December 20, 2012

Jim Cramer Shoots McAfee/Intel, Hits Self


Last week, Jim Cramer decided (I’m assuming it was a slow news day) he wanted to write about John McAfee who is clearly having issues with being a good neighbor in Belize. The reason I’m following this closely myself is that I’m planning on building a house there. But since John hasn’t been a CEO for two decades Jim had to make an ugly connection to something Jim could talk about (he is a Financial expert not a celebrity hijinks columnist) and he decided to take a shot at Intel (his ill-advised column here). 

But he likely should have thought before he fired as his argument was that Intel should have bought ARM Holdings and not McAfee. This would be similar to arguing that the U.S. should have bought China rather than Alaska, or that some relative that married someone you don’t like should have married a superstar.  

The point is that in all cases, that isn’t a real choice (unless your family is hooking up with superstars).  

Let’s talk about Intel, McAfee, and foolish entertainers pretending to be acquisition experts.  

Intel + McAfee

The goal behind the McAfee acquisition is similar to the goal that Cramer highlights in his piece. Intel rightly recognized that the future big differentiator for mobile devices would likely be security. In fact, given the increased risk of a digital 9/11 that is likely going to be the big differentiator in most of the embedded market including connected cars, power grid devices, connected healthcare devices, and pretty much anything that is network connected.

They bought McAfee because the company had quietly seen this same opportunity and had been on a buying spree of companies and technologies that could secure mobile devices. They hadn’t converted most to products yet which is why they were so affordable, and to gain benefit, Intel would still have to convert these technologies to something that uniquely favored Intel. This last isn’t trivial because virtually none of them had this critical aspect as a design element.

However, in this world of massive intellectual property litigation having a large pool of protected technology that would address what was, and is, believed to a growing problem in a market that Intel is attempting to penetrate was, and is, believed to be a good gamble. It takes three to five years to integrate new technology into processors, and we aren’t in that window yet so won’t know for sure if McAfee is truly a good idea for some time. 

But we do know that trying to buy ARM Holdings would have been an incredibly bad idea.

ARM Holding Disaster

Now if this had been before the anti-trust laws took hold the idea of buying a major competitor as a dominant company and then shutting it down would have been a viable strategy.   But given Intel’s current dominance both the Federal Trade Commission (or the Department of Justice), and the European Commission would have had a near literal cow had Intel tried to buy ARM Holdings and raced each other to block the effort.   The attempt and failure would have made Intel appear far weaker than they are now and more than a tad foolish because they should have known that this move wouldn’t be allowed.  

But even if these law enforcement agencies were napping, the ARM licensees (Qualcomm, NVIDIA, Microsoft, Apple, Samsung, Marvell, Freescale etc.) would have moved to keep ARM Holdings independent or moved to acquire it themselves to protect their interests. If Intel then outbid them for ARM Holdings, you’d have Intel likely without cash reserves and in massive debt in a market that demands massive R&D and investment to survive.

And you’d have a bunch of companies looking to partner to create an alternative to ARM and with their existing ARM contracts in place until they could make the swap.  

In that scenario, Intel likely fails within five years. 

Now there’s a chance that if Intel bid up the price and lost to say Samsung, Samsung would be drained and the other ARM companies might be more likely to license from Intel if they didn’t think Intel manipulated the entire thing (doubtful). And Intel could win, but not by getting ARM holdings – by getting someone else like Samsung to bleed themselves dry in the process of getting it.  

Wrapping Up:   Cramer Should Read up On Anti-Trust

For someone like Jim Cramer to completely ignore anti-trust law in the technology market is almost unbelievable given what happened to IBM, Microsoft, and will likely still happen to Google and/or Apple. 

Intel, in particular, has been under an anti-trust cloud for years and to write about Intel strategy critically forgetting this aspect is very foolish.  

While the full benefits of the McAfee acquisition have yet to fully emerge the disaster that an attempt to buy ARM Holdings would create is impossible to miss and being critical of the former while being completely ignorant of the other certainly suggests Cramer should likely focus a bit more on research than entertainment going forward. 






Related Tags

Cloud    Google    Intel
Security    Microsoft    Apple

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