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Yes, it's clear that Intel wants to make security a top priority. However, this article still doesn't explain why acquiring McAfee in particular makes any sense

by sdz 16y ago

Yes, it's clear that Intel wants to make security a top priority. However, this article still doesn't explain why acquiring McAfee in particular makes any sense, especially at a cost of $7.7 billion. Yes, it does say that the "McAfee purchase gives Intel an instant foothold on countless PCs," but these are not the PCs that Intel is after. These PCs already have Intel chips on them. Intel presumably wants security as a headlining feature for their next generation chips to entice users to upgrade. In addition, Intel can gain an even wider-reaching foothold into your PC by bundling a driver and distributing it through Windows Updates, as it does already with its integrated video solutions. They presumably wouldn't need to pay Microsoft $7.7 billion for the priviledge of making Windows more secure. Aside from the foothold in your PC, then, what is left of the "long-term, strategic buy"? There might be some patents and some talented developers, but for a company that already spends $5 billion on R&D every year, it's hard to understand why Intel couldn't come up with an in-house solution. No, the real reason why Intel bought McAfee is probably much more pedestrian: Intel is simply sitting around with too much cash earning too little return.

tptacek 16y ago
(1) McAfee is a cash register that can be valued at some multiple of the next N years earnings. (2) Intel has a huge and underutilized repertoire of security infrastructure technology that it can't, as a hardware vendor, fully exploit right now. (3) McAfee has a huge installed base across the Fortune 1000. (4) McAfee and Intel were already collaborating on integrating AV with hypervisors and remote management. From a strategy perspective, this seems pretty straightforward. Intel is vertically integrating. ISVs weren't taking advantage of Intel's existing security investment, probably in part because the industry was structurally resistant to that happening. Rather than waiting and hoping for the stars to align, Intel is taking control of its own destiny.
- oiuyhftgrghj 16y ago
  (5) Some VP at Intel wants to be a big man on Wall St and get his pic in the WSJ. He finds a strategic acquisition candidate that doesn't upset the regulators (unlike say buying Arm or Nokia) He spends a bunch of other peoples money on it, he skips to a new job before the whole sorry mess collapses around him.
- sdz 16y ago
  I agree that there is a strategy here. However, every strategy needs to be evaluated relative to the cost, and from my point of view, the price that Intel is paying to execute this strategy is too high. If we look at MFE's peak earnings from FY2009, it's $173m. So a $7.7b price tag is just under 45x. In other words, it'll take 45 years of FY2009 earnings to merely regain the initial investment. Now let's be more generous and give Intel a low discount rate of 5% and assume that those earnings grow compounded 10% each year. It will still take 25 years for Intel to make back that investment. Of course, the investment gets better if there are synergies that will provide additional boost to Intel's earnings, but what are they? I don't really buy (2) since Intel has shown that they are capable of getting their software onto your computer when they want to (see their integrated video drivers that download through Windows Update). But even if they couldn't, they could have just continued collaborating with McAfee without buying them. That's essentially the exact same thing as what's happening now, minus the big transfer of wealth from Intel shareholders to McAfee shareholders. I suppose that I'm just not convinced that Intel couldn't have rolled their own solution for less than $7bln. Even if they really needed to buy McAfee, a 60% premium over the market price is pretty steep, and it's hard for me to see how that adds more value to Intel shareholders than a 7% special dividend or buyback. So far, I haven't seen an argument that's made me think, "Oh yes, that IS something I'd pay $7 billion for."
  - tptacek 16y ago
    Drivers and antivirus are not comparable footholds on desktop computers. Enterprises don't buy premium drivers. They don't select vendors based on driver brands. And, as Intel seems to have found, they don't pay premium prices for desktop chipsets based on remote access drivers. McAfee's gross revenues for the last 12 months total over 2 billion dollars; that's many many hundreds of millions of dollars worth of enterprises specifically selecting McAfee software as part of their standard build and as part of the mechanism by which they track and secure their computers. Is MFE worth the premium? I have no idea. But the "synergy" here is not very fuzzy. Intel has a clear path towards both integrating and bundling MFE's value propositions into their own hardware, and to generating lock-in both based on MFE's brand (which may command north of 40% of the enterprise market) and on a combined AV/hardware security offering that won't be available from any other mainstream vendor. I don't want to sound like a booster for this acquisition. I'm not. I'm just saying that it's nowhere near as crazy as some people (particularly the "what's Intel going to do, implement AV in ASIC?" crowd) seem to think it is. This is a straightforward vertical integration play, along an axis in the industry (enterprise desktop security) that is natural for Intel to be exploring given their last decade's worth of investment.

by sdz 16y ago

tptacek 16y ago

(1) McAfee is a cash register that can be valued at some multiple of the next N years earnings. (2) Intel has a huge and underutilized repertoire of security infrastructure technology that it can't, as a hardware vendor, fully exploit right now. (3) McAfee has a huge installed base across the Fortune 1000. (4) McAfee and Intel were already collaborating on integrating AV with hypervisors and remote management. From a strategy perspective, this seems pretty straightforward. Intel is vertically integrating. ISVs weren't taking advantage of Intel's existing security investment, probably in part because the industry was structurally resistant to that happening. Rather than waiting and hoping for the stars to align, Intel is taking control of its own destiny.

oiuyhftgrghj 16y ago
(5) Some VP at Intel wants to be a big man on Wall St and get his pic in the WSJ. He finds a strategic acquisition candidate that doesn't upset the regulators (unlike say buying Arm or Nokia) He spends a bunch of other peoples money on it, he skips to a new job before the whole sorry mess collapses around him.
sdz 16y ago
I agree that there is a strategy here. However, every strategy needs to be evaluated relative to the cost, and from my point of view, the price that Intel is paying to execute this strategy is too high. If we look at MFE's peak earnings from FY2009, it's $173m. So a $7.7b price tag is just under 45x. In other words, it'll take 45 years of FY2009 earnings to merely regain the initial investment. Now let's be more generous and give Intel a low discount rate of 5% and assume that those earnings grow compounded 10% each year. It will still take 25 years for Intel to make back that investment. Of course, the investment gets better if there are synergies that will provide additional boost to Intel's earnings, but what are they? I don't really buy (2) since Intel has shown that they are capable of getting their software onto your computer when they want to (see their integrated video drivers that download through Windows Update). But even if they couldn't, they could have just continued collaborating with McAfee without buying them. That's essentially the exact same thing as what's happening now, minus the big transfer of wealth from Intel shareholders to McAfee shareholders. I suppose that I'm just not convinced that Intel couldn't have rolled their own solution for less than $7bln. Even if they really needed to buy McAfee, a 60% premium over the market price is pretty steep, and it's hard for me to see how that adds more value to Intel shareholders than a 7% special dividend or buyback. So far, I haven't seen an argument that's made me think, "Oh yes, that IS something I'd pay $7 billion for."
- tptacek 16y ago
  Drivers and antivirus are not comparable footholds on desktop computers. Enterprises don't buy premium drivers. They don't select vendors based on driver brands. And, as Intel seems to have found, they don't pay premium prices for desktop chipsets based on remote access drivers. McAfee's gross revenues for the last 12 months total over 2 billion dollars; that's many many hundreds of millions of dollars worth of enterprises specifically selecting McAfee software as part of their standard build and as part of the mechanism by which they track and secure their computers. Is MFE worth the premium? I have no idea. But the "synergy" here is not very fuzzy. Intel has a clear path towards both integrating and bundling MFE's value propositions into their own hardware, and to generating lock-in both based on MFE's brand (which may command north of 40% of the enterprise market) and on a combined AV/hardware security offering that won't be available from any other mainstream vendor. I don't want to sound like a booster for this acquisition. I'm not. I'm just saying that it's nowhere near as crazy as some people (particularly the "what's Intel going to do, implement AV in ASIC?" crowd) seem to think it is. This is a straightforward vertical integration play, along an axis in the industry (enterprise desktop security) that is natural for Intel to be exploring given their last decade's worth of investment.