Dot Hill (HILL) is up today after reporting considerably better than expected Q1 revenues. Despite that, with expected revenues of over $200 million in 2012, its market capitalization is around $74 million. Is Dot Hill an overlooked prize, or is the market right about its value?
Dot hill manufactures data storage arrays for the low-end of the enterprise market, selling to OEMs that typically rebrand the devices. A few years ago Sun was their main customer, but Sun dropped them, leading to a crisis. HP is now their main customer. Management has been building an impressive list of other customers, reducing reliance on HP.
Revenues were $54.7 million, up 16% sequentially from $47.0 million and up 11% from $49.2 million in the year-earlier quarter. Usually Q1 sees a seasonal revenue drop from Q4, so these are impressive numbers. Part of the revenue, I am guessing in the range of about $4 to $5 million, came from orders from a particular customer that provides storage solutions to the telecom market. Management mentioned this could happen when they gave Q1 guidance in March, but they clearly hedged a bit.
The year over year comparison was the first good one turned in since NetApp was dropped as a client in 2010. I believe the prior negative year/year comparisons had been depressing the stock price, despite the compelling reasons for ditching NetApp.
GAAP net income was negative $1.8 million, up sequentially from negative $6.6 million, but worse than the negative $1.3 million of the year-earlier quarter. EPS was negative $0.03, up sequentially from negative $0.12, but down a penny from negative $0.02 year-earlier.
Even if we look at non-GAAP numbers, which drop out non-cash accounting charges, while HILL got into the black it was just barely: net income was $1.9 million. EPS was $0.03.
Guidance is that Q2 will be off Q1, with revenues between $48 and $52 million and non-GAAP EPS close enough to zero that it could be a plus or minus.
That is the past, what about the future? Technology companies can't dwell in the past, as RIMM, among so many others, have demonstrated. During the crisis (losing Sun during the recession) management started making smart moves about the future of the storage market. They are competing against giants, but they sometimes cooperate with giants like HP. Their storage products have actually received quite a bit of acclaim in the industry.
Some of the Q1 revenue growth came from new clients signed in 2011. Hill was able to win these customers because they produce very reliable storage technology at a reasonable cost and work hard for their clients. Autodesk and Concurrent Computer were cited as OEMs signed in 2011 that are seeing sales ramps. Official announcements of newer customers should be coming out as 2012 progresses.
Dot Hill has mainly served the entry-level enterprise storage market. Part of their success has been from adding higher level features to entry-level designs. New storage arrays that have mid-level enterprise features should be released in the second half of the year. OEMs are already excited about them, but a significant revenue ramp of the new products is probably a q4 and 2013 story.
On the whole Dot Hill management was upbeat, particularly about the second half of 2012. With the ramping of lines at newer OEM customers, Dot Hill should be able to enter an era of sustained profitability. Given that the company is debt free and holds $41 million in cash, there is a lot of upside potential if management can execute according to plan. In terms of share prices, I would be delighted, but not overly surprised, to see shares in the $3 to $5 range by mid 2013. I am also surprised, given their patent portfolio, that Dot Hill has not been a takeover target. Of course the usual risks apply, but I think all the risk is priced in at current levels.
Disclaimer: I am long Dot Hill. I won't make HILL trades for 1 week after publishing this article. I do not have positions in any of the other companies mentioned.
See also: www.dothill.com
My Q1 2012 Dot Hill analyst call notes
Showing posts with label Autodesk. Show all posts
Showing posts with label Autodesk. Show all posts
Thursday, May 10, 2012
Thursday, March 15, 2012
Dot Hill Expects New OEM Customers in 2012
Dot Hill (HILL) is up today after reporting a poor fourth quarter 2012 yesterday. Q4 results were in line with revised guidance given in February. Today's stock price upside came from new customer sign-ups that management hopes will provide both higher revenues and better margins in 2012.
Dot hill manufactures data storage arrays for the low-end of the enterprise market, selling to OEMs that typically rebrand the devices. A few years ago Sun was their main customer, but Sun dropped them, leading to a crisis. HP is now their main customer. While they are happy with the HP relationship, which was extended for five years last year, management has been building an impressive list of other customers, reducing reliance on HP.
Revenue in Q4 was $47.0 million, down 2% sequentially from $48.1 million and down 28% from $65.4 million year-earlier. Part of the y/y decline resulted from the purposeful ditching of NetApp as a client because NetApp would not allow Dot Hill workable margins.
HP represented 67.5% of revenue in Q4. In Q1 2011, after NetApp dropped out, HP accounted for 76% of revenue. Partly there was a drop in revenue from HP, but mainly their share shrank because Hill's sales to smaller, Tier 2 OEMs grew 40% y/y.
Q4 revenue was also hurt by the Thailand flooding and resulting shortage of disk drives. Hill did not raise its prices in Q4, but did raise prices in February largely because of the higher prices of disks due to the shortage. They estimated they could have generated another $4 million in revenue in Q4 if not for the disk shortages. Q1 also has seen supply shortages, but drives are generally available except for the highest-capacity, newest technology drives. The disk supply issue should be over by Q3.
Autodesk and Concurrent Computer were cited as OEMs signed in 2011 that are seeing sales ramps. Official announcements of newer customers should be coming out as the year progresses.
Finally, new storage arrays that have mid-level enterprise features should be released in the second half of the year. OEMs are already excited about them, but a significant revenue ramp of the new products is probably a 2013 story.
Earnings were disappointing. GAAP net income was negative $6.6 million, non-GAAP net income was negative $1.6 million, but some of the charges were non-cash. Cash flow from operations was positive by $1.1 million.
On the whole Dot Hill management was upbeat, particularly about the second half of 2012. The hope would be that with no disasters, a reasonably healthy global economy, and the ramping of lines at newer OEM customers, Dot Hill will be able to enter an era of sustained profitability. Given that the company is debt free and holds $46 million in cash, and that its market capitalization today is just $82.6 million, Dot Hill is highly speculative, but has a lot of upside potential if management can execute according to plan.
Disclaimer: I am long Dot Hill, and sometimes actively trade in the stock. I won't make HILL trades for 1 week after publishing this article. I do not have positions in any of the other companies mentioned.
Dot hill manufactures data storage arrays for the low-end of the enterprise market, selling to OEMs that typically rebrand the devices. A few years ago Sun was their main customer, but Sun dropped them, leading to a crisis. HP is now their main customer. While they are happy with the HP relationship, which was extended for five years last year, management has been building an impressive list of other customers, reducing reliance on HP.
Revenue in Q4 was $47.0 million, down 2% sequentially from $48.1 million and down 28% from $65.4 million year-earlier. Part of the y/y decline resulted from the purposeful ditching of NetApp as a client because NetApp would not allow Dot Hill workable margins.
HP represented 67.5% of revenue in Q4. In Q1 2011, after NetApp dropped out, HP accounted for 76% of revenue. Partly there was a drop in revenue from HP, but mainly their share shrank because Hill's sales to smaller, Tier 2 OEMs grew 40% y/y.
Q4 revenue was also hurt by the Thailand flooding and resulting shortage of disk drives. Hill did not raise its prices in Q4, but did raise prices in February largely because of the higher prices of disks due to the shortage. They estimated they could have generated another $4 million in revenue in Q4 if not for the disk shortages. Q1 also has seen supply shortages, but drives are generally available except for the highest-capacity, newest technology drives. The disk supply issue should be over by Q3.
Autodesk and Concurrent Computer were cited as OEMs signed in 2011 that are seeing sales ramps. Official announcements of newer customers should be coming out as the year progresses.
Finally, new storage arrays that have mid-level enterprise features should be released in the second half of the year. OEMs are already excited about them, but a significant revenue ramp of the new products is probably a 2013 story.
Earnings were disappointing. GAAP net income was negative $6.6 million, non-GAAP net income was negative $1.6 million, but some of the charges were non-cash. Cash flow from operations was positive by $1.1 million.
On the whole Dot Hill management was upbeat, particularly about the second half of 2012. The hope would be that with no disasters, a reasonably healthy global economy, and the ramping of lines at newer OEM customers, Dot Hill will be able to enter an era of sustained profitability. Given that the company is debt free and holds $46 million in cash, and that its market capitalization today is just $82.6 million, Dot Hill is highly speculative, but has a lot of upside potential if management can execute according to plan.
Disclaimer: I am long Dot Hill, and sometimes actively trade in the stock. I won't make HILL trades for 1 week after publishing this article. I do not have positions in any of the other companies mentioned.
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