Dot Hill Reports Second Quarter 2002 Results and Sequential Revenue Growth

7/25/2002 - Dot Hill Systems Corp. (NYSE:HIL) today announced financial results, which are in line with its recent guidance for the second quarter ended June 30, 2002. Net revenue increased to $11.2 million for the second quarter, compared to $10.9 million in the first quarter of 2002. This is the second quarter of sequential revenue growth for the company in a very difficult economy.

"We ended the second quarter 2002 with a $10.9 million backlog and are happy to have booked over $21 million in new orders during Q2," said Jim Lambert, Dot Hill chief executive officer. For the last few quarters, Dot Hill has increasingly focused on becoming a leading OEM supplier of scalable high-performance networked storage solutions that provide customers with carrier-class reliability. During this second quarter 2002, we took a great stride toward that goal, by adding Sun Microsystems to our OEM customer list, which includes several well-known companies such as Motorola, Tektronix, Tecnomen and Comverse, among others. We continue to invest in research and development and look forward to launching exciting new products in the coming months. We will continue to leverage our world class design and engineering expertise to build high-performance storage systems that lead the industry in density, dependability, and scalability."

“During the second quarter, we began to ship products to Sun and signed a manufacturing agreement with Solectron. This agreement expands our ability to manufacture quality products and offer the increased support large OEM customers require," added Preston Romm, Dot Hill’s chief financial officer. “By focusing on large OEM customers such as Sun and subcontracting certain manufacturing processes, we believe we can significantly lower costs of production, increase net revenues and capacity, and enhance stockholder value. Working with Solectron will also allow Dot Hill to minimize working capital needs and take advantage of pricing advantages for component sourcing.

Romm continued, "We are pleased to post quarter over quarter revenue growth for the second quarter in a row. Dot Hill made three adjustments in the quarter that added to the net loss but did not detract from our cash position. If we exclude these adjustments, the net loss for the quarter was $6.0 million or $0.24 per share and gross margin was 25 percent, compared to 22 percent in the prior quarter. When we include the adjustments made during the second quarter, we experienced a net loss of $8.9 million, or $.36 per share, as compared to the 2002 first quarter net loss of $6.2 million, or $.25 per share."

The second quarter 2002 adjustments included:

Sales to government customers increased to 30 percent, sales to telecommunications, service provider and e-commerce customers decreased to 28 percent and sales to commercial and other customers accounted for 42 percent of second quarter 2002 revenue. Sales of Dot Hill's storage systems including SANnet accounted for 91 percent, sales of tape backup accounted for 3 percent, and service accounted for 6 percent of second quarter 2002 revenue.

Financial Guidance
For the remainder of 2002, Dot Hill expects to achieve sequential revenue growth with annual revenues in the range of $40 to $50 million and a net loss per share between $0.85 and $1.10, inclusive of the above mentioned adjustments.

For the year 2003, Dot Hill expects revenues in the range of $125 to $175 million and positive earnings per share in the range of $0.15 to $0.20. A return to profitability is expected in the second quarter of 2003.

Dot Hill’s second quarter financial results conference call will be held July 24 at 12:00 p.m. ET. A live audio Webcast can be heard at, accessible through the investor relations section. If you prefer to join via telephone, please dial 888-609-4128 at least 5 minutes prior to the start of the call. International participants should dial 706-679-3529.

A replay of the call will be available on the web, beginning at 3:00 p.m. ET on July 24 and run through 5:00 p.m. ET on July 31, by dialing 800-642-1687. If calling internationally, dial 706-645-9291. Use reservation number 4840381.

Dot Hill (NYSE:HIL) is a leading independent provider of storage networking solutions. Its SANnet product line includes storage area networks, MIL-STD-810F and NEBS Level 3 certified systems. The Axis Storage Manager™ family of products enables companies to enhance their existing IT infrastructures without replacing them regardless of what storage is used. Axis also provides mirroring, remote replication and disaster recovery options for mission-critical applications. Dot Hill's customers include many of the world’s leading Internet service providers, telecommunications companies, and government agencies. Dot Hill is an ISO 9002 certified company, and its web site is

Dot Hill, the Dot Hill logo and SANnet are trademarks of Dot Hill Systems Corp. All other trademarks and names are the property of their respective owners.

Certain statements contained in this press release regarding matters that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements include statements about any future occurrences (as opposed to historical fact) such as Dot Hill's expectations regarding future financial and operating results, the timing of any return to profitability, the launch of new products, and the ability to reduce costs and expand manufacturing capability. The risks that contribute to the uncertain nature of the forward-looking statements include: the ability of Dot Hill to complete deals with existing and new customers on favorable terms or at all, the risk that one or more of Dot Hill’s OEM or other customers may cancel orders, not order as forecasted or terminate their agreements with Dot Hill, the risk that one or more of Dot Hill’s suppliers or subcontractors may fail to perform or may terminate their agreements with Dot Hill, unforeseen technological, intellectual property or engineering issues; evolving industry standards; the timing of orders for products and shipments and its effect on revenue recognition; and changing customer preferences in the Open Systems computing market; as well as the additional risks set forth in the forms 8-K, 10-K and 10-Q most recently filed by Dot Hill. All forward-looking statements contained in this press release speak only as of the date on which they were made. Dot Hill undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.

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