This Move Looks Like a Loser, Intel

The IT industry has always been a loose collection of wildly diverse companies, with a couple of big, finger-in-every-pie giants like IBM (NYSE: IBM  ) and Microsoft (Nasdaq: MSFT  ) sitting at the head of the table. Those days are over.

In the latest move toward a handful of IBM clones running the table, Intel (Nasdaq: INTC  ) is buying security software purveyor McAfee (NYSE: MFE  ) for a $7.7 billion cash ransom. That's a generous 60% premium to last night's closing price, and the last time McAfee's share price was above the $48 per share that Intel is willing to pay was at the height of the Internet bubble -- a three-month period in 1998-1999. McAfee's shareholders still have to approve the deal, but I don't see any complaints of "too cheap!" rising from that camp.

And antitrust investigators need not even open an inquiry this time. The business interests of McAfee and Intel overlap about as much as the fashion choices of Warren Buffett and Bjork. And that total lack of common interests makes this deal very interesting.

What's been so great about the Intel of recent years is the company's laser-like focus on its core competency: making processors to power computer systems. The company has largely done away with irrelevantia like memory chips and communications signal processors while pounding main processor rival Advanced Micro Devices (NYSE: AMD  ) with every shoe it could find like a modern-day Nikita Khrushchev.

Moving sideways into security software is akin to Cisco Systems (Nasdaq: CSCO  ) getting into the server-systems game or Oracle (Nasdaq: ORCL  ) buying Sun's hardware divisions. It makes Intel look like yet another IBM wannabe; maybe the next acquisition will bring in a line of network routers. After all, CEO Paul Otellini proclaims that security will join low-power performance and online connectivity as "a third pillar of what people demand from all computing experiences." When you consider rumors of the company is also looking to get back into communications signal processing by buying Infineon, Intel's wandering eye looks to be sweeping ever wider.

You're diluting your brand and taking resources away from what you do best, Paul. Stick with the processors you do best -- the world doesn't need yet another IBM clone.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Intel and Microsoft are Motley Fool Inside Value picks. The Fool owns shares of and has written puts on Intel. The Fool also owns shares of Microsoft and Oracle. Try any of our Foolish newsletter services free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On August 19, 2010, at 3:10 PM, drax7 wrote:

    What a stupid move by Intel. Msft will eventually include that garbage for free in its operating system, which they know intimately well. Buying a future profit stream of $200 million for $7.7 billion is a shame, in the midst of an asset defaltionary world. Where is Andy Grove, is he on the board and allowed that?

  • Report this Comment On August 19, 2010, at 5:19 PM, asH95 wrote:

    did they over pay, akin to AMD's purchase of ATI; probably. Actually this is an Intel move- seemingly AMD phobic to protecting server turf through security

    considering Intel’s current selling point- AVX /AES extensions/instructions, Intel can now monopolize ( bake in) security features through AVX/AES and, once again lock AMD out as they did with Intel’s SSE extensions. Secure internet transactions, 256-bit AES encryption, imagine, all baked in with a McAfee front end- speedy, and only a $20 a year subscription...Like Norton

    asH

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