Dot Hill Trips Up (HILL)

May. 1.06 | About: Dot Hill (HILL)

Dot Hill Systems (NASD:HILL) announced last week that Sun Microsystems (NASD:SUNW) "has informed Dot Hill of its decision to move potential future supply of a new, low-end, entry-level storage product to another party". Both companies were careful to note that Dot Hill is still a strategic supplier to Sun, but the market did not go along with the act, dropping Dot Hill's stock by over 21% to $4.51. The stock hit a 52-week low of $4.00 during trading on the same day. The 52-week is $8.25

Sun may be the least of Dot Hill's problems. Revenue growth has been non-existent for over a year. Revenue for calendar year 2004 was $239 million and the company had an operating profit of over $10 million. In 2005, revenue dropped to under $234 million and the company had an operating loss of over $2 million. For Q4 06, revenue was $56 million and the operating loss was over $4 million. The company reported operating profits in both Q1 and Q2 of 2006, before turning to a loss in quarters three and four.

Dot Hill's business is to provide flexible storage systems and responsive service and support to OEMs and system integrators. The company claims to have over 100,000 systems in use worldwide.

The company has been besieged by investor class action suits involving the company's restatement of 2004 earnings and the CEO stepped down in February. Crossroad Systems has also filed a patent claim against Dot Hill.

The number of negatives facing the stock are considerable. If earnings for Q1 06 are even slightly disappointing, Dot Hill could drop further.

HILL 1-yr chart:


Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.