Mobileye Listing Won’t Solve Intel’s Core Problems
(Bloomberg Opinion) -- Intel Corp. plans to sell a partial stake in one of its hot subsidiaries while still maintaining control over it. Although it might make for big headlines, the move amounts to minor financial engineering that isn’t going to save the chipmaker.
Late Monday, the chipmaker announced it intends to publicly list Mobileye, its driver-assistance and autonomous driving technology division, in mid-2022. Intel plans to retain majority ownership after the IPO and has no intention of divesting or spinning off the unit. After the news, Intel stock rose 3.6% in early trading.
The timing of the announcement, so far ahead of the actual event, is perplexing. It seems more like a move to stabilize a weak stock price that has been falling as investors increasingly question Intel’s competitive position and long-term strategy. Intel’s shares have markedly underperformed those of its main peers, Advanced Micro Devices Inc. and Nvidia Corp., trailing by about 50 and 135 percentage points this year, respectively. Intel’s revenue rose 5% in the quarter ended Sept. 30. In the latest comparable periods, AMD posted a 54% revenue gain, while Nvidia climbed 50%.
Valuation is also a question mark. The initial Wall Street Journal report suggested Mobileye could be worth more than $50 billion. That would be roughly 38 times Mobileye’s annualized sales using the most recent September-quarter revenue of $326 million. In a market environment where growth company revenue multiples are compressing, that valuation seems hard to justify.
Mobileye has certainly been a success story for Intel. It adeptly acquired the company, a leader in the burgeoning auto chip space, for $15 billion in 2017. Since then it has grown rapidly, with the chipmaker now forecasting that the division’s sales will rise more than 40% this year. Perhaps having a separately traded stock will be helpful to compensate and retain engineering talent for the unit.
But whether Intel raises $10 billion or $15 billion from the Mobileye offering, it will do little to fix the problems within the chipmaker’s core business. Intel is still getting squeezed on two sides. In the high-profit-margin data-center segment — where the company sells server chips to corporations and cloud-computing vendors — it is losing market share to higher-performing, more power-efficient semiconductors from AMD. On the PC side, Apple Inc.’s own in-house-designed processors for its latest Mac laptops are also soundly outperforming Intel’s products. Given that Intel is way behind in chip-making technologies, it will take several years to even have a chance to catch up.
The Mobileye offering isn’t a transformational transaction. It instead seems like an attempt to distract investors from what is going on with its main businesses. That’s a sign of weakness, not strength.
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Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.
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