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FalconStor's Flyin'

FalconStor Software Inc. (Nasdaq: FALC) logged an impressive third quarter today, highlighted by news of OEM relationships that could help boost it to a new level.

The vendor, which makes a series of storage software packages, including backup, virtual tape libraries, and products that manage data in iSCSI as well as Fibre Channel networks, boasted a 15 percent growth in revenue, from $6.5 million last quarter to $7.3 million (see FalconStor Revenues Increase in Q2 and FalconStor Announces Strong Q3). Gross margin is also up -- to 80 percent, from 78 percent last quarter.

Though it's still posting a loss of $0.04 per share, as it did last quarter, and its net loss has increased 35 percent sequentially to $2.3 million, the company's CEO, ReiJane Huai, says FalconStor's on track for profit in the fourth quarter, though not for the full year.

FalconStor's success -- and its Achilles heel -- appears to lie in its turbulent relationships. Several analysts on today's earnings call alluded to a new OEM agreement with Hewlett-Packard Co. (NYSE: HPQ), in which HP is apparently offering FalconStor's software as part of an iSCSI feature pack for its NAS gear.

A cursory check of HP's site reveals that FalconStor technology is indeed part of HP's StorageWorks iSCSI Feature Pack, cited in the copyright credits in the software documentation. A call to HP, though, resulted in a "no comment on rumor" response.

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