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This paper presents theoretical and numerical results describing digitized heat transfer (DHT), a newly developing active thermal management technique for high-power density electronics and integrated micro systems. In describing DHT, we numerically investigate the mass, momentum, and energy equations governing the flow within a translating microdroplet. Our analysis shows the existence of a pair of recirculation zones inside the droplet. This internal circulation within discrete fluid slugs results in significantly increased overall heat transfer coefficients when compared to continuous Graetz-type flows. The internal circulation drives the cold fluid in the middle of the droplet to the vicinity of the walls and creates a higher local temperature difference between the wall and the fluid in contact with the wall, resulting in higher heat transfer rates. Nusselt numbers characterizing DHT flow are also shown to exhibit periodic fluctuations with a period equal to the characteristic time scale for droplet circulation. The overall effect of discretizing a flow on heat transfer capability is described and characterized in terms of a nondimensional circulation number defined by the ratio of characteristic thermal diffusion and fluid circulation time scales. DHT coolants, including liquid metals and alloys, are proposed, and their physical properties are shown to enable handling of significantly higher heat transfer rates than classical air- or water-cooled methods. The actuation method for DHT coolant transport is also outlined, and shown to provide the capability for active, on-demand suppression of transient hot spots. This overall analysis defines the key parameters for optimization of the DHT method and forms the basis of ongoing experimental work.