NetApp Shores up Encryption Angle


Network Appliance agreed to acquire storage security specialist Decru for
$272 million in cash and stock in a deal to help corporations defend their
data from prying eyes.


NetApp CEO Dan Warmenhoven had to defend the purchase on a conference call
with analysts, explaining that the company has no plans to integrate
Decru technology into its portfolio. Instead, Decru’s DataFort machines and software will be offered as standalone products.


In other words, the deal does not signal a major strategic shift for NetApp,
which already boasts a strong lineup of data protection products, including
systems for disk backup and recovery, software for data replication,
mirroring, and restoration; and systems and software to shield businesses
from Internet viruses and attacks.


“The combination with our larger sales force, channels and broader account
base will accelerate sales in both government and commercial accounts,”
Warmenhoven said. “We really feel that this has the potential to be a
fast-growth market segment.”


Redwood City, Calif.-based Decru is a leading purveyor of storage security
appliances, encrypting data at wire speeds without choking performance. The
company’s DataFort appliances protect data that rests behind the firewall, a
departure from firewalls and other forms of network security that protect
moving data on the perimeter.


This is important because recent FBI research indicates that as much as 80 percent of all data attacks occur on so-called resting data.


Sales of the company’s DataFort machines have been snowballing in the wake
of a series of data security scares. Privately held Decru isn’t required to
releases revenue numbers but analysts said business has been booming for
storage security players in the wake of recent security scares.


Banks such as CitiFinancial and Bank of America have had to deal with lost
tape cartridges that store customers’ personal information, including Social
Security digits and credit card numbers.


While difficult, perpetrators with the technical know-how could get hold of
the tapes, which are not encrypted, and pilfer sensitive information to wipe
out bank accounts or make fraudulent purchases.


The encryption technology on Decru’s devices stops malicious intruders dead
in their tracks and helps customers meet compliance regulations for
preserving data.


DataFort boxes are also attractive because of their flexibility: They may
run on a variety of vendors’ storage systems in NAS , DAS
, SAN , iSCSI and tape backup
environments. Moreover, the boxes pretty much plug right into the network,
requiring no changes to servers, desktops or applications.


The purchase is a natural fit for NetApp, which has worked with Decru over
the last year to offer companies and government agencies storage
infrastructure to help them safeguard their data and comply with
regulations.


Earlier this month, NetApp and Decru unveiled an integrated platform for
secure processing and storage of credit card data in compliance with Visa
and MasterCard Payment Card Industry (PCI) security standards.


Their tight partnership will allow NetApp and Decru products to protect data
stored on third-party disk and tape systems. Moreover, Decru will maintain
its relationships with storage vendors and networking vendors, some of whom
may be NetApp rivals.


Enterprise Strategy Group analyst Jon Oltsik praised NetApp’s
forward-looking mindset.


“It demonstrates how forward-thinking NTAP is compared to the storage
mainstream,” Oltsik said. “Most storage vendors can’t spell security while
users scream for solutions. NTAP will gain competitive advantage through
this deal.”


NetApp will pay 80 percent stock and 20 percent cash for Decru, expecting to
close the deal by October 2005. Decru’s 73 employees will continue to
operate the company as a separate business unit led by current CEO and
President Dan Avida.


The acquisition could be the first of a chain reaction of storage security
purchases from NetApp rivals and allies alike. Storage vendors like IBM,
EMC, HP and HDS may take NetApp’s cue and purchase Kasten Chase, NeoScale or
Vormetric.

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