Decru’s Asking Price Steep But Worth It

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High-tech pundits and analysts agree that storage and security will ultimately meet in the middle to blaze new trails for data protection.

What they don’t agree on is how much it will cost to get there. Consider that skeptics fretted about Symantec colossal bid to buy storage software maker Veritas for $13.5 billion. Shareholders will get the final word in that deal when they vote on it next Friday.

Network Appliance’s $272 million bid for storage security device maker Decru, while not nearly as big as the Symantec-Veritas marriage, nonetheless had financial analysts grilling NetApp CEO Dan Warmenhoven on a conference call Thursday over how NetApp will assimilate Decru in its mix of storage hardware and software.

Merrill Lynch analysts said in a research note that the purchase price for Decru is rather steep. The most analysts believe Decru will generate is $35 million in sales in 2006, six times what it brought in last year. That’s a healthy growth rate, but NetApp $272 million stock and cash bid is still eight times what experts believe Decru will bring in next year.

The purchase is a gamble, but it’s a risk that most observers feel could reap rewards, considering the glut of security breaches and lost data tape cartridges containing critical personal information such as bank account and Social Security numbers. Securing stored data has become a flashpoint in the wake of this year’s headline-generating events like lost data tapes at the likes of Bank of America, CitiFinancial, Time Warner and Ameritrade, and breaches at ChoicePoint and elsewhere.

Experts agree that the risk of data being gleaned from breaches and lost cartridges is considerably lessened if that data is encrypted, which is exactly the kind of technology Decru provides with its DataFort appliances.

Typically, an IT administrator sets up a DataFort device between the host server and storage infrastructure. As data passes through the appliance, the data is encrypted before it is placed in a storage array or on tape. The data is only usable when it is pulled back and then decrypted through the encryption appliance.

The technology goes straight to the heart of convergent storage and security.

The 451 Group analyst Sonia Lelii outlined pros and cons of the deal in a research note.

“There is no denying vendors believe a storage and security portfolio is a convincing pitch for C-level executives,” Lelii said. “The NetApp and Decru merger should be more seamless than the Symantec and Veritas pairing.”

Lelii believes this is because NetApp and Decru are already partners, with half of Decru sales associated with NetApp systems. The question is whether NetApp ownership of Decru will alienate the startup’s partnerships with EMC, Hewlett-Packard, Sun Microsystems, IBM, Hitachi Data Systems, StorageTek and BlueArc, among others, she said.

“The obvious risk behind this merger is that those partners will be wary of bringing Decru — and by default NetApp — into established accounts,” Lelii said.

One thing that could unfold in NetApp favor is that Decru will be run as a separate business from its headquarters in Redwood City, Calif., with current CEO Dan Avida leading the way.

NetApp has no plans to integrate the appliances or the encryption software into its broad product portfolio, reinforcing the maxim that if something isn’t broke, it shouldn’t be fixed. The appliances will continue to be sold as stand-alone products and won’t be limited to NetApp own storage devices. Decru also has great penetration in the government sector, and even received funding from the CIA.

Of paramount importance for Decru is keeping its partnerships with vendors that compete with NetApp, such as EMC.

NetApp chief Warmenhoven summed up the deal on the call: “Customers have historically had to make a trade-off: they could have security or simplified data management. Together, NetApp and Decru will be able to provide both.”

This could be the first of a handful of deals, too. While Decru deals with EMC, Sun, HP and others would seem to be intact, it’s quite possible that NetApp will spark its rivals to acquire other storage security gear makers like Vormetric, NeoScale and Kasten Chase.

For competitive and revenue potential, it would behoove NetApp competitors to make investments in storage security. The cost may well be worth it.

Article courtesy of

Clint Boulton
Clint Boulton
Clint Boulton is an Enterprise Storage Forum contributor and a senior writer for covering IT leadership, the CIO role, and digital transformation.

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