Even time is not the best for Mobileye IPO because it could be a $50B payday instead of $21B. How may it be a good move for Intel & Mobileye in a long run? What could be a bigger picture for Mobileye? And, what are the key risks in its S-1 IPO filing?
This answer is different this year
Mobileye raised $890M in 2014 at its 1st IPO, and then Intel acquired it for $15.3B in 2017. This Oct., Intel completes Mobileye IPO, making it a public company again. Even so, Mobileye is still an Intel “controlled company”. Intel owns more than 99% of voting power according to its form S1 . It market cap jumps to $21B. Thanks to the limited supply partially. However, such back-and-forth is not common. So, why?
- The value of synergy between Intel & Mobileye is less than the cost of complexity & time. Mobileye’s chips are still on MIPS architecture & switch to RISC-V architecture for a new chip: EyeQ Ultra in 2023. Whereas, Intel has been struggling to turn around declining core businesses on x86 architecture, such as PC & datacenter.
- Mobileye may be more valuable as a customer than a cost center for Intel to do chip Manufacturing as a Service. After 5 years, even the latest Mobileye chip: EyeQ Ultra in 2023 is still done by STMicroelectronics & TSMC. Not timeline shared yet on when Mobileye will utilize Intel Foundry Services’ advanced packaging capabilities. Anyway, when that happens, it’s definitely more beneficial to Intel for Mobileye as a paying customer.
Beyond a chip supplier
To reach its full potential, Mobileye has to attract, retain & motivate key employees as Intel CEO Pat Gelsinger puts it. It’s likely very hard under the Intel umbrella for better or worse, e.g. Intel layoffs in Q4. It may be better for both Mobileye & Intel to go on separate ways. Also, their businesses are diverging fast anyway.
While Mobileye has been successful in ADAS, its 10x bet is on self-driving. To evolve into a leading L4 self-driving player, Mobileye has to go beyond a tech solution provider.
- Not only, Mobileye wants to become a crowd-sourced high-precision mapping data platform: Road Experience Management. According to Mobileye’s CEO, it has the largest crowd-sourced fleet for mapping & will collect about 9B km in 2022. Thanks to 1.5M Cloud-Enhanced Driver-Assist cars sending data every day.
- But also, Mobileye will do Autonomous Mobility as a Service (“AMaaS”) through Moovit. Which is an urban mobility app with 1.5 billion users globally acquired by Intel in 2020.
Not Intel’s problems anymore
Since 2021, there are doubts as self-driving may not be really valuable anytime soon. This Oct., sudden shutting down of Argo AI signals not only macroeconomic uncertainty, but also the challenges of self-driving adoption. Mobileye may be a bit better than others because its a solid ADAS business. However, in Q3 2022, Mobileye only contributes 450M, 3% of Intel’s revenue: $15.3B. Furthermore, there are also risks. For examples:
- Besides existing competitors: Nvidia & QCom, it has to compete with carmaker in-house solutions. Tesla & Mercedes-Benz are already employing their own & others may follow. When more do so, Intel will want to take their chip-making money instead of complete.
- Mobileye may suffer from big safety claims. The actual defects will be difficult to attribute, and the legal process is typically lengthy. Only the publicity will harm the brand anyway.
- Its customer concentration risk is high. The top 8 OEMs accounted for 76% of revenue, and mainly(73%) thought 3 top Tier 1: ZF, Valeo & Aptive in the 1st half of 2022. It takes a long time & effort to gain design wins but no guarantee when & how much they will buy. Furthermore, there can be significant delays till the revenue realizes.
Full Disclosure
The opinions stated here are my own, not those of my company. They are mostly extrapolations from public information. I don’t have insider knowledge of those companies, nor a whatever expert. Up to you to take it with a grain of salt or two 😉.
