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HP is considering taking a stake in struggling drive array supplier, Dot Hill, paving the way for a possible expansion of its SME storage products.

HP OEMs its VLS 9000 virtual tape library system hardware from Dot Hill. This is a 600TB (48 x 750GB Serial ATA (SATA) disk) array with RAID 6 data protection and added HP software. The OEM arrangement has been extended from one to five years.

However the deal reflects Dot Hill's situation, one in which it is dealing with losses and the need for re-structuring.

There is no minimum purchase commitment by HP. Also HP has been granted the right to buy 3.5 percent of Dot Hill's shares for $3.846 million. This right lasts for 5 years, the same time period as the OEM deal. The right will endure should Dot Hill merge with or be acquired by another company.

It's not a lot of money in HP terms but it gives HP additional leverage over Dot Hill, whose other main OEM customer is Sun, with Dot Hill supplying the hardware for its StorEdge 3000 drive arrays. The relationship has had hiccups and Dot Hill will be pleased and relieved with HP's commitment to it. Sun has an apparent wish to replace RAID controllers with commodity hardware and software.

Dot Hill thinks there is more potential with HP here than just supplying the existing RAID 6 600TB arrays, stating: "The amendment materially increases the scope and potential of (our) relationship with HP." The new OEM deal allows for sales to additional divisions within HP.

It will allow HP to broaden and enhance its entry-level storage portfolio for a variety of application environments. Dot Hill offers a family of entry-level and midrange modular disk arrays based on its R/Evolution architecture. The company says these have high-levels of performance, scalability and flexibility.

More importantly for OEM customers, the products use modular and bladed components and provide OEMs with a so-called "Configure-to-Product" model. Dot Hill claims this lets them customise volume storage market products quickly, easily and precisely.

On the back of the HP deal, and through restructuring, Dot Hill hopes to move into profit later this year. It is finalising its financial plans for 2008 and is currently evaluating various potential restructuring and cost reduction opportunities.