Intel to buy McAfee in $7.68B blockbuster

Intel (INTC — NASDAQ) on Thursday morning shook up the security market by announcing plans to acquire McAfee (MFE — NYSE) for approximately $7.68 billion in what would be its biggest deal ever.

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Intel says the all-cash buyout will enable it to better secure the exploding range of Internet connected devices, the 5 billionth of which is expected to plug in this month.

“With the rapid expansion of growth across an array of Internet-connected devices, more and more of the elements of our lives have moved online,” said Paul Otellini, Intel president and CEO. He called security the “third pillar” along with energy-efficient performance and connectivity, that’s needed for industry and consumers to have trust in connecting to the Internet and making use of computing.

“Everywhere we sell a microprocessor, there’s an opportunity for a security suite,” said Otellini during a press conference on the planned buyout, adding there could be further integration of McAfee technologies into Intel products.

McAfee is expected to become a subsidiary of Intel’s Software and Services Group, managed by Renee James, Intel senior vice president and general manager. “This acquisition is consistent with our software and services strategy to deliver an outstanding computing experience in fast-growing business areas, especially around the move to wireless mobility,” she said.

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Security technology needs to be combined with hardware in order to deter new threats, said James during a conference call about the deal. Intel will bolster its hardware with technology that comes from McAfee’s current products, she said. The first results of that collaboration will be announced next year, James said.

The #2 player in the security software market, McAfee generated approximately $2 billion in revenue in 2009, and has about 6,100 employees.

The company has had double-digit growth over the last year and was an attractive acquisition target, and rumors had been circulating for some time, said Ruggero Contu, senior research analyst at Gartner.

But an acquisition by Intel is surprising, Contu said. “I would have thought that in terms of synergies, I would have thought other players would have” been better positioned to integrate McAfee into their operations, he said.

Intel would be wise to continue McAfee’s successful consumer security software business, as it has been bringing in increased revenue, Contu said. In terms of the overall security market, the acquisition is likely to have an impact on Symantec, as it is McAfee’s most direct competitor, Contu said.

“We’ll see how it shakes out,” Contu said.

The deal brings Intel a wealth of security technologies, such as encryption, data loss prevention and Web messaging, said Chris Christiansen, program vice president for analyst IDC. McAfee has a large network security business, and its engineers will now have access to Intel’s manufacturing processes, advanced engineering capabilities and chip designs.

The premium price paid by Intel for McAfee indicates there may have been a bidding war, which is likely to spark a frenzy of acquisitions from other players such as Oracle and IBM, Christiansen said.

“I can’t imagine that the unsuccessful bidders will simply just go away,” he said.

Earlier this week, it was reported that Intel upped its already dominating share of the server microprocessor market, taking share from AMD.