Will McAfee turn Intel inside out?

August 19, 2010

CES/The following is a guest post by Robert Cringely, who has been writing about technology since 1987 and blogging since 1997. His work can be read at his blog. The views expressed are his own.

Intel, the world’s largest semiconductor company, announced this morning that it is buying McAfee Associates, a data security software company, for $7.68 billion — Intel’s largest acquisition ever. Why would Intel do such a thing? The company is on a roll with gross profit margins over 60 percent, more than 80 percent market share, and banking in excess of $1 billion per month in profit. So, why mess around with software? Because Intel’s semiconductor business is as big as it can get, literally, and it has to find a use for all that cash.

Two weeks ago Intel settled a long-standing anti-trust dispute with the U.S. Federal Trade Commission. The terms of that settlement, which involved no fine or payment by Intel, came down to the company agreeing to mind its manners and not work too hard to hurts its major competitors, companies like Advanced Micro Devices (AMD) and NVIDIA. In practical terms, that means putting the brakes on certain internal Intel programs intended to crush those companies which are now protected.

Since it can’t grow much more in semiconductors, having maxed-out its market share and set records for profit margins, Intel has to expand into businesses where it isn’t considered a potential monopolist. Software appeals because it, too, has inherently high gross margins and, theoretically, won’t put a drag on Intel earnings.

Data security software in particular is attractive to Intel which sees its future very much tied to Internet services and Internet services dependent on data security. Intel wants to own both the chicken AND the egg.

McAfee has a storied name but a troubled history and offers obvious opportunities for Intel to apply both economies of scale and its often admired management culture. With Microsoft seemingly receding from the paid data security market, there would seem, too, to be opportunities for growth there. McAfee’s main competitor, Symantec, is very aggressive and determined, but that just makes for good competition in what looks like it will come down to a two-horse race.

Having fought for years against AMD, Intel thinks it knows all about two-horse races. As such, we can look for Intel to integrate certain portions of McAfee security software directly into Intel chips, making them arguably more secure. Software or no, remember that with Intel it always comes down to the chips.

While this looks like a reasonable move on Intel’s part — certainly one the company can afford and is in compliance with the FTC consent decree — there is a dark side to this deal, too. Intel has made forays before into software and they have always — always — failed.

Part of Intel’s problem with software was Microsoft, which considered software to be its turf, taking legendary, and sometimes illegal, efforts to keep Intel out. Working under its own deal with the U.S. Department of Justice, however, today’s Microsoft isn’t nearly as ferocious as the Microsoft of old, hence Intel’s willingness to take a chance on McAfee.

The other problem with Intel as a software company is that there isn’t much respect for it within the company. Modern consumer software is about ease of use, and while Intel will pay lip service to that, at heart, this is a company that thrills at putting a billion transistors on something the size of your fingernail. Intel is so geeky a company that often ease of use is scorned in favor of impenetrable complexity. That’s probably why Intel says McAfee will be operated as a completely separate division.

As an Intel-watcher for 30+ years, I have my doubts that this acquisition will work.

Photo: Sean Maloney, executive vice president and co-general manager of Intel Corporation’s Intel Architecture Group, speaks during a news conference introducing a new line of Intel “Core” processors with increased performance and energy efficiency at the 2010 International Consumer Electronics Show in Las Vegas, Nevada January 7, 2010. REUTERS/Steve Marcus

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Stupid acquisition. Microsoft has a free virus protector that works just as good

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