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DIGI INTERNATIONAL INC.

11001 Bren Road East

Minnetonka, MN 55343

September 22, 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 June 30, 2006

    Forms 8-K filed during fiscal 2006

    File No. 0-17972

Ladies and Gentlemen:

On behalf of Digi International Inc. (the “Company”), I am responding to the letter dated
September 8, 2006, of Brad Skinner of the Division of Corporation Finance to Joseph Dunsmore,
President and 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.

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

Management’s Discussion and Analysis, pages 20

Operating Expenses, page 29

    1.

    Your response to prior comment number 1 from our letter dated June 13, 2006 indicates that
your past acquisitions were principally made to extend your portfolio of hardware solutions.
Separately, disclosure within Note 4 to your audited financial statements indicates that you
have capitalized amounts as “purchased and core technology.” Describe for us the nature of the
“purchased and core technology” acquired and how this technology is utilized within your
hardware product sales. Explain your basis for

Securities and Exchange Commission

September 22, 2006

Page 2

    concluding that the amortization related to this technology does not represent a cost of
revenue.

Digi has recorded purchased and core technology as intangible assets related to all of its past
acquisitions, including Inside Out Networks, NetSilicon, FS Forth, and Rabbit. The purchased and
core technology intangible assets represent the value of the technological basis for the currently
developed hardware products that these companies were selling at the time of acquisition.

We have historically presented all acquired intangible amortization expense as a general and
administrative expense based on SAB Topic 11-B which allows depreciation and depletion to be
presented outside of cost of sales and provides guidance on disclosure if companies use that
alternative. In addition, management believes that our cost of sales and gross profit excluding
amortization of certain intangible assets provides a meaningful presentation given that intangible
assets amortization does not have a current or future effect on the use of cash. It is our
understanding that our investors and analysts believe this also. The presentation of amortization
of intangible assets related to acquired technology outside of cost of sales is consistent with
many of our competitors and many other registrants in our general industry. However, in
consideration of the Staff’s comment, we will begin recording the amortization of purchased and
core technology as a separate line item before gross profit.

Pursuant to our recent MaxStream acquisition, Digi intends to file a Form S-3 Registration
Statement, to register re-sales of the shares of our common stock by the selling stockholders.
Digi’s contractual commitment is to file the S-3 on October 2, 2006, or as soon as practicable
thereafter, but in any case by October 15, 2006. Due to the change to one segment effective in
fiscal 2006, Digi will file a Form 8-K prior to filing the Form S-3 which will include the
financial statements and associated MD&A from its Form 10-K for 2005, reclassifying all periods
presented on the basis of one segment. As a result of our conclusion to present the amortization
of intangible assets related to acquired technology as a component of cost of sales, we will also
reclassify our prior year Consolidated Statements of Operations included in the Form 8-K (i.e.,
2005, 2004 and 2003) to conform the presentation. The following excerpt of our Consolidated
Statements of Operations included in the Form 10-K for 2005 illustrates our proposed presentation
of the amortization of purchased and core technology:

Securities and Exchange Commission

September 22, 2006

Page 3

Digi International Inc.

Consolidated Statements of Operations

(in thousands, except per common share data)

    For the fiscal year ended September 30,

    2005

    2004

    2003

    Net sales

    $
    125,198

    $
    111,226

    $
    102,926

    Cost of sales (exclusive of amortization of purchased
and core technology shown separately below)

    49,516

    43,443

    41,580

    Amortization of purchased and core technology

    4,357

    4,480

    5,622

    Gross profit

    71,325

    63,303

    55,724

Non-GAAP Financial Measures, page 22

    2.

    We note your response to prior comment number 2 from our letter dated June 13, 2006. As
indicated in our prior comment, it is not appropriate to describe an item as non-recurring,
infrequent or unusual when the nature of the charge or gain is such that it is reasonably
likely to recur within two years or there was a similar charge or gain within the prior two
years. We note that there have been items that materially impacted your income tax expense and
effective tax rate in 2003, 2005 and 2006. Additionally, the nature of income taxes and the
related accounting appears to be such that is reasonably likely that similar charges or gains
will recur within two years. In view of these considerations, we do not agree with your
conclusion that it is appropriate to describe the tax-related items identified in your
non-GAAP measures as being unusual.

As explained in our previous response to this comment from your June 13, 2006 letter, there were
items that occurred in 2003 and 2005 that materially impacted our income tax expense and effective
tax rates for those years that we believe met the criteria included in Item 10(e)(ii)(B) of
Regulation S-K for items that are non-recurring, infrequent or unusual in nature as they had not
occurred in the previous two years and we continue to believe they will not recur in the following
two years.

In 2006, there were also items that impacted our effective tax rate, but we did not consider these
items to be non-recurring, infrequent or unusual and consequently these items were not described as
non-GAAP measures (see also our response to Comment 5).

We appropriately disclosed in our MD&A the discussion of both the reversal of the valuation
allowance in 2003 associated with the German net operating loss carryfowards and the favorable tax
settlement in 2005 and believe that due to the unusual nature of these items it was beneficial to
our financial statement readers to provide the additional non-GAAP disclosures to enhance
understanding and to provide transparency of disclosure. There was a material favorable impact to
earnings per share as a result of both of the aforementioned tax events and we believe it was
important to an understanding of our company’s financial performance to present this non-

Securities and Exchange Commission

September 22, 2006

Page 4

GAAP information, and that it met the requirements of Regulation S-K Item 10(e) for SEC-filed
documents, as well as Regulation G. Nevertheless, to resolve the Staff’s comment, we agree that we
will not present these two tax-related items as non-GAAP measures in future filings with the SEC.
We will, however, continue to provide a discussion in MD&A to enhance our financial statement
readers’ understanding of our tax-related items. We also agree that any public presentation of
these non-GAAP financial measures in other than SEC-filed documents will conform to Regulation G.

    3.

    We have considered your response to prior comment number 3 from our letter dated
June 13, 2006, as well as the existing disclosure in your 10-K. Since your non-GAAP measures
performance measures that exclude recurring items, you must meet the burden of demonstrating
the usefulness of the measures. As currently presented, the disclosure accompanying your
measures does not appear to meet this burden. In this regard, we note the following:

    •

    Although you indicate you use the measures to monitor and evaluate ongoing operating
results and trends and to gain an understanding of the comparative operating
performance of the company, you do not provide any substantive disclosure explaining
how the measures help you monitor, evaluate or understand your company.

    •

    You do not appear to provide any substantive disclosure that describes the economic
substance behind your decision to use the measures.

    •

    You do not appear to provide any substantive discussion of the material limitations
associated with the use of the non-GAAP measures as compared to the use of the most
directly comparable GAAP measure. In this regard, note that cautionary language
informing readers that your non-GAAP measures are not substitutes for complete GAAP
measures does not represent a substantive discussion of the material limitations of the
measures.

    •

    You do not appear to have provided any substantive discussion of the manner in which
you compensate for the limitations of the measures.

    •

    You do not appear to provide substantive discussion of the reasons why you believe
the measures are useful to investors. In this regard, you do not explain why it is
useful to investors to evaluate your operating results and corporate performance
without including the impact of your capital structure or the method by which assets
were acquired. Separately, you do not explain why it is reasonable to include the
revenue stream from acquired entities but exclude material costs of acquiring those
revenue streams.

In the event you chose to provide similar measures in filed documents, carefully consider
this comment and related guidance under the responses to questions 8 and 15 from Frequently
Asked Questions Regarding the use of Non-GAAP Financial Measures. At

Securities and Exchange Commission

September 22, 2006

Page 5

such as you file any documents that include similar measures, we may have further comment
Please note, similar considerations may apply to information furnished under Item 2.02 of
Form 8-K, including presentations that eliminate the impact of stock based compensation.

We consider EBTDA to be an important financial measure for Digi in measuring and monitoring our
internal performance. EBTDA is also used widely in the communications technology industry as an
indicator of financial health and our analysts and investors use EBTDA in assessing our
performance. However, we have considered the Staff’s further comments regarding our use of EBTDA
as a non-GAAP financial measure, and consistent with our response to Comment 2, we will not present
EBTDA as a non-GAAP measure in future filings with the SEC. We agree that any public presentation
of EBTDA as a non-GAAP financial measure in other than SEC-filed documents will conform to
Regulation G.

As it relates to our past presentation of EBTDA as a non-GAAP measure, we are providing the
following additional information specifically responding to the Staff’s comments related to our
past disclosures to demonstrate the usefulness of this measure:

    •

    Our incentive compensation plans include EBTDA to measure operating performance. All
employees in the company are eligible for the incentive plan. Since we want all employees
to have a stake in how the company performs in addition to their own individual
performance, we tie part of their incentive payment to overall company financial
performance. Since not all employees can influence decisions relating to acquisitions or
divestitures, capital purchases, or taxes, we defined EBTDA as the measurement criterion
since it can be consistently measured year after year and it is more likely that a broader
group of employees in the company can take actions that influence EBTDA.

    •

    As indicated in the preceding bullet, we use EBTDA as it provides for a reliable and
consistent way of measuring company performance year over year, not only for the incentive
plan but also as a key performance indicator (KPI) of how we are performing tactically
compared to prior periods and our operating plan. We also use EBTDA to measure ourselves
against the performance of other companies in the communications technology sector.

    •

    We recognize that there can be material limitations associated with the use of a
non-GAAP measure such as EBTDA. We consider these material limitations to include those
noted below:

    (a)

    EBTDA does not reflect our cash expenditures;

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September 22, 2006

Page 6

    (b)

    Although depreciation and amortization are
non-cash charges, the assets being depreciated and amortized will be
replaced in the future and EBTDA does not reflect any cash requirements
for such replacements;

    (c)

    EBTDA does not reflect changes in, or cash
requirements for, our working capital needs;

    (d)

    Other companies in our industry may calculate
EBTDA differently than we do, limiting its usefulness as a comparative
measure.

    •

    We believe that in our past filings we compensated for the limitations of these measures
in the following ways:

    •

    cautioning readers that non-GAAP measures are not substitutes for GAAP
measures, such as operating income or net income, for purposes of analyzing our
financial performance;

    •

    providing discussion in MD&A and the footnotes that provide detail on
intangibles and taxes;

    •

    providing reconciliations of the non-GAAP measures to the most
comparable GAAP measures to provide transparency.

    •

    We noted in our previous response that our investors tell us that EBTDA provides useful
information, and that our analysts use EBTDA as a measure of our operating performance in
their research reports to investors. Digi has historically been regarded as a value
company by many of our shareholders and they have expressed an interest in seeing EBTDA.
As a result, we have monitored our performance exclusive of the impact of decisions
relating to acquisitions and taxes which are very important but peripheral to the core
operations of our business.

Financial Statements

Notes to Consolidated Financial Statements

Note 6. Segment Information and Major Customers, page 59

    4.

    We note your response to prior comment number 5 from our letter dated June 13, 2006. We
further note the following:

Securities and Exchange Commission

September 22, 2006

Page 7

    •

    Your revised reporting structure provides information for a single reportable
segment only, and therefore does not provide any meaningful information regarding sales
by product;

    •

    The revised information reviewed by your CODM identifies revenues recognized from
several different product offerings or categories; and,

    •

    Discussion in your MD&A indicates that changes in sales levels and profit margins
for various products or product categories have materially impacted your historical
results.

In view of these factors, it appears that the disclosure of revenue from external customers from
each product or similar group of products is required. See SFAS 131, par. 37.

Following our changes in product strategy, technology integration and organizational structure in
the first quarter of fiscal 2006, we view our products in two groups consisting of non-embedded
products and embedded products. Non-embedded products provide external connectivity solutions,
while embedded products solutions generally incorporate networking modules or microprocessors that
are smaller in size than non-embedded products and are internal to the devices being networked.
Our sales strategy is to provide a migration path for customers using non-embedded products to
seamlessly migrat