Dot Hill Snares Storage Gear Maker

Storage subsystem maker Dot Hill Systems acquired Chaparral Network Storage Tuesday for roughly $72.4 million in an attempt to broaden its sphere of influence in the mid-range market.

Under terms of the agreement, Dot Hill will pay $62 million in cash and assume $10.4 million in the private company’s debt.

Dot Hill takes specifications from large original equipment manufacturers and designs such infrastructure as subsystem boxes, which OEMs use to put together their own gear. It also makes storage management software and storage networking software to be used in systems of OEMs who choose not to, or cannot write them.

The company competes with LSI Logic in the lucrative arena for crafting storage equipment for major OEMS such as IBM , Teradata, Sun Microsystems , Hitachi Data Systems and StorageTek .

Longmont, Colo.-based Chaparral makes specialized storage appliances and mid-range RAID controllers and data routers, which will help Dot Hill to bring remote replication, mirroring and snapshot software features to market much more quickly.

The purchase also means Dot Hill won’t have to use Infortrend’s controllers any longer.

Dot Hill President and CEO Jim Lambert said on a conference call that acquiring Chaparral is a way for Dot Hill to bolster its research and development team and intellectual property en route to gaining market share among mid-range customers.

“[The deal] will allow Dot Hill to integrate proprietary controller intelligence into our storage solutions and valuable resources to its innovate product development team,” Lambert said. “We believe that owning our own controller technology is an important step in remaining competitive and will allow us to more fully control our own destiny.”

In a note, Wall street research firm Adams Harkness said the purchase was important because it removes a key block to the company working more closely with Sun Microsystems, with whom it has a five-year OEM partnership.

The firm said it believes Sun has been hesitant to move forward
with Dot Hill as long as the company was purchasing RAID controller technology from a
third party and that buying Chaparral should allay such fears.

During the call, Lambert also noted Chaparral has a solid reputation for providing technology to entertainment, video and enterprise customers and that the deal will give customers added functionality and increase product performance once the new controller’s assets are integrated into Dot Hill’s storage systems.

Carlsbad, Calif.’s Dot Hill said it will retain Chaparral’s approximately 50 engineers and certain facility support positions at the Longmont location, which will operate as Dot Hill’s Controller Technology Center and regional office.

The transaction is expected to become accretive in the first quarter of 2005, which is when Chaparral and Dot Hill say they’ve scheduled their respective technologies to be integrated. Dot Hill products employing Chaparral technology should appear shortly thereafter.