Intel to McAfee: Let’s Secure the Cloud

Intel (NASDAQ:INTC) completed its acquisition of McAfee recently establishing itself as one of the leading security software providers. Around one-third of McAfee’s value is attributable to security software for businesses by our estimates. McAfee mainly competes with Symantec (NASDAQ:SYMC), Trend Micro, LANDesk Software and Microsoft (NASDAQ:MSFT) in this segment and offers products like Endpoint Protection, Data Protection and Mobile Phone Security.

McAfee’s market share in global enterprise security software market has been consistently rising over the years mainly because of partnerships with PC makers like HP for small and medium businesses, and the rapid growth of the security-as-a-service market. Increasing smartphone sales has also heightened demand for security against malware threats on mobile devices. McAfee’s acquisitions like TrustDigital and WaveSecure in 2010 for developing smartphone security software for enterprise customers are expected to boost its share further.

Intel’s acquisition at $48 a share was a substantial premium to our last price estimate of $32.35 before the announcement. Our estimate for Intel is currently $27.23, which is about 35% ahead of the current market price, and we estimate that McAfee accounts for around 2.5% of Intel’s value.

McAfee Moving Aggressively into Security-as-a-Service Market

Security-as-a-service refers to the delivery of traditional security applications as an Internet-based service, on-demand, to consumers and businesses. These applications are generally priced on a per-device basis on the enterprise side.  The SaaS security market has been growing at 30% over the last few years, 3-4 times faster than the on premises security software market. McAfee Total Protection Service, which has more than 5 million users, is primarily cloud-based for endpoint and mail security scanning.

In addition, McAfee’s Web Protection Service, wholly cloud based, provides reputation analysis. Reputation analysis is a new standard for proactive detection through its industry-leading reputation system. McAfee acquired MX Logic in September 2009 at a valuation of $138.5 million. MX Logic is a pure play in SaaS segment providing e-mail security, web security and archiving solutions over the cloud. It has 40,000 corporate customers with over four million end users.

Increasing Demand for Mobile Device Security by Enterprises

The mobile phone market grew at a year-over-year (YOY) pace of 32% in 2010, to reach 1.6 billion unit sales ^[1] With the increase in mobile device sales, security requirements will also increase. Mobile security is particularly important for enterprises as companies must keep proprietary data confidential.

According to a report by McAfee, the amount of mobile malware in 2010 increased by 46% compared over 2009, and out of 55 million total pieces of malware that McAfee identified, 36% were created in 2010 alone. ^[2]

We estimate that the enterprise security market will continue to increase from about $5.9 billion in 2011 to almost $8 billion by the end of our forecast period. In 2010, McAfee acquired two companies, TrustDigital and WaveSecure, that develop smartphone security software for enterprise customers. These acquisitions should help Intel tap the fast-growing smartphone security market. (See: McAfee Brings Smartphone Security Chops to Intel)

See our complete analysis for Intel.

1. Gartner Says Worldwide Mobile Device Sales to End Users Reached 1.6 Billion Units in 2010, Bloomberg, Feb 9, 2011 [↩]
2. McAfee’s Report on Mobile Malware Growth, Feb 8, 2011 [↩]