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    Intel, McAfee Deal Questioned by Analysts

    Written by

    Brian Prince
    Published August 19, 2010
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      News that Intel has agreed to buy McAfee for $7.68 billion generated some mixed reaction from industry analysts Aug. 19.

      While officials at both companies touted how the integration could allow them to integrate security more deeply into Intel’s portfolio, others questioned whether the deal is a good fit.

      “If Intel wants to grow the franchise for protecting PC platforms, the McAfee deal is a great acquisition,” opined Forrester Research analyst Andrew Jaquith. “But if you view today’s security aftermarket as something that ought to be better left in the ashbin of history, where security is baked into operating systems, this deal is more of a head-scratcher. In that light, Intel’s purchase of McAfee is a lot like a horseless-carriage vendor buying a leading supplier of buggy-whips.”

      McAfee has been at the center of acquisition rumors for some time, mostly revolving around a potential acquisition by Hewlett-Packard. McAfee garnered approximately $2 billion in revenue in 2009.

      Intel CEO Paul Otellini said during a call with the media and analysts that security is now the “third pillar of computing, joining energy-efficient performance and Internet connectivity in importance.”

      “We believe that the future of computing will rest on improvement in and integration of these three key pillars…joining the assets of McAfee with Intel will accelerate and enhancement the combination of hardware and software solutions, improving the overall security of our platforms,” he said.

      Still, Jaquith noted a few potential problems for the acquisition, including what he described as Intel’s “patchy” record in moving up the stack from its hardware business.

      “In 2005, Intel bought Sarvega, a hardware-and-software play in the XML processing segment,” he explained. “Today, it is irrelevant. In 1991, Intel bought LANDesk as the centerpiece of its DMTF [Desktop Management Task Force] strategy… LANDesk was sold at the height of the dot-com boom, and it has been bought, spun off or sold three times again. Now Intel wants to get back in the software game again. Again, how will this be any different?”

      Steve Coplan, an analyst with The 451 Group, said Intel’s software division has long been an “orphan child” to the hardware division, despite the division generating significant revenues.

      “The strategic impetus here is to inorganically grow software revenues and elevate its visibility across the industry…Security should ideally be an integrated element of systems and networks, and Intel has the opportunity to emerge as a mobile firmware player with a reach into the desktop and server world,” he said. “McAfee was one of the few vendors with a discrete security focus and the run rate that would move the dial.”

      Gartner analyst Neil MacDonald said Intel needs to figure out how to build an established sales force to sell to enterprises.

      “That’s one challenge,” he said. “Another challenge is that…in the network buying center, which is a good chunk of McAfee’s business, they don’t think of Intel at all…So for Intel to target that market, that’s very difficult to bridge that gap in buying centers. McAfee has successfully done that, but the challenge is Intel doesn’t really add anything to that mix.”

      Assuming the deal gets the necessary regulatory approvals and closes, McAfee will be operated as a wholly owned subsidiary and will report to Intel’s Software and Services Group.

      “Everywhere we sell a microprocessor there’s an opportunity for a security software sale to go with that,” Otellini said. “It’s not just the opportunity to co-sell – it’s the opportunity to deeply integrate these into the architecture of our products.”

      Brian Prince
      Brian Prince

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