Intel’s security division
In the previous part of the series, we saw that Intel (INTC) is reorganizing its business by shifting its focus away from the PC (personal computer) and mobile businesses to the data center, memory, and IoT (Internet of Things) space.
The company’s focus area excludes its McAfee security business, which it acquired in 2010 for $7.7 billion, its largest acquisition before Altera.
In an interview with Fortune, Intel’s CEO Brian Krzanich stated that the company is not looking for any acquisitions in the immediate future but that it may offload some assets.
In January 2016, Intel sold its Stonesoft firewall business, which it acquired in 2013 for $389 million, to Raytheon-WebSense for an undisclosed price.
Rumors of potential sale of ISecG
This ignited rumors about a potential sale of ISecG (Intel Security Group). A report in the Financial Times citing unnamed sources stated that Intel was in talks with bankers about a potential deal for its cyber security unit.
ISecG competes with AVG Technologies (AVG), Avast, and Symantec. Although ISecG reported 12% YoY (year-over-year) revenue growth and a fourfold rise in profits in 1Q16, it failed to meet its purpose. Intel acquired McAfee to integrate McAfee’s anti-virus and security expertise into its chips and bring security at the silicon level, but it has not yet achieved this goal.
Consolidation in the technology security market
Consolidation is currently strong in the technology security market. Private equity companies anticipate that the security business will generate strong cash flows in the future.
- Symantec (SYMC) acquired Blue Coat Systems for $4.7 billion from private equity company Bain, which acquired Blue Coat for $2.4 billion a year ago.
- Cisco Systems (CSCO) acquired CloudLock for $293 million.
- Avast Software acquired rival AVG for $1.3 billion, representing a 33% premium on AVG’s closing price on July 6, 2016.
Intel can use the above deals as tools to negotiate a strong premium for its security business. It can then use this amount to repay a portion of the debt it incurred to fund its acquisition of Altera.
However, Intel will need security solutions if it wants to expand in the IoT space, so it may not completely sell its security business. While there’s still ambiguity surrounding a possible deal, ISecG is expected to post strong growth in 2Q16.
The SPDR S&P 500 ETF (SPY) tracks the S&P 500 Index. It has 0.89% exposure to INTC, 0.07% to SYMC, and 0.82% to CSCO.