Dot Hill's Banking On HP

RAID array maker Dot Hill has expanded an OEM agreement with Hewlett-Packard, in a move that signals the potential for more SMB products from HP while holding out fresh hope for Dot Hill's flagging fortunes.

Dot Hill has been OEMing RAID arrays to HP for use in the HP Storageworks 9000 VTLs announced last fall, a system that also is based on software from Sepaton. Now, HP and Dot Hill have expanded their agreement from one year to five and opened it up to include other divisions in HP besides the one that made the 9000.

On the down side, Dot Hill's HP deal does not have any minimum spending requirement, which means HP might not live up to Dot Hill's expectations.

Those expectations are substantial: Dot Hill has boldly taken steps that indicate it's counting on this agreement. The company has:

Analysts think the agreement may not bring Dot Hill the profitability it hopes to return to in 2008, after struggling for years with management changes and patent litigation in addition to declining sales. "I doubt the HP investment or VTL OEM will boost Dot Hill very much," says one industry analyst, who asked not to be named.

Another observer disagrees with that view. "It should be very good for Dot Hill," says Arun Taneja of the Taneja Group. "They've been totally subservient to Sun, at Sun's mercy. If Sun sneezed, Dot Hill would fall apart."

Taneja thinks Dot Hill could make out well if HP uses its arrays for more midrange and low-end systems. He notes that HP has stated its intent to offer midrange systems not based on the Sepaton software.

HP spokespeople had not returned calls for comment at press time.The HP deal is only the latest of many attempts to enlist other OEMs. "Dot Hill must rapidly diversify through emerging relationships with NetApp, Fujitsu Siemens, Stratus Technologies, and other potential OEM customers to offset the uncertainty at Sun Microsystems," wrote analyst Thomas Curlin of RBC Capital Partners in a note in early November 2007. At that time, he noted that Dot Hill's third-quarter 2007 financials reflected a ramp in business with Network Appliance. Sadly, that gain was offset by lower margins on NetApp equipment than Dot Hill realized with Sun gear.

At press time, Dot Hill shares were trading at $2.64, up .06 (2.33%).

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