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   Posted at 12:54 a.m. PDT Sunday, September 13, 1998 
   
Net Security Takes Key Step

   BY JAMES J. MITCHELL
   Mercury News Staff Writer
   
   TriStrata Security Inc. of Redwood Shores isn't your usual Internet
   start-up. Its chief executive recently gave up the reins of a $2
   billion subsidiary to run it. The company's founder and chairman is
   the man who invented the personal identification number (PIN).
   America's largest accounting firm is already endorsing it. And its
   promise lured some of the best-connected executives onto its board.
   
   Three months ago, Paul Wahl was running German software maker SAP AG's
   U.S. operations, which has 5,000 employees and first-half 1998 sales
   of nearly $1 billion. Last week he became chief executive of
   TriStrata, a 35-person start-up that makes Internet security software.
   
   The reason for Wahl's sudden career change and move from Philadelphia
   is a tremendous opportunity . . .to make Internet history by changing
   the way the world keeps information secure on the Internet, says Wahl,
   46.
   
   That same dream brought John Atalla out of retirement in 1993 to form
   TriStrata. Atalla, now 74, decades ago created the PIN system and the
   security used today in 80 percent of the world's automatic-teller
   machines. He was enjoying the beaches of the world when friends in the
   banking industry asked him to work on the problem of Internet
   security.
   
   Both men believe TriStrata's software -- which works efficiently with
   voice and video as well as with data -- will revolutionize electronic
   commerce, enabling companies to create virtual private networks and
   permitting, for example, the secure and inexpensive sale of software,
   music and videos over the Internet.
   
   Some outside observers agree.
   
   PricewaterhouseCoopers LLP, which is the largest of the Big Five
   accounting firms and has 2,200 employees devoted to Internet security,
   believes this could be the de facto standard for encryption
   technology, says Jim Coriston, a PWC managing partner. TriStrata
   software is being implemented throughout the firm, which is also
   offering the product to its clients.
   
   It's a whole different approach to cryptography, says Larry Dietz,
   director of information security and legal strategies for Current
   Analysis, a market research firm. Its key principles make a lot of
   sense. But some critics question whether TriStrata's product is as
   secure as the company claims.
   
   And the company faces tough competition from established security
   companies such as Network Associates Inc. of Santa Clara and Secure
   Computing Corp. of San Jose, as well as from computer vendors like IBM
   and Hewlett-Packard Co., which include security in their products.
   
   Atalla rejected the traditional approach for enterprise security using
   public key encryption, a system that uses two keys, both controlled by
   the user: a private key, which must be kept secret, and a public key,
   which can be freely distributed. Such systems can be broken, have
   performance limitations and have restrictions on the strength of the
   key that can be exported.
   
   Instead, he turned to the one-time pad approach invented in 1917 by
   Gilbert Vernam. It uses randomly generated numbers that are never
   replicated in the exact same sequence. The one-time pad is
   theoretically unbreakable, cryptographers agree. But it hasn't been
   useful because it requires so much computing and telecommunications
   power.
   
   Atalla decided that the great advances in computer memory and
   processing technology and today's powerful and relatively inexpensive
   communications capability made the Vernam cipher practical, and he
   built his security system around it. As a result, each encrypted
   document has a different code.
   
   The system is so fast, so inexpensive and provides such a good audit
   trail that it will lead companies to make encrypted transmissions the
   rule instead of the exception, Atalla and Wahl say.
   
   The federal government, including the National Security Agency and the
   FBI, has cleared it for export because the system allows access to
   specific documents for which an appropriate court order has been
   issued. The company expects the product to be received warmly
   overseas, since the U.S. government cannot decode information at will.
   But it's unclear whether this feature will diminish foreign concerns
   about U.S. security products.
   
   Skeptics wonder whether the company has created a sufficiently large
   string of random numbers to approximate randomness, Dietz says.
   
   And TriStrata's approach is so different it won't be an easy sell. It
   requires companies to transform their security systems, a decision
   likely to be made by the chief executive and chief information
   officers, Dietz says, not the people who normally purchase security
   software.
   
   Here the many contacts of Atalla, Wahl and TriStrata's directors
   should prove useful.
   
   Atalla is well known in the high-tech community. At Bell Laboratories
   his research resulted in his patents for the metal oxide semiconductor
   (MOS), a key component of modern electronic devices. Then he
   co-founded Hewlett-Packard Associates and Hewlett-Packard Laboratories
   and directed the company's solid-state division. He founded Atalla
   Corp. in 1973 and sold it to Tandem Computers Inc. in 1987.
   
   Atalla was able to attract to TriStrata a star-studded board that
   includes John Young, former chief executive of HP; Tom Perkins,
   partner in the venture capital firm of Kleiner Perkins Caufield &
   Byers; and William Zuendt, retired president of Wells Fargo & Co. and
   former chairman of MasterCard.
   
   The company released its first product last November. As it prepared
   to move from R&D to large-scale sales, it added as a director David
   Beirne, a general partner of venture capital firm Benchmark Capital.
   Beirne, who had made his mark as one of the most successful executive
   recruiters before joining Benchmark last year, approached Wahl about
   the CEO job two months ago.
   
   Wahl, quite content at SAP, was negotiating a move back to Europe with
   the company when Beirne called and persuaded him to fly here to take a
   look at TriStrata. After a second quick visit, Wahl and his wife
   decided to come west.
   
   TriStrata is unlikely to become a huge employer; Wahl expects the
   workforce to perhaps double to 70 in the next year or two and reach
   200 over five years.
   
   But it's impact on the Internet could be quite dramatic. And Wahl
   found that attraction irresistible.
     _________________________________________________________________
   
   Write James J. Mitchell at the Mercury News, 750 Ridder Park Drive,
   San Jose, Calif. 95190; phone (408) 920-5544; fax (408) 920-5917; or
   e-mail to [48]JMitchell@sjmercury.com .
   
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