Dot Hill's Banking On HP
New partnership terms may not be sufficient to improve Dot Hill's fortunes
January 8, 2008
![Network Computing logo Network Computing logo](https://eu-images.contentstack.com/v3/assets/bltde8121fc52c5c8f3/blt3f3d0318f746b1c2/65a530e4187606040a1d8b8c/placeholder.png?width=1280&auto=webp&quality=95&format=jpg&disable=upscale)
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:
Raised guidance for its year-end quarter. Dot Hill now says it expects to show $50 million to $52 million in revenues for the last quarter of 2007, instead of the $44 million to $48 million previously given. Loss per share, though, should stay in the range of 10 cents to 15 cents, management says. For the third quarter of 2007, which ended September 30, 2007, Dot Hill posted revenue of $45.7 million and a loss per share of 9 cents.
Cranked up infrastructure to support HP development. Dot Hill plans to use $10 million to $20 million in cash just to make parts for HP and to "make modest but incremental investments in organizational capabilities and test infrastructure."
Invited HP to invest in the company. Dot Hill has issued a warrant that allows HP, over a period of five years, to buy 1,602,489 shares of Dot Hill's common stock at $2.40 per share. The resulting $3.84 million would represent about 3.5 percent of Dot Hill's outstanding shares.
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%).
Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.
Dot Hill Systems Corp. (Nasdaq: HILL)
Fujitsu Siemens Computers
Hewlett-Packard Co. (NYSE: HPQ)
Network Appliance Inc. (Nasdaq: NTAP)
RBC Capital Markets
Sepaton Inc.
Stratus Technologies International
Sun Microsystems Inc. (Nasdaq: SUNW)
Taneja Group
You May Also Like
Maximizing cloud potential: Building and operating an effective Cloud Center of Excellence (CCoE)
September 10, 2024Radical Automation of ITSM
September 19, 2024Maximizing Manufacturing Efficiency with Real-Time Production Monitoring
September 25, 2024