Analysts Find The Intel-McAfee Deal Not Making Any Sense

Intel announced its plans to buy security vendor McAfee for $7.68 billion (approx. Rs.35,674 crore), valuing the company at a 60 percent premium over their market cap. And the analyst fraternity the world over is, to put it mildly, stumped! While some highlight the brighter aspects others point out how the deal defies all conventional logic.

One of the rationales mentioned on McAfee CTO George Kurtz’s blog post, is that by bringing software closer to the silicon Intel will provide a security advantage to its consumers and businesses. Reacting to this Graham Titterington, principal analyst, Ovum says, “Clearly there is a risk of monopolistic concerns damaging the market. Effective security has to work at the platform, network, and business levels and a secure chip cannot address all of these by itself.”

A similar sentiment was echoed by Andrew Jaquith, Senior Analyst, Forrester Research who says, “It is easier to push down a software update than to pull a motherboard. I am not convinced that a hardware-based strategy for security will resonate with enterprise buyers.”

But on a different note, Kumar Parakala, Head of IT Advisory-EMA and India, KPMG points out, “The merger highlights the importance of IT security and in a world that is increasingly being connected through mobile devices, security becomes a differentiator. This merger would most likely be a game changer.

A further push into the mobile market is also seen as a possible logic behind the deal.  But Jaquith says, “In the mobile market, Intel has had its lunch eaten by ARM Holdings, a company whose energy-efficient designs have underpinned the chips of choice on mobile devices like Apple's iPad.”  McAfee, however has recently acquired two mobile security companies. “But speaking charitably, neither of these most recent two acquisitions will be (as the equity analysts like to put it) ‘accretive to earnings or revenues’ in the short to medium term,” he adds.

Also, “The acquisition seems to be more of a futuristic move as mobile non-PC devices, automobile gadgets, and consumer electronics products hardly face security threats of the kind and order faced by PCs. And this is hardly a key criterion for justifying the current move,” says Kapil Dev Singh, Strategic Business Advisor, IDC India.

Read IT Industry Sees Defense-in-Depth As Emerging Trend With The Intel-McAfee Move

But McAfee had little to lose and much to gain out of this deal. An all cash deal, especially at premium of 60 percent seems too hard to resist. “Moreover, having the status of independent arm, with no job cuts the McAfee management, employees and shareholders could not have hoped for a better deal,” says Parkala. And access to platforms of biggest chipmakers of the technology space too could have led McAfee to agree to the sell out.

In the mean time the deal is expected create waves in the security industry. Analysts feel that McAfee’s competitors like Symantec and Trend Micro will leave no stone unturned in trying to woo its existing customers. “We expect that customers that have already been angling to jump ship will use this deal as an excuse to accelerate those plans,” says Jaquith.

It will also lead to speculation of other security vendors being up for grabs. “The acquisition may cause a ripple effect in the security landscape, with most of us wondering whether other companies, that are McAfee’s competitors, could be the next potential target for acquisition,” says Parakala.

But what this deal will do for Intel – only time will tell.