Back in 2017, Intel decided that it would purchase Israel-based company Mobileye as part of its future technology endeavors. The company was known for its advanced software and chip technology related to autonomous vehicle navigation. In fact, the Mobileye self-driving unit had already received notable attention at that time. Shortly thereafter, it was announced that it had even received an order from an unnamed company for eight million of its units. Fast forward to today, it now seems that Intel has different plans in the coming years. And part of these plans includes an initial public offering (IPO) of Mobileye’s shares to the public.
On the one hand, the decision to list Mobileye for public trading will certainly help generate some capital for the company. But more importantly, the move is actually a reflection of Intel’s larger plans in the coming years. In order to compete within the high-demand semiconductor sector, Intel needs to focus more of its efforts in this direction. This is supported by the construction of Intel’s Ohio plant that began earlier this year as well as other plans. It’s not that Intel is relinquishing its majority hold over Mobileye. After all, the Mobileye self-driving unit still has tremendous potential. But if it wants to become a larger presence in semiconductor chip manufacturing, Intel must make a few concessions.
“A significant portion of the net [IPO] proceeds from this offering will be used for repayment on a note owed to Mobileye’s parent company, Intel Corporation, and Mobileye intends to use the remaining net proceeds for working capital and general corporate purposes.” – Spokesperson for Mobileye
The Advantages of Mobileye’s IPO
Based on the most recent valuations, it has been estimated that Mobileye today is worth $16 billion. Given that Intel purchased the company five years prior for $15.3 billion, this is not a sizable gain. But that’s not because the Mobileye self-driving unit has lost clout. In fact, it has a current client list of over 50 companies that include BMW, Audi, Ford, GM and more. Their technology, known as their “EyeQ” packages, are present in over 800 different vehicles. Thus, the camera, chips, maps and software produced by Mobileye are still in demand. The reason for the less-than-impressive valuation has more to do with investor behaviors in technology stocks as of late. Inflationary pressures, supply chain issues, and other factors account for a drop of about $34 billion in valuation in the last two years alone.
Understanding this, one might assume Intel would hold off on an IPO of its subsidiary at this time. But the picture is more complex than that. It is estimated that at the current valuation, the IPO could generate $820 million for Intel. This is expected if 10-20% of the company is offered to the public for $18-20 per share. These revenues could come in handy, especially since Intel’s Ohio plant is expected to cost $20 billion. In addition, Intel has announced plans to spend $88 billion over the next decade in Europe to build semiconductor plants. Plus, allowing some loss of control over the Mobileye self-driving unit would permit less of a distraction. If Intel wants to truly compete with the likes of Taiwan and China in semiconductor chip manufacturing, it needs focus.
“If we were to today, snap our fingers and have ten new fabs with the world’s leading chips, we probably wouldn’t have enough people to staff them. That’s the biggest bottleneck to the expansion of America’s fab capacity, not capital.” – Scott Kennedy, Senior Adviser at the Center for Strategic and International Studies
The Changing Semiconductor Manufacturing Landscape
The decision to build Intel’s Ohio plant wasn’t without incentives. The U.S.’s recent CHIP Act that was recently passed certainly encourages investments domestically in this regard. The CHIPS Act awards a total of $52 billion to boost semiconductor chip production in the U.S. Of this total, $39 billion is allotted for manufacturing and fabrication plants. Another $13.2 billion is for research and development as well as workforce training. Given the area’s skilled workforce and abundant universities, Intel’s Ohio plant outside of Columbus makes sense. And with subsidy support from the government, such an endeavor becomes feasible given higher U.S. labor costs.
Interestingly, the CHIPS Act is not only incentivizing U.S. companies to launch semiconductor manufacturing on American soil. Other foreign companies are doing so as well and will be competing with Intel’s Ohio plant on U.S. soil. Most notably, Taiwan Semiconductor Manufacturing Company (TSMC) is investing $12 billion in a semiconductor fabrication plant in Arizona. It is set to be completed by 2024. Also, Micron predicts roughly $100 billion in spending for semiconductor manufacturing plants in New York over the next 20 years. As manufacturing companies leave China, they’re looking for other alternatives. And it would seem that the CHIPS Act is favorably influencing many companies’ decisions to come to the U.S. This supports Intel’s Ohio plant decision. And it likely has a great deal to do with the IPO of the Mobileye self-driving unit.
“If Mobileye goes public and can get some clients under its belt, then I think that just means that the opportunity really is there for growth.” – Daniel Howley, Yahoo! Finance
Letting Go to Get Ahead
If Intel wants to compete with Taiwan and China in the semiconductor manufacturing sector, it has a hill to climb. Currently, the U.S. accounts for about 12% of all semiconductor chip fabrication in the world. In contrast, East Asia comprises 75% of all production. While Intel’s Ohio plant and others like will help, it’s still a long way to go. In addition, overcoming inexpensive skilled labor costs in these markets can be challenging. Combined with a shortage of skilled labor in these industries in the U.S., legislation like the CHIPS Act is certainly needed. Regardless, releasing some degree of control over the Mobileye self-driving unit is a good idea. If Intel is to compete, it will need to channel its resources in different directions.
At the same time, the IPO is a boost for the Mobileye self-driving unit and related products. Current financial trends for the company are quite favorable despite setbacks related to the pandemic and economy. In the last five months, the company generated over $854 million in revenues and $405 million in gross profits. And while it suffered an operating loss of $36 million, this figure has progressively trended downward. Given this and their impressive client list, it’s probable their IPO will attract significant investor attention. Therefore, not only does Intel’s decision benefit their overall endeavors. It will likely benefit Mobileye’s as well.