Isilon sours the taste

ISLN which like BBND is a recent IPO in the data storage arena pre announced and it was not pretty. Here is the press release: Isilon® Systems the leader (don't you love that- "leader") in clustered storage, today announced preliminary results for the third quarter of 2007 ended September 30, 2007. Based on preliminary estimates, total revenue is expected to be in the range of $23.2 million to $23.7 million, down approximately 6 percent to 8 percent sequentially ..... the company stated it expected total revenue in the range of $25 million to $27.5 million for the third quarter.

Company blamed one of its largest customer EK (17% of revenues last quarter went to 0% this quarter---ZILCH) amongst weakness in Europe for the short-fall. This goes back to my point regarding young companies relying on few customers to make or break there quarters, similar to BBND miss earlier. Company did indicate strength in Government vertical which is to be expected in this fiscal year end for government, which is what is carrying NTAP quarter from what I gather. It's funny because just last quarter ISLN was touting its backlog or pipeline as being at all time highs, and this quarter CEO said "we are not going to talk about pipeline.." WOW! did you hear that, he does not want to talk about his all time high pipeline!! and you expect me to believe all is dandy again after this miss?

What are the lessons in all this: understand your investments well and by that I mean who are large customers, lurking competitors and management background/talent. Cool technology does not make for great investment most of the time and competition in techonology is very fierce which makes any technical lead meaningless fast.

There are bunch of companies that have high customer concentration in the tech world and it would be suffice to say those companies might be high fliers like CAVM or NETL but sooner or later they all need to branch out and expand customer base or they end up like BBND or ISLN.