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Isilon reports strong quarter, perhaps its last

If Isilon is for sale as many believe, then the scale-out NAS vendor’s most recent financial results likely made it more valuable to a suitor. The third quarter of 2010 was Isilon’s most profitable and it increased revenue 77% over last year.

But Isilon CEO Sujal Patel said his main focus is continuing the company’s recent product expansion and channel growth, and the only acquisitions he was willing to talk about involved Isilon as the acquiring company.

“We never comment on rumors and speculations,” Patel said when asked if Isilon had hired a firm to help facilitate a sale. “We are heads down executing on our business model, driving rapid technology innovation, building our business and taking share from legacy vendors.”

He did say Isilon might explore buying smaller companies to drive its product development. That would be a departure for Isilon, which has never acquired another company.

“We’ve begun to think seriously about smaller acquisitions that would be beneficial to our business,” he said. “They would be acquisitions complementary to our channel. But nothing in the near-term.”

Isilon has spent nearly two years expanding its product platform with systems and management software to make its storage more geared toward the enterprise rather than verticals such as media/entertainment and life sciences. Perhaps the biggest step was one that hasn’t driven many sales yet for Isilon – the addition of iSCSI announced in late August.

Patel said that could be the most significant product in Isilon’s history. “It makes Isilon suitable for block-based storage,” he said. “We’re taking a measured approach to get into the SAN market. More and more as customers get comfortable with the technology, they’ll look to extend us into managing Microsoft SQL and Exchange and Oracle.”

Another thing taking Isilon from a niche high-performance file storage product towards a mainstream enterprise system is its data protection and management software. Software made up 14% of Isilon’s revenue last quarter, up from 11% the previous quarter.

All these additions have made Isilon more competitive against traditional NAS vendors NetApp and EMC, who is reportedly leading the parade of Isilon suitors.

Isilon’s revenue of $53.8 million last quarter was up 19% from the previous quarter and helped the vendor record its third straight profitable quarter with $4 million of net income. Isilon raised guidance for this quarter to $59 million to $60 million, which would bring it to close to 60% year-over-year growth for all of 2010.

Isilon’s results and plans make it worth watching, whether it gets gobbled up by a larger vendor or stays independent long enough to continue its long-range strategy.

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