Intel Will Race to Cash In Its Car Chips

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Spinning Mobileye into a hot auto tech market makes sense—if it can be done in time

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Mobileye specializes in chip-based camera systems that power automatic driving features in cars. A $50 billion valuation would be a good return for a business acquired in 2017 for a little over $15 billion. This would typically be a prime multiplier for a business that generates a little over $1 billion in annual revenue right now. But it’s not a normal market—at least when it comes to anything touching the future of cars. A raft of companies have gone public this year in the electric-vehicle and autonomous vehicle space, either through the traditional route or through special-purpose acquisition companies. Electric-car makers Rivian Automotive and Lucid Group are now garnering a market value of between $70 billion and $100 billion, despite barely shipping their first cars. Tesla,

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Of course, it’s now valued at more than $1 trillion—more than the combined market value of the world’s 10 largest auto makers by annual revenue.

Its shares of Intel rose more than 4% on Tuesday morning, boosting the struggling chip maker’s market cap by nearly $9 billion and thus confirming the basic logic of the move. However, the eventual success of the listing will depend on the auto-tech market remaining hot. This is not a sure thing, given the high level of speculation driving down the current valuation. Tesla has fallen 14% in the past month alone as founder and chief executive Elon Musk sold more than $10 billion of his stake. Rivian is down 33% from the stock’s highs last month since its November 10 listing.

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The move won’t solve Intel’s core problem of taking its chip manufacturing process to rivals — though it will give the company a bigger war chest to move toward that costly task. The company says it will use the proceeds from the IPO for capital investment as part of its ambitious turnaround plan. Intel is now close to spending about $19 billion a year, and its capital expenditures are forecast by analysts to rise to more than $26 billion next year. But it will still lag badly behind the $35 billion that chip-making rivals Taiwan Semiconductor Manufacturing and Samsung each anticipate spending next year.

Still, Intel is right to try to unlock some value, given its own gloomy multiplier of 14 times earnings—44% below the chip sector average. Mobileye expects revenue to grow by over 40% this year. It has also shown a steady operating profit for the past three years – something that many hot auto tech names have gotten out of.

The company’s focus on assisted-driving systems is less speculative than other segments of the market. In a call Tuesday, Intel Chief Executive Pat Gelsinger called Mobileye “the most successful acquisition that Intel has ever made” — an entry from a company with a decidedly mixed record in making a deal. Will have to see how successful it is.

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