Intel Corporation INTC announced that it was acquiring Mobileye NV MBLY, with the deal expected to close over the next nine months.
Canaccord Capital’s Matthew Ramsay maintained a Hold rating on Intel, with a price target of $38.
Impact Of Acquisition
Expressing a mixed reaction to the acquisition, the analyst mentioned that on the positive side, “Mobileye will almost immediately cement Intel into a leading ADAS (Advanced Driver Assistance Systems) position with many OEMs, and Intel’s n-node silicon and high performance client and datacenter computing leadership should enhance Mobileye’s EyeQ chipset and software/mapping roadmaps.”
On the other hand, this acquisition will meaningfully impact Intel’s revenues for 2017. Given the company’s processor/software R&D scale, Ramsay expressed disappointment that Intel appeared to be often late to emerging computing technology shifts outside its core markets.
“Overall, while we agree with management’s long-term decision to invest for growth; our short and medium term concerns remain for Intel’s growth trajectory such as exiting 2016 with “peak” PC margins and into a period of DCG (Data Center Group) margin compression and increased capital investment,” the analyst stated.
Related Link: Intel May Have Just 'Burned' $15 Billion On Mobileye
Hurdle To Positive Returns
While Intel’s shares are expected to generate a robust yield and remain inexpensive, Ramsay believes the stock could remain range bound, with margins stagnating and until investors are able to see evidence of the new investments in 10/7nm, IoT (Internet of Things), memory and automotive generating solid returns within a “reasonable” time horizon.
Although the price for the acquisition appears steep, at $15.3 billion, the $100 billion end to end automotive TAM (total addressable market) would be critical for Intel’s growth going forward. At the same time, this deal, combined with the substantial investments in memory, 4G/5G models, etc., the analyst believes “the hurdle height continues to grow higher for Intel to generate positive returns on sizable non-core investments.
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