McAfee Another Weapon For Intel's Mobile Battle

Intel Corp.'s (INTC) acquisition of McAfee Inc. (MFE) represents the chip maker's most dramatic step yet in a quest to supply chips to virtually every electronic device connected to the Internet.

The purchase of the security-software firm adds another element to the broader strategy Intel is following as it pushes its chips from the personal-computer market into smartphones, televisions, billboards and even industrial equipment. Armed with its popular Atom processor, Intel is building an arsenal of software products that make it easier for electronics makers to build devices with its chips than those of entrenched rivals.

"Intel is looking at the competitive landscape--how the world can change and what they can do to sell more silicon," said Piper Jaffray analyst Gus Richard. The purchase of McAfee, he said, will "perpetuate Intel's architecture."

Intel announced Thursday it had agreed to pay $7.68 billion in cash for McAfee, the largest acquisition in the company's 42-year history and a major foray into the software sector. McAfee supplies the security software that protects computers from viruses and other malicious programs. It has been expanding recently into the mobile-device market with purchases of smaller security firms tenCube and Trust Digital.

Executives from the world's largest chip maker said that products enhanced by McAfee technology will be available early next year, but the combination of Intel and McAfee products obscures the broader scope of Intel's goals.

During his tenure, Intel Chief Executive Paul Otellini has aimed the company towards supplying a much wider customer base with its chips. After years fighting off rival Advanced Micro Devices Inc. (AMD) in PCs, Intel has turned to new competitors, such as Qualcomm Inc. (QCOM), Texas Instruments Inc. (TXN) and others using chips based on a design by ARM Holdings PLC (ARMH, ARM.LN).

To take on these entrenched firms, Intel is building a broader slate of products, which will now include McAfee's security acumen. Intel is currently working with Nokia Corp. (NOK) on a new mobile operating system, called Meego. Last year, Intel spent $884 million to buy Wind River Systems Inc., a fast-growing software firm that helps run cell phones and other "embedded" systems. And the company also ventured into end-user software, with an applications store, called AppUp, that works with any devices running its Atom chip.

Security, for one, is becoming a focus for manufacturers, said R.W. Baird analyst Tristan Gerra, in a note. He said it's an important feature for creating a "one-stop shop platform."

The wide array of offerings is meant to convince customers that Intel has more to offer than competitors. So far though, the company has made few inroads, with customers sticking to lower-power chips that are geared towards specific operating systems and often contain added features such as wireless radios or GPS, reducing overall costs.

But building a complete system, instead of simply supplying specific parts, is proving a winning strategy for one of Intel's Silicon Valley neighbors: Apple Inc. (AAPL), and its iPhone.

After purchasing a semiconductor company, Apple is now building its entire phone, from chip to operating system, and marrying it with a popular app store. For Apple rivals, a similar set of integrated products could be a tempting prospect. And Intel isn't stopping at smartphones. With McAfee and Wind River, it can target industrial equipment or advertisements that are now being connected to the Internet.

Some analysts say the move to create more offerings is due to the lack of a dominant software provider in these markets, like Microsoft Corp. (MSFT) in PCs.

"Increasingly because they had partnered with Microsoft, they came to rely on their partner to carry them into the next wave," Piper Jaffray's Richard said. "They can't rely on emerging companies, like Apple and Google, to carry them into the next wave, so they're building up what's needed to carry themselves. "

-By Jerry A. DiColo and Shara Tibken, Dow Jones Newswires; 212-416-2155; shara.tibken@dowjones.com; jerry.dicolo@dowjones.com.

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