Cyber Defense Weekly August 20, 2010

The network security industry is poised at what Andy Groves would have called an inflection point: the abandonment of custom chips and the move to Intel multi-core.  Now Intel has taken disruptive action that could abort this move.  By stepping directly into the security space they will alienate McAfee's competitors in network security, making the sort of partnership required to develop content processing unlikely.

Technology acquisition.   One argument put forth by analysts so far is that by acquiring a market leading anti-virus software company Intel will be able to add security features to their core business, chips.  $7 billion dollars is a lot to pay for technology when there are 27 such technology companies, that would cost less to acquire ( Symantec, of course being more expensive).  Intel could acquire one of many anti-malware companies that have arguably better technology, better research, and much less baggage.

Brand enhancement. While there is a good argument to be made for technology vendors to acquire security companies to enhance their brands (EMC + RSA a notable example) Intel is not going to accomplish that by acquiring McAfee.  Intel already has one of the most recognized brands in all of technology and they have no negative perceptions because of a lack of security association.  Intel is highly respected across the board and is rarely faulted for lack of security.  This acquisition does not bolster their brand at all. If anything it dilutes Intel's brand.

Government play. With a tremendous increase in government spending on cyber security projected one could argue that acquiring McAfee gives Intel a piece of the action. McAfee's EPO desktop security suite is already short listed within most of the US Defense Department and the firewall business McAfee acquired with their Secure Computing acquisition has a large federal component.   But Intel is already entrenched in all aspects of state, local and federal government in almost every country in the world with their ubiquitous CPUs.  Intel needs no help getting government business.

Network play. McAfee has invested considerable time and effort in revamping the Secure Computing line into a credible network security play.  They also have one of the largest install bases of Intrusion Prevention  (IPS) solutions.  Will Intel work to enhance those network security products by supporting multi-core architectures in them?  What does that mean to every other networking company that could have been big consumers of Intel CPUs?  How will they feel about using chips from a direct competitor?  And if the acquisition is a networking play why would Intel put McAfee in their Software and Services division?

Investment.In the tradition of conglomerates and holding companies this acquisition could be viewed as an investment in the relatively stable security industry.  The plan would be to streamline operations and increase profitability.  Is Intel really trying to become the next GE or ITT?  Is that its core strength? Did it look at other investment opportunities?  I understand beach front property on the Gulf coast is looking pretty good right now.

At $7.68 billion this is the biggest acquisition of a pure play security company ever.  It is also the worst. There is no synergy, no channel benefits, marginal revenue enhancement (considering the price),  no new markets, and no meaningful strategy.

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