ISNULL(CAST(SUBSTRING(BI.dbo.SKU.phl5,0,3) AS VARCHAR(13)),'Uncategorized') AS phl1
The size of the return type of SUBSTRING isn't clearly documented that I can find, but the problem is that the type of ISNULL is the type of the first expression, which is clearly coming back as VARCHAR(3) since you are truncating it to 3 characters.