Encryption on the Back Burner

12:20 -- For all the talk about security in storage today, only the largest organizations are using storage encryption appliances on their backed up data.

Network Appliance's latest earnings report underscores that fact. (See NetApp Reports Earnings.) NetApp's storage business hit on all cylinders last quarter — midrange and enterprise storage sales were strong, sales through IBM more than doubled from the previous quarter, iSCSI was included in more systems than ever before, and its new virtual tape libraries (VTLs) are making headway. Yet sales of NetApp's Decru encryption appliances disappointed.

Decru contributed barely 1 percent of NetApp sales, marking the second straight decline in quarterly revenues for the business unit that NetApp paid $272 million for in 2005. (See NetApp Buys Decru.) That was below NetApp's expectations, forcing the vendor to lower the forecast of Decru sales for the year.

NetApp CEO Dan Warmenhoven said most of NetApp's top enterprise accounts use Decru encryption, but he calls the encryption business "lumpy" — financial-speak for inconsistent. He also says NetApp isn't losing deals to competitors, but organizations are holding off buying for now. And that makes sense. It's hard to believe the other major competitor, privately owned NeoScale, is doing substantially better than NetApp-backed Decru. And a report released last week by a security and privacy research firm says only 6 percent of companies routinely encrypted backup data last year. (See Encryption Set to Go Mainstream and NeoScale Faces Up to 4-Gig Encryption.)

NetApp execs say would-be customers are holding off while evaluating tape drives with built-in encryption and new LTO-4 tape drives. (See Sun Encrypts Tape Drive and IBM Security Answer: Tape It Up.) A lack of key management standards is also considered an obstacle to encryption devices. (See Multivendor Management Locked Up.)

"The pipeline is pretty good," CFO Steve Gomo said of Decru appliances. "We haven't lost any deals, but they are hard to close right now."

Oddly, NetApp is looking to get a boost from a partnership announced last week with RSA, which is owned by NetApp storage archrival EMC. (See EMC Secures RSA for $2.1B.) RSA, Decru, and others are working to develop key management standards. (See NeoScale Teams With RSA.) When asked if EMC's $2.1 billion acquisition of RSA last year validated the security market for NetApp, Gomo said, "Actually, yes, it has. I believe RSA will turn out to be a great partner for us. It may seem a little strange to have EMC and NetApp partnered, but this is one area where partnering makes a lot of sense."

— Dave Raffo, News Editor, Byte and Switch