Intel surprises Wall Street with $7.7bn purchase of McAfee

Intel, the world's largest maker of microchips, is paying $7.7bn for the software company McAfee, in a deal analysts described as "weird", "out of left field" and "not the combination investors were expecting to wake up to".

But if the immediate reaction to the acquisition was one of surprise, Intel insisted that it would usher in a new era where security against hackers and computer viruses was built into the very hardware at the heart of the tech industry.

McAfee, famous for software that scans for viruses and installs firewalls on personal computers, agreed to sell to Intel at a 60 per cent premium to the prevailing share price.

The pair have been collaborating for 18 months on new products that will embed McAfee security software within Intel's new technology for smartphones and other internet-enabled devices, from televisions to ATMs.

"In the 1990s, when we added capabilities to our platform so users could connect to the internet, PC demand exploded," Paul Otellini, Intel chief executive, explained on a conference call with analysts. "But the increased use of the internet is leading to an increased level of security threats. The number of security threats is increasing and security will be most effective when embedded in hardware."

Security will be a "third pillar" alongside energy efficiency and connectivity when electronics manufacturers are choosing between chip technology platforms, he said.

"It's slightly out of left field, nobody would have seen this coming," said Chris Hickey, an analyst at Atlantic Equities, but he said Intel could gain from selling software to its PC customers. Intel chips are used in the majority of personal computers but it has fallen behind in smartphone technology and in other electronic devices. "The deal follows several Intel acquisitions in the connected device spaces," said Richard Williams of Cross Research. "The emergence of malware on wireless devices makes the McAfee deal fit well with Intel's strategy."

McAfee was founded in 1987 and had revenue of $2bn last year.

The company warned last week that it had registered record numbers of new malware threats in the first half of 2010, as hackers seek to obtain the personal details of internet users or simply to disrupt PC activity. McAfee's quarterly report said it was finding 55,000 new threats every day.