Dot Hill Systems Updates Fiscal 4Q11 Revenue Guidance

Dot Hill Systems Corp. is realigning its software development efforts and updated its fourth quarter 2011 guidance.

Re-alignment of Software Development Focus
After an evaluation of alternatives, Dot Hill has decided to re-align its software investments to focus on accelerating the development of embedded software features, in order to launch a competitive set of midrange storage array products in 2012, and to provide more differentiated entry-level products for both OEM and channel customers. Dot Hill believes that this will better position the company to win new customers that may be seeking new or alternative suppliers as a consequence of the consolidations that have occurred in the data storage industry.

"Key software technologies and critical high-end features have begun to be embedded in the storage arrays themselves, especially in mid-tier products," stated Dana Kammersgard, president and chief executive officer, Dot Hill Systems. "Software features that have historically been server or appliance based, such as our AssuredUVS products, are now increasingly becoming embedded in the storage arrays. Consequently, we do not want to invest in two parallel teams developing similar features for our customers."

"We have carefully evaluated four distinct investment opportunities – expanding into the midrange while launching our next generation entry level products, investing in potential new OEM customers, continuing our investment in our channel sales team and staying the course with our AssuredUVS software platform," said Hanif Jamal, Dot Hill Systems chief financial officer. "Our financial analysis at this time indicates that our best path to accelerating profitability and cash flow on a timetable that we find acceptable and consistent with what we presented at the Analyst Day in November 2010, is to pursue midrange and new OEM customer investments right now, compared to the incremental investments that would be necessary with the Cloverleaf host virtualization software. We see a unique opportunity unfolding that we believe we can take advantage of now by taking this action."

As a result, the company will close the Israel Technology Development Center that was established after the acquisition of Cloverleaf Communications in January 2010, while retaining sufficient technical support personnel to fulfill existing customer obligations. The company estimates that it will incur charges of around $5.5 million of which approximately 40% will be non-cash charges and that unless a suitable acquirer has been identified, most of the employees will no longer be employed by the company after March 31, 2012.

Preliminary Financial Results
Dot Hill also updated its fourth quarter 2011 guidance and expects non-GAAP revenues to be approximately $48 million and non-GAAP loss per share to be between $0.02 and $0.03. This compares to the original guidance established in November of non-GAAP revenue of $47 million to $53 million and non-GAAP EPS of a negative $0.03 to a positive $0.03. Cash is projected to be approximately $46.2 million as of December 31, 2011 compared to $45.7 million as of September 30, 2011.

The company has not completed its 2011 financial review process and stated that there were a number of items that could impact its current estimated fourth quarter 2011 financial results.