Intel buys e-commerce firm for $500 million

The acquisition is meant to help customers manage the huge volumes of Internet traffic generated by the explosive growth of e-commerce, the company said.

This is the largest cash transaction Intel has ever made, according to analysts.

"It is the third e-commerce equipment purchase they've made, so this follows along with their ongoing strategy," said Chris Chaney, an analyst with AG Edwards. "Intel has been building server farms for some time, so they may want to put this technology in their farms."

Chaney also said he is puzzled by the deal because IPivot probably would have reaped much more than $500 million in an IPO, had it gone public. California-based IPivot designs and manufactures e-commerce equipment.

IPivot marks Intel's third acquisition in the Internet commerce equipment market. Intel also placed a flag in e-commerce equipment through its acquisition of Dayna Communications in 1997 and stepped into the virtual private network market with the purchase of Shiva last year.

Peter Wolff, an analyst at ING Barings, said Intel's e-commerce buys, including IPivot, represent the soul searching going on at Intel. "Management is faced with realizing that they've won the war... now what do they do? They look around and say 'what's the fastest growing market out there?' They're trying to put together the platform for companies to access the Net. I would expect this strategy to bear fruit in about three years."

Intel considers e-commerce equipment a rapidly emerging product category composed of special function devices that manage information crossing the Internet. Those special functions deliver faster, more efficient, more secure, and more reliable transactions.

IPivot systems "intelligently" determine where data should be processed and then send the request to servers that can deliver the best response time--reducing or eliminating the frustration of waiting for Web pages to load on a computer screen. The company also provides products that improve Internet performance by accelerating certain security functions.

Today's acquisition is Intel's eighth purchase related to networking and communications this year.