INTC Intel Corporation

By Ted Greenwald 

Intel Corp. agreed to buy Israeli car-camera pioneer Mobileye NV for $15.3 billion, one of the chip maker's biggest acquisitions ever and the latest bet on Silicon Valley's vision of cars as turbocharged computers on wheels.

The deal, which amounts to a 34% premium over Mobileye's closing share price Friday, would give Intel ownership of a widely used technology in the rapidly emerging business of computer-assisted driving. It also would give Intel a long list of customer relationships Mobileye has with auto makers, including General Motors Co., Volkswagen AG and Honda Motor Co.

Intel is joining a race to create autonomous vehicles that has accelerated recently as unconventional auto companies have jumped in, sparking bidding wars for companies that specialize in self-driving gear or software. Besides Intel, Tesla Inc., Alphabet Inc.'s Google and Uber Technologies Inc. also have made big bets on car technology. Their entry has created a complex web of relationships between Silicon Valley, Detroit and other automotive hubs that has shifted the center of gravity in the global car business.

The deal for Mobileye is the second largest in Intel's 48-year history, after its $16.7 billion acquisition of Altera Corp. in 2015, and its size signals Intel's strong desire to stake out a significant position in the market after the chip maker largely missed out on the smartphone boom.

Intel, which faces a raft of challenges in its core business of powering the personal-computer industry, estimates the market for autonomous-driving systems, services and data will reach $70 billion by 2030. That includes navigation, in-car communications and advertising -- and keeping a car's perception and decision-making capabilities finely tuned to avoid mishaps as road conditions change.

"You can think of the car as a server on wheels," Intel Chief Executive Brian Krzanich said in an interview. "The average autonomous car will throw out four terabytes of data a day, so this is one of the most important markets and one of the fastest-growing markets."

The industry will include not only cars but autonomous algorithms, digital maps and a variety of sensors -- all new markets to Intel, Mr. Krzanich said. "And they require all the assets Intel has," he said.

Mobileye's technology helps a car see and understand the space around it, providing functions such as automatically keeping a car in its lane. It includes 36-degree vision and mapping, and integrates various sensor elements such as cameras, radar, sonar and the laser-sensing technology known as LiDAR. The company's chips are already installed in more than 300 car models, Mobileye says on its website.

The considerable premium Intel is willing to pay for Mobileye reflects the enormous value tech companies see in the automation of cars and trucks, said Mike Ramsay, research director at Gartner Inc. It would have been inconceivable a few years ago -- it is more than double what the private-equity firm Cerberus Capital Management LLC paid for Chrysler LLC in 2007.

Mobileye shares jumped 28% Monday, closing at $60.62. Intel fell 2.1% to $35.16.

The deal for Mobileye is the latest move by big tech companies into the automotive sector. Qualcomm Inc., a fierce rival to Intel in communications chips, agreed in October to acquire NXP Semiconductors NV, whose chips handle low-level automotive functions such as braking and fuel injection, for $39 billion. Last week, Samsung Electronics Co. completed its $8 billion deal to buy Harman International Industries Inc.

While semiautonomous features in cars have become commonplace, efforts by companies such as Google and Tesla to make cars more fully autonomous are part of a new frontier that has stirred both excitement and controversy. Tesla had used Mobileye's technology for semi-autonomous driving programs until recently, and the two companies had a public spat about how the features should be deployed after a fatal Tesla crash in May.

Still, car makers expect to have fully self-driving cars on the road early in the next few years, with first deployments likely to be in ride-sharing programs or on lower-speed roads, such as gated communities. GM last year spent $1 billion to acquire Cruise Automation to expedite the auto maker's self-driving program. Uber bought self-driving truck maker Otto for $680 million in August.

Intel's acquisition of Jerusalem-based Mobileye dwarfs such deals. The two companies already have ties, working with BMW AG to road-test about 40 self-driving cars in the U.S. by the end of the year.

Executives at Mobileye and Intel say they envision Mobileye technology helping vehicles see and respond to conditions on the road. Intel processors in remote data centers, connected by high-speed wireless technology also developed by Intel, would help interpret objects in a car's field of vision and avoid mishaps.

The deal with Mobileye "merges the intelligent eyes of the autonomous car with the intelligent brain that actually drives the car," Mr. Krzanich said in a note to employees. "The saying 'what's under the hood' will increasingly refer to computing, not horsepower."

Mr. Krzanich said the acquisition would immediately add to Intel's adjusted earnings. Mobileye reported net income last year of $108.4 million on sales of $358.2 million.

Intel has struggled lately with the persistent decline of PC sales -- its core business for decades -- which show little sign of reversing. To drive growth, the company is focusing on artificial intelligence, an area where large cloud-computing companies such as Amazon.com Inc., Google and Facebook Inc. have been expanding their data centers and purchasing new kinds of chips.

Self-driving cars are among the more promising applications of AI, and Intel has pushed aggressively to acquire companies in the field. Last year, it bought Nervana, a company developing chips that aim to process some types of calculations used in AI at higher speed.

--Auston Hufford and Chester Dawson contributed to this article.

Write to Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

March 14, 2017 02:47 ET (06:47 GMT)

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