There’s no shortage of opinions as to why Intel bought McAfee, but there’s far too little attention paid to the obvious: Intel is trying to get beyond its hardware roots. Intel knows it needs software margins, and it’s prepared to both buy and build those margins.

There’s no shortage of opinions as to why Intel bought McAfee, but there’s far too little attention paid to the obvious: Intel is trying to get beyond its hardware roots. Intel knows it needs software margins, and it’s prepared to both buy (McAfee, Wind River, etc.) and build (MeeGo) those margins.

Forrester analyst Andrew Jaquith rightly points out that “Intel’s track record with deals further up the stack are patchy at best,” but that’s the point. This must change if Intel is going to rev its business to the next level.

Yes, this acquisition gives Intel deep domain expertise in security, as Ashlee Vance reports in The New York Times, perhaps to embed that expertise into an improved mobile strategy. This is important, given that ARM, not Intel, is the 800-pound gorilla in mobile semiconductors. And, yes, it’s potentially part of a the chip-to-cloud security story. However, the larger purpose is to give Intel software expertise and revenue streams.

Redmonk analyst Michael Cote suggests that it will be hard for hardware-centric Intel to buy its way into software, and it’s a fair point. However, there’s a larger industry trend toward integrated hardware and software solutions, driven by Apple, that Intel can’t ignore. It doesn’t matter that the integration is hard. It’s increasingly necessary, and lucrative. Intel CEO Paul Otellini said as much: “Everywhere we sell a microprocessor, there’s an opportunity for a security software sale to go with it.”

Guess which piece will be more profitable?

There’s plenty of work to be done, of course, but make no mistake: Intel is serious about software. Its open-source MeeGo platform for mobile devices should be ample evidence of this. Intel, despite the “no software experience” label sometimes applied to it, has done a great job both developing and marketing MeeGo, though it’s still early days, and has generated significant momentum as a result, despite competition from both Apple’s iOS   and Google’s Android. MeeGo made a lot of noise at the LinuxCon event last week, but more than that it’s getting the ear of a rising number of OEMs and ODMs. MeeGo still has more promise than delivery, but everything I’ve seen suggests Intel is fully committed to ensuring its success.

What’s fascinating is that Intel seems to be using both proprietary software (McAfee, Wind River) and open-source software (MeeGo) to make its chips less of a commodity. Most companies do one or the other well. Few have figured out how to use both open source and proprietary software together successfully. Fewer still would have the wherewithal and cheek to use commodity open source software to make commodity hardware…less of a commodity.

Do two commodities make a non-commodity? It’s an intriguing proposition, and early results suggest that the dual-mode approach may be working. Intel’s Wind River-inspired proprietary OS plus commodity chip story has resonated, boosting its position against ARM in embedded. Its open-source Linux plus server chip strategy has also worked, giving Intel breathing room and solid revenue separate from Microsoft.

The question now is whether this same strategy will work for mobile with MeeGo, and in mobile-to-cloud with McAfee. The end goal is to boost its margins through software. It’s a good strategy, and makes the McAfee much more comprehensible than it first appears.

By Matt Asay

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  1. Unfortunately, most people don’t really see the technology powers a lot of what they are using in their life. So, it’s easy to understand why it becomes a commodity and as things move more toward Cloud delivery it will be even less obvious. They should take a look at RapidBiz…they could be driving application development that everyone can use.

  2. “Intel is trying to get beyond its hardware roots”
    I think this hits the nail on the head, and also believe it is indicative of a (not so?) subtle in the road ahead.
    I blogged about this, titled “Why Intel’s purchase of McAfee is a good indicator for Africa..”, and for me the line that summarizes it is: “In the ongoing competition between hardware and software, hardware just flinched.”


  3. Indeed this is Intel’s attempt at joining the elite software club. Does it make sense? Will it work? We don’t know. But if McDonald’s decides to buy a health foods company, you don’t criticize them. You wish them luck. Right?

  4. [...] Intel: Desperately Seeking Software (Margins) [...]


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