per diluted share, and that our annual
earnings per diluted share for fiscal 2006, including the impact of stock-based compensation
expense, will be in a range of $0.43 to $0.50, based on the most recent estimates included in our
press release dated July 17, 2006. We believe that the impact of stock-based compensation is
significant in relation to our earnings per diluted share for the year, and that it is important
for our investors to understand the impact of stock-based compensation expense on each of the
financial statement line items. As discussed in Question 2 of SAB Topic 14.G, a measure used by
management that excludes share-based payments internally to evaluate performance may be relevant
disclosure for investors. We have concluded that these non-GAAP financial measures related to the
impact of share-based compensation do not violate any of the prohibitions from inclusion in filings
as outlined in Regulation G and Item 10(e) of Regulation S-K, and that we have appropriately
disclosed in the Form 8-K filing the reasons why we believe that presentation of the non-GAAP
financial measures provides useful information to investors regarding the Company’s results of
operations.

We currently intend to discontinue the presentation of non-GAAP financial measures that exclude
stock-based compensation expense once all comparable periods include stock-based compensation
expense. Once all comparable periods include stock-based compensation expense, we believe that it
is probable that the financial statement impact of this item will be generally consistent with the
prior year’s comparable periods and will not materially impact year-to-year comparisons and that
period-to-period differences can be adequately addressed in MD&A.

Form 10-Q for the Quarterly Period Ended March 31, 2006

Financial Statements

Notes to the Financial Statements

Note 10 Segment Information, page 13

    7.

    We note your disclosure that during the first quarter of fiscal 2006, you changed your
organizational structure and