Intel (INTC) Buyout of McAfee (MFE) May Shake Up Tech Sector

Today’s announcement that Intel Corp. (NASDAQ: INTC) has agreed to purchase McAfee, Inc. (NYSE: MFE) for $7.7 billion ($48/share) in an all-cash deal that could well be a game-changer, is certainly a head-scratcher at first glance.

Aside from the nearly 60% premium to yesterday’s closing price for McAfee shareholders, competitive security software firms Symantec Corp. (NASDAQ: SYMC) and CheckPoint Software Technologies Ltd. (NASDAQ: CHKP) are getting a share price boost following the announcement.

Intel’s acquisition of McAfee is subject to regulatory and McAfee shareholder approval. The boards of both companies have already agreed to the deal.

In its announcement, Intel noted that “security is now a fundamental component of online computing,” while at the same time pointing out that the myriad new mobile, internet-ready devices still lack protection against existing security threats. Intel also said that providing security in this increasingly complex universe of devices “requires a fundamentally new approach involving software, hardware and services.”

That’s a key strategy for Intel. The company has been diversifying for some time now, and the addition of McAfee is just the latest move as Intel seeks a new playground to dominate. In June 2009, Intel bought Wind River Systems, a leading software provider for embedded systems for $884 million. Embedded software plays a big role in mobile handheld devices.

Intel also recently announced a 50/50 joint venture with General Electric Co. (NYSE: GE) to develop and market products for the online health market. This deal signals a more vertically integrated approach to the technology market than Intel has shown before.

But the big prize is still on the table — Infineon Technologies AG (OTC: IFNNY), the German semiconductor firm that makes a variety of chipsets for mobile devices, including the core chipset for the iPhone from Apple Inc. (NASDAQ: AAPL). Infineon is one of only four ARM licensees able to legally extend basic ARM capabilities. Combined with Intel’s own Atom processors, Intel could offer a complete package solution to handset makers. The addition of embedded security functions only makes the offer more enticing for customers and lucrative for Intel.

Locking up a major piece of the mobile device market is what this deal is all about. And Intel sees that market as vital to its future success. The company will be playing for keeps.  The question is if other tech giants will want to in-house and bundle security in this same manner.

As of this writing, Paul Ausick did not own a position in any of the stocks named here.

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