Segment Information

9 Months Ended

Sep. 30, 2011

Segment Information [Abstract]

Segment Information

12. Segment Information

We have two operating segments, which include storage systems and standalone storage software. Our storage hardware operating segment consists predominantly of our business prior to the acquisition of Cloverleaf in January of 2010 and includes our AssuredSAN products. Our standalone storage software operating segment consists primarily of the business we acquired from Cloverleaf and the intellectual property assets we purchased from Ciprico and includes our AssuredUVS and AssuredVRA products.

The Chief Operating Decision Maker, or CODM, is our President and Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss).

The CODM does not evaluate operating segments using discrete asset information. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments.

Description of Segments

Storage Systems

We offer, primarily through our AssuredSAN products, a flexible, broad line of networked data storage solutions composed of standards-based hardware and embedded software for open systems environments including Fiber Channel, or FC, Internet Small Computer Systems Interface, or iSCSI, and Serial Attached SCSI, or SAS, storage markets. We incorporate many of the performance attributes and other features demanded by high-end/data center end-users into our products, at prices that we believe are suitable for the entry-level or midrange markets. Our end-users consist of entry-level and mid-range users, requiring cost-effective, easily managed, high-performance, reliable storage systems. Our AssuredSAN product lines range from approximately 146 gigabyte, or GB, to large 192 terabyte, or TB, storage systems. These offerings allow our products to be integrated in a modular building block fashion or configured into a complete storage solution, increasing OEM flexibility in creating differentiated products. Modular products also allow our OEM partners to customize solutions, bundling our products with value-added hardware, software and services.

Our storage systems segment products and services are sold worldwide to facilitate server and storage area network, or SAN, storage implementations, primarily through OEMs, and supplemented by system integrators, or SIs, distributors and value added resellers, or VARs.

Standalone Storage Software

We offer a line of unified virtual storage appliances called the AssuredUVS product line. To OEM customers, we market this technology as a software-only product with a license based business model. To end-user customers, we market this as complete appliance products (hardware servers, software, and storage options) primarily through our indirect sales channel under the Dot Hill brand. The AssuredUVS product line delivers the following:

• Simplified Unified Storage Management. The AssuredUVS provides the ability to create and manage virtual volumes for block (SAN) and file (NAS) storage with complete storage ecosystem management using a unified set of management tools so IT personnel can do more with the same resources.

• Storage Virtualization. The AssuredUVS provides a full set of virtualization tools for volume management, thin provisioning, snapshots, replication, and tiered storage across a set of heterogeneous storage arrays.

• Business Continuity. The AssuredUVS delivers data protection through snapshots, virtual replicas and mirroring—both local and remote. Our communications layer over wide area network connections supports policy-based Recovery Point Objective and Recovery Time Objective quality of service as the globally distributed geographical scale.

• Scaling and Maximizing assets. The AssuredUVS offers support for existing and new storage arrays in a data center, eliminating the need to replace existing storage systems. The technology allows non-disruptive data migration from existing storage volumes to new virtual volumes and the ability to integrate existing storage volumes as proxy volumes without moving data.

During the third quarter of 2011, we identified certain assets assigned to our ITC reporting unit, which is a component of our Standalone Storage Software operating segment, as impaired and their carrying amounts on the balance sheet were reduced to reflect their estimated fair value as of September 30, 2011 (see Note 1).

Through our acquisition of Ciprico's RAIDCore assets in September 2008, we offer a high performance, feature rich, host-based redundant array of independent disks, or RAID, stack that can be included as a key ingredient of an entry-level or mid-level enterprise class server built by OEMs or SIs. This product line, called AssuredVRA, provides a cost effective solution for standard Windows and Linux servers that utilizes existing built in SATA or SAS I/O capabilities of motherboards or simple storage I/O adapters to replace expensive dedicated hardware RAID adapter solutions.

Net revenue and operating loss were as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2011			2010			2011
Storage Systems net revenue	$	60,924		$	47,073		$	185,941		$	146,661
Standalone Storage Software net revenue		759			1,170			1,361			4,195
Total segment net revenue		61,683			48,243			187,302			150,856
Elimination of intersegment net revenue		(97	)		(172	)		(249	)		(432	)
Total Dot Hill consolidated net revenue	$	61,586		$	48,071		$	187,053		$	150,424
Storage Systems operating loss	$	378		$	(2,775	)	$	(7,246	)	$	(3,458	)
Standalone Storage Software operating loss		(1,642	)		(9,316	)		(6,187	)		(11,724	)
Total operating loss	$	(1,264	)	$	(12,091	)	$	(13,433	)	$	(15,182	)
Total other income (expense), net		(4	)		(16	)		(4	)		(26	)
Loss before income taxes	$	(1,260	)	$	(12,107	)	$	(13,437	)	$	(15,208	)

Total assets were as follows (in thousands)

	December 31, 2011		September 30, 2011
Storage Systems total assets	$	95,227	$	83,487
Standalone Storage Software total assets		12,275		5,220
Total Dot Hill consolidated total assets	$	107,502	$	88,707