One of Uber's driverless SUVs was recently involved in an accident which killed a pedestrian on a dark road in Tempe, Arizona. Neither the car nor its backup driver spotted the woman, Elaine Herzberg, who was walking her bike across the road.
This was the first fatal accident directly caused by an autonomous vehicle. Uber halted all of its driverless vehicle tests across the US, while Arizona's governor suspended all of Uber's tests in the state.
As a result, the industry's autonomous efforts, which aimed to put driverless vehicles on public roads by 2020, could hit a lot more speed bumps this year. That's a worrisome development for chipmakers that are dependent on the driverless market. Let's examine three chipmakers in the blast zone: NVIDIA (NASDAQ:NVDA), Intel (NASDAQ:INTC), and Qualcomm (NASDAQ:QCOM).
Uber's driverless vehicles are powered by NVIDIA's hardware (but not its Drive PX platform). Upon announcing that collaboration, Uber Advanced Technologies chief Eric Meyhofer stated that "NVIDIA is a key technology provider to Uber as we bring scalable self-driving cars and trucks to market."
On March 27, Reuters reported that NVIDIA had suspended all its self-driving tests. The stock tumbled 8% after the news, although the decline was likely exacerbated by a broader sell-off across the markets.
This development could hurt NVIDIA, which saw its auto revenues -- once a pillar of growth -- fall 8% sequentially and rise just 3% annually last quarter. On the bright side, the business, which also includes its Tegra CPUs for infotainment and navigation systems, only accounted for 5% of its top line.
NVIDIA's weakness in autos was easily offset by its massive growth in gaming GPUs and data centers, which lifted its total revenues by 34% annually last quarter. Therefore, NVIDIA's auto business could struggle, but that probably won't throttle its top line growth.
Intel owns Mobileye, the largest provider of ADAS (advanced driver assistance systems) in the world. ADAS solutions use a combination of radars and cameras that help drivers spot hazards, park correctly, and remain in the right lanes.
Intel, Mobileye, BMW, and Fiat Chrysler are co-developing a driverless platform aimed at putting fully autonomous vehicles on the road by 2021. Intel also owns Movidius, a maker of computer vision chips that helps cars "see" and analyze their surroundings.
In a blog post, Mobileye CEO Amnon Shashua criticized "new entrants" which lacked the experience necessary to ensure the safety of driverless cars. Upon reviewing the police video of Uber's crash, Shashua stated that Mobileye's ADAS would have detected Herzberg "approximately one second before impact."
Intel doesn't report its automotive revenues separately. But we know Mobileye generated $358 million in revenues in fiscal 2016 (its last full year before being bought by Intel), which represented 49% growth from 2015. Assuming its revenue rose another 40% to $500 million in fiscal 2017, that would still equal less than 1% of Intel's top line. Simply put, a slowdown in Intel's fledgling driverless business won't hurt its core business, which generates most of its revenue from x86 CPUs for PCs and data centers.
Qualcomm narrowly escaped a hostile takeover by Broadcom, but the chipmaker still faces severe headwinds. Regulators and OEMs are still demanding that it lower its licensing fees, which account for the lion's share of its profits.
Apple (NASDAQ:AAPL) is suing Qualcomm over unpaid exclusivity rebates and its licensing practices. Apple and another major OEM, widely believed to be Huawei, also suspended all their licensing payments to Qualcomm. Qualcomm's chipmaking business, which generates most of its revenues, still faces tough competition from cheaper chipmakers like MediaTek and first-party chips from OEMs like Huawei.
Qualcomm's escape plan was to buy NXP Semiconductors (NASDAQ:NXPI), the biggest automotive chipmaker in the world. NXP owns BlueBox, a driverless platform that competes against NVIDIA's Drive PX.
However, that takeover remains in limbo. NXP's shareholders still haven't tendered enough shares, and China's MOFCOM (Ministry of Commerce) hasn't cleared the deal. The Broadcom battle also forced Qualcomm to raise its bid for NXP by 16% to $44 billion -- so it could now be overpaying for a chipmaker in a slowing industry.
The bottom line
Driverless cars are a new technology, and tragic accidents were inevitable. Therefore, a slowdown is probably healthy for the industry -- which should reevaluate its safety standards and testing practices.
Investors shouldn't abandon NVIDIA and Intel over this news, since automotive chips are still mere slivers of their businesses. But they should take a more critical view of Qualcomm, and see if its original plans for NXP still hold up in this tougher market.