Intel Corp (INTC - Free Report) has finally completed the divestiture of its majority stake in Intel Security division to alternative asset fund manager TPG. The newly spun-off unit has been renamed McAfee, with TPG holding 51% stake.
As previously announced, Intel and TPG valued the security division at $4.2 billion. Per the agreement, Intel received $3.1 billion in cash and retained 49% stake post the completion of the transaction.
Per an agreement with TPG, private equity firm Thoma Bravo also joined as a minority shareholder. Moreover, TPG’s investment of almost $1.1 billion in the standalone business will boost McAfee’s capital base.
The negligible movement in Intel’s share price on Apr 5 reflected that the news was already factored in. We note that the stock has underperformed the Zacks Semiconductor General industry in the last one year. While Intel returned 14.8%, the industry gained 38.4%.
McAfee: A Burden for Intel
Intel acquired McAfee in 2010 and renamed it as Intel Security Group (ISG) in 2014. In 2016, ISG reported revenues of $2.16 billion, up 8.8% over 2015. However, the group contributed only 3.6% of Intel’s total revenue of $59.39 billion.
We believe that the unit failed to live up to Intel’s expectations primarily due to faulty planning and execution problems. Moreover, Intel’s preoccupation in maintaining its dominance in the chip market also affected the unit. Notably, the company’s chip market too has come under threat due to increasing usage of ARM-based chips by the likes of Microsoft (MSFT - Free Report) .
Further, increasing competition in the security software market that included the likes of FireEye (FEYE - Free Report) and Symantec (SYMC - Free Report) also negatively impacted ISG’s growth prospects.
Growth Prospects Improving
We believe that the completion of the divestiture will help Intel to focus on fast growing businesses like data center, memory, Internet of Things (IoT) and autonomous car technology. The majority stake sale will free up resources for the company, which it will invest on these fast growing businesses.
Intel’s data center business and cloud have been registering significant growth. The company’s bolt-on acquisition strategy is driving growth. Acquisitions of artificial intelligence (AI) startups Movidius and Nervana Systems will help Intel in strengthening footprint in data center, machine learning, deep learning and IoT businesses.
The recent acquisition of Mobileye is a significant development that will boost the company’s presence in the autonomous vehicle market. Further, Intel’s collaboration with Ericsson to advance 5G research presents solid growth opportunity.
We believe that these factors will eventually help the Intel stock to rebound in the long haul.
Currently, Intel carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>