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FalconStor rearranges its OEM chairs

FalconStor Software officially reported revenue Thursday, confirming what if first said in a preliminary report April 19 – it had a lousy quarter.

FalconStor’s $17.1 million in revenue was down from $21 million a year ago, and it lost $5.5 million compared to a loss of $900,000 in the same quarter last year.

FalconStor’s problem is it sells mainly through OEM partners, and its largest partnerships were disrupted last year. Its biggest OEM partner, EMC, bought Data Domain and now sells more Data Domain data deduplication boxes and fewer of its VTLs that use FalconStor software. So FalconStor revenue from EMC declined $300,000.

Sun is another partner, but Sun was in the process of getting acquired by Oracle for most of 2009 and its been unclear which of its products would survive the acquisition. FalconStor revenue from Sun dropped $1.1 million last quarter. FalconStor also took a hit when Hewlett-Packard acquired FalconStor partner 3Com, although FalconStor executives say they expect a rebound now that 3Com is integrated into HP. Another FalconStor partner, Copan, effectively went out of business last year before SGI acquired its assets and resurrected its archiving product.

FalconStor says it will cut spending and has imposed a hiring freeze until it becomes profitable again. More importantly, it is finding new OEM partners. As VP of business development Bernie Wu put it, “We had an unusually high level of disruption with our OEM partners last year, and we’re forming a new foundation of partnerships.”

FalconStor executives say they expect to launch two new Tier 1 OEM deals late this year. One will be for a cloud services offering. They didn’t such much about the other, but one possibility is a deal with Hitachi Data Systems for FalconStor’s File-interface Deduplication System (FDS) software.

HDS so far has a piecemeal approach to backup data deduplication. It resells IBM Diligent ProtecTier, but doesn’t push a product owned by its rival IBM. HDS salespeople have financial incentive to sell the new Sepaton VTLs built on HDS disk, but there’s no formal reseller deal. HDS OEMs CommVault’s Simpana that includes deduplication and certifies FalconStor’s dedupe, but lacks one main dedupe product.

During the earnings call Thursday, Wu said FalconStor had a “significant pipeline” with HDS for the FalconStor software it resells and “we expect that partnership to deepen.”

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