Article

Clustered storage vendor Isilon hot-swaps CEOs

Dave Raffo

Clustered storage vendor Isilon Systems Inc., suffering from growing pains in its transition to a public company, changed CEOs today in a boardroom shakeup.

Founder Sujal Patel is moving from chief technology officer (CTO) to CEO, replacing Steve Goldman, who served as Isilon's CEO since 2003. Chief financial officer (CFO) Stu Fuhlendorf is also out, with controller Bill Richter taking over as interim CFO until a replacement is hired.

Patel said he is confident that Isilon can overcome its disappointing sales since its initial public offering (IPO) last December.

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"When I look at our market-leading products, expanding roster of global customers and partners, and talented team of people, I have never been more confident and passionate about the future of Isilon," Patel said in a prepared statement.

Isilon had been held up as an example of what can happen if a company turns public too early. Isilon had a successful IPO last December despite a history of losses, but its stock price has fallen drastically as the losses continued while the small vendor tried to take on storage giants Network Appliance Inc. (NetApp) and EMC Corp. Isilon's stock price, $23.10 on its first day of trading, had fallen to $5.98 at yesterday's close.

Last month, Isilon warned that it would miss its earnings forecast for the third quarter, despite Goldman's previous claim that it had its largest sales pipeline ever heading into the period. Financial analysts grilled Goldman during a conference call discussing the miss. He blamed the disappointing results on poor sales in Europe and the fact that its largest customer, Eastman Kodak Co., did not buy any storage from Isilon last quarter following a $4 million purchase the previous quarter. Goldman said he would have more details when Isilon officially reports its earnings. That was scheduled for tomorrow, but today, Isilon said it is delaying its report.

By naming Patel CEO, Isilon's board is apparently sending a message that it was unhappy with Goldman and is confident in the company's technology. Although Patel has never run a company before, he was the driving force behind Isilon's product platform and board chairman William Ruckelshaus referred to him as "visionary" in the release announcing the CEO change.

"We've had execution problems, but the fact is we still have about a two-year lead in [clustered storage] technology over our competitors," said Isilon marketing vice president Brett Goodwin last week before the changes were made.

At least one financial analyst did not see the CEO change as positive and speculated that it might lead to a sale of Isilon.

"This management upheaval only adds to our concerns surrounding the company's execution-related issues over the past several quarters," Aaron Rakers of Wachovia Corp. wrote today in a note to investors. "This leaves us to wonder whether Isilon's next approach is to entertain possible alternatives, such as an acquisition or strategic partnership."

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