If You Have Too Much Cash, WASTE SOME!

This is ridiculously stupid, I’m sorry to say:

Aug. 19 (Bloomberg) — Intel Corp. agreed to buy McAfee Inc. for $7.68 billion, its largest acquisition, adding security software to its chipmaking arsenal.

McAfee investors will receive $48 a share in cash, Santa Clara, California-based Intel, the world’s largest chipmaker, said in a statement today. That’s 60 percent more than McAfee’s closing price yesterday. Both boards have unanimously approved the deal, Intel said.

Valuation-wise, this deal makes no sense at all.  At 3.2x revenue and 44x current EPS this is beyond silly and into the nosebleed territory.  Indeed, it reminds me of the heady days of 1999.  The acquired firm has a net operating margin of 12.7% and a net profit margin of 8.4%, leading one to beg the question why would you buy someone who can’t even manage to turn a 10% after-tax profit at this sort of ridiculous valuation?

The only good news is that McAfee has no debt on their books.  And of course people will argue that they were down 28% in the last year, so they were “ripe” on a stock basis.

I don’t see what Intel thinks they’re buying.  Oh sure, I’ve read the pieces about “integration” into hardware.  Uh huh.  I hope Intel is considering that my experience with McAfee’s offerings has been so negative that when I see a new computer with their ‘preloaded” stuff on it (or their competitor Symantec) I immediately remove it.  If Intel “embeds” that sort of “great user experience” into their chipsets or processors they could inadvertently wind up driving people away from their products instead of helping their sales.

As a programmer for decades I frankly don’t get it.  Protected-mode chips have been inherently safe in terms of code paths and execution risks since they first debuted with hardware data execution protection.  The risk lies in the idiots in the operating system manufacturer staff who put “convenience” before security, and leave gaping holes through which user applications can waltz to gain protected-mode system access, then wreak havoc.

The solution to this isn’t to put something in the microcode - the protective features are already there!

The solution to this problem is for users to refuse to buy operating systems where the manufacturer chooses to do stupid things like this and thus make this sort of attack both practical and fruitful.

I wish Intel the best and own a bunch of their products but I’m Grizzly-bearish on my view of the wisdom expressed in this transaction.

Disclosure: No position in either firm.