The return of McAfee after Intel’s spin-off

After months of rumors, on 7 September, Intel announced it will be selling a majority 51% stake in Intel Security to private equity firm TPG for US$3.1 billion. Intel will maintain a 49% stake in the company, showing it is not completely leaving the security business. Intel bought McAfee for US$7.7 billion in 2011, with the intention of integrating security into its wider chipset portfolio, principally to gain a new competitive differentiator in the mobile device market. By spinning-off Intel Security, Intel values the new jointly-owned business, which will return to its McAfee brand, at US$4.2 billion. This valuation includes a US$1.1 billion investment commitment by TPG and will create one of the largest pure-play cyber-security providers.

Security businesses possibly too complex for integration into others

All this sounds very familiar, given the transformation of its closest competitor Symantec, which has also become a focused security player, valued at US$4.4 billion, after stripping itself of its Veritas storage business. Similarly, Dell sold its security division, HP sold its Tipping Point business to Trend Micro and, most recently, HPE sold its security software division. This all begs the question, is security simply too complex to work successfully as an integrated division under a wider hardware or software company? With the pace of the security market accelerating in terms of developing new technology to keep up with evolving threats, many security businesses that lack the strategic focus and necessary investment are simply unable to keep up. Seamlessly integrating more complex security protocols into other business areas also seems to be extremely hard to achieve.

No vendor has truly created a secure hardware/software fabric that works efficiently and remains open to other integration. EMC, now part of Dell, might be the next vendor to rid itself of its security arm, RSA, after recent rumors. Realistically, Cisco remains the only large infrastructure vendor that seems committed to using security as its key differentiator across its portfolio. Though Cisco itself is far from releasing a fully operational integrated security infrastructure solution that incorporates all the assets it has acquired. But, notably, it is investing cash and dedicating resources to help it achieve its goal. Cisco stands to have a major advantage over its competitors if it can carry out its security objectives.

Returning to the McAfee brand will be an important next step

McAfee was rebranded in 2014 after pressure from shareholders due to a highly publicized personal scandal surrounding its original founder, John McAfee. Under Intel, McAfee was not able to effectively push through new plans for investment in R&D, go-to-market strategy and acquisitions. Since it was acquired, McAfee’s performance has been stable even as some of its competitors, such as Symantec, have suffered declines. Still, it has not been able to compete with the higher growth rates of emerging vendors and other competitors, such as Forcepoint (Websense) and Trend Micro. Intel decided to streamline McAfee’s portfolio and divest the majority of its network security business, and this seemed to match Intel’s ambitions with its technology as most of its focus was content security-based.

The company retains some network security solutions in IPS, however, which have been performing well. After the streamlining, McAfee grew well with both its encryption and DLP solution sets. But there were no major accomplishments in terms of successful integrations of its technology into Intel’s solutions. Much time passed without the formation of a unique mobile security solution offering. In its core markets, McAfee was also not able to fully capitalize on Symantec’s turmoil. It should have done more in terms of competitive promotions and targeted channel recruitment. In addition, it was unable to create campaigns around the EU data protection reform under Intel. A separation from Intel will enable McAfee to become more active in the market.

TPG is a good fit for McAfee. It has made investments in up-and-coming vendors, such as Tanium and Zscaler, which will enable it to push through new dynamic initiatives. McAfee already has a strong global presence and an established channel to re-energize and build on. The new McAfee business is to be headed by Chris Young once the spin-off is completed in the second quarter of next year. Young, who previously headed Cisco’s security business, will need a well-defined strategy to re-focus the business and prioritize new relevant campaigns and changes in product portfolio. The market has changed considerably since it was acquired and it will need to gain ground fast to propel itself to a high-growth position. With many new competitors vying for market share, reinventing the new McAfee will be important to help it move into emerging areas and away from primarily being known as an anti-virus vendor (which, ironically, its network security solutions helped it to do).

After becoming independent, McAfee may decide to acquire some network security-based assets or build a new NAC offering, but Canalys believes a greater emphasis will be placed on analytics tools and adding to its SIEM product set. There should be a conscious effort to further develop its ePO platform, which remains McAfee’s strongest differentiator. This long-standing, robust security platform with numerous open APIs is an extremely valuable asset that is yet to be fully developed and effectively marketed. Returning to its original brand will be a good thing, as it remains highly recognizable in the market. Being associated once again with its previous founder could arguably even boost its marketing strength, given John McAfee as CEO of MGT led to it being one of the highest traded stocks on the New York Stock Exchange recently. Shortly after the news of the spin-off, John McAfee filed a suit against TPG’s use of his name in the potential re-brand. The outcome is yet to be finalized, but the loss of the McAfee brand will be a problem from a market awareness perspective.

Channel partners are optimistic

In a recent Canalys channel quick poll, 56% of channel partners were positive when asked about their feelings regarding the spin-off decision. 34% were cautious about the move, while only 10% were negative. McAfee’s channel will be eager to see more attention given to programs and campaigns. Like Symantec, McAfee will also need to increase its incentives in the form of margin to show commitment to its partners and attempt to win back those that became disillusioned. McAfee must consider hiring executives with new energy to lead channel and marketing initiatives. Becoming a security-focused player again must come with a greater focus on the channel. Channel partners that have an overlap between McAfee and Symantec are likely to benefit from both transformations, and there will be ongoing battles to win new and existing channel partners over the next year.

For Intel, the spin-off fits into its restructuring campaign, announced in April, to refocus on its core business. It has not been able to capitalize on the market transition to smart phones effectively, and it has announced an 11% cut in its workforce in the hope of refocusing on emerging growth opportunities in areas such as IoT, which complement its semiconductor strengths. Getting McAfee back to strength will, in the long-term, benefit Intel through the continued partnership agreement. CEO, Brian Krzanich, reiterated Intel’s intent to continue collaborating with McAfee and maintaining security as an important part of its products.