The right stuff?

Intel has bought out McAfee in a massive deal that's caught many tech commentators offguard. Was the chip firm's decision a smart move?

Tags: AntiVirusCPUIntel CorporationMcAfee IncorporationUSAUnited Arab Emirates
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By  Imthishan Giado Published  August 25, 2010

So. Intel's acquired McAfee for a massive $7.68 billion, a deal that's the largest in security software history. CEO Otellini believes it's adding a "third pillar" to the company, an in-house security arm that complements its push for computing efficiency.

But why does it feel like a colossal mistake?

After all, the history of technology firms is littered with massive acquisitions. AOL Time Warner was born from the $164 billion merger of Time Warner and the number one American service provider, America Online. Or what about trend-setting hosted e-mail firm Hotmail, which Microsoft purchased for a snip at $400 million in 1997? Let's not forget the foregone conclusion that was Compaq's decision to buy struggling-but-innovative manufacturer DEC for a cool $9.6 billion, and which as we all know has since gone from strength to strength.

Oh wait, these aren't perhaps the best examples.

Yes, I know I'm cherry picking my way through technology history, but the fact is that any large acquisition is one that's fraught with danger. Just ask Yahoo! which purchased web hosting service Geocities for a cool $3.57 billion in 1999 and then proceeded to do very, very little with it for the following ten years. Geocities came to a sad and quiet end last year, forgotten by all but the earliest web users.

The disquieting truth is that most major firms are in what can only be described as an acquisitive mood. Whether it's Oracle buying out Sun, or virtually every single vendor in the business intelligence market being bought out by a larger player, everyone's out to buy something it seems now. Witness the epic catfight between Dell and HP for storage vendor 3Par.

Are all these buyouts a good thing? Companies acquire other ones for three reasons - to gain access to a lucrative new market (think Sony buying Columbia pictures), to gain access to a rival's customer base (Yahoo! buying Altavista) or acquire new intellectual property that can boost their primary business (think AMD buying ATI).

None of these reasons really apply, simply because I don't see any real crossover between what McAfee do and Intel's primary line in the semiconductor business. The security market is certainly booming  - analysts like Gartner suggest that software alone could be worth as much as $16 billion this year. In fact, this could well be a canny move on Intel's part, getting a foot in early on a blossoming market.

But then, why buy McAfee - and for so much? The only more expensive firm that they could have acquired would have been Symantec, but it would have been far wiser to go after one of the smaller firms like Kaspersky, Trend Micro or even ESET - all of which would have been several billion less, to say the least. Some have suggested that having a bigger parent fosters innovation but I beg to differ - how many small companies have found their unique culture stifled by the corporate straitjacket? For examples, you need only look at Tipping Point, which was swallowed up first by 3Com and then HP. Of course 3Com also owned Palm, which is witnessing a veritable exodus of top-flight employees since the acquisition.

And then there's the larger question of consolidation itself being a good thing. As I mentioned earlier, this is a wave sweeping the industry and in many ways, I feel like Intel's jumping on the band wagon.  One than more CIO has remarked to me in private however, that having multiple vendors is necessary to ensuring a competitive marketplace - and that every year, they seem to have less and less choice.

Maybe I'm wrong. Maybe Intel will make this a huge security success to rival the likes of RSA which EMC purchased, or Symantec's Verisign. Or maybe, like Microsoft, it will become another Danger, which after two years of work produced a phone which lasted just a few scant months on the open market.

I'll tell you who the real, undisputed winner in all of this is though -David DeWalt, McAfee CEO. A mere three years after joining on, he's refocused the firm heavily onto enterprise products away from the vagaries of the consumer market and then successfully negotiated a multi-billion dollar buyout by a completely-unrelated firm.

Who wants to bet he'll be the next CEO of HP?

3162 days ago

Quite an odd acquisition really unless Intel is planning to embed on their processorsa builtin AV or security protection with flashable area where updated DEFs can be uploaded.

Or something bigger might be behind the scene that Intel is working on...let see.

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