Feeds

FalconStor accelerates dedupe, drives finances over a cliff

Reliably cranking out continuing losses

Boost IT visibility and business value

Comment FalconStor is cranking out $19m to $20m revenues per quarter, punctuated by regular Q4 spikes, but continually makes losses. Why isn't it a healthy business making steady profits and growing?

It is a storage software supplier selling a virtual tape library (VTL), continuous data protection and other products. Its co-founder ReiJane Huai resigned as CEO in disgrace in September 2010 after allegations emerged about improper payments. A year later he was found dead outside his family home.

The loss of Huai - a dominating CEO, president and chairman - set FalconSor back and plunged it into a US government investigation in which it is still enmeshed.

Jim McNiel became the replacement CEO and has struggled to get the business back on an even keel. The results for FalconStor's financial Q1 in 2012 follows eight consecutive quarters of losses with pretty much more of the same red ink - as the chart below shows.

FalconStor results to Q1 fy2012

Revenues for the quarter ended March 31 were $19.4m (£12m), up two per cent on the year-ago quarter's $19m; that's flat in everyday language, especially considering the revenue history. Apart from fourth quarter revenue spikes of about $26m (£16m) the figures come in at about $19 million like clockwork. Knowing this, why doesn't FalconStor cut its costs to match that revenue level?

Instead it racks up losses - $2.4m (£1.48m) this quarter. That at least is an improvement on the previous quarter's $6.1 million loss, the $5.4 million before that, the $5.9 million before that, and the $6 million loss before that. McNiel's team can't even squeeze a profit out the revenue spikes; the $26.5 million in the fourth fiscal 2010 quarter saw a loss of $100,000 and the $25.4 million spike in the final fiscal 2011 quarter saw an abysmal $6.1 million loss.

Part of the problem is a switch from OEM sales to channel sales, with the former falling faster than the latter is rising; a common problem when your products are not killers and face lots of competition.

McNiel said: "I am pleased that our business continues to grow and that it outperformed our Q1 results from last year, despite the reduction in our legacy OEM business. We continue to see growth and momentum in our global channel, particularly in the Asia-Pacific region."

FalconStor is developing its products to make them more attractive. Version 7.5 of its VTL offers various deduplication options, including inline, concurrent, post-processing or no deduplication. FalconStor Turbo deduplication can boost performance up to 300 per cent, the company reckons, adding: "In performance tests of a 4-node cluster configuration, FalconStor VTL 7.5 demonstrated the fastest sustained deduplication speeds in the industry: more than 28 terabytes per hour with inline deduplication and more than 40 terabytes per hour with post-processing."

Yet, will EMC Data Domain and Quantum DXi dedupe customers switch to FalconStor? It's not likely because dedupe is a mature market these days.

What's in FalconStor's roadmap to reignite growth? It's not noticeably ahead of anybody else with server virtualisation, notwithstanding some point-product advantages. Similarly it is going through the cloud motions but has no killer technology as far as El Reg can see. Indeed the cloud is a threat if its SME customers start backing up to remote online services and storing data in it too.

It has no obvious hot development initiatives and has not made any acquisitive noises. It closed its latest quarter with $37.6m (£23m) in cash, cash equivalents, and marketable securities; not a large amount of financial firepower. Although the net loss in Q1 2012 was smaller than Q4's in 2011, six more quarters of $6 million losses will clean out those reserves and refinancing might be needed.

Someone in McNiel's team needs to pull a fat rabbit out of the hat. Perhaps the company needs a rejuvenated board, one with wider experience and less tolerant of continuing losses; one wanting more tangible evidence of progress rather than pressing on with steady product evolution and an enhanced channel programme while hoping that the legal troubles don't involve crippling penalties and costs. ®

Bootnote

Don't forget to sling your comments into the FalconStor topic in our forum.

Build a business case: developing custom apps

More from The Register

next story
6 Obvious Reasons Why Facebook Will Ban This Article (Thank God)
Clampdown on clickbait ... and El Reg is OK with this
Mozilla's 'Tiles' ads debut in new Firefox nightlies
You can try turning them off and on again
No, thank you. I will not code for the Caliphate
Some assignments, even the Bongster decline must
Banking apps: Handy, can grab all your money... and RIDDLED with coding flaws
Yep, that one place you'd hoped you wouldn't find 'em
TROLL SLAYER Google grabs $1.3 MEEELLION in patent counter-suit
Chocolate Factory hits back at firm for suing customers
Kaspersky backpedals on 'done nothing wrong, nothing to fear' blather
Founder (and internet passport fan) now says privacy is precious
Primetime precrime? Minority Report TV series 'being developed'
I have to know. I have to find out what happened to my life
Ex-IBM CEO John Akers dies at 79
An era disrupted by the advent of the PC
prev story

Whitepapers

Gartner critical capabilities for enterprise endpoint backup
Learn why inSync received the highest overall rating from Druva and is the top choice for the mobile workforce.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Rethinking backup and recovery in the modern data center
Combining intelligence, operational analytics, and automation to enable efficient, data-driven IT organizations using the HP ABR approach.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Next gen security for virtualised datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.