Intel Corp.’s $15 billion deal to buy Mobileye NV is Silicon Valley’s largest pure bet on driverless cars, and one that gives the chip maker a good chance at leapfrogging the competition for a world with no driver.
There are no industry standards for relatively nascent driverless-car technology, and being in the lead now could set Intel INTC, -2.09% up for long-term dominance.
“Intel was behind the curve. It was spending a lot of money on this. Now, it basically bought itself into the global leading position in vision-based ADAS (advanced driver assistance systems),” said SIG Susquehanna analyst Chris Rolland in an interview with MarketWatch.
Read more: Intel to buy Mobileye for $15.3 billion
Intel has increasingly focused on being a player in driverless cars, and first announced its autonomous-driving partnership alongside BMW Group BMW, +0.42% and Mobileye earlier this year.
After losing to ARM in the mobile-device market, Intel is hoping to spring ahead of the two other major chip companies making moves in the autonomous car space: Nvidia Corp. NVDA, +2.75% and Qualcomm Inc. QCOM, -0.31% The $15 billion deal, while viewed by some analysts as expensive, gives Intel a global lead in ADAS technology that is powering much of the innovation surrounding driverless cars right now.
The move, if approved, would leapfrog Intel ahead of Qualcomm and Nvidia, said Rolland. That’s even as Qualcomm’s pending $39 billion acquisition of NXP Semiconductors NXPI, -0.22% gives it a suite of automotive chips and Nvidia’s partnership with Bosch and Audi puts it on track to get Level 4 driverless cars—almost fully autonomous—on the road by 2020.
Nvidia and Audi predict self-driving car by 2020
Nvidia, a leader in self-driving technology, announced partnerships with Bosch and Audi at CES 2017. Rob Csongor, Nvidia’s automotive general manager, talked to MarketWatch about the company’s promise to have a self-driving car on the road by 2020.
Intel’s purchase of Mobileye is attractive because it gives it an edge in ADAS, including all the business partnerships, advanced technology and talent that have helped Mobileye’s revenue more than double over the past two years.
The deal comes as chip companies increasingly look toward the Internet of Things industry to stake their terrain as the mobile-device market reaches levels of saturation. While autonomous cars are just a subset of IoT, which also includes smart homes, it’s the subset with “the most near-term revenue and focus,” said Roger Kay, the president of Endpoint Technologies, a tech industry consulting company.
SIG Susquehanna’s Rolland said he’s skeptical about the deal’s long-term value, given Intel’s acquisition track record (its purchase-then-spinoff of McAfee, for example) and the rapidly-changing nature of this market, but believes it will make Intel a lead “end-to-end autonomous driving technology provider” in an industry that he projects will reach more than $100 billion for both in-car and data center technology, by 2030.
If the deal is approved, Rolland said it would put Nvidia at a distant second and Qualcomm, whose proposed deal for NXP includes top auto chip maker Freescale, at a distant third. Last year, Qualcomm bought NXP for $47 billion, which included ADAS capabilities as well as NXP’s automotive “infotainment,” security and privacy systems, and Internet-of-things businesses.
Mobileye’s chief product is the EyeQ chip, a dedicated chip to interpret and combine information from camera, mapping, and lidar data. “Mobileye has the largest market share in the space and the greatest number of vehicles on the road with installed technologies for self-driving vehicles,” analysts at Baird said in a note.
The Jerusalem-based company parted ways with its perhaps most famous customer, Tesla Inc. TSLA, +1.02% last year, saying it had done so out of concern about safety. Tesla disputed that version of events, saying the split happened after Mobileye tried to quash in-house ADAS development.
See also: Tesla, Mobileye spar over Autopilot
Deals among technology companies, auto makers, and auto suppliers have multiplied in recent months as companies race to offer more automated-driving features in vehicles being sold today — and ultimately to offer cars that can forgo human drivers entirely.
A year ago, General Motors Co. GM, +0.11% bought Cruise Automation for $1 billion. Earlier this year, Intel bought a 15% stake in a German digital-mapping company. In December, Google parent Alphabet GOOG, +0.27% spun off its driverless-car lab into its own business unit it called Waymo.
There’s a battle brewing between the companies that make software powering driverless-car technology—notably the chips, cameras and sensors—as they try to expand their dominance through partnerships and acquisitions, said Kay.
A commonly held view in Silicon Valley is that the technology for driverless cars is only a handful of years away from fruition, while regulation and consumer mistrust are more likely to hold back self-driving cars.
See also: Tesla, Google others accelerate driverless-car tests in California
Valuations of auto suppliers are likely to go higher as the tech companies realize the auto suppliers are “a critical bridge” into the auto industry, Baird analysts said. Their top picks among suppliers are Visteon VC, +5.03% Delphi DLPH, +4.03% and Borg-Warner BWA, +1.96% they said.
Susquehanna’s Rolland said he’s skeptical of Intel’s claims the deal with Mobileye would bring about $175 million in synergies, but said that Intel likely doesn’t want to miss yet another opportunity in a nascent market.
Intel’s former CEO Paul Otellini, who left the company in 2012, “missed the boat in mobile,” the Susquehanna analysts said. CEO Brian Krzanich is trying to prevent the same in automobiles, and is trying to insert Intel into “important” end markets, they said. Intel has also invested heavily in virtual reality.
Shares of Intel fell 1.7% to $35.30 in afternoon trade, pushing them down 4% in the past three months. Nvidia’s stock gained 2.5%, pushing them up 11.4% in the past three months, while Qualcomm’s dipped 0.6% to $58.29, pushing it down 16% in the past three months.
The S&P SPX, +0.04% meanwhile, fell 0.1% in afternoon trade and has gained 4.3% in the past three months.
