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McAfee, a wholly-owned subsidiary of Intel Corp. (INTC - Analyst Report), which is the world’s largest manufacturer of semiconductor products, plans to acquire Stonesoft, a network firewall solutions provider, for $389 million in cash.

Finnish company Stonesoft Corp. offers network security solutions. Its product portfolio includes Firewall/VPN, IDS/IPS, SSL VPN, Management Center (SMC) and Virtualization Solutions. It is a global business and has 6,500 customers worldwide.

California-based McAfee, Inc. was acquired by Intel in Feb 28, 2011 for $7.68 billion and is now a wholly-owned subsidiary of the chip giant. The acquisition was Intel’s first step into the security segment, which has tremendous potential. As more individuals and businesses all over the world get connected, they are more susceptible to cyber attacks. Therefore, the growing number of connected devices (primarily tablets and smartphones), the bring-your-own-device (BYOD) strategy adopted by many companies, the SaaS model being increasingly adopted by software companies and the increasing volume of business being carried out online (banking, e-commerce, academic, government) are secular drivers of security solution sales. Not only is security essential at the client device level (receiver/transmitter of data), but also at the network level (transport of data) and at the cloud level (transmitter/receiver of data).

The acquisition will strengthen Intel’s portfolio of security solutions. Intel’s growing interest in software and security is also borne out by the recent elevation of Renee James to the position of President. James was behind the McAfee acquisition and is also probably driving this one. The company is certainly devoting resources in the area ($7.7 billion for McAfee and nearly $400 million on this one). Intel has deep pockets and deeper strategy. While its mobile efforts were off to a slow start, Intel has whatever it takes to pursue opportunities in other growing markets as well. 

Intel reported revenues of $12.58 billion, within the guidance range of $12.7 billion (+/-$500 million) in the first quarter of fiscal 2013, down 6.7% sequentially and 2.5% year over year. Weaker-than-expected PC demand stemming from tablet cannibalization and restrained consumer buying due to tighter budgets continued in the quarter.

Intel’s shares carry a Zacks Rank #3 (Hold). Other semiconductor stocks that are equally worth considering include On Semiconductor Corp. (ONNN - Analyst Report), Magnachip Semiconductor Corp (MX - Snapshot Report) and Lam Research Corp. (LRCX - Snapshot Report), all carrying a Zacks Rank #2 (Buy).

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