When Intel announced its plans to spin out its Mobileye autonomous-driving tech unit via an IPO last year, it likely had no idea that 2022 would turn out to be one of the worst years for taking companies public in recent memory.
But after a delay of several months due to the tumultuous stock market, on the last day of September Intel filed the next major step along the way to going ahead with a public offering. It’s not a guarantee that Mobileye will become publicly traded once again, but it’s a significant step in that direction. The prospectus itself was a widely anticipated document, as investors and chip industry insiders had been waiting to see exactly what Mobileye chose to disclose.
There’s a lot to unpack from the filing. The key for Intel is that it will receive $3.5 billion in proceeds from the IPO and retain control of the company through its share structure. Intel already breaks out some information about Mobileye, which reports as a separate segment from the rest of Intel in its quarterly and annual filings, but the S-1 offers greater detail.
What’s not clear is the valuation Mobileye will be able to command. Renaissance Capital called the third-quarter IPO market the slowest in more than a decade, and 2022 is on track to raise the lowest amount of cash from IPOs in the firm’s history. Mobileye’s CEO had no problem pushing back the listing, according to a leaked internal memo.
According to a person familiar with IPO planning and execution, Porsche’s recent IPO likely gave Intel’s bankers some hope, as Mobileye is similarly viewed as a high-quality company. Mobileye has also been steadily heading toward profitability, which should help its chances.
Intel acquired the Israel-based Mobileye in 2017 for $15.3 billion when it was then trading on the NYSE, and this time around is aiming to achieve a valuation of $30 billion, far short of the company’s original plan to take Mobileye public with a $50 billion market value.
What does Mobileye do?
Mobileye makes a combination of hardware and software that enables advanced driver-assistance systems in vehicles. Founded in Israel in 1999, the company launched its first EyeQ system-on-chip in 2007, which provides processing power that’s optimized for assisted driving systems in vehicles; typically, that means it uses minimal power consumption and scales easily. Mobileye has developed five generations of the EyeQ chips, and the company said it had shipped its 100 millionth chip in 2021. Sales of its EyeQ chips account for most of the company’s revenue.
Beyond the chips, Mobileye develops a software platform that it says can enable the “full stack” of autonomous-driving technologies. The software operation includes a precision mapping system that uses crowd-sourced data the company has been collecting since 2018. A framework called the Responsibility-Sensitive Safety governs the safety systems of autonomous vehicles, including the decision-making engineer and driving policy.
Mobileye has also developed a method of using two sensing systems — one based on cameras, the other on lidar systems — to ensure vehicles have an accurate all-around picture. And the company is working on the design of next-generation imaging radars that it says are defined by software, which will make them cheaper and easier to deploy at large scale.
Lastly, Mobileye’s robotaxi effort offers promise as a longer-term business. The company is making a significant bet that in the long run that there will be a second, significant market for autonomous vehicles: those owned in fleets and used for things like automated delivery vehicles and robotaxis. Mobileye calls it autonomous mobility as a service, and said that it has operations in Germany, Israel, China, France, Japan, and the U.S.
“We believe that this model will ultimately manifest itself in the form of networks operated by a variety of different automotive and technology companies where the consumer will be able to hail on-demand transportation at the click of a button, instead of owning a vehicle. As autonomous driving technology advances, a number of new transportation use cases are expected to emerge around the type of vehicle ownership, what is transported, and where and when the vehicle can operate,” the prospectus reads.
How does Mobileye make money?
According to the S-1, most of Mobileye’s revenue comes from the sale of its assisted driving products and services, and of those sales the “vast majority” of the cash comes from the sale of the company’s EyeQ chips to various automotive suppliers.
- Even as Intel has struggled in recent years against the likes of AMD and Nvidia, Mobileye has steadily grown its business from $210 million in 2017 to $1.39 billion in 2021.
- For the six months that ended in July, Mobileye reported sales of $854 million compared with $704 million in the year-prior period.
- It’s worth noting that 76% of the company’s 2022 revenue was from Mobileye sales to vehicles made by eight automakers. In 2021, 78% of sales came from vehicles produced by four automakers.
Mobileye has been approaching annual profitability.
- Losses have steadily narrowed over the past three years: Mobileye reported a 2021 net loss of $75 million, compared with a loss of $196 million in 2020 and $328 million in 2019.
- For the six months of 2022 ending in July, Mobileye disclosed a loss of $67 million compared with net income of $4 million in the same period the year before.
- Mobileye says that it sells the EyeQ chips primarily to other businesses — the auto suppliers — and offers volume pricing.
- Research and development remains a large expense: Of the company’s 3,100 global employees, roughly 80% are dedicated to R&D. For the six months ending in July, R&D costs were $359 million, or around 42% of revenue. Typically, large chip companies spend about 20% of sales on R&D.
Mobileye estimates the current potential market for its chips and services to be roughly $16 billion. It predicts that will grow to $40 billion by 2026, and roughly $480 billion by 2030 — reflecting in part the increased use of assisted driving tech in cars, and the addition of its robotaxi-like business.
What could go wrong
Building a new business in an emerging market carries a lot of risks related to competition.
- Advanced driver-assistance systems are a competitive market. There are a number of chip giants such as Nvidia and Qualcomm that are designing similar systems for advanced driver assistance technologies and autonomous vehicles. Mobileye lists Sony, Tesla, and Apple as competitors developing self-driving vehicles for consumers.
- It’s notable that Apple’s long-rumored autonomous car program is enough of a consideration that Mobileye disclosed it as a possible risk to its business.
- For the robotaxis business, Mobileye includes competitors such as Cruise, Waymo, and Zoox in the U.S. and several Chinese companies such as Baidu, DiDi Chuxing, and WeRide.
- Regulation is going to be crucial to Mobileye’s long-term success. At the moment in the U.S., there aren’t any federal regulations about its robotaxis business or self-driving technology, and no uniform standards about its use on public roads, for example. It’s also likely there will be conflicting regulations around the world, and that they will likely continue to quickly change for the foreseeable future.
The majority of Mobileye’s revenue results from its sale of the EyeQ chip line — which also means that the company is subject to most of the ongoing concerns the rest of the semiconductor industry has to deal with.
- The company purchases all of its EyeQ chips from STMicroelectronics, which in turn relies on TSMC to fabricate the chips.
- COVID-19 pandemic-related gyrations in the market over the past couple of years have hampered STM’s ability to deliver the number of chips demanded by Mobileye’s customers. Mobileye said it currently has no inventory of its chips on hand, and is dependent on STM to deliver more in order to fulfill customer orders.
- The cost of said chips is also rising, and Mobileye said it expects to continue to see “inflationary pressures” in 2023.
Mobileye will be a controlled company. Through Class B shares, Intel will retain voting control over Mobileye and neither regular investors nor Mobileye executives will be able to overrule key decisions Intel makes about how it operates.
- From the prospectus: Intel will significantly influence executives and every matter referred to a shareholder vote — that could be changing the board, or a significant acquisition, by way of example.
- Mobileye also disclosed that it licenses some of its key lidar tech from Intel.
Who gets rich
Intel is going to receive $3.5 billion from the offering through a dividend payment that Mobileye expects it will pay off with the proceeds from the IPO. There was an initial payment of $336 million.
The prospectus did not include targeted prices for the shares or the amount of stock being sold, but Mobileye would receive the proceeds — likely under $5 billion.
What people are saying
“But Mobileye’s approach is different. We believe — and always have — that our technology must be affordable, so everyone can benefit. We believe it must be best-in-class so consumers demand it. We believe technology that works to prevent accidents should work on every single mile of roadway — not just cities and well-traveled highways. These notions of scalability and availability add to the complexity of the problems we’re working to solve,” Mobileye CEO Amnon Shashua wrote in the founder’s letter.
“Mobileye was an early adopter in self-driving [tech], but the picture starts to look a lot more shaky after 2025/26, when Qualcomm and others’ stated [new customer wins] start to ramp up. The whole sector will grow, but Nvidia and Qualcomm especially have a ton of wins when we start looking out over three or four years,” Dylan Patel, principal at SemiAnalysis, told Protocol.