Why did Intel buy McAfee for $7.7 billion?

Why did Intel buy McAfee for $7.7 billion?

Summary: Chip giant Intel has thrown down $7.7 billion to buy security software firm McAfee ... why?

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TOPICS: Intel, Security
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Chip giant Intel has thrown down $7.7 billion to buy security software firm McAfee ... why?

According to MarketWatch, Intel will pay $48 a share in cash to buy the firm, amounting to a shade under $7.7 billion. this works out as a premium of 62% over McAfee's closing price on Wednesday.

Question is, why?

That's a good question. Perhaps Intel feel that there's good money in buying into a security firm, or possibly the acquisition paves the way to embed security software directly onto processors. Or maybe Intel just had the cash to burn.

Intel is not shy of carrying out acquisitions so this move isn't that much of a surprise. With Intel's focus being primarily on CPUs and wireless, being able to incorporate security into these devices would give it a substantial upper hand over AMD (as if it needs one, Intel absolutely dominates AMD in all areas except graphics).

The deal is subject to the usual regulatory and shareholder approval.

[UPDATE: Here's Intel's statement:

NEWS HIGHLIGHTS:

•Purchase of all of McAfee’s common stock for $48 per share in cash, valuing the deal at approximately $7.68 billion. McAfee will operate as a wholly-owned subsidiary, reporting into Intel’s Software and Services Group. •Acquisition enables a combination of security software and hardware from one company to ultimately better protect consumers, corporations and governments as billions of devices - and the server and cloud networks that manage them - go online. •Intel elevates focus on security on par with energy-efficient performance and connectivity. The acquisition augments Intel’s mobile wireless strategy, helping to better assure customer and consumer security concerns as these billions of devices connect. •Intel has made a number of software-related acquisitions of leaders in their respective industries that also rely on great silicon, including Wind River, Havok and now McAfee. SANTA CLARA, Calif.--(BUSINESS WIRE)--Intel Corporation has entered into a definitive agreement to acquire McAfee, Inc., through the purchase of all of the company’s common stock at $48 per share in cash, for approximately $7.68 billion. Both boards of directors have unanimously approved the deal, which is expected to close after McAfee shareholder approval, regulatory clearances and other customary conditions specified in the agreement.

The acquisition reflects that security is now a fundamental component of online computing. Today’s security approach does not fully address the billions of new Internet-ready devices connecting, including mobile and wireless devices, TVs, cars, medical devices and ATM machines as well as the accompanying surge in cyber threats. Providing protection to a diverse online world requires a fundamentally new approach involving software, hardware and services.

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

McAfee, which has enjoyed double-digit, year-over-year growth and nearly 80 percent gross margins last year, will become a wholly-owned subsidiary of Intel, reporting into Intel’s Software and Services Group. The group is managed by Renée James, Intel senior vice president, and general manager of the group.

“With the rapid expansion of growth across a vast array of Internet-connected devices, more and more of the elements of our lives have moved online,” said Paul Otellini, Intel president and CEO. “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.

“The addition of McAfee products and technologies into the Intel computing portfolio brings us incredibly talented people with 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 added.

“Hardware-enhanced security will lead to breakthroughs in effectively countering the increasingly sophisticated threats of today and tomorrow,” said James. “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.”

“McAfee is the next step in this strategy, and the right security partner for us,” she added. “Our current work together has impressive prospects, and we look forward to introducing a product from our strategic partnership next year.”

“The cyber threat landscape has changed dramatically over the past few years, with millions of new threats appearing every month,” said Dave DeWalt, president and CEO of McAfee. “We believe this acquisition will result in our ability to deliver a safer, more secure and trusted Internet-enabled device experience.”

McAfee, based in Santa Clara and founded in 1987, is the world’s largest dedicated security technology company with approximately $2 billion in revenue in 2009. With approximately 6,100 employees, McAfee’s products and technologies deliver secure solutions and services to consumers, enterprises and governments around the world and include a strong sales force that works with a variety of customers.

The company 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, phony requests and unsecured transactions and communications. Among others, products include McAfee Total Protection™, McAfee Antivirus, McAfee Internet Security, McAfee Firewall, McAfee IPS as well as an expanding line of products targeting mobile devices such as smartphones.

Intel has made a series of recent and successful software acquisitions to pursue a deliberate strategy focused on leading companies in their industry delivering software that takes advantage of silicon. These include gaming, visual computing, embedded device and machine software and now security.

Home to two of the most innovative labs and research in the high-tech industry, Intel and McAfee will also jointly explore future product concepts to further strengthen security in the cloud network and myriad of computers and devices people use in their everyday lives.

On a GAAP 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 amortization of acquired intangibles, Intel expects the combination to be slightly accretive in the first year and improve beyond that.

Intel was advised by Goldman Sachs & Co. and Morrison & Foerster LLP. McAfee was advised by Morgan Stanley & Co. Inc. and Wilson Sonsini Goodrich & Rosati, P.C.

This line says it all really:

Acquisition enables a combination of security software and hardware from one company to ultimately better protect consumers, corporations and governments as billions of devices - and the server and cloud networks that manage them - go online.

Bottom line - "Intel inside, protected by Intel." Bold move, and one that gives the chip giant a massive advantage (at least a perceived one) over AMD.

Lee Mathews of Download Squad gives us something to ponder:

Maybe this is a bad time to point out that McAffee 2010 posted the worst repair mark out of the 19 apps tested by AV-Test labs this quarter... Heck, it didn't even manage the 12 points required for certification.

Reactions as of 8:59 ET:

  • INTC: -2.25%
  • MFE: +58.2%
  • AMD: -0.91%

Interesting.]

Topics: Intel, Security

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30 comments
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  • RE: Why did Intel buy McAfee for $7.7 billion?

    McAfee in hardware... This can't be good.
    MikeR666
    • RE: Why did Intel buy McAfee for $7.7 billion?

      @Mike (not Cox)
      That crossed my mind as well.
      sullivanjc
    • RE: Why did Intel buy McAfee for $7.7 billion?

      @Mike (not Cox)
      McAfee slows systems down terribly so maybe Intel is figuring that if a newly developed processor runs pretty good with McAfee, then it will perform even better with something else. :-)
      dch48
  • You're such an Intel Fanboy aren't you

    Most of your hardware recommendations only offer Intel Offerings when you try and outline parts to build PCs from Budget to High End and here you Say Intel Dominates AMD in all areas except Graphics. Sure The top of the line Intel Processor is the speed king but if you compare processors in similar price ranges and similar configurations dominates is hardly the right word. AMD has now and has had for some time offered the best price to performance value with their processors. When it comes to real world tasks I will put my Phenom II X4 I have at home against the i7 I have at work any day. Maybe on some tasks the intel will perform them a couple seconds faster but truthfully most people will not even notice that. Not to mention if you take the entire computer part for part, specifically the processor and motherboard combo, I find that in most cases a mid-high end motherboard for an Intel processor is more than a mid-high end motherboard for an AMD process with similar features. And if opt for onboard graphics the AMD one will always offer more value. Now if you choose the OEM side the same applies because a similar performing and configured AMD Desktop/Laptop usually comes in cheaper than the Intel. Even if you go for the high end because while Intel may Dominate in this area alone the price to get those bragging rights will cost you.
    bobiroc
    • Phenom II X4

      @bobiroc

      Best money I have ever spent on hardware! <3
      The one and only, Cylon Centurion
      • RE: Why did Intel buy McAfee for $7.7 billion?

        @NStalnecker

        I agree, Saved about $300 by choosing an AMD Phenom II with a high end motherboard over a comparable Intel Quad Core Solution with a high end motherboard. I even compared the benchmarks and while the Intel processor that came closest to the Phenom II I chose won by a slight margin on some benchmarks it still wasn't worth the extra money to save a couple seconds here and there. I opted for a faster 10,000 RPM Hard Drive and plenty of Ram which will help my overall speed more than the processor would IMO.
        bobiroc
  • McAfee in Bed with Intel

    ... makes AMD more appealing to me than it ever has been.
    dunraven
    • RE: Why did Intel buy McAfee for $7.7 billion?

      @dunraven and Nstalnecker - I couldn't agree more. <br><br>I just fininshed cleaning up a notebook for a guy who can't stay off the torrent boards and managed to pick up the 'security suite' virus. McAfee hummed quietly along and let the virus totally take over his machine. The virus didn't activate in safe mode, but McAfee still didn't pick it up on a full scan with a current virus database. <br><br>If anyone else sees this virus, download CCleaner, Rkill, and the latest Malwarebytes. Start in safe mode with networking -Open Internet Explorer and change proxy settings back to NO PROXY - run Rkill, install and run CCleaner, install update and run Malwarebytes. Virus goes away. <br><br>YOU MUST open IE and change the proxy settings since this is how the virus gets control, otherwise you are wasting your time. It makes no difference what browser the user actually uses.<br><br>I am with Nick and Dunraven, AMD is looking even better now than it did before. Intel is getting too big for it's britches, and making bad choices like this isn't going to win them many friends. Especially if they combine a slower than dirt and inaccurate AV Mcafee into their CPU's.
      babyboomer57
  • RE: Why did Intel buy McAfee for $7.7 billion?

    Personally I think a smarter purchase would have been AVG, mcafee has been garbage for years and i doubt this will make it any better.

    This is sorta like AMD purchasing ATI, it took them so far into debt financially and with crappy equipment that it took them 4 years to come back from that. I wonder if intel will ever recoup this money...
    talamakara
  • integration problems

    If the AV software is integrated with the hardware, can it be tuned or removed? If not it will only benefit the idiots who never think of security on their own. All others will have to deal with either the settings Intel likes, or the difficulty in trying to run two AV app.s simultaneously. I think Intel ought to start w/major recruiting effort in AV dept. And what they are buying makes me wonder about the quality of Intel in general. I've been using AMD for a long time due to cost, but have been more than satisfied with it. And the few Win units we got run Kaspersky.
    olddogv
  • Why? EIGHTY PERCENT MARGINS

    That's insane. They're printing money. $7.7 bn is a steal.
    erikswanson
  • Quick math

    They have revenues of about $2bn last year. If those numbers just remain steady, that $7.7bn investment pays for itself in less than five years.

    That's a steal, my friends.
    erikswanson
    • RE: Why did Intel buy McAfee for $7.7 billion?

      @erikswanson Yeah but revenues != profits. It's not money clear in their pocket. Hell, you can have $2B in revenue and still be millions in the hole.

      (Generally speaking, that is.)
      MikeR666
  • This smells of insider trading

    That big of a premium on a company that was on the down slope is very suspicious. I hope someone investigates who is holding McAfee shares and options. Business valuations are notoriously difficult and complex, but that price does not make sense.
    ricktay
  • RE: Why did Intel buy McAfee for $7.7 billion?

    "McAfee, which has enjoyed double-digit, year-over-year growth and nearly 80 percent gross margins last year, will become a wholly-owned subsidiary of Intel, reporting into Intel?s Software and Services Group".

    It's hard to believe that virus writers can make a company worth that much. Intel better hire some people who can write good viruses so they continue to reap the rewards of this lucrative business.
    mca123
  • RE: Why did Intel buy McAfee for $7.7 billion?

    A little cynicism people. They don't care what the Tech peeps think. They're after the Perception of the General Public. Otherwise they would've worked a deal with MS and buried Security Essentials & Defender instead.
    DSCtsuru
  • Too bad

    Having seen very close the end-results of prior Intel acquisitions, my guess is that Intel just made an uncanny large-scale error which will saddle it for years to come. I can't think of an Intel acquisition where the prior company still exists and/or the technology was successfully integrated. Might be wrong about that but I can't think of anything.
    D2010MOB
  • Just to play Devil's Advocate for a moment

    I'm wondering if there actually COULD be some degree of benefit here...

    Like most of the commenters here, I find McAfee to be a waste of hard disk space and CPU cycles. However, I sincerely doubt that Intel is going to integrate ViruScan as we loathe it into their chips at the hardware level. Certainly it would make little sense to do that, because even something that is as trivial as updating software definitions requires writable storage space and thus a more unified point of failure. If I can figure that out, I'm sure there's a hundred Intel engineers who could back me up. What if they were doing things closer to adding special extensions that could stop Blue Pill-like attacks? what about something that's almost the inverse - allowing security software to 'test' a suspicious file in a special isolated segment of the processor and see if it exhibits virus-like properties?

    Whether they'll actually do this or if it's just a money grab on paper is anyone's guess still. Not that I'm holding my breath, but I sincerely doubt Intel could make McAffee products any worse.

    Joey
    voyager529
    • RE: Why did Intel buy McAfee for $7.7 billion?

      @voyager529 --

      Very good insights! I too think Intel is aiming more at providing inside-the-chipset security than in cornering the Antivirus Software marketplace. The former would make a lot of sense based on all the references to devices which connect to networks, not references to antivirus software on computers.

      Still, a monoculture in any security arena makes a very appealing target for hackers and malware writers. I guess "McAfee Inside" is better than nothing, but I too would like to see some diversity in this area of hardware hardening.

      On the upside, maybe McAfee will now stop concentrating on consumer-level antivirus software, as Symantec has done when they began concentrating on business storage and security technologies a few years ago. This would actually open up the consumer antivirus industry, not close it down. And Microsoft will no doubt tailor their Security Essentials to work smoothly with the Intel-McAfee hardware security standards.

      AMD really has their work cut out for them if they want to compete with this combined company. Maybe AMD could acquire Alwil (Avast) and AVG? (I doubt this would ever happen, but we can dream, can't we?)
      Bob Primak
  • McAfee imbedded in a processor.

    The mere thought of being unable to get rid of McAfee crapware (and believe me, there is nothing I would ever install on purpose from McAfee) makes my skin crawl.

    This could be the best news for AMD ever
    txscott