Intel Outside

Folks have been weighing in on the prudence of Intel’s acquisition of security software provider McAfee. Most of the blowback is not overly enthusiastic. Two recent articles are particularly harsh on the move:

Intel acquisition of McAfee a head-scratcher

by Michael S. Mimoso

Tech companies’ vision hampered by growth goggles as M&A picks up

By Larry Dignan

In contrast, I personally believe Intel’s acquisition of McAfee is a response to the fundamental laws driving the tech industry today.

The Three Laws

In several previous posts, I have defined three laws that are impacting almost every player in tech:

  1. There is an Inverse relationship between Moore’s Law and product margins.
  2. As technology markets mature, revenues and margins become services-centric.
  3. Product-centric companies contract in mature markets.

In February of this year, I wrote a blog entry that commented on Intel’s strong financial results but also questioned Intel’s ability to sustain their current business model: Apple and Intel: Defying Gravity?

Hitting a Wall

This summer, once again, Intel posted strong financial results. Bottom line profits were outstanding. However, the source of future top line growth came into question. The stock price weakened. Law #3 was rearing its ugly head. And then came the McAfee acquisition. One analyst argued top line growth was really the main reason this acquisition occurred:

Intel Is Desperate for Growth

By Eric Jackson

Intel Outside

So yes, a vehicle for top line growth was most likely a key motivator for Intel’s move. That alone should remove some of the head scratching. But, I would argue there is much more potentially at stake here. Intel has always been the technology “inside.” By design, the company has been relatively removed from working directly with customers. The McAfee acquisition changes that dynamic dramatically. Suddenly, Intel finds itself with a direct pipeline to end customers. Customers that are attempting to solve complex data security challenges. Now, Intel could be the company that is knocking right outside the door—bringing a combination of hardware, software, and services to deliver highly complex and customized security solutions. If Intel accomplished this successfully, I believe heads would start turning and the scratching would end.

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