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nCipher purchases most of insolvent NeoScale

U.K.-based encryption and key management provider nCipher announced today it acquired most of the intellectual property and assets of NeoScale Systems, an appliance-based enterprise storage security firm that recently ceased operations.

nCipher's $1.95 million purchase of Milpitas, Calif.-based NeoScale ends several weeks of speculation over who would pick up the defunct company. EMC, Dell, HP and Oracle also were rumored as being interested.

"With the company being insolvent…it would appear the (venture capitalists) didn't want to put any more money into the company and worked to sell the company's assets, probably much earlier than they would have liked to," considering the small price, Charles Kolodgy, a research director at IDC, told today in an email.

Richard Moulds, vice president of marketing, for nCipher told today that many companies tend to prefer NeoScale's "bump-in-the-wire" approach to storage encryption, which typically allows for easier installation and less configuration and maintenance.

"There is a need for dedicated storage encryption, especially for those with older storage systems," Kolodgy said. "Although there are many vendors who have or will soon deliver tape drives with embedded encryption, many disk drives do not have those capabilities and it will take a while for people to replace their legacy products."

That may change in the future, in light of plans from vendors such as SeaGate Technology, which announced in October that it was collaborating with IBM and LSI to extend hardware-based full-disk encryption to hard drives.

Despite having little competition, NeoScale – which also provided key management solutions that likely will be integrated with nCipher's keyAuthority products – was not able to earn enough sales revenue.

"They weren't a very diversified company," Moulds said. "They were a small company carrying a lot of corporate overhead. In the end, they didn't have the commercial strength in the encryption product line."

The addition of the CryptoStor brand to nCipher's set of offerings will allow it to expand its presence in North American markets, according to the company.

"We can add this product line to our portfolio with little corporate overhead," Moulds said.

Kolodgy said he expects nCipher, a $40 million company, to increase its revenue by 25 to 50 percent with the NeoScale buy.

nCipher expects to hire back about 10 former employees of NeoScale, which maintained a staff of more than 75 at its peak.

A NeoScale representative was not available for comment.

Today's news comes on the heels of nCipher's Dec. 3 appointment of Geoffrey Finlay as the new chief executive officer. He replaces Alex van Someren, the company's co-founder.


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