Intel On A Path To Becoming Formidable Player In Autos

Intel Corporation INTC will acquire Mobileye NV MBLY for $15.3 billion or $63.54 per share, representing a premium of 34 percent to Mobileye’s closing price on March 10.

Summit Redstone’s Jagadish Iyer mentioned that Intel intends to fund the transaction in cash from the offshore cash on its balance sheet.

Intel also emphasized it would achieve $175 million in cost synergies by 2019 by getting rid of duplicated R&D functions, as well as cutting SG&A expenses, apart from the tax benefits from the merger.

“The deal which has been approved by both boards is subject to customary regulatory approvals and other closing conditions and will likely close over the next 9 months,” Iyer stated.

Related Link: Intel's Shaky M&A Track Record

Benefits for Intel

The analyst believes the acquisition could add $0.06-$0.10 to Intel’s earnings in 2018, noting that Mobileye generates free cash flow at 45 percent of its revenues, which is almost double that of Intel.

“While MBLY sales is quite small when compared to Intel, we believe it clearly has a positive impact on both earnings and free cash flow generation given the high margin profile of the company,” Iyer explained.

Large TAM

In addition, the acquisition would open up a large total addressable market for Intel in the growing automotive arena over the next decade.

“Intel's game plan is to offer a reference design to car makers that they can subsequently customize depending on their own needs. The key goal for Intel is to have a rising content/vehicle which when combined with a growing unit increase should help the autos segment to be a key LT revenue driver for the company,” the analyst said.

With the integration of Mobileye, Intel will be able to provide both compute vision as well as the compute function, which is key to autonomous driving.