Intel's recent acquisition of security firm McAfee may not go down well with investors, but one industry analyst says the cross-market union signals a good headstart to many broad business goals in future.
Following news that Wall Street Journal report argued that Intel had no ability to justify paying "a 60 percent premium for a company with it has little or no synergies". It also noted disapproval from investors and pointed to a 3.5 percent fall in Intel's shares, with a loss of US$3.8 billion in market value, on the day of the announcement.
The report added that Intel will not be integrating McAfee into its operations, choosing to let the company run as an independent wholly-owned subsidiary. If both entities had wanted closer collaboration, they could have done so as partners since their respective headquarters were "just 0.7 mile apart", it added.
However, IDC's chief technology adviser of emerging technologies group, Patrick Chan, said security was too important a feature for Intel to rely on an external partnership.
Both companies had a long-running relation focused on integrating security into chip and board-level functions, and could have happily continued on "without billions of dollars changing hands and [triggering] a complete shake-up of the security market", Chan said in an e-mail interview.
"The high acquisition premium on McAfee's stock price implies there was a bidding war among large, powerful and well-capitalized IT companies--IBM and HP likely foremost among them. This will no doubt create some sore losers," he said. "Top competitors and leading vendors in adjacent markets will likely line up to challenge this deal in court. Symantec, EMC, HP, IBM, even Microsoft--all with varying degrees of security, software and hardware interests--are no doubt threatened by the idea of being 'locked out' of integrating their respective technologies at the chip- and board-level of computing, which Intel dominates."
According to Chan, the consolidation of the two industry giants will have "nuclear fusion-like" effects across multiple markets, forcing many security and infrastructure partnerships and alliances to be reconsidered, as well as permanently altering the enterprise and consumer security landscape.
While many other "non-synergized" deals have failed, the IDC analyst likened the Intel-McAfee alliance to that of a Lexus-Toyota, with each product portfolio clearly developed and marketed as a very different product than the other.
He said the tieup also spells a new form of software and hardware integration that will deliver adequate levels of security, without significant user intervention, for connected devices in the future.
"A crucial strategy behind the deal is the integration of security into network-connected devices that are non-traditional PC and server platforms," he said, noting that the proposed merger of both companies' technologies will ultimately be a boon for further integrating security into network-connected devices of all types including PCs, servers, mobile devices and machine-to-machine platforms.
Explaining the McAfeee acquisition, Intel executives said security was as critical to computing as performance and connectivity. The chipmaker plans to combine security with its hardware and expand further into the mobile market.
Further defending its position, Intel told ZDNet Asia in an e-mail interview that the acquisition will boost security functions for the billions of connected devices which are all subjected to potential attacks. "Bringing software closer to the silicon will help Intel strengthen security to counter the increasingly sophisticated threats more effectively," said Intel's regional spokesperson.
The company reiterated that McAfee will remain a wholly-owned subsidiary, with the company maintaining its own products, customers and salesforce, and will continue to develop and market products for multiple platforms and architectures.
Revenue to diversify
Chan noted that while it is no doubt an expensive strategy, Intel is hoping the McAfee acquisition will help drive the sale of its chips and achieve revenue diversification.
"The basic logic is that if the computing is secure right out of the box--whether server, PC laptop or other--more of these boxes, with 'Intel inside' of course, will get sold.
"As for revenue diversification, McAfee provides Intel with a vast revenue mix and adds more possibilities to each sale of Intel gear. Moreover, the maintenance stream from security software will help a little to smoothen out the seasonal [market demands] of Intel's business," explained the analyst. "Vertical integration is also a driver. The IT industry consolidation continues as vendors try to defend their core position by selling more of the software stack."
Chan noted that security is not new to Intel as the company had embedded security functionality into its chips years ago. It is also a founding member of the Trusted Computing Group, which spawned the Trust Platform Module (TPM).
In an earlier ZDNet report, Tim Bajarin, president of analyst company Creative Strategies, predicted that Intel would most likely bridge security elements onto its CPU so hackers will find it doubly difficult to penetrate systems as they will have to break the hardware as well as software code.
A more secure cloud
Cloud computing will also benefit from the Intel-McAfee alliance, according to Chan, who noted that the integration of Intel-McAfee security technology could bolster security capabilities for virtualized platforms, which are the foundation for cloud technology.
"Security technology embedded beneath a virtual server layer, and extending to all hosts running at higher levels, will provide high levels of security," the IDC analyst added.
Even with the alliance between its chip and security now stronger, Intel's competitors say they are not feeling the heat.
In an e-mail interview with ZDNet Asia, Advance Micro Devices (AMD) said the company has strong market differentiation as it is the only manufacturer that designs both high-performance computing and graphics technologies.
AMD's corporate vice president for Asia-Pacific Ben Williams said the chipmaker's understanding of market demand for high-resolution visuals and HD (high-definition) videos has allowed the company to produce chips and graphics technologies that cater to this specific need.