In a surprise move Intel is buying McAfee for $7.68 billion, a whopping great 60% premium that will be slightly dilutive for the semiconductor giant initially.
It is Intel’s biggest acquisition ever by a factor of three.
CEO Paul Otellini said during a conference call Thursday morning that the purchase “transitions Intel from a PC company to a computing company.”
Intel explained that that the acquisition, part of its mobile wireless strategy, will let it combine security software and hardware as billions of still relatively innocent, unprotected devices – and the server and cloud networks that manage them – go online. It also differentiates Intel from its competition.
The move is supposed to put security “on a par with energy-efficient performance and connectivity” as a pillar of its business. Intel’s vision includes TVs, cars, medical devices and ATM machines and it noted that cyber threats are spiraling out of control.
So a “fundamentally new approach” is needed and it promised that hardware-enhanced security would lead to breakthroughs in countering the increasingly sophisticated threats.
The move was immediately seen as a reach for inorganic growth with better margins in a business that’s less bumpy than chips. For instance, PC order trends have sharply deteriorated lately. McAfee does close to $2 billion a year, has seen 20% growth recently and fetched close to an 80% gross margin last year. It only makes about $200 million however.
The deal will cost Intel $48 a share in cash. Net of McAfee’s cash, it will cost Intel about $6.8 billion.
Intel will run McAfee as an independent subsidiary reporting to Intel’s Software and Services Group under Renée James.
The security house has 6,100 people. Intel says it will keep most of them including management. Aside from its antivirus widgetry, McAfee’s wares include end-point and networking products and services and an expanding line of gear targeting mobile devices such as smartphones, a market that’s been eluding Intel.
McAfee claims 200 million users.
McAfee has been frequently cited as acquisition bait but never in association with Intel. Intel said that a quiet partnership with McAfee over the last 18 months persuaded it to make the move and then it found a lot of other projects needed to be secured.
Otellini explained that it’s not a matter of bungling but of integration. He said Intel would still work with other security vendors.
The first combined McAfee-Intel products are due in the first part of 2011. James indicated they would involve Intel’s existing Core chips with Atom to follow. Deeper integration will take a while.
Intel means to keep the McAfee brand and to have it continue to support multiple platforms.
The acquisition is expected to dilute Intel’s GAAP earnings slightly the first year and be flat the second year.
The acquisition, already approved by both boards, will hopefully close by December.
Last year Intel bought the embedded OS Wind River.