SecProbe.io

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Mail Stop 0306

January 14, 2005

Via: US Mail and Facsimile to (408) 399-3509

Mr. William R. Walker
Vice President, Finance and Chief Financial Officer
HI/FN, Inc.
750 University Avenue
Los Gatos, CA  95032

	RE:	HI/FN, Inc.
		Form 10-K for the fiscal year ended September 30, 2004
		File No. 000-24765

Dear Mr. Walker:

      We have reviewed your filing and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and will make no further review of your
documents.  Where indicated, we think you should revise your
document
in future filings in response to these comments.  If you disagree,
we
will consider your explanation as to why our comment is
inapplicable
or a revision is unnecessary.  Please be as detailed as necessary
in
your explanation.  In some of our comments, we may ask you to
provide
us with supplemental information so we may better understand your
disclosure.  After reviewing this information, we may or may not
raise additional comments.

	Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects.  We welcome
any questions you may have about our comments or on any other
aspect
of our review.  Feel free to call us at the telephone numbers
listed
at the end of this letter.

Form 10-K for the fiscal year ended September 30, 2004

Item 7.  Management`s Discussion and Analysis of Financial
Condition
and Results of Operations - Page 17

Critical Accounting Policies - Page 19
1. We see your critical accounting policy regarding revenue
recognition.  However, the disclosure merely repeats the policies
from your significant accounting policies footnote with little
elaboration.  Please expand in future filings to describe the
specific factors that in your view make it critical.  Discuss the
nature of estimates and uncertainties about those estimates
inherent
to your revenue recognition policy, including how you make those
estimates.  Discuss how different assumptions, methods or
conditions
might effect your financial statements.

Results of Operations
Net Revenue - Page 21
2. Revise and expand future filings to explain the events and
circumstances that caused  revenue to increase. For example,
discuss
whether the increase was attributable to changes in prices,
volume,
product mix or the introduction of new products or services.  For
guidance, please see Release No. 33-8350, Commission Guidance
Regarding Management`s Discussion and Analysis of Financial
Condition
and Results of Operations (December 19, 2003).

Liquidity and Capital Resources - Page 25
3. In future filings expand to describe the reasons for the
increases
and decreases in the various components of working capital cited
as
impacting cash flow from operations.  In general, when you
describe
the effects of changes in working capital on cash flow from
operations, the reasons for these changes should also be
described.
4. As a related matter, we note the significant inventory and
accounts receivable balances at September 30, 2004.  Please
discuss
these balances and their related turnover/collection rates on a
comparative basis and the reasons for the significant increases in
the current year.  Also, explain the basis of your conclusions
regarding the recoverability of inventory and accounts receivable
as
of the most recent balance sheet date.

Financial Statements

Note 2. Summary of Significant Accounting Principles and Policies
-
Page 44

Revenue Recognition - Page - 46
5. Explain the nature of any installation or post shipment
obligations and how they affect your revenue recognition. Are
sales
subject to customer acceptance provisions? If so, how does this
impact revenue recognition on sales?  In this regard, we see that
"evaluation boards" are offered to customers.  Supplementally
explain
your accounting and presentation of these demonstration systems.
Tell
us how you determine inventory impairment.  We may have additional
comments after reviewing your response.
6. Supplementally and in detail, explain the nature of your
product
or products.  Do you sell hardware and software separately or
together?  If together, how do you allocate revenue to these
elements?   Are customers provided with a right to receive
additional
software products free or at a reduced price?  Does your fee also
cover PCS or other service elements?
7. With respect to contract revenue, please tell us more about
your
licensing and engineering services arrangements. Describe the
significant terms of typical arrangements in sufficient detail so
that we can understand the basis for your policies. Revise future
filings to explain your revenue recognition, referencing
accounting
guidance is not sufficient.

Note 8 - Stock Options and Employee Benefits - Page 53

Voluntary Stock Option Exchange - Page 53
8. Supplementally tell us your accounting for the canceling of
stock
options and issuing new option awards in June 2002.  Clarify what
you
mean by "the voluntary stock exchange was accounted for as a
modification of stock option award for purposes of the fair value
disclosures."  Refer to FIN 44 and EITF 00-23 in your response.

Note 10. Segment and Geographic Information - Page 57
9. SFAS 131 requires disclosure of long-lived assets by geographic
area.  This disclosure should present tangible assets only and
should
not include intangibles or investments.  See question 22 in the
FASB
Staff Implementation Guide to Statement 131. Revise future filings
as
necessary.

Note 11 - Commitments and Contingencies - Page 58

Guarantees - Page 58
10. We note that you offer warranties and indemnity provisions in
agreements with customers.  Please revise future filings to
provide
the disclosures required by paragraphs 13 and 14 of FIN 45 or
explain
why you do not consider additional disclosures to be necessary.
If
you believe that the amounts are not material, provide
supplemental
support for your conclusion.

*    *    *    *

      As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter with your response that keys your
responses to our comments and provides any requested supplemental
information.  Detailed cover letters greatly facilitate our
review.
Please file your cover letter on EDGAR.  Please understand that we
may have additional comments after reviewing your responses to our
comments.

 	 We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.

	In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that

* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.

      In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.

      You may contact Patrick Enunwaonye, Staff Accountant, at
(202)
824-5529 or me, at (202) 942-1931 if you have questions regarding
comments on the financial statements and related matters. In this
regard, do not hesitate to contact Brian Casico, Accounting Branch
Chief, at (202) 942-1791 with any other concerns.

							Sincerely,

							Angela Crane
							Review Accountant
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Mr. William R. Walker
HI/FN Inc.
January 14, 2005
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