Less cash, more problems

Intel/McAfee: Intel's $7.7 billion deal to buy security firm McAfee isn't only a surprise, it's also a gamble. Mobile gadgets are the chip industry's future, and Intel has fallen behind. It is betting that combining McAfee's security software with its hardware will give it a leg up. Perhaps so. But investors who knocked down Intel's shares are rightly skeptical the chipmaker can pull it off.

Theoretically, devices should be safer if a chip company worries about security from the start. Instead of papering over holes with software, the idea is to eliminate more of them at the source. Intel thinks McAfee's expertise will allow this. Another potential benefit - running the software closer to the silicon, as the jargon goes - could mean it works faster and uses less power. Both are important factors for mobile devices.

Yet hardware producers and software firms are fish and fowl. Few manage to cross the divide very successfully. Microsoft's continued flailing in consumer electronics hardware is a prime example. Integrating Intel's engineers of intricate devices made in clean rooms with the geeks at McAfee who figure out how square-eyed keyboard junkies break software security seems intuitively problematic. Intel, though, says it has been collaborating closely with McAfee for some time and likes the results.

Whether an acquisition at a 60 per cent premium to McAfee's closing price on Wednesday is the best way to get more of them is, however, an open question. A joint venture might have captured many of the benefits with less risk. Sure, it might have been slower and more difficult to arrange. But Intel is now locked into McAfee, when some customers may prefer another company's software.

Moreover, it is paying plenty. The median takeover premium in the technology sector over the past decade was 40 per cent, according to Thomson Reuters data. Intel investors appear unconvinced, wiping almost $4 billion off the company's market capitalisation on Thursday - though a down day for stocks generally didn't help. They may worry that a big cash pile, more than $18 billion in cash and tradable securities at the end of June, was burning a hole in Intel's pocket. There are no such doubts for McAfee's shareholders, though. They walk away worth almost $3 billion more than they were a day earlier.