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FalconStor Heads for the Fast Lane

Hardware-software. East coast-west coast. Maybe even yin and yang. What's not to like in this marriage? Network Peripherals Inc. (NPI), out of Fremont, Calif., has announced that it has invested $25 million for a minority stake in privately held FalconStor Software, Inc., headquartered in Melville, New York.

FalconStor is an emerging leader in network storage infrastructure software, one of the fastest-growing areas of the $44 billion global storage industry, while NPI supplies a range of Layer 2/3 Ethernet switching solutions based on a combination of proprietary chips and software. Under the terms of the agreement, NPI has an exclusive option to merge with FalconStor, which may be exercised during a 14-day period expected to begin during the last week of this month.

FalconStor's open-standards-based software bridges all existing storage network standards and provides seamless device compatibility between disparate storage subsystems, thus leveraging a company's investments in existing infrastructure. The company's product, IPStor, enables IP-based storage and offers virtualization throughout the storage environment to provide SAN and NAS services under a unified management umbrella.

"This is significant because it further endorses FalconStor's approach, and really shows the importance of virtualization as a technology moving forward," says Steve Duplessie, senior analyst at Enterprise Storage Group. He says the economics of the merger, assuming

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it proceeds, are very favorable for FalconStor. "This is a tough market to raise money in, and they not only get $100 million in cash for only 33 percent of the company, but they also get to go public in the process [because NPI is public]," explains Duplessie.

Duplessie notes that FalconStor's suitor, NPI, has been pretty beaten up as a distant competitor in the GB Ethernet switch space. "This move gives their shareholders a fresh start," he says.

"This will give FalconStor the cash to move ahead aggressively, and makes them the one to beat at this point?If they can continue to execute," says Duplessie. He predicts that the new company will aggressively attempt to sell off the switch business, and focus exclusively on high-margin, high-growth software. "All in all, I'm very bullish on the move," he adds.

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About the author: Alan Earls is a freelance writer in Franklin, MA.

This was first published in April 2001

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