Big Stakes for Everyone in Mobileye Deal

(Reuters/Hamodia) -
At a press conference Tuesday at the Prime Minister’s office in Yerushalayim: L-R: Mobileye founder Amnon Shashua, Minister of Economy and Industry Eli Cohen, Prime Minister Binyamin Netanyahu, Intel CEO Brian Krzanich and Mobileye founder Ziv Aviram. (Yonatan Sindel/Flash90)

Intel Corp.’s purchase of Israeli autonomous-vehicle-technology firm Mobileye for $15.3 billion on Monday is a deal that could thrust the U.S. chipmaker into direct competition with rivals Nvidia Corp. and Qualcomm Inc. to develop driverless systems for global automakers.

The pricey acquisition of Mobileye could propel the world’s largest computer chipmaker into the front ranks of automotive suppliers at a time when Intel has been reaching for market beyond its core computer semiconductor business.

It also promises to escalate the race among the world’s carmakers and suppliers to acquire autonomous vehicle technology, and could fuel already-overheated valuations of self-driving start-ups.

The stakes are enormous. Last year, Goldman Sachs projected the market for advanced driver assistance systems and autonomous vehicles would grow from about $3 billion in 2015 to $96 billion in 2025 and $290 billion in 2035.

Skeptics have questioned whether auto companies and suppliers will be able to deploy fully self-driving cars safely in the next four years, as several have promised. Investment analysts on Monday raised concerns about the potential synergies between Intel and Mobileye, as well as the acquisition’s price.

Intel has not been a significant player in the sector, although it has invested in at least half a dozen start-up companies developing different components for self-driving systems, from robotics to sensors.

Mobileye brings a broad portfolio that includes cameras, sensor chips, in-car networking, roadway mapping, machine learning, cloud software and data fusion and management.

“This is a tremendous opportunity for them to get into a market that has significant growth opportunities,” said Betsy Van Hees, an analyst at Loop Capital Markets. “Mobileye’s technology is very critical… The price seems fair,” she added.

Still, the industry newsletter Semiconductor Advisors on Monday wrote that Intel’s acquisition of Mobileye indicates a strategic move “very far outside its core business franchise.”

The price is about 21 times expected 2017 revenue, making it more than six times more expensive than the semiconductor industry’s three-year deal average, said B. Riley analyst Craig Ellis. He said the “very expensive transaction” improved Intel’s position in the automated driver assistance market, but left Nvidia the leader on the highest end.

Intel is paying a premium of 60 times Mobileye’s earnings, about four times the premium that Qualcomm is paying to acquire the Netherlands’ NXP.

The $63.54-per-share cash deal represents a premium of about 33 percent to Mobileye’s closing price of $47 on Friday, but below its all-time high closing price of $64.14 in August 2015.

Mobileye’s shares rose 28.2 percent to close at $60.62, while Intel’s shares were down 2.1 percent.

The market for self-driving technology is becoming crowded, including mapping company Here, as well as technology companies ranging from Alphabet Inc.’s Waymo to Chinese Internet giant Baidu Inc.

Shares of systems integrator Delphi Automotive PLC, which has partnerships with Intel and Mobileye, rose 4.0 percent. Delphi said in a statement that it expected the deal would let it accelerate adoption of new technologies.

Intel has a mixed record of capitalizing on technology outside computer chips. Last year it spun out its cyber security division, formerly known as McAfee, in a deal valuing it at $4.2 billion including debt, five years after having bought McAfee for $7.7 billion.

Intel will give Mobileye unusual autonomy, integrating its own automated driving group with Mobileye’s operations under Mobileye Chairman Amnon Shashua, who will lead the unit from Israel.

Intel Chief Executive Brian Krzanich said the acquisition was akin to merging the “eyes of the autonomous car with the intelligent brain that actually drives the car.”

Mobileye and Intel are already collaborating with German automaker BMW on a project to put a fleet of around 40 self-driving test vehicles on the road in the second half of this year.

At the same time, Mobileye has teamed up with Intel for its fifth-generation of chips that will be used in fully autonomous vehicles that are scheduled for delivery around 2021. Mobileye also has partnered with Delphi on a self-driving platform that is being shopped to smaller car companies that may not have the resources to develop their own systems.

Meanwhile, in apparent fallout from the Mobileye deal, the shekel gained against the dollar by 0.45 percent over Monday’s exchange rate, pegged at NIS 3.6612/$ as of Tuesday afternoon.

FXCM Israel said in its daily review: “The dollar-shekel pair retreated Monday, dipping below NIS 3.66/$, despite the U.S. dollar’s stability on world markets in advance of the Federal Reserve’s interest rate decision on Wednesday. It is possible that the relative strength of the shekel is a manifestation of the ‘Mobileye effect,’ which elevated the mood on the local market.”