(Adds details, analyst comments, updates share movement)
By Supantha Mukherjee
BANGALORE, April 4 (Reuters) - Caris & Co downgraded Isilon Systems Inc ISLN.O to "sell" from "below average," saying it does not expect the data storage systems maker to be profitable anytime soon as it increases headcount and operating expenses in 2008.
Shares of the company, which has been posting losses since going public in December 2006, were down 13 percent at $4.60 at midday, making them one of the top losers on the Nasdaq.
Isilon is planning to add jobs as it seeks to grow revenue, which is a risky strategy going forward, Caris analyst Shebly Seyrafi said by phone.
"According to my model, they (Isilon) are going to lose more money," Seyrafi said, adding that he does not expect the company to be profitable in the next three years.
The analyst, who also lowered his price target to $3.50 from $4.00, said the company is facing daunting competition from larger rivals such as EMC Corp EMC.N and NetApp Inc (NTAP.O) and private companies like DataDirect Networks.
Separately, RBC Capital Markets lowered its price target to $5 from $7 on the stock, saying no outlook was provided by the management during the conference call, which the company held on Thursday to review its restated third and fourth-quarter results.
The company restated its results after it identified errors in its previous recognition of revenue.
Customers were hesitating to do business with the company due to the accounting issues, Seyrafi said.
RBC said for the first quarter, it expects Isilon's revenue to decline 16 percent sequentially. (Editing by Deepak Kannan)