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IPO Report: Mobileye IPO: 5 things to know about the Intel autonomous-driving spinoff

It has been roughly 5½ years since Intel Corp. agreed to purchase Israeli automated-driving company Mobileye NV for $15.3 billion in cash. When Intel returns Mobileye to the public markets this week as Mobileye Global Inc., that valuation is not expected to change much.

While Intel
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executives reportedly dreamed of a valuation as high as $50 billion, the market for initial public offerings has crashed in 2022 after a record year in 2021, and expectations have taken a dive. In filings with the Securities and Exchange Commission, Intel has said that it is looking to sell at least 46.26 million shares in Mobileye at a price of $18 to $20 apiece, which would raise between $832 million and $925 million. At the midpoint of the suggested range, Mobileye would have an initial market capitalization of $15.13 billion.

“While hindsight is of course 20/20, … they would have been better off putting their money in the S&P 500
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which has returned 55% since the time of the Mobileye purchase announcement, as opposed to a potential ~33% gain for Mobileye itself (at a $20B valuation), and a 26% decline in Intel’s own shares,” Bernstein analyst Toni Sacconaghi wrote.

While potentially missing out on a higher valuation if they had taken the company public another time, Intel will retain control of Mobileye, while padding its pockets with much of the proceeds. And investors will once again have a company to target that has been at the forefront of automated-driving technology for more than two decades.

Mobileye is expected to price its IPO and begin trading this week, and underwriting banks have access to an additional 6.15 million shares for overallotment, which could move the numbers for the total raised and valuation higher. Intel and Mobileye listed two dozen banks as underwriting the offering, led by Goldman Sachs & Co.
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and Morgan Stanley
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.

Here are five things to know about Mobileye and the offering.

The original and responsible automated-driving company

Intel acquired Mobileye amid a rush for autonomous-driving technology that led many executives to proclaim that full autonomy was right around the corner and a simple problem to fix. Mobileye’s founder and chief executive, Amnon Shasua, has not been one of those pie-in-the-sky executives, despite founding his company well before many of them even explored such technology.

At CES in 2016, as the hype around autonomous driving was screeching toward its peak in showrooms all around Las Vegas, Shashua held a somber press conference in a small room away from the main floor to discuss the need for in-depth mapping. He derided some competitors’ attempts to describe a faster path to ubiquitous full autonomy than he felt appropriate, and explained that the tech needed was much different than what auto makers would want in the cars they sold to consumers for a long time.

Shashua has been proved correct. Companies like Nvidia Corp.
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eventually found the same middle lane that Shashua has religiously described for automated-driving development: improving advanced driver-assistance systems, or ADAS, while developing fully autonomous technology on a completely separate track with less of a dedicated timetable for ultimate success.

There is one large exception in Tesla Inc.
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Chief Executive Elon Musk, a former Mobileye customer who had an ugly public breakup with the company and continues to proclaim that full autonomy is possible very soon, year after year. But even Tesla makes it plain to customers that its ADAS, known as “Autopilot,” and its attempt at autonomous development, known as “Full Self Driving,” are very different offerings.

A path to autonomy that focuses in the near term on improving ADAS will work for Mobileye, which grew to fame in automotive circles for its ADAS offerings since Shashua founded it in 1999 and is the market leader in the sector — analysts suggest Mobileye controls as much as 80% of the current ADAS market. The company claims to have its technology in cars from more than 50 auto manufacturers, comprising more than 800 vehicle models and more than 125 million vehicles.

Autonomy is still a selling point, though

While Shashua has been levelheaded about the path to full autonomy, he still plans for Mobileye to get to full autonomy along with his rivals.

In a letter to prospective investors included in Mobileye’s IPO prospectus, Shashua said that he “founded Mobileye on the belief that computer-vision technology could help prevent automobile crash and save lives,” but then added, “during that time, our purpose has evolved and widened — from collision avoidance to fully autonomous driving.”

“While the core of our business today is making human-driven cars safer, we are working tirelessly to bring about a future of autonomously driven vehicles,” he wrote.

The company has promised to roll out robotaxis commercially in two markets, Tel Aviv and Munich, by the end of the year; competitors are already testing commercial robotaxis in certain U.S. markets, including Alphabet Inc.’s
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Waymo and General Motors Co.’s
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Cruise. MKM Partners Managing Director Rohit Kulkarni also noted from the company’s roadshow that executives presented “a somewhat ambitious medium-term target of producing a fully autonomous vehicle (AV) system at

Autonomy is key to hitting long-term targets for Mobileye. According to its prospectus, executives see a $16 billion total addressable market, or TAM, for ADAS, but expects that the potential market for ADAS and autonomy in the near term will be around $40 billion, and the long-term potential to be roughly $480 billion. In his breakdown of the prospectus, Bernstein analyst Toni Sacconaghi called that market prediction “somewhat Jensen-esque,” referencing Nvidia Chief Executive Jensen Huang’s boosterish optimism about autonomy.

“While ADAS is almost the entirety of the near-term opportunity, the long-term TAM is weighted toward autonomous vehicles, especially robotaxis (the robotaxi and commercial delivery opportunity makes up $360B, or 75%, of the $480B long-term TAM),” he wrote.

In 2021, Mobileye produced $1.39 billion in revenue, up from $967 million the previous year and $879 million in 2019. In the first six months of this year, sales grew to $854 million from $704 million in the comparable period the year before. Wells Fargo analysts wrote that Mobileye grew at a 31% compound annual rate while a part of Intel from 2016 through 2021.

The competition is driving forward

While Mobileye had a head start in autonomous research and gained a strong foothold in the ADAS market, competitors have not been running in neutral. Nvidia pivoted toward ADAS after discovering how far in the future actual autonomous revenue would be, and Qualcomm Corp.
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took a much more deliberate approach to autonomy but is now proclaiming a $30 billion pipeline of automotive deals.

Those are only two of many semiconductor companies seeking to provide the tech that runs autonomous cars, and that isn’t even Mobileye’s only competition, as its prospectus makes clear. While it does call out chip makers like Nvidia, Qualcomm, Advanced Micro Devices Inc.
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and Texas Instruments Inc.
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the prospectus also mentioned other Tier 1 automotive suppliers, specifically Bosch, Continental AG
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and Denso Corp.
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In the robotaxi market, Mobileye’s prospectus points at GM’s Cruise and Alphabet’s Waymo, but also a half-dozen other companies worldwide, including Aurora Innovation Inc.
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And it names some big competitors for the long-term goal of selling autonomous cars directly to consumers.

“Consumer AV competitors include Apple
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,
Sony
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and Tesla, who are developing self-driving vehicles for consumers.”

In a preview of the IPO, MKM Partners analyst Kulkarni listed the most pertinent risks to a Mobileye investment as “growing competitive surface area (car OEMs, silicon/semi providers, big tech companies, robotaxi/autonomous car companies) and significant customer and supplier concentration.”

Intel will keep much of the cash …

While Intel executives have reportedly slashed the amount of shares they wanted to sell and the valuation target in the Mobileye IPO, they will certainly not be empty-handed after the offering. They set it up to receive a dividend from the proceeds of as much as $3.5 billion, though the lower target for the IPO will likely lead to less than $1 billion in proceeds for the chip maker.

The prospectus says that Intel has agreed to make sure that Mobileye has $1 billion in cash and equivalents after the offering, and that any more proceeds from the offering will go to Intel. Mobileye has about $775 million in cash and equivalents now, which led Kulkarni to estimate that Intel would receive about $725 million if the IPO prices at the high end of the range, $20, and bankers sold the overallotment option, with Mobileye receiving $225 million.

Mobileye has already made a $336 million dividend payment to Intel, and paid the parent company $900 million for Moovit, an acquisition Intel made on behalf of Mobileye in the time it has owned it.

There is expected to be an additional $100 million share sale, with General Atlantic agreeing to acquire that much stock at the IPO price in a concurrent placement. Shashua may be shipping some of his own cash back to Intel as well, as he has expressed interest in purchasing up to $10 million of the IPO shares, adding to interest in up to $330 million in the IPO shares collectively from Baillie Gifford and Norges Bank Investment Management that Intel disclosed in the most recent prospectus.

… and all of the control

While Intel will no longer “own” Mobileye, it will still control the company, literally and figuratively. The offering will sell Class A shares, which offer one vote apiece, while Intel will keep class B shares, which carry 10 votes. That means that Intel will still have more than 99% of the voting power, and Mobileye will be by definition a “controlled company.”

Wells Fargo equity analysts calculated that a $19 IPO price would mean that Intel holds about $14.5 billion worth of Mobileye’s valuation, worth about $3 to $4 a share for the chip maker. They also noted that the voting control has positive tax implications for Intel.

“Intel would be required to maintain at least an 80% voting right power in order to potentially consummate a tax-free spinoff in the future,” they wrote in an Oct. 18 note.

In addition, four of the directors nominated to Mobileye’s board are tied to Intel, including Chief Executive Patrick Gelsinger, who is expected to serve as chairman of the board.

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