Chip giant Intel (INTC 0.35%) paid $15.3 billion for autonomous driving company Mobileye in 2017. Intel saw a huge opportunity at the time, saying that the market for vehicle systems, data, and services could grow to $70 billion by 2030.
Nothing has likely changed about that opportunity as the automotive industry marches toward an electric and autonomous future. Mobileye has shipped over 100 million of its EyeQ chips, which support an array of advanced driver assistance functions. Future versions of EyeQ are expected to support semi- and fully autonomous driving.
What has changed is the premium investors are willing to hand out to any company working on electric cars or autonomous vehicle technology. Tesla is a $1 trillion company, worth more than all the other major automakers combined; graphics chip company Nvidia, which offers a platform that rivals Mobileye, has seen its stock soar over the past few years; and EV upstart Rivian is worth nearly $100 billion despite never selling a single vehicle.
Image source: Intel.
Cashing in on EV and AV froth
The problem with having a valuable, fast-growing, high-potential business within a much larger, slower-growing company is that the market is unlikely to award the larger company a valuation that reflects the potential of that smaller business. The market can't easily put a value on Mobileye, so it doesn't even try.
If Mobileye were a stand-alone company, it would likely fetch a high price. The company has tripled its annual chip shipments and revenue since it was acquired by Intel four years ago, and revenue is on track to grow 40% this year. Mobileye has a good story: It already sells its ADAS systems to major automakers; it generated more than $1 billion of revenue in the first nine months of 2021; and it's got deals in place for its upcoming self-driving system.
By all indications, Intel's acquisition of Mobileye was a success. Unfortunately, Intel shareholders have not reaped any benefits. Intel stock has gone nowhere since early 2018, and it's down more than 20% from its multiyear high.
Intel announced on Tuesday that it plans to take Mobileye public in mid-2022. Intel is not doing this because it wants to rid itself of Mobileye. The company will retain a majority stake, and Intel and Mobileye will continue to co-develop solutions. Intel has no plans to divest itself of Mobileye, and nothing will change about how Intel reports its results.
By taking Mobileye public, Intel simplifies the story for both itself and Mobileye. Mobileye will be a high-growth AV company with huge potential, and Intel will own a large chunk of it. Mobileye could be valued as high as $50 billion, according to Reuters -- about one-quarter of Intel's current valuation. By putting a price on Mobileye, Intel is hoping that its own stock begins to reflect the value of its stake in the AV company.
A bonus to a Mobileye IPO is that Intel will likely raise billions of dollars in cash. The company is doubling down on semiconductor manufacturing, and it will need all the cash it can get its hands on as it builds out new facilities to keep pace with third-party foundries like Taiwan Semiconductor Manufacturing.
This looks like a smart move from Intel, and it will hopefully have a positive impact on the lagging stock price in the long run.
