Intel buys McAfee $7.7bn

Intel has acquired security technology company McAfee as a wholly owned subsidiary, in a deal that will bring a powerful player to the market, say analysts.

The computing giant will purchase all of McAfee's common stock at $48 per share in cash, for a total of approximately $7.68 billion, according to Intel.

Both boards of directors have unanimously approved the deal, says Intel, but it will close after McAfee shareholder approval is attained and after regulatory clearances and other customary conditions specified in the agreement are attended to.

Graham Titterington, principal analyst of software at Ovum, says the active involvement of a company with the influence and resources of Intel in the information security arena will have a major impact on the future of computing.

"McAfee's products extend beyond IT security into governance and aspects of systems management, exposure to the CxO level executives in the world's largest organisations.”

Tittterington adds: “We can assume that Intel's objective is to incorporate more security features into its chips. For users, and for businesses, this will be welcome, but clearly there is a risk of monopolistic concerns damaging the market.”

However, World Wide Worx MD Arthur Goldstuck says the problem for competition does not lie in the possibility of a monopoly, but rather that one competitor in the market will be getting the muscle of a large corporation like Intel behind it.

“It seems that McAfee has an unfair advantage with Intel's muscle, but at the same time Intel may find it has taken on a battle it can't win.

“What we've seen in the anti-virus segment is that there's always room for nimble players. Small, nimble players in this environment can take on the giants,” he adds.

Goldstuck gives the example of Kaspersky, which came into the market as a small player and still made it big. He also says the local market has the likes of NOD32 to add competition.

McAfee has a suite of software-related security solutions, including end-point and networking products and services that are focused on helping to ensure Internet-connected devices, and networks are protected from malicious content, phoney requests and unsecured transactions and communications, according to Intel.

It adds that the company also has an expanding line of products targeting mobile devices such as smartphones.

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

On a GAAP [generally accepted accounting principles] basis, Intel expects the combination to be slightly dilutive to earnings in the first year of operations and approximately flat in the second year.

On a non-GAAP basis, excluding a one-time write down of deferred revenue when the transaction closes and the amortisation of acquired intangibles, Intel expects the combination to be slightly accretive in the first year and improve beyond that.

Intel has elevated the priority of security to be on par with its strategic focus areas in energy-efficient performance and Internet connectivity, it adds.

It says providing protection to a diverse online world requires a fundamentally new approach involving software, hardware and services.

Ren'ee James, senior VP of Software and Services at Intel, says security is important across Intel's existing businesses in the cloud and in terms of PCs.

“What we've been talking about is our growth businesses around mobile devices, embedded devices and consumer electronics. All of these billions of devices are going to be connected to the Internet and all of them are going to need security.”

She says hardware-enhanced security will lead to breakthroughs in effectively countering the increasingly sophisticated threats that currently exist and that will exist in the future.

“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.”

She adds that Santa Clara-based McAfee is the next step in this strategy. “Our current work together has impressive prospects, and we look forward to introducing a product from our strategic partnership next year.”

Dave DeWalt, CEO of McAfee, adds that changes with the Internet also call for greater security. “Connected devices are exploding. As the movement of the new Internet from IPV4 to IPV6 changes, we're going to trillions of devices over time and security is really important.”

“In the past, energy-efficient performance and connectivity have defined computing requirements. Looking forward, security will join those as a third pillar of what people demand from all computing experiences,” says Paul Otellini, Intel president and CEO.

In response to questions about why McAfee was chosen specifically, James says the two companies have been partners for a long time.

“We're very excited about the new product line and the efforts in R&D [research and development] are just amazing. We think that combination with our leadership products is a really powerful thing we can do together. We think the technology of McAfee is applicable across all the segments we serve,” she adds.

“The addition of McAfee products and technologies into the Intel computing portfolio brings us... a track record of delivering security innovations, products and services that the industry and consumers trust to make connecting to the Internet safer and more secure,” Otellini says.

McAfee, which has enjoyed double-digit, year-over-year revenue growth, to approximately $2 billion in 2009 and nearly 80% gross margins last year, will become a wholly-owned subsidiary of Intel, according to the company.

McAfee has approximately 6 100 employees and James says its entire employee base will remain with the company.

Ntombezinhle Modiselle, public relations manager for Intel South and sub-Saharan Africa, says the impact on its local presence will be the same as all other markets.

“The impact on Intel SA is the same as globally in that our customers will benefit immensely from the enhanced end-to-end service Intel will be offering, and this will also help us grow our business even further locally.”

The company says it's always on the lookout for opportunities for strategic acquisitions, which will enable it to grow its business and enter adjacent markets, so future acquisitions are being continuously investigated.

Modiselle adds that locally, with the introduction of Intel Capital in Africa, it continues to look for strategic investments.