Segment Information

12 Months Ended

Dec. 31, 2011

Segment Information [Abstract]

Segment Information

14. Segment Information

Primarily as a result of our acquisition of Cloverleaf in January 2010, as well as our ongoing strategic development, planning and evaluation, we changed the structure of our internal organization to focus on our storage systems and standalone software products. As a result, we now 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 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.

All prior period amounts have been adjusted to reflect the new operating segment structure.

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. The accounting policies Dot Hill uses to derive operating segment results are substantially the same as those the consolidated Company uses.

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, 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 are suitable for the entry-level or mid-range 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) 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 WAN connections supports policy-based Recovery Point Objective, or RPO, and Recovery Time Objective, or RTO, 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 December 31, 2011 (see Note 1).

Through our acquisition of Ciprico's RAIDCore assets in September 2008, we offer a high-performance, feature rich, host-based 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):

	Year Ended December 31,
	2009			2010			2011
Storage Systems net revenue	$	234,360		$	250,631		$	192,965
Standalone Storage Software net revenue		23			2,112			5,022
Total segment net revenue		234,383			252,743			197,987
Elimination of intersegment net revenue		—			(249	)		(526	)
Total Dot Hill consolidated net revenue	$	234,383		$	252,494		$	197,461
Storage Systems operating loss	$	(10,618	)	$	(5,046	)	$	(8,386	)
Standalone Storage Software operating loss		(3,214	)		(7,990	)		(13,484	)
Total operating loss	$	(13,832	)	$	(13,036	)	$	(21,870	)
Total other income (loss), net		167			(2	)		(25	)
Loss before income taxes	$	(13,665	)	$	(13,038	)	$	(21,895	)

Total assets were as follows (in thousands)

	December 31, 2010		December 31, 2011
Storage Systems total assets	$	95,227	$	94,224
Standalone Storage Software total assets		12,275		4,655
Total Dot Hill consolidated total assets	$	107,502	$	98,879

Depreciation and amortization expense by operating segment were as follows (in thousands):

	Year Ended December 31,
	2009		2010		2011
Storage Systems depreciation expense	$	1,698	$	1,681	$	2,132
Standalone Storage Software depreciation expense		37		347		569
	$	1,735	$	2,028	$	2,701
Storage Systems amortization expense	$	—	$	—	$	—
Standalone Storage Software amortization expense		1,136		2,004		2,054
	$	1,136	$	2,004	$	2,054

The following is a summary of geographical information (in thousands):

	Year Ended December 31,
	2009		2010		2011
Net revenue:
United States	$	215,093	$	245,379	$	194,780
Europe		16,813		5,624		601
Asia		2,477		1,491		2,080
	$	234,383	$	252,494	$	197,461
Long-lived assets:
United States	$	6,851	$	5,140	$	4,945
Europe		11		6,408		2,922
Asia		—		—		—
	$	6,862	$	11,548	$	7,867

Net revenue is recorded in the geographic area in which the sale is originated.

Long-lived assets include property and equipment, net, identifiable intangible assets, net, and other non-current assets.

2011 Standalone Storage operating loss includes a $2.9 million loss on impairment of long-lived assets and $4.1 million loss on impairment of goodwill (see Notes 1 and 5) relating to our Israel Technology Development Center asset group, which is a component of the Standalone Storage Software operating segment.