Isilon: The Honeymoon's Over

Clustering specialist Isilon announced its first full quarter of results as a public company last night, with a major revenue hike offset by ongoing losses. (See Isilon Announces Results.)

Isilon reported solid first-quarter revenues of $21.6 million, below analyst estimates of $22.37 million, but 107 percent more than the same period last year. Execs on a conference call attributed the boost in part to recent customer wins. (See Discovery Chooses Isilon, Isilon, NBC Universal Sign, and XM Radio Uses Isilon.)

Isilon, which went public in a blaze of publicity late last year, has continued to lose money in recent months, prompting analysts to urge the company to seek out larger deals. (See Isilon Reports Earnings, The Slings & Arrows of IPOs, and Isilon Bleeds, Vows Profits.)

The losses do seem to be narrowing. On a GAAP basis, Isilon reported a first-quarter net loss of $3.8 million, or 6 cents per share, compared to a net loss of $4.5 million and 79 cents per share in the same period last year.

On a non-GAAP basis, net loss for the quarter was $3.3 million, or 5 cents per share, compared to a loss of $4.3 million, or 9 cents per share, in the first quarter of 2006. Analysts had anticipated a loss of 3 cents per share.The vendor, which went public without ever having a profitable quarter, is looking to turn this situation around in the coming months. "Isilon expects to reach profitability on a non-GAAP basis in the second half of 2007," said Isilon CFO Stu Fuhlendorf during last night's call.

This may be easier said than done. Despite solid revenues, Isilon saw a slowdown in spending during the quarter, echoing the experience of Sun and LSI execs during their own quarterly conference calls last night. (See Sun Slips on Storage and LSI Promises Better.) "We saw some caution in IT capital spending in Q1, which the storage industry was not immune to," explained Fuhlendorf, adding that he expects this situation to pick up in the second quarter.

Isilon CEO Steve Goodman was cagey on the vendor's roadmap last night, but the exec promised new clustering software by the end of 2007.

The vendor currently offers four different software "applications," which include products for data migration, replication, and snapshots. (See Isilon Launches MigrationIQ and Isilon Releases SyncIQ 2.0.) "We're making great progress toward having six applications by the end of the year," said the exec, although he did not reveal which areas these will address.

The subject of NetApp cropped up during the call. Isilon provoked the ire of NetApp CEO Dan Warmenhoven during that firm's recent analyst day. (See NetApp Stokes Competitive Fires and NetApp's Kidd Talks Turkey.) Isilon had reportedly been trash-talking EMC and NetApp, accusing them of failing to make inroads into clustered NAS, prompting a vengeful outburst from the NetApp CEO. (See Isilon's Counting on Clusters and Isilon Reports Earnings.)Isilon's vice president of marketing Brett Goodwin addressed NetApp's "saber-rattling" in response to a question from an analyst. "Interestingly, out there in field engagements, we're not seeing any significant changes in terms of the competitive dynamic or the pricing dynamic," he said.

This morning, Isilon's shares were trading at $14.60, down 19.38 percent.

James Rogers, Senior Editor Byte and Switch