Last updated: August 19, 2010 6:55 pm

Intel to purchase McAfee for $7.7bn

Intel on Thursday unveiled a $7.7bn acquisition of McAfee, the US security software company, in a move prompted by the rising threat from viruses as the internet spreads to more mobile devices and everyday appliances.

The purchase is set to turn the world’s largest chipmaker into one of the leaders in security extending Intel’s reach into internet-connected devices from tablet computers and handsets to televisions and fridges.


However, coming on the heels of an antitrust settlement with US regulators, the deal raised fresh concerns about Intel’s ability to dominate part of the tech world by “baking” security into its chips, which are used in most personal computers.

The deal, the largest in the chipmaker’s history, also represents a risky and unconventional bet by Intel following a series of failed attempts to diversify away from its core PC market in the past. Intel has made unsuccessful forays into communications and consumer electronics markets over the past decade before retreating.

Intel said the acquisition would boost its strategy in mobile wireless, where it is beginning to produce chips for smartphones. It also sees security becoming a key requirement as billions of new devices are connected to the internet over the next few years.

“Security has now become the third pillar of computing, joining energy-efficient performance and internet connectivity in importance,” said Paul Otellini, chief executive of Intel.

Asked on an analyst conference call whether Intel’s recent run-ins with the Federal Trade Commission over alleged abuse of its market dominance might mean stronger regulatory scrutiny, Mr Otellini said: “I don’t know that we’re looking at bundling [McAfee software with Intel hardware] . . . we intend to continue to work with other security vendors.”

The acquisition puzzled many security industry executives . While experts hope that chips can be made better to withstand malicious attacks, that prospect is seen as being years away.

“I don’t think putting security in hardware is likely or even useful, particularly the products McAfee does now,” said Peter Firstbrook, a security industry analyst at Gartner.

Intel is paying $48 a share in cash. Andy Bryant, Intel’s executive vice-president, said the 60 per cent premium on McAfee’s Wednesday closing price was within the range of recent large security and software transactions and a “reasonable price” considering McAfee’s growth and profitability. Both boards have approved the deal.

Intel shares fell 3.5 per cent in midday trading on news of the deal, while McAfee shares were up 57 per cent at $47.14.

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