Dot Hill (nasdaq: HILL) is a botique designer and manufacturer of data storage equipment, most of which is resold by OEMs like HP, Lenovo, and Samsung. For background on the Dot Hill story see my Dot Hill Summary page, and for the latest results, see my Dot Hill Q2 2011 analyst conference call summary.
Dot Hill had a slightly better than expected Q2, with $53.2 million, up 12% versus comparable Q2 2010 revenues excluding NetApp. Dropping the NetApp relationship has proven to be a good idea, as new customers and improved margins have more than compensated. Non-GAAP net income was $0.4 million (EPS $0.01) compared to at EPS loss of $0.06 in Q2 2010.
Dot Hill's products are getting traction because they offer mid and high range enterprise storage features at relatively low prices. Margins are improving partly more Dot Hill storage management software is being sold along with the hardware.
Dot Hill has struggled to get on a solid footing, but now that it has done that, their are several interesting possibilities ahead. If any or all work out, revenues and profits should ramp materially. The data storage industry has been consolidating. One of Dot Hill's rivals was recently bought by NetApp, which means some OEM's now are being sourced by a competitor. Dot Hill has been in talks with multiple OEMs about switching. However, this is not news, as the situation was the same three months ago. There is no guarantee that Dot Hill will pick up one or more clients from this transition. However, if it does, that would go a long way to building new revenues and profits.
Dot Hill has a large number of patents related to storage technologies and has hired an outside contractor to investige monetizing them.
Finally, the storage management software is still a new opportunity. Feedback for customers should allow for enhancements and better bundling of with hardware. Software revenues have far higher margins than hardware revenues, so that could be quite a shot in the arm to profits.
Downside risks include the usual competition, unusual events, failure to execute, and overspending.
Dot Hill is certainly worth keeping an eye on if you are intested in the booming storage space [disclaimer: I own Dot Hill stock].
See also dothill.com
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Showing posts with label Lenovo. Show all posts
Showing posts with label Lenovo. Show all posts
Tuesday, August 9, 2011
Tuesday, May 10, 2011
Dot Hill Does Well By HP, Looks For More Partners
Dot Hill (Nasdaq: HILL), a data storage equipment manufacturer, had a very interesting analyst call reporting Q1 2011 results last Thursday. Until December NetApp had been Dot Hill's second largest customer. But profit margins for that particular relationship for Dot Hill were negative, and negotitions with NetApp were not fruitfull. So Dot Hill dropped NetApp.
The result was a pretty steep drop in revenue to $49.2 million, down 25% sequentially from $65.4 million in Q4, and down 18% from $60.0 million year-earlier. Q1 is typically the slowest quarter for Dot Hill. However, the profit hit was much less. GAAP Net income was negative $1.2 million, down sequentially from $0.3 million, but up from negative $6.4 million year-earlier. Non-GAAP net income was $0.1 million for EPS of $0.00, better than I expected.
HP, which buys storage arrays from Dot Hill and resells them under its own brand, was responsible for 76% of Hill's revenues in the quarter. Sales to HP grew 20% y/y. But Dot Hill knows the danger of manufacturing mainly for one customer. They used to make equipment almost exclusively for Sun Microsystems. That business disappeared several years ago.
In fact Hill already supplies to several other major players including Lenovo and Samsung. But in none of these cases is it the exclusive storage supplier. It also sells through a large number of smaller systems integrators, but in the quarter that only amounted to $1.2 million in revenue.
There are three relatively large opportunies for Dot Hill going forward, aside from just selling more through HP. LSI's storage division Engenio is being acquired by NetApp. Some of LSI's Engenio clients are NetApp competitors. Some have begun discussions with Hill about switching to Hill as a first or second source. The second opportunity is selling more software with its hardware solutions, which brings higher profit margins. The third is the industry is consolidating, and Hill is an attractive acquisition candidate, although no discussions have been announced.
Q2 is looking better than Q1, partly due to orders late in Q1 that did not ship until Q2. Revenues for Q2 are projected at between $49 and $53 million, with non-GAAP net income and EPS expected in the vicinity of break-even. When Hill takes on new major OEM clients it does customization for them, which incurs increased engineering costs.
It is notable that GAAP gross margins increased from 13.5% year-earlier to 24.6% in Q1. This was partly from dropping NetApp, partly from a higher-margin mix in the rest of the business, and partly from increasing sales of storage management software.
For a greater level of detail see my Dot Hill Q1 2011 analyst call summary.
I own Dot Hill stock.
See also www.dothill.com
The result was a pretty steep drop in revenue to $49.2 million, down 25% sequentially from $65.4 million in Q4, and down 18% from $60.0 million year-earlier. Q1 is typically the slowest quarter for Dot Hill. However, the profit hit was much less. GAAP Net income was negative $1.2 million, down sequentially from $0.3 million, but up from negative $6.4 million year-earlier. Non-GAAP net income was $0.1 million for EPS of $0.00, better than I expected.
HP, which buys storage arrays from Dot Hill and resells them under its own brand, was responsible for 76% of Hill's revenues in the quarter. Sales to HP grew 20% y/y. But Dot Hill knows the danger of manufacturing mainly for one customer. They used to make equipment almost exclusively for Sun Microsystems. That business disappeared several years ago.
In fact Hill already supplies to several other major players including Lenovo and Samsung. But in none of these cases is it the exclusive storage supplier. It also sells through a large number of smaller systems integrators, but in the quarter that only amounted to $1.2 million in revenue.
There are three relatively large opportunies for Dot Hill going forward, aside from just selling more through HP. LSI's storage division Engenio is being acquired by NetApp. Some of LSI's Engenio clients are NetApp competitors. Some have begun discussions with Hill about switching to Hill as a first or second source. The second opportunity is selling more software with its hardware solutions, which brings higher profit margins. The third is the industry is consolidating, and Hill is an attractive acquisition candidate, although no discussions have been announced.
Q2 is looking better than Q1, partly due to orders late in Q1 that did not ship until Q2. Revenues for Q2 are projected at between $49 and $53 million, with non-GAAP net income and EPS expected in the vicinity of break-even. When Hill takes on new major OEM clients it does customization for them, which incurs increased engineering costs.
It is notable that GAAP gross margins increased from 13.5% year-earlier to 24.6% in Q1. This was partly from dropping NetApp, partly from a higher-margin mix in the rest of the business, and partly from increasing sales of storage management software.
For a greater level of detail see my Dot Hill Q1 2011 analyst call summary.
I own Dot Hill stock.
See also www.dothill.com
Monday, January 10, 2011
Dot Hill Exceeds Q4 Guidance
The price of Dot Hill stock is soaring today (up $0.46 per share to $2.35, or 24.3% as I write) after preliminary Q4 results were released that exceeded prior guidance. See my Dot Hill Q3 analyst conference call report for Q3 results and Q4 prior guidance.
Dot Hill has been trying to rebuild its data storage hardware business for years, following the demise of its relationship with it former major client, Sun. Its products are mainly sold to OEMs that relabel them or incorporate them into larger systems. Its main client is HP, but it has won a swarm of smaller OEMs and system integrators in the past 3 years. Margins, however, were a problem. Hill's second largest client, NetApp, refused to negotiate prices that allowed Hill to make a profit, so that relationship was terminated as of December 1.
Anticipation of a decline of revenues due to the NetApp termination has been a major reason for Hill's low stock price. Instead, in even with 2 final months of NetApp included in the quarter, revenues increased from $62 million in Q3 to about $65 million in Q4. Keep in mind that for enterprise data storage systems Q4 is typically the best season. Even so, Hill's new line of data storage products must be selling extremely well to hit $65 million with NetApp out of the picture.
And those sales have higher profit margins, allowing Non-GAAP earnings per share to be in the range of $0.02 to $0.04. After years in the red, this is great news for Dot Hill.
Profit margins should continue to expand in 2011 because Hill should be selling an increasing amount of software along with its hardware offerings. Software, in this case storage management software, carries much better profit margins than the hardware.
Q1, 2011, will be a bit tougher. It will be the first full quarter without NetApp revenues, and it is traditionally a seasonally weak quarter. Dot Hill has a new relationship with Lenovo which should ramp in 2011, but apparently that won't affect Q1 much.
Good work and thanks to the entire crew at Dot Hill!
See also Dothill.com
Dot Hill has been trying to rebuild its data storage hardware business for years, following the demise of its relationship with it former major client, Sun. Its products are mainly sold to OEMs that relabel them or incorporate them into larger systems. Its main client is HP, but it has won a swarm of smaller OEMs and system integrators in the past 3 years. Margins, however, were a problem. Hill's second largest client, NetApp, refused to negotiate prices that allowed Hill to make a profit, so that relationship was terminated as of December 1.
Anticipation of a decline of revenues due to the NetApp termination has been a major reason for Hill's low stock price. Instead, in even with 2 final months of NetApp included in the quarter, revenues increased from $62 million in Q3 to about $65 million in Q4. Keep in mind that for enterprise data storage systems Q4 is typically the best season. Even so, Hill's new line of data storage products must be selling extremely well to hit $65 million with NetApp out of the picture.
And those sales have higher profit margins, allowing Non-GAAP earnings per share to be in the range of $0.02 to $0.04. After years in the red, this is great news for Dot Hill.
Profit margins should continue to expand in 2011 because Hill should be selling an increasing amount of software along with its hardware offerings. Software, in this case storage management software, carries much better profit margins than the hardware.
Q1, 2011, will be a bit tougher. It will be the first full quarter without NetApp revenues, and it is traditionally a seasonally weak quarter. Dot Hill has a new relationship with Lenovo which should ramp in 2011, but apparently that won't affect Q1 much.
Good work and thanks to the entire crew at Dot Hill!
See also Dothill.com
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