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Why Intel is buying McAfee

McAfee could be Intel's ticket to success in the mobile market

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Intel buys Mcafee for £5 billionIntel's acquisition of security company McAfee could help the chip maker make a splash in the handheld and embedded markets, in which the company has struggled to establish a presence, according to analysts.

Intel on Thursday announced plans to acquire McAfee for US$7.68 billion, saying this will help the chip maker blend advanced hardware and software security to protect devices from internal and external threats. Hardware and software changes will improve both Intel and McAfee products, and lead to improved security for products ranging from servers to mobile devices, Intel said.

"The bottom line is this will better protect Internet users and their devices," said Intel CEO Paul Otellini, during a conference call to discuss the acquisition.

The "first fruits" of the strategic partnership will be released in the early part of 2011, said Renee James, senior vice president of Intel's Software and Services Group, during the call.

But some analysts were baffled by the acquisition as there was little connection between the companies, and raised questions on how Intel would implement McAfee's software. Intel is primarily a chip maker and does not sell PCs or mobile phones directly to customers, while McAfee is known for its malware product.

However, other analysts thought the acquisition made sense as security enablement is becoming essential. As more devices connect to the Internet, improvements in hardware and software are necessary both on devices and in the cloud for data protection.

Intel dominates the PC and server microprocessor market, but has big aspirations in the handheld and embedded market, and wants to put its chips in devices ranging from smartphones to TVs and set-top boxes. The company's strategy has been to use software to augment those platforms, and the McAfee acquisition could allow it to offer a comprehensive combination of secure hardware and software, which could help it sell more chips, analysts said.

"As [Intel] starts getting into other markets like the digital home, handsets... that's where some of this intellectual property - whether hardware or software - comes into play," said Jim McGregor, chief technology strategist at In-Stat.

Intel especially wants to make a mark in the high-volume smartphone space, which is currently dominated by Arm, McGregor said. Implementing some of McAfee's software stack in smartphone hardware could add value in Intel's offerings, giving it an edge over competitors.

"When they control the software, they can optimize the hardware to benefit from it," McGregor said. Intel's mobile and embedded strategy revolves around the low-power Atom processor, for which the company offers the Linux-based Meego OS.

Intel has to enable protection for Atom-based devices to expand its chip market, said Jack Gold, principal analyst at J. Gold Associates.

"While many look at Intel as a PC company, that is too narrow a focus for the future and Windows is only an important but decreasing share of Intel's market long term," Gold said.

Intel's move to acquire McAfee is primarily a cloud play, said Rich Mogull, an analyst with the Securosis research firm, via instant message.

"For cloud in particular, and a bit of mobile, this stuff needs to be embedded in the hardware," he said. But like some analysts, Mogull said that Intel may have overpaid for McAfee.

"I don't think the value is there - on the cloud front they will always have to give competition access to the hardware. In mobile, the platform is controlled more by the software/phone providers."

Intel already offers security features through its vPro platform for enterprise PCs, and technology to protect PCs from getting stolen. But questions remain on how Intel will implement McAfee's features in its hardware.

Intel could start off by designing its hardware to work better with McAfee software, said Nathan Brookwood, principal analyst at Insight 64. It takes time for chip designers to program, develop and implement changes inside silicon, so hardware-level implementations could take three to four years.

Some features could include security implementations at the BIOS or instruction-set levels, Brookwood said. It may be easier to implement features like pattern-matching at the hardware level. On the other hard, it would be hard to directly embed algorithms like signatures that help detect virus code, as they need to be frequently updated.

But Intel now has the mechanism to implement security features in its chips, Brookwood said. The first step was to bring the companies under the same roof so they could start planning the changes.

"A little nudge now could result in big changes in four or five years," Brookwood said.

Intel owned an antivirus business, but sold it to Symantec in 1998. McAfee already offers security software for deployment in embedded and mobile devices, and recently announced plans to acquire security companies focused on the mobile market. In July, McAfee announced that it had agreed to acquire security company TenCube, a mobile security company. In June, the company acquired Trust Digital, a provider of enterprise mobility management and security software.

(Robert McMillan in San Francisco contributed to this article.)


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