UPDATE: Intel-McAfee Deal Underscores Hardware-Software M&A
August 19 2010 - 3:16PM
Dow Jones News
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 Renee 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 meld hardware and software. These unions allow companies
to offer complete products and represent a break with the
prevailing tradition of companies specializing in discrete areas.
Apple Inc. (AAPL), maker of the popular iPhone and iPad tablet
computer, is one of the few companies that has concentrated on
integrated hardware-software products.
Recently, however, Apple's concept of integrated hardware and
software has caught on with other companies. Most notably, software
giant Microsoft Corp. (MSFT) controls both the hardware and
software for its Xbox video games, as well as the Zune music
player.
"Apple has changed the game," said Steve Ashley, an analyst at
Robert W. Baird. "The iPhone and the iPad are game-changing
technologies. They have opened people's eyes to the importance of a
tighter relationship between hardware and software on mobile
devices."
The deals come against a backdrop of increased technology
mergers and acquisitions. 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. Intel's surprise move was one of a number of big
deals that brought global M&A volume for the week to $84.81
billion, according to Dealogic, the highest weekly total this
year.
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, Dow Jones Newswires; 415 765 8230;
jeanette.borzo@dowjones.com
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