Financial

posted on 07 August 2008 10:55

Dot Hill sold more drive array component product in its 2008 second quarter but lost more money.

Q2 08 net revenues were $71 million, a record and a satisfying rise of 26 percent on Q2 07's $56.2 million. But GAAP net income was a loss of $7.4 million ($9.16/share) which compares poorly with the Q2 07 net loss of $3.7 million ($0,08/share), being a 50 percent worsening.

The half year figures illustrate the same pattern, with net revenues for H1 08 being $123.8 million compared to the year ago quarter's $109.6 million, a 13 percent increase, and H1 08's net loss being $13.5 million ($0.29/share) versus H1 07's net loss of $9.7 million ($0.21/share), a 39 percent worsening.

Gross margin for Q2 08 was 10.2 percent as compared to Q2 07's gross margin of 12.3 percent and Q1 08's 7.9 percent. At least it is recovering but it's obviously nowhere near high enough.

The company attributes the decrease in gross margin percentage on a year-over-year basis primarily to a change in product and customer sales mix, as the company's higher margin net revenue from Sun Microsystems have declined over the past year, while shipments of the company's lower margin Series 2000 and Series 5000 products to NetApp, Hewlett-Packard and other customers have increased.

Dot Hill president and CEO Dana Kammersgard said: "We are pleased with our accomplishments during the second quarter of 2008. Overall, we had a strong quarter as we achieved record net revenue, with three of our OEM customers each generating in excess of 20 percent of our total net revenue. Additionally, we experienced 34 percent sequential net revenue growth and 26 percent net revenue growth on a year-over-year basis. We remain keenly focused on improving margins and reducing costs to reach our goal of sustainable profitability."

Yes, but how? The level of competition in the drive array subsystem business is intense with prime Dot Hill competitors being LSI and Xyratex, and Infortrend pushing up as well. There are relatively few large OEM customers - Dell, HP, IBM, NetApp, and Sun for example - so the opportunities for price squeezing are very good and suppliers like Dot Hill suffer.

Drive array suppliers are reporting generally excellent results as are hard disk drive manufacturers. Yet Dot Hill is not sharing in this good business fortune.

The company exited the second quarter of 2008 with cash and cash equivalents of $62.1 million, with no outstanding debt. A sequential decrease in cash and cash equivalents was due primarily to operating losses and increased working capital requirements associated with the significant increase in accounts receivable from Hewlett-Packard.

The company is targeting third quarter 2008 net revenue in the range of $73 to $78 million and a net loss per fully diluted share in the range of $0.06 to $0.10 on a non-GAAP basis.

^{[Chris Mellor.]}