Incorporated: 1999
NAIC: 334112 Computer Storage Device Manufacturing
SIC: 3572 Computer Storage Devices
Dot Hill Systems Corp. makes redundant array independent disks (RAID) storage products, such as storage area networks (SANs), primarily for businesses in the data-intensive industries of financial services, telecommunications, and government agencies. It outsources manufacturing and sells through channel partners, such as Sun Microsystems and Hewlett-Packard. Its products are certified to meet industry standards and military specifications, as well as RoHS and WEEE international environmental standards. The company has offices and manufacturing facilities in China, Germany, Israel, Japan, the Netherlands, and the United Kingdom, as well as the United States.
The Merger of Two Storage System Companies: 1999
Throughout the 1990s, the boom in e-commerce, Y2K upgrades, and business-to-business initiatives generated a heavy demand for data storage products. According to Mark Schlack, editor of Storage magazine in a 2003 article, faced with the new age of information, companies had to choose between throwing out data, making their existing storage systems more efficient, or buying new storage capacity. "Throwing it out is not really an option ... and making systems more efficient requires--at least in the short term--an increase in the number of employees, and that takes money. So most people just end up buying more storage." Other factors contributing to the increased demand for "data independence" included the falling cost of disk drive devices for storing data, the enormous storage requirements of email and software applications, and an increasing demand for data warehousing and analysis capabilities.
In 1999, banking on the growth of the data storage market, Box Hill Systems Corp. of New York acquired Artecon, Inc., of Carlsbad, California, and the two companies merged to form Dot Hill Systems. Both Box Hill, which had formed in 1988, and Artecon, which began in 1984, had turned a steady profit during the 1990s. The new Dot Hill specialized in the development of storage area networks or SANs, which relied on fiber channel technology and protocols to move information from data storage systems to servers at very high speed. The merger occurred just as the bottom dropped out of the tech industry. Dot Hill Systems immediately began trading on the New York Stock Exchange (NYSE). It employed 60 workers in Carlsbad and 160 in New York as well as 60 others in its offices worldwide.
Dot Hill initially focused all of its attention on data storage systems for the telecommunications market, specifically on developing a new storage product it called SANnet. About the size of two stacked pizza boxes, this storage solution debuted with ten disks backed up by two power supplies, two fans, two controllers, and two of every other necessary component. The SANnet box could store any sort of digital information, including voice-mail messages and online photos. It could survive a direct lightning hit, a prolonged dust storm, and temperature fluctuations from 23 to 150 degrees Fahrenheit. Network servers used SANnet boxes to store email, and the U.S. Army installed them in tanks to store maps and information from Global Positioning Systems.
Facing a Slowing Market and Broadening Its Product Line: 1999-2002
Philip Black, former chief executive officer of Box Hill, and James Lambert, former chief executive officer of Artecon, together served as the joint heads of the new company, with Black focusing on international operations and Lambert on domestic concerns. Lambert had founded Artecon, Inc., with Dana Kammersgard, who eventually succeeded Lambert. In 1998, sales for the two companies combined had reached $33.2 million, and although in 1999 Dot Hill's revenue dipped to $30.1 million, the company continued to roll out new products that were readily accepted as the Internet demanded ever larger and faster storage capacity. In 2000, the company opened an office in Beijing called Dot Hill China to sell and maintain Dot Hill systems as well as to orchestrate efforts to find business partners in China.
By the first quarter of 2000, the company was back on track financially and was competing successfully with its larger, more powerful rivals, such as EMC, IBM, and Compaq. However, by the time that Lambert became sole chief executive in late 2000, Dot Hill had fallen into what would become a three-year slump that depleted most of its cash supply. From September to October 2000, the company's stock price was halved. In 2001, revenues dropped from $121 million the previous year to $56 million, and the company lost $42.7 million. From 2001 to 2002, the company lost $78 million.
In response to the decrease in sales, which Dot Hill attributed to the economic downturn overall, particularly in the telecommunications and commercial sectors, the company shuttered its manufacturing plant in Carlsbad and cut its workforce of 440 by 30 percent. More significantly for its future, Dot Hill broadened its product line to reach new industries and shifted its marketing efforts from direct to indirect sales. It began selling its products through resellers, systems integrators, and original equipment manufacturers (OEMs).
Signing with Sun, Recovering from a Slump: 2002-03
In 2002, the company signed a three-year contract to supply Sun Microsystems with low-end storage systems that could handle data ranging from 100 gigabytes to five terabytes. The contract with Sun specified that Dot Hill would make private-label products for Sun in return for which Sun would buy the outstanding shares, or up to 5 percent, of Dot Hill stock. The idea was that Sun would get its customers to buy storage when they bought Sun's servers.
The arrangement worked. The magnitude of the contract with Sun was such that, in the year following its inception, Dot Hill's revenues tripled, and the company returned to profitability. Sun's short-term loan and purchase orders, however, could not afford Dot Hill the market capitalization or shareholder equity it needed to remain on the NYSE, and in 2002, the company moved its listing to the American Stock Exchange.
In 2003, the company's share price began once again to rise from $3 to $15 and Dot Hill began to trade on the NASDAQ. By late December 2003, the recovery in the technology industry and the stock market turnaround spelled good news for Dot Hill. The industry's two biggest trends--demand for storage and the shift to Linux--worked in Dot Hill's favor, especially as Dot Hill worked on Linux open-source software. Revenues for 2003 reached $187.4 million, up from $46.9 million in 2002. During the period from December through March, the company, still in the red, raised $24 million of additional capital in a private placement that it put toward product development.
Expanding Earnings, Customers, and Products: 2003-06
Dot Hill's revenues continued to increase at an exponential rate for the next several years, earning it a recurrent place on Deloitte's Technology Fast 50 Program for San Diego beginning in 2003. From 2000 to 2004, company revenues increased by 97.5 percent. From 2001 to 2005, they climbed about 315 percent. By 2006, Dot Hill was earning $239.2 million, up from $233.8 million the year before.
However, Dot Hill still needed to broaden its customer base in order to thrive. In 2004, the Sun contract accounted for 83 percent of Dot Hill's revenues, leading investors to see Dot Hill as overly dependent on Sun Microsystems and causing its stock price once again to drop to $5 a share. Thus, from 2005 to 2007, Dot Hill expanded and extended its product purchase and development agreement with business partners. In 2005, it signed a new agreement with Sun stipulating that it would continue to develop storage solutions for Sun through January 2011. The company also entered into agreements with a number of companies, including Alliance Systems, Newtech, Fujitsu Siemens Computers, Stratus Technologies, OnStor, Reldata, MiTAC International, SYNNEX, Promark Technology, Viglen, Hewlett-Packard, and SEPATON.
The company also developed its products in an aim to reach more customers. In mid-2004, after acquiring Chapparal Network Storage, a company that made subsystems that delivered data across storage networks and served primarily midrange companies, Dot Hill introduced a new high-end storage server made with low-cost parts. The Chapparal purchase enlarged Dot Hill to about 200 employees worldwide and allowed it to compete more effectively in the midrange. The following year, it created a new storage architecture and designed a highly modular system architecture as the foundation for a new generation of storage products. In 2006, it was awarded its 17th patent for improving the web browser interface that enabled system administrators to manage storage subsystems by accessing any browser around the globe.
New Leadership, New Headquarters, New Focus: 2006-07
During this period, too, Dot Hill also went through a changing of the guard. In August 2004, Lambert became vice-chairman of the company and Kammersgard was promoted to president. In his new position, Lambert focused more on corporate strategies while Kammersgard ran the company's day-to-day operations. In March 2006, Lambert retired as Dot Hill's chief executive after 22 years and Dana Kammersgard became the new chief executive officer and also joined the board of directors.
Dot Hill also expanded its physical base in 2006, nearly doubling the capacity of its headquarters when it moved into a new 58,000-square-foot facility with 12,000 square feet of climate-controlled lab space. The lab included more than 32 terabytes worth of Dot Hill storage products, supported by ten servers as well as a broad spectrum of competitive products for comparison.
The opening of an onsite technical training center followed one month later to offer comprehensive experiential learning in all technical aspects of Dot Hill products to both current and prospective OEM customers. The center was also used to train Dot Hill sales and support personnel. According to Kammersgard in a 2006 company press release, the new headquarters rendered Dot Hill "fully prepared for our next wave of growth." A year later, the Technology Council of Southern California named Dot Hill a finalist for "Hardware and Storage Company of the Year," and Kammersgard announced that Dot Hill would focus on transitioning its supply chain to new partners, reducing the cost of goods, adding more OEM customers to further diversify revenues, aggressively managing operating expenses, and launching new, higher margin products.
Principal Competitors
EMC Corporation; Hitachi Data Systems; International Business Machines Corporation.
Further Reading
Bigelow, Bruce V., "Data Storage Business Booms," San Diego Union-Tribune, September 17, 2000, p. H1.
Dougherty, Conor, "Carlsbad's Dot Hill Corp. Now Basks in Sunshine; Revenues Triple, Three-Year Slide Ends After Firm Signs Lucrative Contract," San Diego Union-Tribune, July 11, 2003, p. C1.
Freeman, Mike, "Dot Hill Trips over Job Cuts, Lower Revenues," San Diego Union-Tribune, March 22, 2001, p. C1.
Linecker, Adelia Cellini, "Dot Hill Systems Corp. Carlsbad, California; A Lucrative New Deal Gives Tech Firm a Lift," Investor's Business Daily, September 10, 2003, p. A6.
Stutzman, Erika, "Longmont, Colorado, Data Storage Firm Bought by Dot Hill Systems of California," Boulder (Colo.) Daily Camera, February 25, 2004.
— Carrie Rothburd
