Why Intel’s M&A Binge Will Fail – Buying Growth is Not a Strategy
Intel’s recent acquisition binge has been enormous—they’ve spent almost $10 billion in the past month on TI’s cable modem division, security software maker McAfee, and Infineon’s Wireless Solutions (WLS) business.
At last week’s Intel Developer Forum, CEO Paul Otellini talked about this massive acquisition spree like it’s predestined to succeed. But if we look back in time, Intel’s pitiful M&A track record suggests this couldn’t be further from the truth.
Between 1999-2003, Intel spent over $11 billion buying about 40 companies, and the vast majority of these acquisitions failed. In fact, of the 15 largest acquisitions in its history, Intel has shut down or sold off the acquired products in every single case (aside from Wind River which is too recent to include).
This is an awe-inspiringly bad track record, and likely puts Intel as the worst acquirer in tech history. There isn’t even a Wikipedia acquisition page for Intel like there is for Google, Microsoft, Cisco, and Apple. If I were a conspiracy theorist, I’d say Intel’s corporate PR department had Wikipedia remove the page.
Only kidding. But the truth is, Intel doesn’t want the media and public to remember how bad they are at M&A. They want everyone to believe it will be different this time.
The Reasons Behind Intel’s Past M&A Failings
Intel has become dominant off of one single product category: PC processors. They love how easy it is to make money in PCs, and even do things like sell 100% margin scratch-off cards to consumers to “unlock” features (it’s amazing what you can sell when you have a monopoly).
Intel isn’t good at innovating outside of PCs / servers primarily because a “not invented here” (NIH) culture prevails within the company, causing internal teams to reject products which originated elsewhere, or which serve non-core markets.
Intel’s missteps outside PC processors are vast. First was the failed diversification in the 1999 – 2002 communications boom. Then Intel made a massive splash at CES in 2004 with a technology called LCOS for digital TVs, only to kill it later that year. And of course Intel tried once and failed in mobile, selling off its XScale division to Marvell in 2007.
It’s fine to fail fast like companies sometimes do with products (e.g. Google Wave), but with Intel we’re talking about a different type of failure: overpaying for bad acquisitions and a complete inability to wean itself off of PCs.
Unfortunately, M&A is Not a Strategy
In addition to its cultural resistance to outside innovation, Intel has also tended to rely on ad hoc M&A as its growth strategy. This is bad. M&A should be used to augment a corporate strategy, not as a strategy to grow in and of itself. In this way Intel faces the classic innovator’s dilemma as they attempt to reach beyond PCs and grow through acquisition.
McAfee and Infineon are huge risky roll-up bets—Intel has very little presence in security and mobile today, and McAfee is the largest deal in corporate history. Synergies will not be realized unless the technology, operations, and people are rolled successfully into existing Intel product lines.
And large roll-up acquisitions in technology can’t typically rely on cost synergies—they must produce additional revenue synergies. In this context it’s very revealing that Intel has publicly hedged, talking openly about how both Infineon and McAfee can be operated autonomously.
But operating these companies autonomously isn’t what Intel promised to shareholders when it comes to growth and diversification beyond PCs into new markets.
And there are already ominous signs for Intel: Rumor is that Apple has already ditched Infineon for Qualcomm in iPhone 5. This is pretty ironic following Intel CEO Paul Otellini’s public gloating about Steve Jobs being “very happy” with Intel’s acquisition of Infineon. And very bad for Intel since Apple was Infineon WLS’s largest customer.
So though only time will tell if it will be different this time for Intel, it certainly isn’t starting well. And it’s tough to see how these huge sprawling acquisitions into new markets will work given Intel’s record of poor execution.