- Reuters/Beck Diefenbach
On Monday, the company revealed its answer: cars – in particular, self-driving cars.
Intel, in its second-largest acquisition in its 50-year history, is spending a whopping $15.3 billion to buy the self-driving-car-tech company Mobileye.
If self-driving vehicles are the future – as Uber, Alphabet, and others believe – Intel wants to sell the bits that make them happen.
Just as PCs were once adorned with the reassuring “Intel Inside” stickers, the chipmaker is betting that it can gain a similar foothold inside another product that could sell tens of millions of units ever year.
It’s a reasonable-sounding strategy, and Intel should be applauded for trying to move its business into new areas.
The only problem is that is Intel has a lousy track record when it comes to acquisitions.
From 1997 to 2002, Intel went on a rampage, buying up about 40 companies both during and after the dot-com bubble. Later on, Intel signed megadeals like 2010’s purchase of the security company McAfee for $7.7 billion. The company eventually wrote down hundreds of millions of dollars, laid off thousands of employees, and sold off many of the assets it acquired in its spending sprees. Meanwhile, Intel’s business continued to be overly reliant on the PC and server market.
Investors who have watched Intel over the years understand this, and – in addition to the rich premium Intel paid for Mobileye – this could explain why Intel’s stock was down about 2% on Monday.
A series of unfortunate events
Intel’s dot-com shopping spree was kind of a fiasco, with Intel spending billions on companies like Wind River and Dialogic to try to break into the smartphone market. But Intel struggled to gain a foothold in the early market and ended up taking a $600 million write-off in its wireless business. It ended up selling much of its mobile business to Marvell for the same amount in 2006.
- John McAfee
In 2010, Intel bought the wireless unit from Infineon, which manufactured processors in the first several iPhone models, for $1.4 billion in a move that was supposed to finally give the company a major play in smartphones. Not long after, Apple switched to chips from competitor Qualcomm, raining on Intel’s parade. It was only last year that reports said Apple was turning to Intel for wireless modem hardware for new iPhones.
And some of its acquisitions were just plain weird, like that McAfee acquisition, which never really seemed to fit into the company’s core-processor business. It basically cut the value of the company in nearly half over six years, culminating in Intel announcing it was spinning off a majority stake of McAfee in a $4.2 billion deal.
The bull case
On CNBC on Monday morning, Intel CEO Brian Krzanich argued that Mobileye would be different, saying he needed to convince investors that Intel’s play here was in the “visual data” that self-driving cars can collect.
“The next data revolution will be visual data,” he said. “Those cars see the world. And so as we’re looking for things, as visual data becomes important, that is a new whole business and new whole regime of data management that is going to become available.”
- Richard Drew/AP
“It’s important now, because if you take a look at what you’re doing – talking about car models in 2020, 2021 – and so we need to get in there. We need to get this platform developed, brought to them, and have that confidence so that we can really influence the real start of autonomous driving in that time frame,” he said.
Tactically, Krzanich says that he has a solid track record of rehabilitating Intel’s troubled acquisitions and that he led McAfee-Intel Security to profitability ahead of the spinoff. He says he’s going to repeat the playbook move of having leadership that reports directly to him, with Mobileye CEO Ziv Aviram staying in command.
While Mobileye is certainly Intel’s biggest investment in diversifying its business past the PC, it’s not alone. Over the last few years, Intel has invested heavily in stuff like drones, virtual reality, and the so-called internet of things.
But given Intel’s M&A track record and its challenges expanding beyond PC and server processors, the burden is on Krzanich to prove the naysayers wrong.