Isilon had mixed financial results last quarter, reporting higher revenue ($24.1 million) than expected while losing more money ($10.1 million) than in any quarter last year. But the most important item on Isilon’s scoreboard these days doesn’t have a hard number affixed to it. That’s confidence among customers and investors.

People clearly lost confidence in Isilon during its 2007 struggles, and they haven’t regained it yet. Isilon CEO Sujal Patel said there were “headwinds” that prevented Isilon from picking up more new customers last quarter. These headwinds came from Isilon’s financial restatement followed by an audit report of questionable sales practices last year. Fortunately for Isilon, it picked up more sales in repeat orders from customers already in the fold last quarter than in any previous quarter.

“Headwinds had some impact, raising uncertainty in customers’ minds,” Patel said. “And some of our competitors may have used it against us as a competitive advantage.”

Patel said these headwinds will “take some time to dissipate,” which means he expects them to continue at least for another quarter.

Winning back confidence among investors will likely take even longer. Although operating expenses declined, Isilon remains a long way from turning a profit. And Isilon executives still refuse to give guidance for this quarter or this year, giving the impression that even they lack confidence in their ability to execute.

“Due to the lack of clarity on the forward business model, current investor sentiment remains subdued,” analyst Tom Curlin of RBC Capital Markets wrote in a note to clients today. “We expect sentiment to remain subdued pending evidence of improving execution in the coming quarters.”

Patel pledged to continue to upgrade Isilon’s clustered storage systems, promising major upgrades this year. Isilon can use any product edge it could get with Hewlett-Packard and EMC jumping into the clustered game and NetApp pushing to integrate its OnTap GX clustered file system into its regular OnTap operating system.

Overall, Patel he said he was encouraged by the quarter. “Although it’s still early days, I view this as an important step in our path to profitability.” Investors weren’t quite as enthusiastic, although Isilon’s share price rose $0.08 to $4.85 today.

Comments by CEO H.K. Desai on QLogic’s last week raised questions about the future of QLogic’s SANbox 9000 Fibre Channel director switch.

Several times on the company’s earnings conference call, Desai said QLogic was changing the focus on its switching business to edge and blade switches. That would seem to leave out the director switch that QLogic launched 2006 as a low-cost alternative to directors from Brocade and Cisco.

“We continue to gain traction with our Fiber Channel edge and blade switches, which is our primary area of focus,” Desai said. Later he said QLogic is refocusing its switch investments on InfiniBand and blade switches.

To financial analysts on the call, that meant QLogic would leave the SANbox 9000 behind as it begins rolling out 8-Gbit/s HBAs and switches and starts development on 16-gig technology. SANbox 9000 sales have been hurt by lack of any OEM deals with major storage system vendors such as EMC, IBM, and Hewlett-Packard that sell Brocade and Cisco switches under their brand. QLogic’s SANbox 5000 edge switches already support 8-gig connectivity.

“You indicated that edge and blades switches are your primary focus now in Fibre Channel,” analyst Clay Sumner of FBR Friedman, Billings, Ramsey & Co., Inc. said to Desai on the call. “Just curious, does that mean you no longer expect the tier one [OEM] win for your 8-gig Fibre Channel director?”

“We never give up on anything,” said Desai, refusing to clarify his position on directors for the curious analyst.

Several analysts expect QLogic to dump the directors. “Our checks indicate that going forward QLGC may not invest further in the FC high end Director-switch space but could continue to develop mid-low end FC switches and blade switches,” Pacific Growth analyst Kaushik Roy wrote in a note to clients. Roy told me he doesn’t expect QLogic to do any more development on the SANbox 9000 or build any other directors. In other words, it is getting out of the director switch business.

Not so, says QLogic marketing VP Frank Berry. “The SANbox 9000 lives on!” Berry wrote to me in an e-mail. “We continue to sell it.”

Berry also said the SANbox 9000 will be upgraded with 8-gig blades that can replace the 4-gig in there now. What’s changing, he said, is its go-to market strategy. Instead of its original target of Global 2000 firms, QLogic now sees the director as a small enterprise product.

“We’ve been successful for several years in the SME market with our
SANbox 500 line of stackable switches,” Berry wrote. “And we have learned the SME space is where we have been successful selling the SANbox 9000.”

QLogic will make more noise about SME products this summer. Then we’ll see which SANbox it expects SMEs to play in.

When Sun revealed its open source storage push this week, some in the industry wondered about its business model. In other words, how can Sun make money on open source storage products?
Then Sun reported its earnings Thursday night, and it became clear that its storage business isn’t exactly rolling in dough these days anyway.

Sun’s storage products generated $530 million in revenue last quarter, down 5.4 percent from a year ago and $100 million short of its target. Big-ticket items such as tape libraries and high-end disk systems were down in a quarter in which EMC and IBM reported increases. Server revenue also fell short by $100 million, making it a disastrous period for the new combined servers and storage unit.

Overall, Sun lost $34 million in the quarter compared to a profit of $67 million the year before. On the earnings call, Sun execs said they would be restructuring to the tune of 1,500 to 2,500 layoffs.

Can open source save this sinking ship? Sun CEO Jonathan Schwartz seems to think so, and he certainly hopes so. Open source was a common theme of his earnings call, with open storage getting its share of attention with statements such as: “We have a great variety of new Open Storage innovations [entering] the market within the next few quarters.”

Schwartz didn’t talk too much about how Sun will make money on open storage, except to emphasize how it would save money on R&D by having a common open platform for all of its servers and storage systems. Layoffs are expected to save Sun between $100 million and $150 million a year, although it’s not clear how much of the reduction will be in storage.

It remains to be seen what the quality of open storage products will be, but Sun has little to lose. It’s tried a lot of things over the years to jumpstart storage sales, including paying $4.1billion for tape library market leader StorageTek. Nothing has worked. Sun OEMs systems from Hitachi Data System, LSI and Dot Hill and usually has less success than other vendors who sell the same systems. For a while Sun planned its storage future around the 6920 midrange system, which it billed as a virtualization product and an EMC Clariion killer. Customers yawned, and Sun sold the technology to HDS last year.

Now its storage plans revolve around a large DAS system called Thumper and open source software. Considering its track record, things can’t really get much worse, can they?

John Thompson must have known the question was coming. The Symantec CEO certainly heard the rumors. So when he was asked Wednesday night during his company’s earnings conference call about selling off parts of his company, Thompson couldn’t have been clearer.

“Contrary to popular rumor, we have no plans to divest of anything,” he said. “None.”

The rumors mainly involved the storage products that Symantec acquired from Veritas three years ago. And they were widely circulated. According to an Associated Press earnings preview story that ran this week:

Analysts are particularly interested in the possible sales of backup and recovery software product NetBackup and the company’s non-Windows Data Center Foundation, which comprises of storage and server management products.

Several technology bellwethers, including IBM, Hewlett-Packard and EMC have been named as potential buyers for Symantec’s storage products, including NetBackup.

AP could have added two other bellwethers who have been mentioned as suitors of all or some of the Symantec storage products - Oracle and Microsoft.

From the tone of Thompson’s voice when he answered the question, he’s not happy with the rumors. Yet Symantec is at least partially to blame. There have been frequent reorganizations since it bought Veritas, usually accompanied by layoffs. Symantec admitted a large layoff in April but would not give details. This left the door open for scared Symantec employees, disgruntled former employees and opportunistic competitors to attempt to fill in the details. And Symantec execs have talked about getting rid of poor performing units on previous earnings calls.

But Wednesday’s call was upbeat. Symantec reported outstanding results all around, and storage was front and center. Email archiving, backup, and storage management were among the product segments that posted double-digit year over year growth. Thompson and COO Enrique Salem talked of a bright future for Net Backup 6.5, Backup Exec 12, and Storage Foundation. They emphasized Symantec’s encryption and virtualization capabilities and gushed about three hot storage areas where Symantec has hardly been a pioneer: data deduplication, continuous data protection and software as a service (SaaS).

Symantec’s earnings were impressive in current economic conditions, although with 53 percent of its revenue from international sales, it took advantage of favorable foreign exchange rates against the dollar. Symantec gained share from its major rival EMC on the backup front, with 11 percent year-over-year growth compared to EMC’s 8 percent growth.

The question now is whether the strong storage performance will prompt Symante execs to forget about spinning off any pieces, or will it only add to the value of a possible sale? Thompson’s take is nothing is for sale. Despite what you might have heard.

Hardly a day goes by without a new storage service rolling out. On Monday, it was IBM’s turn to launch two storage services as part of its portfolio of services for midsized customers - organizations with 100 to 400 employees and a handful of Windows servers.

The interesting thing about IBM’s Remote Data Protection Express and E-Mail Management Express offerings is they are the first new services IBM has launched from its Arsenal Digital Solutions acquisition in December. The Arsenal brand is gone but the remote data protection service is the same one that Arsenal offered, even still including data deduplication from EMC’s Avamar.

The email archiving service is something Arsenal was working on at the time of the acquisition, pushed to market quicker with IBM technology.

“Email management is a new offering [for Arsenal],” said Arsenal alum Brian Reagan, now an IBM Information Protection Services executive. “Under the covers we’ve started to adopt and integrate more IBM offerings.”

The email service covers Exchange and Lotus Notes, and Reagan said database and unstructured data archiving services are in the works.

Since Arsenal was into managed storage services long before anybody talked of clouds and SaaS (software as a service), I asked Reagan if he thought IBM should have kept the Arsenal brand. He said Arsenal did have a name for itself and partnerships with AT&T and other large providers, but IBM is a pretty recognizable name too.

“We get the benefit of IBM’s brand,” he said. “As Arsenal, we would have to spend twice as much money to get the attention of customers because they didn’t know who we were.” Reagan pointed out that IBM ran advertisements for its services during the PGA Masters broadcast. “That was something Arsenal could only dream of,” Reagan added.

Then again, you don’t have to be IBM to attract attention for storage services these days. Everybody’s getting into the cloud act, and Reagan says the glut of offerings have served mostly to confuse customers.

“There’s a tremendous amount of customer interest,” he said. “The downside is, it’s created confusion. Some of the really low end players that only service the consumer end of the market have clouded the picture. They’ve confused people wondering what the difference is between low end service that’s priced too good to be true and real resilient service.”

In other words, it will take awhile before enough sun shines on cloud computing so we can really know what to expect.

 In a bit of a Friday surprise, storage systems vendor Nexsan Technologies today filed for an initial public offering (IPO) with the SEC.

The move is surprising not because of Nexsan’s financial situation, but because storage IPOs are so 2007.  IPOs in general are down this year with Wall St. fearing recession and waiting to see if the problems financial services firms are having spread to other sectors.

On the storage front, no company has gone public since 3Par last November. NAS vendor BlueArc and consultant firm Glass House Technologies filed for IPOs late last year but neither appears close to actually going public. Neither company has updated their S-1 filings with their latest earnings, which suggests they’re in no hurry to test the market.

Financial analysts and other industry sources say companies such as DataDirect Networks, Copan, and LeftHand Networks are eager to go public and probably would have filed by now if market conditions were better.

But Nexsan is brave enough - if brave is the word - to give it a shot. The systems vendor that specializes in SATA arrays for archiving probably isn’t as well positioned as some of the above mentioned vendors. Nexsan lost $3 million on revenue of $49.8 million for the year that ended June 30, 2007, and dropped another $2.3 million on $30 million in revenue during the last six months of last year. According to its filing, Nexsa has lost a total of $35.1 million.

Histories of losses haven’t stopped other storage companies from going public. Those that took the plunge in 2006 and 2007 - 3Par, CommVault, Compellent, Data Domain, Double-Take, Isilon, and Riverbed - had a quarter of profit at the most and almost all of them had never recorded a profitable quarter before their IPO. The same goes for EqualLogic, which had its IPO short-circuited by a $1.4 billion acquisition offer from Dell.

And while Nexan’s finances don’t look much different than those of Compellent’s or Isilon’s before they went public, at least there was a bullish IPO market when Compellent and Isilon went out.

So Nexsan’s progress deserves keeping an eye on. If they do make it public for a decent price, it could spark another rush like the storage market saw in 2006 that lasted until late 2007.

The term “vendor lock-in” is rarely used in a good way by storage buyers. It usually means you’re stuck with products from one vendor, making it difficult to switch if you’re unhappy or something better comes along.

Still, with probably more options for storage products than ever before, most companies still buy all their primary storage from one vendor. That’s according to a Forrester report, “Consolidate Storage Vendors to Reduce Complexity,” released this week.

A Forrester survey of 170 companies ranging from SMBs to large enterprises in North America and Europe found that more than 80 percent bought their primary storage from one vendor over the last year. That includes 64 percent of the companies with more than 500 TB of raw storage.

The report, written by analyst Andrew Reichman, says using more than one primary storage vendor can make it more complex to manage, provision and support the storage environment. And while using multiple vendors can often bring better pricing, buying from one vendor can result in volume discounts.

“You may have tried to contain costs by forcing multiple incumbent vendors to continuously compete against each other, with price as the primary differentiator,” Reichman writes. “This strategy can reduce prices and limit vendor lock-in, but it can also lead to management complexity and poor capacity utilization.”

The report recommends keeping things simple by and using fewer vendors when possible. However, that advice comes with several caveats: buying all storage from one vendor means taking the bad with the good, and some vendors’ product families differ so much “they may as well come from different vendors.”

Of course, I’m sure there are horror stories out there from organizations that have had bad experience with lock-in as well as those who’ve had incompatibility issues with products from multiple vendors.

IBM’s acquisition of Diligent Technologies today will alter several relationships of major vendors as they look to add data deduplication to their VTLs.

Until now, IBM’s VTL partner was FalconStor while Diligent supplies Hitachi Data Systems and Overland Storage. IBM and HDS say they’re still ommitted to HDS selling Diligent’s ProtecTier software even though it’s now owned by IBM.

“We don’t’ see any change with Diligent, the agreements we’ve had with them will continue,” HDS CTO Hu Yoshida said today. He compared the situation to EMC buying VMware. “VMware works well for us, we drive a lot of business from VMware,” he said. “This is a new world, we’re in an era of coopetition.”

Still, you don’t have to squint hard when reading the statement HDS issued today to see plenty of wiggle room:

The ProtecTIER software from Diligent Technologies offers very tailored data de-duplication technology that addresses only a fraction of the overall business continuity and disaster recovery capabilities that our customers require. This product comprises a single component of the broader portfolio of market-leading back-up and data protection solutions that Hitachi Data Systems offers its customers.

In other words, HDS is saying it could get by fine without ProtectTier. Where else can HDS go if it wants to switch? FalconStor is certainly available now that IBM has Diligent and EMC is partnered with Quantum for dedupe. Sun and Copan sell FalconStor dedupe software, but Sun and Copan don’t exactly equate to EMC and IBM for disk backup market share. There’s also Sepaton, which has a VTL OEM deal with Hewlett-Packard — although HP has yet to offer Sepaton’s dedupe software.

One dedupe vendor not looking for an OEM partner is Data Domain, which rode deduplication backup products from stealth to IPO in four years and is generally considered the dedupe market leader. Data Domain CEO Frank Slootman says his channel partners wouldn’t appreciate competition from OEMs.

“That’s a decision you have to make early on as a company,” Slootman said. “If you start off as a channel company like we are, it’s difficult to run an OEM model right alongside it because they are incompatible. OEM usually means death to your channel.”

We’ve know for a while that Isilon had disappointing sales results in its first year as a public company. Now we know the clustered NAS vendor inflated those lackluster sales numbers through questionable sales tactics.

Isilon restated financial earnings reports Wednesday to avoid getting delisted by Nasdaq, but made embarrassing disclosures about the findings of its audit committee review in its accompanying SEC filing.

The audit review found that Isilon bumped up its sales numbers in late 2006 and last year through phantom deals and overstatements. “When persuasive evidence of an end-user did not exist, when oral or side arrangements existed, when contingencies existed with respect to the acceptance of the product by the end-user, or when resellers did not have the ability or intent to pay independent of payment by the end-user customer, this information was not properly communicated among sales, finance, accounting, legal and senior management personnel …” Isilon said in its Annual Report.

Isilon disclosed one deal with a reseller that recorded for $1.1 million although there were conditions related to the product’s performance. The reseller ended up paying “only a portion” of that amount and returned the product. In another case, Isilon recognized revenue from a customer that “included a commitment from us to acquire software from the customer” (one of those side agreements) but the end-user “did not have the ability or intent to pay.” Isilon also said there were times it recognized revenue “when persuasive evidence of an end-user did not exist.”

On the plus side for Isilon, it made changes at the top after getting whiff of the problems late last year. Founder and former CTO Sujal Patel replaced Steve Goldman as CEO, and Isilon appointed controller Bill Richter as interim CFO to replace Stu Fuhlendorf. While Isilon’s previous team seemed willing to take shortcuts, new management has taken the first tough steps to cleaning up the mess left behind.

But Isilon’s problems aren’t over.  Its recent disclosures could make it tough to defend shareholder class action lawsuits accusing Isilon of being dishonest in filings before its IPO. And it must restore confidence among customers at a time when it faces much more competition than it did a year ago.

Isilon execs get a chance to explain their strategy for improving their prospects when they host an earnings call this afternoon.

Fusion-io came out of stealth today with a PCIe flash card designed to give off-the-shelf servers SAN-like performance.

Fusion-io calls its product the ioDrive, and it’s NAND-based storage that comes in 80 Gbyte, 160 Gbyte and 320 Gbyte configurations. Fusion-io CTO David Flynn says the startup will have a 640 Gbyte card later this year. The ioDrive fits in a standard PCI express slot, shows up to an operating system as traditional storage and can be enabled as virtual swap space.

Flynn said its access rates are more comparable to DRAM than traditional flash memory.

“This is an IO drive, we do not consider it to be a solid state disk,” Flynn said. “It does not pretend to be a disk drive. It does not sit behind SATA or a SCSI bus talking SATA or SCSI protocol to a RAID controller. It sits directly on the arteries of a system.”

Fusion-IO bills its card as high-performance DAS that can reduce the need for more expensive SAN equipment. Fusion-io prices the drives at $2,400 for 80 Gbytes, $4,800 for 160 Gbytes and $8,900 for 320 Gbytes.

“Dropped into commodity off the shelf server, you have something that can outperform big iron,” Flynn said.

Not even the Fusion-io execs see their cards as SAN competitors, though. If it finds a place in storage, it will be as a way to run applications that require high performance — such as transactional databases or digital media - on servers that aren’t attached to SANs.

“It’s a way of extending the life of servers with direct attached storage,” said analyst Deni Connor of Storage Strategies Now. “I don’t see it as a replacement for Fibre Channel SANs, but it may prevent companies from going to Fibre Channel SANs as quickly.”