At a cash price of $15.3 billion, Intel Corporation (NASDAQ:INTC)’s deal to purchase Mobileye NV (NYSE:MBLY) is quite high even by Silicon Valley standards. This is because it comes at a premium of 34%. In the course of the next one year, the chip maker will be paying a price that is around 30 times the projected annual revenue of Mobileye. The development is now expected to give startups in the autonomous car sector higher valuations.
For Intel, driverless vehicles are a crucial segment since they use up huge amounts of computing power since they need to access a lot of stored data that has been collected in test drives and so on. The enormous computing power is also required since such cars are regularly coming across new data as they go to new places where they have to process 3-dimensional maps whose creation takes place in real-time. With the deal, Intel is hoping that it can offer a more harmonized and unified product to the industry.
“This is really what customers are looking for, single points that bring together all of these hardware and software technologies from top to bottom that really allows you to build a system,” said Brian Krzanich the chief executive of Intel.
Part of the reason Intel agreed to pay such a hefty price is because the chip maker does not want to repeat the mistakes it made years ago in the smartphone sector where ARM Holdings became the dominant player with its chip designs for mobile devices. Intel is therefore hoping to gain an early lead in the nascent space. At the moment, Intel’s rival in autonomous car chip technology is Nvidia.
As a competitor, Nvidia’s chips have been taken up by Tesla and Waymo, the self-driving car unit of Google. Though cars that are fully autonomous are a long way off, Intel seems to have decided that a hefty price for Mobileye now is better than a future where it is only an afterthought in the autonomous car segment.
On Monday shares of Intel Corporation fell by 2.09% to close the day at $35.16.