Friday, July 1, 2022

The Strategic Advantage of Intel Taking Mobileye Public

When it comes to autonomous cars, Intel is in the hunt but it’s facing strong competition from NVIDIA and Qualcomm solutions. This is due to two factors.

First, even though Intel was early into the market, it lost some focus on the segment, allowing other vendors to bypass its early advancements. Second, to catch up, Intel bought Mobileye at a reduced price.  

Intel announced it is now taking Mobileye public in 2022, which should allow the Mobileye to run more independently, and Intel to operate more independently from Mobileye, improving the prospects for both companies. This arrangement allows Intel to take control again once the autonomous car market matures, and it may make sense to be more vertically integrated. 

Let’s explore this:

Intel’s problem with Mobileye

Buying a sensor company, which was arguably a worthwhile investment, might have hurt Intel’s future in the autonomous car space more than it helped.

This was a result of the fact that the brains of an autonomous car need to be connected to a variety of sensors, and car companies like to bid competitively on parts like sensors. This preference means that owning what was basically a sensor company early on was counter strategic because it reduced the opportunity for selling either the AI components or the sensors. Buyers don’t want to be locked into a vertical solution yet.  

In the future, vertical integration may become a benefit, as it could reduce potential adverse litigation after an accident, but at this early phase in the market, it is not. Right now, the farther Mobileye gets from Intel, the more successful both Intel’s and Mobileye’s solutions will become. And given the ramp up of autonomous cars coming into the market and Mobileye’s reputation for high-quality sensors, distance from Intel means Mobileye is far more likely to be embraced by Qualcomm and NVIDIA once public as well. 

As Mobileye drifts away from Intel control, Tesla should also be more willing to partner with Intel for future projects. 

Another benefit is that this public offering should help raise significant added cash for Intel, which plans to invest in several large fabs to address future supply shortages. 

Mirroring VMware

This move somewhat mirrors what Dell did with VMware for much the same reason. VMware’s potential increases the farther it gets from Dell by being more able to work with Dell’s competitors and freeing up cash that Dell can use to help pivot to the new post-pandemic world. Pat Gelsinger, Intel’s current CEO, was VMware’s CEO before returning to Intel, and it’s clear he paid attention to the benefits of Michael Dell’s move. 

That result was clearly beneficial to both Dell and VMware, and the same outcome is highly likely here.

Wrapping up

Intel is undergoing a lot of changes. One of the bigger ones is to operate far more collaboratively with its customers.

Car companies don’t yet want vertically integrated autonomous car solutions, and other autonomous car solution companies don’t want to have to compete at a disadvantage with Intel if they specify Mobileye. While vertically integrated solutions may make sense when this market matures, likely in the 2030s, that isn’t the case today.

So, taking Mobileye public should provide the best blend of asset protection and new market opportunities for Intel, while leaving the opportunity to reintegrate when the market matures and this integration makes more sense. 

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