Analyst Conference Summary

conference date: February 26, 2009 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2008 (4th quarter 2008)

Forward-looking statements

Overview: Excellent quarter considering the general economic slowdown.

Basic data (GAAP) :

Revenues were $72.4 million, down 5% sequentially from $76.6 million but up 40% from $51.8 million year-earlier.

Net income was was negative $8.6 million, worse sequentially than negative $3.7 million but better than negative $16.4 million year-earlier.

EPS was negative $0.19 per share, worse sequentially than negative $0.08, but better than negative $1.01 year-earlier.

Guidance:

Q1 2009 best estimate $56 to $63 million in revenue. EPS non-GAAP negative $0.06 to $0.11. Depends greatly on macroeconomic environment, and also reflects normal seasonal factors.

2009 cash target exit in high $40 million range, but may drop lower midyear.

We sell through OEMs, so we are limited by their visibility. Our revenue estimate is cautious.

Conference Highlights:

2008 was a positive year for Dot Hill despite the weak economy. New products for HP were executed successfully. 2009 looks challenging from a macro-economic perspective. But storage may be less of a discretionary expense for end customers than other IT hardware.

Revenue was near midpoint of previous guidance. Year over year revenue growth was mainly from growth of sales to NetApp and HP, offset by declining sales to Sun. Top 3 customers accounted for 83% of revenues. EPS also within guidance.

Aiming to control operating expenses since revenues are uncertain in this economy. But there are several OEM design opportunities coming up in 2009 that will need to be addressed with R&D dollars.

There was a goodwill and asset impairment charge of $5.4 million; shared-based compensation expanse of $0.7 million; $0.8 in restructuring charges. Also, a $0.4 million foreign currency gains.

Non-GAAP net loss for the quarter was $2.1 million. EPS negative $0.10.

Cash balance ended at $56.9 million. $0.9 million note payable for acquired assets from Ciprico. So slightly cash positive from Q3.

Accounts payable were $31.1 million; inventories $14.1 million; receivables $41.0 million.

GAAP gross margin was $13.9%; non-GAAP 14.0%, up both sequentially and y/y.

Cost of goods was $62.3 million, leaving gross profit of $10.1 million. Operating expenses of $18.9 million included $3.0 million for sales and marketing, $7.2 million for R&D, $2.5 million for general and administrative, $0.8 for restructuring and $5.4 for impairments. Operating loss was $8.8 million. Other income was $0.2 million. Income tax benefit was $0.1 million.

Q&A:

Is you cash statement indicating a cash flow break-even for the last 9 months of 2009? That is a good way to look at it. Part of this will come from working capital improvements.

That would be over a $1 per share cash at the end of 2009? Yes.

Technical opportunities? Server processor refreshes will require faster RAID. Also 3.5 inch to 2.5 inch drive shift. Also 8 gig fiber compatible devices. We believe we have a 4 to 6 month lead over competition in the shift to smaller drives.

Fujitsu is now selling the mid-range product and reception has been good with their customer base, tempered by the economic headwinds.

Q4 linearity? Relatively good strength through the middle of December. Then HP took an extended holiday shutdown. NetApp may have taken a one-week shut down.

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