As promised, Intel Corp’s (INTC) acquisition of McAfee Inc was completed in the first quarter, following approval by both the U.S. Federal Trade Commission and the European Union.

The FTC had given its approval earlier, but clearance from the EU was received after Intel assured that the new products created as a result of the acquisition would also function with software from other security companies, such as Symantec Corp (SYMC).

McAfee will operate as Intel’s wholly owned subsidiary and its results will be reported under the Software and Services Group. It will continue selling its products and services under the McAfee brand (at least for now).

The agreement, which was announced in August last year was completely unexpected, taking both analysts and investors by surprise. Our detailed analysis is available here – McAfee Joining “Intel Inside”

Intel expects the first combined products to ship as early as this year and the obvious indications are that Atom chips to be incorporated in tablets and smartphones in the second half will include this functionality.

Intel is banking on the fact that mobile users are not in the habit of separately purchasing security software and would also be frustrated at the significant slowdown of their devices in case they did use such software. Users of tablets, TVs and other consumer devices increasingly connecting to the Internet are also likely to welcome a secure solution.

Intel believes this will increase the popularity of Atom chips and help it wrest some market share. Of course this is not going to be easy, given the fact that chips from Qualcomm (QCOM) and Texas Instruments (TXN) based on the ARM Holdings (ARMH) design are very firmly entrenched.

But we believe Intel should not be written off completely (the company also acquired Infineon’s wireless business, which brings on board necessary cell phone technology).

Intel increased its revenue guidance last month on the strength of acquisitions, while cautioning investors about the fault in the Cooger chipset. Intel said that the fault in Cooger (which supports Sandy Bridge) would lower first quarter revenue by $300 million. It would also significantly impact the COGS.

Intel lowered gross margin expectations for the first quarter to 61% (+/- 2%) from 64% (+/- 2%) and stated that it would also restate the fourth quarter margin to take a charge related to the fault. Operating expense projections for the first quarter were also raised slightly.

We have a short-term (1-3 months) Hold rating on Intel shares, as indicated by the Zacks #3 Rank.

 
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