Intel Corporation (NASDAQ:INTC) recently announced it was spending $15.3 billion to acquire Israeli computer vision and machine-learning company Mobileye N.V. (NASDAQOTH:MBBYF). In December 2015, the company paid a whopping $16.7 billion for chip maker Altera Corp, known for its field-programmable gate arrays (FPGAs). These became the two largest acquisitions in the company's storied history and cap off a string of recent purchases Intel has made to position itself in the emerging field of artificial intelligence (AI).
Bernstein analyst Stacy Rasgon estimates that Intel has spent more than $30 billion on acquisitions in the last several years. Unfortunately, the company has a sketchy acquisitions track record, and several previous buying sprees have been disastrous, leading to massive writedowns. In 2010, technology website TechCrunch went as far as to say, "This is an awe-inspiringly bad track record, and likely puts Intel as the worst acquirer in tech history."
Intel itself admits its less-than-stellar record. In a December 2015 interview with Bloomberg News, Intel Vice President Wendell Brooks stated, "There's general acknowledgment within the executive team and the board at Intel that we haven't done as well as we could do on past acquisitions."
Missed the move to mobile
Failure to innovate left Intel behind the curve when phones and other mobile devices began their trek toward mass adoption. Between 1999 and 2003, the company spent over $11 billion acquiring companies in the cellphone and communication chip space and never gained a foothold in what was to become one of the largest migrations in tech history. It eventually sold off its cellphone chip business for a measly $600 million in 2006, missing the smartphone revolution that began just a year later.
Another dubious acquisition was that of antivirus software company McAfee in 2010 for $7.68 billion. The company aspired to embed security features onto its hardware and expand into additional markets beyond that of its signature chip business. Many felt the deal was ill-advised, with Forbes detailing prior the deal closing, "There is no synergy, no channel benefits, marginal revenue enhancement (considering the price), no new markets, and no meaningful strategy." Intel ultimately sold off 51% of its stake in the company for $4.2 billion.
Banking on new trends
This record of questionable purchases hasn't slowed the company in its attempts to expand beyond its core processor market. Intel was recently singled out by market research company CB Insights, who noted that Intel ranks third in acquiring start-ups in the nascent field of AI over the last five years, having added three companies in 2016 alone. Nervana focused on deep learning, a sub discipline of AI that mimics the human brain's capacity to learn. The companies hope to develop an AI system that will integrate with Intel's existing processors. Itseez developed software for Internet of Things (IoT) applications, drones, cameras, and autonomous driving. Movidius specialized in hardware for computer vision used by drones and cameras, and it developed a system-on-a-chip (SoC) that accelerated computer vision and deep learning.
Deja vu all over again or lesson learned?
Questions remain as to whether this time will be any different. CNET notes that in some instances, Intel gave up on promising areas of business before they reached their full potential. On some occasions, the company ventured too far from its core proficiency only to realize its mistake too late. Finally, in many cases, Intel's company culture was such that it failed to embrace products outside of its core processor markets.
Intel's current CEO Brian Krzanich appears to be taking a different approach with these latest acquisitions. In a move that may bode well for the future, Intel uncharacteristically decided to leave Mobileye's team in Israel and supplement them with Intel's existing team. This change in attitude, particularly if it comes from the top down, may break Intel's string of broken acquisitions and missed opportunities and provide the company with a path beyond the processor.
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