HP To Buy McAfee? Don’t Make Me Laugh

As I walked into the opening keynote of the HP Americas Partner Conference last week, I got an alert on my Blackberry: HP was rumored to be buying security powerhouse McAfee. I immediately flashed the headline to a couple of people in the crowd and shared a quick laugh before the lights dimmed. Little did we know that within 24 hours, the real news would be HP’s acquisition of Palm for $1.4 billion (£0.92m).

The HP-McAfee acquisition is one of my favouritl myths in the security market; it ranks right up there with unicorns and leprechauns. This deal is a perennial rumour that surfaces whenever HP is running high or McAfee has a slip. Stories of such a marriage are driven by Wall Street speculators who wish to tap the rich commissions that come with a multi-billion-dollar stock swap. The last time I wrote about HP-McAfee was February, when weeks of background chatter surfaced in financial analyst notes. Then, like now, the chatter proved to be – as Shakespeare would say – nothing more than sound and fury signifying nothing.

Don’t get me wrong, HP buying McAfee would be a powerhouse deal that would finally give HP the security muscle it needs to compete against the likes of Cisco, Dell, IBM and Acer. Of the tech titans, HP has the weakest in-house security portfolio; even with the acquisition of 3Com’s TippingPoint intrusion prevention systems (in a deal finally approved last month) and the development of its own ProCurve-based firewalls, HP’s security proposition is anaemic at best.

Here’s why it won’t happen

But the deal doesn’t make sense – at least at this time – for a few reasons.

• First, McAfee is too expensive. Despite having weaker profits in the first quarter of this year, McAfee has posted 16 consecutive quarters of growth. Its annual revenue is somewhere around $2.5 billion (£1.65bn) . If you figure an acquisition price of at least four-times annual revenue, McAfee would cost $10 billion (£6.5bn) . HP has that kind of cash and stock value, so it’s not the direct expense that is tough. Rather, McAfee wouldn’t substantially move the needle on HP’s top-line revenue.

• Second, does HP really need to own McAfee? HP and McAfee already enjoy a strong and broad alliance, through which McAfee sells many of its products bundled with HP gear or as stand-alone offerings. In other words, HP is already getting the benefits of McAfee without having to lay out billions in cash. HP is also aligned with several other security vendors, including Sophos and Microsoft, so it has no shortage of suppliers for its security needs.

• Third, HP could build a solid security division for a lot less money that it would cost to acquire McAfee. There isn’t a security vendor out there that isn’t entertaining acquisition offers. Rumours have it that Trend Micro is shopping itself around Silicon Valley, too. If HP wants to dive into the security game, it could pick up a number of innovative yet small point-product security vendors and cobble together a security portfolio. If you use Symantec’s acquisition of PGP Corporation as a baseline, HP could pick up a number of security technologies for a fraction of what McAfee would cost.

• Finally, HP desires nothing less than winning. Executives from CEO Mark Hurd down to regional managers chant the same mantra: HP wants to be either number 1 or 2 in each of its respective businesses. It was already the second largest networking vendor when it bought 3Com. It’s the largest printer and PC vendor. And it’s rapidly building its professional services and storage hardware offerings. Buying McAfee would make it a significant security vendor, but it wouldn’t automatically catapult it to the top two slots, and it would take time to develop an HP security market.

OK, so here’s the escape clause: As former NetApp CEO Dan Wormenhoven once told me, every company has a fiduciary responsibility to shareholders to entertain a legitimate offer [And every CEO in the world says the same thing – UK Editor]. As the old saying goes, everyone has a price.

So is it inconceivable that HP would buy McAfee? No, absolutely not. But after years of watching this dance and hearing the same old song, it’s best to let the rumour mill churn and only get excited when real chatter rises to the surface – if it ever does.