Last week, Dot Hill hosted a financial analyst event in NYC, right next to the NASDAQ. Three years ago, their stock was hovering around 1.00 and things were not looking particularly great for the company. They were critiqued for being overly reliant on HP (74% of their revenues from MSA sales), poor moves with Cloverleaf software (an ill-gotten virtualization play) and an unclear future.
Today it is a much different story, to the credit of the management team under the leadership of CEO, Dana Kammersgard and Chairman, Charlie Christ.
First, the stock is now trading at over 6.00 a share (I am not a financial analyst so will leave it to the others to discuss its status). Second, server OEM revenue (including HP MSA) is now 53% of revenue, of which HP is 46%. The change in HP percentage is due to an increase of other revenues and not a decline of the HP MSA. They anticipate server revenue to be at 44% by end of 2015. The focus on vertical market OEMs from over two years ago has paid off, with an increase in revenues and gross profit margin. They are now marking two quarters of back to back of profit.
What has happened? Dot Hill cited the strength of the AssuredSAN software, which is most likely correct, but it is also due to the focus and willingness to work with the OEMS and design for their requirements. Two and a half years ago Dot Hill decided to focus on specific vertical markets – telco, media / entertainment; video surveillance; and data analytics. While they have their sights set on other verticals, Dot Hill put together a team to focus on these opportunities, understand their use cases and the requirements of the workflows. Hearing from Janae Lee, VP of Strategy Quantum, on how StorNext jointly engaged gives credence to their commitment. As Quantum turned their focus on the streaming data, they found the need for block storage that could adapt to a high degree of file sizes, small to very large manage to an array of performance requirements that could be unpredictable all at a highly competitive cost. This resulted in joint engineering effort and solutions that now address Media / Entertainment and Video Surveillance.
During the morning session, there were more examples from their design wins with Teradata (data analytics) and Tektronix (Telco).
There is still a good deal of work to be done by Dot Hill, as such they have opted to move away from the reseller channel market, moving the business to Quantum to manage the branded sales. This is especially important given the rise of new competitors which we call the New Storage Entrants. While Dot Hill perceives NetApp E-Series to be their primary competitor for OEMs, the new players (Intel, SanDisk, etc.) may play out even stronger given their access to component materials and potential to undercut on price. Dot Hill will do well to continue to focus on building unique software value and their lean team approach to attracting OEMs.
