Intel buys McAfee for $7.7bn, frightens market

A somewhat puzzled ‘Unhh?’ has swept around the world in reaction to Intel’s unexpected swoop on security player McAfee.

Indeed Intel shares fell on the news that the two boards had signed a definitive $7.7bn merger agreement that represented a 60% premium in McAfee’s shares.

The puzzle is ‘why’ – hence the confused reactions. On the surface, Intel has a more or less coherent cover story for the purchase, which is all about putting security right into the hardware level of the stack, more specifically into the mobile market: "The acquisition augments Intel’s mobile wireless strategy, helping to better assure customer and consumer security concerns as these billions of devices connect," being the official-ese.

Intel McAfee

To that end, McAfee will operate as a wholly-owned subsidiary, slipping into Intel’s Software and Services Group. The firm will then contribute to meeting the gap of current ICT security which "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, argues the firm, with Intel president and CEO Paul Otellini noting, "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… Looking forward, security will join those as a third pillar of what people demand from all computing experiences."

McAfee is the world’s largest dedicated security technology company with approximately $2 billion in revenue in 2009 and as Intel is the world’s biggest chip maker – some of this makes sense.

Two immediate problems come up; how long might it take and what does it mean for McAfee users?

Putting security right into the chip sounds great – but is it a practical idea? Predictably McAfee rivals were lining up today to diss the deal, and so some negative positioning is inevitable, but as just one voice among many says – in this case, Ron Gula, CEO of Tenable Network Security: "There are a lot of things wrong with today’s anti-virus model such as tracking the sheer number of potential bad types of software. Putting this into hardware may sound promising, but I question how much can be placed into a chip. Anti-virus software is very complex and we often run into customers whose agents are one or two patch levels behind and open to attack. Patching hardware or firmware is much harder than patching software."

Next problem: why buy McAfee? "I am not puzzled about McAfee being acquired but I am very puzzled about the acquirer," Bob Walder, Research Director in Gartner’s European Network Infrastructure Protection practice told CBR. "McAfee had been shopping itself around and came close we think to an HP deal – which might have made more sense. But why did Intel feel it had to buy it outright, not just get what it wanted through a partnership?"

Walder also cautions that McAfee is in itself a hardware player and all the talk of security at the chip level has left out the future, if any, for the firm’s Network IPS and IntruShield appliances.

"If I was a McAfee corporate customer I’d be nervous and I’d definitely be looking at what Symantec could offer me," he cautions.

The onus now must be on Intel to round out the acquisition logic much better of this move over the next few days, or risk spooking some of the very customers it may have been interested in acquiring.

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