Intel’s (NASDAQ:INTC) multi-billion purchase of security software company McAfee (NYSE:MFE) is a long-term gamble for the chip-making giant, a bet that demand for security algorithms built into chips will offset the hefty premium Intel paid for McAfee.

Nevertheless, investors and industry analysts are scratching their heads on the $7.7 billion mega-merger. While they do see ways the chipmaker and McAfee, known primarily for its popular anti-virus software found on many PCs, can integrate each other’s product offerings, the marriage has received little praise from Wall Street.

“This deal came out of left field,” said Andy Ng, technology analyst with Morningstar. “You really have to dig pretty deep into the deal to understand what Intel sees in McAfee.”

Under the terms of the deal, Intel will pay McAfee shareholders $48 per share in cash for the Santa Clara, Calif.-based company. It’s a 60% premium to McAfee’s Wednesday closing share price.

Intel executives said McAfee fits well, detailing plans to integrate McAfee’s security software directly into Intel's silicon. “The bottom line is the integration of Intel and McAfee will better improve security among PC users,” said Intel CEO Paul Otellini. “This transaction is part Intel’s transformation from a chip company into a computer company.”

While virus and other security concerns have always been an issue for corporations, governments and consumers alike since the dawn of the PC era, security attacks have become a much more prominent issue in recent years as more and more devices integrate with the Internet. Notably, Internet giant Google (NASDAQ:GOOG) disclosed a cyber attack from hackers in China earlier this year and last week the “Zeus” virus made headlines on concerns it might infect consumers' bank accounts.

With McAfee, Intel hopes to weave security software directly into its chips and chipsets both on the PC market but also in the growing mobile market through Intel’s Atom processor product line.

“Anywhere we can sell silicon is an opportunity to see integrated security features as well,” said Renee James, general manager of Intel’s software and services group, who is at the head of the chipmakers’ push into this field.

It’s the mobile field that really makes McAfee attractive. Intel remains the world’s dominant desktop and notebook PC chip provider by a large margin, but has made little headway into smartphones or table-like devices such as Apple’s (NASDAQ:AAPL) iPad.

“They’ve been very successful in creating value-added products on the desktop side,” said Daniel Morgan, portfolio manager for Synovus Trust in Atlanta and a long-time owner of Intel shares. “But the company has struggled repeatedly to move beyond that. This is a radically different move for Intel to go out and purchase outside software to integrate later.”

Ng sees Intel’s purchase as a way for the company to pick up a highly-profitable company while also providing an avenue to fight competition from companies like Advanced Micro Devices (NYSE:AMD).

“It’s just another way Intel can market and differentiate its chips from the competition,” Ng said.

The deal between Intel and McAfee came as a result of an 18-month joint venture, executives said. The beginnings of that joint venture led Intel and McAfee to develop some undisclosed products that will be released in the first-half of 2011.

Those undisclosed products may be part of the reason why Intel decided to purchase McAfee instead of extending or expanding the two companies’ joint venture.

“If what came out of that joint venture was revolutionary it could be that Intel wanted to lock that [intellectual property] down,” said S&P Equity Research analyst Clyde Montevirgen.

Montevirgen said that without knowing exactly what Intel and McAfee have developed the deal looks to be “accretive by a few cents in 2011” but cannot go much beyond that.

“It was a pricey acquisition and may be good longer-term for Intel to differentiate its product,” Montevirgen said. “But I can’t pinpoint what the return on this investment will be.”

Intel is not alone in having interest in the security space. Shares of McAfee's major competitor Symantec (NASDAQ:SYMC) rose nearly 10% on Thursday on speculation that the anti-virus software company could also become a takeover target.

"What we've seen is nearly large technology firms are gobbling up security businesses or at least are looking seriously," said Mandeep Khera, chief marketing officer with security consulting firm Cenzic.