Breakingviews: Intel Mobileye float is step back to self-driving

Intel may not realize it yet, but it has taken one hand off the Mobileye wheel. The $220 billion chipmaker said on Monday that it will list a minority stake in its autonomous-driving unit next year. Initially, the decision is for Wall Street’s benefit, as Mobileye might be worth $50 billion. But history suggests it could also be the start of the unit’s return to independence.

Intel boss Pat Gelsinger stressed in a call how the move brings “visibility” to Mobileye. He said Intel’s purchase of the company for $15.3 billion in 2007 was its most successful acquisition to date. That’s a tad premature. But revenue has tripled since the purchase and the business is profitable.

If Mobileye is worth the $50 billion or more a source suggested to Reuters, that’s about 30 times estimated revenue over the next 12 months, according to Refinitiv. That’s nearly twice the valuation attached to Ambarella, a comparable public company. Mobileye’s top line is about four times as large, and expected to grow about 40% over the next year, about three times as fast as Ambarella’s. And the multiple is in line with rapidly growing technology-based firms like Shopify.

The short-term advantage for Gelsinger is that such a high mark for Mobileye also represents a premium to Intel itself. The company is valued at just 3 times estimated sales, as investors fret about its lost chip-manufacturing edge. The cash from selling Mobileye shares in an initial public offering would help. Gelsinger has big plans, but in its most recent quarter Intel said it would fall short of an earlier capital-expenditure goal of $20 billion this year.

The 5% gain in Intel’s stock early on Tuesday morning suggests that highlighting Mobileye can only help Intel’s valuation. Yet while Intel says it plans to keep control, time can change everything. Dell Technologies-owned EMC floated faster-growing VMware in 2007, saying it would remain the majority owner. Just a month ago, Dell completed a spinoff of VMware to its shareholders.

Especially if Intel doesn’t up its game, it may not be long before investors agitate for something similar with Mobileye. Intel may hope to be in the thick of autonomous vehicle technology. But the float might end up with Mobileye driving itself again.

______________________________________________________________________________________

BREAKINGVIEWS