Experts and insiders weigh in on McAfee’s buyout

by Steve Ragan - Aug 20 2010, 19:30

By now, even people living under a rock know that Intel paid nearly $8 billion for McAfee in a surprise announcement on Thursday. Now, 24-hours later, experts are expressing their thoughts, including one who says enterprise customers should be wary of making long-term commitments to McAfee.

Both Intel’s board of directors and McAfee’s board approved the deal allowing Intel to pay a 60-percent premium for McAfee’s common stock. Intel will acquire all shares at $48.00 each, a transaction worth $7.68 billion.

Intel said today’s security approach does not fully address the billions of new Internet-ready devices. The move to purchase McAfee adds what Intel calls a “third pillar” of security to their products, the company said in a conference call Thursday. To that end, some of the products developed with the merger of McAfee’s IP could be seen as soon as 2011.

Early reports from business news stalwart Bloomberg noted that focus of the McAfee deal was mobility. The New York Times said that Intel merger with McAfee would increase the existing hardware-based security offerings from the chipmaker.

McAfee themselves noted that more hardware-based solutions are needed, “bringing software closer to silicon will provide a real advantage for consumers and businesses,” McAfee’s CTO George Kurtz explained.

“These arguments have their merits,” wrote Forrester’s Andrew Jaquith in a company blog post.

“Everyone agrees that mobility is huge, and that the post-PC market will eventually eclipse today’s PC market… 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).”

At the same time, Jaquith sees four problems with the merger, the first being that neither Intel nor McAfee are serious players in the mobile market. Adding to that, hardware-based security offerings to Intel’s silicon will been seen as a bonus, not a focal point for enterprise management strategies.

He also noted that Intel doesn’t understand software, based on their past track record, and the aftermarket for security on Post-PC devices will be very different. [Read the whole post here.]

“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,” Jaquith wrote.

Later, he said that given the risks associated with this deal, “enterprise customers should be wary of making long-term commitments to McAfee until Intel’s intentions are clearer.”

While many of the CEO’s who issued statements on the Intel/McAfee merger had positive things to say, and were overall excited to see the potential for future changes, they also had some reservations.

“I think it is good to see IT security becoming an important part of a hardware manufacturers' core offering rather than something the consumer is responsible for after their purchase. Just like when you buy a car, you’re not expected to go out and buy seatbelts and airbags as an aftermarket accessory,” said Patrick J. Clawson, the CEO and Chairman, Lumension.

But still, there are potential challenges. “While McAfee recently purchased mobile security technology from firms like Trust Digital, it has not shown there is much of a market there yet. I personally believe that a substantial market segment will evolve in that space over time, however,” Clawson noted.

Juan Santana, CEO for Panda Security also had some good things to say, and raised some interesting questions.

“Time will tell if the acquisition is good news or not for McAfee and Intel’s users, partners, employees and shareholders; but I agree that it is clearly elevating the importance of IT security to new heights within the computing industry. This by itself is great news. As we have been saying all along, security has to be a pillar in next generation computing.”

He also ponders what happens next, especially when he considers what Intel will do with McAfee’s consumer business. “If they keep it, what is the strategy around it? And can they better execute against the clear threats that the business unit faces?”

Another question Santana raised is the question of why now? “Although Dave and his team have executed impressively over the years, market expectations were higher and that is reflected in the share price performance. I think McAfee was finding it increasingly tough to compete with Symantec on the high end large end accounts.”

Finally, Rich Mogull, the CEO of Securosis, said the good news is that while Intel might not see the returns they are after with the rather large investment, “I also don't think this will hurt customers.”

“Much of the integration was in process already, as it is with other McAfee competitors and McAfee will probably otherwise run independently. Unlike a small vendor, they are big enough and differentiated enough from the rest of Intel to survive.”

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