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Dot Hill Reports Revenue Increase

CARLSBAD, Calif. -- Dot Hill Systems Corp. (Nasdaq: HILL) today announced financial results for the third quarter ended September 30, 2008. Net revenue was $76.6 million (a record for the company's quarterly net revenue), compared to $45.7 million for the third quarter of 2007, and $71.0 million for the second quarter of 2008. Included in the third quarter 2008 revenue figures is an accrued payment of $1.7 million from one of the company's large OEM customers in consideration of Dot Hill price reductions.

Net revenue for the third quarter of 2008 was within the guidance range of $73 to $78 million that the company provided on August 8, 2008.

For the third quarter of 2008, net loss was $3.7 million, or $0.08 per fully diluted share and included a one-time legal settlement of $0.5 million of which approximately $0.3 million was included in cost of goods and $0.2 million was included in operating expenses. Also included in the net loss was a $1.7 million accrued payment from one of the company's large OEM customers in consideration for price reductions. The company had anticipated receiving this payment when it established guidance on August 8, 2008. This compares to a net loss of $4.1 million for the third quarter of 2007, or $0.09 per fully diluted share, and a second quarter 2008 net loss of $7.4 million, or $0.16 per fully diluted share.

On a non-GAAP basis, after excluding share-based compensation expense, severance costs and foreign currency adjustments, net loss for the third quarter of 2008 was $3.1 million, or $0.07 per share on a fully diluted basis and was within the $0.06 to $0.10 range that the company set on August 8, 2008.

Gross margin percentage for the third quarter of 2008 was 11.7 percent as compared to third quarter 2007 gross margin of 14.3 percent and second quarter 2008 gross margin of 10.2 percent. The gross margin percentage for third quarter of 2008 includes a $0.3 million legal settlement benefit and $1.7 million accrued payment from one of the company's large OEM customers. The company attributes the decrease in gross margin percentage on a year-over-year basis primarily to a change in product and customer sales mix, as the company's higher margin net revenue from Sun Microsystems has declined over the past year, while shipments of the company's lower margin products to NetApp, Hewlett-Packard and other customers have increased. On a sequential basis, gross margin percentage increased despite the decline in net revenue from Sun Microsystems, primarily due to material cost reductions that the company realized during the quarter.

'We are pleased that we were able to meet our projections for the third quarter of 2008,' said Dana Kammersgard, president and chief executive officer, Dot Hill. 'Despite challenging market conditions, we were able to achieve record net revenue which was an improvement of 8 percent sequentially and 68 percent year-over-year. Our focus has shifted from one of revenue diversification and top line growth to continued margin improvement and the attainment of sustainable profitability. We remain intensely focused in these areas and remain confident that we will return to profitability in the near term.'

Dot Hill Systems Corp.