Autonomous driving has been a hot topic in the tech world over the past few years. Back in 2017, Ford (NYSE:F) announced plans to invest $1 billion over five years to launch a fully autonomous fleet by 2021. Honda and Toyota claimed that they could put driverless cars on highways by 2020, while other automakers made similar claims.
Those types of forecasts caused chipmakers to focus on the auto industry as its next growth market. Unfortunately, those early forecasts now seem too bullish, and car companies are walking back some of their claims. Ford CEO Jim Hackett recently admitted that the automaker "overestimated the arrival of autonomous vehicles" and that its early vehicles will likely be restricted to narrow geo-fenced areas.
At a recent Reuters Newsmaker event, Uber's Advanced Technologies Group chief scientist Raquel Urtasun admitted that the timeline for driverless cars was "not clear," and that scaling up the industry could "take a long time." Alphabet's Waymo, one of the first movers in the market, is still testing out its driverless taxi service in a few geo-fenced test sites.
It seems like early estimates for the driverless market missed the mark, and the slowdown could impact the growth of three chipmakers: Intel (NASDAQ:INTC), Ambarella (NASDAQ:AMBA), and NVIDIA (NASDAQ:NVDA).
Intel is the world's largest manufacturer of x86 central processing units (CPUs) for PCs and data centers. Demand for both types of chips remains robust, but the chipmaker's output is currently throttled by a production bottleneck in its 14nm chips.
PC and data center chips accounted for 85% of Intel's revenue in 2018, but the chipmaker has been diversifying into adjacent markets like wireless modems, Internet of Things (IoT) devices, non-volatile memory chips, programmable chips, and automotive chips.
Intel's automotive chip business includes its Atom automotive CPUs, Mobileye's ADAS (advanced driver assistance systems), Movidius' computer vision chips, and technologies from smaller computer vision companies like Itseez. It also plans to launch a fully autonomous platform with BMW and Fiat Chrysler by 2021.
Intel doesn't disclose the growth of its automotive business, but the company noted early this year that Mobileye secured 28 new design wins and 78 vehicle model launches in 2018, and that it "made important progress" in the autonomous driving market. However, the high hurdles for mainstream adoption could force Intel to adopt a much longer-term view for its automotive business.
Ambarella generates most of its revenue from sales of image processing SoCs (systems on chips) for action cameras, dash cams, security cameras, drones, and other devices.
However, the chipmaker's sales tumbled as demand for action cameras dried up and some of its top customers pivoted toward alternative SoCs. Two of its top customers, drone maker DJI Innovations and security camera maker Hikvision, started using Intel's Movidius computer vision chips instead.
To offset softer demand for its image processing SoCs, Ambarella is pivoting into the automotive market with computer vision chips for autonomous cars. However, its latest CV-series chips faces tough competition from Mobileye's EyeQ chips, which are frequently bundled with its industry-leading ADAS solutions. To counter Mobileye, Ambarella partnered with ADAS software provider Hella and driver monitoring system (DMS) maker Smart Eye.
Ambarella's turnaround relies heavily on the growth of its CV business. Unfortunately, it remains stuck between a rock and a hard place, as it faces competition from Intel and slower demand for automotive chips.
NVIDIA is the world's largest maker of graphic processing units (GPUs) for gaming PCs, professional visualization workstations, and data centers. However, it also produces Tegra CPUs for vehicle infotainment and navigation systems.
Its Tegra-powered Drive PX platform, which was originally launched in 2015, turns traditional vehicles into autonomous cars. The latest versions of the platform, Drive PX Xavier and Drive PX Pegasus, are designed for fully autonomous vehicles. The Drive program currently has over 370 partners, including major automakers, suppliers, and service providers.
NVIDIA generates most of its revenue from gaming GPUs, but the business' growth hit a brick wall last quarter as the end of the cryptocurrency boom flooded the market with cheap cards, demand declined in China, and lofty prices and a lack of compelling new features throttled sales of its new Turing cards.
NVIDIA's automotive revenue only accounted for 7% of its top line last quarter, but it's one of the three businesses (along with the professional visualization and data center units) which posted year-over-year sales growth. However, NVIDIA's automotive revenue still slipped 5% sequentially last quarter due to softer demand for its legacy infotainment chips, and its declines could worsen if automakers postpone their driverless upgrades.
The bottom line
I'm not saying that the driverless market is headed off a cliff. However, investors should take lofty promises regarding the market with a grain of salt, and focus on these chipmakers' core competencies instead.