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» VIEW ALL POSTS Nov 8 2012   12:32PM GMT

FalconStor hires banker to explore sale or funding options



Posted by: Dave Raffo
Tags:
Storage

After another rocky quarter, FalconStor has hired investment banker Wells Fargo Securities to evaluate “strategic alternatives.”

FalconStor CEO Jim McNiel stopped short of saying the data protection vendor is for sale but said he is considering all options. He said FalconStor cannot fund all the projects on its development roadmap without a cash injection.

When asked during FalconStor’s earnings call Wednesday if he would consider selling off patent licenses or other intellectual property, McNiel said, “the main purpose behind retaining Wells Fargo is to explore all strategic alternatives. We have a sizable R&D pipeline and a number of key products we would like to invest in. We are developing [disaster recovery and next-generation deduplication and backup storage repository products], and those initiatives are being funded from operations. There are other projects we would love to fund, but we can’t do it from operations.”

McNiel predicted that the new data protection products in development would bring FalconStor revenue to double-digit growth, and he said he expects the company to be cash flow positive this quarter after cost-cutting moves including layoffs. But FalconStor’s $17.1 million revenue last quarter was down from %18.9 million last year for a 9% drop. FalconStor lost $3.6 million last quarter. That’s not as bad as the $5.4 million lost in the same quarter of 2011, but leaves the vendor with $25.8 million in cash and assets.

FalconStor is counting on $10 million in annual savings from its recent reorganization, but McNiel said it is difficult to close sales because of soft IT spending and heavy discounting by competitors.

“We weren’t terrifically happy with the results,” McNiel said on the earnings call.

He continued to paint a rosy product picture for the future, however, saying FalconStor’s near-term product roadmap represents a “new day of innovation.”

Rivals like to remind potential customers of FalconStor’s rough recent history, including a $5.8 million payment to the U.S. Securities and Exchange Commission (SEC) to settle criminal and civil charges that the vendor bribed a customer. Those charges prompted founder ReiJane Huai to resign as CEO in September 2010, and he committed suicide a year later.

While McNiel said the goal of any transaction would be to increase shareholder value, several FalconStor channel partners said they welcome a sale of the company when McNiel replaced Huai in 2010.

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