Intel-McAfee Deal Underscores Hardware-Software M&A Trend

Intel Corp.'s (INTC) $7.7 billion bid to buy computer-security software maker McAfee Inc. (MFE) underscores a growing trend in technology acquisitions: deals that bind hardware and software more closely together.

On Thursday, the Santa Clara, Calif.-based chip giant said it would pay $48 for each share of McAfee, a 60% premium to Wednesday's closing price. Intel said the deal was part of efforts to build software directly into products, something it views as necessary as powerful mobile devices become increasingly popular.

"Hardware-enhanced security will lead to breakthroughs in effectively countering the increasingly sophisticated threats of today and tomorrow," said Renée James, who manages Intel's Software and Services Group, in a statement. "This acquisition is consistent with our software and services strategy to deliver an outstanding computing experience in fast-growing business areas, especially around the move to wireless mobility."

The Intel-McAfee transaction comes against a backdrop of similar deals that merge hardware and software. These types of deals allow companies to offer complete products and break with the prevailing tradition of companies specializing in a discrete area. Apple Inc. (AAPL), maker of the popular iPhone and iPod mobile devices, is one of the few companies that has concentrated on integrated hardware-software products.

The deals come against a backdrop of increased technology M&A. So far this year, tech companies have bought about 1,550 firms, according to Dealogic. By comparison, tech companies bought just about 1,050 companies in the same period a year earlier.

Many of the most high-profile deals have merged hardware and software. Earlier this year, Oracle Corp. (ORCL) closed its $5.6 billion takeover of Sun Microsystems, a deal that gave the business software maker a huge presence in servers, the computers that power data centers. Similarly, computer giant Hewlett-Packard Co. (HPQ) purchased struggling Palm Inc. for its well-regarded operating system software, which it will likely use in its own mobile products. H-P also said it was buying Fortfiy Software, a software security firm.

Intel itself has been buying software companies to bolster its product lineup. It bought Wind River Systems to expand its reach in mobile products, an increasingly important field as smartphones and tablet computers become more popular. It also bought Havok, which makes software facilitating animation in videogames.

Buying McAfee will give Intel more flexibility in building products that can handle attacks on mobile devices. According to research firm Gartner Inc., consumers bought 54.3 million smartphones in the first quarter of 2010, up nearly 50% from the first quarter of 2009. In March, data tracker IDC forecast worldwide mobile-security license and maintenance revenue would more than double, to $2.7 billion by 2014 from $1.3 billion in 2009.

The acquisition should strengthen Intel's mobile strategy. McAfee, best known for its anti-virus software, recently said it was marshalling more strength to go after the mobile market. It recently announced it was acquiring mobile-device security company tenCube, a move that follows its purchase of Trust Digital, another mobile-security-software firm.

-By Jeanette Borzo and Andrew Morse

Mcafee (NYSE:MFE)
Historical Stock Chart
From Jun 2024 to Jul 2024