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Posted by Andrew Jaquith on August 19, 2010
This morning Intel announced plans to buy security vendor McAfee for $7.7 billion, valuing the company at a 60% premium over their market cap as of closing-time yesterday. The valuation is about 5 times the last trailing four quarters’ revenues, which is about typical for M&A deals in the security industry, and it suggests that both parties negotiated well. The price is not so high that it makes Intel look like Daddy Warbucks, but not so low that it looks like McAfee was desperate to sell.
But of course “a not so high price” is all relative. Nearly $8 billion is a lot of money. 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, and despite McAfee CTO George Kurtz’ helpful blog post, I am still struggling to figure this one out. Let’s look at some of the stated rationales for the deal:
These arguments have their merits. Everyone agrees that mobility is huge, and that the post-PC market will eventually eclipse today’s PC market. Indeed, Forrester data shows that the crossover point is this year. Intel knows this, so it wants to plant a flag in the mobile security space it believes will be necessary to protect these new devices. Moreover, I can understand why Intel feels it ought to be baking more capabilities into silicon: it helps differentiate its chips against rivals AMD and ARM (via its licensees). Adding more functionality to core offerings as a way to entice buyers to upgrade to their platform is a classic strategy that Intel’s acquisition target (McAfee) has been perfecting for years with its desktop anti-malware suite. That product started as a humble virus scanner. Today it includes anti-spyware, a host firewall, data leak prevention, host intrusion prevention and much more. What McAfee has done on the desktop, Intel intends to do “inside,” on its silicon.
But I see four problems with Intel’s strategy (at least as much as I can glean, so far):
All of which leads me to conclude that while Intel’s stated rationales for doing the McAfee deal are very forward-looking, its likely actual revenues are mostly about the past. If Intel wants to grow the franchise for protecting PC platforms, the McAfee deal is a great acquisition. But if you view today’s security aftermarket as something that ought to be better left in the ashbin of history, where security is baked into operating systems, this deal is more of a head-scratcher. In that light, Intel’s purchase of McAfee is a lot like a horseless-carriage vendor buying a leading supplier of buggy-whips.
What does this mean for Forrester customers? Given the risks associated with this deal, enterprise customers should be wary of making long-term commitments to McAfee until Intel’s intentions are clearrt. It would be best if McAfee was left to manage itself, largely as a stand-alone company. That said, Forrester has spoken to many McAfee customers in the last several months that have been upset with McAfee’s handling of the DAT file problem from April, which caused widespread service outages. We expect that customers that have already been angling to jump ship will use this deal as an excuse to accelerate those plans.
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