Who says that startups can’t crack the market-share stranglehold of the big boys? Isilon appears to be on its way to doing just that.

Isilon presented its Q2 earnings report today, highlighting quarterly revenue of $45.1 million, up 15% over Q1 revenue of $39.3 million and up a whopping 56% over the second quarter of 2009.

The apparent turnaround has once again put Isilon (NSDQ: ISLN) in the billion dollar club, with a market value of $1.06 billion.

The news boosted Isilon to the #1 spot in the InfoStor Market Index today.

At one point today the company’s shares were trading at $16.24, up almost 20%. This year, Isilon’s stock price is up about 125%.

It’s hard to believe that it’s been almost four years since Isilon went public, in September 2006, and it’s interesting to note that the company’s stock topped $27 back in those heady days (after an IPO opening at $13 per share).

You can get the full financial results in Isilon’s press release, but here a few key stats:

–Q2 net income was about $2 million, or twice what analysts had predicted and twice the company’s Q1 2010 earnings. That compares to a net loss of $3.7 million in Q2 2009.

–Gross margin was 62%, up from 57% in Q2 2009.

–Isilon execs are estimating fiscal 2010 revenue growth in the low-to-mid 40% range

And the company seems to be in hiring mode. Isilon now has 398 employees, an increase of 30 people vs. the previous quarter.

I’ve always thought that one of Isilon’s weaknesses was an over-reliance on a single vertical market — media and entertainment, which is particularly well-suited to the company’s scale-out NAS architecture. However, Isilon seems to making inroads into the more general IT market.

In the second quarter, media and entertainment accounted for about 35% of the company’s revenue. However, revenue from mainstream/traditional enterprises accounted for 28% of its revenue, a figure that is steadily growing.

From what I hear, Isilon’s success is in no small part due to its strengths in the virtual server space. Here’s what one user emailed to me in response to my original post:

“They are killing it in the VMware market. Their VMware story for NFS is head and shoulders better than everyone else, at least from a management perspective.

“Just imagine, no LUNs or volumes. Which means no more spending half my day balancing VMs across LUNs and volumes. Presto, 1/2 of the stuff that blows about managing VMware goes away. I can vMotion storage whenever with no repercussions. I can take snaps and replicate at a file/dir level (i.e. VM level), and it is monkey easy to manage as a system. ”

Look out, NetApp.

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