(INTC) made a surprise purchase of McAfee
(MFE) yesterday. Although, like many, my firm and I believed McAfee would eventually be purchased and knew Intel has been a loud proponent/advocate of moving security “to the chip,” we wouldn’t have put Intel at the top of the "McAfee suitor" list.
Though with this purchase, Intel has changed the face of endpoint security.
Our initial reaction is that this is a Hail Mary designed to get Intel back in the mobile/tablet/super-smartphone market (a market my firm, Marker Advisors, calls Massively Mobile Computing, abbreviated as MMC). Today, ARM
(ARMH) (and its licensees) owns this emerging market due to its lower cost, better power consumption, and “open” licensing model.
The ASPs for the mobile/tablet market are much lower than the PC market, and we believe Intel is preparing a value-added edge. It can now ship Atom (or any competitor to ARM) for a justifiably higher price point.
Intel can also make additional revenue from a “live update” subscription and create a “device life cycle” profit that approaches its usual (huge) margins. Will it work? Well, Intel is a monopoly, so maybe.How Does This Change the Endpoint Security Market?
Endpoint security just got built into the motherboard. Intel and others have been dancing around this for several years now, but about $8 billion makes a pretty definitive statement as to intent.
This will ruin the retail market over time. If you’re Symantec
(SYMC), you better aim a big sales effort at every ARM licensee on the planet to sell OEM licenses.
It’s also likely the Symantecs of the world will have a hard time with their traditional OEM business going forward.
- How is Symantec’s manufacturer relationship any better than Intel’s? It’s not.
- It’s likely Intel continues to drive down the endpoint security price point (which our checks confirm is already in full-on crater mode) in order to sell more chips.
- Overnight Intel’s security strategy is basked in red -- it gets to leverage the strong, global McAfee brand.
The enterprise/service provider market will continue to be about management (Symantec better put 500+ more developers to work on its management platform).Future M&A
We don’t believe this opens the door for more security acquisitions; no more than were coming anyway.
The private guys will get a lift (they're affordable), but who's paying up for Symantec to have the right to compete against Intel in “firmware security”?
This acquisition is about endpoint (MMC) security and management, so for the network or Web security guys, it’s a non-event (other than the fact that McAfee remains a solid competitor here with arguably the best management console).
And we reiterate, who other than a Red Hat
(RHT) would buy Sourcefire
(FIRE)? Open-source companies (in the case of Sourcefire, leveraging Snort) generally have been unpopular/unsuccessful when acquired and housed within firms that make their money chiefly selling proprietary IP.Bottom Line
This marks a sea change for the endpoint security market -- good for McAfee, not so good for Symantec.
For the network security companies (Check Point Software Technologies
(FTNT), Sourcefire, etc.), the world stays roughly the same after this excitement recedes. There could be a period of “acquisition distraction” that helps out McAfee’s competitors, but we believe that will be short-lived.
The secure Web gateway companies (Blue Coat Systems
(WBSN), etc.) will see little change as well.
As I've discussed before, we believe both markets will continue to be recipients of more budget dollars.
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