Intel Corp said it would buy security software maker McAfee for $7.7 billion to capitalise on rising demand for better safeguards for laptops, smartphones and tablets.

Intel will pay $48 per share in cash for McAfee in its biggest acquisition ever. The price represents a 60 percent premium to McAfee's Wednesday closing price.

The pact is the latest in a steady stream of technology deals, including Dell's $1.3 billion purchase of storage company 3PAR earlier this week.

 The McAfee deal, which caught many analysts by surprise because its marries a chipmaker and a software maker, underscores Intel's determination to continuing expanding beyond the PC market to hot businesses like mobile devices and smartphones.   

But, for the moment, the biggest advantage in the deal may be Intel's ability to sell McAfee's software to PC customers. Intel supplies roughly 80 percent of the microprocessors used in PCs.

'It's slightly out of left field. Nobody would have seen this coming,' said Chris Hickey, an analyst at Atlantic Equities.

'At the simplest level, Intel has strong relationships with a number of PC and server vendors. This should be an opportunity to cross-sell McAfee's security software into those PC vendors.' 

Hickey added: 'Ultimately, when we look several years out, almost every device in the home is likely to be connected to the Internet. Intel clearly wants to participate in that market.'    

Intel shares dropped 3.5 percent in morning trade, while shares of McAfee surged 57 percent and helped boost the wider security sector. Symantec Corp, the biggest security company, saw its shares rise 5.2 percent.

McAfee, which was founded in 1987 and had revenue of $2 billion in 2009, has been working with Intel on a variety of projects for the last 18 months.
    Through that partnership, Intel 'decided a combination could be very powerful for bringing enhanced security to consumers,' Renee James, who runs Intel's software and services group, said in an interview.

'We have lots of activities going on in growing connected devices ... from connected television to mobile devices,' she said. 'As we look at the businesses we're in, we see that security is the number one purchase consideration. We believe that we can enhance security with hardware and come up with a better solution.'    

Intel said the boards of both companies had approved the deal, and it expects it to close once it gains McAfee shareholder approval and regulatory clearance. It did not provide a specific timeframe. It said McAfee would become a wholly owned subsidiary.

Vijay Rakesh, an analyst at Sterne Agee, said he was surprised by the size of the premium. 'I think people were probably (expecting) some smaller acquisitions from Intel. It's definitely -- even by Intel's standards -- a pretty big acquisition for them.' said Rakesh.

The chipmaker has made several software acquisitions in the last few years, including the purchase in 2009 of Wind River, a company focused on mobile software.  - Reuters