Intel, McAfee deal shows increased security in digital age
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Semiconductor chip maker Intel Corp. recently announced that it would acquire security vendor McAfee Inc. in an all-cash offer totaling 7.68 billion U.S. dollars. The move is believed to change the way security is integrated in technology products and IT platforms.
If it goes through, the deal will represent the largest transaction of its kind in security, and has both investors and industry watchers speculating on how it could impact the IT sector, and especially the software security and hardware markets.
"It's an unusual pairing. I don't think anyone would have guessed that Intel would acquire McAfee," said Brenon Daly, a senior mergers and acquisitions analyst with technology-industry analyst firm The 451 Group, in an interview with Xinhua.
Executives at the two companies see this as a way that will help meet growing demand for consumer electronics, especially in the mobile sector. Currently, mobile represents an 850-billion-dollar global market, and is expected to account for 62 percent of total telecommunications sales this year, according to studies conducted earlier this year by global market research firm IDC.
"Connected devices are exploding. As the movement of the new Internet from IP V4 to IP V6 changes, we're going to trillions of devices over time and security is a really important part of that," explained David DeWalt, McAfee's president and CEO, in a video interview released by Intel.
Besides tapping further in the mobile market, this move will allow Intel to more closely cement security within their systems.
"Although much of the analyst discussions with Intel and McAfee have focused on the mobile market, it should be clarified that Intel has stated that the acquisition was not solely a mobile security play. In fact, the company notes that its goal is to bring security further into the guts of systems than ever before," wrote The 451 Group in an analysis of the deal.
While the ultimate goal is to have software security integrated more tightly with hardware, there are no immediate plans to merge Intel's chip prowess with McAfee's security software, leaving analysts like Daly wondering what the immediate objectives are.
"They're not integrating until at least next year. There's no immediate cost synergies or savings ... it's almost like a holding company acquiring a separate company running at a much higher operating margin," Daly said.
In general, software tends to operate at a much higher margin than hardware, which is also reflected in comparing Intel's roughly 55 percent gross margin with McAfee's nearly 75 percent.
Intel management indicated that McAfee will operate as a wholly owned subsidiary, with DeWalt remaining at the helm to continue growing the security vendor's business.
In a press conference following the deal announcement, Intel CEO Paul Otellini stressed how the move was aligned with the company's focus on security.
"We believe that security will be most effective when enabled in hardware. Joining the assets of McAfee with Intel will accelerate and enhance the combination of hardware and software solutions, improving overall security for our platforms," Otellini told investors on the call.
Although Intel paid a premium of roughly 60 percent over McAfee's closing price the day before the deal was announced, investors' reactions have been mixed.
Within hours of the announcement, a McAfee shareholder filed suit against the company on allegations that the final deal price did not accurately reflect the full worth of the software security firm. These allegations are based in part by analyst expectations where at least one analyst valued the company's target price at 50 dollars a share, two dollars more than the purchase price of 48 dollars a share.
According to a public statement released by the Shareholders Foundations, an investor advocacy group, a law firm behind the lawsuit questioned whether "the McAfee Board of Directors breach their fiduciary duties by not seeking a deal that provide better value for McAfee Inc.."
"Those lawsuits are just ambulance chasing lawyers looking for a payoff," Daly told Xinhua.
"I've seen 10 of those this year ... of course you can always say it's worth more but based on what? From McAfee's perspective they see it as doing it right by shareholders. They did that very well."
While the deal represents the largest transaction of its kind in security, it is part of a string of transactions signaling an increased shift in focus on security in the IT sector. Earlier this month, Hewlett-Packard Co. (HP) acquired Fortify Software, a privately held security applications software developer.
While the exact terms for the acquisition were not released, some analysts including The 451 Group placed the final sales figure at roughly 250 million dollars.
Technology industry analyst groups like The 451 Group see this as a welcoming trend. In a report issued following HP's purchase, analysts wrote that "we believe security needs to be baked into common infrastructure wherever and whenever possible."
One of the key challenges, however, would be for IT giants like HP, with diverse product and service lines, to adequately integrate these features with their existing offerings.
"Since security is not core to (HP), there is the risk that these innovative technologies could get lost or wither on the vine," wrote The 451 Group.
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