There is a trend in storage for smaller vendors to band together to try and grow through mergers, for far different reasons than Dell and EMC are coming together. These mergers of small companies are driven by a sharp decline in venture funding, acquisitions by larger firms, and opportunities to go public. So their quickest route to growth is to merge.
In 2016, we’ve seen Pivot3-NexGen, Virtual Instruments-LoadDynamiX, and Gridstore-DHCQ (now called HyperGrid) mergers that combined technologies and work forces. FalconStor could be headed for one of these mergers as well.
Although FalconStor is a public company, it faces many challenges of private companies. It has little revenue and few funding options to fuel growth. If FalconStor wants to add features to its FreeStor product line, it could do so cheaper and faster by merging with a vendor that already has that technology. FalconStor already picked up real-time predictive analytics technology through a licensing and co-development deal with Cumulus Logic in 2015.
FalconStor CEO Gary Quinn hinted that a merger, acquisition or a least another technology partnership could be in the works during his quarterly earnings call this week.
“During the first half of 2016, FalconStor has been approached by a number of privately backed and publicly traded companies who are looking to find ways to partner or transform themselves into a new entity,” Quinn said. “As many of you know, a lot of the VC-backed privately held companies in the storage software category during the last several months have been unable to obtain additional capital to support their vision. They also do not have any commercially viable operations to sustain themselves. Some of those technologies would be excellent additions to the FreeStor product offering.”
He said FalconStor is reviewing opportunities for “partnerships, technology licensing or possible new combinations.”
When asked about these comments later in the call, he pointed out object storage may be a valuable addition to block-storage FreeStor. He said there are object storage vendors “who are experiencing difficulties at the moment because they don’t really have a commercially viable market yet due to the fact that that market hasn’t matured yet enough.”
FalconStor’s $8.1 revenue last quarter was down from $9.6 million a year ago, and it lost $3.5 as it continues to transition to its FreeStor product line of data management and protection software.
Quinn said FalconStor is making good progress selling FreeStor subscriptions to enterprises, managed service providers and OEMs. But FalconStor has only $9.4 million in cash, so it has to find a way to reverse its losses quickly.
“We believe we have the right product in FreeStor,” Quinn said. He said a FreeStor upgrade in October will focus on service provider requirements, public cloud connectivity and enterprises who want to build self-service capabilities. That release will extend FreeStor’s real-time analytics from the data center to edge devices.
“We are very cognizant of the road ahead both from the opportunity for FreeStor and the cost to achieve it,” he said. “We are diligently looking for ways to increase our quarterly billings as well as preserving our precious cash.
“We believe that we’re getting closer and closer to break-even and we continually adjust the business as necessary.”