What was Intel thinking with McAfee buy?

19 Aug 2010
Intel

Intel's surprise acquisition of McAfee for $7.68 billion raises eyebrows

Intel's shock $7.68 billion acquisition of security firm McAfee left many wondering what the chipmaker is planning – and whether the deal is an overpriced mistake.

After years of being touted as a target, it wasn't a shock that McAfee had finally been picked up - but that Intel was the one to do it, analysts said.

Gartner's Bob Walder said HP was a better fit, even after its purchase of security firm 3COM. “Even now it still would have made more sense than the Intel acquisition.”

If one PC manufacturer were to buy them, all the others would run away from them

IDC’s Crawford del Prete disagreed, saying a big player such as Intel was necessary for McAfee. “You really need to have someone at the centre of the tech ecosystem,” he said, suggesting firms such as VMware, Microsoft and AMD as other possibilities.

“If one PC manufacturer were to buy them [McAfee], all the others would run away from them,” del Prete said, which would be “destructive” to the value of the company.

Full price

The $7.68 billion price also raised eyebrows, given it was a 62% premium on McAfee’s stock price.

TechMarketView analyst Anthony Miller noted the offer was four times McAfee’s revenue last year and 35 times its operating income – a “full price” for such a firm. “It’s clear Intel very much wanted this company and was prepared to pay full price to get it,” Miller said.

Walder agreed that the price was high, suggesting Intel won’t get much from McAfee than it already takes from its existing 18-month partnership. Miller said the buy could be a defensive move. “Maybe Intel thought they needed to protect what they were getting from the partnership.”

Competition

Intel said it expects the deal to be approved, but any antitrust argument may not come from Intel’s side, but from McAfee’s.

“The company that will maybe shout the loudest is Symantec,” said Walder. “Given Intel’s dominance in the PC market, the prospect of that sort of tight coupling of endpoint security with the hardware might be have Symantec screaming ‘antitrust’.”

I think their enterprise customers will be a little alarmed at the moment

Symantec could actually benefit, with Walder saying Symantec could win McAfee’s enterprise customers. “If I was a McAfee customer coming to the end of a refresh cycle or looking to make a new investment, I would have to go looking at Symantec because I’m not sure how focused McAfee is going to be on my business over the next few months,” he said. “I think their enterprise customers will be a little alarmed at the moment.”

Products

Intel said to expect the first announcements about products in early 2011, but didn't offer much more detail.

Walder believes that doesn't give enough time to integrate McAfee’s endpoint protection into Intel’s silicon. He suggested the firms could unveil something related to the cloud first, given McAfee’s managed services and Intel’s recent cloud-focused chatter.

In the longer term, the products could have a more profound effect on the IT world. “It’s reshaping the battlelines, beginning with creating that software stack for security for next-gen computing devices,” IDC's del Prete said.

“PC users are all trained to buy security software, and install patches and updates and all those things,” del Prete said. “When you get into the next generation of computing devices, that’s just not the way the world is going to be. I don’t think people are going to be getting in their cars every morning and sitting and waiting for a security update to be downloaded before they can drive their car."

“We are going to have security concerns, as you get into mobile payments and identity theft and all these next-gen devices," del Prete said. "The current set of disaggregated hardware and software is not going to work. It’s an epic war that’s shaping up for control of these devices, and this is Intel’s move to get out in front of that track.”

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