Story updated at 2:04 p.m. EST on Thursday, Aug. 19.
Chip giant Intel on Thursday announced plans to acquire McAfee for $7.68 billion, making it one of the largest information security purchase of all time.
The boards of both companies unanimously approved the deal, expected to close pending McAfee shareholder and regulatory approvals.
The acquisition reflects Intel's interest in protecting web-enabled devices, including mobile phones, televisions, cars, medical instruments and cash machines, at the processor level, the company said in a statement.
"Today's security approach does not fully address the billions of new internet-ready devices...as well as the accompanying surge in cyberthreats," the company said. "Providing protection to a diverse online world requires a fundamentally new approach involving software, hardware and services."
Intel can accomplish this by leveraging Santa Clara, Calif.-based McAfee's intellectual property, which was bolstered through its recent acquisitions of mobile security firms Trust Digital and TenCube, to better build security into its silicon technology, Leslie Fiering, a research vice president and lead Intel analyst at Gartner, told SCMagazineUS.com on Thursday.
Meanwhile, McAfee, with $2 billion in revenue in 2009, will become a wholly-owned subsidiary of Intel, reporting into the company's Software and Services Group. McAfee is best known for its anti-virus and intrusion prevention system offerings.
"It's a difficult deal to understand," Fiering said. "You have to separate the acquisition of McAfee as a running organization and the acquisition of intellectual property that can be used in other ways."
George Kurtz, CTO of McAfee, said the purchase aligns with Intel's 2009 buy of Wind River, an embedded devices software vendor.
"Given the current challenges in dealing with the proliferation of virulent malware, bringing software closer to silicon will provide a real advantage for consumers and businesses," George Kurtz wrote in a blog post. "Beating back the tide of malware proliferation by changing the game on the bad guys is an exciting proposition.
Not everyone, though, was so bullish about the deal.
"I think this may be the worst security purchase of all time," Richard Stiennon, chief research analyst at IT-Harvest, told SCMagazineUS.com on Thursday. "I've looked at it from every angle and can't find any angle that makes sense, except [the scenario where] holding company acquires growing company in down economy."
The acquisition is a mismatch, he said. While McAfee stakeholders should be applauding the deal — the $48-per-share price being paid by Intel represents a 60 percent premium over McAfee's closing share price on Wednesday — Intel is making a risky move.
Defense contractors, such as Northrop Grumman or Lockheed Martin, would have made for better buyers, Stiennon said.
"Yes, it has a return on investment, but this is a tough space," he said. "There are 70 [anti-virus] vendors. If you falter for a minute, you get replaced...If [Intel] wanted to get into the AV business, they could've done it for $100 million."
McAfee customers, meanwhile, should be wary of how Intel plans to handle its new business unit.
"Given the risks associated with this deal, enterprise customers should be wary of making long-term commitments to McAfee until Intel's intentions are more clear," Jaquith wrote. "It would be best if McAfee was left to manage itself, largely as a standalone company. That said, Forrester has spoken to many McAfee customers in the last several months that have been upset with McAfee's handling of the DAT file problem from April, which caused widespread service outages. We expect that customers that have already been angling to jump ship will use this deal as an excuse to accelerate those plans."
Fieiring, however, said she doesn't anticipate Intel to stymie McAfee's position as a market leader.
"Intel is very good on pushing innovation," she said.