Class of 2019 | armghana@wharton.upenn.edu
Intel made waves last week when it announced a deal to purchase autonomous vehicle technology company Mobileye for $63.54 a share, valuing the Israeli firm at $15.3B. The offer represents at 34.5% premium on Mobileye's $47.27 stock price at close of the market on March 10. The acquisition would put Intel directly amid the race to debut driverless vehicles on a commercial scale, one that includes industry rivals Nvidia and Qualcomm.
The stakes are enormous. A 2016 Goldman Sachs prediction forecasts the market for driver assistance and autonomous vehicles growing from $3 billion to $96 billion within the decade, and to $290 billion in 2035. Intel and Mobileye are already collaborating with German car manufacturer BMW on an initiative to launch a fleet of around 40 self-driving test vehicles on roads by late 2017. Mobileye’s portfolio includes cameras, sensor chips, in-car networking, machine learning, cloud software, and roadway mapping—all tools that would complement Intel’s core competency of data processing and intelligent computing. Intel CEO Brian Krzanich, when speaking of the acquisition, likened Mobileye to the “eyes of the autonomous car” with the “intelligent brain that actually drives the car." Both parties are optimistic about the deal; Mobileye will be given a significant amount of autonomy and the two companies have very similar cultures and practices.
It is important to note the price tag Intel has agreed to; Mobileye had a net income of just $108.3 million. At the price tag of $15.3B, this means Intel valued Mobileye at 141 times earnings. By way of comparison, the S&P 500 is currently trading at about 26 times earnings, which itself is above its historic average. Perhaps the best way to characterize Intel’s move is a bold, all-in bet on the future of the autonomous vehicle industry and Intel’s role as a major supplier to the market. One interesting point is that Intel’s acquisition is very far outside its core business—something that has not always worked out well for them. In 2012, Intel purchased security software company McAfee for $7.7 billion, which eventually fizzled out to perform below expectations before being spun off for $4.5 billion last year. But considering future expectations on self-driving cars and the company’s history, Intel’s move is understandable. Intel failed to capitalize on the once-in-a-generation growth opportunity that came with the rise of smartphones and tablets; executives are likely anxious not to miss their chance this time around.
The autonomous driving industry presently seems to be one of the largest avenues of growth in technology, and everyone is scrambling not to get left behind. Last October, chipmaker Qualcomm announced a $47 billion deal to acquire NXP—the largest automotive chip manufacturer—that will likely be approved by shareholders in 2017. Tesla has already debuted its semi-autonomous driving system, Google’s vehicles have been driving cross country since 2010, and Uber has been rolling out autonomous rideshares in Pittsburgh and Arizona (after the California DMV disallowed on the lack of a special permit). Traditional auto manufacturers are also getting in on the action; Ford has made $1 billion investment in Pittsburgh-based Argo AI and GM announced last month that it would be rolling out a fleet of 40 self-driving Chevy Bolt vehicles. It is safe to say that the space is getting increasingly crowded. Now it is just a question of who can make the first real large-scale move.