Intel completes McAfee spinoff to sighs of relief at both companies

Chris Young, McAfee

Formalizing a deal announced in September, Intel Corp. has completed the spinoff of its McAfee security subsidiary, selling a 51 percent stake to private equity firm TPG for $3.1 billion plus a promise by TPG to invest an additional $1.1 billion in the business.

Intel, which paid $7.7 billion for the security firm in 2011, retains a 49 percent stake in the newly independent McAfee LLC. A late addition to the deal is the private equity firm Thoma Bravo, which has joined as a minority investor with an undisclosed stake through an agreement with TPG.

The sale brings to a close an awkward marriage between two entities in very different businesses. It also relieves Intel of a distraction as it tries to re-focus its efforts on the data center and emerging Internet of Things. “It’s been clear that McAfee’s security product teams couldn’t compete with other parts of the Intel portfolio for resources to keep pace with changing security requirements of their enterprise customers,” said Rob Westervelt, a security analyst at International Data Corp.

McAfee touted the move as a great thing for customers because it frees the company to train all its guns on its core market. “We feel we have ability to operate with a great deal more agility being a dedicated security company than being embedded in an engineering company with a very different operating model,” said Steve Grobman, chief technical officer of McAfee. By maintaining a minority stake, Intel can “benefit from the company’s success without maintaining control,” he said.

Most of McAfee’s senior executives are joining the new company. Chris Young (pictured), senior vice president and general manager of Intel’s Security Group, will be chief executive of the spinoff.

Intel originally had big plans for McAfee when it appeared that chip-based security would be a big market, but demand never materialized as enterprises turned their attention instead to cloud-based security services. In an interview with SiliconANGLE, Grobman made it clear that being a subsidiary had hindered McAfee’s agility. “For example, when Intel builds a fab facility, it’s a long-term process. Very little changes on a daily basis,” he said. “Whereas when we’re building out cloud operations, we need to change at a rapid pace.

McAfee can also now be more aggressive with acquisitions in a market that shows signs of consolidation. “We can look at acquisitions in terms of how they benefit the security business as opposed to how they fit into the Intel strategy,” he added.

No stroll in the park

McAfee may now be independent, but it won’t have a cakewalk in a market in which its largest competitor, Symantec Corp., appears to be regaining its footing after several years of missteps. Symantec has a “broader services strategy and offerings” than McAfee, Westervelt said. “Other security vendors – including large networking security vendors – have strong managed services offerings and subscription-based security services that are increasingly desired by enterprise security buyers.” In contrast, he said, McAfee’s portfolio consists of “a lot of acquired products designed to protect resources maintained in on-premises data centers.”

On the other hand, McAfee has “largely caught up with endpoint security startup disrupters based on an evaluation our team is doing,” Westervelt said. In addition, “the company has a strong third-party technology partner ecosystem.”

McAfee is doing what it can to remind the market that it’s still one of the world’s largest cybersecurity firms, with 7,500 employees, 1,200 patents and 87 customers in the Fortune 100. Still, the $1.1 billion in revenue that McAfee said it booked in the first half of last year represents practically no growth from the $2.06 billion in sales it reported in its last full filing in 2010.

The newly independent company will continue to sell its popular antivirus software to consumers, but it’s re-positioning its enterprise business toward detection and the cloud. McAfee exited the network firewall business and is de-emphasizing some of its mature products in favor of a greater focus on “human-machine teaming, identifying threats and remediating them,” Grobman said.

Intel is hardly taking its foot off the mergers and acquisitions pedal. Just last month it said it will spend $15.3 billion to acquire Mobileye NV, a maker of vision systems for autonomous vehicles. Last summer it picked up deep-learning startup Nervana Systems Inc. for an estimated $400 million, fueling speculation that it may be gearing up to take on Nvidia Corp., whose graphic processing units have unlocked a big new market in machine learning applications. In September, it paid an estimated $400 million for another deep-learning startup, Movidius Ltd. Altogether, Intel announced nine acquisitions last year.

Image: Intel