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August 19, 2010

Intel Plans to Acquire McAfee - 'Why' Is the Question

News today of Intel’s likely acquisition of McAfee (News - Alert) has sparked intense interest among followers of the IT industry.

Was the estimated $7.68 billion cash purchase a case of a well-funded company, like Intel (News - Alert), looking to find a strong asset in McAfee?

After all, McAfee is one of the world’s largest security software company, and had approximately $2 billion in revenue in 2009.

Analysts suggested that Intel – the world's largest chipmaker – wanted to buy a company that it thinks will generate income for its investors.

Or was there a more precise strategic reason for the purchase? Can collaboration between the two companies lead to a revolutionary security product that could be embedded on a chip?

AFP reported that the acquisition of McAfee underscores Intel's bid to move into mobile phones, in-car navigation systems, televisions and medical devices – “as the traditional PC market nears saturation.”

So far there is only speculation what the combined teams may be able to develop and bring to market.

TMC (News - Alert) blogger and industry analyst, Peter Radizeski, said the statement -- "Analysts suggested that Intel - the world's largest chipmaker - wanted to buy a company that it thinks will generate income for its investors" -- is probably more true than any other speculation.

Radizeski points out: Intel bought $2B in revenue for almost $8B. 4x while Windstream (News - Alert) paid about 3x revenue for Norlight & KDL combined.

"Intel knows that the PC market is almost exhausted. It needs a new market," he added. "However, when was the last time a merger of this size paid off?"

* Has the Flip improved since Cisco (News - Alert) bought it?

* How about how crappy the Scientific Atlantic set-top boxes have gotten since Cisco bought them. These set-top boxes aren't the home network gateway either. Blu-ray players are.

"Maybe they can collaborate," Radizeski said. "And we know that cyber-security can use a boost -- it's the next war front. But how long until it pays off? Three years maybe?"

In a blog post today, Dave DeWalt, president and CEO of McAfee, said that change is needed in the field of cybersecurity, given explosive growth in the scope of devices.

“The current cybersecurity model isn’t extensible across the proliferating spectrum of devices – providing protection to a heterogeneous world of connected devices requires a fundamentally new approach to security. The industry needed a paradigm shift; incremental improvements can’t bridge the opportunity gap,” he said.

He points out that the number of Internet connected devices is expected to grow from 1 billion to 50 billion by 2020, according to industry estimates.

George Kurtz, chief technology officer at McAfee, predicts in his blog post that, “The combination of McAfee and Intel will significantly increase the protection for consumers and organizations globally, and lead to what I believe will be breakthrough security innovations.”

Prior to this announcement, Intel has focused on energy-efficient performance and Internet connectivity. Today, Intel added security as a third pillar of focus. 

“While you may ask, ‘why?’ – it makes perfect sense to me,” Kurtz said. “Given the current challenges in dealing with the proliferation of virulent malware, bringing software closer to silicon will provide a real advantage for consumers and businesses.”

DeWalt said that by next year, the two companies “will introduce new security offerings as a result of our collaboration.”

Intel has previously made a number of software-related acquisitions, such as Wind River (News - Alert). Wind River is a software vendor in embedded devices, and is part of Intel's strategy to grow its processor and software presence outside the traditional PC and server market segments into embedded systems and mobile handheld devices.

According to the companies, McAfee will operate as a wholly-owned subsidiary, reporting into Intel’s Software and Services Group.

Renee James, who manages the Intel software and services group, said that, "This acquisition is consistent with our software and services strategy to deliver an outstanding computing experience in fast-growing business areas, especially around the move to wireless mobility.”

James added that she expects the companies to introduce an Intel-McAfee product during the next year.

Intel and McAfee say they will jointly explore future product concepts to further strengthen security in the cloud network,  and the myriad of computers and devices people use in their everyday lives.

News of the McAfee purchase has got renewed interest in whether any suitors are interested in going after Symantec (News - Alert) – one of McAfee’s key rivals.


Ed Silverstein is a contributing editor for TMCnet's InfoTech Spotlight. To read more of his articles, please visit his columnist page.

Edited by Ed Silverstein
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