McAfee deal widens Intel's path in Internet devices market

Intel, signaling its ambitions to expand beyond computers and into the booming market for mobile and Internet-connected devices, announced a deal Thursday to buy security-software maker McAfee for $7.68 billion, the chip giant's biggest acquisition ever.

The surprise deal represents Intel's bold move to position its chips, primarily its lower-powered mobile processors, as an attractive choice for the billions of coming Internet-connected devices, what some have termed the Internet of Things.

By integrating McAfee's anti-virus software, the world's biggest chip maker hopes to create a product that addresses the potential security vulnerabilities created by countless wireless devices, appliances, cars, printers and ATM machines.

Intel CEO Paul Otellini said in a conference call the Santa Clara, Calif., company wants to provide added security, which he called a third pillar of computing, after energy efficiency and connectivity.

In the process, Intel is transforming from just a PC company to a broader computing company, he said.

"Our view is that everywhere we sell a microprocessor, there is an opportunity to sell security software with it," Otellini said.

The acquisition values McAfee, a leading security-software firm also based in Santa Clara, at $48 a share. That is a 60 percent premium over its Wednesday closing price.

The deal also continues a streak of cash-rich Silicon Valley titans buying neighbors, after Oracle's purchase of Sun and Hewlett-Packard's acquisition of Palm.

Intel said it would run McAfee as a subsidiary with its executive structure in place.

David DeWalt, McAfee's CEO, said he was excited about the prospect of teaming with Intel.

"By becoming part of Intel Corp., we believe we can continue to create new and innovative security solutions," said DeWalt.

Analysts greeted the news with mixed reactions. Some saw the wisdom of securing Internet-connected devices, which could hit an estimated 50 billion units in the next decade.

"If you look at the PC world, we have a stable stack and set of technologies like the operating system, middleware and anti-virus software," said Crawford Del Prete, an analyst with research firm IDC.

"But when you think of connected devices, the stack doesn't exist in the same way, and security will be a big problem for the billions of devices out there," Del Prete said.

The move will also help Intel compete against processors based on designs from ARM Holdings, which are found in virtually all cellphones and many electronics devices.

ARM chips are preferred because they offer better power efficiency, but Intel's move may help differentiate its chips by highlighting their built-in security protection.

Other analysts questioned the strategy of buying McAfee, saying it is an expensive purchase and one whose synergies may be hard to realize.

Brian Marshall, an analyst with investment bank Gleacher & Co., said its unclear how much help McAfee can provide, with its strengths in selling packaged software for PCs.

He said the business model for selling security for smaller and embedded devices is not established and may prove to be challenging.

Symantec, McAfee's biggest rival, said Intel might be too narrowly focused on securing individual devices when it should create a broader solution that addresses the multiple devices consumers will use.

Ted Julian, principal analyst at tech research firm Yankee Group, said Intel is trying to expand and buy growth, and security is a sensible area, with its stable revenue. But he questioned if Intel or McAfee are particularly well positioned to seize on the opportunity in mobile.

"Neither of them has strong connections with the cellphone carriers. If (Intel) is going after the mobile market, I'm not sure buying McAfee improves their odds more today than it did yesterday," Julian said.

Andrew Jacquith, an analyst with Forrester Research, said Intel's purchase signals a larger move by the PC industry as it tries to expand beyond personal computers and tap into the larger market for smartphones, tablets and embedded devices, such as ATMs, point of sale terminals and medical machines.

"These companies are trying to figure out and navigate this post-PC era," Jacquith said. "This deal symbolizes one of these moves to try and provide security, or at least a narrative of what this post-PC era will look like."

Intel's stock fell 3.6 percent to $18.90 Thursday while McAfee stock soared 57 percent to $47.01.

Chronicle reporter Alejandro Martinez-Cabrera contributed.