Intel Needs to Get Mobileye on the Road

Initial public offerings are having their worst year in terms of money raised since 1995, according to Dealogic. About the only encouraging development is the one debut that actually has gone well this year: German luxury auto maker

Porsche’s

stock is up 11% from its listing price last month. 

Whether Mobileye can follow a similar track is a big question. The Israeli company makes chips and other technologies used in driver assistance and autonomous driving systems—and is banking heavily on the future of the latter despite the many roadblocks to getting fully automated cars on the road.

Intel is at least providing room for upside; Mobileye’s updated IPO filing Tuesday morning proposes a price range of $18-$20 a share, which would represent a valuation of about $15.2 billion at the midpoint. That would be a gain of around 3% from the enterprise value Intel put on Mobileye when its acquisition was announced in March of 2017. Even with this year’s roiling, the S&P 500 has returned 57% in that time. 

So why is Intel pressing ahead? The chipmaker’s ambitious turnaround effort, which involves both catching up its production technology with market leader

TSMC

while also building up a business to make chips for other designers, is expensive. Intel has committed to spending a record $23 billion in capital expenditures this year—51% above its average annual outlay over the past five years—and will even burn cash in the near term, which it hasn’t done since at least 1990. 

Intel will raise around $4.4 billion from the transaction, including a special dividend from Mobileye and $900 million from selling its Moovit business to Mobileye. That is a small dent relative to Intel’s needs, but the company’s so-called “smart capital” strategy calls for augmenting its spending plans any way it can. Intel was a major proponent of the recently passed Chips Act that will provide up to $52 billion in direct subsidies to U.S.-based semiconductor production projects. 

And because Intel will retain a large majority stake in Mobileye following the listing, the company could get a valuation boost if the market gives Mobileye a warm welcome back—plus an option to sell more shares later if the stock takes off.

Moreover, waiting for the IPO market to improve could take quite a long time if the global economy deteriorates further into a recession—which would also make Intel’s turnaround efforts for its core business even more challenging. Getting Mobileye out the door gives Intel one less thing to worry about. 

Write to Dan Gallagher at [email protected]