In a deal that few saw coming, chipmaker Intel has announced plans to tie the knot with McAfee, bringing the security software vendor into the fold for $7.68 billion.
The mantra repeated today by Intel and McAfee officials alike is "energy-efficient performance, Internet connectivity and security," which will now make up the three prongs of Intel's business. As a result of the deal, software from McAfee, which will operate as a division of Intel's software and services group, will be integrated into an array of the company's chips.
"While Intel buying McAfee is not the combination that investors were expecting to wake up to today, it is a monumental deal," said FBR Capital Markets analyst Daniel Ives, according to the Wall Street Journal.
Not everyone is sold, though. "The acquisition raises a lot of questions, as the synergy is not immediately obvious," said Citigroup analyst Glen Yeung, who pointed out that by partnering with software companies like McAfee, Intel has already been including security features in its chips. The deal, he suggested, was probably about controlling that software.
And the steep price tag has many puzzled. "What on earth does Intel expect to get for all of the money it is spending on McAfee? I've been scratching my head over this," wrote Forrester analyst Andrew Jaquith in a blog post.
Foreseeing the questions, McAfee CTO George Kurtz insists that the deal makes "perfect sense." In a blog on the McAfee site, Kurtz said that "given the current challenges in dealing with the proliferation of virulent malware, bringing software closer to silicon will provide a real advantage for consumers and businesses."
Intel says it's looking beyond the PC industry with the deal. "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 cyberthreats," said the company in a statement. "Providing protection to a diverse online world requires a fundamentally new approach involving software, hardware and services."
The problem, noted Forrester's Jaquith is that neither Intel nor McAfee are big players in mobile. Intel has "had its lunch eaten" by ARM Holdings in the mobile market, he wrote. And despite the recent acquisitions of mobile security companies Trust Digital and TenCube, it's not an area that makes up much of McAfee's business.
Jaquith also pokes holes in the strategy of coupling security software with hardware. "Refresh cycles cause hardware platforms to stick around much longer than software-based ones: it is easier to push down a software update than to pull a motherboard," he said.
Another problem, according to Jaquith, is that Intel doesn't understand software as well as it does hardware: "Intel's track record with deals further up the stack are patchy at best."Of course, time will tell how this deal works out. Renée James, the head of Intel's software and services group, is understandably optimistic. "Hardware-enhanced security will lead to breakthroughs in effectively countering the increasingly sophisticated threats of today and tomorrow," he said. "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."