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Intel Acquisition May Pressure Symantec

August 21, 2010

Intel Corp.’s $7.68 billion all-cash acquisition of McAfee Inc. may pressure Symantec Corp., the largest supplier of security software, to create new products and alliances if it is to remain competitive.

The deal indicates a shift in the global security software market, allowing Intel to incorporate McAfee’s protection programs into chips that power servers, smartphones and other products that connect to the Internet, boosting performance and making systems less vulnerable to cyberattacks.

Analysts said Symantec should begin working to forge new alliances with diversified technology suppliers such as IBM, HP and Oracle, as well as extend its portfolio of network security products.

The Mountain View, Calif.-based company has traditionally steered clear of network security, leaving it poorly positioned against “dominant vendors” such as Cisco, Juniper and Check Point Software, said UBS analyst Brent Thill.

Thill has a “neutral” rating on shares of Symantec’s stock, which climbed the most in nearly 10 months on Thursday as Intel’s purchase of McAfee highlighted the value of security software.

Global sales of security software are expected to hit $16.5 billion this year, according to research firm Gartner Inc.

But given Symantec’s nearly $11 billion market value, analysts say the company is an unlikely acquisition target.

Businessweek cited Symantec spokeswoman Erin Roche as saying that Intel’s purchase of McAfee “emphasizes the growing relevance and need for security protection that extends beyond the PC.”

Symantec has seen mixed results in its expansion into the corporate data center market.  In 2005, the company paid $10.2 billion for storage firm Veritas Software Corp. in a move that left investors disappointed.  Symantec has acquired 21 additional companies since then.

“Their thirst for acquisitions derailed what would have been a sound product strategy,” said FBR Capital Markets analyst Daniel Ives, who rates Symantec’s stock at “market perform.”

HP, IBM, and Oracle may prefer some type of partnership with Symantec, rather than an acquisition, since they are not direct competitors of Intel, said Goldman Sachs analyst James Covello.

“We’d expect these companies to prefer a partnership route with larger vendors such as Symantec,” he said yesterday.

Enrique Salem, Symantec’s CEO since April 2009, has struggled with sluggish growth in the storage market and competitive pressure from McAfee in the corporate security market. Last month, the company forecast sales and profits that fell short of analysts’ estimates.

Intel said it plans for McAfee to continue operating as an independent company led by Dave DeWalt, McAfee’s current CEO.   Although the acquisition is Intel’s largest in its 42-year history, is not likely its last within the security market.  The chipmaker had about $18 billion in cash at the end of the second quarter.

“The tech industry’s trying to consolidate the space into a one-stop shop,” Business Week cited Thill as saying.

“I don’t think Intel’s done buying security software.”

Sourcefire Inc., Fortinet Inc., Websense Inc., and Check Point Software Technologies are among the possible acquisition targets of Intel, analysts say.

Under Intel, McAfee has “an open checkbook to buy more companies,” Thill said.

Shares of Symantec’s stock rose 43 cents, or 3.2 percent, in trading on Friday, closing at $13.80.

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