Let's start with the disclaimer that I own Intel (INTC) Stock. After this acquisition, which I will try to fathom as I write this post, the stock is back down below the dismal level I bought it at. When I bought the stock, it was with the thinking that "it can't go lower than this" and for a while it hasn't. Until they overpay for a company that makes a mediocre product.
I can see geeks joking everywhere that Intel bought McAfee because the bloatware that McAfee sells is second biggest driving force for CPU upgrades after Windows. And CPU upgrades are good for business at Intel. But the real reason might just be one or more of the following
- Diversification. Intel wants to move up from just being a hardware company, maybe?
- Some future in-processor security mechanism. However McAfee is not a great acquisition for that purpose. They could have bought out one of the smaller players if it were just for the security aspect. A combination of 1 and 2 is more likely to be the driver.
- They think adding McAfee will improve profitability down the line. McAfee has revenues of $2 billion and growing with margins of 80%. But I don't see any common ground here where the acquisition will save costs. So either McAfee was seriously undervalued or the deal will bring major improvements to something Intel has in the pipeline.
As an investor I'm not exactly sure this is a good thing. It might be but I'm skeptical. I would have been much happier if they would have bought some smaller security vendor and thrown the Intel weight behind that to get people to move away from McAfee/Symantec instead. Intel spent more than half its cash on this deal. Maybe their headquarters being a stone's throw away makes it easy to merge and form Intelton, CA.
Whatever it is, hopefully this foretells less malware in our future?
Author's Disclosure: Long INTC