Track Hyper | Intel sells Mobileye shares: What is the impact on muscle tissue?

Author: Zhou Yuan / Wall Street Insight

Still mired in difficulties and undergoing a challenging restructuring process, Intel has finally taken action again, this time by selling its shares in Mobileye.

After the U.S. stock market closed on July 8, Mobileye announced that Intel would sell company stock worth $900 million, planning to sell 45 million shares; Mobileye will also directly repurchase $100 million worth of stock from Intel. If the transaction goes smoothly, Intel's total revenue could reach $1 billion; thereafter, Intel's stake in Mobileye will drop to less than 80%.

This move not only concerns Intel's and Mobileye's own development strategies but also reflects, to some extent, the development trends of the entire autonomous driving and semiconductor industries.

Since the leadership change at Intel, can it emerge from the situation as Nietzsche said—what does not kill me makes me stronger—with a smile curve?

No one knows the exact answer yet.

When Intel announced the sale of its Mobileye shares, the market may have seen it as just an ordinary capital transaction, but within the deep fabric of the autonomous driving and semiconductor industries, this decision is quietly shifting the underlying logic of the industry.

The impact of this transaction goes far beyond the equity changes of the two companies; it acts like a scalpel, dissecting many contradictions during the industry transformation period: competing technology routes, reconstructing business models, switching capital logic, and rebalancing the global industrial chain power structure, among others.

Adjusting Layout to Meet Challenges

As a former global chip giant, Intel has faced numerous challenges in recent years. In competition with rivals such as AMD, Apple, and NVIDIA, its decline has become evident, and the aggressive transformation strategy of former CEO Pat Gelsinger has also burdened Intel's finances.

After Chen Lifeng took over from Gelsinger, he quickly initiated strategic adjustments: abandoning Gelsinger's overly aggressive expansion plans and instead focusing on the company's financial health and efficient resource allocation.

Guided by this approach, Intel began systematically sorting its assets.

Mobileye was originally a subsidiary acquired by Intel in 2017 for $15.3 billion. Although it had performed well in the advanced driver-assistance systems (ADAS) field, its competitiveness has declined as the market shifted towards autonomous driving.

In the second quarter of 2024, Mobileye lowered its full-year key indicators: it expects annual revenue to be between $1.6 billion and $1.68 billion, down from the previous expectation of $1.83 billion to $1.96 billion; the adjusted operating profit is expected to be between $152 million and $201 million, lower than the previous $270 million to $360 million.

While Mobileye's competitiveness has declined, it still has a certain scale of cash flow, making it a key target on Chen Lifeng's asset optimization list.

Thus, selling Mobileye shares has become an important part of the strategic adjustment. For Chen Lifeng, this can alleviate financial pressure through asset monetization while reducing resource consumption on non-core businesses.

From a financial perspective, the potential $1 billion in revenue can directly improve Intel's strained cash flow; from a strategic perspective, this is a practice of the "focus on core" concept: concentrating the recovered funds on more strategically valuable areas such as data center chips and artificial intelligence chips These areas are seen as growth points for the future chip market. Increasing investment in these areas will help Intel gain a favorable position in future market competition.

In addition, Intel lags behind TSMC and Samsung in semiconductor manufacturing processes, with delays in the research and mass production of advanced processes. This situation severely affects its product competitiveness and market share.

The funds obtained from the sale of Mobileye shares are expected to be used for advanced process research and factory construction, accelerating the pace of technological breakthroughs and helping to narrow the technological gap with industry leaders, thereby enhancing Intel's position in the global semiconductor manufacturing field.

Mobileye was founded in 1999 and focuses on advanced driver-assistance systems (ADAS) and autonomous driving solutions, with certain technological accumulation in computer vision and machine learning. Its clients include BMW, Audi, Volkswagen, Nissan, Honda, and other automotive companies.

In October 2022, Mobileye went public on NASDAQ with an offering price of $21 per share. However, the stock price performed poorly after the IPO, with a return rate of -7% since the beginning of this year, remaining below the IPO price, and currently has a market capitalization of approximately $13.5 billion (as of the close on July 10).

To cope with market competition, Mobileye has also taken some measures: increasing investment in autonomous driving chips and algorithms to enhance product performance; expanding its partner network to collaborate with more automotive and technology companies to promote the application of autonomous driving technology.

However, Mobileye faces more challenges. Although Mobileye is transitioning to providing system solutions, it is not easy to establish a foothold in the market.

The Twilight of a Closed Ecosystem

Mobileye's predicament has never been simply about technological lag, but rather the systemic challenges faced by its adherence to a "vision-led + closed ecosystem" approach amid industry transformation.

Since its establishment, Mobileye has occupied an advantage in the ADAS market with its monocular vision solutions. This lightweight model, which relies on cameras and algorithms, has lowered the entry threshold for automotive companies.

However, as autonomous driving enters levels L3 and above, multi-sensor fusion has become an industry consensus, and the combination of LiDAR, millimeter-wave radar, and vision solutions has gradually dominated the market, leading to the erosion of Mobileye's technological moat.

More critically, the collapse of Mobileye's closed ecosystem is at play.

In the past, Mobileye provided automotive companies with a packaged solution of "chips + algorithms." While this model ensured system stability, it deprived automotive companies of technological autonomy.

Today, Tesla's pure vision self-research route, NVIDIA's open computing platform, and Qualcomm's "chip + software stack" model all demonstrate a fact: automotive companies are no longer satisfied with being passive recipients of technological solutions; they wish to deeply participate in the research and development process.

After Intel sells its shares, if Mobileye does not break its closed system, even with financial support, it will be difficult to reverse the trend of its technological route being marginalized.

This shift in technological routes is reshaping industry standards.

When NVIDIA's Orin chip supports multi-sensor data processing with 254 TOPS+ of computing power, and when Qualcomm's Snapdragon Ride platform achieves deep integration of vehicle-road collaboration, Mobileye's EyeQ Ultra with 176 TOPS of computing power reflects not only a numerical gap but also a contest of different technological philosophies: to adhere to single hardware optimization or to embrace the era of open software-defined vehicles? The market has provided a clear answer.

The entanglement between Intel and Mobileye is essentially a reflection of the collision between traditional hardware giants and the wave of automotive intelligence.

When Intel acquired Mobileye in 2017, it attempted to replicate its successful "chip + ecosystem" path from the PC era, but the business model of the automotive industry is far more complex than that of PCs.

In the PC field, Intel only needs to sell chips to OEM manufacturers to control the industry chain; whereas in the automotive field, the value distribution chain extends across multiple dimensions, including hardware, software services, data operations, and mobility ecosystems.

This share sale has exposed the limitations of hardware thinking.

Intel originally hoped to monopolize the autonomous driving hardware entry by holding a controlling stake in Mobileye, but data shows that automakers prefer to keep software service revenue (such as autonomous driving subscriptions) in their own hands.

A McKinsey report pointed out that by 2030, service and software revenue in the automotive industry will account for over 50% of total revenue, with global automotive service and software revenue expected to reach $250 billion by 2025. This portion of revenue is largely unrelated to hardware suppliers.

When Mobileye can only earn hundreds of dollars in chip fees from each vehicle, while automakers can obtain continuous revenue through software services, this generational gap in business models makes it difficult for Intel's investment to achieve excess returns.

Chen Liwu's strategic adjustment is, in fact, an acknowledgment of this business logic: semiconductor companies should not attempt to control the entire value chain of the automotive industry but should return to their core competency in chip manufacturing.

This clarification of positioning may drive more chip manufacturers to shift from "vertical integration" to "horizontal collaboration," focusing on providing automakers with high-performance, low-power hardware platforms rather than taking on the entire process from chips to mobility services.

Industry Reshuffling Domino Effect?

When Intel acquired Mobileye in 2017, it was during a global investment boom in autonomous driving, where capital believed in the logic of scale and market monopoly, with mergers and acquisitions worth billions of dollars being commonplace.

However, the industry's capital logic has now shifted from land-grabbing to lean investment, with capital beginning to focus more on the commercialization capabilities of technology. Chen Liwu's sale of shares is a typical manifestation of this transition.

Mobileye's market value has shrunk from its peak of $23 billion on its first day of trading to $13.5 billion (as of the close on July 10), reflecting the market's denial of its business model and technological path.

The $1 billion that Intel recovers will be invested in businesses that can generate stable cash flow, such as data center chips. This shift from "story to profit" may become a new benchmark for capital allocation in the industry.

The more profound impact lies in the reconstruction of the valuation system for listed companies.

In the past, the valuation of autonomous driving companies relied on a linear model of "order volume × vehicle value," but now investors are more focused on the nonlinear growth potential of "software penetration rate × user payment rate."

If Mobileye cannot find a breakthrough in software monetization after the equity changes, such as charging automakers for algorithm upgrade service fees, its market value may come under further pressure, which in turn could affect the financing environment for the entire industry The most intriguing aspect of this transaction is the reversal of the automotive manufacturers' voice in the industry chain.

Ten years ago, chip manufacturers and Tier 1 suppliers dominated the technical standards; today, car companies are gradually regaining dominance through self-research, joint ventures, and strategic investments.

The establishment of a joint venture between Volkswagen and Horizon (Cool Core, English name CARIZON: registered in November 2023), Geely's investment in Yika Tong (September 2021), and BMW's deep binding with Qualcomm (September 2023) all point to the same trend: car companies are no longer outsourcing core technologies but are binding suppliers through capital ties.

After Intel sold its shares in Mobileye, car companies may accelerate the process of "de-Mobileye-ization."

In the second quarter of 2024, Mobileye lowered its shipment expectations, partly due to major clients like Volkswagen and Nissan reducing orders and opting for a multi-supplier strategy.

This approach of not putting all eggs in one basket will force all autonomous driving suppliers to accept more flexible cooperation terms: for example, allowing car companies to modify algorithm parameters and open data interfaces.

For emerging markets, this power restructuring may bring new opportunities. The rapid iteration of Chinese car companies in the field of autonomous driving is driving the rise of local suppliers.

The Horizon Journey 6 chip has entered the supply chains of companies like BYD and Li Auto, and its open cooperation model stands in stark contrast to Mobileye.

As the global industry chain shifts from "Western technology output" to "multipolar collaboration," the transaction between Intel and Mobileye may become a catalyst for accelerating this process.

If we step outside the commercial competition case of Intel and Mobileye, we may find that this transaction could be the beginning of an industry reshuffle.

Under the multiple forces of technology, capital, and power, the autonomous driving and semiconductor industries are undergoing three irreversible changes:

First, the survival space for small and medium players is being squeezed: as R&D costs rise from tens of millions to hundreds of millions, only those companies that can secure continuous orders from car manufacturers or possess software monetization capabilities will survive.

Second, cross-industry integration is accelerating, with technology companies like Apple and Huawei entering through a "full-stack self-research" model, which may completely disrupt the traditional Tier 1 survival model.

Third, regional characteristics are becoming prominent, with the U.S. following a software-defined route, Europe prioritizing safety, and China focusing on scenario implementation, forming a differentiated technical standard system.

The significance of Intel's share sale will ultimately be reflected in whether it becomes a "calibration point" for industry transformation: bringing capital back to rationality, allowing technology to serve demand, and helping each link in the industry chain find its ecological niche.

For Mobileye, this is not the end, but a choice: to continue indulging in past successes or to reconstruct value amid transformation.

For the entire industry, the alarm bell sounded by this transaction may be even more precious: in the tide of technological iteration and commercial evolution, there are no eternal advantages, only eternal adaptation