Jan Hetfleisch
By Breakingviews
Intel (INTC) is taking its autonomous driving technology for a white-knuckle ride. Five years after buying Mobileye (MBLY) for some $15 billion, the chipmaker plans to sell a stake in it again for about the same valuation the chipmaker originally paid. While the Israeli subsidiary’s fast growth is attractive, other factors have depressed expectations. Desperation has a way of sharpening focus.
When Intel first said it would float Mobileye last December, investors were reveling in post-pandemic exuberance. A $50 billion figure was doing the rounds in the media before things took a sharp turn for the worse. Intel shares have tumbled by more than half this year, an even harsher decline than the one-third drop in the Nasdaq Composite index.
By the time Mobileye unveiled its initial public offering prospectus last month, the valuation reflected the market pessimism, with a revised target reported at $30 billion. Come Tuesday, however, the company had faced up to a much starker reality. At the $19-a-share midpoint of its proposed price range, Mobileye would return to the market worth just $15 billion, implying zero uplift under Intel’s stewardship.
Even so, there’s plenty to like about Mobileye. Although it is unprofitable, revenue increased 43% last year to about $1.4 billion and it nearly sustained that growth in the latest quarter. Its technology has been used in 125 million vehicles worldwide; boss Amnon Shashua expects its driver-assistance systems will be in another 270 million by 2030, based on existing “design wins.”
Beyond the shifting investor attitudes away from high-flying tech, an unappealing ownership structure also offsets those prospects. Intel is keeping a firm grip on Mobileye with special voting stock typically reserved for entrepreneurs rather than corporate parents. Growing distaste for such feudal structures may keep the shares out of some indexes. And using some of the money raised to pay Intel a dividend is hardly an attraction either.
Still, it usually takes companies a long while to come to grips with soured sentiment and accept a lower valuation, whether in IPOs or mergers and acquisitions. Intel may have little choice, however. It slashed its annual sales forecast in July because of weaker demand for PC microchips. It also has been plagued by manufacturing problems and capital expenditures exceeded cash from operations last year. That may explain why Intel sees Mobileye’s new valuation with surprising clarity.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors
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