Intel's purchase of McAfee is a head scratcher

Intel's intended acquisition of McAfee for $7.68 billion is a real head-scratcher. They could have purchased comparable security technology or more attractive security businesses for much less.  I don't get it, and I want to get it because I am impressed by Intel's leadership efforts with security and McAfee's pragmatic approach to endpoint security. This deal just does not make sense on so many levels, except for McAfee shareholders who were last seen in the streets hugging and giggling.

Still, Intel is full of smart people and there are ways that McAfee capabilities can contribute to the bottom line. These are some of the capabilities that may be interesting to follow:

  • Creates demand for more powerful processors with embedded security. Nothing consumes processor cycles like AV-based endpoint security, and the complexity of inspecting content for malware is only going to increase. Perhaps McAfee on a chip will increase sales in Intel's core business. Ok, that's a stretch - this is not like EMC securing its core storage business with RSA or Oracle controlling its database environment with Sun hardware.

  • Intel can build on the skills required to distribute huge volumes of attack signatures from internal data centers through the cloud to remote endpoints. The cloud is changing distribution models allowing vendors to reach customers directly, and some of the traditional middle-man approaches will have to evolve to avoid being tomorrow's losers. If Intel does not want to be totally dependent on platform vendors (e.g. Dell, HP), operating system vendors (e.g. Microsoft), or service providers (e.g. AT&T, Verizon) to ship software products and upgrades to consumers, then it needs to own that competency. McAfee is excellent at automated world-wide delivery of anti-virus data from high performance data centers to a large number of consumers. Of course, for less money Intel could discover that Lumension also has outstanding communication capabilities for managing patches and configuration information as do a gazillion other less expensive AV vendors.

  • Intel can accelerate adoption of security features in hardware by being the first to offer products. vPro has exciting security features for isolating virtual machines, managing security keys and secrets, and updating security profiles even if the machine is hibernating. However, the security industry has been glacially slow in taking advantage of these features- partly because it raises "innovator's dilemma" problems that are not clearly in the security vendors' best interests. There is no question that McAfee brings considerable security expertise, and that McAfee has been actively working with Intel so this acquisition may add needed momentum to Intel's security program. The downside is that deep-dive conversations with security businesses such as Microsoft, Symantec, and Trend Micro will be more difficult knowing that secrets may find their way quickly to a competitor, and it is not at all obvious that McAfee's traditional endpoint security is the type of security that is best for Intel.

  • Intel  diversifies its business to better ride out tough economies by branching into endpoint security software. Intel chip production and revenues drop off dramatically when orders for desktops and laptops dry up while security has performed well during this world wide recession. Buying an established and stable billion dollar business provides Intel more flexibility in managing its business and hopefully smoothing out disruptions caused by economic cycles.

But if the idea is to diversify with security lines of business, leverage unique technology, or establish a cloud-based infrastructure that can directly reach consumers, is McAfee really the best choice? Just for fun, if I had several billion dollars to buy a present for Intel, I would suggest these billion dollar a year businesses:

  1. Check Point offers a strong sustaining network appliance business and also has Zone Labs endpoint security expertise. Intel chips can drive Check Point firewalls (albeit in numbers that may not interest Intel), Check Point's software blade architecture could provide Intel with great flexibility in incorporating future growth opportunities, and Zone's endpoint security with DLP can be used to enhance hardware security.

  2. Citrix core application virtualization business would deliver annual revenues while its Xen virtualization technology could open paths for Intel into storage systems, networking features, endpoint security and management, and cloud-based delivery systems. In fact, a bare metal hypervisor embedded with Intel Inside could be a disruptive force to the way software is secured and deployed.

  3. Trend Micro, if Intel must do endpoint security, has a significant head start in using virtualization and cloud-computing while also offering top-tier endpoint security. Compared to other security vendors, Trend is ahead of the curve when it comes to using the cloud to protect consumer configurations and business data with a business model that would be attractive to Intel. That seems to be a better fit than McAfee.

Who else makes sense for Intel? Should they act like Cisco and focus on buying smaller companies with interesting technology? Should they look for mature business with predictable revenue streams like Symantec? Or is acquiring McAfee a match made in heaven? Who would you buy if you were Intel? Hey, it's only money!

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