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NEW YORK (Reuters Breakingviews) - Intel has put the self-driving pedal to the financial metal. Buying Mobileye for $15.3 billion values the autonomous-car parts supplier at 30 times this year's estimated revenue, according to Thomson Reuters data. Justifying such a racy price tag will take some doing.
Mobileye specializes in helping cars see what's around them. Intel makes high-performance chips and runs data centers. Combining the two should mean better design systems that are aware of their surroundings, crunch massive amounts of data and react on the fly.
Intel estimates the market for vehicle systems, data and services will be about $70 billion in 2030. While that’s an absurdly long time frame for a financial prediction, the eventual amount could easily be far higher. The fast-expanding ability of computers to make sense of the world by sight will probably create undreamed-of markets.
Combining the entrepreneurial Israeli outfit and the blue-chip Intel may be awkward. It has struggled to integrate acquisitions before. Having paid $7.7 billion for McAfee in 2010, for example, Intel sold a majority of the unit six years later in a deal valuing it at just $4.2 billion.
Intel Chief Executive Brian Krzanich is, at least, leaving Mobileye’s Ziv Aviram in charge, parking the $167 billion chipmaker's self-driving unit in its new acquisition’s garage.
The financial justification for the deal, though, is a stretch. The $175 million of expected cost cuts carry a present value of around $1 billion once taxed, discounted and capitalized. That’s a country mile from the roughly $4 billion premium Intel is paying.
That leaves Krzanich and his shareholders relying on Mobileye’s stunning growth continuing. Revenue is speeding ahead at a 45 percent annual clip while its operating margin of around 35 percent in recent quarters could hit 60 percent in the coming years, according to the consensus estimate of sell-side analysts.
Intel will need to sustain these for five years before the deal starts earning close to Intel’s cost of capital. Meanwhile, Qualcomm, Nvidia, Google-parent Alphabet and a slew of other firms are gunning for the market. That leaves plenty of chances for spanners to end up in the gears.
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