Analyst Conference Summary

conference date: May 7, 2009 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2009 (1st quarter 2009)

Forward-looking statements

Overview: Hurt by recession, revenues down sequentially, up just slightly from year-earlier.

Basic data (GAAP) :

Revenues were $53.9 million, down 25% sequentially from $72.4 million but up 2% from $52.8 million year-earlier.

Net income was was negative $3.3 million, improving sequentially from negative $8.6 million,

EPS was negative $0.07., improving sequentially from negative $0.19 per share.

Guidance:

Unpredictable environment. Cannot provide meaningful guidance.

May exit 2009 with cash in mid to high $40 million range.

Conference Highlights:

Results were in line with preliminary results. Non-GAAP gross margin of 17.4% improved, so performing well within the recession environment. Benefitted from cost reduction measures.

$12.6 million operating expenses ($11.7 million non-GAAP). Includes $0.7 million share-based compensation expense and $0.1 million restructuring.

Non-GAAP numbers: $2.3 million net loss, or negative $0.05 per share. EBITDA negative $1.6 million.

Balance $54.3 million in cash and equivalents. Had a $0.8 million not payable.

Top 3 customers: HP 24%; NetApp 23%; and Sun 13% of revenue.

Trend has been good by month, with January the worst, and April better than March. Too early, however, to assume the trend will simply continue upward.

RAID Core software work continues, and won first contract with a tier 1 OEM. Expects meaningful revenues by 2010, with 80 to 90% margins.

Had very good reduction of product costs in quarter. Will continue to reduce costs, but at a slower rate going forward.

6 new patents granted in the quarter.

Q&A:

Gross margin improvement details? Telecom and government mix gave a boost, which is not guaranteed to continue. Negatives were loss of some high margin, legacy business with Sun. Cost of goods sold was reduced. We will get more Telco and government sales, but they tend to be lumpy.

Operating expenses? Went from $12.5 million to $11.7 million.

Any trend in OEM rollouts? We saw patterns similar to the rest of the industry. We feel like things are stabilizing and getting clearer, but want to be appropriately cautious.

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