Thursday, August 26, 2010

Intel To Buy Security Firm McAfee For $7.68B

The Wall Street Journal

Intel Corp. agreed to buy computer-security software firm McAfee Inc. for $7.68 billion, as the chip maker moves increasingly into the software sector to support its expansion outside of the PC market.

The Silicon Valley giant will pay $48 for each share of McAfee, a 60% premium to Wednesday's closing price. The stock last traded at that level in 1999.

The acquisition is the latest in a string of deals aimed at consolidating formerly disparate parts of the technology sector. Tech giants dominant in particular areas of the industry are using acquisitions to grab footholds in faster-growing markets. Hewlett-Packard Co.'s  recent purchase of Palm Inc. was aimed at moving the world's largest PC maker into the smartphone sector. Meanwhile, Oracle Corp.  purchased Sun Microsystems last year to expand from selling software into providing a complete hardware and software package for corporate IT departments.

Intel's acquisition of McAfee, the company's largest-ever purchase, seeks to help the company expand into two new markets: smartphones, and the myriad electronic devices such as billboards, automated teller machines and others known as "embedded systems," that are increasingly connecting to the Internet, providing more personalized and interactive features.

Shares of McAfee were recently up 58% to $47.18--they were down 28% the past year through Wednesday--while Intel declined 2.5% to $19.10.

"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 Intel President and Chief Executive Paul Otellini. "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."

McAfee, best known for its widely popular anti-virus software, has marshalled more resources to go after the quickly developing mobile market. It recently announced the purchase of mobile-device security company tenCube, a move that follows its purchase of Trust Digital, another mobile-security-software firm.

Intel, for its part, has been targeting the smartphone space with its Atom chip, which is widely popular in netbooks, but has yet to make waves in a cell phone market dominated by less power-hungry chips built by Qualcomm Inc. and others off of a design from ARM Holdings PLC.

The company has been targeting software firms to bring it into these new markets for some time. Last year Intel purchased software-maker Wind River Systems Inc. for $884 million to help move its Atom chip into embedded devices such as electronic billboards or automatic teller machines. By providing software, Intel makes it easier for customers to adopt its chips instead of those made by rivals.

Intel Chief Financial Officer Stacy Smith said in April that his company would be looking at software acquisitions to help it make more customized server and mobile seo products.

"In everything we do, software becomes more important," Smith told Dow Jones Newswires.

Intel expects the deal to "slightly" cut into earnings the first year after closing because of merger-related charges, and have little impact on the bottom line in the second year. A slight increase after those charges are seen in the first year.

The deal is Intel's second this week. Monday, Intel said it would buy Texas Instruments Inc.'s cable-modem product line for an undisclosed amount.

The acquisitions come as Intel last month reported its best-ever quarterly results in an ongoing rebound in the semiconductor market. For its part, McAfee's second-quarter earnings rose 38%, allaying concerns about its business after a weak first quarter. The company said sales grew sharply in North America, one of its key markets.

"The deal makes a lot of sense strategically over the long-term," said Patrick Wang, a chip analyst at Wedbush Morgan. He said that by integrating McAfee's security products, it's possible that Intel devices will soon be able to conduct real-time scanning for viruses and spyware, speeding up the process of protecting PCs and smartphones.

"From a technology standpoint, I really like it," said Wang.