AN FRANCISCO: Intel Corp’s $7.68 billion purchase of McAfee Inc may put pressure on security software rival Symantec Corp to build hacker-thwarting technology inside corporate computers and forge new alliances to stay competitive.
Yesterday’s deal signals a shift in the global security software market, where sales will reach $16.5 billion this year, according to Gartner Inc. As consumers and businesses connect more personal computers, servers, smartphones and other products to the Web, McAfee will let Intel build protection programs into those devices’ chips, improving performance and making systems harder to attack.
Symantec should strike new partnerships with diversified technology suppliers such as Hewlett-Packard Co., International Business Machines Corp. and Oracle Corp., said James Covello, an analyst at Goldman Sachs Group Inc. The company also needs to broaden its line of network security products that defend corporate computers, analysts said.
Symantec has “stayed away from network security,” said Brent Thill, an analyst at UBS AG in San Francisco, who rates the shares “neutral” and doesn’t own any. That has left the Mountain View, California-based company ill-equipped to contend with Cisco Systems Inc., Juniper Networks Inc. and Check Point Software Technologies Ltd, “who are dominant vendors,” he said.
Thirst for Deals
Symantec rose the most in almost 10 months yesterday as the McAfee purchase underscored the importance of security software. Analysts said Symantec itself is an unlikely takeover target, given its $10.9 billion market value. Today, the stock rose 43 cents, or 3.2 percent, to $13.80 on the Nasdaq Stock Market. It is down 23 percent this year.
Erin Roche, a spokeswoman for Symantec, said in an e-mail that the purchase of McAfee “emphasizes the growing relevance and need for security protection that extends beyond the PC.”
Symantec, the largest supplier of security software, has tried to gain a bigger foothold in corporate data centers with mixed success. In 2005, it paid $10.2 billion for data-center storage company Veritas Software Corp., which has disappointed investors. Symantec has bought 21 companies since then.
“Their thirst for acquisitions derailed what would have been a sound product strategy,” said Daniel Ives, an analyst with FBR Capital Markets, who has a “market perform” rating on the stock.
‘Partnership Route’
Hewlett-Packard, IBM, and Oracle may favor some sort of alliance with Symantec rather than acquiring the company since they don’t directly compete with Intel, said Goldman Sachs’ Covello, who is based in New York.
“We’d expect these companies to prefer a partnership route with larger vendors such as Symantec,” Covello wrote in a note yesterday.
Under Enrique Salem, who has been CEO since April 2009, Symantec has been grappling with slowing growth in its storage business and competition from McAfee in the corporate security market. Last month, Symantec forecast sales and profit that missed analysts’ estimates.
Intel plans for Santa Clara, California-based McAfee to continue as an independent company run by its current Chief Executive Officer Dave DeWalt. While the acquisition is Intel’s largest, it’s unlikely to be the chipmaker’s last in the security arena.
“The tech industry’s trying to consolidate the space into a one-stop shop,” Thill at UBS said. “I don’t think Intel’s done buying security software.”
Analysts have cited Fortinet Inc., Sourcefire Inc., Websense Inc., and Check Point Software Technologies as possible acquisition targets by Intel, which had about $18 billion in cash at the end of the second quarter.
McAfee, under its new owner, has “an open checkbook to buy more companies,” Thill said.