Intel has announced a bold moved into the security space: it plans to acquire McAfee for US$7.68 billion in cash.

Under the terms of the deal, Intel will pay US$48 a share in cash, a 60% premium over McAfee's stock price of US$29.93.

This deal will turn Intel into a major player in the security software and services market, and marks one of most significant moves in its 42-year history, with Intel expanding its brand beyond  being a component supplier, and climbing higher up the technology value chain.

This seems to be part of a longer term strategy: last year, Intel bought Wind River for $884 million, giving it a software maker with a presence in the consumer electronics and wireless markets.

The logic of the move is based on Intel’s well founded belief that the market for security technology will grow as more and more electronic devices are connected to IP-based networks, from home appliances to vending machines.

Analysts expect that many of the tools that McAfee provides today may be built-in to chips and devices over time. At present McAfee predominantly sells antivirus software to consumers and businesses, with a suite of more sophisticated security products and services aimed at corporations.

Much of McAfee’s security software is sold on a subscription basis, as a service over the internet. This can protect a company form the ups and downs of the economic cycle. It can also help build margins: at 80%, McAfee's gross margins beat Intel's, which tend to be around 65%.

Ashok Kumar, a technology analyst with Rodman & Renshaw, was reported as saying that eventually the software features will get embedded in the hardware.

"So, maybe this is an expensive way for Intel to acquire domain expertise," said Kumar.

Intel's chief executive, Paul S. Otellini, said in a statement: "With the rapid expansion of growth across a vast array of Internet-connected devices, more and more of the elements of our lives have moved online. In the past, energy-efficient performance and connectivity have defined computing requirements. Looking forward, security will join those as a third pillar of what people demand from all computing experiences."

Intel, the world's largest chip maker, has recovered from the recession well, posting record sales in recent quarters, though the company's share price has fallen about 20% in the last five years. After its most recent quarter, Intel had about US$12.2 billion in cash and short-term investments on hand.

McAfee's revenue rose 20% last year to US$1.93 billion. Intel's revenue fell 7% to US$35.1 billion.