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Since taking over as Intel’s CEO, Pat Gelsinger has been more decisive and transparent about the company’s direction, challenges and opportunities than investors could have hoped.
The IDM 2.0 strategy brought Intel
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back to its geekier roots and made significant commitments to onshoring manufacturing and playing a greater role in supporting semiconductor production to meet the surging demand that has been at the core of our recent global supply chain woes.
However, despite his best efforts to improve investor sentiment and provide a spark to the company’s lagging share price, the market has largely shrugged off what I believe is a clear path to improved results and long-term growth for the company.
Also by Daniel Newman: Marvell Technology breaks away from the pack, joining the list of must-own semiconductor stocks
With a need to reinvigorate investors and return the share price to greater levels, Gelsinger pulled on a new lever this week when the company announced its intention to spin off one of its prized assets, Mobileye.
The initial reaction sent share prices surging more than 7%, but the price tapered off throughout the day and rose a bit less than broader indices on one of the market’s best days since March. This is an almost predictable response despite the massive return that Mobileye is about to provide to Intel, in a deal that would keep the company in control of Mobileye but concurrently unlock the value of one of the leading autonomous-driving platforms.
Spinning off innovative companies
The trend toward spinning off innovation and growth assets that are tied up in larger companies that are underperforming market expectations has become more prevalent as of late. We saw Dell capitalize on VMware’s momentum in a move that improved Dell’s
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balance sheet significantly.
Just a few weeks back, Honeywell
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spun out its Quantum business in a merger with Cambridge Quantum Computing that will likely yield a public offering of some type that would open investors looking to bet on quantum, but not wanting to necessarily have their dollars tied in a more steady industrial name like Honeywell.
Both of those deals made sense. However, I would argue that the Mobileye deal will perform even better and provide a much-needed jolt for Intel, which, despite reports of its demise, is still showing revenue growth and strong earnings. Just not at the pace of its fabless peers.
What makes the Mobileye deal so lucrative is the nature of the autonomous-vehicle and EV space. Investors have been extremely bullish on disruptive automotive plays, which has sent more than just Tesla
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surging. Still, names like Lucid
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and Rivian
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to valuations well above long-established automakers based mainly on the very idea of their products.
Potential payday for Intel
Intel paid around $15 billion for Mobileye in 2017. In less than five years, it could see an IPO above $50 billion based on early reports, with a possibility that it could rise significantly. Mobileye has customers, revenue growth, intellectual property and profitability. That’s a “quadfecta” that names like Rivian and Lucid Motors would struggle to deliver despite valuations north of $70 billion for Lucid and $100 billion for Rivian. With semiconductors slated to be approximately 20% of the bill of materials for vehicles by 2030, the growth opportunity in this space is significant.
Since the acquisition of Mobileye, the company has seen its revenues triple and has just met a key milestone, shipping its 100 millionth EyeQ. While primarily operating autonomously from Intel, the company saw its portfolio diversify from silicon to a full-stack ADAS platform incorporating computer vision, policy control, high-definition mapping and a comprehensive safety framework.
At IAA Mobility in September, the company announced its plans for robotaxis based on its full-stack in conjunction with SixT, MoovIT, a previous $900 million acquisition by Mobileye, and Luminar’s lidar technology. Launching robotaxis in 2022 is a massive win for the company. Presuming it happens, it isn’t just shaping AVs but taking a significant lead in the mobility-as-a-service space.
Put all of this growth and momentum together, and then add a current strong revenue performance and the commitment from Intel to spin the company off with a strong balance sheet intact, and it is hard not to think the market’s voracious appetite for autonomous and EV investments won’t make this an exciting IPO.
Full slate
For those wondering what this means for Intel, it is hard not to see this positively. In my conversation with Gelsinger, he reiterated that this is a “want to do” and not a “need to do” for the company. I can’t help but feel the unlocking of value in a red-hot automotive market won’t provide a shot of confidence to investors and put a rapid growth asset on Intel’s books that it will manufacture a volume of chips for well into the future.
Meanwhile, the company has plenty to focus on. From its next-generation process and packaging to its new fabs here in the United States that should become high-performing assets as chip demand is likely to continue to surge, and domestic manufacturing will likely be more a requirement than an option for at least a portion of fabless chipmakers.
Daniel Newman is the principal analyst at Futurum Research, which provides or has provided research, analysis, advising, and/or consulting to Marvell, Qualcomm, Intel, Nvidia and dozens of other companies in the tech and digital industries. Neither he nor his firm holds any equity positions with any companies cited. Follow him on Twitter @danielnewmanUV.
