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The Intel-Mobileye Merger Is Official: Should We Be Concerned?

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The Intel-Mobileye Merger Is Official: Should We Be Concerned? PART 1 OF 11

The Intel-Mobileye Merger Is Official: Should We Be Concerned?

Intel makes another move toward becoming a data company

At its 2017 Investor Meeting, Intel’s (INTC) chief executive officer said that Intel has moved from being a chip company to being a data company. Its growth efforts revolve around data, from AI (artificial intelligence) to IoT (Internet of Things) to VR (virtual reality) to automotive. In just more than a month, the company’s aggressive move to data has become apparent.

On March 13, 2017, Intel announced an all-cash deal of $15.3 billion to acquire Mobileye (MBLY), an Israel-based assisted-driving systems supplier. That’s Intel’s second-largest acquisition after Altera and Israel’s largest technology acquisition. Within two days of the merger announcement, MBLY stock rose 29.3%. INTC stock fell 1.9%.

The Intel-Mobileye Merger Is Official: Should We Be Concerned?

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The deal values Mobileye at $63.54 per share, which is a 34.7% premium from its March 10, 2017, closing price of $47.16. The $15.3 billion value represents a 60x premium on Mobileye’s 2016 earnings. Its earnings were about four times the premium that Qualcomm (QCOM) paid to acquire Netherlands-based NXP Semiconductors (NXPI).

What’s Intel’s motive behind such an expensive deal?

Analysts aren’t happy with the Intel-Mobileye deal. They believe Intel is paying a hefty premium for nothing. That makes us wonder what encouraged Intel to go ahead with such an expensive acquisition.

Some analysts believe that Intel realized that it’s lagging behind Nvidia (NVDA) in the race for autonomous cars. With the Mobileye acquisition, Intel could be trying to catch up with the industry since the Israeli company is the closest competition to Nvidia in autonomous vehicle systems.

Semiconductor stocks react to the merger news

Mike Ramsay, Gartner’s research director, said the 34.0% premium for Mobileye shows the kind of opportunity Intel sees in car automation. The merger news had a positive impact on semiconductor companies with high exposures to automotive. Cypress Semiconductor (CY), Nvidia (NVDA), and Texas Instruments (TXN) stock rose 2.4%, 2.7%, and 1.0%, respectively, in the past two days.

Delphi Automotive (DLPH) is a partner of both Intel and Mobileye. The merger news sent DLPH stock soaring 5.1% in the past two days. However, Qualcomm and NXP stock fell almost 1.0% since the Intel-Mobileye merger will close when the Qualcomm-NXP merger closes, posing competition for them both.

In this series, we’ll look at the synergies and fallouts of the Intel-Mobileye merger and see what the implications might be for Intel and other auto chip players.

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