Seagate Moves Up Storage Value Chain With Planned Dot Hill Acquisition

Seagate Technology has agreed to acquire storage system vendor Dot Hill Systems in a move that will help Seagate continue its climb up the storage value chain.

Cupertino, Calif.-based Seagate, best known as one of the top two suppliers of hard drives and SSDs and a growing presence in the SMB storage solution market, is paying $694 million, or about $645 million not including Dot Hill's cash on hand.

The deal is expected to close in the fourth quarter of 2015.

[Related: Seagate Renames EVault Data Protection Cloud, Preps Solution For Enterprise]

Neither Seagate nor Dot Hill responded to enquiries for more information by publication time.

Seagate said Dot Hill’s external storage array-based systems and software products will become part of Seagate’s Cloud Systems and Electronics Solutions business. The company also plans to leverage Dot Hill’s storage technology intellectual property and software to add incremental value to the two vendors' combined OEM customer base.

A major part of Dot Hill's business comes from sales via OEM storage vendor partners. Among the more well-known storage vendors selling Dot Hill solutions are Acer, Dell, Hewlett-Packard, Lenovo, Quantum, Samsung and Stratus Technologies.

For customers looking to purchase Dot Hill solutions via channel partners, the company on its website suggests they contact San Jose, Calif.-based Quantum. Dot Hill and Quantum in April signed a partnership under which Quantum integrated Dot Hill's full line of enterprise-class disk storage systems into its tiered storage offerings.

As part of that deal, Dot Hill agreed to leverage Quantum's channel, sales and marketing resources, and global service and support.

Dot Hill as a company has seen its sales and profits grow over the past year. The company early this month reported second fiscal quarter 2015 GAAP revenue of $61.5 million, up from $48.2 million in the second quarter of 2014. GAAP income in the latest quarter was $700,000, or 1 cent per share, compared with last year's loss of $100,000.

"I continue to believe we are the only storage company guiding and posting double-digit revenue growth, with profits growing disproportionately faster," said Dana Kammersgard, Dot Hill president and CEO, in a statement about the company's second fiscal quarter results.

Seagate's pending acquisition of Dot Hill should not really be a surprise, said Zeki Yasar, chief technology officer of Berkeley Communications, an Emeryville, Calif.-based solution provider.

Both Seagate and rival drive manufacturer Western Digital have been actively making acquisitions and introducing non-component storage technology, Yasar told CRN.

"They seem to be moving up the value chain," Yasar said. "With SSD sales eating into profitable SAS hard-drive sales, drive makers are losing some of their higher-margin business."

Yasar said the combination of Seagate and Dot Hill would be good for both companies.

"I can see Seagate trying to leverage some of the OEM relationships that Dot Hill has," he said. "Seagate can also incorporate Seagate drives into Dot Hill storage systems to go for higher-value sales. That will move Seagate away from the component conversation. And for Dot Hill, which is seeing some of its OEMs like HP, Oracle-Sun and NetApp move away from the vendor, the deal makes a helluva lot of sense."

PUBLISHED AUG. 18, 2015