Around about a year ago Intel announced that it was buying Mobileye, an Israeli company specialising in technology for autonomous vehicles. At the time they were competing for a very lucrative market, and like many emerging markets, this one is starting to see the number of market players shrink through mergers and (mostly) acquisitions. I’ve written about many of the technologies that make up the internal workings of the eyes and ears of an autonomous car, most recently about Blackberry and their QNX operating system that they hope will become an industry foundation.
I have also written about the changes to vehicle crash testing where the tests have been updated to reflect the growing technology in cars that provides advanced safety systems or outright autonomous driving capability.
Mobileye was founded in 1999 with a focus on safety systems fitted on a single chip. Like many organisations, it was born out of a university researcher realising they were onto something amazing. For Mobileye, it was the mix of a tiny camera and software code that recognised other vehicles. They called the chip “EyeQ” and applied to the parent university – the Hebrew University – in Jerusalem to commercialise it.
The core development was centred around what the camera saw – they wanted to emulate the human eye to brain connection. In other words, the eye sees an image and the brain deciphers it with distance, texture, motion and colour. The researchers wanted EyeQ to be able to see an object and understand what it is and where it is – and importantly: is it moving?
By 2003 they had signed commercial agreements with Denso and Delphi to explore how to get the chips into a real world application and by 2007 were supplying chips to Cadillac, BMW and Volvo for lane departure warning and traffic sign recognition systems.
For the next ten years, progress was rapid with new chips, the EyeQ2 in 2010 and then the EyeQ3 in 2014. However – and more importantly, their client base grew: Chevrolet, GMC and Opel joined Cadillac and in Korea, the Hyundai and Kia twins also signed deals, in fact Mobileye is currently fitted to over 300 car models – not too difficult when you consider that BMW alone has 12 series and at least 48 models! 25 manufacturers now use their technology with the most well known autonomous vehicles from Tesla also using the technology.
The systems still use the original concept at their core – software coding deciphering what the onboard camera sees and as these two functions are effectively one unit, it can see, process and deliver the results to other onboard systems. In January of 2017, Mobileye, BMW and Intel announced a joint project to build a fully autonomous car and two months later Intel agreed to buy Mobileye for $15B.
Intel is in a similar position to Blackberry: their revenues have been flat for several years, around $55-$60B, however their earnings have been dwindling. The smartphone chip market has not been a success for them and personal computers aren’t selling as well as they used to. Chips for tablets and phones are being sourced from other vendors (like Qualcomm) which puts Intel in a difficult spot.
The answer: buy into a market that is about to explode over the next ten years. It is clear that the initial assessment for the project with Mobileye and BMW opened them up to what was about to happen. BMW want a fully autonomous car by 2021 and Intel could see the potential earnings to come from a market that is about to fundamentally change.
Intel have had a history of buying technology companies either at the wrong time or that didn’t fit with the core strategy. I have a feeling this one is different, it is definitely the right time to buy a chip business that already has a strong foothold in their chosen market and it does fit with Intel’s strategy to sell more chips! With the mixing of consumer technology and automotive systems – something I also wrote about last year – now is the time for Intel to transition into an emerging high growth market whilst still having the core revenues come from a cash cow that is in a slow decline.
There is enough time for the cash cow to dry out and the new markets to grow with healthy revenues and profits to replace it.