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Intel’s Mobileye Acquisition: A Step Towards a Unified Ecosystem or Just Another Bolt-On Part?

What You Need to Know

Intel is working to play catch-up with competitors such as NVIDIA, Qualcomm and Texas Instruments, who are rapidly gaining a foothold in the autonomous vehicles space. The Mobileye acquisition is the most significant of many recent maneuvers that are part of Intel’s “invest or buy, not build” strategy for addressing the autonomous vehicle market. What remains to be seen is if Intel can turn these various parts into a coherent ecosystem.

Intel Value Chain

Acquisition Overview

Intel continues its push into the autonomous vehicle market with the acquisition of Mobileye, an Israeli autonomous driving sensor and software company, for $15.3B. This acquisition is based on Mobileye’s valuation of 42x trailing twelve-month price to sales, or 87x price to earnings, over the same time-period. However, we do find it curious that Mobileye’s founders are taking an offer at levels below the stock price 1.5 years ago, especially given the positive momentum the company has sustained since this point. Over the past two years, the company has been able to grow revenues nearly 50% by bringing new products to market, expanding the sales volume of existing products, and increasing their prices across all categories. This is the most recent in Intel’s string of transportation-based acquisitions and investments, which include acquisitions of autonomous vehicle functional safety player Yogitech in April 2016, computer vision company Itseez in May 2016, and a 15% ownership stake in high-definition mapping company HERE in January 2017.

Intel Betting on Camera Technologies

With questions still surrounding which autonomous vehicle sensing technologies will win out, the Mobileye acquisition shows that Intel has made a major bet on inexpensive camera-based systems over more cost-intensive LiDAR systems. Mobileye’s sales are founded on the EyeQ chips, which provide vision-based software for ADAS – essentially allowing for affordable and reliable automatic emergency braking, lane marking detection, and traffic sign detection. The newer versions of these chips, the EyeQ4 and EyeQ5 also have sensory fusion capabilities, which allows for full 360-degree view technology that’s capable of supporting multiple sensing solutions such as cameras, radar, and other low-power processing capabilities.

This acquisition will also address innovation from competitors like NVIDIA, who have recently developed camera-based systems that use neural networks to both learn the driving habits of humans and quickly adapt to always-changing road environments. Intel surely hopes that Mobileye’s reinforcement learning AI technologies can match or outperform any NVIDIA AI offerings. Beyond the transportation venue, Intel can likely find ways to integrate Mobileye optimal sensing technology into current Intel RealSense efforts related to other markets such as manufacturing, warehouse and logistics, surveillance, drones, augmented and virtual reality, sports-entertainment and consumer-retail.

Gaining a Stake In the Autonomous Vehicle Market

Intel will benefit from more than just Mobileye’s technology, as the company’s rich customer base includes virtually every top automotive manufacturer (though no longer Tesla, after a very public separation), Tier 1 suppliers (Delphi-Mobileye collaboration), rideshare companies (Mobileye’s involvement in Uber-Volvo partnership) and others across both the personal and fleet transportation markets. Mobileye’s future is quite bright as automotive regulations to mandate automatic braking in Japan, Korea, and the US will provide a massive tailwind to unit sales and pricing power, all while the attach rates of the L2 products continue to grow as Mobileye extends their partner program to additional OEMs.

Can Intel Build an Autonomous Vehicle Technology Ecosystem?

This deal catapults Intel to the forefront of the automotive technology ecosystem. However, the major question that remains is whether or not Intel can now execute on their end-to-end vision, as touted by CEO Brian Krzanich, that combines processing, sensing, mapping, security, and data management technologies into a unified connected vehicle solution. Intel is moving to integrate these elements in a data-sharing pilot with BMW, but will need to quickly move beyond pilot mode with multiple automakers to be successful. This coordination of disparate parts will require a major effort from a notoriously slow-moving company that is facing stiff competition from a wide range of foes, including NVIDIA, NXP, Google, Verizon, BlackBerry and others. Intel needs to act quickly and bring a unified offering to market; otherwise, automotive OEMs and Tier 1s will move on to other tech suppliers in order to meet their aggressive autonomous vehicle goals.

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