Intel + McAfee or ARM Holdings: Is Jim Cramer Really Crazy?

    Last week, Jim Cramer argued that Intel should have not purchased McAfee but instead purchased ARM Holdings. It isn’t hard to see his argument; the McAfee acquisition has yet to pay dividends, the old founder (who had left the industry decades ago) is doing controversial things in Belize (where I’m building a house) and Intel needs to be where ARM Holdings is in mobile. It would be easy to conclude, as Jim did, that Intel should have bought ARM Holdings instead if you knew nothing about the technology industry, knew nothing about why Intel bought McAfee, and had lived in the 1920s or before there were anti-trust laws.  

    Let me explain.

    Jim Cramer

    First, Jim Cramer is a financial analyst who does a TV show for NBC called “Mad Money.” In this show, he provides investment advice to individuals (viewers) in an entertaining way. Clearly, John McAfee’s antics in Belize have become topical. (John had a drug lab and lots of guns and, for some reason, the government in Belize was unhappy with this.) When John’s neighbor got shot, the government got even more interested in John, who decided it was wise to hide in boxes on his property and talk to the media about his adventures. This is all certainly entertaining unless you happen to either be a member of John’s family, own the image for the company with the same name, or are building a house in the same country John has been having his adventures in. (No, he isn’t a close neighbor.)

    And Jim, having an entertainment-based show, figured he’d use John’s issues to form the foundation for an opinion piece that concluded Intel should have bought ARM Holdings and taken over the mobile market rather than buying McAfee, which now is connected to the antics of its founder.  

    This would be kind of like arguing that the U.S., instead of buying Alaska, should have bought China — an equally strong argument that would equally point to a broad lack of understanding in the issues surrounding the decision.

    McAfee vs. ARM

    Part of the reason to buy McAfee rather than ARM Holdings is that Intel could buy McAfee. There is no scenario where Intel could have bought ARM holdings any more than there was a scenario where the U.S. could have bought China (though I’ll bet there are folks in China who would be happy to let you believe, if you paid them money, that you owned China much like their counterparts in Brooklyn regularly sold the bridge by the same name). 

    Anti-trust laws generally restrict a company from using its dominant power in one market to buy control of a challenging market. Even if Intel were to buy ARM Holdings and terminate the related licenses, even if it didn’t, the licensees would be at a significant disadvantage against Intel and both the Federal Trade Commission, and its European counterpart would have moved aggressively against such a purchase.  

    In addition, all of the licensees, some of which (like Apple and Microsoft) Intel is dependent on, would have aggressively moved against this and both bid the price up to unaffordable levels and punished Intel for the attempt. The end result would likely be a significant reduction of Intel’s available market. 

    So even if Intel were allowed to try to buy ARM Holdings, it would likely be outbid and the result would be a large number of critical partners who would view Intel as a threat and aggressively move to ARM because they are upset with Intel and because they now own ARM Holdings.  

    Wrapping Up: Intel + McAfee

    The purpose of the Intel McAfee acquisition was to gain access and ownership over what is believed to be the largest available pool of security technology for mobile devices. Currently, these devices are both based on ARM and relatively unsecure. If projections about a digital 9/11 are correct, Intel is positioning itself as the only viably secure mobile vendor and, after this catastrophic event, should (if the solution is complete) be able to drive the result into a much stronger mobile position.  

    This was like buying Alaska — the advantage wasn’t clear at the start and it was called a folly — but it turned out to be a massive oil resource and it did eventually pay off. China might have looked more attractive, but there was no way to do it any more than there was a way for Intel to buy ARM Holdings and to suggest a path like the U.S. buying China or Intel buying ARM Holdings is to suggest you’re “mad.” Granted, this is consistent with the name of Cramer’s show, but I doubt investors want to take suggestions from a crazy person. It is good that neither does/did Intel.     

    Rob Enderle
    Rob Enderle
    As President and Principal Analyst of the Enderle Group, Rob provides regional and global companies with guidance in how to create credible dialogue with the market, target customer needs, create new business opportunities, anticipate technology changes, select vendors and products, and practice zero dollar marketing. For over 20 years Rob has worked for and with companies like Microsoft, HP, IBM, Dell, Toshiba, Gateway, Sony, USAA, Texas Instruments, AMD, Intel, Credit Suisse First Boston, ROLM, and Siemens.

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