Intel to enter security software market with McAfee deal
Intel Corp., the world’s largest chip maker, is buying its way into the security software market by paying about $7.7 billion to acquire one of the biggest players in the cyber-protection field, McAfee Inc.
Intel of Santa Clara, Calif., said the acquisition, one of the year’s largest technology deals, could allow it to build McAfee’s anti-virus technology directly into its chips. Intel said this would help shield computers, wireless devices and embedded systems in vehicles and ATMs from online crime.
Traditionally, anti-virus software has been downloaded onto desktop and laptop computers. But Intel and McAfee together might have an easier time embedding security into tablets and smart phones, said Erik Suppiger, senior research analyst at Signal Hill Capital.
“There are some pretty good growth opportunities as the number of devices grows with the adoption of wireless,” Suppiger said.
The $48-a-share price Intel is paying is a 60% premium over McAfee’s $29.93 close on Wednesday. Thursday’s announcement of the acquisition caused McAfee’s stock to leap $17.08, or 57%, to $47.01.
Intel shares slid 69 cents, or 3.5%, to $18.90.
McAfee’s profit in 2009 was $173.4 million, up 0.7% from the previous year. Intel’s profit in 2009 was $4.4 billion, down 17.4%.
But the combination’s success is no sure bet, Suppiger said. In the security field, specialty companies — such as McAfee’s chief competitor, Symantec Corp. — have fared better than consolidated firms. “We’ll have to see if Intel can execute,” he said.
Forrester Research analyst Andrew Jaquith was also concerned because chip makers haven’t traditionally been strong players in computer security. He called the move “a head scratcher.”
“Perhaps the most troubling part of the McAfee deal is the prospect that [Intel] will mismanage their new division into irrelevance,” Jaquith said in a blog post. He said the deal “is a lot like a horseless-carriage vendor buying a leading supplier of buggy whips.”
Intel said McAfee would “operate as a wholly owned subsidiary,” with no job losses. McAfee, also based in Santa Clara, currently has about 6,100 employees. The company’s management would stay in place, Intel said.
The deal could help Intel expand beyond the shaky PC market.
“Consumers are trying to stretch out the usable lives of their machines, and that’s got to hurt for Intel,” said Peter Falvey, managing director of Morgan Keegan Technology Group in Boston. “The PC market is super competitive with cutthroat pricing.”
Also, Intel has watched profit margins shrink as some customers have increasingly adopted iPads and other devices that don’t use the company’s technology, analysts said.
Protecting consumers from increasing online threats, such as viruses, hackers and phishing scams, is a multibillion-dollar annual business, experts said. Current protective measures don’t always shield computers or mobile devices as well as televisions, vehicles, medical devices and ATM machines that can now connect to the Internet.
Intel hopes to make security a key component of its business, following Apple’s model in creating “tighter integration between hardware, software and security,” said Craig Berger, an analyst with FBR Capital Markets.
“It’s a nice, incremental strategic opportunity for Intel to get away from being just in chips and instead having a more differentiated, diversified and hopefully long-term sustainable model,” Berger said.
Intel said it had been working with McAfee for more than a year and a half on protective technology and will begin releasing joint products in 2011.
The company has made other efforts to move beyond chips, some of which didn’t work out. It produced children’s toy microscopes, digital cameras and voice recorders through its Intel Play brand, which was shuttered in 2002.
Intel said earlier this year that it was pairing with Nokia Corp. to develop the MeeGo software platform, to be used on both tablets and smart phones. In September, the company plans to formally debut its AppUp Center, an online store for applications. It also spent $884 million last year buying Wind River Systems Inc., a software maker that could introduce Intel chips to robotic gear, wireless gadgets and more.
Both Intel and McAfee’s boards of directors unanimously approved the deal. It will still have to be approved by McAfee shareholders and cleared by regulators.
The acquisition echoes moves in recent years by other major computer technology companies such as Dell Inc. and Oracle Corp. to expand their traditional businesses, Falvey said.
“Whether you’re Google or Microsoft or IBM, everybody’s trying to increase their addressable consumer base, augment their organic growth, provide more of a one-stop shop,” he said. “They can only do so much in their own core markets.”
tiffany.hsu@latimes.com
