By ALAN KRANS, Technology Business Research

Editor’s note: Allan Krans is a senior analyst with Chip giant Intel Corporation (Nasdaq: INTC) is acquiring security firm McAfee (NYSE: MFE) in an Krans analyzes the deal.

HAMPTON, N.H. – While dwarfed by market leader Symantec, McAfee enjoyed the differentiation provided by being the largest pureplay security vendor. Its positioning was that as Symantec worked to balance both security and systems management, its sole focus was on improving and expanding its presence in the security space. After riding its pureplay status and frequent acquisitions to close the gap in security, McAfee now joins Symantec in providing security as part of a much broader product set.

During 2Q10 McAfee ended a growth streak that included seventeen consecutive quarters of double-digit revenue growth largely fueled by acquisitions. McAfee will hand the title of largest pureplay security vendor to Trend Micro in return for the multiple benefits of joining a much larger organization including revenue stability, ability to increase cross-selling, product integration, and access to greater financial resources.

McAfee secures its ride higher in the supply chain

In the consumer and SMB markets, security software distribution relies heavily on hardware-based partnerships. PC OEM agreements with leading PC vendors are highly sought after due to the massive scale of customers security vendors can access. The year-long lead up to the extension of Symantec’s OEM deal with HP illustrates just how important hardware agreements are for distribution security software.

Instead of dealing with the PC OEMs themselves, McAfee now sits up a level in the hardware supply chain and has the ability to embed its security software in processor components before they are used by the actual PC OEMs such as HP, Dell, Lenovo, and others.

Distribution channels tip the scales in favor of success

Owning a distribution channel has powerful influence over the ultimate success or failure of acquisitions. Intel’s firmly engrained position across all IT hardware, from PCs to mobile phones provides a powerful advantage in turning the purchase of McAfee into a net benefit. EMC’s acquisition of RSA is a good example of this effect, as EMC was able to leverage its leading position in storage hardware to both integrate and cross-sell RSA into its customer base.

On the other hand, Symantec’s acquisition of VERITAS illustrates some of the difficulties that can arise when a company largely relies on hardware partners rather than ownership for distribution. Symantec’s Storage and Systems management business is competing in a market dominated by vendors like EMC, IBM, and HP, which use hardware platforms as a vehicle for management software sales.

Intel can prove security belongs on mobile chips

In a market still dominated by desktops and laptops, the business model for embedding software at the processor level is still immature. The prevalent model is to load software on a finished product, a model that does not give much advantage to a Intel/McAfee combination. However, with the rise of tablets and mobile phone-based computing will bring with it increased demand for software intelligence that is embedded at the hardware level. All security vendors have recognized and responded in some way to the mobile computing security threat, but offerings are not currently prevalent in the market.

With more sensitive and even confidential computing tasks being performed on mobile devices, demand for security will not lag far behind. Intel’s acquisition of McAfee may not have a profound impact in the PC market, but could allow both Intel and McAfee to benefit significantly from rising demand for embedded mobile security that has a minimal impact on device performance.

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