CEO's Over Dot Hill

Companies that OEM storage systems are usually invisible to IT managers. But one of them surfaced in a colorful way this week. The CEO of Dot Hill Systems announced today that he'll retire after 22 years of running the company -- and he's evidently chosen the family wine business over a possible parade of legal battles. (See Dot Hill Changes CEOs.)

Lambert, 52, will step down March 1 and turn control of the storage systems OEM company to Dana Kammersgard, another founder who has been Dot Hills president since 2004 and previously served as CTO. In 1984, Lambert and Kammersgard founded Artecon, which became Dot Hill after merging with Box Hill Systems Corp. in 1999.

The news comes shortly after Dot Hill, whose primary OEM customer is Sun Microsystems, got hit with a rash of class-action lawsuits resulting from accounting problems that surfaced last year.

On February 4, 2005, Dot Hill revealed it had to restate earnings for the first three quarters of 2004 because of a series of accounting problems executives blamed on an ERP (enterprise resource planning) system. The company filed the restatements last March. (See Dot Hill Dots Its I's and Dot Hill Files Financials .)

This year, law firm Lerach Coughlin Stoia Geller Rudman & Robbins LLP filed the first suit January 31, claiming Dot Hill execs violated securities law by allegedly issuing false and misleading financial information due to improper revenue recognition and inadequate internal controls. (See Lerach Coughlin Sues Dot Hill.) At least four other law firms have followed with more class-action suits.Dot Hill did not mention the suits in the release announcing the CEO change and told Byte and Switch they had no bearing on Lambert's decision.

At least one Wall Street analyst believes that. Kaushik Roy of Susquehannah Financial Group says all the lawsuits filed after Larch Coughlin’s were copy-cat suits. “His resignation had nothing to do with the class actions,” he says. “There’s really only one person behind them. All the other law firms said, ‘We want to make it a class action suit. If there’s money, we want a piece of it.’ ”

While class-action suits are commonplace in the technology world, there can be tough repercussions. Nortel Networks, for instance, recently agreed to take a $2.5 billion charge to settle class-action suits filed after an accounting scandal. (See Nortel Takes $2.5B Hit.)

One person who spent time with Lambert in January before the suits were filed said the CEO seemed more interested in his family’s wine business than the lawsuits or storage systems: “He seemed disconnected from the business, and wanted to do something else."

In a note to clients today, Dan Renouard of Robert W. Baird & Co. wrote: "Although the move seems abrupt and somewhat unexpected, we do not believe the CEO's plans for retirement signify incremental problems on the horizon for the company."At least one analyst wonders if the resignation could result in changes to Dot Hill's OEM partnerships. Until recently, Lambert, who has a strong sales background, has been in the limelight, while Kammersgard, an engineer, has operated mostly in the shade. “Was Lambert the reason Sun and other companies worked with Dot Hill? That’s what we’ll find out,” says Steve Berg of Punk Ziegel & Co.

Because Dot Hill does not sell storage directly, it relies on building relationships with larger vendors, competing mostly with Engenio and Xyratex for deals. Now, most of Dot Hill's revenue comes from low-end systems sold by Sun, but the company recently added Network Appliance and Fujitsu Siemens as OEM customers. (See Sun Dogs Dot Hill, Dot Hill's Alive & Well, and Fujitsu, Dot Hill Target SMBs.)

— Dave Raffo, Senior Editor, Byte and Switch

Organizations mentioned in this article: