Why Intel Is Betting $15.3 Billion on Self-Driving Cars
Why Intel Is Betting $15.3 Billion on Self-Driving Cars
The chip giant has struck a very rich deal to buy
Mobileye. Here's what prompted the move.
By John Rosevear Mar 13, 2017 at 12:05PM
Intel Corporation announced on Monday morning that it has
struck a deal to buy Mobileye N.V., the Israeli maker of vision systems for
autos, for $15.3 billion, or $63.54 a share.
On the one hand, that's a completely bonkers valuation
for a company that generated all of $358.2 million in revenue in 2016, as
Mobileye did.
On the other hand, from Intel's point of view, the deal
could turn out to make a lot of sense. Here's why.
Why Intel wants to be a player in self-driving cars
It's no secret that self-driving cars are coming. From
Intel's view, self-driving cars bring two big opportunities to sell its
hardware and software. First, the cars themselves: The most advanced cars today
use about half a "teraflop" of computing power, Intel CEO Brian
Krzanich said in a conference call for analysts on Monday morning, but that
will rise to around 50 teraflops in cars equipped with Level 4 self-driving
systems.
(A teraflop is a shorthand way of measuring a computer
processor's power. It's the ability to calculate one trillion floating-point
operations per second. A Level 4 self-driving system is one that is fully
capable of driving the car with no human intervention, but only under specific
circumstances. Most of the Level 4 systems under development depend on highly
detailed maps and are thus geofenced, or limited to operating in mapped areas.)
That coming jump in the on-board computing power needed
for self-driving cars is one opportunity for Intel to sell hardware. It's a big
one: Krzanich expects the total addressable market for vehicle systems (or as
he sees it, "data centers on wheels"), to be over $20 billion a year
by 2020, and around $70 billion a year by 2030.
The second opportunity for Intel, as Krzanich sees it, is
in the actual data centers that will be needed to support all of these
interconnected self-driving cars. That's a second big market, possibly around
$40 billion by 2030, he said.
Intel has the technology and products to supply
components of both of these markets. What it hasn't had is full access to these
future markets' likely key players: The giant global automakers and their established
major suppliers.
That's where Mobileye comes in.
Why Mobileye is the key to accessing the automotive
market
Mobileye has at least two things that make it very
valuable to Intel:
Established, deeply respected expertise in a key part of
self-driving technology, and
existing relationships with most of the world's
automakers.
In a nutshell, Mobileye makes computer systems that can
parse images from cameras, designed for use in automobiles and trucks.
Mobileye's systems, which combine hardware and software, are already part of
many of the advanced driver-assist systems (ADAS) that have become common in
new cars, including features like adaptive cruise control, lane-departure
warnings, and parking-assist systems.
ADAS are useful safety-enhancing systems today, but
they're also the building blocks of the self-driving vehicles of the near
future. Mobileye is already a key player in self-driving: Last year, it formed
a partnership with Intel and giant auto-industry supplier Delphi Automotive that
plans to make a Level 4 system available to automakers by the end of 2019.
But the real value to Intel might lie in Mobileye's
existing relationships with automakers and major auto-industry suppliers.
Mobileye's client list includes most of the world's major automakers, several
heavy-truck makers, most of the auto industry's biggest suppliers, and a few
companies that might be less familiar, including Chinese automakers and
electric-car start-ups.
Why is that a big deal? Because automakers, mindful of
the disruption that wrecked many phone manufacturers, have been very wary of
doing business with big tech companies. Auto executives don't want to give up
the essence (and more to the point, the value, specifically the data) of their
products to giants like Alphabet. That's why its Waymo subsidiary (formerly
known as the Google Self-Driving Car Project) hasn't had as much interest from
the automakers as a casual observer might expect: The automakers don't want to
be stuck making low-margin phones for the automotive equivalent of
Android.
What's more, tech companies often have a hard time
understanding the requirements of the auto industry. It's one thing to make a
component for a phone that's only expected to last a few years, something else
entirely to make a component for a car that might have to operate with high
reliability for a decade or more while surviving vibrations and big temperature
swings.
But Mobileye has already opened the door to doing
business with the automakers and its established suppliers. The deal aims to
preserve that: It will essentially fold Intel's existing self-driving operation
into Mobileye, rather than vice versa. During a call for analysts on Monday
morning, Mobileye co-founder and chief technology officer Amnon Shashua said
that several of Mobileye's big clients have told him that they see the Intel
deal as a very good one.
Translation: Assuming the deal is completed, that door
will be open to Intel, too.
The upshot: An instant contender in a potentially huge
new market
Intel rival NVIDIA (NASDAQ:NVDA) has garnered a lot of
attention recently from investors for its own ADAS and self-driving efforts,
centered around its Drive PX 2 automotive supercomputer. It has won business from several automakers
and companies interested in self-driving, including Chinese giant Baidu.
Intel has been knocking on the door of that market, with
limited success, but acquiring Mobileye should push it right open. It looks
like an expensive deal now, but if it adds $40 billion or $50 billion in
revenue to Intel's top line in a decade -- a plausible assumption -- it will
look in retrospect like a smart move.
Suzanne Frey, an executive at Alphabet, is a member of
The Motley Fool’s board of directors. John Rosevear has no position in any
stocks mentioned. The Motley Fool owns shares of and recommends GOOG, GOOGL,
Baidu, and Nvidia. The Motley Fool recommends BMW and Intel. The Motley Fool
has a disclosure policy.
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