Isilon rebounding this year?

Earlier this month, a Seattle PI blogger John Cook asked local VCs about the company that will have a breakout year in 2008. Answers by two local VCs, Bill Bryant of DFJ and Jon Staenberg of RCP caught my attention as both suggested Isilon Systems to have breakout year. I don't know their reasons but I hope these VCs are right. As one of the few local storage companies in Seattle, I would like to see Isilon succeed too.

BTW, how do you define and measure a "breakout" year for a company?

There are no doubts about desirability of Isilon clustering technology and the growth of the targeted media and entertainment segment. But in the short-term, Isilon need to cleanup the mess to benefit from this market opportunity, sooner the better. There are three main hurdles with rebound of Isilon - Financial concerns, impact of loss of revenue from key customers and product quality/service issues.

Financial Concern

The financial concerns about Isilon are primarily resulting from delay in 10-Q filing, bane of being a public company. Also, Isilon didn't do a great job of managing the market expectations, for example releasing the bad news slowly (financial restatements, executives change, revenue shortfalls, delay in 10-Q filing). Typically, public companies release all bad news in one shot, take a big hit in the market and then move on instead of slow bleed in the market.


I wonder, like DGM, how many future customers are sitting on the fence concerned about long-term financial viability of Isilon.

And then there's the other problem - googling for technical information I came across a whole set of entries suggesting that there might be some financial problems in the parent.

Loss of Key Customer

As mentioned in 8-K filed Nov 4, 2007, it seems Isilon has some issues accounting for sales to certain resellers and customers. Also, as mentioned by Seeking Alpha, one of Isilon's largest customer Kodak accounted for no revenue in Q3 of 2007.

Company blamed one of its largest customers - Kodak (EK) (17% of revenues last quarter went to 0% this quarter - ZILCH) amongst weakness in Europe for the short-fall.

How much of the impact does these two events have on the bottom line going forward? I decided to take a look at Isilon revenue with and without two of its largest customers - Eastman Kodak and Comcast for last few years.


A quick note about the assumptions and trends in the above charts:

• No revenue from Kodak in Q3'07


• No change in % quarterly revenue contribution by Comcast in Q3'07 from previous quarter and same % as in Q3'06.


• For the quarters, where % revenue contribution by Comcast or Kodak were not available, estimates are made based on % annual revenue contribution.


• Closer the - Kodak or - Comcast curves to Total curve, lower the contribution by those customers to total revenue.

Since IPO, Kodak had contributed a large slice of total revenue to Isilon. But, the past history also indicates that in second half of year Kodak typically contributed less to total revenue compare to first half. In my opinion, Kodak and Comcast enabled Isilon to go public at least two quarters earlier than they should have. Is the disclosure of no revenue from Kodak in Q3'07 indicate that future revenues from Kodak are likely to be significantly low? Lets hope that independent review of some sales is not going to impact revenues from Comcast.

Service/Product Quality

As any product company selling to large enterprise learns sooner or later that an internal post sales service organization complementing third party service providers is needed to provide exceptional service. It seems recently Isilon has been building up its internal service capabilities.

The change in contract manufacturer seems reasonable considering agreement was close to expiration though I expect there will be short-term hardware quality pain during the transition and ramp up. I couldn't find any smoking gun to support any talk about product operation or compatibility issues.

Summary

My take is that addressing financial concern should be Isilon's top priority. Clearing the financial picture will be the main hurdle in their rebound. It is also great to see Isilon returning to its roots in technology and product innovation instead of trying process innovation like established companies.

Data Storage Companies in Seattle

Recently, during review of Seattle tech ecosystem (most don’t target infrastructure segment), it was interesting to note the diverse, emerging and unique, areas in data storage being targeted by local tech companies - Isilon Systems, F5 Networks, Bocada, Amazon and Microsoft.

Whom did I miss on this list of local data storage companies? Can Illumita, a local “virtualization over Internet” startup, be considered as a potential influencer in data storage space?

This year, I plan to write more often about these and other local Seattle data storage companies.

EMC Academic Alliance - A Good Storage Education Initiative

… Continuation from last post, Are We Educating Future Storage Professionals?


I subscribe to ACM Digital Library and enjoy reading the latest storage research happening in academia and research organizations. Recently, I came across an interesting paper in Proceeding of the 8th ACM SIG-Information Conference on Information Technology Education on EMC Academic Alliance program (See, Storage Technologies: An Education Opportunity, Ed Van Sickle et. al. SIGITE’07, October 18-20, 2007, Destin Florida USA).

In this paper, Ed discusses EMC realizing during hiring process that very few recent graduates had any knowledge of storage technologies. Initially EMC tried boot camp approach. Then, EMC concluded that greater benefits may be achieved by creating courses focused on storage technologies at university level.

This gave birth to EMC Academic Alliance Program [PDF] with goals of educating CS/IT students on storage and support for knowledge transfer, guest lectures, and site visits. In my opinion, it is an impressive initiative and kudos to EMC for recognizing the shortage of storage skills and taking the lead with potential solutions. Why are EMC bloggers not highlighting and promoting such a positive initiative?

Why is an industry association like SNIA not leading Academic alliance initiatives? It doesn’t look like education is a part of their new mission.

The paper also showcases the implementation of this initiative at four universities and provides overview of the courses held and plans for future classes. This is a great compliment for the course offering under this program at Penn State University (PSU).

Subsequent offerings of the course filled to room capacity based on the positive word-of-mouth that the course generated. In fact, students from other PSU colleges (engineering, computer science) have requested to be added to the course.

Of course, program also has its challenges as encountered at University of Massachusetts, Dartmouth with course material being unsuitable for the targeted student segment and unavailability of suitable text book, and at North Carolina A&T University with low student interest and course enrollment.

The paper also mentions the interest of Dr. Cameron (one of the co-authors) at Penn State University in developing a three course storage track but being constrained by lack of teaching resources. Hopefully, he can attract other storage vendors to fulfill the vision of a storage track and overcome the lack of teaching resources through guest lectures by industry professionals.

I wish paper had further explored student/instructor survey results and the challenges facing the program.

Will EMC collaborate with its customers, partners and other storage vendors in growing this initiative? How can rest of the storage industry help in growing the program? How can storage bloggers help?