Intel may sell its security business, and analysts are cheering this possible divestment. However, the chip maker is unlikely to be paid more than it spent on the cyber-security software unit. Intel acquired the business in 2010 in its $7.7 billion purchase of McAfee.
Why would Krzanich dump the Security business?
After years of struggling, Intel’s security business took off in 2015 with Intel CEO Brian Krzanich citing the McAfee integration as a model for how the company would manage its more recent purchase of Altera. However, reports have surfaced over the past weeks that the chip maker was considering divesting the unit. According to Bloomberg, private-equity firms Vista Equity Partners, Thoma Bravo and Permira conducted preliminary research for a possible purchase.
Profit margins at the security business remain much lower than they are in Intel’s chip units despite the solid growth of 12% in the recent quarter. Much of the security business is still dependent on PCs, suspect analysts. The PC market is a fast-fading one, and even Intel is trying to move away.
Khrom Capital was up 32.5% gross and 24.5% net for the first quarter, outperforming the Russell 2000's 21.2% gain and the S&P 500's 6.2% increase. The fund has an annualized return of 21.6% gross and 16.5% net since inception. The total gross return since inception is 1,194%. Q1 2021 hedge fund letters, conferences and more Read More
This divestiture could be a part of Krzanich’s broad restructuring of the company away from PC-dependent businesses. In April, the CEO said he could shift resources towards higher growth areas and cut some 12,000 jobs. The chip maker has, since the announcement, cut back on some of its mobile chip lines.
How much could Intel get?
In a report analyzing a possible deal, Guggenheim analyst Ryan Hutchinson says given that the performance of the security unit have been “mixed at best,” a sale would not be surprising. Hutchinson noted that last year, the chip maker phased out its email security offerings and dumped its firewall security business.
“In the midst of the heightened M&A activity that is taking place across software and security, we believe that Intel could opportunistically seek to divest an acquisition that the company largely failed to integrate at a valuation that will likely be satisfactory, if not standout,” the analyst stated.
Argus Research analyst Jim Kelleher said in a recent report that the sale of McAfee would support Intel’s employee reduction target without actually costing employees their jobs.
“Intel may also sense that the time is right for cybersecurity industry consolidation,” the analyst notes.
Intel may not be able to get much more than what it actually paid for it, and the price will depend on the exact breakdown of the unit’s sales, believe analysts. If sales are dependent onPC usage, then the price would probably be below $5 billion. Kelleher adds that if the sources of revenue are diversified, then the price could go closer to the original $7.7 billion.