Investors have been waiting almost a year for Intel (INTC +2.92%) to file the paperwork to spin off its autonomous vehicle technology business Mobileye, and last month the chipmaker finally filed its prospectus for the initial public offering (IPO).
Mobileye makes chips that power cameras and other driver assistance systems for self-driving vehicles, a market that is expected to more than triple in size by 2030. It also offers a software platform that Intel says can enable the "entire stack" of assisted and autonomous driving technologies.
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Yet Intel is proposing to bring the company public in the face of a looming recession and a protracted global chip shortage that shows no sign of letting up. While Mobileye has been a successful business for Intel since it was acquired in 2017, the space it operates in is becoming increasingly crowded and competitive, and a tough market for IPOs complicates the plan.
Assuming Intel does actually complete the Mobileye spinoff, let's take a look at whether an investor should buy into this fast-growing semiconductor stock.
Eye on the prize
Intel bought Mobileye five years ago for $15.3 billion, and the business has outpaced its parent over that time. Where Mobileye generated a record $460 million in revenue in the second quarter, up 41% from a year ago, Intel reported an overall 22% decline in quarterly sales.
Year-to-date Mobileye revenue is up 21% versus a 14% decline for Intel, and over the past five years it has grown revenue from $200 million to $1.4 billion, a near-63% compounded annual growth rate.
The vast majority of Mobileye's sales come from chips sold to eight vehicle makers. Its prospectus said 76% of revenue over the first two quarters came from those customers, with its three largest customers being global auto parts makers ZF, Valeo, and Aptiv, which accounted for $43, 15%, and 15%, respectively, of the total.
As Mobileye's business has grown, it has been able to narrow its losses, shrinking them from $328 million in 2019 to $75 million last year, though through the first six months of 2022 the AV tech company recorded $67 million in losses.
The increased pace of losses this year, though, comes from increased research and development expenses, the largest expense on its books, which jumped 39% year-over-year and grew to 42% of revenue from 37% the year before as it increased the number of R&D employees.
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Key Data Points
A crowded market
That's all incredibly hopeful and sounds like Mobileye is on a growth trajectory that has a long runway, but there are risks.
Autonomous vehicles are truly an emerging market that is still trying to find its path forward, and so far the road has been bumpy. An early pioneer in this space has been Tesla, and while it has advanced the capabilities of the technology (it used to be a major customer of Mobileye), there have been some horrific failures as well.
It was reported earlier this year that between July 2021 and May 2022, nearly 400 car crashes were reported (two-thirds were Teslas) that led to five deaths and six injuries. AV cars have come a long way, but there is still much further to go.
And Mobileye isn't the only one pursuing solutions to perfect the technology. It notes Tesla, Apple, and Sony are rivals in the consumer AV space, while a laundry list of competitors in markets around the world are vying for supremacy in the automotive mobility-as-a-service (AMaaS) segment, including Baidu, Cruise, Didi Chuxing ,Waymo, and Zoox.
In the chip arena, it also faces competition from Advanced Micro Devices, Ambarella, Nvidia, and Qualcomm. Many of these are much larger and better financed than Mobileye and could edge it out as a supplier from automakers investing in the industry.
Image source: Getty Images.
Additional risks
As noted previously, it's a difficult market Intel is trying to spin off Mobileye in, and there is the added risk of growing tensions between the U.S. and China. The Biden administration is imposing new export controls on chips to China -- and not just from the U.S., but anywhere in the world where they use U.S. equipment.
Mobileye relies on STMicroelectronics for all of its EyeQ systems-on-a-chip, and STM is heavily dependent upon Taiwan Semiconductor Manufacturing as a subcontractor. While Taiwan says it will abide by the U.S. law, there are constant rumblings of potential war between China and Taiwan.
Reflecting the market uncertainty, estimates of Mobileye's valuation at IPO have degraded. When the prospect of the spinoff was first broached last year, it was estimated Intel could achieve a $50 billion valuation for Mobileye. That has since been cut to $30 billion.
There has been a dearth of IPOs this year, especially in the tech sector, and with the market as dicey as it is right now, Mobileye may not hold up when it is spun off. While Intel will continue to be a majority owner of its offspring, investors may want to give the IPO some breathing room before jumping in.
Mobileye looks like it will be a good stock to own, but not yet. Market turmoil, ongoing supply chain issues, and geopolitical upheavals mean there's a good chance better pricing will be available further down the road.
