UPDATE: Intel-McAfee Deal Underscores Hardware-Software M&A

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

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