Intel, After McAfee Deal, May Find Mobile Security a Hard Sell
Intel Corp. CEO Paul Otellini
Andrew Harrer/Bloomberg
Intel Corp. Chief Executive Officer Paul Otellini.
Intel Corp. Chief Executive Officer Paul Otellini. Photographer: Andrew Harrer/Bloomberg
Aug. 19 (Bloomberg) -- David Sowerby, portfolio manager at Loomis Sayles, talks with Bloomberg's Julie Hyman about the outlook for stocks and bonds, Intel Corp.'s agreement to purchase McAfee Inc. and Loomis Sayles's holding of Interval Leisure Group Inc. McAfee investors will receive $48 a share in cash, Santa Clara, California-based Intel, the world’s largest chipmaker, said in a statement today. That’s 60 percent more than McAfee’s closing price yesterday. Both boards have unanimously approved the deal, Intel said. (This is an excerpt from the full interview. Source: Bloomberg)
Aug. 20 (Bloomberg) -- Richard Falkenrath, a principal at Chertoff Group and a Bloomberg Television contributing editor, talks about cybersecurity and Intel Corp.'s $7.68 billion acquisition of security software maker McAfee Inc.. Falkenrath speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Aug. 19 (Bloomberg) -- Patrick Wang, an analyst at Wedbush Securities, talks about Intel Corp.'s agreement to buy McAfee Inc. for $7.68 billion, its largest acquisition, adding security software to its chipmaking arsenal. He speaks with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)
Intel Corp. Chief Executive Officer Paul Otellini, with the $7.68 billion acquisition of security software maker McAfee Inc., is betting that customers will pay to guard against attacks that have yet to materialize.
Otellini yesterday announced his company’s largest takeover, aimed at adding McAfee’s security software to products sold by Intel, the world’s biggest maker of chips for computers.
McAfee would help Intel get semiconductors laden with security features into smartphones, cars, televisions and other devices. Yet that may prove a hard sell for consumers and businesses unconvinced that mobile electronics are vulnerable to the same threats that plague computers, said Alex Vallecillo, a fund manager at PNC Capital Advisors LLC.
“The premise is there’s a market for mobile security,” said Vallecillo, whose firm sold its Intel shares this year. “So far, I haven’t heard about massive virus attacks hitting smartphones or iPads.”
Intel, based in Santa Clara, California, gets more than 90 percent of its sales from semiconductors for PCs. Integrating McAfee security into its products will make machines based on them more efficient, secure and alluring to makers of other kinds of devices, Intel said yesterday. McAfee investors will get $48 a share in cash, a 60 percent premium over the company’s closing price the day before the deal was announced.
“As we look at all of the growth areas for Intel silicon, one of the consistent purchase criteria for both IT managers and consumer is security,” Renee James, the head of Intel’s software division, said in an interview yesterday. “This is a pretty natural step for us.”
Mounting ‘Threat’
Software can run more quickly when it’s woven directly into a chip and doesn’t have to go through other programs, Intel says. That also makes it harder for hackers to circumvent. In the first half, McAfee added more than 10 million new malware variants to its database of security threats, Otellini, 59, said on a conference call yesterday.
“The number of new security threats identified every month continues to rise,” Otellini said. “We have concluded that security has now become the third pillar of computing, joining energy-efficient performance and Internet connectivity in importance.”
Still, while computers are susceptible to viruses and hackers, there’s little evidence of widespread security threats to smartphones and other mobile devices, said analysts at Gartner Inc., a Stamford, Connecticut-based research firm.
‘No One Screaming’
Intel will have to persuade customers they need security in non-PC electronics in much the same way it has convinced businesses and consumers that they required chips that speed computing tasks or ensure seamless wireless connections.
“Right now nobody is screaming for security in their cars and in their cell phones,” said Gartner’s Peter Firstbrook. Intel rose 1 cent to $18.91 at 4 p.m. New York time on the Nasdaq Stock Market. McAfee, also based in Santa Clara, rose 2 cents to $47.03 in New York Stock Exchange composite trading.
Otellini aims to replicate the three consecutive years of 13 percent growth that followed the 2003 introduction of Centrino, a line of wireless computing products. Analysts predict that Intel’s sales growth next year may slow to 6 percent after a 27 percent jump this year.
“Intel recognizes that with current revenue levels, it needs to be more aggressive,” said Matthew Cowan, co-founder of venture capital firm Bridgescale in Menlo Park, California, who formerly worked in corporate development at Intel. “As we move from a PC-centric era to a mobile-centric era, Intel needs to take advantage of every opportunity to expand its footprint into that marketplace.”
Wider Margins
McAfee may help Intel generate wider profit margins, analysts said. Intel expects a record 67 percent gross margin this quarter. McAfee reported a gross margin of 73.3 percent in its most recent period. Excluding cash on McAfee’s books, the purchase will cost Intel $6.8 billion. McAfee will have to pay $230 million if it backs out of the transaction.
Intel chips with built-in security software will debut in the first half of next year, Intel’s James said. The company projects that McAfee can increase its sales in “double digits,” she said. McAfee will continue as an independent company run by current CEO Dave DeWalt, and it will keep selling its stand-alone software products, James said.
As an increasing array of devices, including televisions and other home-entertainment equipment, connect to the Internet, the need for security software is growing, DeWalt said.
High Price
Intel is paying a higher-than-average premium for McAfee, Bloomberg analytics show. In the past five years there have been 171 acquisitions in the Internet security business, with an average premium of 22.3 percent, according to Bloomberg analytics. Intel also is paying 3.29 times McAfee’s revenue, compared with a five-year median of 2.07 times revenue.
Before McAfee, Otellini’s biggest takeover was in June 2009, when Intel acquired Wind River Systems for $884 million, gaining a maker of operating systems used in machines as varied as cars and wireless handsets. Intel is in talks to buy the mobile-phone chip unit of Infineon Technologies AG, two people familiar with the discussions said last month.
As it bought McAfee, Intel was advised by Goldman Sachs Group Inc. and Morrison & Foerster LLP. McAfee’s advisers were Morgan Stanley and Wilson Sonsini Goodrich & Rosati.
To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net
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