By Eric Reuben
On March 13th, Intel announced that it will purchase Israeli automotive supplier Mobileye for $15.3 billion to position itself as the leading provider for autonomous vehicles. Mobileye manufactures chip-based camera systems that enable self-driving cars to detect objects and avoid collisions. While tech giants and automakers such as Uber, BMW, Tesla, and Google compete to emerge as the leading manufacturer of autonomous vehicles, Intel is strategically positioning itself as the leading end-to-end technology provider.
Intel’s acquisition of Mobileye will be the biggest such deal in Israeli corporate history. Further, the deal is the third largest tech acquisition of the century. The acquisition of Mobileye continues the trend of high-profile acquisitions between Silicon Valley and the Israeli high-tech industry, such as Google’s $1.3 billion purchase of Waze in 2013 and Cisco’s $5 billion purchase of NDS in 2012.
While Intel is traditionally viewed as a chip provider for PCs and smartphones, CEO Brian Krzanich intends to emerge as “the global leader in autonomous driving” following the acquisition. By integrating Mobileye’s advanced driver assistance systems with Intel’s mapping technology, computing ability, and large data centers, Intel will become a full-service tech shop for automakers. Mobileye utilizes sensors helping vehicles prevent collisions, pass other drivers, and merge off ramps. By combining the technology of both companies, cars can simultaneously plot and safely navigate their path. The market for vehicle systems data and technology is expected to grow to $70 billion by 2030. The acquisition also strengthens the relationship between Intel and BMW, a current partner of Mobileye.
While companies manufacturing the technology under the hood of self-driving cars enjoy less competition than the saturated automaker market, the acquisition is not without risk. According to Amit Daryanami, an analyst for RBC Capital Markets, the acquisition price was 29.5 times greater than Mobileye’s projected revenue. This is six times greater than the industry average purchasing price for semiconductor companies and ten times larger than the S&P 500 benchmark. Additionally, at $63.54, shares were purchased at a bullish 34% premium to Mobileyes’s closing price on the NYSE. Mobileye’s shares surged from $47.27 to $60.62 following the news. The acquisition could hinder future relations between Intel and Mobileye’s previous partner, Tesla. Tesla expressed safety concerns associated with Mobileye’s technology following a fatal crash in Florida on May 7th, 2016. Intel must also directly compete with Qualcomm, which announced its purchase of NXP semiconductors for $47 billion in October 2016. Ultimately, the success of Intel’s $15.3 billion investment will depend on whether the industry for autonomous cars meets its revenue potential and whether Intel can form meaningful partnerships with industry leaders.