Investors finally have a big flashing reminder why they should demand that tech companies stop hoarding cash – the more it piles up, the greater the temptation to waste it. Intel did exactly that yesterday, paying a net $6.8bn in cash for software security company McAfee.
The price is 60 per cent higher than what McAfee was worth on Wednesday, a valuation of almost 40 times forward earnings (the GAAP kind, capturing real business costs such as stock-based compensation and acquired technology). Chipmaker Intel will run its new security software company as a standalone unit, meaning no cost savings to justify the premium. Paul Otellini, Intel chief executive, thinks he has a better idea of security’s growth potential than the market, which has not paid as much for McAfee at any point in the past decade.
Could he be right? Computing is moving into phones, televisions and the online cloud. Consumers face phone hacking and mobile spam, while security is always the first question raised by companies thinking about online data. Intel reckons security is the third pillar of computing, along with energy efficiency and connectivity.